UK: Case Law Update - January 2012

ADJUDICATION

More than one dispute?

Witney Town Council v Beam Construction (Cheltenham) Ltd [2011] BLM Vol. 28 No. 10 November 2011

The Council, as employer, sought to resist enforcement of the adjudicator's decision on the ground that Beam, the contractor, had referred 4 disputes to adjudication, in the first relating to the draft final account, the second to the final account, the third being interest on retention and the fourth for payment on retention, so that the adjudicator lacked jurisdiction. The court held that these were all aspects of the same dispute, namely what was due and owing to the contractor and that the adjudicator had therefore had jurisdiction. The contractor obtained summary judgment. Fastrack Contractors v Morrison (Simon Hargreaves QC) was applied.

See also Carillion Construction v Smith under Keating Chambers Reported Cases on serial adjudications.

See Hyder Consulting v Carillion Construction under Keating Chambers Reported Cases on natural justice in adjudicator's use of own methodology.

See Urang Commercial v Century Investments under Keating Chambers Reported Cases on enforcement despite error by adjudicator on need for withholding notice.

Adjudicator's fees where adjudication invalid

Systech International Ltd v PC Harrington Contractors Ltd [2011] BLM Vol. 28 No. 10 November 2011 and [2011] CILL 3110 TCC

This was litigation related to the adjudication natural justice case of PC Harrington v Tyroddy Construction. In that case it was established that there had been a significant breach of natural justice by the adjudicator which invalidated his decision. The court held that this did not mean that there had been a total failure of consideration so as to deprive

the adjudicator of his entitlement to fees, although such an outcome could result if it were shown that he had acted dishonestly, fraudulently or otherwise in bad faith.

ARBITRATION AND DISPUTE RESOLUTION

Construction Law Vol. 22 Issue 10 December 2011

contains the following articles:

Expert determination or arbitration
by Jane Fender-Allison, Dundas & Wilson.

The cross border Mediation Directive
by Vijay Bange, Trowers & Hamlins.

New ICC Rules of Arbitration
by Edward Freeman, Clyde & Co.

Anti-suit injunction

Excalibur Ventures LLC v Texas Keystone Inc [2011] 138 Con LR 133 Commercial Court

The Claimant, for apparently tactical reasons, issued ICC arbitration proceedings in New York in parallel with commencing litigation in the Commercial Court in London, presumably to obtain a world-wide freezing order which it could not get from the arbitration. The Con LR Editors note that the claimant was then "hoisted by its own petard" when the Commercial Court held the proceedings before it to be substantive, since Excalibur had clearly voluntarily submitted to its jurisdiction, and it was the appropriate court for determining the parties to the arbitration agreement. The consequence was that the defendants were able to obtain an anti-suit injunction restraining the continuation of the arbitration proceedings.
Expert determination

Barclays Bank plc v Nylon Capital LLP [2011] BLR 614 Court of Appeal

This was a (non-construction) dispute between bank and hedge fund, under a contract which provided for expert determination of disputes as to profit allocation under the partnership agreement by which the LLP was set up.

The CA had to decide an appeal against a decision of the Chancery Division in favour of Barclays which raised issues as to the jurisdiction of the expert and powers of the court to intervene in the expert's determination. Generally, the parties should be bound by their agreement and the court will only intervene to interpret the provisions of the contract clause relating to expert determination. Whether the expert can rule on jurisdiction depends upon the express agreement; the court could rule on this as a preliminary matter. It was suggested obiter that even a final and binding expert determination might be subject to challenge if made on the basis of an error of law.

CONSTRUCTION AND ENGINEERING
CONTRACT DISPUTES LAW

See Jerram Falkus Construction v Fenice Investments under Keating Chambers Reported Cases on the effect of a time bar clause on claims under JCT DB 2005 and on the prevention principle.

Implied terms as to quality

Lowe v W. Machell Joinery Ltd [2011] 138 Con LR 48 and [2011] BLR 5901 CA

The non-compliance of a staircase with Building Regulations meant that it breached the requirements of satisfactory quality and fitness for purpose under the Sale of Goods Act ss 14(2) and 14(3). The fact that it could be made to comply relatively easily did not change this finding and accordingly the purchasers were entitled to reject it. A majority of the Court of Appeal allowed the claimants' appeal, as the suppliers' arguments were rejected.

Causation in contract claim

Hi-lite Electrical Ltd v Wolseley UK Ltd [2011] BLR 629 TCC

There was a previous hearing in this case on issue estoppel and abuse of process, which concerned novus actus interveniens and causation, following a fire in a health spa allegedly caused by a defective pump. The court refused to grant a declaration that the supplier of the pump, the defendant Wolsely, was liable for the fire. Hi-Lite, who had installed the pump, had been held liable to the owners and sought to obtain a finding of liability against their supplier. Hi-Lite could not prove, on a balance of probabilities, that the cause of the fire was a manufacturing defect. There were held to be no possibilities of apportionment of liability in a case where either the Law Reform (Contributory Negligence) Act or the Civil Liability (Contribution) Act did not govern.

