Recent Cases

For the past couple of years, we have been responsible for the editorship of CILL; and many of case summaries that appear below are extracted from the CILL reports. CILL is published 10 times a year; if you are interested in subscribing, contact Alison Levers at Legal Studies Publishing Ltd on 0171 453 2274.

The following cases are noted below; an index appears at the end of this Review

Abbey National Mortgages v Key Surveyors

AEG v Translift Monorail

Alfred McAlpine Homes v Property and Land

Balfour Beatty v Docklands Light Railway

Birse Construction v Haiste

B Mullan v Ross

Bristol & West Building Society v Christie

Bowmer and Kirkland v Wilson Bowden

Clarksteel v Birse Construction

Colt International v Tarmac Construction

John Barker v London Portland Hotel

Havant BC v South Coast Shipping

Hoppe v Titman

Vascroft v Seeboard

Birse Construction Limited v Haiste Limited and Others

Court of Appeal
Sir John May and Roach and Nourse LJJ
(Judgment delivered 5^th December 1995)

This case was managed on behalf of the Engineer by Simon Tolson.

Facts

Anglian Water Authority (‘Anglian’) employed Birse to build a reservoir pursuant to a Design and Build Contract. The Engineer named in the Contract was an employee of Anglian, Mr. Newton. Birse engaged Haiste as subcontract designers.

The reservoir leaked. Birse agreed with Anglian to build a new reservoir, and sued Haiste for damages.

Haiste sought a contribution from Mr. Newton. At first instance, His Honour Judge Cyril Newman held (CILL page 1034) that Mr. Newton’s potential liability to Anglian could be a liability in respect of ‘the same damage’ as the liability of Haiste to Birse, within the meaning of the Civil Liability (Contribution) Act 1978.

Mr Newton appealed.

THE STATUTORY PROVISION

Section 1(1) of the 1978 Act provides as follows:-

‘Subject to the following provisions of this Section, any person liable in respect of any damage suffered by another person may recover contribution from any other person liable in respect of the same damage (whether jointly with him or otherwise).’

THE ARGUMENTS

Before the Court of Appeal, Haiste ran two lines of argument.

Its primary line of argument was that taken by the Official Referee at first instance, namely that there are no express words in the Act requiring that the person from whom contribution is sought is liable to the same person as he who seeks the contribution; it is sufficient if the person from whom the contribution is sought is liable to someone else.

Haiste’s alternative argument, not raised in the Notice of Appeal, involved the 1978 Act being applied twice. First, it was said that, if Anglian had sued Birse instead of coming to the agreement for the rebuilding of the reservoir, then Birse could have issued contribution proceedings against Mr. Newton under the 1978 Act, such that Newton should be regarded as liable to Birse. Applying the Act a second time, it was said that Haiste could therefore recover a contribution from Newton, in that both Haiste and Newton were liable to Birse.

On behalf of Mr Newton, it was argued that, on a proper construction of the Act, the liability of a person from whom contribution is sought must be to the same person as the person to whom the person seeking contribution is liable. Further, it was argued that Mr. Newton could not be liable for ‘the same damage’ as Haiste, because the damage suffered by Anglian (disruption while the new reservoir was being built) was different from the damage suffered by Haiste (the cost of building the replacement reservoir).

Issues and findings

Can a claim for contribution under the 1978 Act be founded on liability to a stranger to the action?

(Reversing the first instance decision) No.

Was the damage suffered by Anglian the same as the damage suffered by Birse?

(Reversing the first instance decision) No.

Commentary

Had the first instance decision in this case not been overruled, it would have potentially opened the way for a plethora of unusual claims. The Court of Appeal judgment restores the position to what was previously believed to be the effect of the 1978 Act, namely that it is a mechanism whereby a liability could be spread out amongst various people liable to the same Plaintiff, even if that Plaintiff did not sue them all himself.

Official Referee's Business
His Honour Judge Humphrey Lloyd QC
(Judgement delivered 10th January 1996)

Facts

Vascroft were main contractors for construction of three buildings in Mayfair. They entered into a subcontract with Seeboard's predecessors, Nene, for electrical works; the subcontract was based upon the standard form DOM/2.

The subcontractor had failed to give any notice to the main contractor that the sub- contract works had been practically completed.

Disputes arose under the subcontract, which were referred to the arbitration of Mr Harold Crowter. Mr Crowter determined certain preliminary points of law, from which Vascroft wished to appeal.

Issues and findings

Is the standard form of "preconsent" in DOM/2 an effective consent to appeal under the Arbitration Act 1979?

Yes.

Where a subcontractor under DOM/2 fails to give notice to the main contractor as to practical completion, is practical completion of the subcontract works to be treated as a matter of fact, or is it deemed to be the date of completion of the main contract works?

It is deemed to be the date of completion of the main contract works.

Why?

Because a subcontractor who fails to give the required notice of practical completion should not be in any better position than he would have been in if he had given the notice and the main contractor had dissented from it.

STATUTORY PROVISION

Section 1(3) of the Arbitration Act 1979 (Appeals to the High Court on any question of law arising out of any Arbitration award) provides as follows:-

An appeal under this section may be brought by any of the parties to the reference -

1. with the consent of all the other parties to the reference; or
2. subject to section 3 below, with the leave of the court.

DOM/2 PROVISIONS

"14.1 The subcontractor will notify the Contractor in writing of the date when in his opinion the subcontract Works are practically completed and if not dissented from in writing by the Contractor within fourteen days of receipt of the subcontractor's written notice practical completion for all the purposes of the subcontract shall be deemed to have taken place on the date so notified. Any written notice of dissent shall set out the Contractor's reasons for such dissent.

14.2 When the Contractor gives written notice of dissent under clause 14.1 practical completion for all the purposes of this subcontract will be deemed to have taken place on such date as may be agreed. Failing such agreement practical completion will be deemed to have taken place on the date of Practical Completion of the Works set out in the statement of the Employer issued under clause 16.1 of the Main Contract Conditions."

"The parties hereby agree and consent pursuant to sections 1(3)(a) and 2(1)(b) of the Arbitration Act 1979 that either party

…may appeal to the High Court on any question of law arising out of an award made in an arbitration under this Arbitration Agreement ... "

Commentary

The decision of the Court as to the effectiveness of the JCT mechanism for "preconsent" to appeal from arbitrators awards is hardly surprising; the decision is however useful as settling a matter which has been the subject of some speculation.

Nor is it surprising that clause 14 of DOM/2 has ended up before the Courts, for it heaps obscurity upon absurdity. The apparent intention of Clause 14 is that the subcontractor should give notice as to when he regards his subcontract works as practically complete, but all the main contractor has to do is to disagree with that notice; practical completion of the subcontract works is then deemed not to take place until completion of the main contract works. Provisions such as this are not only absurd in their effect, but encourage the playing of contractual games, and hence disputes.

The clause also illustrates a point all too often forgotten by contract draughtsmen: that the more procedural requirements are put into a contract, the more certain it is that procedural anomalies will occur. In this case, the procedure left the contractual tracks at a very early stage, such that on the express wording of the contract the deeming provision did not bite. The general proposition of law that "no man may take advantage of his own wrong" is of general application, but it is somewhat surprising that the Court invoked it in order to plug the gap in such an apparently unreasonable clause.

