The Fenwick Elliott Summer 2001 Review
Welcome to Fenwick Elliott's Summer Review for 2001. In once again highlighting the latest key developments in our specialist field of construction law over the past year, this year's Review inevitably features the continuing significant impact of adjudication. There is discussion on the impact of the Human Rights Act which was previewed in last year's edition. We focus once again on Health and Safety. The Government has made it clear that the construction industry is one of the areas where there must be improvements. Also, this year's Review contains useful information on other important developments and, as usual, includes a round-up of the key cases reported by Fenwick Elliott either in the Construction Industry Law Letter or the Fenwick Elliott Dispatch over the past year.
On 2 June 1980, Fenwick Elliott, one of the first, niche, solicitors' firms dedicated solely to the needs and requirements of the construction and engineering industry, opened its doors for business for the very first time.
In the intervening 21 years there have been, of course, many changes. Back in 1980 the Internet was unlikely to have been more than the dream of a few computer technicians, whilst if anyone had a mobile phone, it was the size and weight of a brick.
According to the first edition of Building Contract Litigation, an adjudicator was a "creature" of the JCT nominated subcontract form, NSC/4, whose main purpose was to act as an "instant arbitrator" for the purpose of quantifying a contractor's set-off against a nominated subcontractor.
Indeed, the introduction and acceptance of adjudication is an example of perhaps the key change, as far as we are concerned, that has taken place over the past 21 years. That change is the recognition that, should a dispute arise, there are a number of realistic, alternative ways of attempting to settle that dispute without the need to resort to time-consuming, costly and lengthy litigation or arbitration.
At Fenwick Elliott, we believe that despite the myriad of changes over the past 21 years, we remain one of the leading construction law firms. One reason for this is our willingness to embrace change (be it legal, technical or commercial) and not be afraid to look for imaginative and cost-effective solutions to (potential) problems should they arise.
One example of this is the formation of CING, in which Fenwick Elliott was a prime mover.
The introductory meeting of the Construction Industry Neutrals Group ("CING") was held on 9 April 2001. Among the organisations represented at this first meeting were CEDR, CIArb, RICS, ICE, LCIA and CIOB.
The objects of the society include:
The key aim is that members of CING will offer a non-binding ADR process, which may involve a blend of Early Neutral Evaluation and Facilitative Mediation according to the requirements of the dispute.
Robert Fenwick Elliott was elected as the inaugural chairman. A website is being created and we will keep you informed of any further developments.
If you are interested in finding out further information please contact Robert's secretary, Margaret Paradysz.
At the time of last year's Review, we were able to report on the decision in Bouygues v Dahl-Jensen where the Court of Appeal gave its backing to the vigorous approach taken by Mr Justice Dyson to the enforcement of adjudicators' decisions in Macob v Morrison.
The number of cases going to adjudication continues to rise. Figures from the RICS show that the number of applications for the appointment of an adjudicator has risen from 377 in 1999 to 1,006 in 2000. In the first four months of this year there were 378 applications giving a projected annual figure of 1,134.
Interestingly, an analysis by the RICS of 1,212 cases shows that 738 (or 60%) were carried out pursuant to the Scheme. A decision was reached in 886 (or 73%) of cases whilst 290 (or 23%) settled. This is an encouraging figure which perhaps suggests that adjudication is having a positive counter-effect on the traditional adversarial routes of construction disputes.
More recently, for the first time, there have been a handful of decisions, particularly Discain v Opecprime, where the courts have refused to give summary enforcement of adjudication decisions where they feel there has been a breach of natural justice. This, as Robert Fenwick Elliott discusses below in an editorial prepared for the May edition of CILL, just might serve as a fetter on adjudication or at least as a powerful weapon to those opposed to a particular adjudication (and this is usually, but not always, the paying party):
Whilst we remain hopeful that adjudicators remain relatively unfettered and free to make full use of their inquisitorial powers as envisaged by statute, we will ensure that whatever does happen will be fully explained in our regular Adjudication Update Seminars which take place at The Savoy Hotel.
To date we have held three, on 30 October 2000, 19 January 2001 and 24 May 2001. Audience numbers have risen on every occasion and members of the audience have been entertained (and we hope educated) both by our guest chairmen and speakers Rudi Klein, Tony Baldry MP, His Honour Judge Anthony Thornton QC, Stephen Furst QC, Richard Wilmot-Smith QC and Guy Cottam, and by the in-house contributions from Robert Fenwick Elliott, Chris Hough, Simon Tolson, Victoria Russell and Jeremy Glover.
In an extract from one of the papers, Chris Hough explains some of the difficulties with withholding notices, which are proving to be on an area of much importance and confusion amongst users of the system.
After Chris gave his paper, HHJ Thornton QC gave judgment in Woods Hardwick v Chiltern Air Conditioning, a decision which attracted far more publicity for his comments on the alleged appearance of partiality on the part of the Adjudicator, but one which also dealt with questions of abatement and section 111 notices. He said as follows:
It should be noted that whilst Chiltern's defence was not put forward in terms as an abatement, HHJ Thornton QC found that the nature of Chiltern's defence was to the effect that such fees as might otherwise have been due were eliminated or reduced because the value of Woods Hardwick's work was greatly reduced by the alleged breaches of contract. Thus he characterised Chiltern's principal defence as being one of abatement. More recently, the importance of getting your section 111 notice in or at least launching a cross-adjudication has come to the fore in two cases. The first is In Re A Company (number 1299 of 2001) where Mr David Donaldson QC sitting as a Deputy High Court Judge in the Chancery Division concluded that the failure to serve a withholding notice pursuant to section 111 means that a contractor has an undisputed debt for the amount demanded in an application for payment. Consequently, this debt may form the basis of a statutory demand, which, if unpaid within 21 days, may justify a petition to wind up the debtor. Here the Court refused to restrain the winding-up petition because:-
The second decision is a decision of Lord MacFadyen in SL Timber Systems Ltd v Carillon Construction Ltd. This decision is particularly relevant because Lord MacFadyen said that the Adjudicator was wrong in law to simply award the claimant under the adjudication the sum claimed in full because of a failure to give a timeous notice under Section 111. The Adjudicator here had adopted the position that any or every attempt to dispute a claim made under a construction contract was to be regarded for the purpose of Section 111 as an attempt to "withhold" payment and therefore so requiring a notice of intention to withhold payment. Lord MacFadyen stated that:-
However, whilst the reasoning of the Judge may give some comfort to anyone who has failed to submit a withholding notice within the relevant period, there was a sting in the tail.
The Adjudicator had been asked to determine whether a timeous notice of intent to withhold payment had been given. He said that it had not. The question which then arose was whether, in that event, an obligation arose to pay the sums claimed. He addressed that question and answered it in the affirmative. Even though the Judge held that he got the answer wrong, because he had answered the right question, the decision (in accordance with the Macob principles) was upheld.
It is not enough merely to say that you have a set-off or abatement. You must do something about it.
Fenwick Elliott continue to be one of the backers of this premier adjudication website. If you log on you will find not only full up-to-date details (including where possible transcripts) of the latest reported decisions, but also practical assistance on all aspects of the adjudication process. It is also possible to request the appointment of an adjudicator from the site.
If you have any comments, either fill in the feedback form on the site or contact Chris Hough.
In last year's Review we outlined the framework of the Human Rights Act and speculated on some of the likely implications for the construction industry.
One of the concerns expressed by the courts was that the implementation of the Act would lead to a mass of challenges based on breaches of the European Convention on Human Rights. Practitioners were effectively warned off by Lord Woolf against making challenges which were unlikely to succeed.
It does seem that the Act has not led to a floodgate of challenges and certainly, although some early challenges succeeded, some (most recently the Alconbury planning decision in the House of Lords) have been overturned.
Before the implementation of the Act, the biggest worry for the industry was the likely effect on adjudication. There were those who said that adjudication was likely to be found to be contrary to Article 6 of the European Convention on Human Rights in that one of the parties would be deprived of its right to a fair trial.
However, there have been two judgments which suggest that, for the time being at least, the Human Rights Act is not directly applicable to adjudication. In the first, Elanay v The Vestry, HHJ Havery QC held that article 6, particularly the right of every party to have a reasonable opportunity of presenting its case, does not apply to adjudication proceedings under the HGCRA, since they do not involve a final determination of the rights of the parties that determination is only binding pending final determination by arbitration or litigation.
The second decision was that of HHJ Bowsher QC made on 11 April 2001 and we set out below an extract from a talk on Human Rights given to the RICS by Simon Tolson in May of this year:
Indeed, in May a decision was given in the TCC which suggests that the Human Rights Act is still going to have a significant impact. In Marcic v Thames Water Utilities Ltd, the claimant had suffered repeated and serious flooding from the sewer system. He made claims based on nuisance, negligence, and breach of statutory duty against Thames Water. These were rejected by HHJ Havery QC.
However, under Section 6 of the Human Rights Act it is unlawful for a public authority to act in a manner incompatible with rights under the ECHR. Article 8 relates to respect for private and family life and article 1 to the first protocol relates to the protection of property. HHJ Havery QC held that Thames Water's failure to carry out works to prevent the repeated flooding amounted to an interference with those rights.
Therefore, Thames Water was in breach of Section 6 of the HRA. Nevertheless a public authority may have a defence by virtue of the principle of proportionality. It is necessary to strike a fair balance between the general interest of the community and protection of the individual's rights. Here, in particular after consideration of the financial position of Thames Water, notwithstanding the competing demands on its resources, HHJ Havery QC found that Mr Marcic's rights under the HRA had been infringed.
What is clear though is that had Mr Marcic's claim been brought before the introduction of the HRA, it would have failed.
