The DIFC Courts’ new Technology and Construction Division

by Hardwick Legal | Oct 11, 2017 | Purpose Built (LexisNexis)

The Technology and Construction Division (TCD) of the Dubai International Financial Centre (DIFC) Courts came into operation on 1 October 2017. Mark Raymont, Partner, and Eveline Strecker, Senior Practice Development Lawyer, at Pinsent Masons Dubai look at the recently-published TCD Rules and consider what the TCD means for technology and construction disputes in the UAE.

The DIFC Courts have established the new TCD with a view to expediting and improving the management and resolution of technology and construction related disputes. This follows a one-month public consultation in April this year on the possible introduction of a specialist division.

The Rules governing the TCD have recently been published, and the TCD came into operation on 1 October 2017.

Expanding functions of the DIFC Courts

The DIFC Courts are located within the DIFC, an offshore financial centre or ‘free zone’ in the UAE, which provides a platform for business and financial institutions to enter the markets in the region. The courts administer an English language common law system for the resolution of local and international commercial and civil disputes.

Established in 2004, the DIFC Courts have had a Small Claims Tribunal (‘SCT’) function since 2007, which the DIFC Courts recently announced to be a faster and more effective way to resolve disputes with 88% of SCT cases resolved in less than four weeks after successful service of the claim. In March this year, the DIFC Courts’ jurisdiction was expanded to deal with labour claims arising out of existing and proposed labour contracts between DIFC companies and their employees, or contracts which are to be performed within the DIFC. This is expected to better facilitate litigation procedures for employees based in the DIFC.

The new TCD is a further step in the DIFC Courts’ development of specialist functions with its judges focusing on technology and construction disputes. It is expected that the determination of such claims will benefit from speedy and focused case management in an environment geared up to potentially complex and document-intensive cases.

What kind of claims will the new TCD deal with?

New Rules governing the TCD (Part 56) have been added to the DIFC Courts’ Rules. They are modelled on, and similar to, those of the long established and successful English Technology and Construction Court (TCC), although there are some important differences.

They describe a ‘TCD Claim’ which can be brought in the new division as one which involves ‘technically complex’ issues or questions. The Rules go on to give the following examples of such claims, although the list is by no means exhaustive and other types of claims may be appropriate for determination in the TCD:

• building, other construction and engineering disputes
• claims by/against engineers, architects, surveyors, accountants and other specialised advisers relating to the services they provide
• claims by/against the DIFC or bodies established by the DIFC (including, for example, the DIFC Authority) relating to their statutory duties concerning land development or construction
• claims relating to the design, supply and/or installation of computers, software and related network and IT systems and services
• claims between landlord and tenant for breach of a repairing covenant
• claims between neighbours, owners and occupiers of land in trespass, nuisance etc
• claims arising out of fires
• claims involving taking of accounts where these are complicated
• challenges to decisions of arbitrators in construction and engineering disputes

Clearly, this wide ranging list of claims, quite aside from the primary criteria that a matter involve ‘technically complex’ issues, is likely to see a significant number of disputes fall under the management of the TCD. Construction is a substantial industry in the region, often involving complex and high value multi-party disputes which would benefit from efficient and specialist management and determination by judges with the appropriate experience and expertise.

But what about smaller claims? Presumably even a monetary claim of relatively small value could meet the TCD’s threshold test, subject to the complexity of the technical issues. It is important that smaller claims are not excluded from the TCD’s jurisdiction as they are likely to benefit considerably from the more specialised and streamlined processes that the TCD is likely to offer, as compared to for example arbitral proceedings or local court proceedings.

Having said this, it remains to be seen how the requirement for technical complexity alone will operate in practice and whether the number or nature of the technical issues, the monetary value of the claim, the number of parties or some other factors will be deemed to be relevant in case allocation.

Although the TCD Rules largely mirror the English TCC Rules in terms of the types of claims which are likely to be appropriate to bring before the TCD, some notable exceptions are:

• claims relating to the quality of goods sold or hired, and work done, materials supplied or services rendered
• claims relating to the environment, such as pollution cases

It is not clear why claims relating to goods and services have not been included within the TCD jurisdiction, particularly given the fact that disputes regarding performance issues and defective materials/equipment are likely to be very much within the ‘sweet spot’ of a TCD judge. Hopefully the exclusion of this relatively broad category of claims from the TCD does not unduly limit the TCD’s jurisdiction.

The exclusion of environmental claims is also a little surprising given that they very often form part of the issues in construction disputes. It may be that there are other courts or governmental bodies which can more appropriately deal with such claims. However, with the relatively undeveloped nature of this area of law in the UAE, it would be advantageous from an environmental protection perspective alone to also permit the TCD to deal with such claims, where possible, in a civil claim context. This may well be an area for future development of the TCD’s jurisdiction (recognising that other bodies will have the relevant jurisdiction to deal with environmental claims from a regulatory or penal perspective).

An application must be made to commence proceedings in the TCD and to transfer existing DIFC Court proceedings into the TCD. The TCD Rules permit any DIFC Court judge to direct that a claim does or does not fall within the TCD’s jurisdiction. This is in contrast to the English TCC Rules which require a specialist TCC judge to make such a direction. This is relevant to the question of the experience and familiarity of the TCD judge with TCD matters. It is therefore to be hoped in the interests of consistency, predictability and confidence in the TCD’s jurisdiction that any decision or determination as to the TCD’s jurisdiction will be made in consultation with the head of the TCD.

Experience and expertise

The TCD Rules provide for a judge to be in charge of the TCD. It has recently been announced that the head of the TCD will be Justice Sir Richard Field QC, who brings 20 years of experience handling complex disputes in the London courts.