Alfred McAlpine Homes North Ltd v Property and Land Contractors Ltd

Official Referee's Business
His Honour Judge Humphrey Lloyd QC
(Judgment delivered 31st July 1995)

Facts

Alfred McAlpine Homes North Limited ("McAlpine") engaged Property and Land Contractors Ltd ("PLC") under a JCT80 Contract to build 22 houses at Shipton. McAlpine gave PLC an instruction to postpone the works, pursuant to which PLC submitted a claim for loss and expense under Clause 26 of the contract. The claim was disputed, and referred to the arbitration of Mr Keith J Rawson. In a first interim award, Mr Rawson found that PLC was not entitled to recover loss of overhead profits on the Emden Formula, but was entitled to recover on the basis of overhead actually expended and not recovered during the period of delay. In his second interim award, Mr Rawson awarded PLC the sum of £59,661.68 as additional head office overheads incurred and not recovered elsewhere; he further awarded PLC £3,717.70 in respect of small plant which PLC owned, but for which PLC claimed on a notional hire rate basis.

McAlpine appealed.

Issues and findings

Was PLC entitled to its award in respect of overheads and profit?

Yes. The Court discussed this issue generally.

Where a contractor owns a small plant, is he entitled to quantify his loss and expense claim on the basis of notional hire rates?

No. The claim must be advanced on the basis of actual loss.

Commentary

Given the huge amount of commentary on the Hudson/Eichleay/Emden Formulae, and the wealth of United States authority on the topic, there are remarkably few English decisions on the applicability of these formulae. The Hudson Formula obtained judicial approval in general terms in J F Finnegan Limited v Sheffield City Council (1988) 43 BLR 124.

The facts of this case were somewhat unusual, in that PLC asserted that its policy was to carry out only one contract at a time, and the arbitrators findings were not entirely clear as to the extent to which this was found as a fact. This judgment is accordingly of more interest for its general review of the subject than for its application on the particular facts.

In general terms, the approach of the Court seems to have been to support the general view that the formulae are appropriate in some circumstances, but the formulae do not relieve the contractor of the need to show that he has suffered at least some loss in terms of overheads and profit by reason of a delay.

The decision on small plant is also welcome, notwithstanding that the sum involved in this case was modest. It is very common for contractors and subcontractors to include sums in loss and expense claims in respect of plant, and to claim hire rates regardless of whether the plant was hired or owned. This judgment firmly establishes that such claims are not permissible where the contractor owns the plant, and thus has not incurred the hire charge.

Clarksteel Limited v Birse Construction Limited

Official Referee's Business
His Honour Judge Humphrey Lloyd QC
Judgment delivered 20 February 1996

Facts

The Plaintiffs were welding subcontractors to the Defendants in relation to steel and ductile iron pipe laying works for a new water mains near Grimsby. The pipes were supplied as free issue materials by the employer to the main contractor; the subcontract was in the standard FCEC "Blue" form of subcontract (revised September 1984). Among the documents forming part of the subcontract was document 7, being a Schedule of extra-over rates. It stated:

"Where the weld to an external pipe joint exceeds the requirement of BS 534 and 3601 for steel pipes, the following extra-over rates shall apply:-

Clarksteel complained that the gaps that they were required to weld were excessive. They issued proceedings, and various preliminary issues were ordered.

Issues and findings

Was the effect of the relevant British Standards a matter for expert opinion?

No, although in this case expert evidence was received "de bene esse".

Assuming that the main Contractor was in breach of contract in providing pipes which did not comply with BS 3601, was the subcontractor entitled to damages, or to a quantum meruit?

Neither. The express agreement as to extra-over rates was to be treated like a liquidated damages clause.

Commentary

It is very common for Plaintiffs, in loss and expense claims, to plead alternative claims in quantum meruit and/or damages, and the standard wording in JCT contracts to the effect that the loss and expense provisions are without prejudice to common law remedies have often been regarded as "for the avoidance of doubt". This case, however, breaks a little new ground extending the notion of liquidated damages clauses to "extra-over" provisions. Previously, it has been recognised that "Brown" clauses (where the parties pre-agree a weekly rate for the contractor in the event of prolongation) have this effect, but this case goes somewhat further.

As a side issue, this case follows the current trend in limiting the scope for expert evidence.

AEG (UK) Limited v Translift Monorail Limited

Official Referee's Business
His Honour Judge Bowsher QC
Judgment delivered 22nd February 1996

Facts

The Plaintiffs were subcontractors, providing parts, supplies and amplifiers for use in a thrill ride in Efteling Park, Holland. The Defendants were main contractors.

The Plaintiffs claimed the unpaid price of the equipment; the Defendants counter-claimed, inter alia, for unfitness for purpose.

The amplifiers provided by the Plaintiff were manufactured by the Plaintiff's parent, AEG Germany. The amplifiers were fitted with protection devices, known as I²t, which were activated by a potentiometer. The potentiometer was set by the Plaintiff's parent supplier at 6 volts. At that setting, the warning lights came on during testing on the steepest uphill section of the ride. It appears, although the evidence was incomplete, that if the potentiometers had been set to a higher voltage, the equipment would have passed the tests.

Issues and findings

Is fitness for purpose to be judged in absolute terms, or within the limits of the manufacturers instructions?

Within the limits of the manufacturers instructions.

What is the proper approach to commissioning?

The purpose of commissioning is to make adjustments, not to remedy defects.

Commentary

This raises an interesting point about tolerances. It is very common for suppliers to set "red lines" substantially below the true maximum performance of their products. What is the position where a product is physically capable of performing the required purpose, but only by, so to speak, swapping the fuse for one of higher rating than recommended by the manufacturer?

The answer in this case is that the article is not fit for its intended purpose, although the result may have been influenced by the consideration that theme park rides are perceived as inherently dangerous things.

Bristol & West Building Society v Christie and Others

Official Referee's Business
His Honour Judge Esyr Lewis QC
Judgment delivered 15 February 1996

Facts

The Plaintiff Building Society sued both solicitors (acting for it and the borrower) and valuers in respect of a loan of £168,683, with the aid of which the lender, a Mr. Demetrakis, bought Basement Flat, 4 Peto Place, London, NW1 for £168,000.

The Solicitors settled the claim, paying the Building Society £170,000 plus costs. The Building Society assigned its claim against the valuers to the Solicitors, who brought a claim against the valuers pursuant to the Civil Liability (Contribution) Act 1978.

Issues and findings

Was the Solicitors' expert sufficiently qualified to give expert evidence?

Yes; there is no inherent difference in principle in the process of valuing property whether for mortgage, tax or sale purposes.

Was it relevant to the question of the valuer's negligence that the valuation falsely stated that the signatory had inspected the property?

No.

Is a material error in a valuation prima facie evidence of negligence?

Yes. Although a party charged with negligence may in some cases show that reasonable care had been taken in reaching a wrong conclusion, this was not the case here.

Should the starting point for contribution be the agreed settlement figure, or what the Building Society would have obtained in the action but for settlement?

It was conceded to be what the Building Society would have recovered. The Court proceeded on that basis.

Could the valuers reduce their contribution by showing that the Building Society had been contributorily negligent?

Yes.

Was the sum recoverable by the Building Society under an insurance policy to be taken into account?

No.

Was it relevant that the premium for the Insurance Policy was paid by the borrower?

No.

Given that the Building Society would not have made the advance if the Solicitors had been non-negligent, or if the valuers had been non-negligent, how should the contribution be assessed?

50/50.

Commentary

The resurgence of liability in Tort in construction cases means that there are likely to be many more Contributory Negligence cases, and this case required the Court to consider a number of the issues arising.