The Lord Chancellor's Department certainly considers that the changes introduced by the procedural reforms in April 1999 have worked well so far. This conclusion can be found in a Report produced in March 2001 entitled Emerging Findings.
One of the key findings of the Report is that the pre-action protocols are working well to improve the rate of settlement and reduce the number of (ill-considered) claims. In last year's Review we discussed the draft pre-action protocol for construction disputes which was produced by TeCSA. This was formally introduced in October of last year.
The importance of following the protocol was spelt out by HHJ Wilcox on the case of Paul Thomas Construction Ltd v Hyland & Anr where, after the claimant unsuccessfully applied for summary judgment he ordered that the claimant pay the Defendant's costs to date on an indemnity basis because of the unreasonable manner in which the claimant had conducted itself. HHJ Wilcox said:
These comments were reinforced by the comments of Mr Justice Neuberger in Liverpool City Council v Rosemary Chevasse Ltd who said:
The decline in the number of claims issued may have stabilised albeit at a much lower level. Figures from the TCC show the following:-
However, in the first three months of this year the number of claims issued dropped from 86 in the first three months of 2000 to 64. Of the claims issued in 2000, approximately 25% related to the enforcement of adjudicators' decisions.
The number of actions tried has remained constant: 73 in 1997 and 68 in 2000. Finally, if you issued a claim in April 2001 unless it was so complex that the trial would last for more than 20 days it is likely that you would get a trial date no later than November of next year.
The LCD Report figures confirm this trend. More specifically, they show an increase in the number of claims issued just before the introduction of the Reforms followed by a swift decline. Although there has been a gradual increase since then, the number of cases remains at a lower level.
Equally, less cases are actually reaching trial. For fast track cases (where claims are worth less than £15,000) the proportion of settlements as withdrawals before the hearing day has risen from 50% to 70%. For multi-track cases the figure has risen from 63% to 72%.
The use of ADR claims continues to rise. This is bound to continue. In March 2001 the Lord Chancellor announced that the government:-
He further indicated that standard government procurement contracts would include clauses to use ADR to resolve disputes not litigation.
Perhaps one of the more controversial, or at least most widely discussed, of the reforms introduced by the new CPR were the changes proposed in relation to expert evidence. Whilst, for example, the introduction of the single joint expert was not strictly a new idea, since the option had always been available in the past, it had seldom been used. The changes set out in CPR 35 suggested that its use was expected to become far more widespread.
Now that a couple of years have passed, it is interesting to consider what impact, if any, the changes have had on expert evidence.
The LCD Report, referred to above, focuses on the use of the single joint expert declaring that the "use of single joint experts appears to have worked well. It is likely that their use has contributed to a less adversarial culture, earlier settlement and may have cut costs."
The use of the single joint expert is gradually taking off. According to the LCD Report, the single joint expert has been used in 41% of the cases where there has been expert evidence. However, what the report does not do is distinguish between particular types of cases. There remains a concern that for the larger more complex cases, even if a single joint expert has been appointed, parties will appoint their own expert to shadow the court-appointed expert thereby not achieving the costs saving which was part of the whole point of this particular change.
There have not been too many reported decisions involving the single joint expert. One of the more interesting is Kranidiotes v Paschali & Anr, where the Court of Appeal had to consider the actions of a Judge who had appointed a single joint expert to prepare a report on the market value of shares. A fee cap of £10,000 was set. The expert realised that the extent of the material supplied was such that he could not prepare a report within the cap and accordingly sought directions from the Judge.
The Judge decided he had to achieve a fair result and also one which was proportionate to the issues in dispute. The maximum sum recoverable by the claimant was £80,000. The expert suggested that his costs could amount to £70,000. Therefore, the Judge decided to use his discretion and dispense with the services of the first expert and appoint a cheaper one.
The Court of Appeal declined to interfere with this case management decision since it felt that the Judge had not exceeded his discretion. The Judge believed that the cheaper quote would still ensure that guidance could be given at trial on the claims being made. The sum of money in issue had not warranted a payment of substantial costs and the Judge had stressed at all times the need to achieve a fair and proportionate result.
In an Admiralty case, Owners of the Ship "Pelopidas" v Owners of the Ship "TRSL Concord", Judge David Steel QC reiterated that expert evidence was not admissible without leave of the Court. If parties sought advice without an Order, those costs would not be recoverable. He also noted the potential advantages of a single joint expert to run the software necessary to plot the course of ships. Something specific to those courts maybe, but a useful pointer to judicial thinking in general.
The courts do recognise that, particularly in the complex cases, it might be unjust to compel parties to rely on the single joint expert. In Cosgrove & Anr v Pattison & Anr, Neuberger J allowed an appeal by the Defendants that they be permitted to instruct an expert of their own since they were unhappy with the report prepared by the single joint expert. Amongst the relevant factors was the fact that thousands of pounds were at stake and the fact that because the hearing was some way off the instruction of another expert would have little effect on the hearing date and the claimants would still have the opportunity to instruct their own expert.
The recent unreported decision of HHJ Wilcox in A de Grouchy Holdings Ltd v House of Fraser Stores Ltdgives a good example of the single joint expert at work in the TCC.
Here, the expert understood his role to "put myself in the shoes of the PQS and provide a report to the court".
HHJ Wilcox said of the court expert:
It would be fair to say that in The Royal Brompton Hospital National Health Service Trust v Frederick Alexander Hammond and Others, HHJ Seymour QC took a far less favourable view of the expert evidence presented to him, this time by experts instructed by the parties. Whilst we are not, of course, aware of the full circumstances of the case, his comments are valuable as an indicator of some of the concerns a court may have about expert evidence generally.
In fact, the parties in this particular case relied solely upon expert evidence and no witness of fact having direct knowledge of the progress of the works was called.
The Judge was particularly damning of experts who allow themselves insufficient time to get properly au fait with the paperwork, and who accept from their instructing solicitors, or themselves make, factual assumptions intended to circumvent a full investigation. Here the expert architect and project manager were "put in the unhappy position of being invited to give evidence to support cases…which they had no hand in formulating".
This led the Judge to criticise one of the experts for seeking to "bolster the claimant's case by giving inaccurate information" which served to "fatally undermine his position as an independent expert doing his best to assist the court."
Equally one of the experts acting for one of the Defendants was held to have had "an excess of enthusiasm" for that particular case. This, of course, is not something that would affect the court appointed expert.
The Judge took the opportunity to set out what the court expects from an expert who is called upon to deal with allegations of professional negligence:
It is also fair to say that the Judge queried the lack of contemporary knowledge of experts who no longer actively practice in the field but who devote most of their time to providing expert or consultancy services.
One area where the Judge did take account of expert evidence was in relation to the question whether a failure on the part of the employer to give in due time access to the site of the works or any part thereof, but which had not caused any delay to the progress of the works, entitled the contractor to any extension of time. It was said by the experts that there was a body of opinion among those who have to make decisions as to whether to grant extensions of time to contractors in respect of the failure of employers to afford access to building sites that there was an automatic entitlement in such circumstances. Although the experts were not architects, the Judge did not disregard their evidence:
Ultimately, owing to the absence of any credible, expert evidence, HHJ Seymour QC held that the Court may only substitute its own judgment and commonsense in the most straightforward of cases. The Court is not in a position to provide a view on any matter in respect of which any special skill, training or expertise is required to make an informed assessment. Thus the one finding of negligence was based upon correspondence which made it clear that WGI was addressing its mind not to the likely completion date of the works as a whole (in respect of which the extension of time was granted), but rather the likely extended date for completion of the floor works alone. This was a finding he felt able to derive from the documents in the absence of any witnesses of fact or any credible expert evidence.
Of course, what can be seen coming through is the need for every expert to be familiar with the seven key principles of expert evidence set out by Mr Justice Cresswell in The Ikarian Reefer  2 Lloyds Rep 68. These principles endorsed by the Court of Appeal, were widely circulated at the time and became the standard by which experts were judged. The Court of Appeal gave firm guidance in Stevens v Gullis, where Lord Woolf had no hesitation in approving a trial Judge's decision to exclude the Defendant's expert evidence:-
The expert must understand exactly what is required of him as an expert witness under the CPR. If he does not, then the sanctions are likely to be draconian.
HHJ Toulmin QC agreed with the importance of the Ikarian Reefer. In Anglo Group plc v Winther Brown he re-affirmed the seven principles and then soundly criticised one set of experts for failing to distinguish between the roles of the negotiator and the expert, which inevitably led to suspicions of partisanship.
The same Judge in the case of Pride Valley Foods v Hall & Partners held that expert evidence was inadmissible, in part due to the fact that the report in question dealt with a number of matters which were for the court to decide and not the expert, for example to making a number of findings of fact. Further, the case related to the question of the alleged negligence of a project manager and the expert had made judgment from the viewpoint of a professional architect and designer.
The recent case of Stringfellow v Blyth demonstrates the need for care to ensure that an agreed report is actually agreed. Here, despite the fact that the trial Judge and the Defendant's expert disputed that the report had been agreed, the Court of Appeal found that the trial Judge should not have gone behind the agreed expert report.
This decision might seem to conflict slightly with the views of HHJ Seymour QC about the status of the single joint expert's report. However, here the experts had reached an agreement that presumably would have to stand unless the factual matrix changed.
The duty of the expert witness includes the need to make oneself available to do the work required when it is required. Deadlines are tighter under the new regime. The penalties for failing to meet them can be severe, ranging from costs to the dismissal of a case. Just as costs awards can (and will) be made against solicitors, it is not inconceivable that an expert might find himself vulnerable to such a finding from the court.
