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The Fenwick Elliott Summer 1998 ReviewWelcome to the 1998 edition of our popular Summer Review. With the news that the Housing Grants, Construction and Regeneration Act 1996 has at last come into force, we have decided to make this year's Review a bumper edition in which we reproduce the text of the Scheme for Construction Contracts and the ORSA Rules. AdjudicationFenwick Elliott continues to be rated as one of the leading construction law firms by the Chambers and the Legal 500 directories. We also remain at the forefront of the changes brought about by the HGC&R Act. Robert Fenwick Elliott has continued to train adjudicators on behalf of ORSA and led the ORSA submissions on the draft Scheme for Construction Contracts which has now been brought into force. He was the principal draughtsman of the ORSA Adjudication Rules. Robert and Simon Tolson have also been involved in conducting regular adjudicator training courses on behalf of the Chartered Institute of Building and are both now accredited adjudicators on the ORSA, CIOB and CIC panels. All the partners have been writing and lecturing on the new Act. We plan to run a half day conference on the Act in practice later this year which will take place at One Aldwych, the new central London hotel next to our offices. Further details of that conference will be sent out shortly. Building Contract DisputesWe reported last year the imminent publication of Robert Fenwick Elliott's new book, Building Contract Disputes - Practice & Precedents. It was duly launched in July 1997 and became and remains one of its publisher's best selling loose-leaf text books (FT & Tax - now Sweet & Maxwell). In its final form, it runs to approximately 800 pages with annual updates. The work was the joint effort of the firm team with the following additional contributors: Geraldine Andrews, Brian Eggleston, Judge Humphrey Lloyd QC, William Marsh, Mark Raeside and John Sims. The reviews have been very enthusiastic, describing BCD as: "A model of clarity and practicality" and predicting that:
Official Referees' Solicitors' AssociationAs you will have gathered from our previous reviews, as a firm we are actively involved in ORSA, all of our Partners being members and Robert Fenwick Elliott as a member of the main Committee and the Adjudication Sub-Committee. The 1997 Review contained the text of the ORSA Expert Witness Protocol and we can now report that this has been endorsed by the British Academy of Experts with some amendments. A joint protocol between the BAE and ORSA is being published and will be available for circulation within the next few months. In addition, ORSA has now finalised an IT Protocol. ORSA is also planning an ADR Protocol which we understand will be available for publication later this year. If anyone would like to obtain copies of the IT Protocol, joint protocol or of the ADR Protocol when they are available, please contact Jean Elliott. An updated 1998 version of the ORSA Adjudication Rules has also just been issued and appears here. We can make further copies available, again; please contact Jean Elliott. Information Technology UpdateDuring the course of the last year, there have been a number of new developments at Fenwick Elliott on the IT front. The most significant has been the installation of a new file server (the firm's fourth) dedicated to managing Internet browsing and Internet mail for all members of our team. Every member of staff now has their own personal Internet email address and is able to gain access to the World Wide Web using our newly installed high speed ISDN lines. All the firm e-mail addresses can be found here. We have now also recently developed our own web page, which includes personal profiles of our entire legal team. Our web address is http://www.fenwickelliott.co.uk/. The ability to electronically search through vast quantities of case documentation continues to be a priority, with the ongoing development of our own in-house software, which in turn utilises a number of well established software applications for document scanning, imaging and OCR. Today, as documents are produced by our word processors, they are automatically word-indexed for future reference. With IT playing an ever increasingly important role within our practice, we have introduced a full time member of staff dedicated to IT support, Simon Cooper, who was originally the firm's senior clerk. We also continue to have a close association with a number of specialised IT support companies enabling us to remain at the head of IT use within our field. Kuala Lumpur - MalaysiaToby Anderson was seconded to work in Malaysia for two months late last year and has returned there recently. The firm has been involved in advising an American and Japanese Consortium who were awarded the contract by the Malaysian Government to implement a Total Airport Management System (TAMS) for the new Kuala Lumpur International Airport which is due to be opened at some stage this year. It is currently one of the world's largest construction projects employing, at one stage, up to 20,000 workers. The TAMS system provides for the co-ordinated integration of all the airport's activities, including communications and information systems. It is both an interesting and challenging project and a very interesting time to work in South East Asia region given the economic, and in some cases, political problems which have beset the region since the latter half of 1997. Firm NewsEdward Lowery, Jeremy Glover and Toby Anderson all became Associates of the firm during the course of the last year. We have continued expand our team of lawyers, being joined this year by Vijay Bange, an experienced construction solicitor formerly with Neil F Jones, Shamim Amir who trained with DJ Freeman & Co., and Stuart Thompson from Beale & Co. Aileen Duncan, who worked as a legal secretary here from 1990 to 1993 has completed her law degree and rejoined us as a paralegal in December 1997. Building MagazineSimon Tolson continues to produce monthly articles in Building. Recent topics covered include:
Copies of any of these articles can be obtained from Simon. NICCWe have been appointed as legal advisors to NICC (Networking Independent Commercial Consultants) which has been established to provide a rapid response network of experienced construction consultants. Jean Elliott is a regular contributor to its Quarterly Business Review. For further information about NICC please contact her or visit the web site at: http://www.nicc.com/ Legal DevelopmentsThe Housing Grants, Construction and Regeneration Act 1996 ("the Construction Act") and the Scheme for Construction Contracts The Act was passed two years ago but did not become law until May 1998. In the intervening period a lengthy consultation process has taken place to finalise the Scheme for Construction Contracts. The Act and the Scheme have come into force and as such, the effect of the legislation must be taken into account every time a contract is made, whether by way of a formal building contract or engagement of a consultant or by an exchange of letters. A new payment regime has been introduced but the most important change brought about by the new Act is the introduction of the statutory right to adjudication. What is Adjudication?Although it is not a new concept, there is no definition as such of adjudication in the Act or at common law. The Shorter Oxford English Dictionary gives the subjective definition that an adjudicator is someone who settles a question fairly. The aim of adjudication is clear - that dispute resolution in the industry will become something substantially quicker, cheaper and more commercially adept than litigation or arbitration. Sir Michael Latham famously commented that there was a prevailing attitude of contention in the industry, typically resulting in very great expense through the usual channels. He recommended in his report, Constructing the Team, that adjudication should become the "normal method of dispute resolution in the industry". Not only that, the system should be introduced into standard form contracts and under-pinned by legislation. That is what we now have. The statutory Scheme for Construction Contracts applies by default if the parties' contractual arrangements do not meet the eight compliance points set out in section 108 of the Act. The JCT has already published the following amendments to bring their Standard Form Contract in line with the Act; others will doubtless follow shortly:
DOM/1 and DOM/2 are also being updated. The ICE have introduced the ICE Adjudication Procedure (1997) which is adapted for use with ICE 6th Edition, Design & Construction and Minor Works (2nd Edition). GC/Works/1/Edition 3 has also been amended with the release of the 1998 Edition. CEDR (Centre for Alternative Dispute Resolution) has recently published Adjudication Rules which offer the alternative of mediation. The new right to adjudication applies when the following three conditions are satisfied:
Each of these conditions gives rise to questions of legal interpretation. If you wish to raise any questions as to the application and interpretation of the new Act, please feel free to contact any of us at your convenience. Alternatively, we will shortly be sending out details of a seminar on the new Act in practice that we will be running in the autumn. The seminar will cover the provisions of the Scheme for Construction Contracts in detail including adjudication and the new payment regime and will look at how the scheme is working in the industry so far. The End of CrouchThe well known 1985 decision of National Regional Health Authority -v- Derek Crouch Construction which established that only an arbitrator has the power to open up, review and revise certificates has been overturned by the House of Lords after 14 years. See our report of Beaufort Developments (NI) Limited -v- Gilbert-Ash (NI) Limited and Others (1998) here. Recent CasesWe continue to be responsible for the editorship of CILL with Tony Francis now joining Robert Fenwick Elliott as Joint Editor. Many of the case summaries that appear below are extracted from the CILL reports. CILL is published ten times a year. If you are interested in subscribing, contract Monitor Press Limited, Suffolk House, Church Field Road, Sudbury, Suffolk CO10 6YA, on tel. 01787 467232, fax 01787 880201. The following cases are noted below; an index appears at the end of this Review. Alfred McAlpine Construction Limited -v- Panatown Limited Beaufort Developments (NI) Limited -v- Gilbert-Ash (NI) Limited and Others British Sugar Plc -v- NEI Power Projects Limited & Anr City Axis Limited -v- Daniel P Jackson Copthorne Hotel (Newcastle) Limited -v- Arup Associates and Others Dixons Group Plc -v- Jan Andrew Murray-Oboynski George Fischer Holdings Limited -v- Multi Design Consultants Limited Hall & Tawse South Limited -v- Ivory Gate Limited HM Secretary of State for Foreign and Commonwealth Affairs -v- The Percy Thomas Partnership (a firm) HM Secretary of State for Foreign and Commonwealth Affairs -v- Kier International Limited Inserco Limited -v- Honeywell Control Systems Limited Matthew Hall Ortech Limited -v- Tarmac Roadstone Limited Mellowes Archital Limited -v- Bell Projects Limited Nicholas Hare -v- Broadway Developments Limited Rackline Limited -v- The National Library of Wales Strachan & Henshaw Limited -v- Stein Industrie (UK) Limited and GEC Alsthom Limited Tarmac Construction Limited -v- Esso Petroleum Co. Limited Turrner Page Music Limited -v- Torres Design Associates Limited VHE Construction Limited -v- Alfred McAlpine Construction Limited Alfred McAlpine Construction Limited -v- Panatown Limited. Court of Appeal Facts This was an Appeal against the decision of the Official Referee reversing the decision of the Arbitrator to award substantial damages for defective works. The contractors, McAlpine, undertook to design and build an office building and multi-storey car park on JCT standard terms. The building was completed but the employer, Panatown, alleged that it was seriously defective and might have to be demolished and rebuilt and that McAlpine were in breach of their contract. Panatown, although the employers under the construction contract, were not and had never been the legal owners of the construction site. Their associated company, Unex Investment Properties Limited (UIPL), were both the owners of the site and, broadly, the developers. The arrangements were designed to avoid the construction contract becoming liable to VAT. The contractors entered into a Duty of Care Deed (DCD) with UIPL on the same day as the building contract. Panatown commenced arbitration proceedings against McAlpine claiming damages for the alleged defective work. McAlpine's defence was that Panatown was not entitled to recover damages for the alleged breaches of contract because it was not and had never been the owner of the site, so that the loss which Panatown claimed by reason of the alleged defective condition of the building had been suffered not by Panatown but by UIPL, the developer and owner of the site. Therefore, Panatown could not recover more than nominal damages, even if the breaches were proven and nor could UIPL recover damages for breach of this contract to which they were not party, added to which they were not parties to the arbitration. The arbitrator held that this Defence failed but the Official Referee came to an opposite conclusion. Panatown appealed, concentrating on the damages claimed for the alleged defective condition of the building. 