Adjudication Update

In Re A Company (number 1299 of 2001) Mr David Donaldson QC sitting as a Deputy High Court Judge in the Chancery Division concluded that absent a Withholding Notice pursuant to Section 111 of the HGCRA 1996, a contractor has an undisputed debt for the amount demanded in an application for payment. Consequently, that debt may form the basis of a statutory demand, which if unpaid within 21 days, may justify a petition to wind up the debtor. In this recent case the Court refused to restrain the winding up petition because:-

  1. It was undisputed, since the main contractor's surveyor had certified that sums were due and the right to withhold had been forfeited as a result of the main contractor's breach of Section 111;
  2. Second, the Court refused to exercise its discretion to dismiss the petition because the main contractor had failed to take any steps to pursue its cross claim by way of a separate adjudication or other proceedings, although the contractor had claims for set off and/or abatement which might have extinguished the debt claimed under the statutory demand.

This case emphasises the importance of actually cross adjudicating or taking some other step. Merely saying one has a set off or abatement will not necessarily afford a defence to a winding-up petition.

In Fence Gates Ltd v James R Knowles Ltd, HHJ Gilliland QC had to consider the decision of an adjudicator who had awarded James R Knowles payment for invoices for providing factual evidence as a witness of fact and for assisting in an arbitration.

The question was whether these were matters that fell within the definition of a construction contract set out in sections 104 & 5 of the HGCRA. Whilst the Judge thought it clear that giving factual evidence or assisting at an arbitration was not in itself a construction operation as defined by section 105, it did not necessarily follow that these activities were not carried out in relation to construction operations.

The Judge found that the giving of witness evidence by an architect is not the "doing" of architectural designing or surveying work itself. Similarly, providing litigation support at an arbitration is not the same as providing advice on the building or engineering work. They are different and distinct activities.

Disputes in relation to payment of fees properly payable for services rendered as a witness of fact or for assisting at an arbitration or litigation are not disputes in relation to construction operations even if that dispute concerns construction operations. They are disputes in relation to litigation support work and arise under a contract for the provision of litigation support services.

The decision of HHJ Gilliland QC in Farebrother Building Services Ltd v Frogmore Investments Ltd relates to an adjudication carried out in accordance with the TeCSA adjudication rules version 1.3. In particular, the Judge discusses paragraph 12 which provides that an adjudicator "may rule upon his own substantive jurisdiction and as to the scope of the adjudication".

HHJ Gilliland QC agreed that under the TeCSA Rules, an adjudicator did have the power to determine his own jurisdiction stating:

"so far as jurisdiction is concerned, if he [the Adjudicator] decides that something is within his jurisdiction, that is binding. Thus jurisdiction is for the Adjudicator to decide and not a court on summary application."

Here, the defendant argued that it was entitled to deduct or set off from the amount of money awarded to the claimant, a claim which was before the adjudicator but which was not, it was submitted, challenged. The award was good in part, but not in full.

Following the decision in KNS Industrial Services v Sindall, HHJ Gilliland QC took the view that it was not right for the court to dismantle or reconstruct the decision of an adjudicator. A party cannot pick and choose.

Natural Justice

In R (on the application of Krishnajarah) v Secretary of State for the Home Department & Ors, a Sri Lankan Tamil had his appeal for asylum rejected by an adjudicator of Singhalese ethnicity. K applied for judicial review, contending that because the adjudicator was a Singhalese, a fair-minded observer would conclude that there was a real danger of bias. The appeal was dismissed. The fact that the adjudicator was of the same ethnic origin as the Singhalese population of Colombo did not establish a real danger of bias in the eyes of the fair-minded observer. The adjudicator had no personal or monetary involvement in the case. The question for potential bias was one of fact. There was none here.

Expert Evidence

The decision of HHJ Wilcox in A De Gruchy Holdings Ltd v House of Fraser Stores Ltd provides a good example of the single joint expert at work at the TCC. Here, the expert had to put himself in the role of a project quantity surveyor and provide a report for the court accordingly.

The defendant objected to some of the "joint" evidence. However the Judge said that the court must consider the evidence as evidence in the light of the (joint) instructions the expert had been given and to give that evidence appropriate weight after not only consideration of any cross-examination of the expert that there may have been but also after consideration of any other evidence that may have been put forward. The fact that the expert has been jointly instructed does not mean that he is necessarily deciding the case.

If an expert demonstrates a careful and reasoned approach a court must have a very good reason for substituting another view and not giving considerable weight to that evidence. Here, the expert was put under the pressure of time. However, the expert pointed out those areas of his evidence where that pressure affected the degree of care he could give. Where he would have wanted substantiation or additional information, which may (or may not) have been available, he said so.

Health & Safety

Smith & Nephew were fined £20,000 in the Magistrates' Court (the maximum penalty) following an accident in which a contractor was covered in flames when using hot work methods to cut through a duct, when a liquid within the pipe was ignited. The company had wrongly assumed that the pipes did not carry any flammable liquid. Proper steps could and should have been taken to reduce this risk.

Government Changes

Following the recent election, Tony Blair has announced a number of changes to the make-up of his cabinet. This includes the creation of a Department for Transport, Local Government and the Regions (DTLR). As a consequence, sponsorship of the construction industry moves to the DTI whilst the DTLR retains responsibility for building regulations.

The Fire Service is to transfer to the DTLR from the Home Office. This puts related responsibility for building regulations and fire protection within one department, and complements the existing work of the Health and Safety Commission and Executive both of whom already report to DTLR ministers.

Nick Raynsford becomes a local government minister whilst Lord Falconer has been named as the new planning and housing minister.

This means that as yet, there is no specific "construction minister" to replace Nick Raynsford. Brian Wilson, the Minister of State for Industry and Energy, has however been given responsibility for the construction industry.

Other Cases of Interest

In Clowes Development (UK) Limited v Mulchinock, Martin J had to consider a contract whereby Clowes agreed to build a house for the defendant on land which would then be sold to the defendant. The contract made express provision for payments to be made by instalments at defined stages of the building process. The contract was terminated and the defendant sought to recover the part payments that had already been made.

The Judge held that the part payments clearly related to the building works carried out by Clowes and so were not recoverable at law. There had not been a total failure of consideration. There was no evidence that the payments made exceeded the value of the work done therefore, equity would not intervene to prevent the forfeiture of the instalment payments.

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