The DIFC Courts Chief Justice Michael Hwang has said: ‘The TCD has been designed around the particular characteristics of highly complex technology and construction disputes, which can be resolved much more speedily and efficiently with the oversight of specialist judicial experience…’. As matters currently stand, we understand that TCD cases will be heard by the existing DIFC judges, including three UAE judges who have experience in technology and construction cases.

Given the volume of construction and technology disputes in the UAE and the wider region, it may be that future consideration will be given to the appointment of a small panel of specialist TCD Judges. This is likely to aid the effective development and functioning of the TCD as a ‘go to’ construction/technology dispute resolution forum. It will also offer a viable alternative to arbitration where the parties are likely to select arbitrators who specialise in construction/technology disputes and who are familiar with the management and resolution of technology and construction disputes, the nature of the particular issues involved and other related issues, such as the importance of managing and controlling the assistance provided by technical experts in the process.

By way of comparison, the largely successful and efficient operation of the TCC in England has, based on our experience in that jurisdiction, been due in large part to the TCC judges’ experience in and knowledge of the technology and construction industries, the nature of claims and issues that arise and the particular case management techniques that have been developed to deal with document and issue intensive disputes. An important distinguishing feature of the English TCC is the fact that, where possible, the judge assigned to the matter oversees it from beginning to end and we would hope that this practice be adopted in the TCD.

Case management in the TCD

As a court division, proceedings in the TCD would lack the confidentiality that comes with arbitral proceedings. However, this potential disadvantage may be off set by the attraction of a potentially more cost effective and streamlined process, especially in the case of large-scale disputes and smaller technical disputes which would benefit from effective case management and the array of procedural and enforcement tools available in the DIFC Courts.

Similar to the English TCC Rules, the TCD Rules require the court to fix a case management conference within 14 days of the issue or transfer of the claim to the TCD. Generally, the TCD’s proposed case management conference procedures are comprehensive. The TCD Rules expressly provide for the court to make orders in respect of a court-appointed expert, conducting inspections, obtaining samples, conducting experiments and producing calculations, as well as the production of a Scott Schedule (itemising the claims and the other party’s response and counterclaims). If well managed, the express provision for orders in respect of Scott Schedules is a positive addition to the TCD Rules.

Use of experts

Orders in respect of court-appointed experts and inspections are prevalent in UAE local court proceedings and can be useful, cost-saving devices. We are also aware that the use of a single court-appointed expert has proved to be effective in the TCC in England in suitable cases. However, the use of single, court-appointed experts in the local UAE Courts can be a somewhat mixed experience with doubts being raised as to the suitability and expertise of some of the experts appointed. Accordingly, there is a risk, that, unless properly managed (in particular ensuring that the ‘pool’ of experts from which expert appointments are to be made will inspire confidence in the system) such orders may result in ‘shadow’ experts who simply duplicate the role of the parties’ experts.

There are a relatively limited number of suitably qualified and experienced experts available in the region, particularly in the case of very specialist technical issues, and if a party lacks confidence in the court-appointed expert, the party is likely to engage its own expert (as will the other party/ies in turn), resulting in considerable additional costs and time delay. The TCD may find itself weighing up considerably more expert, and potentially conflicting, evidence than would have been the case had the court not appointed an expert. It will be interesting to see how the procedures for use of court-appointed experts develop in practice in the TCD.

Opportunities for settlement

We also note that, at present, the TCD’s Case Management Directions Form (Schedule A to the Rules) does not provide an option for a stay, for example of one month, in order for the parties to pursue settlement discussions or alternative dispute resolution options (eg mediation). This option is provided for and has been successfully used in the equivalent English TCC. Although the opportunity for such a stay can be used as a means of delaying a proceeding, the matter is in the court’s discretion and both parties must still have included all the necessary case management information in the form, and expended the accompanying time and cost of having assessed the primary claims, issues, witnesses, expert evidence and costs at this stage.

The frank and early exchange of information (including costs) in respect of English TCC construction claims, with a view to entering settlement discussions, is supported by the Pre-Action Protocol for Construction and Engineering Disputes (2nd edition, November 2016) which applies to most construction and engineering disputes, including professional negligence claims, in England and Wales. Its objectives are ‘to exchange sufficient information about the proposed proceedings broadly to allow the parties to understand each other’s position and make informed decisions about settlement and how to proceed’ and to make attempts to resolve the claims, including through the use of ADR. The Protocol expressly states that it must not be used as a tactical device to secure advantage for one party or to generate unnecessary costs, and that the cost of producing the claims and responses should be modest.

Again, based on the UK experience, this may be something that the TCD may wish to consider for the future. This could be introduced through the TCD’s Case Management Directions Form which could be adapted so as to require the provision of such information in order to facilitate settlement between the parties. Some modification would be required to the TCD Rules and the Form, and it may also be appropriate to include a few key questions in the form in respect of costs to help focus the parties on the extent of costs incurred to date and anticipated expenditure.

Trial and pre-trial review

Another effective feature of the English TCC is the early fixing of a trial date (often at the case management conference) and vacating that date in only exceptional circumstances. This is a useful tool in bringing together, as early as possible, what is often a considerable number of witnesses and experts, as well as the parties and their advisors.

The TCD’s proposed pre-trial review procedure suggests that it is not compulsory, although it proceeds in a similar way and requires the parties to complete a Pre-Trial Review Questionnaire in a very similar form to that of the English TCC. There may therefore be some scope of this issue to be clarified, as even a brief pre-trial review is beneficial to the management of proceedings and assists both the court and the parties’ final preparation for the hearing.

