UK: Case Law Update – Issue 3 (2010)

ADJUDICATION

Construction Law Vol. 21 Issue 3 April 2010
contains the following articles:

Strong court backing for adjudication
by Peter Stockill, Berrymans Lace Mawer and Michael Taylor and Daniel Goodkin, 4 Pump Court
(on Anglo Swiss Holdings v Packman Lucas)

A new regime for notices
by Simon Plunkett, Pinsent Masons
(on the effect of the Local Democracy Economic Development and Construction Act)

Construction Law Journal Vol. 26 No. 2 2010
contains the following article:

Suspension of work
by Peter Sheridan
(in the Construction Act Review feature)

See Speymill Contracts v Baskind under Keating Chambers Reported Cases on evidence of fraud or deceit as grounds for resisting adjudication enforcement.

Jurisdiction and Corporate insolvency in adjudication

Enterprise Managed Services v Tony McFadden Utilities Ltd [2010] BLR 89 and [2010] Con LJ Vol. 26 No. 3 TCC
Following the insolvency of Tony McFadden Ltd, by a deed of assignment drainage sub-contracts were assigned to Tony McFadden Utilities (Utilities), including one which Enterprise had acquired from the original main contractors. Utilities served a notice of referral to adjudication on Enterprise, which sought declarations that Utilities could not adjudicate. The court held that only one claim could be pursued by Utilities, namely for an account and net balance under the Insolvency Rules, because of TML's insolvency. An adjudicator could only deal with one dispute under one contract and so there was no jurisdiction to deal with several sub-contracts and the account and balance had not been referred to the adjudicator. No dispute had crystallised as Utilities had not informed Enterprise of the assignment until after the purported reference to adjudication. Coulson J observed that this is the first case since Bouygues v Dahl-Jensen (Stephen Furst QC) to consider adjudication in the light of Rule 4.90 of the Insolvency Rules. For a commentary on this case, see Construction Act Review by Peter Sheridan at p.185 of the same Con LJ issue.

Construction Law Journal 2010 Vol. 26 No. 3
contains the following articles

Insolvency Update: assignment and Rule 4.90
by Peter Sheridan
(on Enterprise Managed Services v Tony McFadden Utilities)

Adjudication at the crossroads: the Construction Act – one size fits all?
by Mark Atherton, Hill International

See William Hare v Shepherd Construction under Keating Chambers Reported Cases on the CA decision on the meaning of 'insolvency' as an exception to the invalidity of pay-when-paid provisions.

See O'Donnell Developments v Build Ability under Keating Chambers Reported Cases on an implied slip rule in adjudication and the time for exercising it.

Section 107(5) HGCR Act

SG South Ltd v Swan Yard (Cirencester) Ltd [2010] BLM Vol. 27 No. 4 TCC
The court interpreted s.107(5) of the HGCR Act as creating a kind of "statutory estoppel" whereby the parties would not be allowed to dispute jurisdiction on the ground of lack of a written agreement once they had expressly stated in writing that they did not object to jurisdiction on that ground. See also SG South v King's Head Cirencester (Thomas Lazur), for other arguments in resisting enforcement in separate litigation.

ARBITRATION AND DISPUTE RESOLUTION

Construction Law Vol. 21 Issue 3 April 2010
contains the following articles:

A renaissance for Scottish arbitration
by Shona Frame, MacRoberts
(on the Arbitration (Scotland) Act 2010 which received Royal Assent 5 January 2010)

Mediation minefield
by Ed Freeman, Clyde & Co

Construction Law Journal Vol. 26 No. 2 2010
contains the following articles:

'Chess clock' arbitration and time management techniques in international commercial arbitration: from the perspective of the arbitrator and counsel
by Andrew Burr, Atkin Chambers and Pierre Karrer, University of Zurich

Crossing the Rubicon
by Michael Reynolds, LSE

ICC Dispute Resolution Rules: ICC Dispute Boards and ICC Pre-Arbitral Referees
by Suzanne Kratzsch, Thümmel, Schütze and Partners, Stuttgart