Where a Plaintiff sues more than one Defendant in negligence, it is obviously open to the Court at trial to apportion liability. Very often, as here, one or more Defendants wants to settle. If he does settle, he may want, as here, to recover a part of the settlement money from a non-settling Defendant. In such circumstances, it is usual for the settling Defendant to ask for and get an assignment of the Plaintiffs cause of action against that other Defendant. The general rule is that it is not possible to assign a bare cause of action unless there is a sufficient collateral commercial purpose; but it does now seem to be the settled practice to regard assignments of causes of action in these circumstances as proper and valid. No challenge to the validity of the assignment was made in this case.

Conversely, if the settlement of the settling party is inadequate, the Plaintiff may continue against other Defendants, and those other Defendants may join the settling party back into the action under the 1978 Act. For this reason, it is common for settling parties in both circumstances to ask the Plaintiff to indemnify them against such contribution proceedings; sometimes those indemnities are forthcoming and sometimes they are not.

Where, as here, the main action is brought to an end by the settlement, the usual approach is to seek a contribution in respect of the settlement figure, rather than the figure which might have been awarded but for the settlement. That appears to be the intention of the 1978 Act, which refers in Section 1(2) to the "payment in respect of which the contribution is sought". Indeed, it is well settled law that sums paid under a reasonable and bona fide compromise in settlement of a legal claim are recoverable, without the person seeking contribution having to show that he would have lost the original action. That, for example, was the conclusion reached by the Court of Appeal in Comyn Ching v Oriental Tube (1979) 17 BLR 47, applying Biggin v Permanite [1951] 2KB 314. Attention thus usually focuses, not upon what the Plaintiff would have recovered in the original action, but whether this settlement was reasonable or not. That debate was at the centre of the cases concerning the relevance of legal advice reported in CILL in May 1994: Lloyds v Kitsons (page 940) and DSL v Unisys (page 942).

It is thus somewhat surprising that it was apparently conceded in this case that the contribution should be assessed, not on the settlement figure, but upon what the Building Society would have recovered had the matter not settled. The Court proceed on the basis of that concession without referring to any of the cases mentioned above, but also without any finding as to whether the concession had been rightly made.

That route led the Court to consider the question of whether damages should be reduced by virtue of the fact that the Building Society recovered part of the loss from Insurers, the premium having been charged to the borrower. The Court found that they should not be so reduced, and it might be regarded as trite law that insurance recoveries are to be disregarded, but for an interesting point about payment of the premiums. In Parry v Cleaver, the House of Lords said that the real reason why insurance money is disregarded is that it was "unjust and unreasonable to hold that the money to which he prudently spent on premiums and the benefit from it should inure to the benefit of the tortfeasor". So is there to be a departure from this principle in cases where the Plaintiff has not himself borne the cost of the premium? It seems not, and the only safe way for a party who is paying or contributing to an insurance premium for a policy not in his name is to have his interest noted on the policy. In this respect, the case follows the same policy as National Trust v Hayden Young (CILL October 1994, page 976) where a subcontractor was held liable for the cost of a fire, notwithstanding that, under the terms of the Contract, the employer agreed to insure against that risk.

A final point of interest in the case concerns the way that the Court approached apportionment. On behalf of the valuers it could be said that the solicitors caused all of the loss, in the sense that had they done their job properly, the Building Society would not have advanced the loan. Conversely, the solicitors could say that it was all the valuers fault, in the sense that if they had not made a negligent valuation, the Building Society would not have made the loan. The Court decided in these circumstances that the appropriate contribution was 50% (save only for a small adjustment in respect of a garage issue, which was entirely the solicitors fault) thereby, perhaps, reflecting the old maxim that "equity is equality". It certainly follows the modern trend that when the Courts are assessing contribution, they tend to adopt a very broad brush approach.

Balfour Beatty v Docklands Light Railway Limited

Court of Appeal
Sir Thomas Bingham MR, Millet LJ, Pill LJ
Judgement delivered 3rd April 1996

Facts

Balfour Beatty was engaged by Docklands Light Railway for extensive civil engineering works; the contract sum was approximately £21.8 million.

The contract was based on ICE 5th Edition but with two significant differences. First, the Employer's Representative took the place of the Engineer in the Standard Conditions. Secondly, Clause 66 of the Standard Conditions (dealing with the settlement of disputes and making provision for recourse to arbitration) was omitted altogether.

Disputes arose; the contractor sought payment of some £1.8 million prolongation costs and £1.5 million construction costs over and above what the Employer was prepared to certify.

The following preliminary questions were determined at first instance by Judge Cyril Newman QC:-

1. Does the Court have a general power to open up, review and revise the decisions, opinions, directions, certificates or valuations of the Employer, in particular:-

1. the final determination and certificate of the Employer under Clause 44.4;
2. the final certificate of the Employer under Clause 60.5?

2. If not, are the powers of the Court limited to settled circumstances established in law as justifying interference by the Courts?

Judge Newman QC answered the questions as follows:-

1. No
2. Yes, in particular (where) such decision, opinions, instructions, directions, Certificates or valuations have been proved to be not in accordance with the provisions of the Contract.

Balfour Beatty appealed.

Issues and findings

Does the Court have a general power to open up, review etc. decisions etc. of the Employer?

No

Are Certificates in these circumstances merely administrative?

No.

Was the Employer bound to act honestly, fairly and reasonable, even though there was no such obligation expressed in the contract?

Yes.

Is the Contractor entitled to a remedy if he can show breach of such a duty?

Yes.

Commentary

In most standard forms of main contract, certificates are issued by a professional. Although that person is usually the agent of the employer, it is well settled law that he is under a duty to certify fairly as between the employer and the contractor. The contracts typically contain arbitration clauses, whereby the arbitrator is expressly empowered to open up and review certificates. In NRHA v Crouch (1984) it was decided that the effect of such a provision was to confer a dual function upon an arbitrator; he not only has the usual arbitral function of ruling on what the parties’ rights are, but under the review provision, he has the power to alter the rights of the parties. This latter power is not available to the court save in exceptional circumstances. In Pacific v Baxter (1988), it was decided that in these circumstances an aggrieved contractor does not have the alternative option available of holding the certifier liable for negligent certification, but must look to the arbitrator’s powers of review.

It is not uncommon for contracting parties to amend the standard forms by omitting the arbitration provisions. Where this is done, it is usual and appropriate for the contractor to insist on a "de-crouching" clause, so as to give to the court the power to open up and review certificates.

Sometimes, the certifier is not a professional person or firm, but the employer himself. The key issue here is not whether the certifier is a professional person or not, nor whether he is an outside consultant or an "in house" employee, but whether the certifier is the same legal person as the employer.

Both of these features were present in this case (ie there was no arbitration clause, and the certifier was the employer), thereby giving rise to an interesting conundrum. On the one hand, Crouch says that there is no general power for a court to open up and review certificates. On the other hand, it would be a startling and unwelcome conclusion that the employer had the unfettered right to be judge and jury in its own cause.

Recognising this difficulty, the employer here conceded what amounted to an implied term that where the employer himself is issuing certificates that are not subject to review, then the employer is bound to certify honestly, fairly and reasonably.

The court adopted that approach in resolving the conundrum, but it is not entirely clear how far the principle applies. Take, for example, the case of subcontracts such as DOM/1, where the subcontractor is paid by reference to the main contractor’s valuation; is the main contractor under a duty to act fairly and reasonably? Presumably so. How far does a challenge have to go? Is it sufficient for a dissatisfied party to show unreasonableness? Is the test subjective, turning upon the certifier's state of mind, or is it sufficient to show that the certified sum is unreasonably low? The terms of the judgement in this case suggests that there is a subjective element, but in practice it is difficult to see how the court is sensibly going to be able to approach such cases on the basis of the certifier’s state of mind, or how damages could be assessed on such an approach.

