Commercial Awareness Update – W/C 30th September 2024

TECHNOLOGY AND CONSTRUCTION COURTS

VAINKER & ANOR V MARBANK CONSTRUCTION LTD & ORS

“How bad is too bad – Tightening how fitness for habitation is defined”

A recent focus area of legal analysis has developed in the UK regarding citizens’ living conditions and the extent to which commercial entities are expected to go when remedying or rectifying inconsistencies in their construction work.

Vainker & Anor v Marbank Construction Ltd & Ors [2024] was a recent case heard in the Technology and Construction Court. The Court found for the claimant, following her engagement with the three co-defendants, Marbank Construction Ltd, Mercer and Miller, and SC Architects Ltd, to construct a home for her.

Overview

Vainker addresses a significant issue in construction law: defining “fitness for habitation” under s.1 of the Defective Premises Act 1972 (DPA). They had commissioned a new-build house, which was subsequently found to have various defects.

The case highlights the factual findings of defective construction and provides a practical legal analysis of how fitness for habitation is assessed, mainly when the property is a modern, purpose-built home.

In the ruling, Jefford J stated that contractors should consider the subjectivity of understanding the fitness for habitation in light of the holistic intention of the entire project. The judge said that concerning the Vainker dwelling, this meant considering that the house was meant to be a new build and modern in appearance.

This ratio decidendi necessitates a closer look at what remedial works are appropriate when considering whether a home is ‘fit for habitation’ and not merely whether any proposed remedy is, in and of itself, “enough” or simply “adequate” when asking if the commercial parties have gone far enough in ensuring their side of the contract.

The judge further espoused that although minor defects alone do not take effect such as to create the legally enforceable duty of care needed to establish a tortious wrong, they can, cumulatively, amount to a dereliction of the duty of care expected by the legislative provision of s.1 of the DPA.

Jefford J considered the previous case law from Rendlesham v Barr [2014], which clarified the thresholds for determining whether a dwelling is fit for habitation and underlined the broad scope of claims under the DPA.

This case also considers additional complexities in multi-party litigation, where responsibilities between contractors, architects, and other professionals are examined.

Issues under the DPA

1. Fitness for habitation: The core legal issue revolves around interpreting what constitutes “fitness for habitation” at the time of the property’s completion. Jefford J emphasised that not all defects, mainly those merely aesthetic or inconvenient, will render a property unfit for habitation. However, if defects present at completion are likely to deteriorate and affect habitability over time, they can still be grounds for a claim under the DPA.

2. Aggregate effect of defects: A critical point in the judgment is the notion that the overall impact of defects must be considered rather than focusing on isolated issues. Minor aesthetic defects are insufficient to render a property unfit, but a cumulative analysis of structural or more significant defects may lead to liability under the DPA.
3. Breach of duty and damages: A breach of the DPA allows for broader claims than those in tort or contract, especially when combined with the Building Safety Act 2022 (BSA) amendments, which extend limitation periods.

The judgment also clarifies that damages are not limited to the minimum required to make a dwelling habitable. Instead, they can include the costs of restoring the property to the standard it would have achieved had the services been performed professionally.

Societal implications

This case has far-reaching implications for the construction industry and homeowners alike. The judgment reinforces homeowners’ rights to claim compensation for defects under the DPA, even when other legal avenues (such as tort or contract claims) may be time-barred.

With the extension of limitation periods under the BSA, it becomes even more crucial for construction companies and professionals to ensure that their work meets the necessary standards.

This case strengthens the legal recourse available to homeowners affected by substandard construction. It provides greater clarity on the thresholds for fitness for habitation, which could lead to more rigorous standards in new-build homes, particularly in light of the increasing demand for modern, architecturally unique homes.

In the long run, this may also influence regulatory frameworks and policies related to building safety and construction quality, as developers must now be more mindful of long-term habitability concerns, not just short-term aesthetic or functional goals.