Major oil and gas projects – the real risks to EPC contractors and owners
by Vincent Hooker, Hill International

CONSTRUCTION AND ENGINEERING CONTRACT DISPUTES LAW

Unjust enrichment

Contract and unjust enrichment: a blurry divide
by Paul Davies, Gonville & Caius College, Cambridge, Law Quarterly Review Vol. 126 April 2010 p.175
This is an extended case commentary on Whittle Movers v Hollywood Express (see February 2010 issue), in which the Court of Appeal held that a letter of intent expressed to be "subject to contract" gave rise only to a potential restitutionary claim by the claimant suppliers against the defendant purchasers and not a contractual one. The decision draws upon Regalian Property v London Docklands Development Corporation (Piers Stansfield) and also Yeoman's Row Management v Cobbe in the House of Lords.

Liquidated damages and rectification

Penta-Ocean Construction Co. Ltd v CWF Piling and Civil Engineering Co. Ltd [2010] Con LJ Vol. 26 No. 2 p.131 Hong Kong SAR High Court
The Hong Kong SAR Court granted leave to appeal to the main contractor against the respondent sub-contractor. The arbitrator rejected the main contractor's claim for liquidated damages on the ground that the provisions conflicted with another clause allowing deduction of common law damages from the contract price, which should prevail, and refused rectification. The judge granted leave to appeal, holding that there was no conflict, since the clause allowing deduction of common law damages only deals with the situation where the sub-contractor's breach leads to breach by the main contractor. The main contractor would also be allowed to appeal on rectification, since the letter of acceptance reflected agreement on liquidated damages in a way which the sub-contract did not.

Model Plant-hire conditions

MacSalvors Plant Hire Ltd, Brush Transformers Ltd (3rd party) [2010] TCLR Z CA
The Court of Appeal considered the provisions of the Model Conditions of the Construction Plant-hire Association and specifically whether the hirer could be responsible for a claim against the owner in respect of the owner's own breach of duty. In refusing this interpretation, the CA distinguished statements in Yarm Road v Hewden Tower Cranes (Adrian Williamson QC).

Liquidated damages and force majeure

Tandrin Aviation Holdings Ltd v Aero Toy Store LLC [2010] BLM Vol. 27 No. 3 Commercial Court
In this (non-construction) case, the Commercial Court upheld as valid a liquidated damages clause by which the purchaser's deposit would be paid to the vendor (of an aircraft) for the failure of the purchaser to complete the transaction by the specified date. The judge held that there was no real prospect of establishing that this was a penalty clause, since it was neither extravagant nor unconscionable, while the breach was serious, and a genuine pre-estimate of loss was almost an impossibility. Nor would the court accept that the "unanticipated, unforeseeable and cataclysmic downward spiral of the world's financial markets" triggered the operation of the force majeure clause.

The International Construction Law Review Vol. 27 Part 2 April 2010
contains the following articles:

Delay, progress and programming
by AR Marshall, Lovells

Concurrency, causation, common sense and compensation
Part 1 Andrew Stephenson, Clayton Utz, Melbourne

Part 2 Ian Bailey, Sydney

Towards a European Consumer Construction Law
by Benoit Kohl, Stibbe, Brussels

Public procurement and development agreements and an update on the Construction Bill
by Andrew Brown and Miranda Ramphul, Herbert Smith

See Fenice Investments v Jerram Falkus Construction under Keating Chambers Reported Cases on conflict in interim payment provisions under JCT Design and Build and issue of Part 8 proceedings in adjudication cases.

No frustration of contract on price

Gold Group Properties Ltd v BDW Trading Ltd [2010] BLM Vol. 27 No. 4 TCC
The defendant developer failed in its argument that a development agreement had been frustrated by the fall in the property market as a result of which the houses to be built under the agreement would not reach their minimum sale price. The court held that the agreement remained capable of performance, even if less financially attractive. The defendant was, however, given leave to defend the owner's claim for repudiation on the ground that the claimant had repudiated the contract first.