Battle of forms and causation

Trebor Bassett Holdings Ltd v ADT Fire and Security plc [2011] BLR 661 TCC

Following a £110 million fire at their confectionery factory, the claimant manufacturers sued the defendant suppliers of their fire protection system. The suppliers argued that the contract was formed on their standard terms, which contained a wide-ranging exclusion clause. However, the suppliers' quotation, based on their terms and conditions, was held to be an offer, followed by the claimants' purchase order, which was a counter offer. These were the terms and conditions of the contract, with the addition of the defendants' specification, since the claimants provided almost no technical information. The defendant sought to rely on breaks in the chain of causation to deny liability, but had failed to discharge the evidential burden upon the party asserting it, notwithstanding that the claimants had the overall burden of proving causation. There had been contributory negligence by the claimants in failing to address needs for training and risk assessment.

CONTRACT AND PROCUREMENT LAW

Construction Law Vol. 22 Issue 10 December 2011

contains the following articles:

Unwritten contracts – a good idea?
By Hamish Lal, Jones Day

Could changes mean fewer disputes
by Michael Phipps, Thurston Consultants
(on the JCT With Quantities Edition's payment provisions)

Notices become the payment trigger
by Victoria Peckett, CMS Cameron McKenna
(on changes to JCT payment provisions).

The Peak effect – issues
by James Pickavance and Michael Mendelblat, Herbert Smith
(Part 2 of prevention principle analysis).

Policy might not mean what it says
by John D Wright, JD Risk Associates
(on standard policy wording).

A stitch in time
by Jane Hughes, Collyer Bristow
(TCC cases on failure to agree essential contractual details).

Construction Newsletter November/ December 2011

contains the following article:

Letter of intent-bound by uncertainty?
By Catherine Davis, Foot Anstey

Decision to set aside framework agreement challenged

Henry Bros (Magherafelt) Ltd v Department of Education for Northern Ireland [2011] CILL 3102 Northern Ireland Court of Appeal
The Department's appeal against the order to set aside their framework agreement for breach of the Public Contracts Regulations 2006 was unsuccessful. The contractor's claim had not been time barred, although the breach had occurred when the Department applied an incorrect criterion. This was because, on the facts, an extension to the limitation period of three months would inevitably have been granted. The judge had been entitled to set aside the framework agreement, under Regulation 47. The 2009 Public Contracts (Amendment) Regulations have amended Regulation 47 so that only damages would now be available (CILL Editor's note).

GENERAL AND PROFESSIONAL NEGLIGENCE

Noise nuisance and acoustic barrier

Thornhill v Nationwide Metal Recycling Ltd [2011] 138 Con LR 84 Court of Appeal

The claimants failed in their appeal against the trial judge's finding that a noise nuisance caused by the operation of a scrap-yard had ceased with the erection of an acoustic barrier. They had argued that his decision was erroneously based on personal discomfort rather than harm to property, but the CA rejected this interpretation of the finding and upheld it. The defendants failed in a cross-appeal against the costs order; although the claimants had failed to comply with the Practice Direction Pre-action Conduct, they had been sufficiently penalised in costs and would not be penalised for failing to settle while the nuisance had been continuing.

PRACTICE AND PROCEDURE

Court fee increase proposals

On 15 November, the Ministry of Justice published a consultation paper containing proposals to increase fees in the High Court and the Civil Division of the Court of Appeal. The intention would be to move from 80% funding from fees to 100% funding from fees, partly by the increase and partly by cost reductions in civil and family justice processes and by reforms of the courts estate.

Higher bands of issue fees would be introduced, up from a maximum of £1,670 to £10,000 for cases of over £1 billion in value, and time-related hearing fees would reflect the increased cost of longer trials.

Details are available at
www.justice.gov.uk/consultations

Loser pays the costs

F&C Alternative Investments (Holdings) Ltd v Barthelemy [2011] EWHC 1851 (Ch)

In commercial litigation, the starting point will be working out who the winner is, initially at least by seeing where money has been ordered to be paid. Often the loser should pay the winner's costs even where there had been issues on which the overall winner had lost. However, parties need to be afforded a reasonable degree of latitude in formulating claims, including pleading alternative bases for the same claim.

The Commercial Litigation Journal No. 40/December 2011

contains the following articles:

Hear no evil, see no evil
by Clare Arthurs, Manches (on the implications for privilege of the Keydate case).

In the club
by Peter Brewer, Weightmans (on the liability of members of associations).

Lady in the lake
by Ben Holland, CMS Cameron McKenna (on Excalibur v Texas Keyystone: jurisdiction to decide validity of arbitration agreement).

Get a grip: keeping a sense of proportion
by Melanie Hart, Harbottle & Lewis (on the implications for costs of the Trafigura case).