What conclusion, then, can be drawn from this decision? Probably this: that wherever the level of payment under a building contract is fixed by a non-reviewable certificate or valuation of one of the parties, then that party is under an implied duty to act honestly, fairly and reasonably in relation to such certificates or valuations. The other party can challenge any certificate or valuation on the ground that no fair and reasonable person would have issued the certificate or valuation in that amount, and recover damages, being such further sum as a fair and reasonable person would have certified or valued.

If this interpretation be right, then the decision may be of significant benefit to subcontractors, who often have reason to complain about the fairness and reasonableness of the main contractors’ valuations of their work.

Arguably, the case goes further than that, and imposes an implied duty of good faith on the employer in cases where the certifier is not the same person as the employer. But what then is the mechanism? It has been long established that where the certifier acts dishonestly, then he will be disqualified from further acting, but is the employer under a duty to replace the certifier where the certifier acts unreasonably? And is the employer vicariously liable in damages if the certifier certifies unreasonably? These are questions that are not answered by this decision.

Colt International v Tarmac Construction Limited

High Court of Justice
Mr Justice Morrison
Judgment delivered 4th March 1996

Facts

Tarmac were pursuing arbitration proceedings against Colt; Mr Christopher Dancaster, a Chartered Surveyor, was appointed as arbitrator by the RICS.

A dispute arose in the arbitration as to whether Tarmac had complied with the arbitrator's discovery order. The arbitrator indicated that, if Colt persisted with their discovery application against Tarmac, which involved the question of waiver of privilege, he would wish to take advice from Queen’s Counsel.

Colt suggested that the discovery application merited the appointment of a legal assessor to sit with the arbitrator; the arbitrator gave an indication that he doubted whether it was necessary to have a QC sitting with him, and that if Colt insisted then the costs would have to be borne by Colt in any event. Colt complained that the arbitrator had pre-judged that issue, whereupon the Arbitrator indicated that he would review the position in the light of submissions made to him at the forthcoming hearing.

In the event, the Arbitrator embarked upon the application without a QC sitting with him, but it became apparent that he did need legal advice upon the submissions made to him. Colt complained that the terms upon which the Arbitrator sought that advice were too wide, and applied for his removal for misconduct.

Issues and findings

What was the test to be applied on an application for removal for misconduct?

Whether the circumstances are such that a reasonable man would think that there was a real likelihood (in the sense of a real possibility or real danger) of bias.

Should the arbitrator be removed in this case?

No. The application was groundless, and should not have been made.

Is a lay arbitrator entitled to assistance from the parties’ solicitors and counsel in formulating a question which might need to be put to a legal advisor?

Yes.

Commentary

Arbitrators often walk in fear of misconduct applications, and many of the potential procedural advantages of arbitration are lost when the legal representatives of the parties make veiled or even overt threats to seek the removal of the arbitrator for misconduct.

In this case, the application was roundly dismissed, and of particular interest is the Court's comment that the lawyers for the parties should be given more assistance to a lay arbitrator.

Havant Borough Council v South Coast Shipping Company Limited

Commercial Court
His Honour Judge James Fox-Andrews QC
Judgment delivered 11th January 1996

Facts

The plaintiff engaged the defendant under an ICE contract in connection with the Hayling Island Beach Replenishment Scheme. The work was expected to be potentially noisy, and the specification required contractors to minimise disturbance to those living nearby.

South Coast Shipping's Method Statement indicated that they "would work from 6.00am to 11.00pm during the day"

Condition 29 of the Conditions of Contract required South Coast Shipping to indemnify Havant against any claims costs or expenses arising on account of noise or other disturbance.

During the execution of the Works, a local resident obtained an injunction restraining South Coast Shipping subcontractors from making any noise audible from the Plaintiff's house between the hours of 5.00pm and 9.00am.

South Coast Shipping sought a variation under Clause 51 to cover the additional cost of the Works resulting from the injunction. Various questions of law were determined by the arbitrator, Mr Ian Menzies and in turn by the Commercial Court by way of appeal.

Issues and findings

Was a method within the contractor’s Method Statement within the definition of "Works" for the purposes of Clause 13 and 14 of the ICE Contract?

Yes.

Was South Coast Shipping entitled to a variation if the work was physically or legally impossible?

Yes.

Was the Method Statement permissive or mandatory?

Part permissive and part mandatory. The question should be remitted to the Arbitrator.

Was it fatal to South Coast Shipping's Claim D (trimming batters) that it had not been formally referred to the Engineer for a decision?

Yes.

Commentary

This is a somewhat lengthy judgment running to some 57 pages, and the interest in it is principally in the detailed reasoning. But there are two somewhat generalised and, to non-lawyers, perhaps somewhat surprising points which it illustrates.

The first is that where a contractor is required, pre contract, to satisfy the employer by identifying the method that he proposes to adopt for the work, then the employer may be required to bear the additional cost if that method turns out to be unworkable. Many would say that such a notion is nonsensical.

Secondly, a contractor who is aggrieved by a refusal of an engineer to certify time or money may be barred in a subsequent arbitration if he has not, pursuant to Clause 61, sought a "decision" from the Engineer upon the matter upon which the engineer has already declined to budge. Bearing in mind the considerable latitude that contractors are allowed in the area of contractual notices, it seems strange that so much importance should be attached to such an ostensibly redundant procedural hoop.

Hoppe v Titman

Court of Appeal
His Honour Judge Pill LJ
Judgment delivered 21st February 1996

Facts

Some years ago, Mr Titman sued Mr. & Mrs. Hoppe for payment of his fees for architectural work.

The Hoppes pleaded a defence of set-off alleging negligence, but there was no counter-claim. That action was settled by acceptance of a payment into court.

Two years later, the Hoppes sued Mr. Titman for professional negligence.

Issues and findings

Was the question of negligence res judicata?

No.

Were the Hoppes free to pursue the allegation of negligence?

Yes.

Commentary

Where a defendant is sued for non-payment for building work (or indeed for any sort of goods and services) and has not paid because of complaints about what was done, the temptation is often to counterclaim. But where the defendant does not wish to pursue a claim for a balance in his favour, he is often better served by restricting his plea to set-off, which operates as a shield but not a counter-attacking sword. This is especially so where the defendant is an overseas resident or limited company and thus vulnerable to an application for security for costs (an order for security for costs may be made against a counterclaiming defendant, but not if the cross allegations are made only by way of set-off).

This decision points up another reason why a plea of set-off only may be preferable; it offers some protection against the possibility that the plaintiff’s work may be even more defective than originally feared.

B Mullan & Sons (Contractors) Limited v Ross and Another

High Court of Northern Ireland, Chancery Division
Kerr J
Judgment delivered 7 December 1995

Facts

The Plaintiff was a subcontractor to McLaughlin & Harvey plc, who in turn were executing works for the Londonderry Port and Harbour Commissioners when it when into administrative receivership, as a result of which its JCT 81 Contract was determined. Some three months later, McLaughlin & Harvey was the subject of a resolution for winding up and the Defendants were appointed liquidators.

Clause 27.4.3.1 of the Contract provided as follows:-

Except where the determination occurs by reason of the bankruptcy of the contractor or of his having a winding up order made or (other than for the purposes of amalgamation or reconstruction) a resolution for voluntary winding up passed, the contractor shall if so required by the employer within 14 days of the date of determination, assign to the employer without payment the benefit of any agreement for the supply of materials or goods and/or for the execution of any work for the purposes of this contract but on the terms that a supplier or subcontractor shall be entitled to make any reasonable objection to any further assignment thereof by the employer;

Clause 27.4.3.2 of the Contract provided:-

Unless the exception to the operation of Clause 27.4.3.1 applies the employer may pay any supplier or subcontractor for any materials or goods delivered or works executed for the purposes of this contract (whether before or after the date of determination) insofar as the price thereof has not already been paid by the contractor.