Letter of intent and contract formation

RTS Flexible Systems Ltd v Molkerei Alois Muller GmBH [2010] BLM Vol. 27 No. 4 Supreme Court
The Supreme Court allowed the appeal from the Court of Appeal decision reported in 123 Con LR and noted in September 2009 issue. The claimant supplier of services began work for the defendant manufacturer under a letter of intent. The manufacturer confirmed its wish to proceed with the project 'as set out in the offer' subject to finalisation of price and completion date and using an amended version of the MF/1 form of contract, to be executed within four weeks. Work started as negotiations proceeded and the letter of intent was extended for three months. A final draft contract was produced but never signed. The CA had held that no contract was concluded after the lapse of the letter of intent, but the Supreme Court held that there was the necessary intention and all the essential terms were agreed, even though the draft written contract provided that it would not become effective until executed.

CONTRACT AND PROCUREMENT LAW

Construction Law Vol. 21 Issue 3 April 2010
contains the following articles:

Beware knock on effects of changes
by Michael Phipps, Thurston Consultants

New dawn for third party rights
by Janine Collyer, Collyer Bristow

Value testing PFI projects
by Hamish Lal and Emily Busby, Jones Day

Underwriting the design and build risk
by John D. Wright, JD Risk Associates

See European Dynamics v HM Treasury under Keating Chambers Reported Cases on interim injunction to restrain award of contract and delay in bringing claim promptly under Public Contracts Regulations.

Procurement injunction refused

B2 Net Ltd v HM Treasury [2010] 128 Con LR 53 QBD
Following the scoring of pre-qualification questionnaires for IT infrastructure hardware contracts, B2 Net, an unsuccessful supplier, challenged the scoring of the responses. It had been marked down on experience because in some projects it had been sub-contractor and not main contractor. Its application for an interim order to prevent the Government proceeding with the procurement exercise failed because others might be affected by the injunction. The judge's preliminary view was that it might be objectively justifiable to distinguish between experience as a sub-contractor and as a main contractor.

Construction Law Journal Vol. 26 Issue 3 April 2010
contains the following articles:

Legal implications of the assignment of a construction contract under New York Law
by Steven Bennett, Jones Day, New York

Pandemic flu risk for major projects
by Peter Dzakula, Corrs Chambers Westgarth
Pre Construction Services Agreements – early lessons from experience by John Barber, King's College London and Shy Jackson, Pinsent Masons

GENERAL AND PROFESSIONAL NEGLIGENCE

Defective Premises Act appeal dismissed

Bole v Huntsbuild Ltd [2010] BLM Vo. 27 No. 3 CA
The Court of Appeal dismissed the defendants' appeal against the TCC judgment in favour of the claimant purchasers. It was held that both the defendants, contractor and design consultant, owed a duty to the claimants under the Defective Premises Act and that foundation defects and visible defects in the super structure caused by heave, comprised unfitness for habitation for the purposes of s.1. The court also held the duration of remedial works to be relevant in ascertaining the unfitness question, and that fitness for habitation, not fitness for purpose is the standard.

See Costain v Charles Haswell under Keating Chambers Reported Cases on existence and scope of engineer's design duty to design and build contractor and cost issues.

Right to connect to sewer

Barratt Homes Ltd v Dwr Cymru Cyfyngedig [2010] 128 Con LR 1 Supreme Court
A majority of the Supreme Court (Lady Hale dissenting) held that where connection of development to a public sewer required additional works because of the increased loading, the cost would fall on the water authority. The Water Act did not permit the authority to refuse connection at a particular point. The developer would have to pay for works solely for the benefit of the development.

Damages for defective work

Strange v Westbury Homes (Holdings) Ltd [2010] 128 Con LR 26 CA
The Court of Appeal upheld the judge's decision in choosing between two competing quotations for remedial works, in circumstances where the repairs had not been executed. The appellants had contended for a lesser scheme where some of the work would have been subcontracted. The court could also award a modest figure for diminution in value.