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, not withstanding that it had no proprietary interest in the land? Yes, the decisions in St Martins Property Corporation -v- Sir Robert McAlpine Limited and Darlington Borough Council -v- Wiltshier Northern Limited followed. Does the existence of the separate agreement between UIPL and McAlpine lead to a different conclusion? On the facts of this case, no. Commentary Following the decisions in St Martins and Darlington -v- Wiltshier the Court of Appeal held that the parties did intend that Panatown should be entitled to recover substantial damages for defective work notwithstanding that it had no proprietary interest in the land. The court then went on to consider the extent to which that conclusion was displaced by the existence of the separate agreement between UIPL and McAlpine. Adopting a contract based approach to this question, the Court of Appeal found that the parties could not have contemplated that the detailed provisions of the standard form of contract would be displaced by a claim for damages on a completely different basis as governed by the separate agreement. For the Appellant Mr. Jackson QC raised an argument that the Court of Appeal's ultimate finding created a risk of double recovery. The Court of Appeal had little difficulty in dismissing this argument on the basis that the damages recovered by Panatown would be recovered "on behalf" of the building owner who would have to take such damages into account if he made a separate claim under the separate agreement. In St Martins Lord Griffiths decided in the Employer's favour on a broader ground, namely, that the right to recover more than nominal damages was not dependent upon the Plaintiff having a proprietary interest in the subject matter of the contract at the date of the breach. The members of the House of Lords expressed sympathy with this view but did not adopt this as a ground for the decision. However, in this case the court considered the issue and held that the whole rationale of Dunlop -v- Lambert and St Martins is contract based, commenting that the "broader" issue is not a possible alternative route to the same conclusion but the underlying principle upon which Dunlop -v- Lambert and the St Martins decisions are based. Beaufort Developments (NI) Limited -v- Gilbert-Ash (NI) Limited and Others (1998) House of Lords Facts The building contract based on JCT 80 included a clause at Clause 30.10 which provided that "save as aforesaid (referring to Clause 30.9 which provided that a final certificate was to be conclusive and could not be opened up by an Arbitrator) no certificate of the architect shall of itself be conclusive evidence that any works materials or goods to which it relates are in accordance with this contract". Issues and findings The question was whether an Arbitrator appointed to decide the dispute under the building contract had power to review or revise decisions and certificates which were not available before a Court and whether proceedings should be stayed pending a reference to the High Court which had such a power. In the case of Northern Regional Health Authority -v- Derek Crouch Construction Co Limited (1984) the English Court of Appeal held that an Arbitrator had power to review decisions and certificates which would not be available before a Court. Where dispute as to the quality of work was litigated as opposed to arbitrated the Court was entitled to consider the matter on the basis of the evidence advised and so was not bound by the Architect's certificate. The dicta on this point in Crouch was both obiter and wrong. If the contract provided that the sole means of establishing the facts was the expression of opinion in an architect's certificate, that provision must be given effect to by the Court. But in all other respects, where a party came to the Court in search of an ordinary remedy under the contract or for a remedy in respect of an alleged breach of it, the Court was entitled to examine the facts and to form its own opinion upon them in the light of the evidence. The fact that the architect had formed an opinion on the matter would be part of the evidence. But, as it would not be conclusive evidence, the Court could disregard his opinion if it did not agree with it. Crouch was wrongly decided. Also the wrong answers were given in the case of Balfour Beatty Civil Engineering Limited -v- Docklands Light Railway (1996) in which there was no arbitration clause but there was no provision in the contract agreeing that the opinion of the employer's representative was to be conclusive in the event of a dispute. The fact that the contract did not provide an agreed means of challenging the judgment of the employer's representative did not affect the power of the Court to examine the issue and to form its own judgment in the light of the evidence. In the present case there was no final certificate and no certificates of opinion (which the parties had agreed should be taken to provide conclusive evidence as to the matters which were in dispute) had been issued or given. The Court was thus in no different position to that of the Arbitrator. It did not have the additional power which an Arbitrator had under the contract to issue fresh certificates in place of those already issued by the architect. But it did not need that power to resolve disputes which had arisen in this case. There would be no injustice to the contractor in refusing a stay. On that basis, a stay of proceedings in the High Court was refused and in the House of Lords has effectively put the law back to where it was 14 years ago before Crouch. Commentary The stances taken by both the Appellant and the Respondent were such that the only issue the Court had to decide was whether or not it should be bound by the Court of Appeal's decision in Crouch. The factual matrix in this case is very similar to that as Crouch and both cases concern the same form of contract. Notwithstanding this the Court of Appeal of Northern Ireland made it clear in no uncertain terms that but for the decision in Crouch which they were bound to follow they would have interpreted the contract as allowing the Court to review the Architect's certificates. Lord Carswell states that in his opinion upon a proper construction of the contract the Court did have power to review the Architect's certificates and he goes on to question the judgments of Lord Justice Browne Wilkinson and the Master of the Rolls, Sir John Donaldson in Crouch to the effect that an Arbitrator also has power to modify the parties' contractual obligations. In the opinion of Lord Carswell, this is not the case; the Arbitrator can only substitute his own opinion as to the parties rights having applied the provisions of the contract to the facts. British Sugar Plc -v- NEI Power Projects Limited & Anr Court of Appeal Facts The contract between the plaintiffs and the defendants for the design and delivery of electrical equipment contained the following term:-
The Judge at first instance determined on a preliminary issue that the words seeking to limit liability for damages in relation to "consequential loss" did not apply to losses flowing directly and naturally from breach. The defendants appealed. Commentary This case follows the Court of Appeal's decision in Croudace -v- Cawoods (1978) 1 LLR 55 that the term "consequential damages" is a reference, generally, to indirect damages. There is a suggestion in MacGregor on damages (15th Edition) that consequential damages might include damages which are either direct or indirect. This case clearly rejects this line and follows the authority of Croudace. Cargill International SA. Geneva Branch Cargill (HK) Limited -v- Bangladesh Sugar & Food Industries Corporation Court of Appeal Facts The Appellants were buyers of a quantity of sugar from the Respondents. Under the conditions of contract of sale the Respondents provided a performance bond for 10% of the value of the sugar to be supplied. The Bond took the form of a banker's Letter of Guarantee and was stated to be unconditional with the Appellants being the sole judge as to whether or not supplies had fulfilled the conditions of the contract. Clause 13 of the contract of sale provided as follows:-
Clause 16 of the contract of sale provided as follows:-
Morison J held at first instance that the meaning of the above clauses was not such as to prevent the Respondents from recovering monies paid out to the Appellants in accordance with the Bond at some future date. The Appellants appealed. Issues and findings Whether, by use of the word "forfeit" in relation to the Bond, the parties intended to negate any later obligation of the buyers to account, should the sum paid over exceed the damage actually suffered? Upon a true construction of the Bond, no. Commentary At first instance the Judge held that if an amount paid under a bond exceeds the true loss sustained then the party who provided the bond would be entitled to recover the amount of the overpayment. The Judge's reasoning met with approval by the Court of Appeal in Comdel Commodities Limited -v- Siporex Trade SA (1997) 1 Lloyds Rep. 424. This finding would appear to be difficult to fault and did not form part of the Appeal which was the extent to which on the particular facts of this case the contract between the parties forms the subject matter of the actual bond displaced the above implied terms by way of express contractual words to contrary effect. The Court of Appeal made it clear that very clear words would be required to have this effect and certainly such words were not present on the facts of this case which must accord with commercial common sense. City Axis Limited -v- Daniel P Jackson Official Referees' Business Facts City Axis Limited, the Plaintiff, were specialist Construction Managers offering a one-stop professional service to clients taking responsibility for building projects from the initial design stage to completion of the project. The Defendant acquired a house in 1993. City Axis were retained in 1994 to be responsible for extensive renovation works on the property. The original projected date of completion was 31st October 1994. Works were finally completed on 25th August 1995. City Axis alleged that as a result of the failure of Mr. Jackson's agents to supply it with all necessary information during the course of the works they suffered a delay of 37 weeks. City Axis claimed to have suffered loss and damage and extended preliminaries and overhead costs in the sum of £112,700. Issues and findings Were the Plaintiffs entitled to damages for the additional cost of management time and the loss of opportunity to obtain other work? No, on the facts of this case.