Outlook

Although proceedings in the DIFC Courts’ TCD will lack the confidentiality that generally comes with arbitral proceedings, its establishment is a clear indication of the further development of the DIFC Courts and may well, in time, come to be seen as a viable alternative to the local Dubai courts and arbitration in the UAE. In any event, the TCD now offers potential litigants engaged in the technology and construction sectors a greater choice of dispute resolution forums in the UAE.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

The following related articles are available to LexisPSL Construction customers:

• Construction in the Middle East—key projects and outlook
• Construction in the Middle East—legal issues and standard forms
• Construction in the Middle East—governing law and disputes

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Source: LexisNexis Purpose Built
The DIFC Courts’ new Technology and Construction Division

Bringing PFI contracts ‘back in-house’

by Hardwick Legal | Oct 5, 2017 | Purpose Built (LexisNexis)

The shadow chancellor recently pledged that Labour would bring existing private finance initiative (PFI) contracts ‘back in-house’ if they are elected. Philip Vernon, partner at Ashurst, explains the proposals and their potential implications.

This article was first published on LexisPSL Construction. Click here for a free trial.

What are Labour’s proposals in relation to PFI contracts?

The shadow chancellor, John McDonnell, announced in a speech at the Labour Party conference in Brighton on 25 September 2017 that ‘the scandal of the PFI, launched by John Major, has resulted in huge long-term costs for taxpayers while handing out enormous profits to some companies’. He promised that Labour would ‘rip up’ PFI and, in addition to Jeremy Corbyn’s previous pledge not to sign any new PFI deals, Labour would ‘bring existing PFI contracts back in-house’. Mr McDonnell also said that if Labour came to power ‘the government would intervene immediately to ensure that companies in tax havens can’t invest in PFI projects and their profits can’t be hidden from HMRC’.

This initial soundbite was tempered somewhat by the Labour Party press release which followed Mr McDonnell’s speech and which appeared to be somewhat less radical, stating ‘Labour will review all PFI contracts and, if necessary, take over outstanding contracts and bring them back in-house, while ensuring NHS trusts, local councils and others do not lose out and there is no detriment to services or staff’.

A Labour spokesman said that shareholders in PFI companies would be compensated by swapping their shares for government bonds and ‘Parliament will assess the appropriate level of compensation at the point at which contracts are brought back in-house’.

In reality, it might be that only a relatively small proportion of PFI contracts would be brought back into public ownership under a Labour government. In an interview with the BBC on the day after Mr McDonnell’s speech, the shadow health secretary, Jon Ashworth, addressed PFI contracts in the healthcare sector, saying ‘NHS experts generally accept that it’s only a handful which are causing hospital trusts across the country a significant problem, but let’s look at every single one in detail’.

Are they achievable?

Whether Labour’s proposals are achievable would depend on where across the spectrum of possible outcomes outlined above Labour ultimately land.

If Labour’s proposals turned out to involve a review of all existing PFI contracts based on their then current terms, in order to assess whether termination of any of them presented better value of money than continuation, then that would look relatively simple to achieve.

Indeed, the current government has been reviewing the value for money of PFI, looking at ways in which savings could be made and, if appropriate, considering terminating PFI projects where it makes sense to do so. HM Treasury issued a policy note in June 2015 which set out the budgeting, accounting and fiscal implications of a voluntary termination of a PFI contract by the procuring authority. It expected ‘the incidence of voluntary terminations of PFI arrangements to be low, due to affordability challenges and the requirement to be able to demonstrate value for money for the public sector as a whole’.

On the other hand, if Labour’s proposals turned out to involve the introduction of new legislation to change the terms of PFI contracts by statute, providing for termination with reduced compensation, then this would be more complicated. For example, the suggestion by a Labour Party spokesperson that ‘Parliament will assess the appropriate level of compensation’ raises the possibility that something other than full contractual compensation may be contemplated.

This would require primary legislation to be passed and it is likely that any new legislation which sought to adjust the compensation payable under current PFI contracts would face a number of challenges. In the first instance, the standard terms of PFI contracts provide both for a clear level of compensation to be payable for public sector ‘voluntary termination’ and for compensation to be paid by the public authority if legislation is introduced which discriminates against PFI. While new legislation might seek to sidestep or override these provisions, this in itself is likely to give rise to wider potential areas of challenge.

For example, legislation that has the effect of cancelling contractual and other legal rights under PFI structures would likely give rise to claims being advanced before UK courts based not only on breach of contract/legitimate expectation grounds, but also potentially under the Human Rights Act 1998 (in relation to the right to protection of property contained within the European Convention on Human Rights).

Where investors in PFI structures are non-UK entities or individuals, claims could be brought against the UK under the 100-plus investment treaties which the UK has entered into with foreign states. Foreign investors with the benefit of investment treaty coverage could sue on the basis of expropriation under public international law, with such claims being heard before arbitral tribunals and with any resulting awards being directly enforceable against the UK under international law, with no appeal process available to the UK. We note that Jeremy Corbyn described this process as ‘supranational and unaccountable’ in the context of EU transatlantic trade agreement discussions in 2015.

Consideration would also need to be given to the impact of Brexit. The current status of Brexit negotiations means that we can only guess at the potential impact.

What would they mean in practice for those in the construction industry?

There are many large UK (and international) construction companies with interests in PFI projects, both through having signed construction contracts with the project companies which are established to enter into PFI contracts with public authorities and through direct investment in those project companies. We focus here on their interest as construction contractor, rather than as investor (see question below for the impact on investors).