Contractor's duty of care and limitation

Robinson v PE Jones (Contractors) Ltd [2010] TCLR T79 TCC
The defendant contractor was successful in defeating the claimant purchaser's action in respect of defective chimney construction in a house. The court accepted that in principle a contractor could owe a duty of care in tort concurrent with its contractual duty but that in this case it had successfully excluded such liability through contractual wording, which was not unfair within the meaning of the Unfair Contract Terms Act. No tortious duty of care therefore arose. Had there been one, it would have been statute barred under s.14A of the Limitation Act 1980, because the claimant would be taken to have acquired constructive knowledge of the defect more than three years before proceedings were issued.

PRACTICE AND PROCEDURE

Pre-judgment interest

Pre-judgment compound interest
by Pauline Ridge, Australian National University Law Quarterly Review Vol. 126 April 2010 p.279

The article discusses the Government's 2008 rejection of the Law Commission's recommendation of a rebuttable presumption of pre-judgment compound interest on awards or settlements over £15,000. The response was based on the Sempra Metals case and an apparent willingness to allow common law to take its course, while not ruling out subsequent intervention. The author considers the historical framework and the conceptual arguments for compound interest as restitution for unjust enrichment and concludes that they are not yet fully established.

Fiduciary duties

When do fiduciary duties arise?
by James Edelman, Keble College, Oxford
Law Quarterly Review Vol. 126 April 2010 p.302
The article considers the origins of the word 'fiduciary' and the debate surrounding relationships which should be treated as fiduciary. It explains the meaning and nature of a voluntary undertaking and shows why this is a necessary condition for a fiduciary duty. It shows how the duties most commonly recognised as 'fiduciary' are express or implied duties in relationships arising by voluntary undertakings.

Entire agreement clause

BSkyB Ltd v HP Enterprise Services UK Ltd [2010] BLM Vol. 27 No. 3 TCC
One of the many issues dealt with in BSkyB's claim regarding its commissioning of a customer relationship management system was the scope of an entire agreement clause in the contract between the parties. The BLM report deals exclusively with this issue, although there are also important findings on liability for misrepresentation, breach of contract, causation, mitigation and quantum. Ramsey J. held that the clause in question had the effect of excluding any alleged collateral warranty or side agreement. However, the clause did not exclude the bringing of an action for negligent misrepresentation, despite the fact that such a result could in principle be achieved by using clearer words.

Bribery statute

The United Kingdom Bribery Bill
by Toby Duthie and David Lawler, Forensic Risk Alliance, Construction Law Journal 2010 Vol. 26 No. 2 p.146
The article examines the progress and scope of the Bribery Bill since its inclusion in the Queen's Speech in November 2009. It received Royal Assent on 8th April 2010. The Act creates 4 new criminal offences:

  • offering or paying a bribe
  • requesting or receiving a bribe
  • bribing a foreign public official (under OECD Convention)
  • failing to prevent bribery (corporate offence)

The article considers the meaning for UK companies, specifically in certain sectors (oil and gas and healthcare), the use of agents and the effect on corporate entertaining.

Third party costs following strike-out

German Property 50 SARL v Summers-Inman Construction [2010] 128 Con LR 85 TCC
The claimant property developer had instructed the defendant as cost consultant on a retail development in Frankfurt. The defendant had sub-contracted valuation work to a third party and, when sued for negligence by the claimant, had issued a Part 20 claim against that third party. The claimant's case had collapsed and it had gone into receivership. The claimant was held liable in costs to the defendant and for a settlement of the third party's costs which the defendant had negotiated reasonably under Biggin v Permanite.

Application for stay pending protocol

Anglo Swiss Holdings Ltd v Packman Lucas Ltd [2009] 128 Con LR 67 and [2010] BLR 109 TCC
The defendant consultants obtained adjudication decisions in their favour against three Jersey companies, the claimants, for fees for professional work and judgment and charging orders when these were not honoured. The claimants issued proceedings alleging overpayment, which the defendants sought to stay. The court refused to stay proceedings for the TCC Pre-Action Protocol to be complied with, since most of the information must have been exchanged in the adjudication, but ordered a stay until the adjudication decisions had been honoured.