The Liquidators argued that Clause 27.4.3.2 was void as being in conflict with Article 93 of the Insolvency (Northern Ireland) Order 1989 which provides that a Company's property in a voluntary winding up shall be applied in satisfaction of the Company's liabilities pari passu.

It was common ground that Clause 27.4.3.1 did not apply, since the main contract was determined by McLaughlin & Harvey being placed in administrative receivership.

Issues and findings

Was the Employer entitled to make direct payment to the subcontractor?

No.

Commentary

The JCT altered their standard form contracts as a result of the British Eagle decision in 1975 so as to remove the provision for direct payments in cases where the main contract is determined as a result of the main contractor’s liquidation. Where there is a liquidation, the insolvency scheme (ie, in broad terms, secured creditors get paid first, then preferential creditors, then ordinary unsecured creditors, and only then shareholders) applies in priority to anything the contract may say. This case illustrates that the same principle applies where the contract is determined for a reason falling short of liquidation (eg. administrative receivership) but where the Company subsequently goes into liquidation.

John Barker Construction Limited v London Portman Hotel Limited

Mr Recorder Roger Toulson QC, sitting as Official Referee
(Judgment delivered 16th April 1996)

Facts

The Plaintiff building contractors carried out refurbishment works to the London Portman Hotel. Although formal contract conditions were never executed, it was common ground that they governed the contract, and that the JCT 80 Conditions applied, including the sectional completion supplement. The standard arbitration clause was deleted and replaced by the words:-

The proper law of the Agreement shall be English and the English Court shall have jurisdiction.

The works were delayed and the parties entered into an acceleration agreement.

After the acceleration agreement, there were further delays. The Defendant's Architect, Mr Miller, granted certain extensions; the Plaintiffs claimed that they were entitled to longer extensions of time, and to payment of £20,000 arising out of the Acceleration Agreement.

Preliminary issues were ordered, inter alia, as to the effect of the Acceleration Agreement, as to whether the Court had jurisdiction to entertain the Plaintiff's claim in relation to the extension of time granted by the Architect, and, if and to the extent that the Court had such jurisdiction, what was the proper determination of the Plaintiff claim.

Issues and findings

What is the implied obligation on a certifying Architect?

To act lawfully and fairly.

What are the powers of the Court if the Architect fails to act lawfully and fairly?

The Court may declare the Architect's decision invalid, but may not substitute its decision for that of the Architect solely because it would have reached a different decision.

What is the power of the Court if the arbitration machinery breaks down?

The Court may substitute its own machinery to ensure enforcement of the parties' substantive rights and obligations that a fair and reasonable extension should be given.

Where the certification is challenged, will the Court embark upon a detailed examination of the way in which the Architect made his certificates?

The Court made such an examination in this case.

What was the effect of the Architect making an impressionistic assessment, instead of a logical analysis, of the delay?

It rendered his extension of time fundamentally flawed. The contractual machinery had broken down to such an extent that the Court would substitute its own assessment.

Was the Plaintiff entitled to the £20,000 under the Acceleration Agreement?

It was impossible to tell whether, but for changes made by the employer, the Plaintiffs would have achieved the bonus. The Plaintiffs were entitled to 50% by way of loss of a chance.

Commentary

The approach of the Court in this case differs somewhat from the approach of the Court of Appeal in Balfour Beatty v Docklands Light Railway in two important respects, albeit that the end result is much the same.

First, the Court did not in this case pick up the implied term from the Balfour Beatty case, that certificates must not merely be "honest" and "fair" but also "reasonable". Although this judgment was delivered after the Balfour Beatty judgment, it was argued some months earlier, and Mr Recorder Toulson was apparently unaware of the Balfour Beatty decision.

Secondly, Mr Recorder Toulson took a different line as to the effect of a failure of the certifier to meet the certified standard. In the Balfour Beatty case, the Court of Appeal said that the courts do not have power to review certificates, and said that the remedy of an aggrieved contractor is to sue for damages for breach of contract. In this case, Mr Recorder Toulson latched on to the exception to the Crouch Rule referred to in Crouch itself, namely that the Court does have power to review certificates where the contractual machinery has "broken down". But reading the full judgment in this case suggests that the certification process ran along fairly typical lines; Mr Recorder Toulson described the failure of the architect to perform a proper retrospective delay analysis as a fundamental flaw, and yet in practice, it is the exception rather than the rule for architects to make such an analysis.

Another point of apparent criticism of the architect was his acknowledgement that it was "unfortunate" that he had discussed his proposed award with the employer, giving the employer the opportunity of comment, without offering a comparable opportunity to the contractor. Again, such behaviour on the part of architects is typical.

By way of evidence, the contractors came to court armed with a detailed delay analysis, but the employers did not. The court adopted the line of McAlpine v McDermott that such an analysis was necessary, and adopted the contractor's analysis subject only to some minor points. This pointed out a procedural issue; that the Court does not ordinarily have the means to perform the very complex computer-aided calculations that are needed in retrospective delay analysis, and we understand that the contractor's expert, Keith Pickavance, was effectively asked to go away and run the adjustments indicated by the court through his computer program.

An interesting end note to the case concerned the reference to loss of a chance. It has long been the law that if the Defendant is guilty of a breach of contract, but the Plaintiff cannot prove that he would necessarily have achieved any benefit but for the breach, yet the Plaintiff may recover damages for loss of a chance. The doctrine is sometimes invoked in claims against professionals or managers who fail to take proper protective measures on behalf of their clients, but then argue the absence of any direct proof that such measures would have been successful. This case represents a somewhat rare example of the doctrine being applied in a judgment.

Since delivering this judgment, Mr Toulson has been appointed to the High Court Bench.

Abbey National Mortgages PLC and Others v Key Surveyors Nationwide Limited and Others

Court of Appeal
Sir Thomas Bingham MR, Peter Gibson and Schiemann LLJ
(Judgment delivered 5th February 1996)

Facts

The Plaintiff was in the business of providing mortgage finance; the First Defendant was a company providing professional valuations of properties, a company now insolvent and which has ceased trading. The Second to Ninth Defendants were individual Surveyors who had made valuations on which the Lenders had relied.

The action concerned allegedly negligent valuations of 29 properties in various parts of the country.

The Defendants sought leave for 29 expert witnesses, one for each property, on the basis that local experience would be necessary in each case. At first instance, the Official Referee, His Honour Judge Hicks QC, made an order appointing just one Court expert, with the parties being limited to one expert each upon the Court Expert's report.

The Defendants appealed.

ORDER 40, Rule 1 provides:-

(1) In any cause or matter which is to be tried without a jury and in which any question for an expert witness arises the Court may at any time, on the application of any party, appoint an independent expert or, if more than one such question arises, two or more such experts, to inquire and report upon any question of fact or opinion not involving questions of law or of construction.

An expert appointed under this paragraph is referred to in this Order as a "court expert".

(2) Any court expert in a cause or matter shall, if possible, be a person agreed between the parties and, failing agreement, shall be nominated by the Court.

(3) The question to be submitted to the court expert and the instructions (if any) given to him shall, failing agreement between the parties, be settled by the Court.

(4) In this rule "expert", in relation to any question arising in a cause or matter, means any person who has such knowledge or experience of or in connection with that question that his opinion on it would be admissible in evidence."

