The Fenwick Elliott Summer 1999 Review

Welcome to Fenwick Elliott’s Summer Review for 1999. As is usual, our Review is intended to highlight salient developments in our specialist field of construction law over the last year. Not surprisingly, this year’s Review concentrates on the two most significant developments: the wide-ranging reforms to civil litigation procedure introduced by the Master of the Rolls, Lord Woolf, in force from April 1999, and the continuing impact of adjudication.

In addition to special features on the Woolf Reforms and adjudication, this Review contains useful information on other important developments and as usual includes a round-up of the key cases reported by Fenwick Elliott in the Construction Industry Law Letter over the past year.

Contents

Ringing the Changes: (1) The Woolf Reforms

From the mid-nineteenth century the Rules of the Supreme Court and the County Court Rules appearing respectively in the “White Book” and the “Green Book” governed the conduct of civil litigation in England and Wales. On 26 April 1999, these Rules were abolished and replaced with a new set of court rules, the Civil Procedure Rules. The Civil Procedure Rules (“CPR”) are intended to implement the recommendations of the Master of the Rolls, Lord Woolf, which appeared in his interim and final reports on Access to Justice published in 1995 and 1996 respectively. The principal aims of the new Rules are to make litigation cheaper, quicker and more intelligible to the non-lawyer (one of the more well publicised provisions being the use of plain English). More radically the new Rules embody a new dispute philosophy requiring litigants, lawyers and judges to act at all times in accordance with an overriding objective.

The Overriding Objective is set out in CPR Rule 1 which requires the court to deal with cases justly by:

1. ensuring that the parties are on an equal footing;

2. saving expense;

3. dealing with the case in ways which are proportionate -

   1. to the amount of money involved;

   2. to the importance of the case;

   3. to the complexity of the issues; and

   4. to the financial position of each party;

4. ensuring that it is dealt with expeditiously and fairly; and

5. allotting to it an appropriate share of the court’s resources, while taking into account the need to allot resources to other cases. [CPR Rule 1.2]

The emphasis on the Overriding Objective means that the Rules represent a major change in civil litigation practice.

Equally significant are the case management powers given to the court. Under the old Rules control of the conduct of litigation largely rested with the parties. Under the new Rules the judge has far greater powers to take the initiative. Rule 1.4 of CPR Part 1 obliges the court to further the Overriding Objective by means of pro-active case management. Accordingly, it can be expected that judges will adopt an interventionist and robust approach to litigation in the post-Woolf era.

To give a flavour of the changes brought about by the new Rules, we reproduce below extracts from three talks given at a seminar organised by Fenwick Elliott in June this year on the subject of the Woolf Reforms. First, Richard Wilmott-Smith QC addresses the obligation to comply with the Overriding Objective and the enhanced role of the judiciary:

… So the first thing to understand about the new Rules is not their detail, but their purpose and with it the fact that the culture of litigation is going to change forever. When this is taken on board, along with the fact that none of us are experts, all of us having had the same short time to understand them, we might consider that confidence is the last attribute we should exhibit when looking at them. This is all the more so because none of the Rules can be looked at in isolation. They must be read together and in the light of the Overriding Objective.

… All applications made under the CPR must give effect to this Objective, as defined (see CPR 1.2), and the parties are obliged to assist the court in its pursuit of that objective. That means that whenever any step is proposed to be taken in any action, a check must be made against the Overriding Objective and the question asked, by judge and litigant: does this assist in furthering the overriding objective?

… It is not surprising therefore that the court itself needs to take the lead and manage cases and it has taken the power and obligation so to do in CPR 1.4 …

I think that encouraging cooperation may be a naïve aim in view of the fact that many parties are at daggers drawn and the court will have to avoid appearing like a well-meaning placator. Judges will have to be aware of the heat that the dispute generates with attendant suspicion. Many tools of management, particularly those at (b)-(e), have been the staple diet of the Commercial Court and Technology and Construction Court for many years now. I expect that the introduction of these Rules will make judges more confident in taking charge in the identification of the issues. For example, in the construction sphere, in a building failure case it should be the rule that the mechanism of failure is discovered before the contingent consequences are examined at great expense. Other tools of case management, like non-attendance and technology use, mean that routine matters like time summonses, questions of further and better particulars, discovery, etc, can and should be dealt with over the telephone by a system of flexible appointments and conference calls.

… The practice of each court will differ as to active case management steps to be taken. The temperament of each judge will be of importance and some of the older ones will want things to continue much as before. However, it should be plain from the Rules’ emphasis on case management that there is to be a culture change which will lead to the limitation on the amount of witness cross- examination and discovery simply because the amount in issue does not warrant the expense involved. This will cause some trials to be truncated to what will be, for some practitioners, an unwarranted and unjust extent. Procedurally the adherence to timetables will be of the first importance.

Claimants can get sizeable advantage from pre-trial preparation. They can control when the case starts and therefore can take the time to prepare themselves, to the potential disadvantage of less well-organised defendants, who must react quickly when presented with a claim. That aside, the culture change is all to the good, with its effects limited only by the quality of the judiciary. I think that over the next 5-10 years we shall begin to see the emergence of a younger and better trained judiciary which is less content to sit back and listen inscrutably and be more inclined to intervene in cases. The familiarisation process with the new Rules is only the start. A culture change is on the way for everyone.

In the second extract Simon Tolson of Fenwick Elliott examines one of the cornerstones of the new Rules, the Part 36 Offer to Settle, which is likely to become a key tactical weapon in any dispute. Used with care it should lead to more disputes being settled at an early stage.

… Either party may now make a formal offer to settle before proceedings are issued. Such pre-action offers to settle will be taken into account by the court when making an order for costs. As now, the offer must be expressed to be open for at least 21 days after its receipt and, if it was made by the would-be defendant, it must also offer to pay the claimant’s costs to the date of acceptance. Therefore rolled-up offers inclusive of costs would not be compliant. To obtain the protection of the Rule against the claimant’s costs, the defendant must then convert a pre-action offer to settle a money claim, into a Part 36 payment into court, within 14 days after the service of the claim form. Unless the notice states otherwise the offer is to be treated as including all interest up until the last date when it can be accepted without consent…

… A Part 36 offer can be made at any stage, before as well as after proceedings have started. The offer may also be tailored to meet some particular issue, for example liability or a distinct element of the claim. Unlike the Part 36 payment, an offer may be withdrawn without the need for any application to the court but it will have no cost consequences if it is…

… If at trial the defendant is held liable for more than the claimant’s offer or alternatively the judgment against a defendant is more advantageous to the claimant than the proposals contained in the claimant’s Part 36 offer, the result can now be very different from what it was in the past. This is because the court may order the defendant to pay:

• interest at a rate of up to 10% above Base Rate starting with the date on which the defendant might have accepted the offer without consent;

• order indemnity costs and interest on those costs at a rate of up to 10% above Base Rate starting with the date on which the defendant might have accepted the offer without consent;

The Court might order interest on costs to run from a date earlier than the judgment…

… So as a quick overview it certainly now seems to be the case that claimants’ offers to settle will be a very powerful new litigator’s weapon. As incisive as some of the other bits of weaponry that have been used to force compromises in the past. With the adoption of protocols in the pre-claim period (and we have seen a great one cooking for the TCC) the new climate will mean that in most cases where experienced lawyers are involved, the parties will have had more time to exchange evidence and to test the possible outcomes of the matters in dispute…

In the third extract, Ted Lowery of Fenwick Elliott discusses the role of expert evidence under the new Rules from the construction dispute perspective and in particular, the promotion of single joint experts (as opposed to separate party appointed experts):

… Single joint experts: this provision will potentially have the most impact upon construction disputes as we know them. However, it looks likely that in practice this provision will not alter the way in which most construction disputes in the TCC are dealt with. … the proposal that single experts be the norm set out in Lord Woolf’s Interim Report was considered very controversial. By the time Lord Woolf got around to preparing his Final Report he had moved to provide some degree of reassurance to lawyers and experts. In his Final Report, Lord Woolf stated that single joint experts will be used in cases ‘… where the amount in issue is very small, or where there is little scope for agreement’. He also referred to a very different category of disputes in which justice is likely to be achieved by the testing by cross-examination of expert evidence advanced by either party. These disputes were described by Lord Woolf as:

Large, complex and strongly contested cases where the full adversarial system, including oral cross-examination of opposing experts on particular issues is the best way of producing a just result.

That description is a relatively apt description of most construction disputes which find their way into the TCC.

… In a recent lecture Mr Justice Dyson, the Senior Judge of the TCC accepted that the provision for single joint experts insofar as it applied to cases in the TCC was an important and difficult area. He put forward his own tentative view that TCC would be likely to order a single joint expert where:

1. The sums at stake in the litigation were small in relation to the costs likely to be incurred.
2. The expertise required consisted of a personal judgment or ‘feel’.
3. The evidence required was relatively uncontroversial.
4. The issue was relatively peripheral to the case.

Mr Justice Dyson’s personal views, whilst influential, do not of course represent official TCC policy.

 … It does however seem … possible that certain specific issues within a large dispute may be allocated to a single expert. The expert evidence required could be divided up, permitting single joint experts to be appointed in respect of discrete issues. One could, for example, see certain issues which would normally be dealt with by either expert, being parcelled out to a joint expert, for example application of the Emden or Hudson formulas in relation to claims for overheads and profits. Parties, lawyers and experts should be prepared to be flexible.

It should be remembered that the new Rules are not immutable and have been, and will continue to be, subject to revision as inherent anomalies and drafting errors (it has been accepted that the new Rules were drafted in a hurry) come to light. Moreover, the new Rules are not yet complete, for example those sections dealing with appeals have yet to be published. Of course, some aspects of the new Rules are capable of early assimilation into litigation practice, for example the revision of the court forms and the new nomenclature. However, in relation to the more fundamental aspects both lawyers and litigants are proceeding cautiously. By the time this Summer Review is published, the new Rules will have been in operation for some four months. To date, precedent setting case law has been sparse.

In a very recent decision, that of Stevens v Gullis (unreported), Lord Woolf himself, sitting in the Court of Appeal, vigorously affirmed the principles underpinning his reforms, fully endorsing the lower court’s decision to dismiss a defendant’s counterclaim, stating that judges would act “robustly but fairly” under the new regime.

There have also been a couple of decisions concerning cost issues, which make it clear that the courts in general are embracing the new Rules with enthusiasm. On 11 June, Mr Justice Jacob handed down his judgment in the case of Mars UK Limited v Teknowledge Limited. In this decision, Judge Jacob substantially reduced the costs awarded to the winning claimant because of their failure to give advance warning of the high level of costs that were to be incurred in pursuing the proceedings. He said:

For one party to run up unforeseeably large bills without warning the other side seems to me to be a matter to be taken into account in a detailed assessment, that is part of the “manner in which a party has pursued or defended his case” under [CPR] 44.3.5.

In a more recent case, Bank of Baroda v D. Shah & Others 30 July 1999, the Court of Appeal upheld the exercise of discretion by the Trial Judge in awarding the first defendants indemnity costs on the grounds that the discovery given by the claimants had been “abysmal”.

On 1 July 1999, the Honourable Mr Justice Dyson of the TCC handed down his judgment in the case of Burrells Wharf Freeholds Limited v Galliard Homes Limited. This concerned an application for pre-action discovery under CPR 31.16. In allowing the application on the grounds that the requirements of CPR 31.16 were satisfied, Judge Dyson made a few telling observations about the conduct of the proceedings describing the contents of the correspondence passing between the parties’ solicitors as “depressing” and in conclusion, referring to the considerable volume of Affidavits and correspondence generated by the application, remarked that:

The overriding objective of enabling the court to deal with a case justly includes, so far as practicable, saving expense, and dealing with the case in ways which are proportionate inter alia to the complexity of the issues: CPR 1.1(2)(b) and (c) (iii). These important principles have clearly been overlooked in the present case.

In view of the cases which have been reported to date, the judiciary has applied the spirit of the new Rules with vigour and we can expect this to continue. The judges back from their Woolf training courses, appear prepared to exercise the new powers given to them and deal robustly, and in some cases abruptly, with matters which come before them, which are perceived to offend the guiding principles of the new regime. For once, the phrase “legal revolution” is not simply an oxymoron.

Ringing the Changes: (2) Adjudication

As we reported in the last Summer Review, adjudication under the Construction Act is now up and running. The pace of adjudication is picking up as contracts subject to the new legislation are entered into. Figures from the RICS show a total of 174 appointments since February of this year, rising from 15 in February to 43 in July.

In five recent decisions, the courts have given considerable impetus to adjudication under the Housing Grants, Construction and Regeneration Act 1996 (“the Act”).

The first decision concerning adjudication was that of The Honourable Mr Justice Dyson of the TCC in Macob Civil Engineering Limited v Morrison Construction Limited which was handed down in February 1999. In that case the defendant sought to resist enforcement of an adjudicator’s decision and to obtain a stay to arbitration in accordance with the Notice of Referral it had served. The defendant argued not merely that the adjudicator was wrong as to the merits, but also that he had breached the rules of natural justice and as such had not made “a decision” properly so called. Judge Dyson rejected these arguments, holding that to refuse enforcement would “substantially undermine” the effectiveness of adjudication and decided that the provisions of the Act should be construed purposively. Further, Judge Dyson treated the Notice of Referral as a form of election by the defendant which confirmed the final and binding nature of the adjudicator’s decision, (as being capable of revision by an arbitrator).

The decision confused the position on enforcement because the claimant did not seek a monetary judgment. Judge Dyson therefore made a declaration that the decision of the adjudicator was binding pending arbitration, legal proceedings or agreement whilst indicating that summary judgment ought to be the preferred method of enforcing the adjudicator’s award.

The next decision of the court was that of His Honour Judge Humphrey Lloyd QC of the TCC in Outwing Construction Limited v H. Randall & Son Limited handed down on 15 March 1999. This dispute concerned costs where the defendant having initially failed to comply with an adjudicator’s decision paid the sum in full shortly before the hearing of the claimant’s application for summary judgment. The defendant relied upon the Procedural Rules applicable to summary judgments generally, to oppose a Costs Order alleging that the claimant had acted prematurely and unreasonably in pressing on with its application for costs. Judge Lloyd rejected this argument stating that:

Action to enforce an Adjudicator’s Decision is not comparable to the ordinary process of recovering an apparently undisputed debt.

Judge Lloyd considered that a party seeking to enforce an adjudicator’s decision was entitled to seek expeditious enforcement of the decision and distinguished the adjudication process from general debt recovery.

The next decision to be reported, Rentokil Allsa Environmental Limited v Eastend Civil Engineering Limited was heard in the Scottish courts by Sheriff Gilmour and subsequently, on appeal, by Sheriff Principal Cox during March 1999. In this instance, the pursuers provided the defenders with a cheque in the full amount due under the adjudicator’s decision but simultaneously lodged an arrestment (a protective measure under Scottish Law, which freezes monies being the subject of a dispute, including in this instance the adjudicated sum, in the hands of a third party). The surrounding facts were less than straightforward but in their judgments, both the Sheriff and the Sheriff Principal supported the principles of the Act and refused to allow the use of protective measures pending the outcome of litigation or arbitration to “circumvent and negate” the effect of an adjudicator’s award.