See Buildability v O'Donnell Developments under Keating Chambers Reported Cases on irrecoverability as costs of solicitor's mark-up on fees for success.

See Fitzroy Robinson v Mentmore Towers (No. 2) under Keating Chambers Reported Cases on factors to be considered in deciding request for adjournment of trial.

See Fitzroy Robinson v Mentmore Towers (No. 3) under Keating Chambers Reported Cases on effect of fraudulent misrepresentation on entitlement to fees and interest.

Exclusion of loss and dispute resolution

Ericsson AB v EADS Defence and Security Systems Ltd [2010] BLR 131 TCC
Although the case revolves around interim injunctions to prevent termination of an IT contract, the main feature of interest is the adequacy of damages when recovery of most types of economic loss had been excluded by contractual provision. The judge's view was that "I cannot see that it is unjust that a party is confined to the recovery of such damages as the contract, which it has entered into freely, permits it to recover." The BLR Editors question whether this decision can sit with the Court of Appeal decision in Bath and NE Somerset v Mowlem (Timothy Elliott QC, Adam Constable). The court held that the parties had agreed that they should have the opportunity to go to mediation or adjudication; it would be commercial nonsense if this were to be interpreted as an obligation to go to both.

Damages for breach of confidentiality agreement

Pell Frischmann Engineering Ltd v Bow Valley Iran Ltd [2010] BLR 73 Privy Council
Engineers Pell Frischman (PF) entered into joint venture agreements with partners (the defendants) with whom it sought contracts to develop Iran's offshore oilfields. The agreements contained confidentiality clauses, agreeing not to share knowledge or work with other parties. Subsequently, the consortium failed to obtain the work and broke up, leaving the defendants to enter into the contracts on the same terms as offered to PF. PF succeeded in an action for breach of the confidentiality provisions in the Jersey courts, which awarded £500,000 in damages. On appeal to the Privy Council, these damages were increased to US$2.5 million, based on loss "of a bargaining opportunity or...the price payable for the compulsory acquisition of a right."

KEATING CHAMBERS REPORTED CASES

Speymill Contracts Ltd v Baskind [2010] BLM Vol. 27 No. 3 CA

The Court of Appeal approved the reasoning of the TCC in SG South v King's Head Cirencester (Thomas Lazur) in holding that fraud or deceit by the enforcing party could be raised as a defence in resisting enforcement of an adjudication decision. However, on the facts, the allegations of theft were insufficient to prevent enforcement. Summary judgment was entered, but execution suspended because of the claimant's poor financial circumstances.
Marcus Taverner QC
Jonathan Selby

European Dynamics SA v HM Treasury [2010] Con LJ Vol. 26 No. 3 TCC
Following a pre-qualification exercise for software applications contracts, the claimants had been unsuccessful with their tenders and obtained an interim injunction to prevent the award of contracts to the successful tenderers. The claimants had complaints regarding the system for scoring tenders and the fairness of their application. The court discharged the injunction, considering Regulation 47 of the Public Contracts Regulations 2006 on limitation and that the adequacy of damages and the balance of convenience favoured the defendants. See also B2 Net v HM Treasury on similar issues.
Sarah Hannaford QC
James Thomson

Fitzroy Robinson Ltd v Mentmore Towers Ltd (No. 3) [2010] 128 Con LR 103 (TCC)

This is the quantum hearing on damages arising from the professional liability/fees dispute reported at [2009] 125 Con LR and noted in the February issue. See also the application to adjourn reported in 128 Con LR and noted in this issue. The defendants had established fraudulent misrepresentation by the claimant architecture practice but this did not deprive the claimant of its right to fees for work done, except where affected by the misrepresentations. The fraud would not prevent interest becoming payable on the unpaid fees.
Paul Darling QC