ORDER 40, Rule 4 provides:-

"Any party may, within 14 days after receiving a copy of the Court expert's report, apply to the Court for leave to cross-examine the expert on his report, and on that application the Court shall make an order for the cross-examination of the expert by all the parties either - (a) at the trial, or (b) before an examiner at such time and place as may be specified in the order".

Order 40, Rule 6 provides:-

"Where a court expert is appointed in a cause or matter, any party may, on giving to the other parties a reasonable time before the trial notice of his intention to do so, call one expert witness to give evidence on the question reported on by the court expert but no party may call more than one such witness without the leave of the Court, and the Court shall not grant leave unless it considers the circumstances of the case to be exceptional."

Issues and findings

Was the novelty of the Order made objectionable?

No. Exhortations to trial judges to be interventionist and managerial would be futile if every managerial initiative of a trial judge were to be condemned as an unwarranted departure from orthodoxy.

Is Order 40 limited to questions of a scientific or technical kind?

No.

Is it only appropriate to appoint a court expert under Order 40 to give an opinion on a subsidiary question, and not on the major issue on which the Court had to resolve?

No.

Is a person prevented from being a court expert if he lacks personal knowledge of the matters upon matters which he must report?

No.

Where a court expert is ordered to inquire and report on more than one question, are the parties entitled to call one witness per question?

No.

Is a court expert strictly bound by the rules of evidence?

No.

Is the appointment of a court expert pointless, as the mere introduction of an additional expert whose opinion would carry no more weight than any other?

No; the experience of the Court is that expert witnesses appointed by the parties do tend to become partisan. There must be a reasonable chance that an expert appointed by the Court, with no axe to grind, may prove a reliable source of expert opinion.

Should the Judge's order in this case be disturbed?

No. The orders were not necessarily final. In considering any further application, the Judge would bear in mind not only that professional reputations were at stake, but also the balance between costs of the litigation and the sums at stake.

Bowmer and Kirkland Limited v Wilson Bowden Properties Limited

His Honour Judge Hicks QC, Official Referee
(Order made 14th July 1995. Reasons dated 27th July 1995. Released for publication 16th April 1996)

Facts

The plaintiff contractor sued the defendant employer in respect of £71,250 retention money, and by amendment, £83,871 for work done. The defendant counter-claimed for £834,298 and general damages for defective work.

The Plaintiff made a payment into court in respect of the net value of the counter-claim, and also, on the same day made a Calderbank offer dealing with the retention money which had been paid into a separate bank account.

The Defendant applied for interim payment under Order 29 in respect of its counter-claim.

Issues and findings

Is a party entitled to refer to a payment into Court on interim payment application?

Yes (following the Court of Appeal’s decision in Fryer v. London Transport Executive (1987), The Times 4 December 1987 and not following A Limited v. B Limited (1991) 29 Con LR 53).

Was a Calderbank offered to be treated as on the same footing as a payment in?

It was so treated in this case, but the court expressly left open that question.

What weight should be given to a payment in on an interim payment application?

The appropriate weight depends on the circumstances. A payment in representing a "nuisance value" carries minimal weight, if any. Again, a payment in may reflect the odds of success or failure rather than any expected outcome.

Should an order for interim payment be made in this case?

Yes.

Commentary

It is a long established feature of payments into court that they may not be made known to the judge until the judge has decided the case, and comes to consider the question of costs.

It therefore came as something of a surprise in 1987 when the Court of Appeal found in the personal injuries case of Fryer -v- London Transport Executive that, if a payment into court is made, the other party may refer the court to it on an application for interim payment under Order 29.

In A Limited v. B Limited in 1991 (CILL April 1992) His Honour Judge John Davies QC declined to follow the Fryer decision. CILL predicted then that it was by no means a foregone conclusion that every court would be able to follow Judge Davies’ robust attitude, and so it has proved.

Proposed Legislation and Reports

Housing Grants Construction And Regeneration Bill

The proposed legislation pursuant to Sir Michael Latham's proposals, outlined in the Queen's speech (CILL page 1114), was introduced into the House of Lords at the beginning of February as Part II of the Housing Grants, Construction and Regeneration Bill. The Bill is now due to become law by about the end of July.

The proposed legislation will apply to all construction contracts except those signed by Householders. Attempts in the House of Lords to limit its applicability have not been successful.

As set out in the Explanatory Memorandum to the Bill, it will give any party to a constructions contract a right to refer disputes to a quick, impartial and investigative adjudication procedure. If no adequate procedure is agreed in the contract, one set out by the Government in secondary legislation will apply. Contractors will have a statutory right to insist on payment by instalments where the work is to last 60 days or more. A payer will have to give the Contractor notice, with reasons, if he wishes to set off against the payments due. Pay when paid clauses are to become unenforceable, save in the case of actual ultimate payer insolvency.

EXTRACTS FROM THE BILL

Clause 103 - (1) In this Part a "construction contract" means an agreement for the carrying out of construction operations.

3. This part applies only to construction contracts which…are entered into after the commencement of this Part ...
4. Clause 105 - (1) This Part does not apply to a construction contract if one of the parties to the contract occupies, or intends to occupy, as his residence a dwelling the whole or any part of which is the subject of operations to which the contract relates.

Clause 106 -(1) The provisions of this Part apply only where the construction contract is in writing, and any other agreement between the parties as to any matter is effective for the purposes of this Part only if in writing. The expressions "agreement", "agree" and "agreed" shall be construed accordingly.

2. There is an agreement in writing -

1. if the agreement is made in writing (whether or not it is signed by the parties),
2. if the agreement is made by exchange of communications in writing, or
3. if the agreement is evidenced in writing.

3. Where parties agree otherwise than in writing by reference to terms which are in writing, they make an agreement in writing.
4. An agreement is evidenced in writing if an agreement made otherwise than in writing is recorded by one of the parties, or by a third party, with the authority of the parties to the agreement.
5. An exchange of written submissions in arbitral or legal proceedings in which the existence of an agreement otherwise than in writing is alleged by one party against another party and not denied by the other party in his response constitutes as between those parties an agreement in writing to the effect alleged.
6. References in this Part to anything being written or in writing include its being recorded by any means.

Adjudication

Clause 107 - (1) A party to a construction contract has the right to refer a dispute arising under the contract for resolution by an adjudication procedure complying with this section.

For this purpose "dispute" includes any difference.

2. The procedure must -
   1. provide a timetable with the object of securing -

      (i )the appointment of the adjudicator and referral of the dispute to him within 7 days, and

      (ii) a decision within 14 days of referral;

   2. require the adjudicator to reach a decision in any event within 28 days of referral;
   3. impose a duty on the adjudicator to act impartially; and
   4. enable the adjudicator to take the initiative in ascertaining the facts and the law.

If the contract does not provide for such a procedure, the relevant provisions of the Scheme for Construction Contracts apply.

Payment

Clause 108 - (1) A party to a construction contract is entitled to payment by instalments, stage Payments or other periodic payments for any work under the contract unless-

1. it is specified in the contract that the duration of the work is to be less than 60 days, or
2. it is agreed between the parties that the duration of the work is estimated to be less than 60 days.

2. The parties are free to agree the amounts of the stage payments and the intervals at which, or circumstances in which, they become due.
3. In the absence of such agreement, the relevant provisions of the Scheme for Construction Contracts apply.

Clause 109 - (1) Every construction contract shall -

1. provide an adequate mechanism for determining what payments become due under the contract, and when, and
2. provide for a final date for payment in relation to any sum which becomes due.
   
   The parties are free to agree how long the period is to be between the date on which a sum becomes due and the final date for payment.

2. If or to the extent that a contract does not contain such provision, the relevant provisions of the Scheme for Construction contracts apply.