The full judgment can be found here: https://knyvet.bailii.org/ew/cases/EWHC/TCC/2024/667.html

• By Natalie Campbell

RENEWABLE MARITIME FUELS AND THEIR IMPACT ON THE UK’S LEGAL SECTOR

Heavy Fuel Oils (HFOs) release high levels of sulphur during combustion, polluting the air around seaports.

To reduce the impact of global warming, the maritime industry is currently experimenting with sustainable and renewable fuels, which have low sulphur levels and thus limit pollution.

The alternatives to fossil fuels include:

• Hydrogen

Green hydrogen is produced by electrolysis, separating water into hydrogen and oxygen using electricity. Electrolysis does not produce carbon dioxide and uses electricity generated by renewable energy (solar or wind power), which makes.

In ships, the hydrogen fuel is loaded into fuel cells, which have 60-80% efficiency, allowing them to be easily installed in all modern ships.

• Methanol, with the two types being:

E-Methanol is carbon-neutral. It is produced through electrolysing water to produce hydrogen mixed with CO2 to form methanol. It is carbon neutral because it recycles the CO2 in the atmosphere into renewable fuel for ships.

Bio-methanol is made from plant biomass, such as agricultural residues and forestry waste. It reduces the lifecycle of greenhouse gases.

• Lignin-alcohol mixes

Lignin is found within all plant cell walls and becomes an excessive paper industry by-product. Converting lignocellulosic biomass into a bio-HFO with low sulphur levels will provide an alternative renewable fuel for the maritime industry. This low-cost chemical process converts crude lignin oil (CLO) into an eco-friendly fuel.

• Bio-based natural gas

Such fuels capture and use CO2 during the natural decay of organic feedstocks. Bio-based natural gas fuels can decarbonise up to 40% of global shipping by 2050. Biogas, comprised of methane and CO2, is produced through anaerobic digestion of biomass.

This is then processed into one of two types of biogas-pathway fuels: liquefied biomethane (LBM) replaces liquefied natural gas as a marine fuel, and bioethanol, which is liquid at room temperature, complements e-methanol as an alternative fuel.

Some biogas fuel advantages are:

• Maturity- The production processes for this fuel are well-established and reliable.
• Feedstock availability – The anaerobic process can generate a range of feedstocks, such as corn husks, sewage sludge, and waste.
• Emission reductions – Biogas fuels can reduce emissions by 100%, making them less toxic than HFOs or other alternative fuels.

Key issues

Green hydrogen

• Hydrogen has low energy density, so the storage containers on board a ship would need to be increased to accommodate this fuel type.
• High costs for hydrogen distributing equipment to be installed in several ports across the globe.
• Hydrogen power ships may be cost-efficient only for short journeys.
• Hydrogen is not a net-zero emission fuel because it generates CO2 indirectly during its transportation to ship containers.

Methanol

• Methanol is cheaper but less efficient than HFO because more methanol must achieve the same energy output as HFOs, e.g., diesel.
• The cost of e-methanol depends on the price and availability of hydrogen and CO2.
• Methanol market prices vary between regions due to transportation costs, local regulations, and infrastructure availability.

Lignin-alcohol mixes

• Lignin extraction is a complex process due to its structural complexity.
• The process generates a lower yield at a higher cost when compared to other maritime fuels.
• Alternative maritime fuels are more profitable than lignin-alcohol mixes.

Bio-based natural gas

• Environmental concerns include methane leaks during natural gas production and the extraction method of fracking polluting water.
• Natural gas is found in specific geographical areas. Countries reliant on such imports will be affected if prices or supply chain distribution are impacted.
• Natural gas is non-renewable.

Legal impact

Hydrogen

Seventy million metric tons of hydrogen are produced for industrial use worldwide every year, with approximately 10 million metric tons produced in the United States. In addition, the hydrogen market is expected to grow as private firms and countries pursue projects to expand production capacity in expectation of rising demand for clean energy.