The immediate impact of wholesale termination of PFI contracts on construction contractors would be more limited than for investors. There would be a relatively small proportion of PFI contracts on which construction works had not yet completed and, in any case, construction contractors are generally paid for works on a monthly basis (using the private finance provided by senior debt providers and investors).

Upon voluntary termination by the public sector during the construction phase, a construction contractor would generally have a claim for breakage costs (including some compensation for lost profits), but the public sector might well take the view that it would make sense to use its collateral agreement with the construction contractor to continue to use the construction contractor to complete the works outside the PFI structure (unless there were problems with the current construction process).

Looking further forward, the wider impact on the construction industry of curtailing PFI arrangements depends upon the ability of the government to finance the continuing and substantial need for infrastructure investment in the UK, which itself depends upon the state of the public finances.

What it would mean for investment in national infrastructure more generally?

There are wider commercial, financial and political implications if Labour’s proposals were to result in the wholesale termination of PFI contracts (with reduced compensation), including:

• the impact on the government’s public accounts of financing the settlement of compensation claims by senior debt providers and investors in PFI contracts
• the transfer of PFI workforces from the private sector to the public sector, including employment and pensions implications
• the takeover by the public sector of operational and financial responsibility for continued maintenance and lifecycle across the existing PFI estate
• the costs and resourcing of multiple claims from participants in the PFI structures
• the impact on pension funds and corporate investors (including construction companies) with investments in the PFI estate
• the impact of the consequent state of public finances on the ability of government to finance further spending on UK infrastructure.

The Labour Party proposal on PFI contracts forms part of a wider set of proposed nationalisations by Labour, which have raised questions over the impact they could have on the confidence of international investors in the UK. John McDonnell himself has stated that he plans to carry out scenario planning for crises which could follow an election victory. One of the scenarios to consider is a flight of capital from the UK with a run on sterling. As Mark Carney, Governor of the Bank of England, said in his recent (June 2017) Mansion House speech, ‘the UK relies on the kindness of strangers’ to fund its current account deficit.

How have the proposals been received?

They were well received by many of those attending the Labour Party conference but less well received by many of Britain’s business groups, as well as those active in the PFI market.

The Confederation of British Industry’s director general, Carolyn Fairbairn, said the policy could send investors ‘running for the hills’ and that ‘the shadow chancellor’s vision of massive state intervention is the wrong plan at the wrong time. It raises a warning flag over the British economy at a critical time for our country’s future.’

The director general of the British Chamber of Commerce, Adam Marshall, echoed these views, adding ‘with the UK’s departure from the EU on the horizon, businesses will be concerned by the shadow chancellor’s proposals for widespread and deep intervention across the economy. Proposals to nationalise key industries would put business investment in the deep freeze at precisely the time that it is needed most’.

However, given the clarifications that followed John McDonnell’s initial comments, it may well be that Labour’s policy to ‘review all PFI contracts and, if necessary, take over outstanding contracts and bring them back in-house’ will not actually result in a step change from current government policy. Only time will tell.

Interviewed by Alex Heshmaty. The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

For more information on PFI contracts, see LexisPSL Construction subtopic: PFI/PF2.

Source: LexisNexis Purpose Built
Bringing PFI contracts ‘back in-house’

Emissions testing—keeping it clean

by Hardwick Legal | Sep 22, 2017 | Purpose Built (LexisNexis)

Following recent scandals in which car companies were found to be cheating regulated emissions tests and thousands of cars had to be recalled over their illegal polluting effects, the European Union has announced all new cars must pass stricter emissions tests from 1 September 2017. Gregory Jones QC, silk at Francis Taylor Building, analyses the likely effectiveness of the new EU car emissions test standards.

This Analysis was originally published on Lexis®PSL Environment. Discover how Lexis®PSL can help you stay on top of the latest developments and find the answers you need fast: click here for a free trial to access.

What is the background leading up to introduction of the new emissions tests?

Heralded by the European Commission as ‘a milestone in our ongoing work for cleaner and more sustainable cars’, new regulations for car emission testing became mandatory across the EU on 1 September 2017. They are designed to more closely reflect fuel economy and emissions when actually driving and include an additional so-called ‘real-world driving emissions’ (RDE) test to detect regulated pollutant emissions. The RDE is to be carried out on the road using a portable emissions measurement system to record emissions.

The European Council says this ‘fundamental’ overhaul of the existing type of approval system was already in the EU’s work programme before the Volkswagen (VW) emissions scandal, in which VW exploited loopholes in the laboratory testing procedures, hit the headlines in 2015. The Council points out that Commission proposals to correct these shortcomings by measuring emissions in real driving conditions had already been published before the emissions scandal emerged in September 2015. But others have claimed that the European Commission had been warned by its own experts that a car maker was suspected of cheating emissions tests five years previously and kept quiet.

Whatever the truth, there can be no doubt that the discovery in 2015 of the use of so-called ‘defeat’ devices by some car manufacturers which resulted in public outcry and ongoing legal actions across the world will have helped to accelerate the adoption of these amendments.

Why do car emissions matter?

Emissions of air pollutants are the most significant environmental cause of premature death in the EU. They lead to respiratory diseases, major healthcare costs and lost working days. The most recent data indicates three air pollutants alone are responsible for 400,000 premature deaths per year in the EU including 70,000 directly linked to nitrogen dioxide (NO2).

Urban transport is one of the reasons why many urban areas are in breach of air pollution limits. It is a major issue for the UK where pollution causes an estimated 40,000 early deaths each year. Air pollution is worst overall in London, but many other places have unlawful levels of NO2 emitted by diesel vehicles, such as Leeds, Birmingham, Bournemouth and Northampton. Ipswich has higher levels of particulate matter than London. London breached its nominal annual air pollution limits five days into 2017 at Brixton Road in south London. Other known pollution blackspots include Putney High Street in west London, Oxford Street, Kings Road in Chelsea and the Strand. The UK has twice been found to be in breach of its EU obligations by the High Court.

The motor industry remains a significant player in both the UK and the EU. Apart from the activities currently dependent upon the car culture, 12.6 million people—or 5.7% of the EU employed population—work in the motor sector. The 3.3 million jobs in automotive manufacturing represent almost 11% of EU manufacturing employment. Motor vehicles account for almost €396bn in tax contributions in the EU15.

What are the regulated standards?

Emissions regulations date back to 1970, but the first EU-wide standard, known as ‘Euro 1’ was introduced in 1992. Catalytic converters became compulsory on new cars sold in the UK as Europe appreciated the need to reduce tailpipe emissions. This effectively standardised fuel injection on new cars. There have been a series of Euro emissions standards, leading to the current Euro 6, introduced in September 2014 for new type approvals and September 2015 for all vehicle sales and registrations. The regulations define acceptable limits for exhaust emissions of new light duty vehicles sold in EU and European Economic Area Member States. The aim of Euro emissions standards is to reduce the levels of harmful exhaust emissions, chiefly:

• nitrogen oxides (NOx)
• carbon monoxide (CO)
• hydrocarbons (HC)
• particulate matter (PM)
In respect of NOx emissions in particular, the EU has tightened the maximum NOx emissions limits for diesel passenger cars on several occasions, namely 500 milligrams per kilometre (mg/km) in January 2000, 250 mg/km in January 2005 (Euro 4), 180 mg/km in September 2009 and 80 mg/km in September 2014.

How are car emissions tested?

Before a car is allowed to be placed on the market, it needs to be ‘type approved’—the national authority needs to certify that the prototypes of the model meet all EU safety, environmental and conformity of production requirements before authorising the sale of the vehicle type in the EU.

Hitherto, only a laboratory test has been used to measure the air pollution emissions of a vehicle. That test is called the New European Drive Cycle (NEDC). However, for pollutants such as ultrafine particles and NOx, emissions of some vehicles measured once out on the road in reality substantially exceed the emissions measured on the currently applicable laboratory test cycle.

Is the system working?

These standards have certainly had a positive effect. The Society of Motor Manufacturers and Traders (SMMT) claims: ‘It would take 50 new cars today to produce the same amount of pollutant emissions as one vehicle built in the 1970s.’ The SMMT gives the following figures in support:

• CO: petrol down 63%, diesel down 82% since 1993
• HC: petrol down 50% since 2001
• NOx: down 84% since 2001
• PM: diesel down 96% since 1993

But the EU has pointed out that NOx emissions from road transport ‘have not been reduced as much as expected, since emissions in real-life driving conditions are often higher than those measured during the approval test (in particular for diesel vehicles)’. In December 2016 the UK government highlighted that road transport still accounted for 34% of UK NOx emissions in 2015. The rate of reduction in atmospheric NOx has slowed down due to the increased contribution from diesel vehicles.

The VW emission scandal has shown that some cars on the road today do not respect these values under real driving conditions, meaning more pollutants are released into the air. As VW proved, car makers can still bypass these regulations without doctoring a test model. This was because the NEDC used to test vehicles was not fit for purpose. Described by Auto Express ‘as riddled with loopholes allowing makers to “optimise” economy figures and quote emissions far below those that would be achieved in the real world,’ NEDC was designed in the 1970s and 1980s and due to evolutions in technology and driving conditions is quite simply outdated.

The EU has developed a new test, called the Worldwide Harmonised Light Vehicle Test Procedure (WLTP). While the NEDC test determined test values based on a theoretical driving profile, the WLTP cycle was developed using real-driving data, gathered from around the world. WLTP therefore better represents everyday driving profiles.
The WLTP driving cycle is divided into four parts with different average speeds—low, medium, high and extra high. Each part contains a variety of driving phases, stops, acceleration and braking phases. For a certain car type, each powertrain configuration is tested with WLTP for the car’s lightest (most economical) and heaviest (least economical) version.

The new RDE test measures the pollutants, such as NOx, emitted by cars while driven on the road. The RDE does not replace but is in addition to the WLTP laboratory test. RDE serves to confirm WLTP results in real life, ensuring that cars deliver low pollutant emissions, not only in the laboratory but also on the road.
Under the RDE, a car is driven on public roads and exposed to a wide range of different conditions. Specific equipment installed on the vehicle collects data to verify that legislative caps for pollutants such as NOx are not exceeded.

What is the RDE test?

In the RDE procedure, pollutant emissions—which include NOx and particulate emissions—are measured by portable emission measuring systems (PEMS) attached to the car while driving in real conditions on the road. This means the car will be driven outside and on a real road according to random variations of parameters such as acceleration, deceleration, ambient temperature, and payloads.

The Commission also plans to table a proposal in the coming months to further strengthen RDE legislation by adding the possibility of independent testing by third parties for checks of cars already in circulation (‘in-service conformity’ testing), introducing new and more representative methods for testing hybrid vehicles and adapting provisions for certain special vehicle types.

What is the conformity factor in the RDE test procedure?

Contrary to a pre-defined laboratory test cycle, the intrinsic characteristics of the PEMS measurement equipment in RDE tests leads to a higher variation and wider range of the quantitative emission results of different RDE trips. If the technical and statistical uncertainties of RDE measurements are not duly taken into account, it might happen that vehicles which are actually compliant could fail an individual RDE test or vehicles which are actually non-compliant could pass.