Yes. The Defendant was not entitled to recover any sum for snagging as he acted unreasonably in refusing the Plaintiff to complete the works and so failed to mitigate his loss (if any). Commentary In dealing with the Plaintiffs' claim for off site costs it was found that even if there was delay by the Defendant the Plaintiff had failed to show any loss and damage, there being no evidence that it had turned away other work which it might have been able to bid for successfully but for its resources being tied up on this contract. Where there are remedial/snagging works to be undertaken a party must act reasonably in refusing to allow the other to undertake these. In this instance it was found that the Defendant acted unreasonably, and thus had failed to mitigate his loss, by refusing the Plaintiff access to complete snagging works. Copthorne Hotel (Newcastle) Limited -v- Arup Associates and Others Court of Appeal Facts This is the fourth judgment in this case. The appeal arose out of the finding of His Honour Judge Hicks QC, Official Referee, on a preliminary issue reported at CILL 1997, 1270. The preliminary issue was:-
After a detailed consideration of the relevant provision, Judge Hicks held that the protection against liability afforded to Bovis under the management contract was not as comprehensive as Bovis had argued as a result of which Bovis appealed. Issues and findings Does Clause 3.21 exempt the management contractor from liability for breach of his own obligations elsewhere under the management contract? No. Does Clause 3.21 exempt the management contractor when there is also a concurrent breach by the works contractor of the works contract? No, the clause is intended to provide the management contractor with a measure of protection against the otherwise strict consequences of Clause 1.7 where a potential liability arises from default of the works contractor alone. Commentary Whilst the Court of Appeal was unanimous in dismissing the appeal Lord Justice Millett had some difficulty with an interpretation of Clause 3.21 which justifies differentiation between a situation where there is a breach of a works contract which automatically constitutes a breach of the management contract without more and a breach of a works contract which results from a breach of the management contract. Notwithstanding this difficulty Lord Justice Millett was ultimately persuaded that Clause 3.21 should be given a narrow interpretation as to the protection it affords the management contractor. Lord Justice Staughton however simply stated that Clause 3.21 does not use sufficiently unequivocal and clear language to limit Bovis' liability under the contract for breach in accordance with the authority of Lord Diplock in Modern Engineering -v- Gilbert Ash (1974) AL 689. Delaware Mansions Limited and Flecksun Limited -v- The Lord Mayor and Citizens of City of Westminster Mr. Recorder Derek Wood QC Facts The First Plaintiff, a company wholly owned by the leaseholders of Delaware Mansions, Maida Vale, W9 was charged with the upkeep of the flats. The Second Plaintiff, which purchased the freehold from the Charity Commissions in 1990, is a wholly owned subsidiary of the First Plaintiff. The Plaintiffs alleged that the roots of a tree which stood outside block 10 of Delaware Mansions encroached into the ground beneath the basements of blocks 10 and 11 and abstracted water from underlying clay soil thereby causing it to shrink. As a result of the shrinkage, substantial structural damage was caused to four blocks. The Plaintiffs also alleged that they had a cause of action in tort in respect of that loss against the Defendant, the Highway Authority, who was responsible for the maintenance of the trees lining the road, based on nuisance and negligence. Issues and findings Was the Defendant in principle, liable in nuisance and negligence? On the facts, yes. Could a legal cause of action be established against the Defendant? On the facts, no. Commentary This case provides a useful summary of the basic principles in relation to liability for subsidence caused by tree roots. It also provides a demonstration of the principles which will be applied in claims for nuisance following the Canary Wharf case and in particular what constitutes an "interest in land". It is interesting that the Judge specifically made no comment about the chances of the individual leaseholders having been able to recover in this instance. Dixons Group Plc -v- Jan Andrew Murray-Oboynski Official Referees' Business Facts The Defendants sold to the Plaintiffs a company for a price of £4.06m plus the amount equivalent to the value of the net assets. The Plaintiffs claimed damages of about £2m for breach of certain warranties, principally in relation to the value of the retail business and net asset value. The Defendants by their defence challenged the completion accounts or in the alternative sought to circumvent them by raising a set-off. The parties were unable to agree the completion accounts. The sale agreement contained provision for outstanding disputes concerning the accounts to be settled by Mr. Jackson of Price Waterhouse. Under the contract Mr. Jackson's decision was stated to be "final and binding on the parties save in the case of manifest error." A detailed procedure was laid down for the making and receiving of submissions by Mr. Jackson. Having heard lengthy submissions Mr. Jackson stated his findings. As he was entitled to do he gave no reasons for his finding. The Defendants sought to challenge the determination. Issues and findings Are the findings of the expert acting as an expert and not as an arbitrator open to challenge because he departed from his instructions? No. Are the findings of the expert acting as an expert and not as an arbitrator open to challenge because there were manifest errors in his determination? On the facts of this case, no. Commentary As quick solutions to disputes become increasingly popular within the Construction Industry either during the course of the contract on after this case confirms that where the parties agree that an expert's determination is to be final and binding the Court's will be reluctant to interfere with any such determination in the in the absence of the strongest grounds. Here, the Defendants' task was clearly hindered for the fact that the expert was not required to give reasons thus making it extremely difficult to clearly demonstrates the failure on the part of the expert to follow instructions. His Honour Judge Bowsher does provide useful guidance as to what is meant by the expression "manifest error". George Fischer Holdings Limited -v- Multi Design Consultants Limited (1998) Official Referees' Business - His Honour Judge Hicks QC This case concerned determination of whether a collateral contract warranting the operational performance of a completed construction contract existed and, if so, whether there had been a breach thereof. Facts This decision of His Honour Judge Hicks QC arises out of two cases heard together being claims for damages for breach of contract arising out of roofing defects on a construction project. The Plaintiff, George Fischer Holding Limited (George Fischer), was the site owner and employer under a construction contract ("the Contract") with Multi Construction Limited (MCL) for the project. The contract named the Defendant of the first action, Multi Design Consultants Limited (MDC) as the designer of the project. MDC was at that time an associated company of MCL within the same group of companies, but, by the time the action was brought, it had become independently owned as a result of a management buy-out. The Defendant to the second action, Davies Langdon & Everest (DLE) was a firm of quantity surveyors engaged by a written contract ("the Supervisory Contract") as the Employer's Representative for the project. The roof of the building was designed at a pitch of 1.5 degrees and, when completed, suffered a number of defects, including leakages, arising partly from faulty workmanship by the roofing subcontractor and partly from design faults. Issues and findings The issues between George Fischer and MDC were:
Commentary In this decision the Court reaffirms the established approach of determining whether a collateral contract exists. Where the outcome of negotiations have been recorded in documents the issue whether a contract has been entered into will be resolved by construing the documents in their factual setting. It is worthy to note the Court's criticism of the time occupied in trial in pursuing matters of individual intention and beliefs as to the effect of certain documents, which are largely irrelevant. The Court was particularly critical of DLE's failure to visit the roof during the period when the panels were being laid and the lap joints formed. The argument that site visits would not have detected the defective formation of the seals was outrightly rejected by the Court. It should however be noted that DLE had specifically agreed to perform those duties, which it was ultimately held to have breached, and thus it may be argued that the Court's findings are limited to the facts of this case. The Court in relying on the obiter conclusion in Payton -v- Brooks [1974] RTR 169 held that a plaintiff is entitled to claim for loss of value as well as the cost of remedial work. This is an important principle as it allows a claimant to claim the residual difference in value after carrying out the best and most economical repair that can be performed. Hall & Tawse South Limited -v- Ivory Gate Limited Official Referees' Business Facts The Defendant was the owner of premises at 34-40 Jermyn Street and the employer of the Plaintiff, the Main Contractor. At the time of the hearing of the dispute, the beginning of August 1997, the work (the extensive refurbishment and redevelopment of office premises) was near to achieving practical completion. However, the parties were in dispute as to the contract terms that governed the work and as to whether an arbitration clause was incorporated into or related to the parties' contractual relationship. Issues and findings What documents and what terms formed the provisional contract entered into by the parties? It was held that the contract made by the Plaintiff's acceptance by conduct of the Defendant's offer consisted only of a letter sent to the Plaintiff on 23 October 1996. What obligations/entitlements can be inferred/implied from this Letter of Intent? Was this provisional contract subject to an arbitration clause? On the facts no. Could an arbitration clause be found to be effective on the grounds that it was incorporated by reference? On the facts no. Which Arbitration Act applied? The 1979 Arbitration Act because the action was commenced before 31 January 1997, even though this issue was not raised in a pleading until after 31 January 1997. Commentary This case provides a useful summary of some of the problems, which can arise when arrangements, which were intended to be provisional and temporary, turn out to be permanent. In such cases much will turn on the wording of the Letter of Intent. The case reinforces the traditional analysis of contract formation, which requires an unequivocal offer, or expression of willingness to contract, for acceptance by conduct to occur. The case also provides a Commentary on some of the ways in which parties' intentions as regards payment (or other potential obligations) can be established from the parties' initial intentions as expressed in tenders and other pre-contractual documents but also can be varied or adapted subsequently by conduct. Court of Appeal, Ward LJ, Scheiman and Beldam LLJ Facts The plaintiff was an engineer, and also a dealer in land and a property developer. The defendants were solicitors. The plaintiff owned some land subject to a restrictive covenant which purported to prevent him from erecting more than 4 residential flats on the land; that covenant could have been but was not registered as a class D(ii) land charge. Mr. Hartle acquired the neighbouring land and wished to develop it. He proposed a development of 14 flats and garages, and obtained planning permission subject to the resolution of potential difficulties with the discharge of surface water. The market was buoyant at that time, and Mr. Hartle was offered £400,000 for the land by Berkeley Homes, again subject to resolution of the surface water drainage issue. The defendant solicitor was instructed to deal with the conveyancing, and reminded Mr. Hartle of the restrictive covenant. He failed to advise that the restrictive covenant was unenforceable unless registered, but instead negligently advised an approach to the beneficiary of the covenant, Rhodaus. Immediately upon being contacted Rhodaus registered the charge, and began a very tough negotiation to take full advantage of the ransom effect of the covenant. Mr. Hartle eventually agreed to pay £35,000 for the release of the restrictive covenant, but by then, Berkeley Homes had withdrawn their offer of £400,000. Mr. Hartle eventually sold the property for £150,000. Issues and findings How should the Court approach the uncertainties of what would have happened if Rhodaus had not been alerted to the potential sale? The Court made a detailed examination of the various possibilities, and found that there was a substantial chance that Mr. Hartle would have been able to have sold the property for £375,000. The court assessed that chance at 60%. Was the plaintiff to be prevented from recovering such damages as reflected the fall in the value of the market? No; South Australia -v- York Montague (the Appeal from Banque Bruxelles Lambert -v- Eagle Star Insurance) considered. Was Mr. Hartle entitled to compound interest by way of damages? Yes, under the second limb of Hadley -v- Baxendale; La Pintada applied. Was Mr. Hartle entitled to damages for distress? No. Applying Watts -v- Morrow, the retainer of a solicitor on the sale of a commercial property is not a contract. whose object is to provide pleasure, relaxation, piece of mind or freedom from molestation. What rate of statutory interest should be awarded on items of special damage? Statutory interest was awarded at the commercial rate of 1% over base rate. Commentary The doctrine whereby courts may award damages for loss of a