Sarah Dyer
Partner
Article
7
The Technology and Construction Court (TCC) has handed down judgment in a long-running PFI hospital dispute relating to the largest oncology centre in the North of England, at St James' University Hospital in Leeds, in the St James Oncology SPC Ltd v Lendlease Construction (Europe) Limited (2) Lendlease Construction Holdings (Europe) Limited case.
Here we discuss the outcome of the case and what it could mean for you.
The Claimant was the Project Company, appointed in 2004 by Leeds Teaching Hospitals NHS Trust (the NHS Trust) under the Government's Private Finance Initiative to design, construct, operate and maintain the Oncology Centre.
The Project Company engaged Lendlease Construction (Europe) Limited to design and build the Oncology Centre. Under the Design and Build Contract (D&B Contract), Lendlease agreed to assume the obligations, risks and liabilities of the Project Company under its Project Agreement with the NHS Trust. The second defendant, Lendlease Construction Holdings (Europe) Limited, provided a parent company guarantee to the Project Company. Practical Completion of the Oncology Centre was certified in December 2007.
The dispute arose after technical investigations conducted between 2014-2017 unearthed fire safety and electrical engineering defects, and certain remedial works (although not concerning the defects addressed in these proceedings) were carried out. In 2019, shortly before the expiry of the limitation period, the Project Company issued proceedings against Lendlease. Amongst other things, the investigations had revealed that the fire safety strategy which had been incorporated into the Project Agreement had been amended before practical completion to reflect the as-built works. Whilst the original revision (Rev 12) of that fire strategy provided for 60 minutes' fire compartmentation around the electricity substation in the basement plant room, this was removed in the revised version (Rev 19). Consequently, the whole of the plant room was now a single fire compartment, and the electricity substation was no longer protected by fire compartmentation from the rest of the plant room.
This meant that a single fire or fault could take out both the primary and secondary power supplies within a basement plant room in the oncology centre. This could be catastrophic: many of the facilities in the Oncology Centre (which includes operating theatres, an intensive care unit, sections for radiotherapy, chemotherapy, imaging and radiology) require an electricity supply.
Of particular relevance in this case was Health Technical Memorandum 81 (HTM 81), which sets out guidance on the design of fire precautions in new hospitals / extensions to existing hospitals.
Mrs Justice Joanna Smith DBE observed that the defendants "focused almost exclusively on the content of the Rev 19 Fire Strategy" in contending that the final design of the Oncology Centre was not defective. They argued that any derogations from the requisite technical specifications were agreed and/or approved by the NHS Trust, the Project Company and by the relevant Building Control body. On this basis, they submitted that all parties must have been content that the departures from HTM 81 were justified by the engineering solution adopted, and that the Fire Strategy met the terms of the relevant contracts. This was referred to as the "Fire Strategy Defence".
An important part of the Project Company's case was that wherever there was any deviation from HTM 81 in the design of the Fire Strategy, the Project Agreement required this to be "identified in the Fire Strategy and expressly justified by a fire engineering approach". The Project Company submitted that Lendlease had failed to do so and remained liable for the defective works.
The TCC dismissed Lendlease's Fire Strategy Defence. Mrs Justice Joanna Smith DBE observed that it was common ground between the parties' fire engineering experts that:
She found among other things that:
The TCC concluded that the Project Company's proposed remedial scheme was reasonable and that there was ample evidence the Project Company and the NHS Trust intended to carry out the remedial works (contrary to Lendlease's contention), and awarded the Project Company just over £5 million for the cost of the remedial scheme.
In the context of a PFI contract, the Project Company needs to be mindful of limitation periods in their construction contracts notwithstanding the operation of the asset, in this case for nearly 12 years. There might be continuing liability to the Employer under the Project Agreement which might extend beyond the usual 12 year limitation period "down the line ".
The Project Company may find itself with no recourse if claims are brought against it after 12 years for breach of the ongoing obligations of the Project Agreement in circumstances where an Employer discovers defects possibly as part of a PFI handback process. Such a process may only start a few years before the end of the Project Agreements term and often more than 12 years after the works were completed by the Contractor.
Please get in touch with Sarah Dyer or Lindsay Hammond if you want to discuss the topics raised.
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