Costain Ltd v Charles Haswell & Partners Ltd [2010] 128 Con LR 154 TCC

In this case brought by design and build contractor Costain against its design engineer Haswell, regarding water treatment works, a number of important issues arose. As well as the fundamental existence of a contract where there appears to be differences over scope and ambit of professional services and quantum issues relating to delay and double recovery, the court considered whether a contract might impose strict liability aspects onto a basic reasonable skill and care professional duty. In the result, as the Con LR Editors note "The decision on costs turned out to be much the most important aspect of the case and had a dramatic effect on the financial outcome."
Nerys Jefford QC

Fenice Investments v Jerram Falkus Construction Ltd [2010] 128 Con LR 124 TCC
The case concerned the conflict of interim payment provisions in the JCT Design and Build Contract 2007 between the Employer's Requirements (ER) and Clause 4. Section 15(c) of the ER was in conflict with Clause 4.10; the latter should prevail, because of Clause 1.3.

The Con LR Editors make the point that the case is also of interest on the issue of Part 8 proceedings in adjudication proceedings. The court took the view that it would be wrong to contest an enforcement application notwithstanding the existence of a Part 8 argument on the issue; costs consequences might follow if a party ignored this.
William Webb

O'Donnell Developments Ltd v Build Ability Ltd [2010] 128 Con LR 141 TCC
The adjudicator was held to have been correct in holding that an implied term in the contract for adjudication gave him a 'slip rule' power to correct an accidental error or omission. This has to be within a reasonable time; the Local Democracy Economic Development and Construction Act (not yet in force) provides for a statutory slip rule in adjudication but leaves time to be dealt with by implication as well. (For other litigation between these parties on this project see Buildability v O'Donnell in this issue).
Finola O'Farrell QC

Buildability Ltd v O'Donnell Developments Ltd [2010] BLR 122 TCC
Following seven adjudications on a sub-contract dispute over preliminary works at the Cube in Birmingham, Buildability, the main contractor, commenced Part 8 proceedings against O'Donnell, the sub-contractor. Buildability entered into a conditional fee agreement by which its solicitors received a 100% mark-up on their fees in the event of success. Buildability was held, in broad terms, to have succeeded in the litigation, although O'Donnell also had a measure of success which would result in a deduction of costs. Buildability could not recover from O'Donnell any of the 100% uplift they had agreed with their solicitors under the conditional fee agreement.

Fitzroy Robinson Ltd v Mentmore Towers (No. 2) [2010] 128 Con LR 91 TCC
The first hearing in this professional liability/fees dispute has already been reported [2009] 125 Con LR and noted in the February 2010 Update. This was an application by the defendants to adjourn a quantum hearing on the grounds that a meeting of experts directed by the judge had not taken place. The decision is of value because the judge sets out the factors to be considered in hearing such an adjournment application:

  • the parties' conduct /reason for delays
  • extent to which consequences of delays can be overcome
  • extent to which a fair trial may have been jeopardised by delays
  • specific matters affecting trial e.g. illness of crucial witness
  • consequences of adjournment for parties and court

In the result, the application was refused, principally because of the defendants' conduct and the impact upon the claimants.
Paul Darling QC

William Hare Ltd v Shepherd Construction Ltd [2010] EWCA Civ 283 CA and BLM April 2010 Vol. 27 No. 4
The CA upheld the TCC's decision (noted in October 2009 issue) that the client was not to be regarded as insolvent for the purposes of the HGCR Act s.113 exception to the ineffectiveness of 'pay when paid' clauses, since the sub-contract was worded in accordance with the original 1996 provisions. The Court of Appeal regarded the onus of getting a clause of this nature right to be on the party relying on it. It was not the task of the court to rescue the defendant from the consequences of the oversight.
Alexander Nissen QC
Stephen Furst QC &
Krista Lee

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This material is prepared for Chambers by our Director of Research and Professional Development, Professor Anthony Lavers (LL.B. M.Phil Ph.D. D.Litt MCI.Arb FRICS Barrister) Visiting Professor of Law, Oxford Brookes University.

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This material is prepared for Chambers by our Director of Research and Professional Development, Professor Anthony Lavers (LL.B., M.Phil, Ph.D. MCI.Arb, MRICS Barrister), Visiting Professor of Law, Oxford Brookes University.

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These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions