Autumn 2010 Authors: Kevin Greene kevin.greene@klgates.com +44.(0)20.7360.8188 Inga K. Hall inga.hall@klgates.com +44.(0)20.7360.8137 Suzannah E. Boyd suzannah.boyd@klgates.com +44.(0)20.7360.8186 Lee M. Forsyth lee.forsyth@klgates.com +44.(0)20.7360.8190 Welcome to the Autumn 2010 edition of In Site. This edition covers the following topics: Delivery of an adjudicator s decision what happens if it is not delivered in time? The decision in CPC Group Ltd v Qatari Diar on the meaning of all reasonable endeavours clauses Sending the wrong tender unilateral mistake and rectification Withdrawing Part 36 offers The decision in Fenice Investments Inc v Jerram Falkus Construction Ltd on incorporation of terms For more information on any of these articles, or on any other issue relating to construction and engineering law, please contact any of the authors or your usual K&L Gates contact. K&L Gates includes lawyers practicing out of 36 offices located in North America, Europe, Asia and the Middle East, and represents numerous GLOBAL 500, FORTUNE 100, and FTSE 100 corporations, in addition to growth and middle market companies, entrepreneurs, capital market participants and public sector entities. For more information, visit www.klgates.com. Delivery of an adjudicator s decision what happens if it is not delivered in time? Adjudicators must not only reach their decisions within the timeframes stipulated in the adjudication agreement, but they must also deliver those decisions swiftly. Otherwise their decisions may be unenforceable. In Lee v Chartered Properties (Building) Ltd [2010] EWHC 1540 (TCC), Ms Lee (as employer) entered into a refurbishment contract with Chartered Properties (as contractor) in the form of the JCT Minor Works Building Contract 2005 edition. Chartered successfully referred a final account dispute to adjudication. On enforcement, however, Ms Lee raised a number of challenges to the adjudicator s jurisdiction, including whether or not the adjudicator had reached and delivered his decision in time. The adjudication clause in the contract provided that the Scheme for Construction Contracts ( the Scheme ) would apply to disputes under the contract. The Scheme makes a distinction between the reaching and delivery of an adjudicator s decision; paragraph 19(3) of the Scheme requires the adjudicator to deliver a copy of the decision as soon as possible after reaching it. As in this case, an adjudicator s decision can be held to be unenforceable if the adjudicator does not deliver his decision as required by the Scheme. The adjudicator emailed the parties the day before his decision was due and informed them he would reach his decision the following day (Friday 13 November), as required by the agreed timetable. He also asked if the parties had any objection to the decision being delivered the following Monday 16 November (to allow time for typing and proof-reading). Chartered agreed, but Ms Lee did not respond either way. The adjudicator emailed again on the Friday afternoon confirming he had reached his decision.
On the following Monday afternoon he delivered the decision (by email), which was stated to be made the 13 November 2009 under my hand. Akenhead J held that, in the circumstances of the case, with a delay of 74 hours, it could not be said that the adjudicator had delivered a copy of his decision as soon as possible after he reached it and, therefore, the decision was unenforceable. There was no evidence why the adjudicator needed 3 days to undertake word processing and delivery (especially as he worked for a large firm of quantity surveyors and had access to their facilities). In reaching his decision, the judge followed the decisions reached in previous cases on similar issues. In Mott MacDonald Ltd v London & Regional Properties Ltd [2007] EWHC 1055 (TCC), for example, HHJ Thornton QC held (in relation to a decision delivered 1 day after it was reached): any delay after the end of the relevant adjudication period in delivering the decision must be minimal any failure to comply with the requirement of prompt and rapid delivery will render the decision unenforceable. The key point here is that both parties to an adjudication need to agree to extend the time for the adjudicator to deliver his decision, or the adjudicator must provide a very good reason why the decision could not be delivered close to the time it was reached. Administrative problems are unlikely to be sufficient. As the judge commented, even if the Decision (which would be unlikely and somewhat unusual) had been drafted in long hand, there is no good reason why it could not have been faxed or scanned and e- mailed over to the parties. The decision in CPC Group Ltd v Qatari Diar on the meaning of all reasonable endeavours clauses The well-publicised case of CPC Group Ltd v Qatari Diar Real Estate Investment Company [2010] EWHC 1535 (Ch) adds to our understanding of what it means to use all reasonable endeavours. In 2007 CPC and Qatari Diar ( QD ) entered into a joint venture agreement to acquire and redevelop the Chelsea Barracks in Westminster. This case centred on whether QD had acted in breach of a sale and purchase agreement in withdrawing its planning application after the intervention of the Prince of Wales in opposing the redevelopment. Under that agreement, QD owed CPC an obligation to use all reasonable but commercially prudent endeavours to enable certain threshold events to be