chance has seen something of a resurgence recently. In John Barker -v- London Portman Hotel for example the court awarded the contractor damages for its loss of a chance of achieving payment pursuant to an acceleration agreement. This application was markedly different from the leading case on loss of chance, Chapman -v- Hicks, in which the defendants breach prevented the plaintiff Miss Chapman from participating in a beauty contest, which it was found that she had a chance of winning. There may well be circumstances in which the doctrine may considerably ease the burden of proof on a plaintiff, or assist a plaintiff in circumstances where all sorts of things might or might not have happened but for the breach of contract. Much less obvious is the effect that the doctrine can, we now see, have on damages where there has been a fall in the value of the market. It was widely thought, following the successful appeal from the Court of Appeal decision in Banque Bruxelles Lambert in the House of Lords decision of South Australia -v- York Montague, the damages were not recoverable in so far as they resulted from a fall in the value of the property market. In this case, the lion's share of the loss would not have occurred but for the fall in the market, and it is not entirely clear why a distinction in this regard should be drawn between a case against a negligent solicitor, which can be put on the basis of loss of chance, and a case against a negligent valuer. The overall approach to the merits of this case is of some interest. There was never, it seems, in dispute that the plaintiff had made a promise to Rhodaus in the terms of the restrictive covenant, and in that sense, all the defendant solicitor had done by warning Rhodaus of the sale was to lose the Plaintiff the opportunity of stealing a march on Rhodaus. Less unusual is the way that the Court of Appeal dealt with damages for inconvenience and interest. HM Secretary of State for Foreign and Commonwealth Affairs -v- The Percy Thomas Partnership (a firm) HM Secretary of State for Foreign and Commonwealth Affairs -v- Kier International Limited Official Referees' Business Facts The Plaintiff ("FCO") engaged the Percy Thomas Partnership ("PTP") as Architect and Kier International Limited ("Kier") as main contractor to build a new British Embassy in Amman, Jordan. The building work was substantially completed in 1987 and the building was found to have severe leaks. It was not clear whether this was due to defects of workmanship or of design. FCO served notice of arbitration on PTP in April 1992 and on Kier in September 1993. In April 1996, FCO issued an originating summons seeking the appointment of an arbitrator in both sets of proceedings pursuant to section 10(1) of the Arbitration Act 1950. The summons was amended in November 1997 to add a request for declarations that there were valid and enforceable arbitration agreements, differences or dispute had arisen and valid notice to refer had been given. Issues and findings Were arbitration agreements incorporated into the relevant contracts? On the facts and as a matter of law, yes. Modern Building Wales -v- Limmer and The Annefield applied. Judgment of Sir John Megaw in Aughton -v- Kent not applied. Had a dispute or difference or (in the case of Kier only) question arisen at the time of the notice to refer? On the facts, a dispute had arisen in both cases. Had the procedures required by the Arbitration Act 1950 and the arbitration agreements been complied with? In the case of Kier, yes. In the case of PTP, no. Should the Court exercise its discretion in favour of FCO to make an appointment under section 10 of the Arbitration Act 1950? On the ground of delay, no. Commentary This finding follows Roche Products -v- Freeman (1996) CILL 1171 in declining to apply Ben Barrett -v- Boot. It must now be taken that an arbitration clause will be incorporated by reference unless manipulation of that clause would be required to suit the circumstances. Of more interest was HHJ Bowsher QC's refusal to appoint an arbitrator due to FCO's failure to "pursue the claim with vigour". FCO sought to excuse the delay on the basis that without prejudice discussions were taking place. Claimants should note that this was not found to be an adequate excuse. As HHJ Bowsher QC noted, if FCO had pursued its claim "some greater urgency might have been given to the following negotiations". Inserco Limited -v- Honeywell Control Systems Limited (1998) Court of Appeal Facts The Plaintiff (Inserco) was engaged by the Defendant (Honeywell) to wire and connect up the systems which Honeywell had supplied to Olympia & York for the Canary Wharf development. Work began in 1990. The parties had worked together before and there existed a relationship of trust and confidence. Little attention was given to defining contractual terms, though it appeared that Inserco's remuneration was to be calculated on a re-measurement basis. By February 1991 the relationship between the parties was deteriorating and Honeywell was under pressure to complete the contract by 1 April 1991. New terms were negotiated for completion of the works, involving Inserco expecting to receive a sum of £1.819 million and an assessment of the cost of finishing the work in hand. To assist cash flow, Inserco were also to be paid weekly sums by reference to the men on site. Remuneration would no longer be by re-measurement but on a cost plus basis. The April date was missed and by May 1991 Honeywell had stopped paying Inserco, arguing that their work was capped at £1.819 million and that any extras would be differentiated and made the subject of precise record. They further argued that remuneration should, after all, be on a re-measurement basis. Inserco brought proceedings, including a preliminary issue. At trial Inserco were awarded half their claim and Honeywell's counterclaim was dismissed. Honeywell appealed, contending that the Judge had made a global cost award in circumstances well outside the limits set by Donaldson J. in Crosby -v- Portland UDC. Issues and findings Was this a Crosby case? On the Facts, no. Inserco were entitled to be paid upon a total cost basis in accordance with the parties' agreement. Did Inserco's pleaded case provide sufficient agenda for trial? Yes. Commentary Contrary to various commentaries from the first instance decision, the Court of Appeal have now clarified that this was strictly not a global approach case as formulated by Mr. Justice Donaldson in J Crosby & Sons Limited -v- Portland. It remains the case that Crosby is very much a long stop and cannot be relied upon in the vast majority of cases. That said, the Courts are not prepared to shoot down in flames pleadings which impart sufficient fact about a case for there to be an agenda for trial. As an aside it would appear that closer scrutiny of Judge Humphrey Lloyds' judgment shows the result whilst particular to the facts was within the Donaldson test in Crosby. A point on which Mr. Reese Q.C. does not disagree. The case raises a number of important issues in relation to bad points being taken by Defendants for purely tactical reasons and demonstrates that Judge Humphrey Lloyd Q.C. was entirely justified in the findings he made on the parties indelicate contractual arrangements. Court of Appeal, Simon Brown LJ, Morritt LJ and Sir Brian Neill Facts Mrs. Machin agreed to purchase from Mr. and Mrs. Adams a large property in St Austell for use as a care home for the elderly. Mr. Adams was an experienced builder, and agreed as part of the transaction to carry out certain specified works of alteration and extension. The contract provided for an architect to be appointed by the parties, and to certify a final certificate. No architect was appointed under the contract; instead Mr. and Mrs. Adams retained in the first instance an architectural technician to obtain building regulation consents, and then, through him, Mr. Bannister, an architect (the appellant in this appeal). Mr. Bannister was not informed of the contractual provisions governing the sale of the property. After exchange of contract there were delays in the work. Mrs. Machin and Mr. and Mrs. Adams made a series of supplemental agreements postponing the date for completion, including provision for retention from the purchase price if Mr. Bannister should not certify that the works had been satisfactorily completed. Mr. Bannister was not made aware of these further supplemental agreements. On 13th January 1993, after the supplemental agreements but before completion of the transaction, Mr. Bannister was asked by Mrs. Adams to write a letter to her; he did so confirming that there was about 2 weeks worth of work then to go, that works to that date were of a satisfactory standard and that he estimated a further sum of £25,000 was required to complete. Following completion, Mrs. Machin sued both Mr. and Mrs. Adams (that action was later settled) and Mr. Bannister on the basis that there were defective works requiring rectification at a cost of £35,000, and £100,000 estimated loss of profits in that the defects had delayed the registration of the Nursing Home. At first instance, His Honour Judge Overend, sitting as an Official Referee, had found that Mrs. Machin had relied upon Mr. Bannister's letter of 13th January 1993, and that a duty of care existed. The Court of Appeal found that, as a matter of fact, Mrs. Machin did not rely on that letter, but went on to consider the question of whether Mr. Bannister owed a relevant duty of care to Mrs. Machin. Issues and findings Did Mr. Bannister owe a relevant duty of care to Mrs. Machin? No. Commentary It is not uncommon for architects or engineers to be asked to issue certificates or even just letters which they know are to be used for some purpose or the other, but without being given full details. Sometimes such certificates and letters may be required for the purpose of bonds, fit-out arrangements with tenants, and a multitude of other commercial arrangements surrounding construction works. Although the professional instinct of architects and engineers may be to decline to issue such certificates or opinions in case of doubt, the commercial pressure that is sometimes applied by their clients to so issue can be very substantial. What legal risk does an architect or engineer run that some third party, of whom he may never even have heard, will bring a claim against him on the basis of reliance upon the certificate or opinion? In this case, the architect was found liable at first instance, but escaped liability in the Court of Appeal. The interesting feature of this judgment is not so much the finding that Mrs. Machin did not rely upon the advice (a finding which turned on the particular facts) but that no relevant duty of care existed. Ironically, it seems that the less the architect or engineer knows about the purposes for which this certificate or opinion is required the safer he will be. It would be a mistake to see this case as encouraging architects or engineers to stick their necks out. It is worth bearing in mind that these cases are founded upon liability in Hedley Byrne -v- Heller, and that such liability can be negated by the advisor adding a final line to his advice to the affect that the advice is given to his client only, and that the advisor accepts no responsibility to any other person. Matthew Hall Ortech Limited -v- Tarmac Roadstone Limited Official Referees' Business Facts Tarmac engaged Matthew Hall in respect of works relating to the construction of a process plant for crushed aggregate. The form of contract was the Institution of Chemical Engineers Model Form of Conditions of Contract (1981 revision) commonly known as the "Red Book" (MF/1). Tarmac brought proceedings against Matthew Hall making allegations of inadequate design and workmanship relating to the construction of certain steel bunkers forming part of the plant. The matter proceeded to arbitration and Matthew Hall argued that Tarmac ought to have issued a Final Certificate in accordance with Clause 38.5 of the contract and that by operation of Clause 38.5 the issue of such a certificate would constitute conclusive evidence that they had completed their works and made good all defects therein in all respects in accordance with their obligations under the contract. By his first interim award the Arbitrator held that whilst Tarmac were in breach in not issuing the Final Certificate even if the Final Certificate had been issued it would not have acted as a bar to either of Tarmac's claim in contract or tort in circumstances where the rectification work to defects had not been fully carried out by Matthew Hall. Matthew Hall sought leave to appeal and following leave to appeal being granted by His Honour Judge Havery QC the substantive appeal was heard by His Honour Judge Thornton QC. Issues and findings Does Clause 38.5 of MF/1 provide a conclusive evidential bar to claims both in contract and tort? Yes. Were Tarmac prevented from bringing their present claims in contract or alternatively in tort by reason of their failure to issue a Final Certificate? On the facts of this case, yes. Commentary There is little reported authority concerning MF/1 which is widely used in process engineering projects although next month in CILL the decision in Strachan and Henshaw -v- Stein Industrie (UK) Limited concerning this contract will be reported. The Judge's decision as to the effect of the issue of a final certificate under Clause 38.5 of MF/1 is consistent with the Court of Appeal's decision in Crown Estate Commissioners -v- John Mowlem & Co. CILL 1994 988 concerning the effect of the issue of a final certificate under JCT 80. That case caused some considerable concern within the building industry and no doubt similarly the decision of His Honour Judge Thornton QC will cause concern within the process engineering industry and in particular those entrusted with the issue of the Final Certificate. Central to the Judge's reasoning was the interpretation of the expression "the Works" which is not confined to just the physical construction of work on site but extends to all services to be performed by the contractor on or off site under the contract. In a detailed judgment running to some 30 pages, the Judge considers the natural meaning of the relevant