The next decision was that of His Honour Judge Wilcox of the TCC in A & D Maintenance and Construction Limited v Pagehurst Construction Services Limited handed down on 23 June 1999. The claimants sought summary judgment under CPR Part 24 to enforce the adjudicator’s decision in their favour for the outstanding balance of submitted invoices. The defendants had terminated the claimants’ contract prior to the reference to adjudication and had commenced proceedings seeking damages against the claimants in respect of fire damage caused by defective materials supplied by the claimants. The defendants did not challenge the adjudicator’s jurisdiction but argued that adjudication was only suitable for minor disputes occurring during the continuance of the contract and consequently, that adjudication was not appropriate where the contract had been terminated. Judge Wilcox rejected this argument and granted the claimant summary judgment under CPR Part 24.2 rejecting the notion that there was a limitation principle within the Act. Albeit that the defendants’ proceedings claiming damages from the claimants were progressing, Judge Wilcox held that in this instance the potential for duplication of proceedings ought not to discourage the court from enforcing adjudicators’ decisions quickly and effectively in the spirit of the Act.

In the A & D Maintenance decision the defendants’ failure to object to the adjudicator’s jurisdiction was noted by the court. In the last, and most recent decision to consider adjudication, the situation was rather different. This is the case of The Project Consultancy Group v The Trustees of The Gray Trust, another decision of Judge Dyson of the TCC handed down on 16 July 1999.

This was another application for summary judgment under CPR Part 24, but in this case the claimants were unsuccessful. Judge Dyson applied summary judgment principles and found that the defendants had a real prospect of showing that the adjudicator was wrong in holding that the contract was concluded after 1 May 1998. The defendants had argued that either it was concluded before this date or that there was no contract in writing in place which in either case would mean that the adjudication provisions within the Act did not apply. It was significant that whilst the defendants had consented to the adjudicator deciding upon his own jurisdiction, and had taken part in the adjudication, they had from the outset disputed that the adjudication provisions within the Act applied and reserved their position accordingly. The claimants cited the decision in Macob but Judge Dyson distinguished that decision, pointing out that different considerations apply when the adjudicator makes a decision which he is not empowered to make. This was to be contrasted with Macob which concerned an alleged procedural error amounting to a breach of natural justice, in an otherwise valid adjudication process.

This last decision should not be regarded as a brake upon the enthusiasm for adjudication previously displayed by the courts. In his judgment in the latter decision, Judge Dyson suggested that jurisdictional arguments of the type that were successful in that case were likely to appear in comparatively few cases. This we think must be right.

He also made it clear that the courts will examine all such claims very carefully to prevent abuse by what he termed “cynical” defendants. This attitude will no doubt be applied to all parties attempting to set aside adjudication awards.

Adjudication is therefore here to stay and we predict its use will exponentially increase, not only because more and more contracts post-dating 1 May 1998 will be subject to the Act, but also because of the Courts’ willingness to enforce adjudication awards quickly. It will remain open to the parties to object to the adjudicator’s decision on grounds of jurisdiction, as was the case in the Project Consultancy Group decision. It may also be possible to challenge the decision where procedural non-compliance has caused undue prejudice to one party’s ability to present its case to the adjudicator. (See Lord Woolf’s comments in the Court of Appeal in an immigration appeal dispute R v Home Secretary v Ex parte Ravichandran The Times 26 May 1999.) However, where jurisdictional doubts do not arise and the straightforward procedures within the Scheme for Construction Contracts or other adjudication procedures are followed, the paying party’s opportunities to challenge the adjudicator’s decision will be rather limited. Moreover, the court’s firm endorsement of the concept of adjudication can only encourage parties to pay up, rather than challenge the adjudicator’s decision.

We firmly believe that the introduction of the New Civil Procedure Rules, together with the enhanced practicality of adjudication, will have a major impact upon the hitherto often ponderous nature of construction disputes.

There is common perception that the impact of the new Rules will be muted in the “home” of the construction dispute, the TCC. This is because many of the requirements of the Rules reflect practices that were pioneered in TCC and have been a feature of TCC practice for a number of years, case management being a typical example. In reality, whilst essential TCC procedures may not have altered so dramatically as has been the case within other courts, the new philosophy is undoubtedly going to impact upon construction disputes, whether in the TCC or otherwise. In a recent lecture given to the Society of Construction Law, His Honour Judge Humphrey Lloyd QC confirmed that the new Rules and the application of the Overriding Objective will have a significant impact.

Hence, there is a need to avoid complacency and a positive obligation upon both lawyer and client to act in the spirit of the new Rules.

Amendments to the new Rules and the ongoing production of protocols and Court Guides means that information output on the new Rules is significant. It is therefore crucial for lawyers to keep abreast of the new developments. At Fenwick Elliott we are very conscious of the need to keep in touch. In addition to staff attendance at seminars and our own in-house training development programme, Jeremy Glover and Shamim Amir have been given specific responsibility to review continuing developments in the application of the new Rules and revisions to the new Rules as and when they occur. Further, Eddie Farren is keeping a close eye upon the development of the new Rules on costs contained in Parts 43 and 44 CPR. All fee earners have desk-top access to a number of websites devoted to reporting revisions to and developments in the application of the new Rules. As mentioned above, a number of staff have already given lectures concerning these new Rules. We are confident that we are well placed to provide clients with the same top quality advice under the new Rules, as we were under the old Rules.

Lord Woolf’s reforms reflect the idea that litigation ought to be more cost-effective. At Fenwick Elliott, we have always sought to achieve results for our clients by managing litigation in a cost-effective, rapid and pragmatic manner, and we expect to apply the new Rules to encourage and facilitate these aims.

It will be clear from the recent decisions summarised in section 3 that adjudication has “arrived” as an effective means of achieving an enforceable result in many disputes.

Now that adjudication has been given this judicial reinforcement we are confident that greater use will be made of it. We are increasingly being asked to act on adjudications and we have no doubt that the factor of key importance is to act quickly and within the prescribed time limits. Whether bringing or defending a claim you must be prepared to devote the necessary resources to state your case. The process is quick, which is an advantage to everyone, and will also result in a decision which is enforceable through the courts if necessary.

At Fenwick Elliott, we are firmly committed to raising the profile of adjudication to the ultimate benefit of our clients.

Robert Fenwick Elliott has played an active role in the drafting of the TeCSA Adjudication Rules which have been used in many adjudications. Moreover Robert, Simon Tolson, Tony Francis, Julian Critchlow, Richard Smellie, Chris Hough and Alison Godkin, are trained adjudicators whose services are available to the industry as a whole.

Earlier this year, Tony Francis and Steve Nightingale produced a Special Report entitled Adjudication Under the Construction Act. Further details of this Report appear in Section 7. In October 1998 we arranged a seminar at the adjacent One Aldwych Hotel to discuss the likely impact of adjudication upon the construction industry. Those attending heard papers prepared by Richard Smellie, Steve Nightingale and Simon Tolson, all from Fenwick Elliott.

In order to make this body of knowledge available directly to our clients, Fenwick Elliott has set up an Adjudication Rapid Response Service. The driving force behind adjudication is that of speed and we therefore believe that this service offers positive solutions to effectively meet our clients’ needs. For further details of this scheme please contact Tony Francis.

It has been suggested that construction lawyers will suffer most as a result of the double impact of the new Rules and adjudication. We, however, warmly welcome measures which encourage efficient and economical dispute resolution without the need for the ponderous and expensive procedures associated with the litigation and arbitration.

Fenwick Elliott have always sought to achieve the best results for our clients without the need for expensive and lengthy litigation or arbitration references. Hence, we firmly believe that the impact of adjudication will assist us in achieving those aims for the greater good of our clients. The principles which underline our approach were set out in detail by Robert Fenwick Elliott in an article he wrote in Building in January, an extract from which is set out below:

Legal battles are long and pricey, yet we seem to be obsessively in love with them - even though there are ways to resolve disputes cheaply and rationally. We could, if we wanted, say goodbye to our culture of conflict.

Reforming dispute resolution systems is notoriously difficult. Many disputes are precipitated by the mad, the bad and the dangerous to know, who often want legal battles to be long, bloody and expensive. And consider this: if it were possible to have any dispute resolved reliably, fairly and cheaply, what would there be to discourage parties running to court over every niggle?

The situation is ripe for improvement. The amount of time and trouble wasted on conflict has grown to absurdly inefficient proportions. This has led the industry to admit the principle of universal adjudication, and the civil justice review under Lord Woolf to embrace the notion of proportionality: civil justice is no longer to be of a single Rolls-Royce standard but is to tailor its processes to the legal cost is proportionate to the sum in dispute.

How far can this wave of reform be extended? There are several principles that I consider realistically achievable:

• Costs should always be proportionate.

That means, I believe, that the legal costs to any party of a dispute should not ordinarily exceed 10% of the sum in dispute and should very rarely exceed 20%.

• Adjudication and other intermediate dispute resolution must become the norm.

The emerging rule of thumb is that intermediate processes cost about 10% of the amount of full-scale litigation or arbitration. My recent experience of intermediate dispute resolution processes in big cases is that legal costs have been turning out to be about 0.5% of the sum in dispute.

Of course, adjudicators have to cut corners. But within their timescale of a month or so, a skilled adjudicator can typically reach a decision that is broadly right. It is absurdly inefficient for the parties to spend up to 150% of the sum in dispute on trying to improve that standard, particularly when the typical result of arbitration or litigation is not a judgment or award by a settlement forced on the parties by a crippling cost burden.

• An end to the cry that adjudication is unsuitable for large or complex cases.

Since the summer, I have spent most of my time running adjudication processes in large and complex cases and that experience reinforce my belief, that not only can such cases be dealt with in this way, but that it is in large or complex cases that the greatest savings of time and costs are to be found.

Over the next year or so the Technology and Construction Court is inevitably going to move into a more supervisory role, overseeing and reviewing the work of adjudicators, rather than representing a first port of call. There will be bad adjudicators as well as good ones. Judges must control the bad without hobbling the good.

• Shorter and simpler contracts.

Contract documents have become absurdly long, so long that those who run them rarely have any real idea of what the small print says. Unless a project runs into trouble, the parties inevitably look to commercial good sense rather than the small print.

It is time to start again. It is not realistic to abolish contracts, but it is realistic to restrict them to what is agreed by the individuals who make the deal as to price, programme, quality and so on. This should be coupled with a short and simple code.

The idea that the parties achieve certainty by lengthy contract provisions is simply not borne out by experience. The longer the contract, the less compatible it is likely to be with constructive and fair dealing, and the more the parties hold themselves hostage to an uncertain legal result.

It would be perfectly possible for the industry to commission the drafting of a short code of main contract conditions and short code of subcontract conditions. These codes should abolish the excessively complex notice provisions to be found in some standard forms, and should make no attempt to impose a management system. Projects are better managed by an active process than by the dead hand of a contract draftsman.

• Fewer construction lawyers.

No purpose is served by lawyers who merely make the wheels grind longer or more noisily. Although it is often the barrack room lawyers who cause the greatest cost and delay, there is a powerful body of experienced construction lawyers well able to build labyrinthine contracts and engage in elaborate battles. But is it not time for the industry to ask us to do something more constructive? In well-run cases that is already happening, and the experience makes one wonder why the industry stayed with the old system for so long.

It seems clear that the construction industry will not be immune from the uncertainties and difficulties associated with the Year 2000 computer problem (Y2K). Despite warnings that Y2K will affect the construction industry, the Government’s latest statistics reveal that approximately 70% of the construction industry has done very little to deal with Y2K. In the event that Y2K does affect systems within projects (e.g. the computer system, BEMS, M&E equipment, etc) the losses could be significant. For example, on 1 January 1997, 616 embedded systems within the smelter pot lines at a factory in Southland, New Zealand failed. The repair bill totalled more than US$600,070. The company also lost money whilst the plant was being repaired.

However, not all programs or embedded systems will be affected by Y2K. As a guide, a leading Y2K compliance consultant, David Clark of BSC Consulting, has investigated approximately 40,000 separate systems. BSC Consulting’s audit discovered that only 6.8% of the systems were not Y2K compliant. While the percentage may seem low, David Clark rightly points out that the difficulty is that the 6.8% may affect vital profit-making systems. In the event those systems are affected, the business could incur significant losses. It is this degree of uncertainty which has led many companies to undertake specific Y2K audits to help them ascertain where their risks lie.

From the legal point of view most problems are likely to arise in relation to contracts that were entered into before Y2K concerns achieved prominence. This is particularly the case in the construction industry where many buildings and structures incorporate software systems, for example in distributive control systems. We frequently find that software designed and installed no more than three or four years ago is not Y2K compliant. Typically, the employer/user discovers this and complains to the main contractor who, in turn, complains to the supplier/designer or specialist subcontractor who installed the system. Our general impression is that main contractors are keen to secure monies from the suppliers before commencing repairs. This is not an approach we encourage bearing in mind that prevention is better than cure. The losses that will potentially follow a system failure on 1 January 2000 are likely to far outweigh the costs of ensuring Y2K compliance in advance.

Whilst there is a tendency to blame the supplier, the legal position is far from clear and to date, no Y2K case has come before the English courts. It appears that all concerned are prepared to reach an out of court settlement rather than attract the adverse publicity which will follow the first Y2K case in the courts. In the absence of court guidance, the liability for Y2K non-compliance will depend upon the individual contracts of supply. In St. Albans City and District Council v International Computers Limited (1996) the Court of Appeal decided that a software contract constituted a goods contract and was therefore subject to the Sale of Goods Act 1979 as amended by the Supply and Sale of Goods Act 1994. Hence, terms as to satisfactory quality of goods and their fitness of purpose are likely to be implied into contracts for the supply of computer equipment. However, the contract may also contain express terms specifically dealing with the Y2K issue, or for example excluding liability. The position may depend upon whether or not representations about the equipment’s suitability were made. Main contractors should particularly pay attention to whether or not subcontract provisions are back to back with those in the main contract

In conclusion, all businesses, including those in the construction field, should be aware that Y2K disputes are on the increase. Businesses are generally encouraged to review recent contracts to ascertain where the risk of Y2K non-compliance lies. Construction companies in particular should review all contracts entered into during the past four years which may involve equipment vulnerable to the risk of Y2K non-compliance. Construction companies are encouraged to identify the risks and ascertain the cheapest, quickest and most commercially sensible way to eliminate that risk in advance. If you require further information please contact Stuart Thompson or Simon Tolson.

It has been all change at the courts over the last year. On 9 October 1998 the old Official Referees Courts were revamped and renamed the Technology & Construction Courts. The most important change was the appointment of Mr Justice Dyson QC as judge in charge of the Court. In particular he has been tasked with hearing matters which are considered to be of key importance. For example, he heard the first case on the new Adjudication Rules, Macob v Morrison which we have summarised below.

The new TCC has fully embraced the new procedural Rules, although those of you familiar with the court process will no doubt agree that the former OR had already taken on board the spirit of the Woolf Reforms over the past few years and a number of the new Rules will be familiar to those who are used to dealing with St Dunstan’s House.

The new Rules specific to the TCC can be found at Part 49. The TCC is shortly to follow the Commercial Court and produce a Guide to the application of the new Rules for the purposes of TCC business. We understand this is presently scheduled to be published in December 1999, and if it in spirit resembles the draft Guide produced to date by the Commercial Court then it will clearly be a document of considerable significance and practical application to construction disputes.

As a consequence of the change of name, the names of the Official Referees Solicitors Association and the Official Referees Barristers Association have now been changed to the Technology and Construction Solicitors Association and the Technology and Construction Barristers Association, respectively TeCSA and TeCBAR.

We continue to be rated as one of the leading construction law firms, now rated equal second by the Legal 500 and are actively strengthening our team.

As many of you will know, Julian Critchlow joined the partnership from SJ Berwin at the beginning of the year. Julian is well respected throughout the construction industry and is, amongst other things, a Fellow of the Chartered Institute of Arbitrators, a CEDR accredited mediator and a TeCSA registered adjudicator. He is also author of Making Partnering Work in the Construction Industry.

In July 1999, Chris Hough joined us as an Associate from Ralph Hume Garry. In addition to having over ten years experience of construction law as a solicitor, Chris is also a Chartered Civil Engineer. He is registered as an adjudicator with the ICE, RICS, RIBA, CIOB and CIC, and is a Fellow of the Chartered Institute of Arbitrators.

We are also pleased to announce that Vijay Bange became an Associate in November 1998, and that in September 1999, Stuart Thompson became an Associate.

Eddie Farren joined the firm in May from Beale & Co. Eddie is a Litigation Executive who specialises in fast track and small claims disputes and the assessment and recovery of costs.

A company’s own in-house financial management often plays second fiddle to the task of attracting new business; often at the sacrifice of any real control on a company’s operating overheads etc. At Fenwick Elliott, we employ a Partnership Manager, whose role includes the financial management of the practice. Neil Elliot has filled this role for the last ten years, and his expertise in areas such as banking, insurance, together with cost control in relation to all our other areas of expenditure, has enabled us to lead the field in profitability when compared to our competitors. Neil Elliot has this year set up a consultancy practice that is now available to any of our clients who wish to take advantage of his experience on the subject of cost control. Such advice is given on a “no gain no fee basis” making it extremely attractive, even to clients who simply feel it worthwhile to carry out a “health check” on their finances.

The revised Fenwick Elliott website was launched in March of this year. If you have not yet had the chance to visit the site it can be found at:

http://www.fenwickelliott.co.uk/

Here you will find full details of all the members of the firm, together with copies of many of the articles written by the partners, and links with a number of other sites useful to those involved in the construction industry.

Every member of staff has their own email address or you can contact the firm at [email protected].

The neighbouring One Aldwych Hotel was the venue for our October 1998 adjudication seminar. Those who attended heard papers from Simon Tolson, Richard Smellie and Steve Nightingale.

In June of this year we held the first of what will be a series of breakfast seminars at the Waldorf Hotel. More than 150 people attended. His Honour Judge Michael Burton QC chaired the seminar which covered the impact of the Woolf Reforms. Richard Wilmott-Smith QC, Simon Tolson and Edward Lowery all presented papers, and the attendees were away, well breakfasted, by 10.30am as promised. We have included extracts from the papers given by Richard Wilmott-Smith QC, Simon Tolson and Ted Lowery in section 1 above.

Copies of the seminar papers are still available in limited numbers. If you are interested please contact Jo Hindley. We intend to hold a series of regular seminars on the most important issues of the day to the construction industry. If you have any requests for topics you would like to see covered please contact Julian Critchlow.

Simon Tolson continues to produce his regular articles in Building Magazine. Recent topics have included:

1. When the result of one legal action can be used to prove liability and determine the amount to be paid out in another.
2. Romalpa clauses. What to do if a purchaser of goods goes under when the goods have been received but not paid for.
3. Contribution. Success in a third-party recovery action may hinge on your legal team getting it right in the original action.
4. The right to make good defects.
5. Can you use a settlement concluded with one party to claim back from others alleged to have made a loss?
6. How to avoid onerous liabilities for cable damage if you are on public work contracts.

We set out an extract from the latter below…

A major public works client’s recent inquiry into its right to refute a British Telecom claim for damage to cables prompted a review of the uncharted side of the New Roads and Street Works Act 1991.

Any dispute in respect of damaged underground cables will be resolved in accordance with the Act’s provisions.

In addition, under section 231 of the Highways Act 1980, street works authorities must compensate any person who sustains damage by reason of the execution of street works …

There are no reported cases on the Act or its predecessor, the Public Utilities Act 1950. However, in the case of Post Office v Hampshire County Council (1979) ALL ER 818), the Court of Appeal considered a close relation: section 8 of the Telegraph Act 1878. This provided that undertakers or their agents who destroy or injure a telegraphic line of the Postmaster General shall be liable in making good that damage.

In this case, a Post Office engineer wrongly informed council employees that a Post Office cable was not under the verge being dug. The Court of Appeal concluded that the council was liable for the damage, but it further found that the negligence of the Post Office, in giving false information, resulted in a circuitous action. As one Lord Justice said, it offends one’s sense of justice that a utility can recover the cost of damage that it has itself brought about.

From a practical point of view, it is essential that contractors request details of the whereabouts of utility apparatus in good time.

Although utility company maps commonly carry disclaimers, the question is whether failure to provide an accurate map amounts to negligence. The Institution of Civil Engineers’ Report of Joint Committee of Location of Underground Services (1946) states that each statutory undertaker should keep detailed records. The Horne report, which formed the basis of the Act, also supports the public utilities.

The moral is that utility undertakers should not admit defeat if faced with a bill for remedial works to utility apparatus when they have followed due diligence procedures. If good homework is done, the legislation should work fairly, and even if ultimately liable, contractors may prove the undertaker contributorily negligent and have damages reduced.”

Copies of any of Simon’s articles can be obtained by contacting him.

Following the renaming of the Official Referees’ Courts, ORSA duly changed its name to the Technology and Construction Solicitors’ Association. In November of last year Robert became Chairman of TeCSA.

Case Round-up - CILL

Tony Francis is now the general editor of CILL. We set out below those case summaries that have appeared over the last year which are of particular interest. In addition, Tony, together with Steve Nightingale, produced a special report entitled Adjudication Under the Construction Act which highlights the general case law on the courts' approach to dispute resolution leading up to the 1996 Act and includes a commentary on the first Adjudication decision of the TCC. If you would like a copy of the Adjudication Report ( which costs £99) or would like to subscribe to CILL, which is published ten times a year, contact Monitor Press, Suffolk House, Church Field Road, Sudbury, Suffolk C010 6YA.

The following cases are of particular interest. An index appears at the end of this review.

ARBITRATION - APPLICATION FOR STAY

Technology and Construction Court
His Honour Judge Bowsher QC
Judgment delivered 2 October 1998

Facts

The plaintiffs carried out building works for the defendants on the terms of the JCT Minor Works Contract. The work to be done under that contract excluded work described as “the second fix and finishes”. There were conversations and discussions between the parties relating to the second fix works and the plaintiffs contended a separate oral contract came into effect in relation to such work which was not the subject of an arbitration clause. The plaintiff issued proceedings in the Technology and Construction Court in relation to second fix works. The defendant issued an application for a stay of such proceedings on the basis that such work was in any event subject to an arbitration agreement.

Issues and Findings

Should the plaintiff’s claim be stayed to arbitration?

Yes, it is sufficient for the defendant to show that there is an arbitration agreement and that there is a relevant dispute concerning the scope of that arbitration agreement.

Commentary

This case conveniently demonstrates the different approach to applications for a stay of proceedings under the 1996 Arbitration Act. His Honour Judge Bowsher QC confirmed that for the purposes of an application for a stay a dispute could encompass a dispute as to whether or not the arbitration agreement is relevant to the particular cause of action. In this case Judge Bowsher QC made it clear that it was for the arbitrator to determine whether or not there were disputes for which there was no arbitration agreement. This is a further example of an instance where under the 1996 Arbitration Act an arbitrator can determine his own jurisdiction.

INSURANCE - CONDITIONS PRECEDENT

Queen’s Bench Division
Mr Justice Colman
Judgment delivered on 8 May 1998

Facts

The defendant was an insurer under a contractor’s policy. The plaintiff, as main contractor, had obtained judgment against the insured, a subcontractor, by way of contribution in respect of an accident causing physical injury to a workman on site. The insured, having been wound up, the plaintiff claimed against the defendant as statutory assignee under the insurance policy. The insurance policy contained a clause in the following terms:

In the event of any occurrence which may give rise to a claim under this Policy, the insured shall, as soon as possible, give notice thereof to the Company, in writing, with full details and as far as practicable there shall not be any alteration or repair until the Company have had an opportunity of inspecting.

The first notification of the accident was not given to the defendant until over a year after the accident occurred, and in these circumstances, the judge found that the insured had at all times failed to satisfy the requirements of that clause.

Issues and Findings

Was compliance with the clause a condition precedent to liability of the defendant?

No.

Did proof of prejudice to the defendant entitle it, in any event, to repudiate the claim?

No. Prejudice to the insurers would not normally entitle the insurer to wholly repudiate the claim.

Commentary

The criteria applied by Mr Justice Colman in determining whether the clause in this case was a condition precedent to liability are consistent with a strict requirement for clear and express words where it is intended to exclude or restrict liability on the grounds of failure to comply with a notice requirement. Although the express use of the words “condition precedent” is unnecessary in order for a term to have this effect, in considering whether such an effect should be inferred, where there is a free choice between two possible constructions of a contract, the court will tend to prefer that construction which will ensure performance and not encourage avoidance of contractual obligations. Given that the notice provision in this case had an ancillary or administrative function, if non-compliance were intended to operate as a complete defence the judge would have expected this to be expressly stated rather than left to be inferred.

Although the judge dealt with the question of prejudice, in the event he found that the insurer had not been prejudiced irremediably by the delay in notification and therefore his comments in this respect, were strictly obiter. Nevertheless, his comments are in line with a reluctance by the courts to allow a party to repudiate in full a claim, even where delay in notifying the claim has caused prejudice, in the absence of clear words establishing notification as a condition precedent to liability.

RETENTION

His Honour Judge Bowsher QC
Official Referees’ Business
Judgment 29 July 1998

Facts

This was an appeal from an arbitration award. The appellant, Ballast Wiltshier (the respondent in the arbitration), a main contractor, employed Thomas Barnes as subcontractor to carry out certain reinforced concrete work. Thomas Barnes claimed the total remeasured value of the works in gross figures (i.e. including the amount Ballast Wiltshier was entitled to retain). One of Ballast Wiltshier’s contentions was that Thomas Barnes had no entitlement to the second moiety of retention money at the outset of the proceedings, therefore no cause of action had arisen in respect of it and Thomas Barnes was not entitled to claim it.

Issues and Findings

Did Thomas Barnes have a cause of action for the gross amount with no account taken for retention monies?

Yes. Thomas Barnes had a primary right to the gross sum payable under the Contract. Ballast Wiltshier had a discretionary right to retain part of that. Accordingly, Thomas Barnes was entitled to claim a gross amount and it then fell to Ballast Wiltshier to plead an entitlement to deduct retention money.

Commentary

This decision provides useful guidance for pleading to take into account an entitlement to withhold retention monies. The reasoning could be criticised on the ground that Ballast Wiltshier had already exercised its discretion in favour of withholding retention monies, so these should not have been the subject of a claim until they fell due. However, from a practical point of view the decision should be welcomed because it avoids the inconvenience of having to amend pleadings when the retention becomes due or, if judgment on the balance of the claim has already been given, having to seek a further decision when the retention becomes due.

FINAL CERTIFICATE

Court of Session
Opinion of Lord Gill - 30 March 1998

Facts

This is a Scottish case. The pursuers, Belcher, employed the Sixth Defenders, Dawn Construction Limited (“Dawn”), as main contractors for the alteration and extension of Belcher’s factory in Prestwick. The contract was JCT 63 (July 1997 revision) …

Clause 30(7) provided (relevantly):

(a) Except as provided in paragraphs (b) and (c) of this sub-clause (and save in respect of fraud), the Final Certificate shall have effect in any proceedings arising out of or in connection with this Contract (whether by arbitration under Clause 35 of these Conditions or otherwise) as

(i) conclusive evidence that where the quality of materials or the standards of workmanship are to be to the reasonable satisfaction of the Architect the same are to such satisfaction …

… (c) if any arbitration or other proceedings have been commenced by either party within 14 days after the Final Certificate has been issued, the Final Certificate shall have effect as conclusive evidence as provided in paragraph (a) of this sub-clause save only in respect of all matters to which those proceedings relate.

The Final Certificate was issued on 4 October 1988… Much later, Belcher brought a claim for defects. Dawn pleaded that the Final Certificate was conclusive evidence as to the standard of workmanship and quality of materials (plea 4) and accordingly sought a decree of absolvitor or of dismissal.

The case raised issues as to the applicability of Crown Estate Commissioners v John Mowlem (1994) CILL 986, (1994) 40 Con LR 36. In that case it was held that the Final Certificate was conclusive evidence (in the absence of arbitration being commenced within 28 days of its issue) not only as to the quality of materials and standard of workmanship where the contract expressly required that such matters should be to the architect’s reasonable satisfaction (the narrow interpretation), but in respect of all work where the architect is required to form an opinion as to whether or not they comply with the contract requirements as to quality and standards (the broad interpretation), which by implication from the contract was all the work in the contract.

Issues and Findings

Was the Final Certificate conclusive as to the standard of workmanship and quality of materials?

Not necessarily. The conclusive effect of the Final Certificate would only prevent evidence being led as to the architect’s reasonable satisfaction in that regard.

Would the Final Certificate be conclusive in a situation where an item which was part of the contract specification had been omitted altogether?

Not necessarily. It was not clear that that would be a question relating to standard of workmanship or quality of materials so as to attract the protection of the final certificate.

Commentary

The Crown Estate case has been much criticised (see the article by Ian Duncan Wallace QC at (1995) 11 Con LJ 184). In 1995, in a direct response to that case, the JCT published amendment 15 to JCT 80 which limits the conclusivity of the Final Certificate to situations where the quality of materials or standard of workmanship is described expressly to be for the approval of the architect. However, it is surprising how many instances still arise where parties have used pre-amendment forms.

The judge’s attempts to distinguish the Crown Estate case are in our view unconvincing. First, in that case the Court of Appeal seemed to accept that the practical effect of the Final Certificate was to bar claims unless arbitration was commenced within the 28-day period. The point arose in connection with the question of whether the court had jurisdiction to extend the 28-day period. Under s27 of the Arbitration Act 1950 where an arbitration agreement barred claims unless arbitration was commenced within a fixed time, the court could, in certain circumstances, extend the time period. The court held that s27 did not apply because cl 30.9.1.1 did not impose a time limit within which to commence proceedings. However, the court did not demur from counsel for the respondent’s submission that the effect of cl 30.9.1.1 was to bar claims because the party seeking to adduce evidence of matters dealt with by the Final Certificate and covered by that clause was precluded or barred from doing so. Stuart-Smith LJ said (at 43) that s27 required that the arbitration agreement state that any claims shall be barred unless the arbitration proceedings are commenced within a fixed time, “not merely that this is the indirect effect”.

Second, the judge sought to distinguish the Crown Estate case on the basis that defect (a) (the omission of carborundum dust) related to an omission of a part of the contract specification itself. However, the Crown Estate case has been taken to have held that all defects of every kind, latent or patent, are to be concluded by the final certificate in the absence of a timely notice of arbitration (see the article by Ian Duncan Wallace QC, supra, at 187). Further, we find unpersuasive the suggestion that the omission of material and work is not an issue relating to the quality of materials and standard of workmanship.

Those difficulties serve as a reminder that parties should ensure they use JCT 80 as amended to take account of the Crown Estate case.

CONTRACT - ARBITRATION APPLICATION FOR A STAY

Technology and Construction Court
His Honour Judge Humphrey Lloyd QC
Judgment delivered in Chambers on 12 February 1999

Facts

The plaintiff and the defendant made a partnering arrangement. Through this arrangement, the plaintiff carried out some work required for the construction of luxury apartments at Adventurers’ Quay, Cardiff Bay. The plaintiff started proceedings to recover payment for that work upon a quantum meruit. It was the plaintiff’s case that the work was done on the strength of a letter of intent and that although there were extensive negotiations, no contract was actually made.