In Matthews v Tarmac, the Court of Appeal confirmed the need to take all practical steps to ensure that witnesses, including experts, are available for the trial. The Court will not necessarily be sympathetic if an expert is unavailable, since he has made a deliberate career choice to follow this particular field. The Court noted that expert doctors holding themselves out as practising in the legal field had to be prepared, as far as practicable, to rearrange their diaries to meet the commitments of the court.
Rule 35.3 states that the Court's permission to call expert evidence is required in all cases. This complete court control is probably the biggest change of all. Whilst there will always be cases where expert evidence is necessary, whether that evidence is called or not is ultimately up to the Court and up to the Court alone; and when that evidence is called woe betide any expert who is unfamiliar with the various rules and guides.
In Mutch v Allen, the Court of Appeal considered Rule 35.6 of the CPR, which enables a party to submit written questions to the other side's expert. At a case management conference, a District Judge had allowed the Defendant to put written questions to the claimant's medical expert. This order was reversed on the basis that the replies did more than merely clarify the report.
The Court of Appeal disagreed. The District Judge had given permission for the questions to be put. The claimant had not objected. Had the expert been called to give oral evidence, the Defendant would have asked the same questions in cross-examination.
One of the essential reforms behind CPR 35 was to ensure that an expert witness no longer served exclusively the interests of the party by whom he had been instructed and to ensure that his expertise was available to all so that the Court was provided with all relevant material in the most cost-effective way. By way of example, CPR 35.11 provides that one party can use the other party's expert report even if that party chose not to rely upon it.
This is not so new after all, since it, like many of the other reforms, mirrors the seven Ikarian Reefer principles which remain, six years on, the starting point for any expert.
As from 1 January 2001, Fenwick Elliott has provided a free legal advice service to members of the CIOB.
The terms of the arrangement are that we offer members up to 30 minutes of free legal advice. In addition, we provide editorials for each issue of Contact, the CIOB members' newsletter, and regular articles to Construction Manager magazine. We have also provided speakers for CIOB branch meetings.
If you require any further information please contact Victoria Russell, who became a Fellow of the CIOB in May and who wrote the following article for Contact on pre-action disclosure under the Woolf Reforms.
Last year we highlighted some of the proposed changes to the law, particularly the introduction of the crime of Corporate Manslaughter, which the present Government intends to bring in. However, given that the proposed reforms were not included in the recent Queen's Speech, that implementation will be delayed for at least another year. The Home Office Report on the consultation has still not been published. Whilst no legislation has been introduced yet, we have no doubt that, particularly after the Cullen Report on the Paddington train crash, it will be fairly shortly.
As Vijay Bange makes clear, in an extract from a paper on health and safety given at our Construction Update Seminar held in Birmingham in February 2001, the less than satisfactory health and safety performance of the construction industry has continued to cause concern within the industry, its governing bodies and the government.
Partnering has been the subject of much discussion. The JCT has recently issued Practice Note 4, which provides a six-page summary of the principles of partnering. The Practice Note, which is priced at £8.50, includes a non-binding partnering charter for single projects, which can be used with existing forms of building contract. It also includes discussion of the four key objectives, namely delivery, team working, people and commercial awareness.
We continue to be rated as one of the leading construction law firms, and continue to strengthen our team and look for ways to improve the service we offer to clients.
Matthew Needham-Laing, formerly of Berrymans Lace Mawer, joined us as an Associate in March of this year. Prior to becoming a solicitor, he practised as an architect for five years. Matthew is also an accredited Adjudicator with the CIOB and is a member of the Architects Legal Forum.
Karen Gidwani joined us as an assistant solicitor from Decherts in November 2000. Karen, the co-author of one of the chapters of The Construction Law Handbook, was previously at Sharpe Pritchard, and has specialised in construction since qualification.
As part of our commitment to offering a complete service to clients Fenwick Elliott hold regular seminars. As well as our twice-yearly adjudication update seminars referred to in section 3 of this Review, we intend to hold regular seminars on issues of relevance and interest to the construction industry. This year we held a well-attended seminar in Birmingham and we are looking into holding other seminars elsewhere in the UK.
We have also given a number of in-house seminars on a variety of topics including the impact and effect of the TCC protocol and adjudication. Please contact Simon Tolson and Jeremy Glover if there is any area in which you feel we might be able to assist your organisation.
In last year's Review we highlighted the formation in June 2000 of the International Construction Law Alliance. All the members are, like ourselves, specialist construction law practices. One of the reasons for its formation was to enable increased cooperation around the globe. Certainly to date we have found the alliance to be a valuable one since we know that if we need it we can obtain advice in other jurisdictions quickly, from reliable sources.
As technology continues to advance at an ever-increasing pace, the need to keep up-to-date with the latest changes is becoming ever more crucial. We believe that our commitment to the adjudication.co.uk website (see above) is one example of our response to our clients' needs.
Our monthly bulletin, entitled Dispatch, which is available in hard copy or electronic form, has now been running for a year. This summarises the recent legal and other relevant developments. If you would like to look at recent editions, please go to http://www.fenwickelliott.co.uk/. If you would like to receive a copy every month, please contact Jeremy Glover.
Society of Construction Law
In October 2000, Victoria Russell, who is Chairman of the UK SCL, was unanimously elected Vice-President of the European Society. She will take over from the current President, Alfons Huber of the Austrian Society, in October of this year.
Worshipful Companies of Arbitrators and Constructors
On 30 October 2001, Victoria Russell becomes the first ever female Master of the Worshipful Company of Arbitrators. Julian Critchlow and Simon Tolson have both recently joined the arbitrators' livery company, whilst Victoria and Simon have also just joined the constructors' livery company.
Fenwick Elliott has recently joined the Movement for Innovation. We feel that the mission statement of M4I fits naturally with the service we have always offered to our clients:
Tony Francis continues to edit the Construction Industry Law Letter ("CILL"). We set out below extracts from CILL, which are of particular interest. These extracts were first published by Informa Professional. For further information on subscribing to the Construction Industry Law Letter, please contact Clara Jarvis on telephone number 44 (0) 20 7553 1855 or by email: Eleanor.firstname.lastname@example.org.
We have split the case round-up into two, and deal first with those cases relating to adjudication. In addition we have included summaries of important cases, which have only recently been decided. An index appears at the end of this review.
Austin Hall Building Ltd v Buckland Securities Ltd TCC - HHJ Bowsher Q.C. (Judgment delivered 11 April 2001)Facts
The Adjudicator decided that Austin Hall should be paid £81,928.14. Buckland failed to comply with the Adjudicator's decision and raised the following issues under the European Convention on Human Rights by way of defence to Austin Hall's enforcement proceedings:-
Counsel for Buckland said that "…Section 108 of the Housing Grants Construction and Regeneration Act, 1996 and the procedure which any adjudicator is required to adopt is inherently unfair and contrary to Article 6 of the Convention on Human Rights and that accordingly the Court will not give effect to the decision".Issues and Findings
On the assumption that the Adjudicator was a "public authority", had he acted in a way which is incompatible with a convention right?
No, the Human Rights Act, 1998 Section 6(2)(a) confirms that Section 6(1) of the Human Rights Act does not apply if:-
In order to comply with the 28-day time limit the Adjudicator could not have acted differently.
Is an Adjudicator a "public authority" for the purposes of Section 6(1) of the Human Rights Act, 1998?
No, an Adjudicator exercising functions of the sort required by the HGCRA is not a public authority and therefore is not bound not to act in anyway incompatible with a Convention Right.
Could Buckland complain about the absence of any public hearing or the absence of any public judgment?
No for the following reasons:-
Notwithstanding the previous findings had the Adjudicator breached Article 6 of the ECHR or failed to comply with the Rules of Natural Justice?
On the facts of this case no.Commentary
In this case HHJ Bowsher QC [held]…that Article 6 of the convention does not apply to adjudication as an adjudicator is not a public authority within the meaning of Section 6(1) of the Human Rights Act 1998. However, the Judge admits that the matter is finely balanced and no doubt this particular issue will come before a higher court before too long.
As to the actual conduct of the Adjudicator the Judge held that the Adjudicator had not in any event acted in a manner that is incompatible with a Convention Right. At the end of his judgment HHJ Bowsher QC provides a further reminder that notwithstanding his findings in relation to the Human Rights Act the rules of Natural Justice do apply to adjudication as far as is possible given the timescales.Bouygues (UK) Ltd v Dahl-Jensen (UK) Ltd Court of Appeal (Judgment delivered 31 July 2000) Facts
Dahl-Jensen issued a notice to adjudicate claiming sums in excess of £5m. Reportedly thereafter, Bouygues issued a notice to adjudicate claiming almost £6m. It was agreed that Bouygues' claim should be treated as a counterclaim to Dahl-Jensen's claim in the adjudication. Mr William Gard was appointed as Adjudicator and he made an award in favour of Dahl-Jensen of £207,741.46. However, in arriving at that sum in his calculation he took account of the gross figure which included 5% retention and deducted it from the sum paid during the subcontract which excluded retention. The effect of this was to pay the retention to Dahl-Jensen of £348,885.63 when the parties were in agreement that the retention was not yet due under the subcontract.
Bouygues argued that the effect of the Adjudicator's decision was outside his jurisdiction and therefore the decision was not binding on the parties. The matter came before Mr Justice Dyson upon Dahl-Jensen's application under Part 24 of the CPR for enforcement of the decision notwithstanding the error in the decision he allowed Dahl-Jensen's application. Bouygues appealed.Issues and Findings
When an Adjudicator makes an error in calculating an amount payable to a party, the effect of which is to pay monies which are not due under the contract, is that decision void?
No, provided the Adjudicator has answered the issue that has been asked of him then a mistake in answering that issue does not prevent the decision being enforceable.