Methanol

• Bunkering delays: fuel shipments are delayed due to limited methanol bunkering stations. Law firms will be employed to clarify who bears the cost of delay and disruption to the supply chain.
• Methanol quality issues: Legal standards on fuel types are employed, with quality control, sampling and testing to ensure that contaminated fuel is not used, as it could damage ship engines and delay the shipment of goods, incurring substantial financial losses for suppliers and distributors.
• Dispute resolution: As methanol is a relatively new alternative fuel, alternative dispute resolution is used to settle claims related to methanol usage, technical issues, or performance to avoid draining parties of time and finances in drawn-out litigation.

Biofuels

• Law firms can help companies manufacture and sell biofuels to meet sustainability and emission reduction criteria and obtain certification to distribute such alternative fuels.
• Biofuel purchasers may employ lawyers to proofread supply contracts, ensuring that specific clauses protect the purchaser from liability if the biofuel fails to meet international standards.
• Lawyers employed to deal with contractual claims for losses caused by a biofuel’s failure to meet international standards. Most bunker supply contracts contain short time bars and restrict claims for consequential loss.
• Consequential loss is due to unforeseeable or atypical circumstances that could not have been insured against. If such exceptional circumstances are proven in court, the party at a loss may be compensated for the value of their damaged goods.

• By Stefan Iacobescu

NIGEL FARAGE AND THE DEBANKING DILEMMA: A CORPORATE PERSPECTIVE

With significant ramifications for individuals and businesses, debanking and eliminating banking services have gained attention due to Coutts’ closure of Nigel Farage’s account.

The growing conflict in the financial sector between corporate governance, political exposure, and regulatory compliance has been illustrated by Farage’s case.

Debanking: A risk to global commerce

Debanking has become common as banks navigate strict anti-money laundering laws (AMLs) and Know Your Customer (KYC) regulations. This practice extends beyond political figures to industries, including cryptocurrency and NGOs.

For businesses, especially those in politically sensitive areas, the inability to access essential banking services can impair operations, limit growth, or even force closures.

From a commercial perspective, the risk of debanking forces companies to closely monitor their banking relationships. Any perceived reputational or regulatory risk may lead to sudden account closures, a threat that has far-reaching implications, particularly for those operating in high-risk jurisdictions.

Regulation vs Discretion: A Corporate Dilemma

Farage’s case highlights the delicate balance banks must maintain between regulatory compliance and discretion in choosing clients. Financial institutions must assess risks, especially with politically exposed persons (PEPs), but how transparent should these decisions be? While banks have the right to manage their clientele, the arbitrary nature of some closures raises questions about fairness and accountability.

Calls for legislative reform, such as requiring banks to provide more transparent explanations for closures, are growing. For corporations, these changes ensure greater transparency and reduce the unpredictability of banking decisions, safeguarding essential financial access.

Reputational risk: The double-edged sword

Managing reputational risk is a complex task for banks. Coutts’ decision to sever ties with Farage to avoid reputational damage backfired, triggering public outrage and executive resignations. This case illustrates that mishandling client relations can harm a bank’s reputation as much as keeping controversial clients.

This reinforces the need to balance ethical standards with sensible decisions for the corporate sector. Companies must ensure they aren’t excluded from banking services based on subjective judgments or political leanings.

Debanking’s commercial significance

Farage’s situation underscores the commercial importance of secure, reliable access to banking services. As the practice of debanking grows, businesses, particularly those in emerging sectors or unstable regions, may find themselves vulnerable to exclusion based on regulatory or reputational concerns. This unpredictability poses real risks for global commerce, and companies must stay alert to evolving banking policies.

The path forward: reform and corporate vigilance

The Farage case highlights the need for regulatory reform and greater corporate awareness. Companies must adapt to a shifting regulatory landscape and strengthen compliance efforts to avoid becoming targets of debanking.

Meanwhile, financial institutions must balance risk management with fair, transparent practices that uphold trust in their services.

Ultimately, Farage’s case signals a broader issue: the potential risks posed by debanking to individuals and businesses alike in an increasingly regulated, risk-averse financial world. The corporate sector must note that future banking relationships may be shaped by the lessons learned from this high-profile debacle.