contractual provisions and then considers in considerable detail the commercial context of the Final Certificate provisions by reference to the entire contractual matrix. Mellowes Archital Limited -v- Bell Projects Limited Court of Appeal Facts The Respondent engaged the Appellant as subcontractors under DOM/1. The Appellant issued an application for summary judgment in respect of monies due under two interim certificates. The Respondent claimed against the Appellant's substantial additional costs incurred by reason of alleged delay on the part of the Appellant. The losses, if established, it was agreed were sufficient to extinguish the whole of the Appellant's claim. The Official Referee held at first instance that the losses could not be asserted by way of set-off against the claim because the provisions of Clause 23.2 of DOM/1 had not been complied with by the Respondent. However, the Official Referee held that for the purposes of the application for Summary Judgment the claim in respect of delay did raise an arguable defence to the claim not as a matter of set-off but as a matter of abatement. Issues and findings Did the claim in respect of delay raise an arguable defence claim to the claim for an interim payment if the delay claim could not characterise as a matter of set-off but as a matter of abatement? No. Commentary The recent decision of Barratt Steel -v- AMEC Construction, given in chambers, confirmed that failure on the part of AMEC to comply with the set-off provisions in DOM/2, did not prevent AMEC from relying upon a defence of abatement in respect of the loss in remedying defective work. These two decisions confirm the distinction between clearly quantifiable breaches of contract such as defects and incomplete work as opposed to delay. Nicholas Hare -v- Broadway Developments Limited Official Referees' Business Facts An Arbitrator awarded against the applicant a sum in respect of taxed costs. The respondent subsequently entered judgment for this sum plus interest on that sum representing interest on those costs from the date of the Arbitrator's final award to the date judgment was entered. The applicant argued that under Section 20 of the Arbitration Act 1950 interest on the costs did not begin to accrue until judgment was entered for the amount of the costs or alternatively until the Arbitrator quantified the sum due by way of costs to the respondent on his taxation. Issues and findings From what date should interest on costs be payable? From the date of the actual award of costs even if that sum is yet to be quantified. Commentary The time period between an Arbitrator's Award as to costs and the date that those costs are actually quantified can often be significant. It must therefore be right that interest on those costs should accrue from the date of the actual establishment of a parties' liability for costs as opposed to the date of their quantification. Phillips Petroleum Company (UK) Limited and Norsea Pipeline Limited -v- IT Corporation Limited and Flaretc Alloys & Equipment Official Referees' Business Facts The First Plaintiff, Phillips, were operators of an oil terminal. The contract concerned the design manufacture and delivery of an oil flare tip. Phillips brought proceedings for damages for breach of contract against IT Corporation Limited. The second Plaintiff, Norsea, was joined late in the action. The flare tip proved not to be of merchantable quality, of poor material and otherwise defective in that during operation the gas flame at the tip blew back into the tip creating "hot spots" and the eventual degradation of the flare tip which had to be replaced. The Plaintiffs claimed damages for the excess steam the defective product demanded plus damages for the repair and replacement of the flare tip. The Defendants' denied their obligation went beyond designing the tip to connect to the existing connections. It was argued there was no contractual obligation to install the flare Tip. The Defendants refuted the Plaintiffs' claims as to the causal reason for the failure of the flare tip which was ultimately found to be attributable to excessive heat due to the inadequacies of the design which allowed back burning to occur in high wind conditions. Much of the defence case concerned the argument that Phillips suffered no loss. The essence of the Defendants' case was that Phillips were the parties to the contract but could not recover for the breach because they were fully reimbursed for their outgoings by Norsea under an internal financial arrangement of the companies forming the co-venturers in the exploration of North Sea Oil. Issues and findings Did the fact that Phillips were reimbursed the monies it spent on the flare tip and other associated costs by Norsea mean that the loss caused was not suffered directly by Phillips? No. Was this an exception to the general rule in Dunlop -v- Lambert (1839)? Yes. Commentary This is an interesting case as to the resourcefulness of the Defendants' arguments put forward to deny liability in relation to obligations as to fitness for purpose and overall design responsibility. Ultimately it lost. The decision is however most noteworthy as it represents a further direct application of the rule in Dunlop -v- Lambert, a matter already recognised in recent building contract cases as highlighted in the speech of Lord Browne-Wilkinson in St Martins' Property Corporation -v- Sir Robert McAlpine, Linden Gardens Trust Limited -v- Lenesta Sludge Disposals Limited and Darlington -v- Wiltshier. Whilst in the present case His Honour Judge Newman QC found as matter of contract that the first Plaintiff had suffered the loss it nevertheless goes to show that whilst it remains the law that the Defendant/Respondent is only liable for such loss as was at the time of the contract reasonably foreseeable as likely to result from the breach, it now seems that the range of foreseeable and thus recoverable loss can in certain circumstances extend to third party losses. A point supported recently by the Court of Appeal in Alfred McAlpine Construction Limited -v- Panatown Limited. It seems that the Courts are prepared to recognise the interfunding intricacies of commercial life and allow a Plaintiff to recover what is arguably the loss of another party in circumstances where the Defendant had knowledge of the true commercial inter relationships. It is perhaps a further useful example of the willingness of the Courts sometimes to be prepared to step outside the privity rules. It is another warning shot that the Courts will act to avoid demonstrable unfairness which no rationale legal system should tolerate. It is a timely reminder of the now less than sacrosanct law of privity. Rackline Limited -v- The National Library of Wales Official Referees' Business Facts The National Library of Wales wanted to extend its premises at Aberystwyth. Before entering into a main contract in the GC/Works/1 form, it obtained tenders from subcontractors for the purposes of the shelving. The tender documentation invited the tenderers to submit three distinct tenders: one for the design of the shelving system to be installed, one for the supply and installation of the shelving as a subcontractor under Clause 62 of the main contract, and one for the on-going maintenance of the shelving when installed. Rackline tendered £20,000 for the design work, £2,623,596 for the actual supply and installation, and gave rates for the ongoing maintenance. Rackline qualified their bid in the following terms:-
At a "pre-let" meeting between Rackline and the Library's professionals, the following wording was agreed.
Rackline's bid was accepted, and a formal contract was executed for the design work; that contract was duly executed. Trafalgar House was appointed as the main contractor, but Rackline and Trafalgar House failed ever to reach agreement as to the programme for the supply and installation of the shelves and Trafalgar House placed the subcontract for supply and installation with another sub contractor. Rackline sued the Library. Issues and findings Was the Library under any contractual obligation that Rackline would get the work? No. Commentary It is easy to see why the plaintiff's subcontractor should have felt aggrieved here. It had plainly invested considerable resources in the design work (including the construction of the first section of shelving by way of prototype), and its eventual failure to secure the work seems to have been the fault of the procurement system prescribed by the Library. In the event, however, the subcontractor was unable to identify a cause of action. Strachan & Henshaw Limited -v- Stein Industrie (UK) Limited and GEC Alsthom Limited Court of Appeal Facts Strachan & Henshaw, the Respondents to the appeal were engaged as subcontractors by Stein UK, the Appellants for work relating to the installation and commissioning of certain heat recovery systems generators (HRSG's) in relation to the construction of a combined cycle gas turbine power station on behalf of National Power plc. GEC Alsthom were engaged as the Main Contractor. The subcontract between the Appellants and the Respondent was the Model Form general Conditions of Contract (MF/1). Under the subcontract the Respondents were required to employ 150 workmen and arrangements had to be made for the provision of facilities for these workmen to clock in and clock out and for their meal breaks. Originally the Respondent's tea cabins were located in close proximity to where the operatives were to be working. There were pre-contract discussions between the parties and it was clear that the Respondents raised the issue of the location of such cabins as a matter of importance to avoid productivity losses occasioned by "walking time". Shortly after commencement on site the main contractor gave instructions that the tea cabins were to be removed. In complying with this instruction the Respondents re-installed the cabins some ½ mile from the HRSGs. The Respondent calculated that this resulted in productivity losses in the region of some £1.6 million. The claim was referred to arbitration and subsequently on appeal to His Honour Judge Newman QC. The Official Referee held that Condition 27 defining variations did apply to the Respondent's claim and also held that Condition 44.4 of the subcontract would not bar any claim by the Respondents for breach of Contract. It was on these two main issues that the Appellants appealed. Issues and findings Did the instruction requiring the cabins to be sited in the compound ½ mile away from the workplace constitute a Variation under Condition 27? On the facts of this case, no. Does Condition 44.4 of MF/1 bar claims for damages for breach of Contract and Misrepresentation? Yes. Commentary The Court of Appeal has upheld Mr. Tackaberry QC's findings as arbitrator that the natural meaning of Condition 44.4 of MF/1 does constitute a bar on a parties' right to bring claims outside of MF/1 by way of a claim for breach of contract or misrepresentation. Accordingly under MF/1 the contract provisions are exhaustive of the parties' rights to claim additional monies. Mr. Twigg QC appearing on behalf of the appellant pointed out that there were in fact 33 provisions within MF/1 allowing claims of different sorts being made by one or other of the parties, and that accordingly the parties must have intended to exclude claims for damages outside the Contract. Therefore it is clear that as a result of this decision in bringing a claim under MF/1 the parties must frame their claims within the meaning of MF/1 and an alternative claim for damages for breach of contract will not assist their position. In the alternative the Respondents attempted to bring a claim for a variation under Clause 27. The Court of Appeal rejected the contention that the instruction to relocate the site cabins was due to a variation drawing a distinction between the actual work to be done by the subcontractor under the Contract and the actual arrangements made by the contractor to carry out that work. Tarmac Construction Limited -v- Esso Petroleum Co. Limited Official Referees' Business Facts Esso entered into a contract with Tarmac for Works at a motorway service area next to the M25. The Contract was substantially in the form of ICE Conditions (5th Edition) but with amendments to Clause 60 and a re-write of Clause 66. Disputes arose, inter alia, as to time and money. Contractual provision Clause 66 was substituted by the following:-