The defendant took an opposite view saying that there was a contract which incorporated the JCT Conditions of Contract, with Quantities, 1980 Edition. This contains an arbitration agreement. Accordingly, the defendant sought a stay under section 9 of the Arbitration Act 1996.

Issues and Findings

Was there a contract?

On the facts, yes.

Did the contract incorporate an arbitration agreement?

Yes. Accordingly, the matter was stayed.

Commentary

The decision in Ahmad Al Naimi v Islamic Press Agency Incorporated 1998 (see above) suggested that the court could order a stay for arbitration in circumstances where it was at least arguable that an arbitration clause existed. In distinguishing that case Judge Lloyd QC confirmed the decision in that case was decided very much on its facts and the courts will decide the question as to the existence of a contract and thus the existence of an arbitration clause where it is sensible to do so in terms of saving parties time and money.

Here, although no formal contractual document was signed, the learned judge found it clear from the relationship between the parties that they had agreed to be contractually bound to each other. It could be argued that in doing so he took a commercial and pragmatic view. In particular he noted that where, as here, an agreement to proceed via partnering made a close relationship of mutual co-operation inevitable, parties are unlikely to adopt a rigid attitude as to the actual formation of the contract. It is also significant that he found that the plaintiff was (unfairly) trying to capitalise on the situation by sitting on the unexecuted and unsigned contract in order to try and improve its position.

DAMAGES

Court of Appeal
Judgment delivered on 10 June 1998

Facts

The plaintiff/respondent owned a large property of 137 acres, incorporating a hotel and conference centre. In 1988 the property was placed on the market. The property included an area of marshland which, in 1989, became contaminated with radioactive material due to overflow from the defendant’s/appellant’s adjacent atomic weapons establishment. This was not disclosed to the plaintiff until 1993 when the plaintiff was in the advanced stages of negotiations with a potential purchaser for the property. It was established that there was a 75% likelihood that the negotiations would have led to a concluded contract at a price of £10.35 million and that the sale was aborted because of the disclosure of the contamination.

The contamination was disclosed during a period of falling property values. There followed a period during which the property was not marketable until remedial works to remove the contamination had been carried out. After this time, the property retained the stigma of the contamination. The combination of these factors meant that upon completion of remedial works to remove the contamination the market value of the property was substantially less than the price which would have been paid had the prospective sale taken place. The plaintiff chose not to sell the property at this time. The market subsequently rose so that the property recovered some of its pre-contamination value.

Issues and Findings

Was the defendant liable for causing damage within section 7(1)(a) of the Nuclear Installations Act 1965?

Yes. Damage within the Act would occur provided there was some alteration in the physical characteristics of the property caused by the radioactive properties of the contaminant.

Was the defendant liable to compensate the plaintiff for damage to the plaintiff’s interest in the property as a whole?

Once liability was established, the plaintiff was entitled to be compensated for its foreseeable consequential losses, in this case the fact that the property became less useful and less valuable as a result of the contamination. The damage which established the Defendant’s liability was not mere economic damage and therefore the reasoning in such cases as Murphy v Brentwood District Council [1991] AC 398 did not apply.

What was the extent of the damages for which the defendant was liable?

The court held that the plaintiff was entitled to damages for the loss of its bargain; and that those damages should be assessed as at the date when remedial work to remove the contamination was completed and the property became marketable again.

Commentary

Following the decision of the House of Lords in Banque Bruxelles, this decision provides further guidance in calculating the damages recoverable where there have been movements in the property market. The Lords Justices of the Court of Appeal were unanimous in deciding that the plaintiff’s own decision to retain the property, broke, or rather ended, the chain of causation. The judge at first instance had awarded damages that took into account the rise in the value of the property between the completion of the remedial works and the notional trial date, some one and a half years later. In doing so he accepted the submission on behalf of the defendant that it would not be right for the award to reflect the fall in the market which took place after the contamination was disclosed unless account was also taken of the subsequent increase in values. That submission drew support from the words of Lord Hoffman in the Banque Bruxelles decision that “if the market moves upwards, it reduces or eliminates the loss which the lender would otherwise have suffered”. The Court of Appeal rejected that approach on the basis that it did not take into account the position where choice arose which could result in the chain of causation being broken. In effect, it could not be said that in this case the negligence that caused the loss also caused the profit.

Although a small amount of damages was awarded to recompense the plaintiff for costs incurred in connection with the remedial works to remove the contamination, the bulk of the damages were to compensate for the diminished value of the property. In light of the rule against recovery of mere economic loss, the physical damage caused by the contamination was, in the words of Lord Justice Simon Brown, a precondition of any liability. His Lordship accepted that had the marshland, which was physically affected, not been owned by the plaintiff, while the consequences might have been the same, the plaintiff would not have been entitled to claim damages. Similarly, that had the sale proceeded before the disclosure of the contamination, the purchaser would not have had the right to claim damages for what to him would have been merely economic loss. The measure of damages was premised on the loss of the chance to sell the property when the contamination came to light.

CONTRACT - UCTA 1977

Technology and Construction Court
His Honour Judge Bowsher QC
(Judgment delivered 8 June 1999)

Facts

This was a trial of two preliminary issues. The defendant supplied the claimant with a centrifugal air compressor. The contract was subject to the terms of the Institution of Mechanical Engineers Model Form of General Conditions of Contract Form C 1975 Edition as amended in September 1978. The claimant claimed damages for breach of contract maintaining that the compressor failed to comply with the performance term and warranties.

Issues and Findings

Does condition 11 exclude liability where there is breach of an express term which the defendant is unable to remedy?

Yes.

Did the Unfair Contract Terms Act 1977 apply to this contract?

No. The claimant was not dealing as a consumer nor had the claimant been dealing on the written standard business terms of the defendant.

Is condition 11 unreasonable under the Unfair Contract Terms Act 1977?

No. The court said obiter that it would have been reasonable and enforceable.

Commentary

This is another case which reinforces the importance of the guidelines set down by the House of Lords in the ICS v West Bromwich Building Society (1998) 1 WLR 996 case when deciding what a contract actually means. His Honour Justice Bowsher QC specifically sets out the relevant passage from Lord Hoffman’s judgment and follows the principle in making his judgment. This case also provides a useful restatement of some of the principles of the UCTA 1977 and in particular on the definition of dealing on another party’s written standard terms of business. Here, the burden of proof that the defendant was using the Model Contract Form as its standard terms of business lay on the claimant. This it was unable to do.

ARBITRATION

Official Referees’ Business
His Honour Judge Humphrey Lloyd QC
Judgment delivered 20 March 1998

Facts

This was an application under section 68 of the Arbitration Act 1996 challenging an arbitration award on the grounds of serious irregularity … In the final award the arbitrator decided, inter alia, that the contractor was entitled to a variation order in respect of most of the items instructed by Mr Gbangbola; the employers were entitled to deduct £2,890.00 in respect of defects and outstanding works; and significantly that the employers should pay the contractors’ costs.

The costs award surprised the employers who felt they were the overall winners. They asked the arbitrator whether the award was correctly drawn up and he responded:

… The claimant and respondent have not been transposed in the award. The costs in the arbitration are reserved in my final award and I have considered matters in their entirety. The disclosure by your client at the end of September as to the inclusion in the schedule of any outstanding matters arising from the inspection by Zurich Mutual or Hart District Council throws considerable doubt over my finding in the preliminary award as to practical completion. I determine that the claimant was entitled to a variation order for 9 of the 11 items set out in the claimant’s letter of 4 February 1997.

Your clients claim deduction by way of set-off in respect of defective items in the sum of £23,913. I allow £2,890. The claimant offered £6,246 which your clients could have accepted had they chosen to do so. I believe I have exercised my discretion in costs fairly and in accordance with my findings.”

The employers applied to the court under section 68 attacking first the award as to costs. In particular, the arbitrator had not heard the parties as to the effect of the “offer”. Secondly, they challenged the award on the grounds that there were ambiguities or uncertainties in its effect. For example, the award of nil in the final award for certain items of incomplete work was inconsistent with the finding in the interim award that those works should have been carried out prior to practical completion. Further, the application raised certain procedural matters under the 1996 Arbitration Act.

Issues and Findings

Were the applicants required to exhaust all arbitral processes before bringing the application?

No. Parts of the award which were unaffected by decisions on ambiguities or uncertainties could be severed and had effect or were unaffected without any requirement under section 70(2) to exhaust all available arbitral processes.

Was the arbitrator in breach of the duty of fairness under section 33(1)(a)?

Yes. A tribunal does not act fairly and impartially if it does not give a party an opportunity of dealing with arguments which have not been advanced by either party.

Was the arbitrator entitled to reconsider his interim award?

No. The finding was final and binding on the arbitrator as much as the parties.

Commentary

This case is important because it puts glosses on two provisions of the Arbitration Act 1996.

Judge Lloyd QC held that s70(2)(b) does not apply to parts of the award which would be unaffected by the arbitrator clarifying any ambiguity or uncertainty in the rest of the award. The effect seems to be that the 28-day time limit to appeal applies to unambiguous parts of an award even if recourse is being taken to correct an ambiguous part of the award. The rationale is to prevent a “recalcitrant party” dragging out the proceedings by applying to correct an ambiguity to give it more time to lodge an appeal or application in respect of part of the award unrelated to the alleged ambiguity. Judge Lloyd was keen to emphasise the principles of section 1 of the Act, one of which was that there should be a fair resolution of the disputes. On this basis Judge Lloyd stated that it is important that a party should know as soon as possible whether or not he has got an enforceable award or whether it is to be challenged by appeal.

Query, however, whether the judge was correct that recourse to s57 necessarily postpones the time limit in the Act to appeal or apply to the court. S70(3) only extends the time limit “if there has been any arbitral process of appeal or review”, words which mirror s70(2)(a). S70(3) does not provide for an extension of the time limit if there has been “recourse under s57” (s70(2)(b)).

In any event, to avoid being out of time a party wishing to challenge part of an award which is at least arguably unambiguous would be well advised to apply or appeal to the court within 28 days even if it is also seeking recourse under s57 to correct that part of the award. As the judge said, if the outcome of an appeal or application might be influenced by the arbitrator’s response to recourse under s57, the court proceedings could be postponed.

As to section 69(3)(b), the effect of the decision is that a party is entitled to appeal on a question of law which the arbitrator had to determine, to reach his decision whether or not “the question is one which the tribunal was asked to determine” (s69(3)(b)).

DISPUTE RESOLUTION

Queen’s Bench Division
The Honourable Mr Justice McKinnon
Judgment delivered 21 December 1998

Facts

The defendant entered into a written agreement with the plaintiff to supply software design services. On 22 June 1998, the plaintiff’s solicitors sent the defendant a letter before action and draft statement of claim and subsequently issued proceedings.

The written agreement contained the following relevant provisions for dispute resolution:

33.1 In the event of any dispute arising between the Parties in connection with this Agreement, senior representatives of the Parties will, within 10 Business Days of a written notice from either Party to the other, meet in good faith and attempt to resolve the dispute without recourse to legal proceedings.

33.2 If the dispute is not resolved as a result of such meeting, either Party may, at such meeting (or within 10 Business Days from its conclusion) propose to the other in writing that structured negotiations be entered into with the assistance of a neutral adviser or mediator ("Neutral Adviser").

33.6 If the Parties accept the Neutral Adviser’s recommendations or otherwise reach agreement on the resolution of the dispute, such agreement will be recorded in writing and, once it is signed by their duly authorised representatives, will be binding on the Parties.

33.7 Failing agreement, either of the Parties may invite the Neutral Adviser to provide a non-binding but informative opinion in writing.

33.8 If the Parties fail to reach agreement in the structured negotiations within 45 Business Days of the Neutral Adviser being appointed then any dispute between them may be referred to the Court unless within a further period of 25 Business Days the Parties agree to arbitration in accordance with the procedure set out below.

33.9 Any dispute between the Halifax and Intuitive in connection with this Agreement that cannot be resolved by the above procedure will be referred to and determined by a sole arbitrator ("the Arbitrator”), the arbitration to be held in London or any other place nominated by the Arbitrator.

The defendant applied for an order under the court’s inherent jurisdiction that the proceedings be stayed and other, alternative relief.

Issues and Findings

Did the written agreement require that the dispute resolution procedure in clause 33 be complied with before court proceedings could be issued?

As a matter of construction, no.

Should the court exercise its discretion to stay the proceedings or to adjourn them to allow negotiation to proceed?

Even if the court had any such discretion, the proceedings should not be stayed nor adjourned.

Commentary

Here, the court specifically distinguished the decision in the Court of Appeal in Channel Tunnel Group Limited v Balfour Beatty Construction Limited, which the court said did not apply to clauses such as the dispute resolution procedure under scrutiny in this case which the court held simply required negotiations in good faith.

These type of dispute resolution clauses providing for tiers of dispute resolution processes have of course become increasingly popular over the years and in particular parties will often wish to have a contractual right to mediate or some other form of alternative dispute resolution before embarking upon arbitration and/or litigation. This case raises serious doubts as to the effectiveness of such clauses unless any such dispute resolution process is determinative.

Certainly, the decision of the court in this case would appear to be somewhat contrary to public policy and the desire of the courts to encourage compromise. It is interesting to note that Judge McKinnon specifically referred to the Commercial Court’s practice to consider alternative dispute resolution but held that given the failed previous months negotiations there was little point in enforcing further meetings. It would have been interesting to know what the outcome of this dispute would have been had he insisted that the parties followed the provisions of clause 33 to the letter.

EXPERTS’ MEETINGS

Technology and Construction Court
The Honourable Mr Justice Dyson
(Judgment delivered 24 June 1999)

Facts

The applicant (“How”) was a subcontractor for works which formed part of the redevelopment of Cannon Street Station. The respondent (“Lindner”) was the specialist subcontractor under two contracts made in 1990. Lindner’s works were delayed by events which gave rise to claims for loss and expense by Lindner and counterclaims by How. The arbitrator made awards under both contracts in favour of Lindner and dismissed the counterclaims. How appealed under Section 1(2) of the 1979 Arbitration Act that the awards continued errors of law and under 23(2) of the Arbitration Act 1950 on the grounds of misconduct.

Issues and Findings

Were the allegations of errors in law in respect of the first contract justified?

No. They were merely allegations that there was no evidence to support the facts and assumptions made by the arbitrator.

Were the allegations of errors in law in respect of the second contract justified?

No. If the point was right the arbitrator would simply have substituted an award for the same sum as damages.

Would the proposed holding of a without prejudice meeting of experts with the arbitrator but without the parties and their advisers have amounted to misconduct?

No.

Commentary

Although the headline nature of this decision in respect of without prejudice meetings of experts is striking, consideration of Mr Justice Dyson’s judgment is recommended. There are often excellent reasons for an arbitrator to meet with parties’ experts. However, care needs to be taken over any decision to exclude parties and their representatives. Particularly if there is any suggestion that the meeting is to be in any way a form of hearing.

Equally, this case provides some important guidance for those preparing cases on a “global” basis and equally as important those who have to consider the merits of them. Here, Mr Justice Dyson both recognises the difficulties in such cases to all parties and also the fact that often one has to (and should) exercise a high degree of judgment in ascertaining the true value of the loss when exact standard of proof may be extremely difficult to find.

ADJUDICATION

Liverpool County Court
His Honour Judge Marshall Evans QC
(Judgment delivered 29 July 1999)

Facts

The claimant entered into a contract with the defendant to carry out certain building works. A dispute arose. The contract did not contain an express provision for adjudication. Accordingly, the provisions of the Scheme applied. Mr Ronald West was appointed as adjudicator. The adjudicator made an award in the claimant’s favour for approximately £28,500. In addition, the claimant had asked the adjudicator to determine the payment of costs of and in the adjudication. The adjudicator decided that the Housing Grants Construction and Regeneration Act 1996 (the Act) and the provisions of the Scheme gave him the power to do this and he awarded the claimant 70% of the costs of the adjudication. The defendant refused to comply with the adjudicator’s decision in regard to the costs element and the claimant issued an application for summary judgment.

