A Summary of Construction Cases in 2012 Formation of Contract Specialist Insulation Limited v Pro-Duct (Fife) Limited Each party proceeds on the basis that their standard form of contract regulates the contract whose form will prevail? Often, in the course of the exchanges between the parties to the contract both parties will purport to contract on the basis of their standard terms and conditions. In many instances, the conclusion reached will be that it is the standard terms and conditions issued latest in the exchanges between the parties that will prevail. This case, however, makes it clear that will not always be the case and an objective analysis of the whole circumstances is required to ascertain what the parties have agreed. What do we think? Don t assume that just because you got the last word you will prevail. Merit Process Engineering Limited v Balfour Beatty Works are progressing but not all the terms of the contract have been agreed is there a contract? The Technology and Construction Court highlighted in this case that there are circumstances where the parties intend to be bound by a contract notwithstanding that there are outstanding terms that remain to be agreed at a later date. Some terms are considered to be of greater significance than others. In this case, there was disagreement about the price and the conclusion was that this is not a term that the parties would intend to leave for agreement at a later date. As such, the conclusion reached was that no contract had been formed and that works were proceeding under a letter of intent. What do we think? No surprises here generally if there is no agreement as to price there s no contract. Fitness for Purpose Trebor Bassett Holdings Ltd & Cadbury UK Partnership v ADT Fire & Security plc There is a distinction between the supply of individual components on the one hand and the supply of a designed system on the other hand. The case clarifies that the supply of a bespoke system as a whole does not constitute the supply of goods for the purposes of implying a statutory fitness for purpose obligation. The individual components may well be goods, subject to that implied fitness for purpose warranty, but if the fault in the system is one of design, then the fault is part of the service element and only a reasonable care and skill term will be implied. What do we think? An interesting attempt to extend the law of fitness for purpose to parts it doesn t reach. Duties of a Project Manager Trustees of Appleforth Abbey Trust v Turner & Townsend The project manager is responsible for dealing with the issues that need to be resolved to get the building contract concluded. An employer was prejudiced in his dealings with a contractor by the failure to conclude the building contract. As a consequence the whole works were carried out under a letter of intent and the employer did not get the benefit of a liquidated damages clause that it could otherwise have relied on when reaching a commercial settlement with the contractor in respect of its delay claims. The project manager was found to be negligent in failing to diligently deal with the various issues that were preventing the parties
from concluding the building contract. As such, he was found liable in damages for the additional cost incurred by the employer as a consequence of their inability to rely on the liquidated damages provision. What do we think? Project managers beware! Insurance Christine Brown Quinn and Another v Equity Syndicate Management and Another This decision of the Court of Appeal in England confirms that an insurer providing legal expenses insurance is not permitted under European law to prevent their insured instructing the solicitor of their choice. The insurer is, however, entitled to limit the indemnity they provide in respect of legal fees to specified rates provided that the rates they specify do not operate to render meaningless the insured s right to select their own solicitor. What do we think? Good news that insureds retain the right to choose their own lawyer, although the cover may not be as extensive as required to make the choice truly free. Standard Terms and Unfair Contract Terms Act Trustees of Appleforth Abbey Trust v Turner & Townsend/FG Wilson (Engineering) Limited v John Holt and Co (Liverpool) Limited These cases demonstrate the contrasting fortunes of attempts to challenge the enforceability of provisions in standard terms and conditions on grounds that they breach the reasonableness requirement of the Unfair Contract Terms Act. In Appleforth, a limitation of liability clause that operated to exclude liability for claims that were to be insured under other provisions was held to be unenforceable. On the other hand, in FG Wilson a no set-off clause was found to comply with the requirements of UCTA. These cases highlight the need for a party contracting on their own standard terms to be aware of possible challenges to those standard terms under UCTA. What do we think? We may be seeing s a little more flexibility f in the application of the law on Unfair Terms. JCT/SBCC Contracts Variations and Loss and Expense WW Gear Construction Limited v McGee Group Limited In a JCT/SBCC contract there are circumstances where the contractor can recover elements of loss and expense through the variations clause. These forms of contract exclude the inclusion of an allowance for direct loss and expense in the valuation of a variation where there is provision for reimbursement of such direct loss and expense under any other provision of the contract. In this case, the claimant was unable to utilise the loss and expense provisions of the contract because they had failed to comply with a condition precedent pertaining to the timing of their application for loss and expense. It was concluded that in such circumstances the exclusion concerning recovery of loss and expense under the variations provisions did not operate. The claimant was, therefore, entitled to recover the loss and expense that could legitimately be included in the valuation of the variation by virtue of the operation of the relevant method of measurement. What do we think? This is a useful reminder that additional indirect costs s can be recovered through the variation by appropriate application of the SMM rules.