Issues and findings Upon a true construction of Clause 66, did the court have jurisdiction to substitute its own decisions for decisions, opinions, instructions, directions, certificates and valuations of the Engineer? Distinguishing NRHA -v- Crouch, yes. In addition to deciding this key issue, the court also considered questions concerning implied terms, the detailed nature of decisions capable of being revised by the court, estoppel arguments etc. Commentary As so often in these cases, the question of whether the court will undertake a review role is approached both as a matter of principle, and as a matter of analysing the particular contractual arrangements in question. In this case the "de-crouching" arrangements were such as to leave open the court's power of review; on one analysis, this decision turns upon the particular wording in this contract. However, the thoughtful analysis in this case is such that it cannot be regarded as a "one off" decision. Of particular interest is Judge Lloyd's analysis of the approach adopted by the Court of Appeal in Balfour Beatty -v- Docklands Light Railway (CILL 1143). In that case, the Court of Appeal did not go down the track of assuming a right to review Engineer's decisions, but instead adopted a concession made by the Employer in that case that it had a duty, when certifying, to act honestly, fairly and reasonably. This test gets close to a review function, such that if the court finds that the certification is not reasonable, then it can award damages for breach of contract equivalent to the amount that should have been certified. In this judgment, Judge Lloyd described this process as inevitably leading "to a trial within a trial" which would serve no useful purpose. The practice whereby parties seek to disable the arbitration clauses in their contracts shows no sign of waning, and there are likely to be other cases in the future in which the parties seek to "de-crouch" their contracts without making it clear whether the court is to have the same powers of opening up certificates that an arbitrator would have had. The moral of this case, and the earlier decisions of Balfour Beatty -v- Docklands Light Railway and John Barker -v- London Portman Hotel, is that, by one route or the other, the courts are likely to find a way of themselves overseeing the certification process. However, the arguments adopted by Judge Lloyd to overcome Crouch are no longer necessary following the House of Lord's decision in Beaufort Development (NI) Limited -v- Gilbert Ash (NI) Limited and Others. Turner Page Music Limited -v- Torres Design Associates Limited Official Referees' Business Facts The plaintiff company engaged the defendants to provide design and other professional services in connection with the re-development of the Shepherds Bush Empire cinema. The contract prices agreed with the contractor were £467,140 (later re-agreed at £450,000) for the building work itself; there was a separate contract for the M and E work. Following completion, which was a week after the contractual date, the defendant issued a final certificate for £642,994.22, making a final cost for the work, including the M and E work, of £827,000. The plaintiff was by then in financial difficulties and after various negotiations, sold the theatre to the Break for the Border Group for £2.85 million. The plaintiff sued, complaining of a number of breaches of duty on behalf of the defendant in the performance of the latter's professional duties in designing, costing, letting, supervising and certifying the works carried out by the contractor. Issues and findings Had the Defendant given a warranty as to what the work would cost? No. Was the plaintiff entitled to recover in tort? No. The measure of damages in tort is not the same as that for breach of warranty, and there was no plea or proof of the damages recoverable in tort. Was the plaintiff entitled to recover on the basis of an implied warranty that it would use skill and care to ensure the works were accomplished for the budgeted sum? No. For such a claim, it cannot suffice simply to point to the eventual cost. The plaintiff could not succeed without pleading and proving lack of due care and skill in specific respects and consequent loss. Could the plaintiff recover damages for the defendant's undoubted breach in failing to produce a Bill of Quantities? In this case, no. No evidence was adduced that the absence of a Bill of Quantities caused any identifiable loss. Could the doctrine of abatement be applied to reduce the amount of fees due to the defendant? Distinguishing Hutchinson -v- Harris, yes. There there were two concurrent causes of the plaintiff's need to sell, should the court apply a but for test, or a predominant cause test? Of the two, a predominant cause test would be preferable, but on the facts the question did not arise, firstly because there would be no difficulty in principle in apportioning the loss between the two causes, but more fundamentally, the loss occurred after the natural date for the assessment of damages. As such, it was to be compensated for by interest, not further damages. What was the natural date for the assessment of damages in this case? The date of the final certificate. What is the appropriate measure of damages where an architect negligently certifies defective work? On the facts of this case, it was the amount of the over certification. Was it negligent for the defendant to certify one weeks additional preliminaries? In this case, yes, because there had been no written application for loss and expense, and hence there could be no valid award. What is the proper approach to damages for defective design? This depends on the nature of the complaint. Where the design fault resulted in work which should not have been done at all, then damages will be the cost of that work. If necessary work was not specified, the damage is the increasing cost resulting from having the work done as an extra rather than as part of the main contract work. Was it negligent of the defendant not to have designed for adequate means of escape? Yes. The defendant's contention that refusal of Building Regulation approval is a routine experience rejected. How was the plaintiff to be compensated for the additional and improved fire exits being provided by way of variations rather than originally required contract work? In this case, a formula approach was adopted, that the likely increase in price is 1/3, so that Ό of the price actually paid was the measure of damages. Was the plaintiff entitled to recover for loss of ticket sales, not withstanding that it was apparent that the plaintiff had failed to give proper discovery of its records? Yes, but only 2/3 of the sum claimed was allowed. Was the plaintiff entitled to recover damages for management time of its Managing Director? No, because he was not a salaried employee of the plaintiff. Commentary This judgment contains a remarkable variety of points on how legal principle should be applied to a case against an architect for negligent performance of his duties. The approach to the question of breach of warranty as to cost is somewhat unconventional, and does not sit happily with the conventional approach established by Esso -v- Mardon. In that case, the warranty was characterised, not as a guarantee that the estimate would be realised, but a promise that the estimate was a sound and reliable estimate. Further, it was said in Esso -v- Mardon that the measure of damages for estimate cases is the same whether the case be put by way of breach of warranty or negligent misrepresentation (as it was then called) i.e. the tortious measure. It is notable that the Judge in this case took a fairly stringent view about matters of pleading and proof. He does not, in his judgment, refer to the fashionable doctrine of damages for loss of a chance. The Judge's discussion of concurrent causation is tantalisingly short; this is an area of law which is often central in construction claims, particularly those relating to delay, and yet there is remarkably little guidance as to how the law is to be applied in a construction context. The Judge's conclusion that nothing was recoverable by the plaintiff for his forced sale was put on the basis of the appropriate date for the assessment of damages. A similar conclusion could perhaps have been reached by the less fashionable principle explained in the Liesbosch [1993] AC 449 i.e. that losses resulting from a plaintiffs' impecuniosity should be disregarded in the assessment of damages. The Judge seems to have become increasingly robust as he worked his way through what was evidently a lengthy Scott Schedule of items. An issue which frequently arises in cases against architects and construction managers is that they failed to include, within the contract works, all that was going to be necessary. It is widely accepted that work does end up costing more if procured by way of extra work, and the Judge's acceptance here of a broad brush approach represents a common sense solution. Also somewhat robust is the Judge's approach to the question of discovery. The Judge's reduction of the plaintiff's claim for loss of ticket sales was put on the basis that unaided recollection is less reliable than documentation, but some may inevitably read this aspect of the decision as something of a rap over the knuckles for the plaintiff in failing to give adequate discovery. VHE Construction Limited -v- Alfred McAlpine Construction Limited Official Referees' Business Facts The plaintiff subcontractors carried out works for the defendant main contractors for work at Swan Village, West Bromwich. Negotiations and/or discussions about the subcontract terms took place between 4th January 1993, and July 1993. In the meantime, the plaintiff started work on 7th January 1993. Issues and findings Was there a contract between the parties, and when was it formed? The contract had been formed in late February or early March, notwithstanding that there were subsequent discussions as to how certain items should be paid for. To what extent is it permissible to look at what was said in negotiations? An examination of the progress of negotiations is important in considering whether a contract has been formed, but contrary to principle to consider negotiations for the purpose of construing the terms a contract found to have been made. Commentary As pointed out by the Judge, it remains remarkably common for disputes to arise as to whether or not the parties have entered into a contract. This case illustrates an interesting point. Very often, one party or the other will point to continuing discussions or disagreements between the parties as to the contractual arrangements as showing that the parties have not reached agreement as to all of the contractual terms. What this case illustrates is that, in some circumstances, those discussions might be construed, not as continuing negotiations, but as disagreements as to the construction or effect of what has already been agreed. It may not always be so easy to distinguish between the two, for parties often proceed with their negotiations incrementally, referring to what they have already "agreed" long before the conclusion of their contractual arrangements. Similarly blurred is the distinction between the questions of whether an agreement has been reached, and what the terms of that agreement are. Evidence of negotiation is admissible for the purpose of the former and not the latter, but in practice it is difficult to see how these questions can be kept in water tight compartments. This case is not untypical in that the two questions were both asked and answered together. STOP PRESS QUICK FIRE LEGAL UPDATEInvestors Compensation Scheme Limited -v- West Bromwich Building Society [1998] 1 All ER 98 An extract from this case has been included because Lord Hoffman took the opportunity to restate the principles by which contractual documents are construed. The five principles set out are: (i) interpretation is the ascertainment of the meaning which the document would convey to the reasonable person who had all the background knowledge which would have been available to the parties at the time of the contract. (ii) The background is the "factual matrix". However, it will include anything which would affected the way in which the language of the document would have been understood by a reasonable man. (iii) Previous negotiations between the parties and the declarations of subjective intent are excluded from admissible background. (iv) The meaning which a document would convey to reasonable man is not the same as the meaning of its words. The meaning of the document is what the parties using those words against the relevant background would have understood them to mean. (v) Although, words should be given their natural and ordinary meaning, if, one concludes from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention they could not have had. Laing Management Limited -v- Aegon Insurance Company (1998) 55 Con LR 1 An attempt was made to terminate subcontract works pursuant to an express provision of the contract. Humphrey Lloyd QC held that the notice was neither an acceptance of a repudiatory breach nor an affirmation of the contract. Therefore the contract remained alive, although one party remained in repudiatory breach of contract. Therefore the Plaintiff was held to be entitled subsequently to accept the repudiation, terminate the contract and recover the additional costs of completing the subcontract works from the Defendant surety. Stocznia Gdansksa SA -v- Latvian Shipping Company [1998] 1WLR 574 A contractor can sue to recover a due but unpaid instalment where a contract is one for work and materials but not where the contract is a simple one of sale. Strathford East Kilbride Limited -v- HLM Design Limited (1997) SCLR 877 An architect does not owe duty of care to tenants of a client. The absence of any averment that the architect had assumed a responsibility to the tenants was fatal to the tenants' claim in negligence. Although a Scottish case, an attempt by the tenants to suggest that the Scottish Courts could rely on Commonwealth Authorities (for example, Inver Cargill CC -v- Hamlyn) failed with Lord Maclean saying that "Scottish law has not developed differently from English law in this field." Bernhards' Rugby Landscapes Limited -v- Stockley Park Consortium Limited a decision of Humphrey Lloyd QC A dispute arose as to jurisdiction. There was a clause in a construction contract providing for disputes to be referred to and settled by a construction manager. A Writ and Statement of Claim was issued. The Defendant applied, by RSC Order 12 rule 8, disputing the jurisdiction of the court. However the rule does not apply where an action is brought in apparent breach of an arbitration agreement because a court still has jurisdiction of the proceedings in that it has to decide whether there is an agreement and if so whether or not to enforce that agreement. Cathiship SA -v- Allansons Limited The Catherine Helen The case discusses circumstances in which an extension of time for commencing arbitration proceedings under Section 12 of the 1996 Arbitration Act would be granted. The grounds for the exercise of the court's discretion can be found in Section 3 of the Act. They are either: -