Should summary judgment be given on an Adjudicator's decision when the paying party has its own claims against the successful party in the adjudication who is in liquidation?
No, in accordance with Rule 4.90 of the Insolvency Rules 1986 all claims and cross-claims including the payment of the Adjudicator's decision should be resolved in the liquidation in which full account can be taken and a balance struck.Commentary
The Court of Appeal endorsed wholeheartedly the finding of Mr Justice Dyson at first instance and agreed that the Adjudicator had answered the right question in the wrong way. Following the authority in Nikko Hotels (UK) Ltd v MERPC Plc (1991) 2 EG LR 103 in such circumstances the Adjudicator's decision was enforceable. This is the only case to date concerning adjudication under the HGCRA that has reached the Court of Appeal. Both Lord Justice Buxton and Lord Justice Chadwick endorsed the approach taken to date by the Technology and Construction Court to enforcement of adjudicators' decisions. Whilst the point was not taken by the Appellants Lord Justice Chadwick found that the Appellants could have avoided enforcement had they run an argument that they were entitled to set-off their own claims against the Respondent under the contract in accordance with Rule 4.90 of the Insolvency Rules 1986 as the Respondent was in liquidation. Where the beneficiary of an adjudicator's decision goes into liquidation and the paying party has its own claims against the other whether arising out of the same contract or other contracts then that party will be able to set-off such claims by way of a defence to any enforcement proceedings.
Discain Project Services Ltd v Opecprime Developments Ltd TCC - HHJ Bowsher QC (Judgment delivered 9 August 2000)Facts
A dispute arose between the parties regarding payment and on 1 June 2000, the claimant commenced adjudication proceedings. On 6 July 2000, the Adjudicator gave his decision ordering that the Defendant pay the claimant the sum of £55,552.50 plus VAT. The adjudication was conducted under the Scheme. The Defendant refused to pay raising the following arguments for not paying:-
Can there be a dispute between the parties before the payment obligation arises?
On the facts of this case, the paying party made it clear that he would not pay on the date due for payment and therefore a dispute had arisen.
Can there be a dispute where the letters sent indicating a dispute do not actually come from the Defendant?
Yes, the parties would have understood the letters as being written on the Defendant's behalf.
Had there been a serious risk of bias in the Adjudicator's failure to consult with one party on the importance of submissions which were made by the other party?
Yes, on this basis, the Adjudicator's Award should not be enforced.Commentary
The Defendant complained of the Adjudicator's failure to consult with one of the parties on submissions that were made by the other party to the Adjudicator during the course of a telephone conversation. Having considered the facts, HHJ Bowsher QC declined to enforce the Adjudicator's decision on the basis that had the Rules of Natural Justice been complied with the Adjudicator might have reached a different decision. In certain quarters the immediate reaction to the judgment is somewhat extreme in that this would be the beginning of the end for adjudication. It is inevitably the case that adjudicators will wish to speak to the parties by telephone without the other party being present. This judgment does not prevent an adjudicator from doing that; what it does prevent an adjudicator from doing is hearing submissions from a party in the absence of the other party or not reporting the content of those submissions to the other party and giving that party the opportunity to respond.
HHJ Bowsher QC stressed that he fully understood the difficulties imposed on every adjudicator by strict time limits in adjudication and he cautioned against parties "searching around" for breaches of the Rules of Natural Justice. Each case is to be judged on its own facts and in this particular case, the Adjudicator had "overstretched the rules".Postscript
This case came back before HHJ Bowsher QC for a full hearing.
What is particularly interesting is that the court gave notice to the Adjudicator and gave him an opportunity to be joined as party to the action. He declined but filed witness evidence and was called as a witness by the court so that he could be cross-examined by Counsel for both parties. The adjudicator duly was cross-examined and HHJ Bowsher QC also took the opportunity to ask some questions himself.Issues and Findings
Will the Court refuse to enforce an Adjudicator's Decision if there has been a breach of the Rules of Natural Justice?
Yes. Provided that the breach has been a serious and substantial one.
After full consideration of witness evidence, had there been a serious risk of the appearance of bias in the Adjudicator's failure to consult with one party on the importance of submissions which were made by the other party?
Yes. On this basis, the Adjudicator's Award should not be enforced.Commentary
At the beginning of his judgment, HHJ Bowsher QC quoted a statement from the European Court of Human Rights in the case of Bramelid & Malmstrom v Sweden, (1984) APPL 8588/79, that "the arbitrators must be presumed impartial until there is proof to the contrary." This must be the starting point in any similar case.
At the end of his judgment, although he entirely accepted that there was no actual bias on the part of the Adjudicator, the Judge said that the question which had to be asked following The Director General of Fair Trading v The Proprietary Association of Britain, (2001) 1 WLR 700, was "whether there was an appearance of bias and if so, what should be the result of this" or would the facts lead a fair minded and informed observer to conclude that there was a real possibility or real danger that the adjudicator was biased.Glencot Development & Design Co Ltd v Ben Barrett & Son (Contractors) LtdTCC - HHJ LLoyd QC 13 February 2001 Facts
Glencot was engaged by Barrett as a sub-subcontractor in relation to a development in Docklands, London. The contract between the parties made no express provision for adjudication and accordingly the Scheme applied. On 15 August 2000, Glencot notified Barrett of a dispute about payment which was referred to adjudication. On 30 August, Mr Peter J Talbot agreed to act as the Adjudicator on the joint application of the parties. A meeting was held between the parties on 29 September 2000. At this meeting senior representatives from the parties met on an informal basis and reached some measure of agreement in relation to the dispute, but a number of issues remained outstanding. Mr Talbot was asked by both parties to mediate in order to try and finalise an agreement.
Following a day long mediation complete agreement on all outstanding issues was not reached and Mr Talbot therefore confirmed that the adjudication would have to continue with another appointment for the adjudication meeting. …Mr Talbot saw Glencot in the morning and intended to see Barrett in the afternoon. In the afternoon Barrett informed Mr Talbot that they wished him to withdraw as Adjudicator on the grounds that he had been compromised by being involved in the mediation and negotiations. Mr Talbot took Counsel's advice and then informed the parties that he was not going to withdraw. Mr Talbot then proceeded to make his Decision ordering that Barrett had to pay Glencot the sum of £160,016.10 including VAT. Barrett refused to pay and Glencot issued enforcement proceedings.Issues and Findings
Did the conduct of the Adjudicator mean that he lacked impartiality?
Yes, the circumstances would lead a fair minded and informed observer to conclude that there was a real possibility or a real danger, the two being the same, that the Adjudicator was biased.
Should the Adjudicator's Decision be enforced?
No, a decision which has not been arrived at impartially is not binding.
By not objecting either at the time or thereafter promptly, and by allowing the adjudication to resume had Barrett waived any right to object to Mr Talbot continuing to act or was it estopped from so objecting. Barrett's conduct was not such as to provide sufficiently clear evidence of an abandonment of such a vital right.Commentary
The test for apparent bias is whether the "circumstances would lead a fair minded and informed observer to conclude that there was a real possibility or a real danger, the two being the same, that the tribunal was biased." The test is based upon an objective appraisal of the material facts but is not limited to those apparent to the party alleging bias but also includes those material facts that are ascertained upon investigation by the Court. Following this Judgment the question of bias may well become a real issue for adjudication.
Having sought the parties' consent to continue with the adjudication following the aborted mediation and having taken Counsel's advice the Adjudicator no doubt thought he was on reasonably sure ground in continuing the adjudication. This demonstrates the problem with bias and its insidious nature. On any objective analysis of the situation it is difficult to see how the adjudication could have continued following the mediation given the significant differences in the two dispute resolution processes. As a result of any mediation process a mediator will be privy to commercial and other considerations of the parties. A mediator is there to facilitate a settlement. This role is clearly incompatible with that of an Adjudicator who is there to decide upon the parties' legal rights and obligations. Here the Adjudicator was privy to a number of without prejudice offers and it would seem he was also privy to some rather heated discussions. It is difficult to see how with the best will in the world, the Adjudicator could have divorced all of this from his mind in reaching his Decision.
Notwithstanding the refusal of HHJ LLoyd QC to enforce, ultimately he did order substantial interim payment to the claimants. The Judge held that notwithstanding Barrett's victory on the enforceability of the Decision, Glencot's claim still existed and Barrett still had to show that it had real prospects of success in defeating the claim. The Judge effectively therefore invited Glencot to make an application for an interim payment which was heard one week later.
George Parke v The Fenton Gretton Partnership Chancery Division - HHJ Boggis QC (Judgment delivered 2 August 2000)Facts
The Fenton Gretton Partnership carried out building works for Mr Parke… Disputes arose over the final account…The Adjudicator found in favour of FGP …and Mr Parke failed to pay. Accordingly, FGP issued a Statutory Demand seeking payment of the sum awarded by the Adjudicator. Mr Parke applied to set the Demand aside. His application at first instance …failed. He appealed.Issues and Findings
Does an Adjudication Decision create a debt, which may form the basis of a Statutory Demand?
Does the decision of an Adjudicator fall to be treated in the same way as a Judgment or Order in accordance with paragraph 12.3 of the Insolvency Proceedings Practice Direction such that a Court will not go behind the decision?
If the Debtor has a counter-claim, set-off or cross-claims where the debt is the adjudication decision, is this sufficient for the Court to set aside the Statutory Demand?
Yes. Depending on the facts.
Was it sufficient here?
On the facts, yes.Commentary
Issuing a Statutory Demand to enforce an adjudicator's decision may have the superficial attractions of speed and economy. This case confirms that such a route will not be effective and serves as a reminder that the Companies courts and Insolvency Procedures are not to be used as a means of debt collection. Here Boggis J has followed the reasoning of Nourse LJ in Seawind Tankers Corporation v Bayoil SA (1999 WLR 147) who held that provided there was a "genuine and serious" cross-claim which was "of substance" and which exceeded the debt then a winding-up petition (even where the debt was undisputed) should be dismissed.
Woods Hardwick Ltd v Chiltern Air Conditioning TCC - HHJ Thornton QC (Judgment delivered 2 October 2000)Facts
A dispute arose between the parties in relation to the claimant's entitlement to payment of additional fees which the claimant referred to adjudication. The contract between the parties was based upon an exchange of letters and contained no provisions for adjudication. Accordingly the Scheme applied. The Defendant failed to pay. The Defendant argued that the decision was a nullity on the basis that in breach of the provisions of the Scheme and general law, the Adjudicator failed to conduct the adjudication impartially and in compliance with the ordinary rules of natural justice. The Defendant had three complaints as follows:-
Was the Adjudicator's conduct of the adjudication such as to make his decision a nullity?
Yes, in order to make a valid and enforceable decision, an adjudicator must act in conformity with the rules of the Scheme. Where an adjudicator's departure from those rules is insignificant this will not preclude enforcement. Where the departures are significant the decision is not enforceable.Commentary
HHJ Thornton QC decided that the Adjudicator's conduct of the adjudication was such as to put him in breach of provisions of the Scheme by not making all relevant information submitted to him by the claimant available to the Defendant (paragraph 17). Secondly, in providing the witness statement as he did, the Adjudicator had demonstrated that he had not acted impartially in carrying out his duties (paragraph 12(a) of the Scheme). Where an Adjudicator fails to act in conformity with the rules governing the conduct of the adjudication in some significant respect then following Judge Thornton's judgment a decision of an adjudicator arrived at in such a manner will be void. An insignificant departure from the rules governing the conduct of an adjudication will not be sufficient to prevent enforcement. Again, it will be a question of degree. Given these findings the Judge declined to consider the issue raised in Macob Civil Engineering Ltd v Morrison Construction Ltd to the effect that breach of the principles of natural justice would not render a decision ultra vires or a nullity. However, in Discain Project Services Ltd v Opecprime Developments Ltd HHJ Bowsher QC found that the failure to give another party an opportunity to deal with certain submissions did amount to a breach of the rules of natural justice. A failure to comply with the Scheme or the rules governing an adjudication will often (but not always) amount to a breach of the rules of natural justice. Either ground is now likely to provide a defence to enforcement proceedings. In addressing the Defendant's failure to include details of their claim for abatement within a section 111 Notice, HHJ Thornton QC confirms that, in his opinion, abatement need not form the subject matter of such a notice to constitute an effective defence to non payment.
In Re A Company (number 1299 of 2001) Mr David Donaldson QC concluded that the absence of a Section 111 Withholding Notice would mean that a contractor has an undisputed debt for the amount demanded in an application for payment. Consequently, this debt may form the basis of a statutory demand, which if unpaid within 21 days, may justify a petition to wind up the debtor.
The Court refused to restrain the winding-up petition because it was undisputed as the main contractor's surveyor had certified the sums were due and the right to withhold had been forfeited as a result of the main contractor's breach of Section 111.
The Court also refused to exercise its discretion to dismiss the petition because the main contractor had failed to take any steps to pursue its cross claim by way of a separate adjudication or other proceedings, although the contractor had claims for set-off and/or abatement which would have extinguished the debt claimed under the statutory demand.
In Fence Gates Ltd v James R Knowles Ltd, HHJ Gilliland QC had to consider a decision of an Adjudicator who had awarded James R Knowles payment for invoices for providing evidence as witness of fact and assisting in an arbitration. The question was whether these were matters which fell within the definition of a construction contract to be found within section 104(2) of the HGCRA.
The Judge found that the giving of factual evidence by an architect is not the "doing" of architectural designing or surveying work itself. Similarly, providing litigation support at an arbitration is not the same as providing advice on the building or engineering. They are different and distinct activities.
Disputes in relation to payment of fees properly payable for services rendered as a witness of fact or assisting at an arbitration or litigation are not disputes in relation to construction operations, even if that dispute concerns construction operations. They are disputes in relation to litigation support work and arise under a contract provision of litigation support services.
The decision of HHJ Gilliland QC in Farebrother Building Services Ltd v Frogmore Investments Ltd relates to an adjudication carried out in accordance with the TeCSA adjudication rules version 1.3. In particular, in relation to paragraph 12 which provides that an adjudicator "may rule upon his own substantive jurisdiction and as to the scope of the adjudication".
HHJ Gilliland QC states that "so far as jurisdiction is concerned, if he [the Adjudicator] decides that something is within his jurisdiction, that is binding. Thus jurisdiction is for the Adjudicator to decide and not a court on summary application."
Here, the Defendant argued that he was entitled to deduct or set-off from the amount of money awarded by a claim which was before the Adjudicator which was not, as submitted, challenged. The award was good in part, but not in full. Following the decision in KNS v Sindall, HHJ Gilliland QC took the view that it was not right for the court to dismantle or reconstruct the decision of an adjudicator. A party cannot pick and choose.
In Barr Ltd v Law Mining Ltd, Lord MacFadyen had to consider a number of issues arising out of awards by two different Adjudicators in respect of related contracts. The Defendant raised various jurisdiction defences.
The first related to the suggestion that there had been a series of disputes. It is of note that Lord MacFadyen expressed some reservations about the comments made by HHJ Thornton QC in Sherwood & Casson v McKenzie that the decision of an adjudicator whose validity is challenged as to its factual, legal conclusion or as to procedural error remains a decision that is both enforceable and should be enforced.
Lord MacFadyen made a distinction between a decision that is unsound but valid and a decision that is invalid because it was not one that the Adjudicator had power to make. In addition, he did not rule out the possibility that a procedural error may produce a result that the Adjudicator made a decision that is beyond his jurisdiction. This is in slight contrast to the treatment of the "procedural error" by Mr Justice Dyson in Macob.
Here, the defenders contended that since the dispute between the parties included three separate elements, issues as to the amounts due in two separate interim certificates and a claim for an extension of time, there were in fact, three disputes. However, Lord McFadyen said that at first instance the Adjudicator must decide for himself whether what is at issue is a dispute or several disputes. It is easy to sub-divide and analyse what is in substance one dispute into its component parts and label each part a separate dispute. This is not the correct approach. A realistic view must be taken. Here, the dispute was what sum is due and owing to the pursuer.
Defences were also raised on the basis that the Adjudicator did not have jurisdiction to consider applications for payment which had not been certified (ie therefore no sums were due). This was rejected. Finally, since the contracts were rescinded by the defender, it was argued that since the adjudication notices did not distinguish between sums allegedly due before and after that rescission, where the Adjudicator decided that the contract had indeed been rescinded he could not continue. In one of the adjudications Lord MacFadyen agreed that the Adjudicator had not considered this point. Therefore, any sum which flowed from this part of the decision could not be enforced.
This is particularly interesting since it resulted from the pursuer advancing a secondary submission that, if the court ruled that it was not entitled to summary judgment on the whole sum claimed, then it was still entitled to summary judgment for those parts of the award which were upheld. It was submitted that it was possible to separate the "good parts" from the "bad parts" of the decision. This was not disputed by the parties and nothing further was said about the question as a legal issue. It is of course in contrast to the KNS and Farebrother cases referred to above.
In RJT Consulting Engineers v DM Engineering Ltd, HHJ MacKay considered an application for a declaration that the agreement between the parties was not an agreement in writing as provided for by section 107 of the HGCRA. HHJ MacKay said that section 107 was an inclusive not an exclusive piece of legislation. The purpose of the Act was to bring in agreements which would not be caught otherwise by the Act to enable parties to construction agreements to take advantage of the procedure set out in the Act.
He looked at the problem in, what he termed, a purposive way. Here, the material between the parties by way of written substance (ie such as to evidence the agreement in writing) was "comparatively great". If it were necessary to insist upon a recitation of the agreement when the existence of the agreement, the parties to the agreement, the nature of the work and a price of that agreement are clearly to be found in documentary form then this would be contrary to the terms of the HGCRA.
In Nordot v Siemens, HHJ Gilliland QC rejected a suggestion that just as parties cannot contract out of the HGCRA, they cannot contract in and so confer jurisdiction on an Adjudicator if that is what the parties agree. On the facts here there was a clear and unequivocal statement that it would accept and be bound by the adjudicator's decision as to whether the contract was a construction contract within the meaning of sections 104 & 5 of the HGCRA.
In Mitsui Babcock Energy Services Ltd, Mitsui sought Judicial Review of a decision by an Adjudicator that she did not have jurisdiction to consider a dispute, which concerned the construction of two boiler plants on a site whose primary activity was the processing of chemicals and oil on the petrochemical complex.
The Adjudicator had viewed the situation as being a dispute, which fell within the exclusion contained in section 105(2)(c) of the 1996 Act.
Mitsui's position was that as the combined heat and power complex was within a site on land leased to a separate company, the primary activity of the site was the generation and supply of steam which was therefore not within the section 105(2)(c) exclusion.
Lord Hardie decided that on the facts of the case the installation of the boiler plant was to further the primary activity of the processing of chemicals and oil on the petrochemical complex and hence fell within the exclusion, and dismissed the petition accordingly.
In Ballast plc v The Burrell Company (Construction Management) Ltd Lord Reed was asked to declare that a decision by an Adjudicator was to be set aside as a nullity.
The basis for the petition was that the adjudicator had answered the issues put to him as "Not valid" on the basis, it appeared to Lord Reed, that a departure from the JCT conditions necessarily entailed that no adjudication could be carried out. This was rejected and accordingly the Adjudicator had failed to exercise his jurisdiction to determine the dispute put to him for a decision.