achieved (which relied mainly on QD s progress in obtaining planning permission for the redevelopment). Cases such as Rhodia International Holdings Ltd v Huntsman International LLC ([2007] EWHC 292 Comm) have established that, in the range of different types of endeavours clauses included in contracts, best endeavours represents the most stringent obligation and reasonable endeavours the least stringent. As far as the middle ground is concerned, an obligation to use all reasonable endeavours may well equate to best endeavours in terms of the number of reasonable courses of action that should be taken (Rhodia, obiter), but the two obligations are likely to differ as to the extent to which the party owing the obligation is obliged to sacrifice its own commercial interests in complying with it (Yewbelle Limited v London Green Developments ([2007] EWCA Civ 475). Although that may not always be the case (the other provisions of the contract and surrounding commercial context also being relevant), the Court in the present case held that the nature of the obligation was made quite clear by the inclusion of the commercially prudent words which qualified the stringency of the obligation. QD was, therefore, only required to take all reasonable steps to procure planning permission, provided such steps were commercially prudent. The Court concluded that QD had complied with this obligation and was entitled to consider its own commercial interests (and not just those of CPC) when deciding how to respond to the Prince of Wales objections. Sending the wrong tender unilateral mistake and rectification The consequences of submitting the wrong version of a tender was the subject matter of the decision in Traditional Structures Ltd v H W Construction [2010] EWHC 1530 (TCC). Traditional Structures ("TSL") had been asked by H W Construction ("HW") to provide a quotation for steelwork and roof cladding. TSL completed the tender, stating that it was a tender for the supply and delivery of structural steelwork and claddings. By mistake, however, the tender sent to HW only contained a price for the steelwork ( 37,573.43). TSL s file copy of the tender contained the steelwork price and, written underneath, a separate roof cladding price ( 32,365.83). Autumn 2010 2
HW made no mention of the missing roof cladding price in a number of emails and telephone calls to TSL. The tender was accepted and TSL later invoiced HW with revised prices for the steelwork and cladding following variations. HW refused to pay on the grounds that it had accepted the total as 37,574.43 as set out in the tender. The question, therefore, arose as to whether TSL was bound to carry out the work for the price stated in the contract or whether, as TSL argued, the unilateral mistake should be rectified and the price increased to include the missing roof cladding price. For a rectification claim to succeed, there needed to be evidence of a mistake by one party, together with evidence that the other party had knowledge of the mistake, but chose to say nothing, or looked the other way in order to make some personal gain. In this context, knowledge means deliberately failing to ask the questions that an honest man would ask or shutting one s eyes to the obvious. If there is no actual knowledge, then there has to be a finding of dishonesty or a degree of sharp practice of a type that goes beyond the boundaries of fair dealing. After undertaking a detailed review of the tender document wording, the parties correspondence and witness evidence, the judge found that HW s managing director wilfully and recklessly failed to enquire whether the tender price included the price of the cladding works, and shut his eyes to the obvious, the obvious being that the price quoted was demonstrably or self-evidently a price that related only to structural steelwork. The judge held, therefore, that HW had actual knowledge of the mistake and, as this was unconscionable, the mistake was rectified. This case provides a useful yardstick as to what the courts regard as unfair in commercial dealings. Cases such as this are rare, but it demonstrates the courts willingness to rectify a contract to reflect a more reasonable position. Withdrawing Part 36 offers Part 36 of the Civil Procedure Rules enables claimants and defendants to make settlement offers, and sets out the steps which must be followed to accept, or withdraw, such offers. Part 36 sits apart from ordinary contractual principles and the general rules that apply when making a contractual offer. This was clearly affirmed in Gibbon v Manchester City Council [2010] EWCA Civ 726. In the Gibbon case, the claimant made a Part 36 offer on 18 November 2008 to accept 2,500. The defendant rejected this offer and made a number of counter-offers to the claimant. The claimant rejected the highest of these offers (also 2,500) on 18 February 2009 and, on 26 February, the defendant purported to accept the claimant's 18 November offer of 2,500. A key point in this case was that the claimant had not at any time formally withdrawn her 18 November offer. She argued, however, that, as the defendant had previously rejected that offer, it was incapable of acceptance thereafter under ordinary contractual principles. CPR 36.9(2) states that a Part 36 offer may be accepted at any time (whether or not the offeree has subsequently made a different offer) unless the offeror serves a notice of withdrawal on the offeree. The Court held that this rule is quite clear and an offer remains open for acceptance at any time notwithstanding the offeree rejecting the offer or making a different offer - unless and until written notice of the withdrawal (or change of terms of the offer) is served on the offeree in accordance with CPR 36.3(7). In the Gibbon case, the claimant did not ever formally withdraw her 18 November offer and it therefore remained open for acceptance notwithstanding the intervening events. The Court held that the requirement to serve a written notice of withdrawal under CPR 36.3(7) left no room for the concept of implied withdrawal and, as such, the claimant s 18 February letter rejecting the defendant s offer of 2,500 could not constitute an implied withdrawal of her earlier offer for the same amount. It did not refer to the 18 November offer and did not contain any language that could be construed as a notice of withdrawal. Autumn 2010 3
The decision in Gibbon illustrates how different Part 36 offer and acceptance is to the general contractual approach, with the Court explaining: Part 36 allows a defendant (or for that matter a claimant) to decide whether to leave his offer open for acceptance or to withdraw it and make another offer later. To import into Part 36 the common law rule that an offer lapses on rejection by the offeree would undermine this important element of the scheme. It could give rise to disputes about whether the offer had been rejected in any given case so as render it incapable of acceptance. It is important to keep all Part 36 offers under close review and formally withdraw any which are no longer on the table. The decision is helpful as it gives guidance as to what a notice of withdrawal should include to avoid uncertainty, with the Court stating that [a]lthough the rule does not prescribe any particular form of notice, in order to avoid uncertainty it should include an express reference to the date of the offer and its terms, together with some words making it clear that it is withdrawn. The decision in Fenice Investments Inc v Jerram Falkus Construction Ltd on incorporation of terms The decision in Fenice Investments Inc v Jerram Falkus Construction Ltd [2009] EWHC 3272 (TCC) is a reminder of the importance of ensuring that contract amendments are properly incorporated into the contract and that bespoke clauses do not fall foul of order of priority clauses. The parties in this case contracted under a JCT Design and Build Contract (Revision 1) 2007 form of contract. As well as agreeing an amendment to JCT clause 4.10.1 extending the payment period from 14 to 21 days, a detailed payment evaluation procedure was tucked away in the Employer s Requirements. This stipulated a different (and later) starting point for the calculation of the final date for payment and also gave the employer s agent control over the timescale for issuing a withholding notice. Significantly, the JCT order of priority clause (clause 1.3) was left un-amended and stated that nothing contained in the Employer s Requirements overrides or modifies the Agreement or Conditions. In the event of conflict, therefore, the JCT Conditions prevailed. A dispute arose in respect of an interim payment application as to whether Fenice (the Employer) had issued a withholding notice on time, which in turn depended on how the payment mechanism was to be interpreted. The basic point of difference between the parties was that, if the JCT Conditions applied, the withholding notice was late, whereas, if (as Fenice contended) the payment mechanism contained in the Employer s Requirements applied, the withholding notice had been issued within time. The dispute was referred to adjudication. The adjudicator agreed with Falkus (the contractor) but Fenice did not pay the sum awarded, instead seeking CPR Part 8 declarations that its interpretation of the contract was correct (and, therefore, that the adjudicator s was wrong). Coulson J found that the two sets of payment provisions fundamentally conflicted with each other and could not operate together. Although the general rule is that a term specifically drafted for a contract takes precedence over a standard term, here there was an express agreement to the contrary -the order of priority clause - and the judge found no reason why it should not be applied in order to resolve the conflict. Accordingly, he found that the contractor s interpretation of the payment provisions was to be preferred and enforced the adjudicator s decision. This suggests, of course, that the decision in this case would have been different if Fenice had incorporated their payment mechanism as an amendment to the JCT Conditions themselves, as then the order of priority clause would not have operated against them. Owing to the nature of this particular amendment, however, Coulson J indicated that this may not necessarily have been the case. He said that, even if he was wrong about which payment mechanism was incorporated into the contract, he did not consider that the payment mechanism in the Employer s Requirements would be an adequate mechanism for determining what payments become due under the contract, and when as required by section 110 of the Housing Grants, Construction and Regeneration Act 1996 because the payment period could effectively be extended at will by Fenice. As such, it would not be enforceable under the Act. Autumn 2010 4
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