The concept of conformity factor helps overcome this problem. With a conformity factor, the focus is put on the vehicle’s average compliance with emission limits. For example, regulatory emission limits may be exceeded when driving up a steep hill, which then must be compensated by emissions below the regulatory emission limits under different conditions, such as driving moderately in the city, so that the average emissions, when weighing these conditions according to their statistical occurrence, are not above the limits.

Given the newness of RDE test measurements and the technical limits to improve the real world emission performance of currently-produced diesel cars in the short term, Member States agreed in October 2015 on a phasing-in period for reducing the divergence between the regulatory limit measured in laboratory conditions and the values of the RDE procedure.

What about CO2 emissions testing?

The Commission also has WLTP for measuring CO2 emissions and fuel consumption from cars and vans. The WLTP is a globally harmonised test procedure developed within the UN Economic Commission for Europe with the support of the European Commission.

Will the new system work?

While the WLTP provides a more realistic representation of conditions encountered on the road than the NEDC lab test, it will not cover all possible variations. Indeed the Commission admits that ‘atmospheric conditions will affect the results of this test’.

Furthermore each individual driver will have a different driving style—one driver might accelerate faster, take corners faster or brake more suddenly than another who might drive more conservatively. Accordingly, given that driving behaviour, traffic and weather conditions will continue to differ from one country to another, there will still be a difference between emissions measured in lab conditions and the real world. However, as there is no single real-world emission value, only values obtained by standardised laboratory tests allow us to directly compare the emissions and fuel consumption of different car models from different car manufacturers.

WLTP was developed with the aim of being used as a global test cycle across different world regions, so pollutant and CO2 emissions as well as fuel consumption values would be comparable worldwide.

However, while the WLTP has a common global ‘core’, the EU and other regions will apply the test in different ways depending on their road traffic laws and needs. Nonetheless, experts have broadly welcomed the change. Nick Molden, CEO at Emissions Analytics, says: ‘[T]he RDE test is what the industry has long been in need of. It is a substantial improvement over what we have today,’ he explains. ‘The current lab cycle is very gentle, which has led to real-world emissions being on average five times above the legal limit.’

What are the Commission’s next steps?

The Commission accepts that while ‘[the] new test procedures will make emissions measurements more realistic and accurate, and to a great extent reduce the risk of cheating with defeat devices’ a wider overhaul of the actual type approval system is needed. In January 2016 the Commission proposed a new Regulation to overhaul the current type approval system. According to the Commission:

‘The proposal aims to reinforce the independence and quality of technical services designated for the testing and inspection of the vehicle’s compliance with EU type approval requirements, introduce an effective market surveillance system to control the conformity of cars already in circulation, and introduce greater European oversight.’

This includes the possibility for the Commission to suspend, restrict or withdraw the designation of technical services that are underperforming and too lax in applying the rules. The Commission would also be able to carry out ex-post verification testing (through its Joint Research Centre) and if needed initiate recalls. Under the proposal, the Commission would be allowed to impose financial penalties to deter manufacturers and technical services from allowing non-compliant vehicles onto the market.

The Commission’s proposal maintains the current ban on defeat devices, which national authorities have a standing obligation to police and enforce, but goes a step further. Under the draft Regulation, the manufacturer will have to provide access to the car’s software protocols. This measure complements the RDE package, which will make it very difficult to circumvent emission requirements and includes an obligation for manufacturers to disclose their emissions reduction strategy, as is the case in the USA. The Commission is seeking to put pressure on the European Parliament and Council to now swiftly conclude their negotiations on this proposal.

Source: LexisNexis Purpose Built
Emissions testing—keeping it clean

Contractor fails to prove materials were unfit for purpose (Tayside Contracts v D Geddes)

by Hardwick Legal | Aug 30, 2017 | Purpose Built (LexisNexis)

A contractor’s claim that materials supplied to it were not of satisfactory quality, or fit for purpose, failed, as the court was not satisfied, on the balance of probabilities, that certain characteristics in the materials were responsible for failures on the project. The court was also unwilling to conclude that, by process of elimination, the materials must have in some way or another been the cause of the failures.

Source: LexisNexis Purpose Built
Contractor fails to prove materials were unfit for purpose (Tayside Contracts v D Geddes)

Using mediation to resolve construction disputes

by Hardwick Legal | Jul 28, 2017 | Purpose Built (LexisNexis)

To what extent is mediation being used to resolve construction disputes? David Evans, legal director, solicitor and mediator in the construction team at Blake Morgan and mediator at Oxford Mediation, considers that, while mediation is still not commonly used in construction disputes, it will likely become more popular due to the high cost of adjudication and gradually increasing awareness of the benefits and flexibility of mediation.

This article was first published on LexisPSL Construction. Click here for a free trial.

What are the current trends in relation to mediation in construction disputes?

Mediation has moved on a lot over the last 15 years or so. But it is still not routinely used by construction professionals. The process has changed. Mediators are now more likely to be lawyers than ever before and very often counsel, and even leading counsel, are brought in to represent parties. Counsel (and solicitors) can feel obliged to demonstrate their value to their clients and ‘grandstand’ from time to time. Sometimes lawyers get in the way of the settlement their clients could achieve, and the mediator’s role can include making them see that.

Adjudication (like arbitration before it), is becoming very expensive, and far too expensive for the significant number of construction disputes where less than £100,000 is at issue. In my view the particular opportunity for mediators is in these lower value disputes, and I think this is the range where we will see rising numbers of mediations. However, mediation (as opposed to adjudication) is cost effective for disputes of any value, is attractive in comparison to the alternatives, and is worth trying.

