Partial posession can have unintended consequences

Trying to be helpful by giving up partial posession can have unitended consequences, says Alexander Grant, associate at Pinsent Masons

Summing up

The case: Impresa Castelli SPA v Cola Holdings Ltd

Skanska Construction (Regions) Ltd v Anglo-Amsterdam Corporation Ltd

The issue: The difference in interpretation of site posession.

The implication: If a contractor losesw the right to exclusive posession of a site during the course of construction it can have drastic consequences, particularly if the date for completion has been passed due to delays.

As the saying goes, possession is nine tenths of the law and a contractor with exclusive possession of a site during the course of construction works needs to be careful not to lose that right as it can have unintended consequences.

There are essentially three types of possession over the course of a construction project:

• Exclusive possession by the contractor during construction;
• Exclusive possession by the contractor but allowing the employer to use or occupy part or all of the site or works; and
• Partial possession, which involves the employer taking possession of part of the works before the project has been fully completed.

Construction contracts treat the latter two types of possession very differently to the first.

In Impresa Castelli SPA -v- Cola Holdings Ltd [2002], Impresa agreed to build a large 4-star hotel in London for Cola under a JCT 1981 contract. Delays occurred and the date for completion was passed.

The parties entered into several agreements delaying the date for completion, in which they agreed that Impresa would allow Cola staged "access" to the site so that it could operate as a hotel. Such access was, however, not to be regarded as amounting to practical completion. The agreement also listed a number of works, including the air conditioning system, which were not yet complete.

The works remained incomplete and Cola claimed liquidated damages. Impresa defended Cola's claim by arguing that the grant of "access" amounted to Cola taking partial possession with the effect that Cola should not be able to recover the full rate of liquidated damages.

The key clause of the contract was clause 17.1 (similar to clause 2.33 of JCT05 form). This entitled Cola, with the reasonable consent of Impresa, to take possession of part of the Works. In such circumstances, practical completion in relation to the relevant part would be deemed to have occurred with the result that a mini defects liability period would commence, there would be a partial payment of retention, a reduction in the liability to pay liquidated damages, and the employer would be obliged to maintain joint names insurance and reinstate the works if damaged.

In contrast, under clause 23.3.2 of the contract (the equivalent of clause 2.6 in the JCT05 form) Cola, with the reasonable consent of Impresa, could use or occupy the whole or part of the site before practical completion, without any of the consequences of partial possession.

The judge therefore had to decide whether partial possession had occurred. He noted that if Cola had intended to take back exclusive possession, despite the fact that certain works were incomplete, the agreements could have used the words "partial possession" instead of referring to "access".

The judge found nothing to suggest that partial possession had occurred and concluded that the word "access" in the September agreement implied "use and occupation" as referred to in clause 23.3.2 rather than "partial possession" as referred to in clause 17.1.

Despite the fact that Cola was able to access and make use of the works for the very purposes for which they were intended (i.e. as a hotel), Cola was able to recover the full amount of liquidated damages.

Shortly after Impresa came the decision in Skanska Construction (Regions) Ltd v Anglo-Amsterdam Corporation Ltd [2002].

As in Impresa the contract was a JCT 1981 standard form. Anglo-Amsterdam alleged that Skanska was late and applied liquidated damages. Again the operation of clause 17.1 was relevant to the issues between the parties.

Under the amended terms of the contract the works were not complete and the arbitrator appointed by the parties to determine the dispute decided that practical completion had not occurred.

Anglo-Amsterdam had written to Skanska confirming that the proposed tenant for the building, ICL, would commence fitting out works on the disputed date of practical completion.

Skanska argued that once ICL had started its fit-out of the building, the employer had taken partial possession of the entirety of the works and Skanska no longer had to pay damages for delay.

The arbitrator disagreed and took the view that the purpose of clause 17.1 was to deal with the situation in which an employer takes partial, not complete, possession. The clause could not apply where the entirety of the works had been given over to a tenant for fit-out. Skanska was therefore liable to pay liquidated damages until practical completion was achieved under clause 16.

On appeal, the Judge overturned the arbitrator's decision. He found that clause 17.1 could operate when possession had been taken of all parts of the works and was not limited to possession of part. He concluded that partial possession of the entirety of the works had been taken and consequently Skanska was entitled to repayment of the damages.

Often on construction projects a developer will be keen to get on site to commence fit out or start operating their business and contractors trying to be helpful will try and facilitate this, but both the above cases illustrate how employers and contractors need to beware of the unintended consequences of inadvertently taking possession of a site.