Legal impact

The debanking of Nigel Farage has brought to light severe legal and commercial concerns in the UK, particularly around how banks navigate the balance between regulatory compliance and client discretion.

While financial institutions must adhere to AML laws and KYC regulations, mainly when dealing with PEPs, the seemingly arbitrary nature of some account closures raises concerns about fairness and transparency.

This has led to calls for reform, pushing banks to explain these decisions more clearly. Losing access to banking services can severely disrupt businesses’ operations and growth, especially those in high-risk industries.

Farage’s case also highlights the reputational risks for banks, showing how cutting ties with clients can spark public outrage and damage trust.

Ultimately, it underscores the need for businesses to stay vigilant and for regulatory frameworks to evolve to protect financial access and ensure fair treatment.

• By Asil Serhan

UPDATE: THE PATENTABILITY OF ARTIFICIAL NEURAL NETWORKS

Emotional Perception AI Ltd sought patent protection for its artificial neural network (ANN)- based tool, which recommends media files based on emotional and semantic similarities.

By examining a track’s emotional attributes and properties, the system uses trained neural networks to generate more nuanced recommendations than traditional genre-based methods.

The UK Intellectual Property Office (UKIPO) initially refused the patent application, citing s.1(2) of the Patents Act 1977, which excludes “a program for a computer… as such” from patentability.

After the appeal, the High Court overturned this decision, creating a window of possibility that ANNs might fall outside this exclusion due to their unique features.

However, the Court of Appeal has reversed this High Court ruling, reinstating UKIPO’s original decision and emphasising that ANNs should not be treated differently from other computer-implemented inventions.

The Decision

The Court of Appeal’s decision centred on whether ANNs possess unique qualities that distinguish them from other computer programs.

After consideration, the Court of Appeal defined a computer as “a machine which processes information” and a computer program as “a set of instructions for a computer to do something.”

With these definitions, the Court ruled that ANNs, despite their complexity and sophistication, still fit within the meaning of a computer program.

The Court rejected Emotional Perception’s argument that ANNs’ ability to “learn” through training and adjust their parameters autonomously sets them apart from traditional computer programs, which rely on fixed, pre-programmed human instructions.

It was emphasised that training an ANN was akin to compiling a computer program, and the resulting output was still a set of instructions for a computer to do something.

The Court reasoned that factors such as whether the program was fixed, whether a human wrote it, or how complex the problem it solved may be irrelevant. As such, the exclusion of computer programs in section 1(2) of the Patents Act remained applicable.

Technical contribution

Once the Court established that the ANN was a computer program, the focus shifted to whether the claimed invention made a technical contribution to bypass the exclusion and qualify for patent protection.

Applying the Aerotel v Telco test, the Court agreed that the Emotional Perception’s tool improved music recommendations. However, it was concluded that this improvement was driven by subjective qualities, such as the emotional or aesthetic characteristics of the music, rather than technical ones.

The music file recommendations were based on semantic similarities and preferences, so they were not focused on solving an objective technical problem.

The Court determined that enhancing user experience through subjective assessments, such as improving music recommendations, did not meet the technical contribution threshold required for patentability.

It clarified that AI tools like ANNs can perform complex tasks, but their outputs must show genuine technical innovation, not merely aesthetic improvements.

Importance and outlook

In a world where AI is increasingly integrated into various industries, this decision brings much-needed clarity regarding the boundaries of its patentability.

As reflected in the updated UKIPO guidance, ANNs and other computer programs are on equal footing, and to qualify for patent protection, they must demonstrate a clear technical contribution beyond aesthetic enhancement.

Given that many software patents have been granted, there is no reason why AI-related inventions cannot also be protected. Achieving this depends on producing well-drafted patent applications demonstrating a technical contribution to the field.

This is where the expertise of law firms and patent attorneys comes into play. They provide essential guidance to tech and life sciences clients, advising them on the patentability of their novel inventions and helping them craft patents to set them up for success.

For the preceding article, see here

For the Aerotel v Telco test, see here

• By Yman Abrate