How common is the use of mediation in resolving construction disputes?

Disputes are common events, but for individuals are relatively rare. Many construction professionals go through the whole of their working lives without encountering a serious dispute which can’t be settled through negotiation. So when disputes come to a head, often the first thought is (or certainly until recently was) adjudication.

In my experience, although there has been some increase in the use of mediation (largely due to the court process requiring it), it is still not commonly used in construction disputes. The level of knowledge of alternative dispute resolution (ADR) among construction professionals is poor. There is often confusion between arbitration, adjudication and mediation and a complete lack of understanding about what mediation entails. Early neutral evaluation (ENE), for example, is just not on the radar of most people in construction.

In my view the main obstacle to mediation becoming more popular is still just ignorance of the process. Thankfully the pre-action protocol is now pushing parties towards mediation before proceedings are issued. Following the protocol is intended to put the parties in a position where they may be able to settle cases early, fairly and inexpensively without recourse to litigation. Parties almost certainly will be required to disclose to the court whether alternative means of resolving the dispute were considered or agreed, so there is every incentive to follow the process.

The Technology and Construction Solicitors’ Association (TeCSA) website says:

ADR (including mediation and ENE) has now become an established part of the dispute resolution landscape and TeCSA recognises its use can lead to much more efficient resolution of disputes and significant savings of costs.

Obviously, I would agree with that—but most construction professionals won’t be looking at the TeCSA website, at least not until they have a serious dispute and their lawyers are on board.

I think the likely drivers for mediation becoming more popular in future will be the high cost of adjudication and gradually increasing awareness of the benefits and flexibility of the process.

Is mediation an effective way of resolving construction disputes?

Provided parties in dispute want to settle then mediation can be very effective. Probably around 70% of mediated construction disputes settle on the day but in many more cases the mediation process puts people on the road to settlement, so the actual settlement rate because of mediation is much higher.

During mediation it is not uncommon to see one or other party experiencing that moment where the penny drops and the likely outcomes come into focus. Maybe for the first time they actually engage with their legal team and understand the potential costs of the dispute and their risk profile.

There are occasional hugely satisfying mediations where the settlement agreement goes way beyond the issues in dispute, and both parties are in a ‘win win’ situation—an outcome a court or arbitrator could never achieve.

When is mediation most likely to be effective?

Mediation can be effective at any time, but the usual prerequisites for a successful mediation are that firstly the parties understand enough about their own positions (in terms of possible risks and likely costs) to evaluate the commercial realities. The mediator’s job often is to help them do that through the mediation process. Secondly, there must be some willingness to compromise and do a deal.

As for timing, often as early as possible is best, so that the parties don’t find themselves with the added problem of trying to negotiate away the legal and other costs they have incurred having the argument. Of course, if there is a willingness to sort things out, there is no reason why the mediation couldn’t extend (on and off) over a couple of days or weeks or more, so that any particular issues could be investigated and brought back to the negotiating table. With the parties’ consent, mediation is completely flexible and could involve more than one mediation meeting.

For the parties, understanding the opponent is important and the mediator needs to second guess what is really going on too. Some individuals must win, whatever ‘winning’ means in context. So sometimes massaging of egos can help. A concession by one party can improve the chances that the other will adopt a more reasonable approach and give serious consideration to the remaining issues in dispute.

Of course a party might be taking part in the mediation because it feels compelled (to avoid the wrath of the court) or because it wants to understand the strength of its opponent’s case—insurers are sometimes accused of this sort of fishing exercise and I have personal experience of just that.

All of these ‘personal interaction’ issues are common to disputes of more or less any value. A company managing director can be just as obdurate and personally involved as a warring neighbour arguing over a fence post.

How are construction mediations different to other mediations?

In one of the first mediations I undertook, I co-mediated with a very experienced mediator in a five-party dispute involving the employer, main contractor, a design consultant and its insurers, and a couple of sub-contractors. Multi-party disputes are said to be a common feature of construction mediations. While that may well be true, I’ve not noticed that particularly.

Construction disputes do tend to be very document heavy and usually there will be some sort of expert evidence involved. The parties will sometimes want to bring their experts to the mediation. However, unless (which may be unlikely by this point) the mediator can get the experts to agree, experts may not be able to add much to the process.

In the end, most mediations come down to commercial imperative and willingness to settle. It’s not often that the volumes of paper disclosed will produce the unanswerable point one or other party will accept. Usually, most of the documentation is superfluous to the issues which influence settlement. In that regard mediation of construction disputes is no different to other mediations.

Are there any changes that could be made to mediation to make it a more attractive dispute resolution option?

Most of the changes I’d like to see are around the culture of the construction industry. More emphasis needs to be put (by the Institution of Civil Engineers, the Royal Institution of Chartered Surveyors, and the Royal Institute of British Architects etc) on ADR training of construction professionals. Mediation ought to be one of the first things people think of when a dispute arises—similarly, the legal profession could better educate up and coming construction legal professionals.

How do you see this area developing? Do you have any predictions for the future?

I think mediators will be required by the market to be much more evaluative in future. Almost all parties in dispute want to reach a commercial settlement, but they also want to understand what the risks are and to be told informally by an independent person how strong their case is. How far a mediator should sensibly go in doing that is debatable. However, I think that evaluative mediation will become much more common.

Non-binding ENE is also emerging. I’ve been amazed by how successful ENE can be even in a very high value dispute, if parties want to avoid the argument.

I’m currently trying to promote a fixed price scheme of evaluative mediation together with non-binding ENE as a cost effective alternative to adjudication, because I think the UK market is moving slowly in that direction.

