With the UK set to leave the EU on the 29 March 2019 (either with or without a deal), the construction industry and businesses in general are facing a period of great uncertainty whilst the UK government negotiates the future landscape of the country. We appreciate that this is an unsettling time for our clients and our January Bulletin focuses on some of the key Brexit issues and explores the potential impact of Brexit on the construction industry.
Frustration Clauses and Brexit
The ongoing case between Canary Wharf T1 Limited and European Medicines Agency (“EMA”) centres around the EMA’s lease of its London HQ at Canary Wharf. The EMA is seeking to argue that Brexit should trigger the frustration clause within the lease on the basis that Brexit was not foreseen at the time the 25 year lease was signed. The judge has ordered expert evidence on the question of how far Brexit would have been in the reasonable contemplation of the parties in 2011 and the trial is listed for March 2019.
London v Dublin
A report by Turner and Townsend on Q3 discusses the construction industry and in particular a comparison of the market in London and Dublin. The construction industry in Dublin is booming with Dublin coming out on top against other EU cities such as Paris and Amsterdam as the choice for relocation from the UK, according to the report. Of those surveyed for the report, 63.3% of those in Dublin felt their market is improving compared to 21.1% in London. It is also interesting to observe that, in the wake of concerns about skills shortages (see below), the construction industry in Eire appears to be gearing up to pick up a significant share of work on UK construction sites in the months and years ahead.
The growth in the Dublin market coincides with the introduction of Statutory Adjudication in Ireland in 2016. A report on its use in 2018 confirms that there have been an equal number of main contractor and sub-contractor disputes, though in total only 7 disputes were referred to adjudication based on the statutory right.
ECJ Ruling Creates Further Uncertainty
The European Court of Justice ruled on the 10 December 2018 that the UK can unilaterally revoke its withdrawal from the EU. This follows the earlier opinion of the Advocate General of the European Court of Justice. The case was brought by a group of Scottish politicians and the court has confirmed that a written notice addressed to the European Council with confirmation that the decision to leave the EU has been revoked will be sufficient. The confirmation that the UK’s decision can be revoked creates further uncertainty for a Construction industry bracing itself for Brexit.
Price of Materials- Some Good News?
Since the referendum in June 2016, the construction industry has seen a rise in construction costs, coupled with the depreciation of the pound. A report by Turner and Townsend predicts a further increase by 5.3% on materials in the next year. There could however be some good news. A report by RICS on the draft terms of the Brexit deal notes that there will be no additional costs for importing materials used in construction, a welcome provision for the construction industry, although the ease with which imported materials may make their way to site from the continent is another matter.
The replacement of freedom of movement with a skill-based immigration system is a major cause for concern for the construction industry. In an article for Building, Mark Robinson of Scape Group explains that “as it stands, construction site trades are officially classified as low-skilled jobs” and ending free movement of workers will create a labour deficit within the industry. A group of construction sector bodies has recently launched a survey on the skills shortage expected after Brexit. The results are due to be published in early 2019- keep an eye out for a discussion of the results in future bulletins.
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