Commentary

In a somewhat controversial decision, His Honour Judge Marshall Evans QC found that where a party to an adjudication seeks his costs of that adjudication, not only does the Scheme give the adjudicator that power but further the judge held that a term should be implied into the contract to give the adjudicator the power to award costs. The judge’s reasoning for finding such an implied term is somewhat bizarre and has been widely criticised. It is difficult to see why it is necessary to imply such a term into a building contract in order to give it business efficacy.

This is a County Court decision and therefore does not create formal legal precedent. However, what it does do is provide support for those adjudicators who wish to award a party to an adjudication their costs. There is of course some justification in the argument that a party should be compensated for his costs in the event of succeeding in an adjudication. However, the effect of the decision in John Cothliff Limited could have wider implications if regularly followed by adjudicators. Often in litigation or arbitration, costs become paramount and actually have the effect of prolonging the dispute in making it harder to settle. A similar situation in adjudication cannot be desirable. Further, where a party can recover its costs of adjudication, this may necessarily encourage detailed and elaborate submissions, again making adjudication more costly and involved and thus again more akin to arbitration and litigation and thus contrary to the intentions of Parliament.

DAMAGES

Official Referees’ Business
His Honour Judge Humphrey Lloyd QC
Judgment delivered 31 July 1998

Facts

This decision concerned third party proceedings brought by the defendants, Broadway Malyan, against the third party, Ernest Green Partnership Limited, arising out of the design of premises for J. Sainsbury plc. J. Sainsbury plc had brought proceedings against architects, Broadway Malyan, following a fire at one of their “Sainsbury’s” stores, alleging that the fire brigade could have contained the fire, which spread through a compartment wall, but for alleged breaches of contract and negligence on the part of Broadway Malyan in designing the wall. Broadway Malyan reached a settlement with J. Sainsbury plc in which they accepted that they were in breach of contract and negligent in designing or supervising the construction of the wall. In the third party action they claimed that the Ernest Green Partnership had an equal responsibility for the design and was liable to contribute 50% of the settlement sum pursuant to section 1(1) of the Civil Liability (Contribution) Act 1978.

In the proceedings against Broadway Malyan, J. Sainsbury plc claimed the cost of reinstatement of the building on the basis that the defects in the compartment wall caused the fire to spread. In the proceedings and in the negotiations leading up to the settlement with J. Sainsbury plc, Broadway Malyan did not, in principle, take issue with the assessment of loss on this basis. The Ernest Green Partnership disputed the reasonableness of the settlement, on the grounds that the plaintiff’s only claim was for the loss of a chance to contain the fire, and was therefore subject to be discounted to reflect a percentage chance only that the fire would have been contained.

In the event, His Honour Judge Humphrey Lloyd QC found that the Ernest Green Partnership was not liable to J. Sainsbury plc so as to give rise to a right of Broadway Malyan to claim contribution under the Act. Nevertheless, the judge went on to consider whether, if liability had been established, Broadway Malyan would have been entitled to uphold the settlement.

In doing so, he had to consider the effect of section 1(4) of the Civil Liability (Contribution) Act 1978 which provides:

1(4). A person who has made or agreed to make any payment in bona fide settlement or compromise of any claim made against him in respect of any damage (including a payment in to court which has been accepted) shall be entitled to recover contribution in accordance with this section without regard to whether or not he himself is or ever was liable in respect of the damage, provided, however, that he would have been liable assuming that the factual basis of the claim against him could be established.

Issues and Findings

Did section 1(4) of the Act prevent the court from considering the proper basis upon which damages would have been assessed had the matter been tried?

No. Section 1(4) is concerned only with liability. The right to assert that the person claiming contribution to a settlement paid too much is a matter falling within section 2 of the Act which requires the amount of contribution to be just and equitable having regard to the extent of the contributing party’s responsibility for the damage in question. Therefore, the Ernest Green Partnership was entitled to call into question whether J. Sainsbury plc was entitled to recover on a cost of reinstatement or loss of chance basis.

On what basis would J. Sainsbury plc have been entitled to recover its loss?

J. Sainsbury plc’s case was for the loss of a chance only. The settlement was therefore prima facie not a reasonable settlement.

Commentary

Following on from Blue Circle Industries v Ministry of Defence (supra) this decision considers issues of causation and the quantification of loss in connection with “loss of chance” in the context of a claim for contribution pursuant to the Civil Liability (Contribution) Act 1978. It demonstrates that notwithstanding section 1(4) of the Act and the case law in this area, which establishes that in order to uphold a settlement, provided it is reasonable, it is not necessary to prove that the settlement represents what would have been the outcome had the matter been tried, parties should nevertheless be alert to issues affecting quantum. Such issues may include contributory negligence (which also arose in this case), loss of chance and arguably any other issues which, whilst concerned with causation, affect the measure of damages ultimately recoverable.

CONTRACT - UCTA

 James Moores v Yakeley Associates Ltd

Technology and Construction Court
His Honour Mr Justice Dyson
Judgment delivered 28 October 1998

Facts

The plaintiff claimed damages for negligence and breach of contract by the defendant in the performance of its professional duties as an architect. The plaintiff further claimed the sum of £132,680 from the defendant by way of restitution as money paid under a mistake of fact. Issues arose as to the precise terms and conditions of the defendant’s engagement following an exchange of letters between the plaintiff and the defendant. One of the defendant’s letters made specific reference to the defendant’s terms of appointment being in accordance with the RIBA Standard Terms of Appointment and a copy of the same was enclosed by the defendant. His Honour Mr Justice Dyson held that a contract between the plaintiff and the defendant had come into existence and then went on to consider amongst other things the extent to which the contract incorporated the RIBA Standard Form of Agreement 1992 and in particular the scope of Clause 6.2 which stated as follows:

 

The liability of the Architect for any loss or damage arising out of any action or proceedings referred to in Clause 5 shall, notwithstanding the provisions of Clause 6.1, in any event be limited to a sum not exceeding £250,000.

Issues and Findings

Did the contract between the parties incorporate Clauses 6.1 - 6.3 of SFA 92?

Yes.

Do Clauses 6.1 - 6.3 of SFA 92 apply to the plaintiff’s claim in restitution?

Yes.

Do Clauses 6.1 - 6.3 of SFA 92 satisfy the test of reasonableness under the Unfair Contract Terms Act?

Yes.

Commentary

Very often in the construction industry disputes arise as to the actual existence of a contract and the terms of any such contract. All too often, parties refer to standard forms without any such standard form actually being formally executed by the parties. Having found the existence of a contract in this case, Mr Justice Dyson found Clauses 6.1-6.3 of the RIBA Standard Form Agreement were incorporated into the contract as the plaintiff was clearly aware of those clauses. However, Mr Justice Dyson made it clear that it is sufficient for incorporation if a clause is in a common form and adequate notice is given to the other party identifying such conditions which are available for inspection. On the basis of this decision and section 6(2) of the Arbitration Act 1996 a party should be able to incorporate an arbitration agreement into a contract by bringing to the other party’s attention an arbitration provision in a common form in a standard form of contract.

ARBITRATION

Court of Appeal
Judgment delivered 24 March 1999

Facts

On 21 January 1998 the plaintiff issued a writ seeking damages for breach of a building contract by the defendant. On 23 February 1998 the defendant acknowledged service of the writ and endorsed the acknowledgement with an intention to defend the action. On 23 March 1998 the plaintiff issued a default judgment, no defence having been served. On 28 April 1998 the defendant issued a summons seeking the following order:

1. The Default Judgment dated 23 March 1998 be set aside unconditionally and the defendant be given leave to defend this Action and Counterclaim therein.

Subsequently, the defendant applied for a stay of the proceedings pursuant to section 9 of the Arbitration Act 1996. The plaintiff opposed the application, arguing the defendant’s application for leave to defend was a step in the proceedings to answer the substantive claim and therefore, by virtue of section 9(3), the defendant was not entitled to a stay.

Issues and Findings

Was issuing a summons seeking a default judgment to be set aside and leave to defend a step in the proceedings to answer the substantive claim?

No.

Commentary

This case provides the first guidance on what constitutes a step in the proceedings under the wording in the 1996 Act. It will be of some comfort to practitioners that the Court of Appeal eschewed an unduly technical approach; although on its face asking for leave to defend could easily be characterised as a step towards answering the substantive claim, because the words were in fact otiose they did not have that effect.

The judgment of Lord Justice Otton endorsed the view of Professor Merkin (in Arbitration Law, 2nd edn) that an act which might otherwise be regarded as a step in the proceedings will not be treated as such if the applicant has specifically stated that he intends to seek a stay. Accordingly, where a stay is intended but a particular step, which might conceivably be a step to contest the substance of the claim, is deemed necessary, an express statement should be made that the step is without prejudice to the intention to seek a stay.

Finally, it is of more than passing interest that Lord Woolf, who of course was the architect of the new Civil Procedure Rules, likened the spirit of the 1996 Act to that of the new Rules. This hints at the approach the Court of Appeal is likely to take when interpreting the provisions of the 1996 Act. It signals that a purposive interpretation will be taken. It also suggests the court will support arbitrators making full use of their new powers of case management and the like under the 1996 Act.

DAMAGES - CONTRIBUTION

Official Referees’ Business
His Honour Judge Hicks QC
Judgment delivered 31 July 1998

Facts

The defendant was the main contractor for the construction of a Tesco store that included a petrol station. The plaintiff was a subcontractor responsible for construction of the pipework carrying the fuel from storage tanks to the petrol pumps. When the pipes developed leaks, the parties, on the judge’s finding, entered into an agreement whereby the plaintiff agreed to carry out remedial works and the defendant agreed to pay for those remedial works or alternatively discharge any liability of the plaintiff arising from defective performance of the original contract, each party for the time being reserving its position.

The plaintiff subsequently brought these proceedings claiming payment for the remedial works either under the agreement or on a quantum meruit basis. It was the plaintiff’s case that the defendant, which was responsible for the groundworks covering the pipes, caused the damage to the pipes giving rise to the leaks and the requirement for remedial works. The defendant denied that it was liable to pay for the remedial works on the ground that the works carried out by the plaintiff under the original contract had been defective.

The judge found that defective jointing of the pipeworks by the plaintiff together with defective groundworks by the defendant had jointly caused the leaks. He therefore had to consider whether the law allowed him to apportion liability to reflect the shared responsibility of the parties for the damage caused.

Issues and Findings

On what basis, if any, was it open to the court to apportion liability to reflect the finding of joint causation?

None of the usual bases for apportioning applied. However, it was open to the court to apportion liability to reflect the responsibility of each party for causing the damage in question and there was no requirement to decide liability on an “ all or nothing” basis.

Commentary

It is unfortunate that what seems to have transformed this case from a simple into a complex one was the parties’ seemingly sensible decision to do the remedial works first and argue about liability to pay for them later.

Absent the Contributory Negligence Act 1945 and Civil Liability (Contribution) Act 1978, it was the primary submission of each party that it should wholly succeed, a submission based in part on the somewhat arbitrary effect of onus of proof. This was clearly a result which the judge was reluctant to impose in light of his finding of joint causation. What is of interest about this decision is its possible application to concurrent cause in the context of claims for extensions of time. This case would lend support to an approach sometimes adopted in relation to concurrent causes of delay to simply apportion the delay between the parties.

PROFESSIONAL NEGLIGENCE

Technology and Construction Court
His Honour Judge David Wilcox
Judgment delivered 5 November 1998

Facts

Kenchington Ford Plc (“KF”) were engaged by London Underground Limited (“LUL”) for the civil engineering and architectural design relating to the Jubilee Line extension and station proposed for Canning Town. LUL brought certain claims against KF alleging breach of their design obligations relating to the design of the station concourse slab and the design of the diaphragm walls surrounding the site. Further, LUL alleged that the quality of the detailing work in relation to certain reinforcement was inadequate as the contractor and his subcontractors had to raise an excessive number of requests for information which caused delay to the works. LUL therefore sought to recover from KF moneys paid to the contractor in respect of delay claims. These issues came before His Honour Judge Wilcox.

Issues and Findings

Was KF’s design of the concourse slab over designed in that a reasonably competent engineer would have designed a thinner and thereby cheaper slab?

No.

Were the number of detailing errors in KF’s design so excessive as to cause a delay to the contractor and thus constitute a breach of duty?

No, there was no evidence that there was any departure on the part of KF from the standard of the competent and conscientious consultant engineer in the discharge of their obligations in relation to the reinforcement of drawings and detailing. Further, there was no evidence that any error or discrepancy relied upon caused any delay or disruption.

Were KF in breach of their express contractual obligation in failing to correct errors in the design of the works contractor?

Yes, in relation to the diaphragm walls.

Commentary

His Honour Judge Wilcox’s judgment in this case runs to in excess of 148 pages and almost half of this is devoted to Kenchington Ford’s counterclaim. There are a number of technical and factual issues that are particular to this case but there are also a number of points of more general interest. Firstly, this case demonstrates the approach to be adopted in bringing a claim against a professional in respect of “over-design”. To succeed in such a claim it is necessary to demonstrate both negligence and an acceptable alternate scheme. In this case, LUL failed to establish either.

Further, His Honour Judge Wilcox discusses in some detail the expert evidence purporting to demonstrate delay in relation to the issues of the detailing claim and the diaphragm wall claim. The judge is critical of one expert’s approach on the basis that it was global and demonstrated no causal link and another expert’s approach that was “theoretic and academic”.

Finally, there is further reference to Biggin v Permanite - discussed in detail in P&O Developments Ltd v Guys & St. Thomas’s National Health Service Trust and Others reported in last month’s CILL. Here, the judge held that Biggin v Permanite would not assist the LUL in that a significant part of their commercial settlement with the contractor could not be justified in audit terms and therefore it could not be described as reasonable.

ADJUDICATION

Technology and Construction Court
The Honourable Mr Justice Dyson
Judgment delivered 12 February 1999

Facts

The defendant engaged the plaintiff as subcontractor to carry out ground works to a retail development. Disputes arose as to the defendant’s failure to make payment to the plaintiff which the plaintiff referred to an adjudicator. On 6 January 1999, the adjudicator published his decision directing that the defendant should forthwith pay the plaintiff £302,366.34 plus VAT, interest and fees.

The adjudicator issued his decision peremptorily under paragraph 23(1) of the Scheme for Construction Contracts and gave his permission under section 42 of the Arbitration Act 1996 for either party to apply to the court for an Order requiring compliance.

The defendant failed to comply with the adjudicator’s decision challenging the validity and enforceability of the decision on the ground that the adjudicator acted in breach of the rules of natural justice. On 13 January 1999 the defendant gave the plaintiff a notice of arbitration referring disputes arising out of the adjudicator’s decisions, including the dispute as to the validity of the decision, to arbitration.

The plaintiff sought to enforce the adjudicator’s decision by court proceedings and the defendant issued a Summons to stay such proceedings under section 9 of the Arbitration Act 1996 on the grounds that the contract contained an arbitration clause which, properly construed, applied to the disputes relating to the validity of the decision of the adjudicator. The defendant maintained that in such circumstances where there is a challenge to the validity of an adjudicator’s decision then such a decision cannot be enforced unless and until it is confirmed by the arbitrator.