The respondent had argued that as a Decision had been issued by the adjudicator - even if incorrectly - the matter was decided until finally resolved by litigation, arbitration or agreement and hence no subsequent adjudication proceedings on the same dispute could be instigated by the petitioners.
Finally there is another decision of Lord MacFadyen in SL Timber Systems Ltd v Carillion Construction Ltd.
Lord MacFadyen said that the Adjudicator was wrong in law to simply award the claimant under the adjudication the sum claimed in full because of a failure to give a timeous notice under Section 111. Lord MacFadyen stated that:-
However, whilst the reasoning of the Judge may give some comfort to anyone who has failed to submit a withholding notice within the relevant period, there was a sting in the tail. The Adjudicator had been asked to determine whether a timeous notice of intent to withhold payment had been given. He said that it had not. The question which then arose was whether, in that event, an obligation arose to pay the sums claimed. He addressed that question and answered it in the affirmative.
Finally Lord MacFadyen, in a departure from the English decisions, said that doubt about the (in)solvency of the successful party could not be used to obtain a stay pending final resolution of the dispute.
Case Round-Up - General
A clause in an insurance policy provided as follows:-
At first instance HHJ Thornton QC held that this clause did not constitute an arbitration clause and thus the application by the Insurers for a stay was refused. The Insurers appealed. Issues and Findings
Does the clause in question constitute an arbitration agreement within the Arbitration Act 1996?
Yes, the intention of the parties was to obtain a binding result, and thus this clause does constitute an arbitration agreement.Commentary
The key to determining whether a clause of the type in issue in this case constitutes an arbitration agreement is the intent of the parties on the basis of Re Carus - Wilson v Green (1887) 18 QBD 7 where the intention is that any inquiry is to be in the nature of a judicial inquiry and the outcome of that inquiry is to be final and binding then the clause in question will constitute an arbitration clause.
Shephard Hill entered into an ICE 5th Edition Form of Contract with amendments with Essex County Council for the construction of a bypass. Asphalt Servicing Works were subcontracted to Redland under a FCEC Blue Form subcontract. The subcontractor served a Notice of Arbitration in respect of various claims on 15 February 1995 while the contractor served notices that these disputes should be dealt with jointly with the disputes under the main contract pursuant to Clause 18(2) of the subcontract. Negotiation took place between Shephard Hill and the Employer but when these negotiations did not produce a result Redland commenced proceedings some two years after its original arbitration notices challenging the Clause 18(2) notices and seeking a declaration that Shephard Hill could not rely upon them. In the first instance the notices were found to be valid. The Court of Appeal however allowed the Respondent's appeal holding that Clause 18(2) provided for tripartite arbitration which Redland was no longer obliged to take part in owing to Shephard Hill's unreasonable delay. Shephard Hill appealed to the House of Lords.Issues and Findings
Where it was accepted by the Contractor that issuing a Clause 18(2) Notice did oblige it to initiate the Clause 66 procedure under the main contract within a reasonable time, did the Contractor's ongoing negotiations with the Employer excuse the delay?
No. The Contractor must invoke Clause 66 procedure within a reasonable time after service of the Clause 18(2) Notice. What is a reasonable time will depend upon the facts of each case. That the Contractor was engaged in negotiations was irrelevant.
At the time the Clause 18(2) Notice is served, is it necessary that the Contractor has a present intention to invoke the Clause 66 procedure under the main contract?
No, per Lords Hobhouse, Millett and Cooke who preferred an objective test of whether or not the Contractor has fulfilled its obligation to act with reasonable speed. Yes, per Lords Hope and Clyde who suggested a subjective test of the Contractor's intent.
What form of joint arbitration procedure does Clause 18(2) provide for?
Per Lords Millett, Cooke and Hobhouse; the Clause envisages two separate arbitrations the first between the Employer and the Contractor and the second between the Contractor and the subcontractor but with the same Arbitrator appointed to both with issues having the same subject matter being heard together pursuant to Article 7 of the ICE Arbitration Rules. Per Lords Hope and Clyde; the Clause provides for only one arbitration between the Contractor and the Employer in which the subcontractor is to be permitted close involvement on the Contractor's side in accordance with various implied obligations upon the Contractor.Commentary
During the hearing Counsel for the Appellant conceded that issue of the Clause 18(2) Notice required the Contractor to initiate the Clause 66 main contract arbitration procedure within a reasonable time. It is not altogether surprising that the House of Lords decided that the Contractor had not fulfilled this obligation in forcing the subcontractor to wait two years whilst it fruitlessly negotiated with the employer. More interesting are the comments made by their Lordships in relation to the arbitration procedure envisaged by Clause 18(2). Their Lordships were not in agreement and proposed two alternatives. That advanced by Lords Hope and Clyde called for a main contract arbitration in which the subcontractor was to be allowed active, albeit informal participation. This would appear to be far from ideal for the subcontractor who would suffer from the handicap of not being a party to the arbitration, would encounter difficulty in enforcing any award and would always be once removed from the proceedings.
The procedure proposed by Lords Cooke, Hobhouse and Millett involves two separate arbitrations with the same Arbitrator being appointed to both and, in accordance with Article 7 of the ICE Arbitration Rules, with concurrent hearings for similar disputes. Under this procedure the Contractor would be responsible for ensuring that the same Arbitrator was appointed to both arbitrations and for making the necessary application under Article 7 (now Article 9) of the ICE Arbitration Rules. Lord Cooke said that if for whatever reason the procedure breaks down then the Subcontractor will be allowed to progress its own arbitration under Clause 18(1).
The majority of their Lordships therefore ostensibly endorsed the decision of the Court of Appeal that Clause 18(2) provided for tripartite arbitration, but went further than the Court of Appeal in confirming that in this context, tripartite means concurrent separate arbitrations with similar matters being heard together. The Court of Appeal had left open the possibility that tripartite arbitration meant one three-way arbitration between the Contractor, Subcontractor and the Employer, although it was noted by the Court of Appeal (and reiterated by the House of Lords) that this would ultimately be unenforceable, there being no mutual contract to bind all three parties into an arbitration.
Strictly speaking, all of the opinions expressed by their Lordships upon the procedure envisaged by Clause 18(2) are obiter and the opinion of the majority that Clause 18(2) provides for concurrent arbitrations remains only persuasive and not determinative.
Disputes arose between the parties that proceeded to arbitration culminating in a full hearing and award by the Arbitrator. As part of an Interim Award on costs, the Arbitrator considered the effect of two letters each written on behalf of How by its solicitors. The first of these letters dated 23 December 1992 was headed "sealed offer" and the second letter dated 22 October 1997 was headed "without prejudice save as to costs". By the first letter How offered to pay the sum of £342,780 plus Lindner's costs up to 15 January 1993. By the second offer How offered to pay Lindner the sum of £800,000 but as a condition of the offer, all issues as to costs in the arbitration were to be determined by the Arbitrator as part of the arbitration if the offer were accepted.
In reaching his Award the Arbitrator awarded Lindner the sum of £339,965.74 in respect of its claims and £153,238 by way of interest. Following the Award two appeals came before the court from the Arbitrator's Interim Award on costs. How sought the remittance of the Award to the Arbitrator because the Arbitrator had not properly adjusted the amount of the 1992 offer so as to be able to compare it with the total sums eventually awarded to Lindner once interest was taken into account. The more substantive issue concerned Lindner's appeal that as a matter of law the Arbitrator was wrong to take into account, in considering what award to make about costs, the 1997 offer on the basis that the offer did not adequately deal with the question of cost. Lindner submitted that in Tramountana Armadora S.A. v Atlantic Shipping Co. S.A. Donaldson J. was laying down a principal of general application, such that if a purported "sealed offer" did not include an offer to pay the cost of the offeree it could not take effect as a valid offer to be taken into account by the Arbitrator in determining costs.Issues and Findings
If an offer does not include an offer to pay the costs of the offeree can it take effect as a valid offer?
Yes, provided the offer is in such terms to enable the following question to be answered:-
This case provides essential guidance for the making of effective sealed offers in arbitration. HHJ Seymour QC confirms that there is no general rule that, for an offer to be effective in terms of the provision of costs protection, it must include an offer to pay the other side's costs. The key is to make an offer that is sufficiently clear to enable an Arbitrator, when addressing costs, to determine whether the party to whom an offer is made has achieved more by continuing with the arbitration as opposed to accepting the offer. This case provides confirmation that greater flexibility in relation to costs is available in the making of effective offers of compromise. However, given the importance of making such offers clear invariably it will make sense to be unambiguous as to what is being offered in terms of costs. Where an offer is unclear or uncertain it will not be void but will simply carry little weight when an Arbitrator comes to exercise his discretion in relation to costs.
CONTRACT - ECONOMIC DURESS
Carillion were the main contractors in relation to the construction of an office building. Felix were subcontracted to design, manufacture and supply the cladding. In November 1999 Felix approached Carillion in an attempt to agree a final account for Felix's works. Agreement was finally reached at a meeting on 13 March 2000 to the effect that Felix's final account should be agreed in the sum of £3.2 million and this agreement was then embodied in a formal settlement agreement. Carillion then commenced proceedings to set the agreement aside on the ground of economic duress, contending that it was compelled to enter into the agreement by threats made on behalf of Felix that it would not continue to supply cladding unit in accordance with the subcontract unless the final account of £3.2 million was agreed. The supply of cladding units was critical to completion of the project and delays in their supply would have significantly delayed completion of the project and exposed Carillion to liquidated and ascertained damages.Issues and Findings
Was Felix's conduct such as to compel Carillion to enter into the settlement agreement?