It was held that Section 3 is much more restrictive than its predecessor Section 27 of the 1950 Act. It was therefore not open to the court to extend time just because it concluded in general terms that it would be just to do so. The whole climate of extending time in arbitral proceedings has changed. Extensions are now very much the exception rather than the norm. The circumstances that need to be considered are all those placed before the court. Since the circumstances had to be "outside the reasonable contemplation" of the parties, the relevant time was restricted to the time when the parties agreed the arbitration clause and not some time later such as when/after the dispute arose. Also, the court had to look into the reasonable contemplation of both the parties, not merely one party. Further, the court was not concerned only with what the parties actually contemplated, but also what they reasonably would have contemplated. This would involve consideration of the relevant transaction or ordinary trade practices. Gbangbola and Another -v- Smith and Sheriff Limited After an arbitration, (pursuant to JCT Arbitration Rules), was conducted and a final award made, the Applicant appealed, challenging the Arbitrator's final decision on the ground, inter alia, that it contained ambiguities and/or uncertainties. The Respondent contended that by reason of section 57 of the Arbitration Act 1996 any ambiguities/discrepancies had first to be taken up with the Arbitrator. As the Applicant had not applied to the Arbitrator to correct these mistakes, the appeal was barred under section 70(2) of the 1996 Arbitration Act. The appeal was allowed. Although the matters complained of should have been taken up with the Arbitrator before the appeal was launched, the failure to do so did not have the effect of barring the whole of the appeal, since there was no reason why an award should not be severed. Those parts of the award which were unaffected by decisions on ambiguities/uncertainties should not have affect or be treated as unaffected. The Respondent's interpretation was not consistent with the principle set out in the Arbitration Act, that there should be a fair resolution of disputes. Recourse to section 57 necessarily postponed the time limits provided for in the Act and left an otherwise victorious party in uncertainty as to whether or not there would be a challenge to a part of the award which was otherwise clear and certain. Blue Circle Industries Plc -v- MOD Court of Appeal MOD's appeal against the Trial Judge's finding that there had been a breach of a statutory duty as imposed by section 7(1)(a) of the 1965 Nuclear Installations Act. MOD contended that before there could be a breach of statutory duty there had to be "damage to property" which arose out of or resulted from radioactive properties the physical and chemical properties of radioactive substances. Here, the MOD contended that it had not occurred, because the marshland affected by contamination following a storm in July 1989, had not been physically damaged by the radioactive properties as it was physically the same as before albeit mixed with a very small amount of plutonium. The radioactivity was not such as to cause harm. Neither had the properties of the soil changed. The fact that the house (the cause of the litigation was the fact that a prospective purchaser had understandably pulled out of the purchase of a manor house near the Atomic Weapons Establishment at Aldermaston with grounds worth approximately £10 million after disclosure only in January 1993 of the contamination incident) became less valuable was the result of the presence of radioactive material not the result of damage to the house from the radioactive properties of the material itself. The MOD's appeal was dismissed. The judgment contains a full examination of the law relating to nuclear installations. It was held that the physical damage to property was not limited to particular types of damage but would occur provided there was some alteration in the physical characteristics of the property, caused by radioactive property which rendered the property less useful or less valuable. The addition of plutonium to topsoil rendered the characteristics of marshland different with the result that it became less useful and less valuable, i.e. the estate was unsaleable until the contaminated soil had been removed. The damage was not mere economic damage nor parasitic damage, but was physical damage, since the land itself was physically damaged by the radioactive properties of the plutonium, even though its consequences were economic (i.e. the property was worth less and required the owner to expend money to remove the topsoil. Note also, damages were awarded on the basis of clean-up costs and the loss of a 75% chance of selling the estate. Ringway Roadmarking Limited -v- Adbruf Limited (ORB Esyr Lewis 22 May 1998) A contract for the supply of materials provided for termination in the event of change of ownership. The Defendant who was doing badly out of the contract attempted to alter its group structure by a series of share transfers to enable it to use this as a reason to get out of the contract. Esyr Lewis found that the meaning of the clause was ambiguous therefore it was necessary to seek out what the parties had intended it s purpose to be i.e. by looking at the Contract as a whole and the background to the deal. In fact nothing had happened to affect the operation of the contract. The directors were the same, the management was the same sand the holding company remained in control of the Defendant. Therefore there was no new ownership. Ron Jones (Burton on Trent) Limited -v- Hall and Another The parties entered into a building contract, incorporating the Standard JCT Conditions with Contractor's Design 1981 ed. Clause 39.5.1 provided for an Appeal to the High Court by consent on any question of law arising out of an award. Disputes arose, and the parties appointed an Arbitrator who made an interim award in favour of the Appellant. The Respondent appealed. The parties agreed to remit certain matters back to the Arbitrator setting out in a Consent Order the terms of the agreement. The Respondent indicated its intention to commence fresh arbitration proceedings concerning matters not dealt with in the first arbitration and to consolidate its set-off claim in the new proceedings. The Respondent therefore served a Notice of Discontinuance stating that its counterclaim would not be pursued in the first arbitration. The Appellant thus challenged the jurisdiction of the Arbitrator to make an award in relation to certain matters in the Respondent's Statement of Case contending that as a result of the Consent Order in the first arbitration, some of the heads of claim were res judicata. Judge Humphrey Lloyd QC allowed the appeal. Once a party has agreed to comply with procedural rules in an arbitration agreement, it could not without the consent of the other party withdraw a cause of action/defence with a view to prosecuting this in a separate proceedings. To allow a party to do so would be contrary to the principles underlining the doctrine of res judicata (see Lord Keith in Arnold -v- Natwest Bank (1991) 3 All 41) It is also incumbent on a party in an arbitration to bring forward with diligence the whole of the case that it wished to have considered; Clause 39.1 of the JCT Conditions envisaged a final and binding award on any dispute referred to an Arbitrator. Construction Law JournalBrunei LNG Sendirian Berhad -v- Interbeton BV and Others (Brunei) is discretion toward interest a matter of procedural or substantive law? It was held that where the parties were agreed that performance of a contract should be governed by the Laws of England, they therefore "clothed" the trial court in Brunei with all the powers given by English law. Therefore, interest should be awarded at the commercial rates applicable to the currency in which the debt was expressed. Engineering Construction PTE Limited -v- AG and Another (Singapore) on a termination, what is the meaning of "7 days from date of notice"? It was held that the 7 day period from date of termination commenced on the day after posting. On the facts, the target set by the Singapore Government to measure whether the Contract was proceeding with reasonable diligence was held to be not unreasonable. Therefore, although the notice of termination was invalid on the facts, if the Government were to have issued a further notice as soon as possible the Contractor could not have complied with it and was therefore only entitled to nominal damages. RSP Architects, Planners & Engineers -v- Ocean Front PTE Limited and Another (Singapore) This case discusses economic loss. Do Developers owe a duty of care to the Management Corporation of a development? It was found that the degree of proximity between the Developers and the Management Corporation was sufficient to give rise to a duty on the part of the Developers to take care to avoid causing any damage to the Management Corporation. The relationship was a close as it could be short of actual privity of contract. St Andrew's Motors (Darlington) Limited -v- Hill Amendment to Statement of Claim allowed even though the pleading "grossly" lacked proper particulars. The lateness of the amendment and the want of particulars did not justify refusal. The defendant was entitled to its costs occasioned by the amendment in any event. The defendant was not entitled to the costs of the action to date as it is clear there had been an error on the part of the defendant and (although no admission of negligence) the defendant had paid money into court. However, the lateness of the amendment and lack of particulars were highly material to the question of increasing the amount security for costs. Equally, the amendment meant that there was an increase in the costs to which the plaintiff would have to bear in any event. The plaintiff also failed to demonstrate it would be able to raise a further substantial sum by was of security. Therefore by reference to the balancing interests of the parties which it is necessary for a court to consider - see Keary Developments -v- Tarmac Construction 73 BLR, the amount of security was increased. Watts -v- Savills - Court of Appeal Surveyor's Negligence. The Court of Appeal, in allowing the defendant's appeal, affirmed that the question in such cases which must be answered by a trial judge is whether the hypothetical/ competent/ reasonable valuer could have given the advice/valuation given by the surveyor in question. Instead here, the judge looked to see whether the land in question had significant development potential. This was a question of opinion. By treating it as a question of fact, the judge allowed himself to be influenced by hindsight not by whether or not any reasonable competent valuer could have formed the view that the land had no development potential. Times Law ReportsDouglas -v- Glendale Industries Limited An employee who did not make it clear to his employers that he was leaving their employment because of their conduct towards him cannot by constructively dismissed for the purposes of S95 (I)(c) of the Employment Rights Act 1996. This is consistent with the general principle relating to repudiation whereby if you wish to rely on another's repudiation of a contract by conduct you must by words or conduct make it plain that you were accepting that repudiation. ECM (Vehicle Delivery Service) Limited -v- Cox and Others The Employment Appeal Tribunal held that where employees were dedicated to servicing a particular contract [here they were drivers and yardmen] without which they would have had no employment and that contract was transferred to a competitor of their employer, there was a transfer of an undertaking for the purposes of the TUPE Regulations. Therefore the transferee could not avoid the operation of the Regulations by refusing to take on the workforce. IM Properties plc -v- Cape & Dalgleish The Court of Appeal, overturning the judgment at first instance, ruled that Section 35A of the SCA 1981 did not empower a court to award interest on sums recoverable by a Plaintiff against a Defendant which were paid to the Plaintiff prior to the commencement of Proceedings. Total Gas Marketing Limited -v- Arco British Limited and Others Decision of the House of Lords in relation to the contract for the sale of North Sea Gas. Judgment contains a brief discussion about whether or not a clause in the contract was a condition precedent. Reference made to the fact that the use of the word "condition" is an indication, albeit not a conclusive one of the parties' intention. In the current case, it is felt to be a strong indication. THE OFFICIAL REFEREES' SOLICITORS' ASSOCIATIONORSA ADJUDICATION RULES - 1998 Version 1.2PROCEDURAL RULES FOR ADJUDICATION1. The following rules (i) may be incorporated into any contract by reference to the "ORSA Adjudication Rules", which expression shall mean, in relation to any adjudication, the most recent edition hereof as at the date of the written notice requiring that adjudication. (ii) meet the requirements of adjudication procedure as set out in section 108 of the Housing Grants, Construction and Regeneration Act 1996; Part I of the Scheme for Construction Contracts shall thus not apply. DEFINITIONS 2. In these Rules:- "Contract" means the agreement which includes the agreement to adjudicate in accordance with these Rules "Party" means any party to the Contract "Chairman" means the Chairman for the time being of ORSA" of the Official Referees Solicitors Association, or such other officer thereof as is authorised to deputise for him. COMMENCEMENT 3(i) These Rules shall apply upon any Party giving written notice to any other Party requiring adjudication, and identifying in general terms the dispute in respect of which adjudication is required. (ii) Within 7 days from the date of such notice, and provided that he is willing and able to act, any agreed Adjudicator under Rule 6 or nominated Adjudicator under Rule 7(ii) or replacement Adjudicator under Rule 8 shall give written notice of his acceptance of appointment to all parties. (iii) The date of the referral of the dispute shall be the date that the Adjudicator so confirms his acceptance. 4. Notice requiring adjudication may be given at any time and notwithstanding that arbitration or litigation has been commenced in respect of such dispute. 5. More than one such notice requiring adjudication may be given arising out of the same contract. APPOINTMENT 6. Where the Parties have agreed upon the identity of an adjudicator who confirms his readiness and willingness to embark upon the Adjudication within 7 days of the notice requiring adjudication, then that person shall be the Adjudicator. 