It was common ground that the contract did not comply with all the requirements of section 108 of HGCR Act and therefore the adjudication provisions of the Scheme applied.

Issues and Findings

Notwithstanding the challenge to the validity of the adjudicator’s decision, was there a binding and therefore enforceable decision for the purposes of section 108(3) of the Act and section 23 of the Scheme?

Yes, a decision whose validity is challenged is nevertheless binding and enforceable.

Should the enforcement proceedings be stayed pursuant to section 9 of the Arbitration Act 1996?

No. On serving a notice of arbitration the defendant elected to treat the adjudicator’s decision as one capable of being referred to arbitration and the defendant was thus also bound to treat it as a decision which was binding and enforceable unless revised by the arbitrator. Such an election precludes the defendant from seeking a stay under section 9.

Is summary judgment an appropriate procedure for enforcement of an adjudicator’s decision?

Yes.

Commentary

As anticipated, notwithstanding certain legal obstacles, Mr Justice Dyson gave a judgment clearly designed to secure adjudication as an effective means of interim dispute resolution by ensuring effective enforcement of an adjudicator’s decision.

It was held that, notwithstanding a challenge to the validity of the decision, such a decision is nevertheless a decision that is binding and enforceable under the Act. It seems, therefore, that the court can proceed to enforce a decision which may be a nullity. Mr Justice Dyson held that any other finding would “drive a coach and horses” through the intention of the legislation.

The decision in Halki Shipping Corporation v Sopex Oils Limited (see CILL August 1997 page 1278), was generally considered to be a potential obstacle to enforcement in the court where an arbitration clause existed that did not expressly make provision for enforcement in the court. Mr Justice Dyson effectively sidestepped Halki by imposing an election. It was held that the defendant’s arbitration notice amounted to an election by the defendant to treat the decision as one being capable of being referred to arbitration and in those circumstances the defendant was therefore bound to treat it as a decision which was binding and enforceable unless and until revised by the arbitrator. For these reasons the defendant was precluded from seeking a stay under section 9. What the judgment does not address is the situation where no arbitration notice has been served.

The judge indicated his provisional view that the challenge on the grounds of breach of natural justice was hopeless. It is not clear whether this related to the particular facts of this case or was a general statement relating to such challenges generally. This indicates the difficulties parties may face challenging adjudicators’ awards on the grounds of alleged procedural irregularity.

As to the procedure for enforcement, the judge refused to grant relief pursuant to section 42 of the Arbitration Act 1996 (as incorporated into the Scheme) on the basis that this would involve granting a monetary injunction. It is not clear whether an Order under section 42 is for a monetary injunction. Section 42 provides the court with a statutory power but it is unclear why the law relating to monetary injunction should be overlaid onto it. There would appear to be no reason why the court could not make an Order requiring one party to pay the other a sum of money (as it does, for example, when it makes a Costs Order). It is suggested that the decision of Mr Justice Dyson may have overcomplicated the situation concerning enforcement in this respect.

The judge was of the view that the use of forced mechanism should be summary judgment notwithstanding that any decision may subsequently be overridden by an arbitrator’s award or that of the court.

DEFINITION OF “ARCHITECT”

Official Referees’ Business
His Honour Judge David Wilcox
Judgment delivered extempore on 23 December 1998

Facts

The plaintiff, Munkenbeck & Marshall, a firm of architects, sued the defendant in respect of unpaid professional fees for design work carried out by various members of its staff. The defendant contended that the plaintiff had breached an agreement to carry out the work using only registered architects. It was not disputed that the plaintiff had involved staff on the project who had architectural qualifications but were not registered architects.

Issues and Findings

Was there an agreement that the plaintiff would involve registered architects only?

No.

Was the use of the term “architect” in respect of architecturally qualified but unregistered staff misleading?

It could be, but on the facts it was not.

Commentary

The result in this case seems to have been fair, but the plaintiffs were somewhat fortunate. In light of the provisions of the Architects Registration Act 1938, the judge would have been entirely justified in taking a stricter view. This case serves as a reminder for all professionals to be careful how they describe their staff in fee agreements, client care letters and the like. Any mis-description could be seized upon as a pretext to withhold or reduce fee payments.

ADJUDICATION

Technology and Construction Court
His Honour Judge Humphrey Lloyd QC
Judgment delivered 15 March 1999

Facts

The plaintiff entered into a subcontract with the defendant for certain ground works. The subcontract incorporated the terms of DOM/1. The plaintiff claimed the balance of its Final Account of £12,212.50 which the defendant maintained was not due as the plaintiff’s works were defective. On 21 December 1998, the plaintiff gave notice requiring adjudication. The adjudicator decided that the Scheme applied and by his decision of 12 February 1999 ordered that the defendant should pay the plaintiff the amount claimed plus the adjudicator’s fee and expenses. The defendant failed to comply with the adjudicator’s decision and the plaintiff duly issued an application for summary judgment. Shortly before the hearing of the application for summary judgment, the defendant paid the sum claimed but a dispute then arose between the plaintiff and the defendant as to the costs to be paid to the plaintiff by the defendant.

Commentary

This is the second decision of the TCC concerning adjudication and follows the decision in Macob Civil Engineering Limited v Morrison Construction Limited. The argument before His Honour Judge Humphrey Lloyd QC concerned the plaintiff’s entitlement to the costs incurred in relation to the issue of proceedings for summary judgment in circumstances when the defendant paid the sum claimed a few hours before the time fixed for the hearing. The judge confirmed that whilst payment automatically stayed the proceedings, in such circumstances it was still open to the court to lift the stay in order to decide the issue of the plaintiff’s entitlement to costs.

Of particular interest, the judge takes the opportunity to express his views of adjudication under the Act and enforcement. Following the decision in Macob he emphasises that the TCC will support the intent of Parliament to ensure the expeditious compliance with adjudicators’ decisions. This is illustrated by the willingness of the judge to accept as reasonable in this case the application to abridge the normal time limits for the summary judgment application.

As to the intent of Parliament, the judge states as follows:

The overall intention of Parliament is clear: disputes are to go to adjudication and the decision of the adjudicators has to be complied with, pending final determination … it is clear that the purpose of the act is that disputes are resolved quickly and effectively and then put to one side and revived, if at all, in litigation or arbitration, the hope being that the decision of the adjudicator might be accepted or form the basis of a compromise or might usefully inform the parties as to the possible reaction of the ultimate tribunal.

FINAL CERTIFICATE

Technology and Construction Court
His Honour Judge Humphrey Lloyd QC
Judgment delivered 13 January 1999

Facts

Oxford University engaged the contractor for the construction of a Pharmacology unit on the JCT Standard Form of Building Contract with Quantities 1980. ADP were engaged by Oxford University as the architects named in the contract.

ADP issued a final certificate under Clause 30.9.1 of the contract which constituted conclusive evidence that the work was in accordance with the contract. Oxford University maintained that certain defects had not been adequately remedied and sued ADP for breach of contract. ADP denied liability but claimed that the contractor was liable and that under the Civil Liability (Contribution) Act 1978 (“the Act”) was liable to make a contribution for any damage that ADP might be held liable. The contractor maintained that it could not be liable under the Act as the issue of the Final Certificate by ADP prevented it being held liable to pay Oxford University any damages. The matter came before His Honour Judge Humphrey Lloyd QC as a preliminary issue.

Issues and Findings

Does the Final Certificate have effect as conclusive evidence and thus afford the contractor with a defence in the contribution proceedings brought by ADP?

Yes, the effect of the Final Certificate is that it operates as an evidential bar which would preclude the employer from being able to prove the facts necessary to establish liability.

Does the issue of the Final Certificate amount to a cessation of liability on the part of the contractor within the meaning of section 1(3) of the CLCA Act?

No, the issue of the Final Certificate does not “cease” liability. It means that liability cannot be established.

Commentary

In Belcher Food Products Limited v Miller and Black and Others (see CILL September 1998, page 1415), the Court of Session in Scotland attempted to distinguish the decision in Crown Estate Commissioners and John Mowlem and Co Limited possibly in the light of the criticism that decision has faced. However, in this particular case, Judge Humphrey Lloyd had little difficulty in following Crown Estates and upholding the conclusive effect of the Final Certificate.

ADP’s third party proceedings under the Civil Liability (Contribution) Act 1978 against the contractor were dismissed on the basis that had the employer brought an action against the contractor it would not have been able to establish liability as the contractor would have defeated the claim by relying upon the Final Certificate. The point to arise from this judgment is that ADP could not avail themselves of the Act not because it had been decided that the contractor had no liability but because the effect of the Final Certificate was such that it meant evidentially it would not be possible to establish a liability against the contractor.

CLAIMS IN RESPECT OF SUMS PAID BY WAY OF SETTLEMENT

P&O Developments Ltd v The Guy’s and St Thomas’s National Health Service Trust v The Guy’s and St Thomas’s National Health Service Trust v (1) P&O Developments Ltd

(2) Austen Associates (a firm) (3) Austen Associates Limited

Technology and Construction Court
His Honour Judge Bowsher QC
Judgment delivered 15 October 1998

Facts

In 1994 the project was in difficulties and to resolve their problems Guy’s took advice from Davis Langdon & Everest (“DLE”). DLE made a recommendation to Guy’s to reach a “wrap up deal” with Higgs & Hill (“H&H”). As part of this agreement Guy’s paid to H&H £83.9 million. There was no agreement with H&H as to how this money was to be applied and there was no agreement as to what, if any, sums were to be paid by H&H to individual work contractors. However, the DLE report did make provision for individual sums for the claims made by H&H and the individual work contractors.

A preliminary issue in this action before His Honour Judge Bowsher QC concerned Guy’s contention that the provisions made by DLE were the starting point for the computation of that part of Guy’s damages claim which related to monies paid to H&H in relation to delay claims by the works contractors. P&O and AA contend that Guy’s approach is far too simplistic and a more deeper enquiry should be made at a considered level of actual damage suffered by the works contractors.

Issues and Findings

1. If Guy’s prove the global settlement with H&H was reasonable, does it follow that the sums allocated by Guy’s to the works contractors’ claims were also reasonable sums, such that the sums in fact allocated by Guy’s to the individual works contractors represent Guy’s actual loss with respect to those work contractors?

No.

2. If Guy’s prove that the sum to which it reached a global settlement with H&H was reasonable, is it necessary for Guy’s to prove that the sums in fact allocated by Guy’s to the individual works contractors’ claims were reasonable sums to allow?

Yes.

3. If the answer to issue 2 is “yes”, is it material to investigate at what figure H&H themselves settled the individual works contractors’ claims?

Yes, but only in the sense that evidence of the figures at which H&H settled with individual works contractors might (or might not) be helpful evidence of reasonableness or unreasonableness.

4. In order to prove that the global settlement was reasonable, is it sufficient for Guy’s to prove that:

1. Guy’s relied upon advice given by competent advisers; and

2. Guy’s acted reasonably in relying upon that advice?

It is not sufficient, but it might be relevant.

5. Alternatively, is it necessary to investigate whether the advisers upon whom Guy’s relied themselves acted reasonably in giving their advice?

No, it is not necessary but it might be relevant.

6. If Guy’s prove that the breaches of contract by P&O and/or AA caused delay and disruption to works contractors, is the measure of damages recoverable an amount calculated by reference to the sums incorporated in the global settlement and/or the sum ascertained by reference to actual monies recovered or recoverable by works contractors corresponding with the delay and disruption proved to be attributable to the breaches of contract and/or duty of P&O and/or AA?

Both the above may be relevant but not to the exclusion of other evidence.

Commentary

Frequently situations arise in the construction industry when a party is claiming in respect of a sum or sums paid by way of settlement of a claim or claims. The situation can arise when a main contractor is claiming against an employer sums paid to subcontractors by way of settlement. The position in this case was slightly different in that the employer was claiming against one of its professionals sums paid to the management contractor of which a substantial proportion related to claims made by works contractors. However, the judgment of His Honour Judge Bowsher QC provides an analysis of the Court of Appeal decision in Biggin v Permanite (1951) 2 KB 314 and a review of the type of evidence a party might need to adduce when claiming in respect of the sum paid by way of settlement to another party.

The key question advisers sometimes overlook is not whether a party acted reasonably in settling a claim but whether the settlement itself was reasonable although the question whether the plaintiff acted reasonably would go to the question as to whether or not the settlement was reasonable. Obviously, there are no hard and fast rules as to what makes a settlement reasonable and each case must be considered on its own particular facts. The advice given by professional advisers will be relevant to that issue but in itself will not be sufficient to demonstrate the reasonableness of the settlement. It would be open to a party challenging the reasonableness of the settlement to demonstrate that the advisers themselves failed to act reasonably in giving their advice and in this respect the professional advisers’ terms of reference in the scope of their investigations may be relevant. Interestingly, His Honour Judge Bowsher QC addressed the question as to why an agreement made with a person not a party to an action is relevant or admissible at all. Judge Bowsher found that Biggin v Permanite provides two answers to that question, namely as a particular rule of evidence but also the reasonable settlement of claims falls within the second branch of the rule in Hadley v Baxendale.

BONDS

Technology and Construction Court
His Honour Judge Bowsher QC
Judgment delivered 22 March 1999

Facts

The plaintiff Housing Association entered into a building contract with Woodward & Co (Finsbury) Limited (“Woodward”). The plaintiff required Woodward to provide a performance bond which was duly given by the defendant in favour of the plaintiff.

In February 1996, before practical completion of the building works, Woodward went into liquidation and the plaintiff, in accordance with the terms of the building contract, terminated Woodward’s contract and entered into a contract (“the second contract”) with another builder to have the works finished.

In this action the plaintiff claimed payment under the bond. The defendant argued that the circumstances giving rise to liability had not yet arisen.

Issues and Findings

What was the liability of the defendant under the bond in the event of the contractor’s insolvency?

The liability of the defendant was to pay the “net established and ascertained damages” sustained by the plaintiff (up to the amount of the bond) as a result of determination of the contract due to the contractor’s insolvency.

Had liability under the bond arisen yet?

No. Under the terms of the bond, the defendant’s liability only arose upon the plaintiff providing a statement showing the amount (if any) due to the plaintiff in accordance with the terms of the contract. The plaintiff had not yet presented the defendant with any statement of its net and ascertained damages.

Commentary

As long ago as 1937, Lord Atkin said that it passed comprehension why businessmen persisted in using old-fashioned forms of contract which did not adequately express the true transaction (Workington Harbour & Dock Board v Trade Indemnity Co. (No.2) 1937 AC 1, 17). In 1995, the House of Lords again lamented the archaic drafting of bonds, saying that the use of eighteenth-century legal jargon obfuscated the true purpose of bonds and was likely to give rise to unnecessary litigation as to their meaning (Trafalgar House Ltd v General Surety Co. [1995] 3 WLR 204). That comment is apposite here where the traditional form of bond was used.

The situation with regard to the drafting of bonds should, however, be improving. In September 1995, the Association of British Insurers published a model form of guarantee bond which uses modern drafting. For example, Clause 1 of the model form provides:

The Guarantor guarantees to the Employer that in the event of a breach of the Contract by the Contractor the Guarantor shall subject to the provisions of this Guarantee Bond satisfy and discharge the damages sustained by the Employer as established and ascertained pursuant to and in accordance with the provisions of or by reference to the Contract and taking into account all sums due or to become due to the Contractor.

Copies of the model form can be obtained free of charge from the ABI (Tel 020 7600 3333). In addition, the ICE is in the process of drafting a model form of bond which is expected to be finalised later this year.