Yes, Carillion felt compelled to agree the account only because it was determined to secure the delivery of the cladding units.
Did Felix's conduct amount to illegitimate pressure?
Yes, the threat to withhold deliveries was a threat to commit a clear breach of contract.
Was Felix's conduct a significant cause in inducing Carillion to enter into the settlement agreement?
Yes, but for the threat, Carillion would not have agreed the final account.
Did Carillion have any practical choice but to enter into the agreement?
No, there were no viable alternative supplies at such short notice.Commentary
It is not uncommon in the industry for parties to threaten to withdraw labour or withhold materials in order to secure payment, irrespective of the contract position. Frequently it is the case that such threats are made in the genuine belief that there is an entitlement to the sum being claimed. Notwithstanding Statutory Rights to adjudication, it is a fact of life that parties will, of course, aim to secure payment whilst they are in a position of some strength in terms of their importance to any particular project. This case however provides a perfect illustration of a subcontractor who, in the eyes of the Court, clearly overstepped the mark in its negotiating tactics. The case provides a succinct guide of actionable duress in the context of a factual scenario which is commonplace within the industry. Whilst this case will provide comfort for employers and main contractors, the practice may be very much more difficult for a subcontractor to set aside unsatisfactory agreements as far as he was concerned on grounds of economic duress.
CONTRACT - QUANTUM MERUIT
Birse carried out work for St David for the construction of certain apartments at Cardiff Bay. Whilst accepting there were extensive negotiations with a view to making a contract Birse contended that no contract was ever concluded prior to it leaving site in August 1998. Birse claimed it had carried out work which valued on a fair commercial basis to a value of £6,759,608.21 of which it had been paid £5,745,518.65 leaving an outstanding balance of £1,014,089.56 which Birse claimed against St David upon a quantum meruit basis. St. David argued that a contract, incorporating JCT Conditions (1980) Edition had been concluded containing an arbitration clause. St. David sought a stay of the proceedings commenced by Birse pursuant to Section 9 of the Arbitration Act 1996. That application came before HHJ Humphrey LLoyd QC in February 1999 and he accepted that a contract had been concluded. Birse appealed and the Court of Appeal concluded that the matter could not be resolved without a trial at which witnesses should be cross-examined. Accordingly, the matter was remitted to the TCC. On 4 February 2000 HHJ Hicks QC ordered a trial of an issue as to the existence or not of a concluded contract.
Issues arose as to whether, even if it could be said that all essential terms were agreed between the parties, the parties did intend that they should only become contractually bound once the putative agreement had been approved by the Directors of the respective parties and once all contract documents had been executed. Further, an issue arose as to whether, in fact, agreement had been reached upon all matters which the parties considered were essential.Issues and Findings
In the absence of formal contract documents executed by both parties could a contract have come into existence?
No, on the facts of this case the parties intended that a contract should only be concluded once the putative agreement reached by the parties' negotiators had appropriate board approval.
Had the parties reached agreement on all terms that they considered essential?
No, on the facts of this case issues concerning main contractor and subcontractor warranties remained unresolved to St. David's satisfaction.Commentary
Mr Recorder Reese QC's findings as to the failure of the parties to reach a concluded contract are obviously particular to the facts of this case. Of more interest are the obiter comments commenting upon the flexibility of the law of restitution in order to achieve justice between parties where, such as in this instance, work has been carried out in the absence of a concluded contract. In expressly referring to the observations of Lord Justice Slade and Bingham in Crown House Engineering v Amec Projects Ltd the Recorder confirms his opinion that any price offered for the carrying out of the works could well act as a cap on the builder's level of recovery. Further, any tardy performance by the contractor and possibly the level of any liquidated damages agreed in principle by the parties as part of contract negotiations, can likewise form part of the calculation of a quantum meruit. Whilst only obiter, these comments provide further clarification as to the calculation of an entitlement upon a quantum meruit basis following the decision of HHJ Hicks QC in Serck Controls Ltd v Drake & Scull Engineering Ltd. In that case HHJ Hicks expressly declined to address as to what account, if any, is taken of tardy performance.
Panatown engaged McAlpine to design and build an office building multi-storey car park. After the building was completed Panatown alleged that the building was seriously defective and gave McAlpine notice terminating the contract. Panatown were not the owners of the construction site. The site was owned by an associated company, Unex Investment Properties Ltd. Unex was both the owner of the site and developer. The actual construction contract was entered into with McAlpine by Panatown in order to save VAT. However, Unex did enter into a separate duty of care agreement with McAlpine although this provided Unex with a lesser remedy than that of Panatown. Panatown commenced arbitration proceedings against McAlpine in 1992, claiming damages for defective work. McAlpine raised by way of defence the argument that Panatown was not entitled to recover damages for breach of contract as it was not and never had been the owner of the site, and that accordingly, it could not recover more than nominal damages even if the breaches of contract were proved. The Arbitrator held that Panatown was not debarred from recovering substantial damages. On appeal from the Arbitrator's Award, HHJ Anthony Thornton QC reached the opposite conclusion resulting in Panatown's appeal to the Court of Appeal. The Court of Appeal found that the parties did intend that Panatown should have been entitled to recover substantial damages for defective work, notwithstanding that it had no proprietary interest in the land following the decisions in St Martins Property Corporation v Sir Robert McAlpine Ltd and Darlington Borough Council v Wiltshier Northern Ltd. Alfred McAlpine appealed to the House of Lords.Issues and Findings
Did the parties to the building contract intend, or contemplate, that Panatown should have been entitled to recover substantial damages for defective work, notwithstanding that it had no proprietary interest in the land?
No, on the facts of this case the decisions in St. Martins Property Corporation v Sir Robert McAlpine Ltd and Darlington Borough Council v Wiltshier Northern Ltd ("the narrow ground") were not followed.
Were Panatown entitled to recover substantial damages on the ground that they have not received the bargain for which they had contracted, irrespective of the fact that they had no proprietary interest in the building at the date of the breach and had suffered no financial loss ("the broader ground")?
No, on the facts of this case Panatown's claim for loss and expectation of interest can have only nominal value when Unex Investment Properties Ltd has an enforceable claim and Panatown has no intention in taking steps to remedy the breach.Commentary
By a majority of 3-2 the House of Lords decided in McAlpine's favour thus overturning the decision of the Court of Appeal reported in CILL March 1998 1353. Broadly, there was a large measure of agreement amongst the Law Lords as to the present position in relation to exceptions to the rules that a person cannot recover substantial damages for breach of contract where he himself has suffered no loss by reason of the alleged breach. Both the possible exceptions to this rule considered in St. Martins Property Corporation Ltd v Sir Robert McAlpine Ltd are addressed in some detail.
Contrary to the Court of Appeal, the Lords were unanimous in rejecting the argument that it was the intention of the parties that Panatown were entitled to recover substantial damages for defective work, notwithstanding that it had no proprietary interest in the land. (The "narrow ground" in St. Martins.) The existence of the duty of care deed between McAlpine and Unex was fatal to this argument. However, the Lords provided clear confirmation that in principle in situations such as existed in this case a party might well be able to bring a claim for breach of contract notwithstanding the fact that it has not necessarily suffered the loss in question on the basis of a loss of expectation of interest or performance interest. (The "broader ground" postulated by Lord Griffiths in St. Martins.) In particular, this is considered in some detail in the dissenting judgment of Lord Goff of Chieveley.
Of key significance for the purposes of this case was the existence of the duty of care deed which defeated Panatown's claim. Lord Clyde, Lord Jauncey and Lord Browne-Wilkinson were not prepared to follow the "broader ground" in circumstances where a deliberate course had been adopted between the parties whereby the company with the potential risk of loss was given a separate, albeit inferior, entitlement to sue the contractor.
The judgment considers the Contract (Rights of Third Parties) Act 1999. Following the introduction of the Act it would now be perfectly possible to provide Unex with express rights to enforce clauses in the main contract between Panatown and McAlpine by way of appropriate drafting in the main contract. Such an arrangement if possible at the time could have avoided the protracted litigation that arose in this case. It is worth noting Lord Goff's comments about the applicability of the Act had it been in force at the time of this particular litigation. In particular, whilst the contract between Panatown and McAlpine clearly purported to confer a benefit upon Unex, it would not have been possible for Unex to sue McAlpine as a result of Section 1(ii) of the Act because McAlpine and Panatown could not have intended that any such term be enforceable by Unex given the existence of a separate contract between Unex and McAlpine specifically limiting Unex's rights.
Beechwood are house builders who work almost exclusively with a development company which acquires and develops sites for residential housing. Beechwood engaged the Defender, a land surveyor, to provide a topographical survey on a site on which Beechwood were to carry out house building works. The layout plans …made an error in relation to the configuration of a burn. This resulted in a change to the planned layout for the site and a delay in the granting of planning permission…The Defender accepted that they were in breach of contract. The issue in this case concerned the quantification of Beechwood's damages and in particular, Beechwood's claim for a loss of contribution to overhead and profit.Issues and Findings
Were the Pursuers entitled to claim damages for overhead and loss of profit using the Hudson Formula?
Yes, Lord Hamilton being satisfied that the Pursuer sustained a loss by reason of its inability for a period to generate income through carrying out construction works.Commentary
This provides a rare example of a substantial consideration of a formula-based claim for loss of overhead and profit. Here Lord Hamilton was satisfied that Beechwood's claim for loss of overhead and profit was established in principle on the evidence before him hence his acceptance of the formula method of calculation for that loss. What, however, does not appear to have been considered is whether or not Beechwood had done its best on the available evidence to quantify its loss. It should be remembered that ordinarily formulae for the calculation of claims for the loss of overhead and profit should only be used when through no fault of its own a contractor is unable to quantify with precision its actual loss of overhead and profit.
