Legal

Why Interserve’s Swansea stadium row went to extra time

28 June 2019 | By Theresa Mohammed

Liberty Stadium: The court concluded that a latent defects claim could no longer be pursued

The long-running defects dispute over the Liberty Stadium in Swansea is a reminder that claims should be brought as quickly as possible, says Theresa Mohammed.

Theresa Mohammed

Construction of sports venues usually means deadline pressure for both employer and contractor. Practical completion can be certified with defects present which can take a long time to remedy.

The time for bringing a claim for defects will start from the date of practical completion. While most limitation periods are six or 12 years, this can elapse surprisingly quickly, as with the Liberty Stadium in Swansea.

In September 2003, Swansea Stadium and City & County of Swansea entered a contract with Interserve to design and build the venue. Swansea Stadium Management Company (SSMC) was incorporated to operate it for Swansea City FC and Ospreys rugby team, and it had the benefit of collateral warranty from Interserve for the building works.

Practical completion was achieved on 31 March 2005. Swansea Council leased the stadium to SSMC in April for a 50-year term. SSMC had repairing obligations under the lease but these expressly excluded liability for latent defects.

A year later, SSMC, the council, football and rugby organisations entered into an agreement where the local authority agreed to take all reasonable steps to enforce its rights under the building contract regarding latent defects.

In May 2011, a notice of completion of making good defects was issued by the employer’s agent under the building contract. Separately, Swansea Council and Interserve entered into a settlement agreement for the final account, which included a deduction for defective works. This settlement agreement did not include SSMC.

Proceedings were brought by SSMC against Interserve under the collateral warranty for defects in 2018. After an application for summary judgment by Interserve, these claims were rejected by the court because the cause of action arose at the date of practical completion in 2005 and were statute barred.

But in separate proceedings in 2019, SSMC brought a claim pursuant to amended clause 16 of the construction contract which required Interserve to identify and list any defects that appear in the defects liability period – usually the role of the employer – and to then make good any defects as listed or as instructed by the council within a reasonable time.

While this claim was not statute barred, it was unusual to see the role of the employer and contractor switched around, as it is usually only the employer that has an interest in ensuring defects are notified and remedied. SSMC also had a secondary claim that the local authority was in breach of the 2006 agreement by failing to take all reasonable steps to enforce its own rights against Interserve in respect of the latent defects.

It was established that the concourse flooring was defective and the painting works had not been carried out in a proper and workmanlike manner, in breach of the building contract. Additionally, it was held that Interserve was in breach of its clause 16 obligations to fail to identify these items as defects. However, in terms of the painting defects, SSMC had failed to prove which of those defects had not been made good.

The court concluded that the flooring defects were latent defects and therefore the council could have enforced either the primary contractual obligations or the clause 16 obligations up until the notice of completion of making good defects. After this, the claim could no longer be pursued, the notice being evidence that identified defects have been made good.

In a double blow to SSMC, it also lost the claim against the council, the court holding that it had not proved the council had failed to take all reasonable steps to enforce its rights or that the settlement with Interserve was unreasonable.

This case reminds us that claims must be brought as quickly as possible, and that great care should be taken when issuing the certificate of making good defects – because it will be held as conclusive evidence that notified defects have been remedied.

Theresa Mohammed is a partner at Trowers & Hamlins

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