As July marks the end of the Judicial year there has been a sudden flurry of decisions including two in the House of Lords, which we report below. However on 31 July for the first time, the Court of Appeal gave judgement in an Adjudication enforcement case.

Adjudication Update

In Bouygues v Dahl-Jensen, the CA upheld the judgment of Mr Justice Dyson, and confirmed that the purpose of the adjudication procedure in section 108 of the HGCRA was to provide the parties to a construction contract with a speedy method of resolving disputes, which although not finally determinative could be enforced through the courts by way of summary judgment. Even where, as in Bouygues, an adjudicator had answered the question put to him in the wrong way, the court would not interfere with the adjudicator's decision.

Dahl-Jensen, the successful party, had gone into liquidation. Significantly, the CA stated that where there were latent claims and cross claims between the parties, 4.90 of the 1986 Insolvency Rules would apply to provide for a mutual set-off. In those circumstances summary judgment was not the appropriate way to proceed. This was because the amount due under the decision to the insolvent party would become part of the fund for distribution amongst its creditors. Accordingly, Bouygues would only receive a pro-rata dividend on its cross-claim and would be deprived of the benefit of setting off its own claim under the construction contract against Dahl Jensen's claim as envisaged by rule 4.90. As a consequence, there would be a reasonable prospect of successfully defending the claim and no real reason to dispose of the claim summarily in circumstances where the account between the parties would have to be re-opened.

In other words, had this argument for set-off been raised before Mr Justice Dyson, then for reasons peculiar to this actual case, summary judgment would not have been granted. Nevertheless, the Court of Appeal had the opportunity to disagree with the robust approach taken by the TCC. It declined to do so.

In KNS Industrial Services v Sindall the Defendant resisted the Claimant's application for summary judgement and the claim was dismissed. HHJ LLoyd QC confirmed that an Adjudicator did have jurisdiction to make a deduction for incomplete and non-compliant works provided that the dispute referred by the Notice of Adjudication included any ground open to Sindall which would justify not paying KNS. Even if the sums in question had required an effective notice of withholding and that had not been given, allowing the deduction would have been an error that decision would not be without jurisdiction.

The attempt by KNS to sever parts of the decision that it said were wrong and enforce the balance of the decision was rejected. A party cannot pick among the reasons for a decision so as to characterise parts as unjustified and therefore made without jurisdiction.

However, albeit obiter, the judge also said that rights under a contract which were not within the matters decided may afford a defence to enforcement. The mere referral of a dispute to adjudication should not alter the parties' other rights under the contract falling outside of the dispute referred.

House of Lords

In Alfred McAlpine Construction v Panatown, by a 3:2 majority, the HL reversed the decision of the CA below and found in favour of the Claimant. McAlpine had contracted to design and build an office and car park. Panatown was the Employer. To avoid the contract attracting VAT an associated company, Unex Investment Properties, owned the site and was in effect the developer. Panatown had alleged that the building was defective and might have to be demolished. At issue was the extent of damages to which Panatown might be entitled.

The majority held that, particularly as McAlpine had entered into a duty of care warranty with Unex, there could be no exception here to the general rule that a Claimant can only recover damages for a loss which it has actually suffered. Here Panatown was only entitled to nominal damages. The particular contractual relationship in this case had been deliberately set up by Panatown. By the warranty, it was Unex, (the company who as owner and developer of the site would be the company who would suffer any loss) who had been given a direct right to sue McAlpine.

However in Lafarge Redland Aggregates v Shephard Hill Civil Engineering the HL unanimously dismissed the appeal of Shephard from the CA. Shephard was engaged as contractor under the ICE 5th Edition and sub-contracted with Redland under the standard FCEC Blue Form. Disputes arose relating to the non-payment of a sum due under the sub-contract.

Redland sought to refer the dispute to arbitration. Shephard sought to take advantage of clause 18(2) of the sub-contract, which provided that "If any dispute arises in accordance with the main contract and the contractor is of the opinion that such dispute touches or concerns the sub-contract worksÖthe contractor may by notice in writing to the sub-contractor require that any such dispute under this contract shall be dealt with jointly with the dispute under the main contract in accordance with the provisions of clause 66 thereof."

Shephard served such a Notice in March 1995 but then did nothing to proceed to arbitration with the employer preferring to negotiate instead. Redland waited for two years then, understandably frustrated, sought to have its own dispute referred separately to arbitration.

The HL held that a contractor who invoked Clause 18(2) was under certain implied obligations, in particular an obligation to progress the clause 66 dispute procedure under the contract and failing that to initiate arbitration proceedings with the employer within a reasonable time.

The HL reiterated that what amounts to a reasonable time will depend on the facts of a particular case. Amongst the factors which should be taken into account was the fact that it might well be preferable to resolve disputes by negotiation. However Shephard had to have regard to the interests of Redland as well as itself.

Here the two-year delay could not be considered a reasonable time and the HL found that Shephard had been unwilling or unable to pursue arbitration with the employer. Shephard thus forfeited its right to rely upon clause 18(2) and Redland was therefore perfectly entitled to have its own sub-contract dispute referred to an independent arbitration.

However the HL did not agree on the form of joint arbitration envisaged by clause 18(2). Lords Hope and Clyde said that as the clause envisages only one arbitration this must be that between the contractor and the employer, the sub-contractor being permitted close involvement in that reference in accordance with implied obligations on behalf of the contractor to keep the sub-contractor informed and allow the sub-contractor the opportunity to present details of its case

However, Lords Cooke, Millett and Hobhouse held that clause 18(2) provided for two arbitrations, (under the contract and sub-contract), with the same arbitrator appointed to both such that advantage could be taken of Article 7.1 of the 1983 ICE Arbitration Rules, (now Article 9.1 of the 1997 Rules) which provide for same subject disputes to be heard together on application by the contractor. In so holding their Lordships ostensibly endorsed the views of the CA who found that clause 18(2) provided for tripartite arbitration.

TCC Cases

Chris Hough recently successfully defended a claim brought over an alleged defective lift system. The case, Vanguard Engineering v 4 Point Lift Systems, illustrates the potential danger in relying too heavily on a case based solely on expert opinion evidence based on theoretical calculations without due regard to the facts. Vanguard bought a lifting rig consisting of 4 vertical rams to be used pairs each connected by a beam. They attempted to lift, rotate and position an autoclave weighing some 95 tonnes. One of the rams failed and the load was dropped. In proceedings before John Uff QC, Vanguard's expert gave opinion evidence that the failed ram was theoretically incapable of carrying its rated maximum load of 49 tonnes at full extension with a 2% side load.

However, it was established, as a matter of fact, that because of incorrect planning and execution of the lift the ram had been subjected to a vertical load in excess of 49 tonnes at failure together with an excessive side load. The expert's evidence became irrelevant.

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