Clause 110 - (1) A party to a construction contract may not withhold payment after the final date for payment of a sum due under the contract unless he has given an effective notice of intention to withhold payment.

2. To be effective such a notice must specify

1. the amount proposed to be withheld and the ground for withholding payment, or
2. if there is more than one ground, each ground and the amount attributable to it,

and must be given not later than the prescribed period before the final date for payment.

3. the parties are free to agree what that prescribed period is to be,

In the absence of such agreement, the period shall be that provided by the Scheme for Construction Contracts.

4. Where an effective notice of intention to withhold payment is given, but on the matter being referred to adjudication it is decided that the whole or part of the amount should be paid, the award shall be construed as requiring payment not later than-

1. seven days from the date of the award, or
2. the date which apart from the notice would have been the final date for payment,
   whichever is the later.

Clause 111 -

1. Where a sum due under a construction contract is not paid in full by the final date for payment and no effective notice to withhold payment has been given, the person to whom the sum is due has the right (without prejudice to any other right or remedy) to suspend performance of his obligations under the contract to the Party by whom payment ought to have been made ("the party in default").
2. The right may not be exercised without first giving to the party in default at least seven days' notice of intention to suspend performance, stating the ground or grounds on which it is intended to suspend performance.
3. the right to suspend performance ceases when the party in default makes payment in full of the amount due.
4. Any period during which performance is suspended in pursuance of the right conferred by this section shall be disregarded in computing any contractual time limit for the completion, by the party exercising the right or by a third party, of any work directly or indirectly affected by the exercise of the right. Where the contractual time limit is set by reference to a date rather than a period, the date shall be adjusted accordingly.

Clause 112 -

(1)  A provision purporting to make payment under a construction contract conditional on the payer receiving payment from a third person is void, unless that third person, or any other person payment by whom is under the contract (directly or indirectly) a condition of payment by that third person, is insolvent.

(2) For the purposes of this section a company becomes insolvent -

1. on the making of an administration order against it under Part II of the Insolvency Act 1986,
2. on the appointment of an administrative receiver or a receiver and manager of its property under Part III of that Act,
3. on the passing of a resolution for voluntary winding-up without a declaration of solvency under section 89 of that Act, or
4. on the making of a winding-up order under Part IV or V of that Act.

(3) For the purposes of this section a partnership becomes insolvent -

1. on the making of a winding-up order against it under any provision of the Insolvency Act 1986 as applied by an order under section 420 of that Act, or
2. when sequestration is awarded on the estate of the partnership under section 12 of the Bankruptcy (Scotland) Act 1985 or the partnership grants a trust deed for its creditors.

(4) For the purposes of this section an individual becomes insolvent -

1. on the making of a bankruptcy order against him under Part IX of the Insolvency Act 1986, or
2. on the sequestration of his estate under the Bankruptcy (Scotland) Act 1985 or when he a trust deed for his creditors.

(5) A company, partnership or individual shall also be treated as insolvent on the occurrence of any event corresponding to those specified in subsection (2), (3) or (4) under the law of Northern Ireland or of a country outside the United Kingdom.

(6) Where a provision is rendered void by subsection (1), the parties are free to agree other terms for payment.
In the absence of such agreement, the relevant provisions of the Scheme for Construction Contracts apply.

Supplementary provisions

Clause 113 - (1) The Minister shall by regulations make a scheme ("the Scheme for Construction Contracts") containing provision about the matters referred to in the preceding provisions of this Part.

2. Before making any regulations under this section the Minister shall consult such persons as he thinks fit.
3. In this section "the Minister" means -

1. for England and Wales, the Secretary of State, and
2. for Scotland, the Lord Advocate.

Clause 114 - (1) The parties are free to agree on the manner of service of any notice or other document required or authorised to be served in pursuance of the construction contract or for any of the purposes of this Part.

(2) If or to the extent that there is no such agreement the following provisions apply.

(3) A notice or other document may be served on a person by any effective means.

(4) If a notice or other document is addressed, pre-paid and delivered by post -

1. to the addressee's last known principal residence or, if he is or has been carrying on a trade, profession or business his last known principal business address, or
2. where the addressee is a body corporate, to the body's registered or principal office,

it shall be treated as effectively served.

(5) this section does not apply to the service of documents for the purposes of legal proceedings, for which provision is made by rules of court.

(6) References in this Part to a notice or other document include any form of communication in writing and references to service shall be construed accordingly.

Clause 115 - (1) For the purposes of this Part periods of time shall be reckoned as follows.

(2) Where an act is required to be done within a specified period after or from a specified date, the period begins immediately after that date.

(3) Where the period would include Christmas Day, Good Friday or a day which under the Banking and Financial Dealings Act 1971 is a bank holiday in England and Wales or, as the case may be, in Scotland, that day shall be excluded.

Architects

Clause 116 - (1) The Architects' Registration Council of the united Kingdom established under the Architects (Registration) Act 1931 ("the 1931 Act") shall be known as the Architects Registration Board.

(2) The Board of Architectural Education, the Admission Committee and the Discipline Committee constituted under the 1931 Act are abolished.

(3) In section 3 of the 1931 Act (constitution and functions of Architects' Registration Council), after subsection (2) insert -

"(2A) Part I of the First Schedule to this Act makes provision about the constitution and proceedings of the Board.

(2B) There shall be a Professional Conduct Committee of the board and Part II of that Schedule makes provision about its constitution and proceedings.

(2C) Part III of that Schedule gives to the Board power to establish other committees and makes provision about their constitution and proceedings.

(2D) Part IV of that Schedule makes "general provision about the Board and its committees.".

(4) For the First Schedule to the 1931 Act (constitution of Council) substitute the Schedule set out in Part I of Schedule 2.

Clause 115 for section 4 of the 1931 Act substitute -

"The Registrar.

4. (1)The Board shall appoint a person to be known as the Registrar of Architects.

(2) the Board shall determine the period for which, and the terms on which, the Registrar is appointed.

(3) The Registrar shall have the functions provided by or by virtue of this Act and any other functions provided by or by virtue of this Act and any other functions which the board directs.

(4) The Board may, in addition to paying to the Registrar a salary or fees-

1. pay pensions to or in respect of him or make contributions to the payment of such pensions; and
2. pay him allowances, expenses and gratuities.

Staff.

4A. (1) The Board may appoint staff.

(2) The Board shall determine the period for which, and the terms on which, its staff are appointed.

(3) Staff appointed by the Board shall have the duties which the Board directs.

(4) the Board may, in addition to paying salaries to its staff -

1. pay pensions to or in respect of them or make contribution to the payment of such pensions; and
2. pay them allowances, expenses and gratuities."

Right To Conduct Litigation

Advice of the Lord Chancellor's Advisory Committee on Legal Education and Conduct to the Institute of Commercial Litigators.

(Advice dated 2nd February 1996)

BACKGROUND

Historically, the right to conduct litigation in the courts has been the exclusive province of solicitors; conversely, there has been no restriction on the right of unqualified Claims Consultants or others to conduct arbitration proceedings on behalf of clients.

The Courts and Legal Services Act 1990 contains machinery whereby the Lord Chancellor may authorise other bodies to have the right to conduct litigation, and to have rights of audience before courts, where that is in pursuance of the "statutory objective", namely making provision for new or better ways of providing advocacy in litigation services and a wider choice of persons providing them, while maintaining the proper and efficient administration of justice.

For the purpose of deciding whether to authorise any other body, the Lord Chancellor is advised by an Advisory Committee of 17 people, 8 of whom are lawyers and 9 of whom are not.