In July 1997 the Claimant ("Koch") entered into a contract with the Defendant to roof the Millennium Dome. Clause 31(5) of the contract allowed the Defendant to terminate the contract without cause and it did so in August 1997. The Claimant filed for bankruptcy during 1998 and then commenced proceedings against the Defendant. At first instance the claim was struck out but allowed on appeal and summary judgment was subsequently entered against the Defendant. The present application was issued in accordance with CPR 24, the Claimant contending that the phrase "direct loss and/or damage" appearing in the contract ought to be construed as to include loss of profit and further, that when assessing damages under the contract the Court should assume that the Claimant would have been able to perform the contract according to its terms.Issues and Findings
As a matter of construction, was the Claimant entitled to recover loss of profit?
Yes, on the wording on the relevant clause in this contract.
In assessing damages, should the Court assume that the Claimant would have been able to perform the contract according to its terms, had it not been terminated?
Yes, the normal rule derived from repudiation cases applies.
Are there any exceptions to this approach to assessment?
Yes, if the repudiating party can show that as at the date of the acceptance of the repudiation it was inevitable that the contract would not have been performed according to its terms then the normal rule ceases to apply.Commentary
The finding by the Deputy Judge on the first issue is unsurprising. In relation to the second issue, the Deputy Judge found that the Claimant's insolvency in 1998 was not connected with the termination of the Millennium Dome Contract in August 1997. In similar circumstances, whether or not the Defendant can establish that the genesis of the Claimant's insolvency occurred prior to termination will be a question of fact. Proving this is likely to depend upon the Defendant obtaining disclosure of a considerable volume of the Claimant's internal documents, which might not otherwise be disclosable in a straightforward damages claim. If the Defendant is obliged to make an application for specific disclosure of these documents, it will require more solid grounds than mere speculation that the Claimant was in financial difficulties prior to termination.
Whilst the Deputy Judge held that in principle the Claimant's subsequent insolvency was not a matter to be taken into account when damages came to be assessed, the Defendant would not be prevented from putting forward other (commonly raised) arguments to reduce the Claimant's recovery; for example that the Claimant had failed to mitigate its loss or had recovered the same loss elsewhere. Similarly, the Defendant could argue that on proper analysis of the Claimant's tender, the ostensible level of profit was unrealistic and unlikely to be achieved. It is not simply a matter of the Claimant recovering the profit it maintained it would earn on the contract.
Hilton Hotels brought an action against the Appellants, Hotel Services Ltd in respect of minibars supplied and installed by the Appellants in certain of their hotels rented on fixed term agreements. Hilton Hotels claimed that there were problems with the minibars alleging repudiatory breach of an implied term of merchantable quality and claiming damages. At first instance, HHJ Wilcox found for Hilton Hotels on liability and awarded them damages for the cost of removal and storage of the minibars and loss of profit on the minibars. The Appellant appealed claiming that the losses complained of amounted to indirect or consequential loss and were thus caught by an exemption clause in the rental contracts which stated as follows:-
Issues and Findings
Did the cost of removal and storage of the chiller units and cabinets amount to an indirect or consequential loss within the meaning of the exemption clause?
Did the loss of profit on the minibars amount to an indirect or consequential loss within the meaning of the exemption clause?
In a useful review of the authorities (British Sugar Plc v Projects Ltd and Deepak Fertilisers Ltd v ICI Chemicals and Polymers Ltd) this case endeavours to clarify what types of loss incurred by a party are to be considered "indirect or consequential". Here the Court of Appeal follow Atkinson J in Saint Line Ltd v Richardsons, Westgarth and Co. Ltd 1940 2 KB 99 in finding that the words "indirect and consequential" when used together tend to be synonymous. The key distinction is between "direct" and "indirect" loss. Identifying and distinguishing a direct loss from an indirect loss is not so straightforward. Atkinson J defined direct damages as that which flows naturally from the breach without other intervening cause and independently of special circumstances, while indirect damage does not so flow. The difficulty with this is where precisely does one draw the line between damage which is said to arise naturally from the breach without any other intervening cause? This case and other recent authorities confirm that loss of profit may well constitute a direct loss. Certainly, where a defective product or delay in delivery or completion leads to a loss of revenue and profit as a result, this can be seen to arise naturally from the breach.
IMPLIED TERMS - DUTY TO WARN
Aurum engaged Avonforce to design and construct substantial building works at 68 Winnington Road, London N2 including the excavation and construction of a basement and garage at the side adjoining 70 Winnington Road. It was decided that in order to safeguard the flank wall of No 70 it should be underpinned. Avonforce were being advised by Knapp Hicks and Partners, structural engineers. Advanced Underpinning Ltd were engaged to carry out the underpinning works.
When visiting the site to give a quotation Advanced were shown a drawing no 1001/101B prepared by the project architects and annotated by KHP. The drawing provided design details and construction notes for the underpinning work, effectively comprising a method statement. Advanced were told by Avonforce that extensive works were being carried out including the construction of a basement adjacent to the flank wall to No 70. The drawing included the legend "temporary works if required" at two sections of the perimeter of the proposed basement: these sections did not include any part of the length of the proposed underpinning.
Advanced were subsequently engaged and the underpinning works carried out between 24 February and 13 March 1997. On 22 May 1997 Avonforce started to excavate the basement in the area adjacent to the flank wall. No temporary support was provided and Avonforce were unaware that the bases installed by Advanced might not be able to resist the lateral load resulting from the excavation. On 6 June 1997 the central section of the excavation collapsed. At trial the parties agreed that it would have been possible to have designed and installed some form of propping to prevent the failure of the underpinning.
Aurum sued Avonforce who joined KHP and Advanced as third parties. By the time of the trial all aspects of the litigation had been resolved except Advanced's liability to Avonforce. Avonforce contended that Advanced was in breach of its duty to warn of the need to provide lateral support during the excavation for the basement.Issues and Findings
Did Advanced owe Avonforce a duty to warn of the need to provide lateral support?
No. The duty would only have been imposed if Advanced had understood the manner in which Avonforce intended to carry out the excavation. It is not sufficient that it was possible that Avonforce would carry out the excavation in the way that it did.Commentary
Dyson J distinguished Plant Construction PLC v Clive Adams Associates and JMH Construction Services Ltd CILL March 2000 from this case because in Plant JMH, who were held responsible for failing to warn, were fully aware that the temporary works were dangerous. They were also asked to carry out those works themselves. Here Advanced were unaware of the details of the proposed temporary works which were to be carried out by a third party in any event. The Judge considered it unreasonable to impose a duty to warn in such circumstances. In fact, he stated that reasonableness should go to the heart of these decisions.
However the judgment may extend the common law on this subject because Dyson J does acknowledge the argument from Counsel for Advanced that Advanced would have had a duty to warn if they had known how Avonforce planned to carry out the temporary works. This is in circumstances where not only is the client advised by independent engineers, but the works are to be carried out by a third party.
The Judge referred to this area of law as "moving with caution" which it must inevitably do, particularly given the number of references to "reasonableness". However the incremental approach adopted by the courts may mean that we see the doctrine extend even further. At the moment the cases which impose a duty to warn as part of the duty to act with the skill and care of a reasonably competent contractor are confined to incidents which cause danger, whether the courts will move away from this remains to be seen.
The claimant ("the Trust") entered into a contract with Taylor Woodrow Construction Ltd for the construction of a six storey hospital in Chelsea, London. The Trust also engaged WGI, …as architect for the project and Project Management International ("PMI"), …to act as project managers. The works were delayed and WGI granted Taylor Woodrow several extensions of time, both before and after practical completion which was certified on 22 May 1990. Inter alia, extensions of time were granted… the Trust alleged negligence on the part of WGI and PMI in relation to the extensions of time granted to Taylor Woodrow…contending that…no extensions at all should have been granted and…that the extensions granted were of such excessive length that no reasonably competent architect or project manager could possibly have considered them justified. The parties relied solely upon expert evidence and no witness of fact having direct knowledge of the progress of the works was called.
Issues and Findings
Had WGI been negligent in relation to the issue of any of the extensions of time granted on the four grounds?
Only in relation to the grant of a second extension of time on the hydrotite ground, this being an extension of time which no reasonably competent architect ought to have granted.
Was PMI negligent for not having failed to alert the Trust to the negligent acts of WGI?
No, the project manager's job was to make sure the process operated smoothly. It was not for PMI to interfere with decisions made by the appointed authority, WGI. Moreover, on the facts, PMI had not been in a position to influence or change the decisions of WGI as regards the extensions.
In these proceedings the Trust alleged that its architects had been negligent in granting unwarranted extensions of time, and that its project managers had equally been negligent in failing to prevent such extensions of time being granted.
Whilst one can detect throughout the lengthy judgment surprise on behalf of the Judge that several extensions of time were granted to Taylor Woodrow, he found that on the facts, the architects had been negligent in granting an extension of time on one occasion only. This negligence arose out of the architect's failure to appreciate that perceived delay on the flooring works would not have affected the eventual completion date of the works as a whole.
It was only in this instance that the opinion of the architects was one which a reasonably competent architect could not have held. As for the project managers, the terms of their retainer did not require them to supervise the architects' decision-making process, and as the Judge found, they were entitled to expect their fellow professionals to behave in a professional manner.
This is in contrast to the position in Chesham Properties Ltd v Bucknall Austin Project Management Ltd. PMI were under no express obligation to monitor WGI's performance.
CONTRACT - ECONOMIC DURESS
CONTRACT - QUANTUM MERUIT
IMPLIED TERMS - DUTY TO WARN