Global Claims Walter Lilly & Co Limited v Mackay and Another The Technology and Construction Court has decided that there is nothing wrong with global claims. This could see the end of nearly 30 years of argument about when it is appropriate to make a global claim so not surprisingly this case has generated considerable interest in the construction sector. It s a real kitchen sink of a case and between them the parties contrived to spend 9-10 million in legal costs. The major points flowing from the case concern the right of a claimant to present his claim as a global claim. It had previously been considered that a global claim was only permissible where there were numerous heads of claim and it was not possible or practicable to identify and specify the particular effects and losses arising from each separate head of claim. It would now seem to be accepted that there is nothing in principle wrong with a global claim and the Courts are prepared to be much more flexible than they once were in their approach to global claims. What do we think? Whilst this is good news for claimants in delay and disruption claims, it is still safer and more effective to specify the individual consequences and losses for each head of claim. Scottish Adjudication Cases There was not a lot to report on adjudication decisions of 2012 but the main decisions of interest are: Specialist Insulation Limited v Pro-Duct (Fife) Limited What jurisdictional challenges can the responding party rely on in enforcement proceedings? In this case, the Court allowed a responding party to rely on a general reservation of a right to challenge the adjudicator s jurisdiction that had been made during the course of an adjudication. The Court said that this general reservation was sufficient to allow a party resisting an enforcement action in Court to rely on new jurisdictional arguments not made to the adjudicator. What do we think? If defending adjudication proceedings, it s always worth making a general reservation of the right t to challenge. PIHL Limited v Ramboll UK Limited Nonsensical written reasons will generally not undermine the adjudicator s decision. This is another in a line of decisions that emphasises the high threshold to be overcome to successfully challenge the enforceability of an adjudicator s decision - even where it looks like the adjudicator s written reasons are unintelligible. The Courts will not allow criticisms of an adjudicator s written reasons to be used as a back door way to undermine the enforceability of the adjudicator s decision because of errors of fact or law. What do we think? Be careful when you choose your adjudicator as overturning even a nonsensical decision is tricky. SW Global Review Limited v Morris and Spottiswood Limited Does it matter that the adjudicator s decision is completely irrational? This Court decision considers the possibility that the enforceability of an adjudicator s decision may be challenged because it is irrational. The case makes it clear that, if such a challenge is possible, it will only succeed in very exceptional circumstances. The possibility of such a challenge has not, in principle, been excluded.
What do we think? As above - choose your adjudicator with care! Adjudication Decisions South of the Border There have been a number of English adjudication cases during 2012 that are helpful in clarifying practice on issues where previously there was some uncertainty. The issues concerned are: Interaction between an adjudicator s decision and the contractual payment mechanism When can the adjudicator s decision be trumped by a subsequent withholding notice? This has been considered in two cases considered by the Technology and Construction Court R & C Electrical Engineers Limited v Shaylor Construction Limited and Squibb Group Limited v Vertase. These cases clarify that where an adjudicator has been asked to provide a valuation of a sum payable under the relevant contractual payment mechanism, the paying party can still exercise its contractual rights to withhold from the sum valued by the adjudicator. Severability of an unenforceable part of an adjudicator s decision It is now clearer that the Courts are prepared to be reasonably flexible in their approach when considering whether the unenforceable element of an adjudicator s decision should be severed from the remainder of his decision. The leading authority of Cantillon v Urvasco suggested that it was only possible to sever the unenforceable part of an adjudicator s decision from the remainder of his decision (so as to allow the remainder to be enforced) where the adjudicator had decided more than one dispute and the unenforceable part is limited to only one of such disputes. There were a number of English cases in 2012 where the Courts have been prepared to sever parts of an adjudicator s decision where the decision related to one dispute only Working Environments Limited v Greencoat Construction; Vertase FLI Limited v Squibb and Lidl UK v RG Carter Colchester Limited. The Lidl decision provides welcome clarification of the basis upon which part of an adjudicator s decision in respect of a single dispute may be severed. The ability to sever is available where an adjudicator wrongly brings in and decides an additional question and severance of the decision in respect of that additional question is possible without impacting on the reasoning for the remainder of the adjudicator s decision. Payment of Adjudicator s fees The adjudicator will, in most cases, not be entitled to payment of a fee for producing an unenforceable decision. The Court of Appeal in PC Harrington v Systech Insulation Limited decided that an adjudicator who produced an unenforceable decision is not entitled to payment of his fees. This reverses an earlier decision of the Technology and Construction Court. The entitlement of the adjudicator to payment of his fees in such circumstances will depend on the terms of his appointment. In the absence of an express term requiring payment where an unenforceable decision is produced, the likelihood is that no payment will be due to the adjudicator.
If you would like to discuss any of these points further please contact: Fenella Mason Partner fenella.mason@burnesspaull.com +44 (0)131 473 6304 +44 (0)7595 099 815 Colin Clelland Director colin.clelland @burnesspaull.com +44 (0)141 273 6713 +44 (0)7912 774 415