Under Section 70 of the Courts and Legal Services Act 1990, it is an offence punishable by imprisonment for a term of up to 2 years and/or a fine for any person to do any act in the purported exercise of a right to conduct litigation in relation to any proceedings when he is not entitled to exercise that right.

In December 1993, the Institute of Commercial Litigators made an application to the Advisory Committee, seeking authorisation to grant to its Fellows rights to conduct litigation in building, construction and engineering matters in Court, together with certain limited rights of audience in interlocutory proceedings arising out of such litigation.

By a majority of 15 to 4, the Committee's advice, in the first instance offered to the Institute of Commercial Litigators itself, was that the application fell far short of what was required.

EXTRACTS FROM THE ADVICE

The Advisory Committee's conclusion

"In the light of the evidence the Committee concludes that the current application falls far short of what is required by the statutory objective and the general principle. The Committee believes that for the Institute, as currently constituted, to be permitted to grant the proposed rights could extend choice only at the serious risk of substantially lowering standards of service to the public. Such a result would not be consistent with the proper and efficient administration of justice. The committee also takes the view that the Institute of Commercial Litigators, as currently constituted, is not a body capable of enforcing qualification regulations or rules of conduct as required by the general principle.

The present advice is concerned only with the current application, and it is not for the Committee to prejudge any future application that the Institute may wish to make. In relation to any proposed application for authorisation to grant rights of audience or litigation, paragraph 1(5) of schedule 4 to the Act requires the Committee to advise the applicant "of the extent to which (if at all) the draft regulations or rules should ... be amended in order to make them better designed (a) to further the statutory objective; or (b) to comply with the general principle". Some of the fundamental defects of the application relate to the reality (or lack of it) of the Institute of Commercial Litigators as currently constituted. The Committee believes that these defects in the application, which is the only matter now under consideration, cannot be remedied by any amendments to the proposed rights or any reformulation of the proposed rules of conduct or qualification regulations.

Quality

The Committee believes that the statutory objective of promoting new or better ways of supplying litigation or advocacy services does not include ways that would lead to a substantial lowering of standards. For the protection of the public, the proper and efficient administration of justice requires that those granted rights of litigation or audience should be competent to exercise them. On the evidence submitted by the applicant and others, the Committee believes the scheme outlined in the current application to be incapable of bringing the majority of Fellows of the Institute to a level of competence appropriate to the exercise by them of the rights sought.

The Institute claims that "the client's consultant, through his understanding of the technical background and familiarity with the industry, is likely to have greater ability to interpret the relevant legal issues". The Committee has received evidence that this claim underestimates the skills required for the proper exercise of the rights that the Institute seeks authority to grant. In disputes arising from construction matters, as in other litigation involving significant legal and procedural difficulty and complexity, litigation and advocacy skills are not mere appendages to technical expertise in engineering or other aspects of construction work. They are skills which themselves take years of training and experience to develop. The Committee is not satisfied that the Institute's proposals for education and training would provide a threshold level of competence for the generality of Fellows.

Rights of audience

The proposed rights of audience would be confined to interlocutory matters. However, such matters range extremely widely from relatively simple to highly complex matters. In some cases, the legal issues raised in an interlocutory application are just as complex as any that may arise at a final hearing. Moreover, in many cases is cannot be known in advance what degree of legal and advocacy skills will be required at any particular hearing including, for example, a hearing which may start out as an apparently simple summons for directions.

The Committee considers that many complex legal matters arising in interlocutory applications will be beyond the competence of the generality of Fellows of the Institute. The Committee does not accept that they will be in the same position in this regard as those in practice as barristers or solicitors, who will have broader legal knowledge and experience.

Rights to conduct litigation

The Committee has taken into account that some members of the Institute have experience in the conduct of arbitrations. Having carefully considered that factor, the Committee believes that it cannot outweigh the serious defects of the application.

Breadth of legal knowledge and experience

This advice has already adverted to the fact that the legal knowledge and experience of the generality of Fellows of the Institute will not be as broad as those practising as solicitors or barristers. In consequence a Fellow would be in a weak position to deal with the legal issues of various different sorts that may arise unexpectedly in connection with a construction dispute even assuming that he had the right to do so. Annex D sets out the committee's advice relating to education and training.

Cost

The Committee does not accept that any case has been made out that litigation or advocacy services provided by Fellows of the Institute would be cheaper than those provided by solicitors and barristers. Even if Fellows were to charge lower hourly rates, their relative lack of knowledge and experience in dealing with the work might result in inefficiency and higher cost for the client.

Conflicts

The committee is satisfied that the potential for conflicts created by the application is greater than that normally facing solicitors, because of the wider range of activities undertaken by claims consultants in the construction field. For example, at present one of the prime functions of claims consultants is to provide expert evidence in construction litigation. As in other fields it is vital that such evidence be independent and objective. The Committee believes that there could well be unacceptable pressure on an expert witness who is employed by a firm of claims consultants and commercial litigators, which is also conducting the litigation to which his evidence relates. Such pressure is also likely to militate powerfully against the maintenance of proper standards in relation to the discovery of documents.

The Conclusion of the dissenting Members of the Committee was as follows:

We would agree that the application by the Institute of Commercial Litigators requires considerable further development, especially in relation to its education and training proposals, before it is likely to satisfy the requirements of the Act. Nor would we claim to have covered all possible areas where further amendments are required. In particular, we suspect that more consideration is needed of the Institute's proposals for professional indemnity cover.

We see it as the primary duty of the Committee to assist applicants in preparing and developing their proposals prior to their formal submission to the Lord Chancellor for approval, and it is obvious from much of what we have said so far that we do not consider that the majority of the committee has adequately performed this role in relation to the application by the Institute of Commercial Litigators. In putting forward this dissent we hope to have gone some way to remedy this situation and in that way to act within both the letter and spirit of the courts and Legal Services Act 1990."

Commentary

The emphatic rejection by the Advisory Committee of the Institute of Commercial Litigators' application will be welcome to some, less so to others. On the one hand James R Knowles have invested significant sums in pursuing this application and will no doubt be bitterly disappointed by the result. As against that, Solicitors who have opposed the application are always sensitive to the charge that they may be selfishly protecting a monopoly, and will take comfort from the fact that the majority of the Committee including it seems the majority of the lay members, have condemned the application in such round terms.

The main sponsors of the Institute of Commercial Litigators, James R Knowles Limited, have had considerable success in a number of advisory fields over the years; this application appears however, to have been a bridge too far for them.

Chambers & Partners' Directory 1995-96 Construction and Civil Engineering London Rankings

Fenwick Elliott

Masons

Freedman Church

Baker & McKenzie

Bristows Cooke & Carpmael

Davies Arnold Cooper

McKenna & Co.

Rowe & Maw

Winward Fearon

Allen & Overy

Clifford Chance

Dibb Lupton Broomhead

Freshfields

Linklaters & Paines

Lovell White Durrant

McGrigor Donald

Nabarro Nathanson

Alsop Wilkinson

Ashurst Morris Crisp

S J Berwin & Co.

Berwin Leighton

Brecher & Co.

Denton Hall

D J Freeman

Eversheds

Forsyte Saunders Kerman

Fox & Gibbons

Glovers

Gouldens

Hextall, Erskine

Lane & Partners

Norton Rose

Park Nelson Thompson Quarrell

Rosling King

Simmons & Simmons

Speechly Bircham

Stephenson Harwood

Trowers & Hamlins

Wedlake Bell

Sixth Rank

Field Fisher Waterhouse

Vizards

Warner Cranston

Professional indemnity and regional firms are listed separately