Interviewed by Susan Ghaiwal. The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

LexisPSL Construction customers are able to access further information and resources in the ADR/mediation for construction lawyers subtopic. Click here for a free trial.

Source: LexisNexis Purpose Built
Using mediation to resolve construction disputes

NEC4 contracts: user group seminar report

by Hardwick Legal | Jun 27, 2017 | Purpose Built (LexisNexis)

I was kindly invited by the NEC to its Users’ Group Annual Seminar on 22 June 2017, at which the new NEC4 suite of standard form construction contracts was launched. In this report I highlight some of the key information points from the seminar, in particular in relation to the new Alliance Contract (ALC), the new Design, Build and Operate Contract (DBO) and the changes made to the Engineering and Construction Contract (ECC).

For a full list of what’s in the NEC4 suite, see News Analysis: NEC4 contracts published.

Introductory remarks

The seminar was opened by the President of the Institution of Civil Engineers (ICE), Tim Broyd. According to Broyd, ICE’s vision is for the NEC contracts to be the ‘world’s favourite procurement suite in the foreseeable future’, and NEC4 had been ‘improved and streamlined’ in light of feedback, consultations and developments.

The NEC3 contracts had been recommended for use on government contracts by the (then) Office of Government Commerce (OGC). David Hancock, Construction Director of the Infrastructure and Projects Authority (the OGC’s successor), confirmed that this recommendation has been extended to NEC4. In particular, Hancock thought that the NEC4’s aim of contract standardisation (ie reducing the need for amendments) encouraged efficiency, and that its clarity enabled suppliers to appreciate what was required of them—both aspects were consistent with the Government Construction Strategy. He also welcomed the introduction of the DBO, as the government was looking to move towards whole life delivery systems.

Alliance Contract

The ALC is a multi-party contract, entered into by the ‘Client’ (this term is now used throughout the NEC4 suite instead of ‘Employer’) and multiple ‘Partners’ (ie contractors). The Client and Partners together make up the ‘Alliance’, which is managed by an ‘Alliance Board’ (which makes decisions unanimously) and an ‘Alliance Manager’ (which carries out a project manager-style role).

The project is delivered by the Alliance acting together as an integrated team, sharing risk and reward:

• work is allocated on a ‘best for project’ basis, ie it is carried out by the people/organisations best able to do it
• payment is made on a cost reimbursable basis (ie ‘Defined Cost’ plus ‘Fee’). This is similar to Option E of the ECC
• there are also incentives, shared by the Partners, for achievement of ‘Alliance Objectives’ set by the Client and for coming under budget
• liabilities are shared jointly by the Alliance (except where there is wilful default or a third party claim)
• joint names insurance is provided by the Client, including professional indemnity insurance (but each Alliance member is still required to take out its own employer’s liability insurance)
• there is a single ‘Contract Data’, created by mutual agreement

Given the effort involved in setting up the ALC, the NEC suggested that it was most appropriate for major projects/ programmes of work.

The ALC does not expressly provide for disputes to be resolved by adjudication, court or arbitration proceedings, but rather states that they are to be finally resolved by the Alliance Board. However, and as acknowledged at the seminar, the Housing Grants, Construction and Regeneration Act 1996 (HGCRA 1996) will imply a right to refer a dispute arising under a construction contract to adjudication where none is expressly provided (see Practice Note: Construction contracts under the HGCRA 1996).

A consultative copy will be available for download from the NEC4 website from 28 June 2017 (following a webinar about the ALC), and the NEC is aiming to formally publish the ALC in January 2018.

Design, Build and Operate Contract

The DBO is a two-party contract between a Client and Contractor, under which the Contractor designs the asset and operates it for a period of years. It retains the structure and standard provisions of the EEC. The DBO is driven by the Client’s operational requirements, with the NEC framing it as essentially a contract for an operational service. The construction work can be specified by the Client, or left to the Contractor to propose.

The NEC described the DBO as a ‘complex contract’, suitable where significant construction work is needed. It is flexible in that, as well as being suitable for a project to construct and then operate an asset, it could be used on a project to take over an existing asset, operate and improve (or even replace) it.

A performance table sets out targets for performance against operational requirements, as well as a reduction in payment if targets are not met or additional payment if they are exceeded. Unlike EEC there are no payment Options, but rather payment is split into parts A (which allows for construction as a series of lump sums, and service as periodic payments) and B (which allows for target share arrangements from the performance table).

Unlike the ALC, the DBO was not initially published in consultative form and is available for use now.

Changes to the NEC4 Engineering and Construction Contract

John Hughes D’Aeth of Berwin Leighton Paisner (and an NEC4 Contract Board member) went through what he considered to be the main changes to the EEC:

Design responsibility

Option X15.1 of the NEC3 EEC provided that:

The Contractor is not liable for Defects in the works due to his design so far as he proves that he used reasonable skill and care to ensure that his design complied with the Works Information

Therefore, the onus was on the Contractor to prove that it had used reasonable skill and care in carrying out its design. In Option X15.1 of NEC4 the burden has now been switched on to the Client to prove that the Contractor did not use reasonable skill and care (which is consistent with the position in the JCT contracts):

The Contractor is not liable for a Defect which arose from its design unless it failed to carry out that design using the skill and care normally used by professionals designing works similar to the works.

The description of the standard of care has also changed in NEC4 to align with the industry standard.

LexisPSL Construction customers are able to access further information and resources in the NEC contracts subtopic. Click here for a free trial.

Source: LexisNexis Purpose Built
NEC4 contracts: user group seminar report