NOTIFICATION OF DEFECTS

Court of Appeal
Judgment delivered 15 February 1999

Facts

The plaintiff and defendant entered into a contract in the standard terms of the JCT Agreement for Minor Building Works for various internal and external alterations to the defendants’ home. The works were carried out and on 13 November 1995, the architect issued a certificate of practical completion and certified the sum of £3,919.23 as due for payment. The defendants failed to pay this sum and the Plaintiff issued proceedings in respect of this and other amounts. The defects liability period set out in Clause 2.5 had been amended to read a period of 6 months from the date of practical completion and therefore expired on 13 May 1996. On 8 October 1996, the defendants served their Defence and Counterclaim and for the first time notified the plaintiff that defects had become apparent during or before the defects liability period and accordingly, the defendants wished to pursue an action in respect of those defects.

Issues and Findings

Is the requirement of notice a condition precedent to the employer’s right to require the contractor to comply with his obligations arising under Clause 2.5?

Yes.

Could the defendants claim damages for breach of contract notwithstanding that they failed to notify the contractor of the defects until after the expiry of the defects liability period?

Yes.

If the contractor is not given an opportunity to repair the defects under Clause 2.5, can the employer recover the full costs incurred in employing another party to repair the defects?

No. The employer’s failure to comply with Clause 2.5, whether by refusing to allow the contractor to carry out the repairs or by failing to give notice of the defects, limits the amount of damages which the employer is entitled to recover.

Commentary

The decision relates to Clause 2.5 of the JCT Agreement for Minor Building Works but the decision of the Court of Appeal is of equal application to standard forms containing provision for the notification of defects within a given defects liability period.

Should an employer fail to give the appropriate notice of defects within the requisite period then he cannot insist upon the contractor’s return to remedy the defects but he does not lose his right to claim damages in relation to the defects. The Court of Appeal confirmed the well-established principle in Modern Engineering v Gilbert Ash that clear and express words would be required to exclude a party’s right to recover damages. It should be noted that this decision is only concerned with defects known about, i.e. patent, before the expiry of the defects liability period but not notified to the contractor.

The measure of damages would be limited to the amount that the repairs would have cost had they been carried out by the original contractor. This may be significantly lower than the sums paid to a third party but the decision is consistent with that of City Axis Limited v Daniel P. Jackson (CILL May 1998, page 1382) where it was held that a failure to allow a party to carry out snagging constitutes a failure to mitigate. However, the present case offers no guidance as to in what circumstances it would be reasonable to allow a party to remedy defects.

INSURANCE

Pozzolanic Lytag Ltd v Bryan Hobson Associates

Technology and Construction Court
His Honour Mr Justice Dyson
Judgment delivered 13 November 1998

Facts

In 1991, the defendant was engaged by the plaintiff to carry out consultancy services in relation to the design and construction of the handling storage facilities including project management services for the construction of a dome for the storage of fuel ash.

Horrall Harrington were engaged by the plaintiff for the design and construction of the dome upon the JCT Standard Form of Contract with contractor’s design liability. The dome was constructed but it subsequently collapsed in April 1992 causing losses to the plaintiff in excess of £600,000. For the purpose of certain preliminary issues it was assumed by the parties that the collapse was caused by defects of design which would ordinarily have been covered by indemnity insurance under Clause 21A.1 of the JCT 1980 Standard Form of Contract. Horrall Harrington had no such insurance in place and accordingly, the plaintiff brought proceedings against the defendant as a result of their failure as Project Managers to ensure that suitable insurance arrangements were put in place by Horrall Harrington.

Issues and Findings

Did the defendant owe a duty to the plaintiff to take reasonable care to ensure that as required by Clause 21A.1 there was in place insurance which would cover the contractor’s liability in respect of his obligations under the Conditions of Contract?

Yes.

If there was no insurance in place, was the real or effective cause of the loss due to the plaintiff’s own failure to ensure that the relevant insurance was in place?

No.

Did the plaintiff contribute to its losses by contributory negligence?

No.

Commentary

Those acting as Project Managers should take note of this case. The Honourable Mr Justice Dyson made it clear that in relation to Project Managers’ obligations in relation to contractors’ insurance as set out in the Code of Practice for Project Management for Construction and Development, it is not adequate for a Project Manager to simply act as a postbox in forwarding evidence of such insurance. The Project Manager should advise the client as to the adequacy of such insurance even if this means that the Project Manager should himself obtain specialist advice potentially at his own expense.

It is worth noting the Honourable Mr Justice Dyson’s postscript on experts’ reports and the clear warning that special orders for costs will be made where experts’ reports and presumably the conduct of experts unnecessarily add to the expense of litigation.

ADJUDICATION

High Court of Justice, Queen’s Bench Division
His Honour Mr Justice Dyson
(Judgment delivered 16 July 1999)

Facts

On 24 April 1999, Mr G. Martin, who had been appointed as an adjudicator pursuant to the 1996 HGRA, awarded the claimant the sum of £64,975.00 plus VAT. The claim was for professional services provided by the claimant for the defendant in respect of the conversion of Sherwood House, Linby into a nursing home. The claimant sought summary judgment pursuant to CPR Rule 24. The defendant submitted that the contract between the parties was made prior to 1 May 1998, the date the HGRA came into effect, and that therefore the adjudicator had no jurisdiction to make any award. The defendant sought leave to defend proceedings.

Issues and Findings

Is it open to a defendant in proceedings to enforce a decision of an adjudicator, to challenge the decision on the grounds that the adjudicator had no jurisdiction to determine the dispute?

Yes.

If the decision could be challenged by the defendant on these grounds, was the defendant precluded from making such a challenge on the facts of the present case because it had agreed that the adjudicator should determine the question of his jurisdiction?

On the facts, no.

Did the defendant have a real prospect of defending the claim on the grounds that the adjudicator’s decision was wrong because the contract concluded before 1 May 1998 or alternatively because no contract was ever concluded between the parties?

On the facts, yes.

Commentary

Mr Justice Dyson confirms that where a defendant can raise a genuine issue as to whether or not an adjudicator has jurisdiction then this will provide a defence to proceedings under CPR 24 to enforce an adjudicator’s decision. In this case, the issue concerned the existence or not of a concluded contract between the parties giving the adjudicator jurisdiction. Whilst Mr Dyson stresses in his judgment that he expects there to be few cases on this particular point, the argument within the construction industry as to whether or not a contract has been concluded is unfortunately all too common. Inevitably, the result of this decision will be an increase in attempts by parties dissatisfied with the outcome of an adjudication to try and avoid enforcement. Jurisdiction is an area that in practice does appear to give some adjudicator’s difficulties. Unfortunately, this case provides no real guidance as to the extent to which a adjudicator can in the absence of an express agreement of the parties decide his own jurisdiction.

What, however is clear from this decision, is that a party who may wish to raise a jurisdictional question in the future must reserve his position in that respect at all times when participating in the adjudication to avoid agreeing to an ad hoc adjudication.

ARBITRATION - ICE 5TH EDITION

Court of Appeal
Judgment delivered 11 December 1998

Facts

Shepherd Hill Engineering Ltd (“the Contractors”) entered into an ICE 5th Edition form of contract with amendments with Essex County Council (“the Employers”) to construct a bypass. Asphalt surfacing works were subcontracted to Redland Aggregates Ltd (“the subcontractors”) under an FCEC Blue Form subcontract including the following as Clause 18.2:

If any dispute arises in connection with the Main Contract and the Contractor is of the opinion that such dispute touches or concerns the subcontract Works, then provided that an arbitrator has not already been agreed or appointed in pursuance of the preceding sub-clause, the Contractor may by notice in writing to the subcontractor require that any such dispute under this subcontract shall be dealt with jointly with the dispute under the Main Contract in accordance with the provisions of Clause 66 thereof. In connection with such joint dispute the subcontractor shall be bound in like manner as the Contractors by any decision of the Engineer or any award by an arbitrator.

The subcontractors served notice of arbitration in respect of various claims on 15 February 1995 but the contractors served notice that these disputes should be dealt with jointly with disputes under the main contract pursuant to Clause 18.2 of the subcontract.

Mr Recorder Knight found at first instance that there was no obligation on the contractors to ask the engineer for a decision on the disputes between the contractors and the subcontractors or to proceed to arbitration and that the contractors were entitled to proceed by negotiation with the employer. The subcontractors appealed.

Issues and Findings

What is the nature of the arbitration contemplated under Clause 18.2 of the subcontract?

A tripartite arbitration, with one arbitrator hearing the claims submitted by all three parties.

Were the contractors entitled to delay the reference of disputes between them and the subcontractors to the engineer or to a tripartite arbitration whilst they were negotiating with the employer?

If this is not done within a reasonable time, the subcontractors are entitled to proceed with an independent arbitration, without participation by the employer.

What is the position if the employer is unwilling to participate in a joint arbitration?

The subcontractors are entitled to proceed with an independent arbitration, without participation by the employer.

Commentary

This case will be welcomed by all those subcontractors who regularly use the ICE Blue Form of subcontract. The joinder provision at Clause 18(2) has often been used by main contractors to forestall paying sums due to subcontractors. subcontractors may take great comfort from the decision of the Court of Appeal which provides definitive guidance as to the application of Clause 18(2) of the Blue Form and its relationship with Clause 66 of the main form of contract.

The judgment of Sir Christopher Staughton confirms that where a contractor serves a notice under Clause 18(2) then he must proceed with the referral of the disputes to the engineer and if necessary arbitration under Clause 66 expeditiously. If this is not done then subcontractors are entitled to proceed in an independent arbitration. Further, if it is not possible to compel the employer to join in a tri-apartheid arbitration then likewise the Court of Appeal held that a subcontractor in such circumstances can similarly begin an independent arbitration.

EXPERT WITNESS

Central Criminal Court
Mr Justice Cresswell
Judgment delivered 15 February 1999

Facts

In October 1994, railway tunnels which were in the course of construction beneath the central terminal area at Heathrow Airport collapsed. Balfour Beatty were the main contractors for the work and Geoconsult were their specialist tunnelling advisers engaged to design the tunnels and to provide on-site technical assistance. The tunnels in question were to be constructed using what is known as the New Austrian Tunnelling Method. Balfour Beatty subsequently pleaded guilty, and Geoconsult were found guilty, of offences under The Health and Safety at Work Act. At the sentencing hearing Mr Justice Cresswell made a number of remarks relating to the duties and responsibilities of expert witnesses.

Commentary

This is considered a timely reminder of the duties and responsibilities of experts in the light of the introduction of the new Civil Procedure Rules. The behaviour of experts and those instructing them will be under much greater scrutiny by the courts and the courts will not hesitate in making penal cost orders where there is any indication that an expert has failed in his duties and responsibilities to the court. Failure to abide by the guidelines of the Ikarian Reefer will not only damage an expert’s credibility but it could also be very costly.

ADJUDICATION

Lanark Sheriff Court
Sheriff Gilmour
(Judgment delivered 12 March 1999) and an Appeal to Sheriff Principal Cox
(Judgment given orally 31 March 1999)

Facts

The pursuers entered into a series of contracts with the defenders whereby the defenders were to carry out minor engineering works at 15 different sites throughout Scotland and England operated by the pursuers' group companies. The works commenced in January 1998 and proceeded until November 1998 when the pursuers intimated that they would be making no further payments in respect of any of the sites given that they had concerns about defects which might exist on four different sites.

The defenders had submitted invoices totalling in the region of £170,000 on three of the contracts which remained unpaid after the due dates for payment. Three contracts, where there were outstanding invoices, had been entered into on or after 1 May 1998 and the HGCR Act 1996 applied. There were no adjudication provisions in any of the contracts. The defenders issued notices of adjudication for these three contracts in terms of the Scottish Scheme for Construction Contracts.

On 17 February 1999 the adjudicator found that the pursuers should pay the defenders a sum of £141,000 together with his fees. The pursuers failed to comply with the adjudicator’s decisions or to sign their consent to register the decisions in the Books of Council and Session. The pursuers petitioned the Court of Session for enforcement. Shortly before the First Hearing, the pursuers' solicitors delivered a cheque for the full amount due under the adjudicator’s decisions to the defenders' solicitors. Simultaneously an arrestment was lodged in the defenders' solicitor’s hands in the sum of £182,000. This arrestment had been authorised by a payment writ raised by the pursuers whereby they sought damages in respect of the defenders' alleged breaches of thirteen of the contracts. Disputes re non-payment arising under two of these contracts had been the subject of the adjudication. The pursuers had raised this issue of alleged defective work before the adjudicator. The defenders applied for recall of the arrestment on the grounds that it was oppressive as this action defeated implementation of the adjudicator's decisions.

Issues and Findings

Can protective measures be used in pending court proceedings in security for claims previously before the adjudicator?

No.

Can protective measures be used in pending court proceedings to attach monies, which are being paid over by the same pursuer in implementation of a previous obligation?

No - before the Sheriff. Yes - on appeal to the Sheriff Principal - except where bad faith shown on the part of the pursuer.

Commentary

An arrestment is a protective measure available to pursuers in Scotland whereby funds owing to the defender can be frozen in the hands of third parties, pending the outcome of the action on which the arrestment proceeds. This is the first case in Scotland which has considered the enforcement of adjudicator’s awards under the HGCR Act. Both the Sheriff and Sheriff Principal supported the principles of the HGCR Act. There is no doubt that disputes which are the subject of an adjudicator's decision may ultimately be revisited in court or arbitration. What the Sheriff and Sheriff Principal refused to allow was the use of protective measures pending the outcome of such litigation or arbitration. To do otherwise, they considered, could subvert the effect of the adjudicator's decisions. This is further support for the principles annunciated in Macob Civil Engineering v Morrison Construction Ltd.

This decision was complicated by the fact that the Writ dealt with contracts which had not been the subject of adjudication. Arrestment in those circumstances remained a valid legal remedy.

EXPERTS - PRIVILEGE

Technology and Construction Court
His Honour Judge Bowsher QC
Judgment delivered 1 February 1999

Facts

The plaintiff builder sued the defendant for monies allegedly due for work carried out and for loss and expense. The defendant counterclaimed for damages arising out of the failure of the plaintiff to finish work. During the interlocutory stages of the dispute the judge made a number of directions for the parties’ experts to meet to try and narrow issues, agree facts and valuations, and to identify points of disagreement. The experts were to agree a joint statement indicating those parts of their evidence on which they agreed and those parts on which they were not in agreement. The parties’ expert quantity surveyors met on seventeen occasions and exchanged without prejudice correspondence in an endeavour to agree the final account.

On 4 November 1998, the experts signed what was headed “Interim Joint Statement of the Valuation Experts”. This recorded many points of agreement and certain points of disagreement. The joint statement contained the following paragraph:

This interim joint statement is prepared on the basis of information disclosed up to 4 November 1998. Should further information be disclosed after that date it will be considered by the Experts for the purpose of further Joint Statements.

Issues and Findings

Was the interim joint statement of the experts privileged?

No.

Was the interim joint statement prepared by the experts binding on the parties?

No.

Commentary

The ruling of Judge Bowsher QC provides a helpful reiteration of the position concerning statements of experts prepared pursuant to an order of the court. Such statements are prepared for the benefit of the court principally to ensure an efficient disposal of the issues at trial and thus are not privileged. Further, such statements ordinarily are not binding on the parties in that if further information comes to light the expert is free to change his mind. However, there is nothing to prevent an expert making binding agreements on behalf of a party provided he has clear authority to do so. Therefore his instructions in this respect should be clear.

The judge refers to a confusion between meetings of experts pursuant to the directions of the court to try and narrow the issues and meetings of experts the purpose of which is to try and finally settle particular issues. The content of the latter type of meetings is of course privileged although any agreement is of course open. It is obviously essential that experts are at all times clear as to the purpose of their meetings with their opposing numbers and have clear instructions as to their authority.

