The courts have dished out a useful reminder that it is always best to expressly allocate risk under any contract.
A recent case has confirmed that, without express terms to the contrary in the contract, an employer will usually be responsible for obtaining planning permission.
However, for certainty, you should expressly allocate risk under a construction contract. Leaving the courts to decide whether certain risks were allocated to certain parties is a perilous business, not to mention time-consuming and costly.
Background to the case
In the recent case of Jean-François Clin v Walter Lilly & Co Ltd  EW CA Civ 490, Mr Clin owned two adjoining properties within the Kensington Palace Conversation Area.
He entered into a JCT Building Contract (with Quantities 2005 edition incorporating Revision 2 2009) with Walter Lily in September 2012. The works consisted of demolition, reconstruction and refurbishment to the buildings to create a single-dwelling house.
A dispute arose between the parties after the Kensington and Chelsea Borough Council sent a letter to Walter Lily in July 2013, asserting that the works amounted to “substantial demolition” requiring conservation area consent. The works were then suspended.
Planning permission (for a revised proposal) was granted on June 2014 and the works began the following August. In May 2015 Walter Lily issued a claim seeking a 53.2-week extension of time, and loss and expense.
“It is always best to expressly allocate risk under any contract, especially if the parties require something to be done which is handled by a third party they have no control over”
The case first went to the Technology and Construction Court. Questions were then raised by both parties on appeal and cross-appeal to the Court of Appeal.
The question here is whether there was an implied term that the employer was responsible for applying for any relevant and requisite planning approvals and, if so, how was the implied term framed and what was its effect on the allocation of risk between the parties?
Implied responsibility rests with employer
The contract did not expressly impose on either party any obligation to apply for, let alone obtain, planning permission or conservation area consent.
However, the parties accepted, in principle, that an appropriate term should be implied into the contract to allocate the responsibility.
An application for planning permission may be made by anyone, whether or not the person owns an interest in the land to which the proposal relates.
However, the Court of Appeal found that the employer will generally bear the responsibility of obtaining the necessary planning permission (in the absence of an express term to the contrary), given that the execution of the work would otherwise be unlawful.
The Court of Appeal found it relevant that only Mr Clin knew what his whole project actually involved, and so the implied term was needed to give business efficacy to the contract. However, the court emphasised that this will not always be the case for all contracts.
Scope of the implied term
The scope of the implied term found by the Court of Appeal was limited for the employer to “use all due diligence” to obtain any permission / consent, as is required by law.
All “due diligence” includes an obligation to make a timely application which assists each party in the performance of its obligations with a view to avoiding delay, to ensure sufficient information is provided to the local authority, and to co-operate with the authority in the statutory process.
The Court of Appeal concluded that the parties’ existing allocation of risk under the contract was sufficient to address the various potential consequences of the implied term. Moreover, the court thought it would be “difficult, indeed unwise, to answer the preliminary issues in a factual vacuum”.
Get ahead of uncertainty
The case serves as a useful reminder that it is always best to expressly allocate risk under any contract, especially if the parties require something to be done which is handled by a third party they have no control over.
In the absence of express terms, the parties are left uncertain about who is responsible for the obligations and who bears the risk if the obligation is not carried out.
Uncertainty in construction leads to wasted time and money being spent on legal issues, when the focus should be getting the project completed.
Hazel Boland-Shanahan is an associate in the construction team at Goodman Derrick