7. Where the Parties have not so agreed upon an adjudicator, or where such person has not so confirmed his willingness to act, then any Party may apply to the Chairman of ORSA for a nomination. The following procedure shall apply:- (i) The application shall be in writing, accompanied by a copy of the Contract or other evidence of the agreement of the Parties that these Rules should apply, a copy of the written notice requiring adjudication, and ORSA's appointment fee of £100. (ii) The Chairman of ORSA shall endeavour to secure the appointment of an Adjudicator and the referral to him of the dispute within 7 days from the notice requiring adjudication. (iii) Any person so appointed, and not any person named in the Contract whose readiness or willingness is in question, shall be the Adjudicator. 8. The Chairman of ORSA shall have the power by written notice to the Parties to replace the Adjudicator with another nominated person if and when it appears necessary to him to do so. The Chairman of ORSA shall consider whether to exercise such power if any Party shall represent to him that the Adjudicator is not acting impartially, or that the Adjudicator is physically or mentally incapable of conducting the Adjudication, or that the Adjudicator is failing with necessary dispatch to proceed with the Adjudication or make his decision. In the event of a replacement under this Rule, directions and decisions of the previous Adjudicator shall remain in effect unless reviewed and replaced by the new Adjudicator, and all timescales shall be recalculated from the date of the replacement. 9. Where an adjudicator has already been appointed in relation to another dispute arising out of the Contract, the Chairman of ORSA may appoint either the same or a different person as Adjudicator. AGREEMENT 10. An agreement to adjudicate in accordance with these Rules shall be treated as an offer made by each of the Parties to ORSA and to any Adjudicator to abide by these Rules, which offer may be accepted by conduct by appointing an Adjudicator or embarking upon the Adjudication respectively. SCOPE OF THE ADJUDICATION 11. The scope of the Adjudication shall be the matters identified in the notice requiring adjudication, together with (i) any further matters which all Parties agree should be within the scope of the Adjudication, and (ii) any further matters which the Adjudicator determines must be included in order that the Adjudication may be effective and/or meaningful. 12. The Adjudicator may rule upon his own substantive jurisdiction, and as to the scope of the Adjudication. THE PURPOSE OF THE ADJUDICATION AND THE ROLE OF THE ADJUDICATOR 13. The underlying purpose of the Adjudication is to resolve disputes between the Parties that are within the scope of the Adjudication as rapidly and economically as is reasonably possible. 14. Decisions of the Adjudicator shall be binding until the dispute is finally determined by legal proceedings, by arbitration (if the Contract provides for arbitration or the parties otherwise agree to arbitration) or by agreement. 15. Wherever possible, the decision of the Adjudicator shall reflect the legal entitlements of the Parties. Where it appears to the Adjudicator impossible to reach a concluded view upon the legal entitlements of the Parties within the practical constraints of a rapid and economical adjudication process, his decision shall represent his fair and reasonable view, in light of the facts and the law insofar as they have been ascertained by the Adjudicator, of how the disputed matter should lie unless and until resolved by litigation or arbitration. 16. The Adjudicator shall have the like power to open up and review any certificates or other things issued or made pursuant to the Contract as would an arbitrator appointed pursuant to the Contract and/or a court. 17. The Adjudicator shall act fairly and impartially, but shall not be obliged or empowered to act as though he were an arbitrator. CONDUCT OF THE ADJUDICATION 18. The Adjudicator shall establish the procedure and timetable for the Adjudication. 19. Without prejudice to the generality of Rule 18, the Adjudicator may if he thinks fit:- (i) Require the delivery of written statements of case, (ii) Require any party to produce a bundle of key documents, whether helpful or otherwise to that Party's case, and to draw such inference as may seem proper from any imbalance in such bundle that may become apparent, (iii) Require the delivery to him and/or the other parties of copies of any documents other than documents that would be privileged from production to a court, (iv) Limit the length of any written or oral submission, (v) Require the attendance before him for questioning of any Party or employee or agent of any Party, (vi) Make site visits, (vii) Make use of his own specialist knowledge, (viii) Obtain advice from specialist consultants, provided that at least one of the Parties so requests or consents, (ix) Meet and otherwise communicate with any Party without the presence of other Parties, (x) Make directions for the conduct of the Adjudication orally or in writing, (xi) Review and revise any of his own previous directions, (xii) Conduct the Adjudication inquisitorially, and take the initiative in ascertaining the facts and the law, (xiii) Reach his decision with or without holding an oral hearing, and with or without having endeavoured to facilitate an agreement between the Parties. 20. The Adjudicator shall exercise such powers with a view of fairness and impartiality, giving each Party a reasonable opportunity, in light of the timetable, of putting his case and dealing with that of his opponents 21. The Adjudicator may not (i) Require any advance payment of or security for his fees (ii) Receive any written submissions from one Party that are not also made available to the others (iii) Refuse any Party the right at any hearing or meeting to be represented by any representative of that Party's choosing who is present, (iv) Act or continue to act in the face of a conflict of interest (v) Require any Party to pay or make contribution to the legal costs of another Party arising in the Adjudication 22. The Adjudicator shall reach a decision within 28 days of referral or such longer period as is agreed by the Parties after the dispute has been referred to him. The Adjudicator shall be entitled to extend the said period of 28 days by up to 14 days with the consent of the Party by whom the dispute was referred. ADJUDICATOR'S FEES AND EXPENSES 23. If a Party shall request Adjudication, and it is subsequently established that he is not entitled to do so, that Party shall be solely responsible for the Adjudicator's fees and expenses. 24. Save as aforesaid, the Parties shall be jointly responsible for the Adjudicator's fees and expenses including those of any specialist consultant appointed under 19(viii). In his decision, the Adjudicator shall have the discretion to make directions with regard to those fees and expenses. If no such directions are made, the Parties shall bear such fees and expenses in equal shares, and if any Party has paid more than such equal share, that Party shall be entitled to contribution from other Parties accordingly. 25. The Adjudicator's fees shall not exceed the rate of £1000 per day or part day, plus expenses and VAT. DECISIONS 26. The Adjudicator may in any decision direct the payment of such compound or simple interest as may be commercially reasonable. 27. All decisions shall be in writing, but shall not include any reasons. ENFORCEMENT 28. Every decision of the Adjudicator shall be implemented without delay. The Parties shall be entitled to such reliefs and remedies as are set out in the decision, and shall be entitled to summary enforcement thereof, regardless of whether such decision is or is to be the subject of any challenge or review. No party shall be entitled to raise any right of set-off, counterclaim or abatement in connection with any enforcement proceedings. IMMUNITY, CONFIDENTIALITY AND NON-COMPELLABILITY 29. Neither ORSA, nor its Chairman, nor deputy, nor the Adjudicator nor any employee or agent of any of them shall be liable for anything done or not done in the discharge or purported discharge of his functions as Adjudicator, whether in negligence or otherwise, unless the act or omission is in bad faith. 30. The Adjudication and all matters arising in the course thereof are and will be kept confidential by the Parties except insofar as necessary to implement or enforce any decision of the Adjudicator or as may be required for the purpose of any subsequent proceedings. 31. In the event that any Party seeks to challenge or review any decision of the Adjudicator in any subsequent litigation or arbitration, the Adjudicator shall not be joined as a party to, nor shall be subpoenaed or otherwise required to give evidence or provide his notes in such litigation or arbitration. LAW 32. These Rules shall be governed by English law and under the jurisdiction of the English Courts. 33. No Party shall, save in case of bad faith on the part of the Adjudicator, make any application to the courts whatsoever in relation to the conduct of the Adjudication or the decision of the Adjudicator until such time as the Adjudicator has made his decision, or refused to make a decision, and until the Party making the application has complied with any such decision. April 1998 _________________________ NOTES _________________________ These notes do not form part of the ORSA Adjudication Rules. These rules are designed to meet the requirements for adjudication set out at Part II of the Housing Grants, Construction and Regeneration Act 1996. They may be incorporated into contracts, including contracts contained in correspondence, by suitable wording along the following lines: Any dispute arising under this agreement shall in the first instance be referred to adjudication in accordance with the ORSA Adjudication Rules. The Housing Grants, Construction and Regeneration Act 1996 gives parties to a construction contract other than with a residential occupier or an excluded contract entered into after 1st May 1998 a right to refer a dispute arising under the contract to adjudication. If the contract does not incorporate the ORSA Adjudication Rules or other provisions meeting the compliance criteria set out in the Act, then the terms of Part I of the Scheme for Construction Contracts become applicable. If the contract does not incorporate the ORSA Adjudication rules or otherwise comply with the compliance criteria such that there is no agreed adjudication or nominating body, then a disputant may yet ask ORSA to appoint an adjudicator; ORSA is an "adjudicator nominating body" within the meaning of paragraph 2(3) of The Scheme for Construction Contracts (England and Wales) Regulations 1998. An adjudicator so appointed will conduct the adjudication in accordance with the Scheme, or if the parties so agree, the ORSA Adjudication Rules. If the contract contains an arbitration clause, then in order to prevent enforcement difficulties arising out of Section 9 of the Arbitration Act 1996, ORSA recommends that the arbitration clause should contain wording along the following lines: Provided always that the enforcement of any decision of an adjudicator is not a matter which may be referred to arbitration. Applications to the Chairman of ORSA should be addressed to: James Hudson Esq. ORSA and its members take no responsibility for loss or damage caused to any user of these Rules or these Notes. IndexABATEMENT AD SET-OFF UNDER DOM/1 The distinction between set-off and abatement; ADJUDICATION See also Housing Grants, Construction and Regeneration Act 1996; ARBITRATION Extension of time for commencing arbitral proceedings; Incorporation of arbitration clauses by reference into contracts; Jurisdiction of arbitrator to hear disputes already resolved in earlier
arbitration; Procedure on appealing arbitrator's decision; CERTIFICATION The end of Crouch; Court's ability to review Engineer's decisions; CONSTRUCTION MANAGEMENT Can a construction manager claim for additional cost of management
time as a result of the client's failure to supply it with all necessary
information?; CONTRACT Dangers associated with discrete element contracts; Factors which help to determine the existence of collateral contracts; Formation of contract the effect of pre and post contract discussions; Interpretation of contract terms; Recovering unpaid instalments; Repudiation of contract no repudiation unless made clear that accepting
the repudiation; Termination of subcontract; COSTS Interest on costs awarded in arbitration; Interest not recoverable on sums paid prior to commencement of proceedings; DAMAGE Characteristics of physical damage caused by nuclear contamination; DAMAGES Claiming for loss of value as well as remedial costs; Condition precedent the effect of parties' intention; Consequential loss defined; Contractual bar on a claim for damages; Damages for loss of chance; Damages flowing from architect's negligence; Recovery of damages where loss not suffered directly by the plaintiff; Alfred McAlpine Construction Limited -v- Panatown Limited DUTY OF CARE Architect owes no duty of care under "letter of comfort"; Architect does not owe a duty of care to its client's tenants; Do developers owe a duty of care to the Management Company of a development?; EXPERT DETERMINATION Challenging an expert's decision which was agreed to be "final and
binding", where there was no evidence of "manifest error"; FINAL CERTIFICATE UNDER MF/1 Final certificate in MF/1 is a complete defence to a claim for breach
of contract; HOUSING GRANTS, CONSTRUCTION AND REGENERATION ACT 1996 The Commencement Order Statutory Instrument No.649 The Scheme for Construction Contracts (reproduced in full in the Summer 1998 Review) ORSA Adjudication Rules (1998 Version 1.2) JCT MANAGEMENT CONTRACT Degree of protection afforded the Management contractor by Clause 3.21; LETTERS OF INTENT When the terms of a letter of intent can affect the contract; NEGLIGENCE Architect's negligence; Surveyor's negligence, NUISANCE Liability for subsidence caused by tree roots; PERFORMANCE BONDS Monies paid out under a performance bond are, in the absence of clear
words, recoverable if the loss is less than the amount of the bond; PRACTICE & PROCEDURE English Law clothing' foreign jurisdictions; Jurisdiction of the Courts; Late amendment of Statement of Claim; Pleading global claims; TERMINATION The effect of 7 days notice in termination clauses; TUPE A recent case; VARIATIONS Definition of variation under MF/1; |
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