Swansea Council defeats claim it failed to enforce its rights under contract to build Liberty Stadium

The City and County of Swansea has successfully defended a claim over its alleged failure to enforce its rights under the building contract for the Liberty Stadium.

The stadium is owned by the council and is the home of Swansea City Football Club and Ospreys Rugby Club. It was opened to the public in July 2005.

The background to the case of Swansea Stadium Management Company Ltd v City & County of Swansea & Anor [2019] EWHC 989 (TCC) (17 April 2019) was set out by Mr Justice Pepperall.

Work had started on the new stadium in late September 2003. By a building contract dated 17 June 2004, executed as a deed, the council employed Interserve Construction Limited as the main contractor to design and build the stadium.

The contract was in the form of the 1998 edition of the JCT's Standard Form of Building Contract with Contractor's Design with amendments 1-4 and some further bespoke provisions.

On 1 April 2005, Gardiner & Theobald, the Employer's Agent under the building contract, certified that the works had reached Practical Completion on 31 March 2005. The Defects Liability Period ran for 12 months from Practical Completion.

Meanwhile, the council, the football club and the rugby club incorporated Swansea Stadium Management Company Limited ("SSMC") in order to operate the stadium for the benefit of the clubs. Although initially a joint venture company, SSMC is now wholly owned by the football club.

By a lease dated 22 April 2005, the council leased the stadium to SSMC for a term of 50 years. Although not a party to the building contract, SSMC has the benefit of a collateral warranty from Interserve in respect of the building works. The warranty was given by way of an undated deed.

Further, by a deed executed on 21 July 2006 between the council, SSMC and the clubs, the council agreed to take all reasonable steps to enforce its rights under the building contract.

There were, among other issues, problems with both the concourse flooring and the paintwork.

• A number of spectators slipped in wet conditions. Remedial work was therefore undertaken at SSMC's cost in 2009 in order to improve the slip resistance of the flooring.
• There were issues with the repair of damage caused during the handling and erection of the pre-painted steelwork. The paintwork also suffered discolouration, rust and ultimately delamination of the coatings. These issues were attended to on a number of occasions by Interserve's specialist subcontractors. SSMC alleged that the remedial works were not effective.

On 26 May 2011, Gardiner & Theobald issued the Notice of Completion of Making Good Defects. Such notice formally certified in accordance with clause 16.4 of the building contract that the defects which the council might require to be made good had been made good as of 14 April 2011. Finally, on 14 June 2012, the council and Interserve entered into a settlement agreement in respect of the contractor's final account.

On 4 April 2017, SSMC commenced proceedings against both the council and Interserve. Its primary case was that the original building works were defective and in breach of the contractual specification.

These construction claims were, however, struck out by O'Farrell J in Swansea Stadium Management Co. Ltd v City & Council of Swansea [2018] EWHC 2192 (TCC), [2019] B.L.R. 652 because they were brought 4 days after the expiry of the limitation period.

SSMC fell back on two secondary claims:

1. As against the main contractor, SSMC alleged that Interserve was in breach of its obligations under clause 16 of the building contract to identify and make good the flooring and paintwork defects during the Defects Liability Period. It therefore claimed that it was likewise in breach of the collateral warranty.
2. As against the council, SSMC alleged that the council was in breach of its obligations under the 2006 agreement to take all reasonable steps to enforce its own rights under the building contract in respect of the flooring and paintwork defects.

Following a two-week hearing October and November 2018, Mr Justice Pepperall dismissed the claims against both Interserve and the council.

The judge said that SSMC had failed to prove that the council failed to take all reasonable steps to enforce its rights under the building contract in respect of the paintwork defects:

1. Far from asking the council to litigate or refer any dispute to adjudication, SSMC expressly asked it to press the issue in correspondence with Interserve.
2. The council complied and SSMC repeatedly recognised that the council had used its best endeavours to require Interserve to address the paintwork issues.
3. SSMC expressed its clear preference for finding a non-litigious outcome.
4. As the limitation date loomed, SSMC reassured the council that it was aware of the limitation issue and that it would issue protective proceedings.
5. SSMC made plain its intention to issue proceedings directly against Interserve should litigation become necessary.
6. In these circumstances, it was not reasonable to have expected the council to have ignored SSMC's preferences and to have issued proceedings or referred the paintwork dispute to adjudication.

In relation to the claim against the council over the paintwork therefore Mr Justice Pepperall concluded that SSMC had failed to prove that the defects now complained of were Latent Defects at 22 April 2005, alternatively unrepaired defects listed on a snagging list; and in any event, that the council failed to take all reasonable steps to enforce its rights against Interserve.