The judge makes it clear that any interference with experts and their compliance with the directions of the court to endeavour to agree facts etc. by the parties or their solicitors constitutes a non-compliance with Order 38. This could result in a party being refused leave to call the evidence of that expert for failing to comply with Order 38.

ADJUDICATION - PROCEDURAL IRREGULARITY

R v Home Secretary, Ex Parte Ravichandran

The Times, 26 May 1999
[Referred to above]

Facts

The Home Secretary failed to comply with the requirements of Rule 13 of the Asylum Appeal’s Procedure Rules 1993 by failing to include a declaration of truth and completeness. The asylum seeker sought to overturn the decision of the special adjudicator to the Immigration Appeal Tribunal.

Issues and Findings

Had there been a failure to comply with the statutory requirement?

Yes.

Were the asylum seekers in any way affected by the omission?

No. As far as they were concerned it was a pure technicality.

Commentary

This case is significant to adjudications in that Lord Woolf considered the general approach to procedural irregularity. He stressed that procedural requirements were designed to further the interest of justice and any consequence which will achieve a result contrary to these interests should be treated with considerable reservation. Lord Woolf set out three questions which were likely to arise:

1. Was the statutory requirement filled if there had been substantial compliance with the requirement and, if so, had there been substantial compliance even though there had not been strict compliance?

2. Was the non-compliance case being waived and, if so, should it be waived in a particular case?

3. What if the non-compliance was not waived, what was the consequence of the non-compliance?

The court’s approach should be to avoid the unjust and unintended consequences which could flow from a strict approach. The court should consider what the legislator had intended to be the consequence of non-compliance. In the instant case, neither of the asylum seekers was affected in any way by the purely technical omission.

CLAIMS IN RESPECT OF SUMS PAID BY WAY OF SETTLEMENT

Technology and Construction Court
His Honour Judge John Hicks QC
Judgment delivered 8 January 1999

Facts

The Royal Brompton Hospital National Health Trust (“the employer”) made various claims against sixteen defendants who were all professional persons, firms or companies advising the employer in relation to major building works carried out at The Royal Brompton Hospital. In due course the contractor commenced arbitration proceedings claiming an additional £15m. The employer counterclaimed for a sum of £6.6m and the arbitration was ultimately settled on the terms that the employer paid the contractor some £6.2m in settlement of all issues of liability and quantum.

The action before the TCC concerned the employer’s claim against the defendants in which the employer sought to recover from the defendants the costs of the arbitration and the settlement. One of the allegations of the employer concerned the complaints by the contractor in the arbitration concerning excessive number of instructions issued during the course of the contract by the defendants causing loss and expense.

The defendants sought to strike out the employer’s claim on the basis that the allegations relating to the number of instructions disclosed no cause of action. Further, the defendants asserted that the claim to recover the cost of the arbitration settlement was defective because there was no plea that the employer was in fact liable to the contractor because the allegation was that the employer acted reasonably in reaching the settlement not that the settlement itself was reasonable. The defendants’ interlocutory applications came before Judge Hicks QC.

Issues and Findings

Is a claim that the magnitude of the number of instructions issued to a contractor alone caused loss and expense necessarily bad in principle?

No, subject to certain caveats.

How widely should Biggin v Permanite (i.e. were the terms of a settlement objectively reasonable terms) be interpreted and applied?

The principle in Biggin v Permanite does extend to cases in which there are several defendants against whom the settlement in question is relied upon and to cases in which that settlement involved a compromise of issues of liability on a claim and counterclaim as well as of quantum.

Commentary

Biggin v Permanite appears to be particularly topical at present at the TCC having been extensively addressed in P&O Developments Limited v Guy’s & St Thomas’s National Health Service Trust (also referred to in this case) and also considered in London Underground Limited v Kenchington Ford plc & Others.

The gist of the defendants’ arguments in this case was to the effect that the principle established in Biggin v Permanite be used restrictively in that this particular case should be distinguished from Biggin. Judge Hicks QC held in principle that Biggin v Permanite was equally applicable to the facts of this case and in particular a party will be able to recover against a number of defendants’ contributions to sums paid to a third party by way of settlement if reasonable notwithstanding no finding or admission of liability to the third party.

The case also contains an interesting passage concerning the plaintiff’s pleaded case to the effect that the defendants caused delay to the works as a result of the sheer number of instructions they generated. It appeared that the manner in which this claim was pleaded was very much global. Judge Hicks found that he could see no reason why such a pleading should be bad in principle subject to certain caveats, the principal one being that the party making such an allegation must make it clear that they are relying upon a sheer weight of numbers alone for that particular purpose. In such circumstances the need to link particular factual consequences and damage to individual instructions may not be necessary to avoid interlocutory attacks. Evidential difficulties may however still arise.

EXPERTS - IMMUNITY

Court of Appeal
Judgment delivered 8 July 1998

Facts

Mr and Mrs Stanton consulted Mr Callaghan, a surveyor, after their property suffered subsidence, and partial underpinning, undertaken with the agreement of their insurers, failed to stabilise the property. On the basis of that report, the plaintiffs claimed against the insurers for the cost of total underpinning of the building, which claim was rejected. They commenced proceedings against the insurers and Mr Callaghan was retained to provide expert advice in support of that claim.

A direction was given in the proceedings that expert evidence be agreed where possible. Mr Callaghan was instructed to meet with the other expert within two weeks “with a view to agreeing as much as possible and making a list of those areas where a dispute really does exist”.

The experts met and prepared a joint statement in which it was accepted that the partial underpinning gave rise to a risk of movement. The statement identified a cheaper, alternative solution to total underpinning involving the creation of a gap between the partial underpinning and the foundations. Having provided a copy of the joint statement to the solicitors for Mr and Mrs Stanton, Mr Callaghan subsequently incorporated the alternative solution in his expert’s report.

In the light of these events the claim was settled prior to trial following an increased payment into court by the insurers, and the property was sold without any remedial works being carried out. Mr and Mrs Stanton brought proceedings against the defendants. It was their primary case that the alternative solution was not feasible or effective and that Mr Callaghan’s advice was thereby negligent and in breach of implied terms of his contract of retainer. They also alleged that, even if the alternative solution was viable, Mr Callaghan wrongfully conceded that the plaintiffs’ property could be repaired without the need for full underpinning in breach of implied terms that if he changed his opinion as to the merits of the case he would obtain express authority to disclose that change of view and that his view would be uninfluenced by the prospect of reaching agreement with the insurers.

The defendants claimed immunity from suit and sought to have the plaintiffs’ claim struck out on the grounds that it disclosed no cause of action or was an abuse of the process of the court.

Issues and Findings

If the alternative solution was viable, did the defendant nevertheless breach the terms of his contract of retainer when he reached agreement with the insurer’s solicitors?

No. In agreeing the joint statement, the defendant was doing just what he had been instructed to do which was to agree as much as possible. It followed from the expert’s role in assisting the court, which required him to be free to make proper concessions, that there was no duty to inform the lay clients or the solicitors or to seek instructions before recording the concession in the joint statement.

If negligence was proven, was the defendant in any event immune from suit in relation to the concession?

Yes. The public interest in facilitating full and frank disclosure between experts before trial in order to assist the court in resolving the issues and reaching a just solution, requires that each should be free to make proper concessions without fear that any departure from advice previously given to the party who has retained him will be seen as evidence of negligence.

Was the immunity lost if the expert did not subsequently give evidence?

No.

Commentary

This case emphasises the function of the expert witness to provide independent assistance to the court. In particular, identifying areas of real dispute and those issues that can be agreed is one of the functions of the experts. In these circumstances, Otton LJ held that no implied duty arose on an expert to inform those instructing him or to seek instructions before recording a concession in a joint statement of experts.

As it was Mr and Mrs Stanton’s primary case that it was the latter advice of the defendants that was wrong, the question did not arise whether there was immunity in respect of advice given prior to the joint statement and experts’ report. Obiter statements of the Lord Justices in this decision indicate that there would not have been any such immunity.

Where advice has dual purposes, Lord Justice Nourse has indicated that it may be sufficient to establish immunity if a substantial, but not necessarily principal, purpose of the advice is the giving of evidence at trial.

As a general rule, the parties should endeavour to arrange without prejudice meetings of the experts well in advance of the trial. The ORSA Expert Witness Protocol recommends that meetings of experts take place before exchange of experts’ reports and that an expert should report promptly to the solicitor after a meeting and discuss any apparent agreement or narrowing of issues. If areas of apparent agreement on matters of opinion emerge at a without prejudice meeting, it is good practice to record these promptly to ensure accuracy. However, it may be appropriate for the expert to reflect on the issues following the meeting. As this case underlines, while the expert does not normally have authority to bind the client, in practice if the expert is called to give evidence, it will be difficult for him to depart from his report or any agreement recorded in a joint statement of the experts. The ORSA protocol recommends that the expert be made aware of the extent of his authority and that matters which the expert agrees in a note of the meeting may be binding on him. It is good practice for the expert to ensure that all written notes of the meeting are marked “without prejudice” until clearly agreed by two or more experts.

ARBITRATION

Queen’s Bench Division
His Honour Mr Justice Clarke
Judgment delivered 25 June 1998

Facts

Taylor Woodrow carried out works for Hutchison under the JCT Intermediate Form of Building Contract, 1984 edition with amendments up to amendment 9. Article 5 of the contract contained an agreement by the parties to refer disputes to arbitration in accordance with Clause 9 of the conditions. Disputes arose between the parties and an interim award was published. Taylor Woodrow wished to appeal against that award on questions of law. The arbitration was subject to the Arbitration Act 1996 which provides for an appeal on a point of law with the agreement of the parties to the proceedings. Taylor Woodrow contended that such an agreement existed by way of Clause 9.5 of the contract which provides as follows:

The parties hereby agree in consent pursuant to sections 1(3)(a) and 2(1)(b) of the Arbitration Act 1979 that either party may appeal to the High Court on any question of law arising out of an award …

Despite the fact that Clause 9.5 referred to the Arbitration Act 1979, Taylor Woodrow contended that this constituted an agreement of the parties pursuant to section 69 of the Arbitration Act 1996.

Issues and Findings

Does the parties’ agreement to appeals from arbitration awards on questions of law under the JCT intermediate form in respect of the 1979 Arbitration Act constitute an agreement of the parties to the right of appeal on questions of law in respect of the 1996 Arbitration Act?

Yes.

Commentary

There are no doubt numerous standard forms of contracts that have been entered into containing an agreement of the parties to a right of appeal in respect of questions of law under the 1979 Arbitration Act which may ultimately lead to disputes and arbitration under the 1996 Act. Accordingly, the decision of Mr Justice Clarke is to be welcomed in clarifying that such clauses constitute consent to appeal upon questions of law under the Arbitration Act 1996. Mr Justice Clarke simply took the view that the essential base of the agreement at Clause 9.5 was that the parties had agreed that either party could appeal on a question of law and that the courts should have jurisdiction to determine any such question. Mr Justice Clarke held that it could not be the case that the parties intended that they should have a right of appeal on a point of law under the 1979 Act but not under a later statute, such as the 1996 Act.

Index

ARBITRATION

Obligation to exhaust arbitral process before application or appeal, arbitrator’s duty to give parties opportunity to deal with arguments not advanced by either party and finality of interim award;
Gbangbola and another v Smith & Sherriff Ltd

Stay under s9 Arbitration Act 1996 and step in proceedings;
Jetendra Bhailbhai Patel v Dilesh R. Patel

Agreement to appeal on questions of law pursuant to the Arbitration Act 1979 applies to the Arbitration Act 1996;
Taylor Woodrow Civil Engineering Ltd v Hutchison IDH Development Ltd

Joinder under ICE ‘Blue’ Form of subcontract and subcontractors’ entitlement to commence an independent arbitration;
Redland Aggregates Ltd v Shepherd Hill Engineering Ltd

ARCHITECTS

Use of title “Architect” and recovery of professional fees;
Munkenbeck & Marshall v Kensington Hotel

ADJUDICATION

Enforcement of an adjudicator’s decision and application to stay enforcement proceedings to arbitration;
Macob Civil Engineering Ltd v Morrison Construction Ltd

Enforcement of an adjudicator’s decision;
Outwing Construction Ltd v H. Randell & Son Ltd

BONDS

Payment under a bond and net established and ascertained damages;
Paddington Churches Housing Association v Technical and General Guarantee Company Limited

CLAIMS IN RESPECT OF SUMS PAID BY WAY OF SETTLEMENT

P&O Developments Ltd v The Guy’s and St Thomas’s National Health Service Trust v The Guy’s and St Thomas’s National Health Service Trust v (1) P&O Developments Ltd (2) Austen Associates (a firm) (3) Austen Associates Limited
Biggin v Permanite reviewed

The Royal Brompton Hospital National Health Trust v Frederick Alexander Hammon & Others

CONTRACT

Existence of a Contract and Stay under s9 Arbitration Act 1996;
Birse Construction Limited v St David Limited

Incorporation of Clauses 6.1-6.3 RIBA Standard Form of Agreement (“SFA”), scope of Clauses 6.1-6.3 of SFA and reasonableness of Clauses 6.1-6.3 of SFA;
James Moores v Yakeley Associates Ltd

DAMAGES

Liability under the Nuclear Installations Act 1963 and measure of damages to compensate for the loss of a prospective sale;
Blue Circle Industries v Ministry of Defence

Civil Liability (Contributions) Act 1978 and loss of chance to prevent fire spreading;
J. Sainsbury plc v Broadway Malyan and Ernest Green Partnership Limited

Civil Liability (Contribution) Act 1978 Apportionment;
W Lamb Limited v J Jarvis & Sons Plc

EXPERT WITNESSES

Without prejudice meetings of experts, statements of experts and privilege;
Robin Ellis Limited v Malwright Limited

Whether liability can arise for concessions made in the course of preparing a joint statement of experts and immunity from suit of an expert witness;
Stanton v Brian F. Callaghan & Associates

Duties and responsibilities of expert witnesses;
Regina v Balfour Beatty Civil Engineering Ltd and Geoconsult GES

FINAL CERTIFICATE

Effect of the Final Certificate under JCT 80;
Oxford University Fixed Assets Limited v Architects Design Partnership v Tarmac Construction (Contracts) Limited (formerly Wimpey Construction Limited)

Effect of Final Certificate under JCT 63 (July 1997 Revision);
Belcher Food Products Limited v Miller & Black and Others

NOTIFICATION OF DEFECTS

Notification of defects condition precedent under Clause 2.5, failure to notify does not exclude right to damages and measure of damages;
Pearce & High Limited v John P. Baxter and Mrs A. S. Baxter

INSURANCE

Obligation of the project manager to ensure that the contractor has adequate insurance in place, novus actus interveniens and contributory negligence;
Pozzolanic Lytag Limited v Bryan Hobson Associates

INSURANCE AND CONDITIONS PRECEDENT

Whether notice of a claim was a condition precedent to recovery under an insurance policy and whether failure to give notice of a claim was a repudiatory breach of contract;
Alfred McAlpine plc v BAI (Run-off) Limited

PROFESSIONAL NEGLIGENCE

Claim in respect of overdesign and delay claims in respect of requests for information;
London Underground Limited v Kenchington Ford plc & Others

RETENTION

Claiming retention monies;
Ballast Wiltshier plc v Thomas Barnes & Sons Ltd

STAY OF PROCEEDINGS

Obligation to exhaust contractual machinery and court’s discretion;
Halifax Financial Services Ltd v Intuitive Systems Ltd