Unfairness as justice
by John Bruce, Donald McDonald and Majella McGarrigle, Kennedys (on unfair relationships under the Consumer Credit Act 1974).

United forever?
by Tim Harris, Bird & Bird (on proposals for a unified patents court).

Look before you leap
by David Sawtell, 4 King's Bench Walk (on the law relating to assumption of risk in tort).

Interpretation of bonds

Rainy Sky SA v Kookmin Bank [2011] CILL 3105 and [2011] 138 Con LR 1 Supreme Court

The Con LR Editors describe this decision as "significant" because "the opportunity was taken by the Supreme Court to confirm that the shift away from 'black letter law' to a more purposive approach to interpretation applies to contracts of indemnity in the same way that it applies to other contracts". The shipbuilding contracts in this case contained provision for recovery of advance payments by the purchaser. This was not made explicit in the express wording of the bonds provided, leaving the courts to decide by interpretation whether the words 'such sums' included the advance payments. The unanimous decision of the Supreme Court, allowing the claimant's appeal from the Court of Appeal, was that these words were intended to include the advance payments. The Supreme Court regarded this result as following logically from Investors Compensation Scheme v West Bromwich BS and Chartbrook v Persimmon Homes. As Lord Clarke put it "the ultimate aim of interpreting a provision in a contract, especially a commercial contract, is to determine what the parties meant by the language used, which involves ascertaining what a reasonable person would have understood the parties to have meant".

Since the commercial purpose of on demand bonds is to provide security which is readily realisable, it made business sense for them to be construed so as to include the advance payments:

"If there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other".

See Hackney Empire v Aviva Insurance under Keating Chambers Reported Cases on effect of on-demand bond and obligations under side agreement.

Effect of entire agreement clauses

AXA Sunlife Services plc v Campbell Martin Ltd [2011] 138 Con LR 104 CA

The Court of Appeal re-examined the classic case of Curtis v Chemical Cleaning on the effect of exclusion clauses on misrepresentations in interpreting the entire agreement provisions of agency contracts. The provisions were effective to exclude collateral warranties but not to exclude liability for misrepresentation and the wording was insufficiently clear to exclude the possibility of implied terms if needed to provide business efficacy. Such clauses might be subject to the provisions of the Unfair Contract Terms Act and the Misrepresentation Act and the court indicated (obiter) that they were reasonable except for the provisions as to set-off.

Meaning of 'best endeavours'

Jet2.com v Blackpool Airport Ltd [2011] BLM Vol. 28 No. 9 Commercial Court

The court confirmed that there was no difference in meaning between contractual obligations to use 'best endeavours' and 'all reasonable endeavours'. The context was an agreement to promote an airline's low cost flights. However, the judge emphasised that, while they were the same in this contract, a different context could lead to a different interpretation.

Contract interpretation and rectification

Woodford Land Ltd v Persimmon Homes Ltd [2011] BLM Vol. 28 No. 9 Chancery Division

In a dispute over the interpretation of an option agreement for the sale of land, the court refused rectification of a contract to claimants and instead gave an interpretation of the contract which was favourable to the claimants, but which the claimants had abandoned. The BLM Editors note that the relationship between interpretation and rectification was considered relatively recently by the House of Lords in Chartbrook v Persimmon Homes.

Unreasonable standard term in land sale

Cleaver v Schyde Investments Ltd [2011] BLM Vol. 28 No.10 November 2011 CA

The Court of Appeal held that Condition 7.1.3 of the Standard Conditions of Sale (4th ed) was of no effect in a commercial property transaction because it did not satisfy the test of reasonableness for the purposes of the Misrepresentation Act. Condition 7.1.3 purports to limit considerably the extent to which an error or omission entitles the buyer to rescind the contract. While the CA did not hold that the clause was invalid generally, it held that it was unreasonable in the circumstances of the parties in this case, where an application for planning permission had an adverse effect on planning risk of which the purchaser had been misinformed by the defendant vendor.

Interpretation of poorly-drafted contract terms

Multi-link Leisure Developments v North Lanarkshire Council [2011] BLM Vol. 28 No. 10 November 2011 Supreme Court

The Supreme Court had to rule on the interpretation of a lease agreement with an option to purchase. The Court held that where the quality of drafting is poor, the court is less likely to conclude that words should simply be given their ordinary and natural meaning and more likely to depart from them in favour of a commercially sensible outcome. The BLM Editors express concern that this may not sit comfortably with Investors Compensation Scheme v West Bromwich Building Society or Rainy Sky v Kookmin Bank (see above in this section). Lord Rodger advised, where possible, starting with parts of the agreement which were clear and using them to "unravel the meaning of the parts which are more difficult to understand."

KEATING CHAMBERS REPORTED CASES

Jerram Falkus Construction Ltd v Fenice Investments Inc. [2011] 138 Con LR 21 and [2011] BLR 644 TCC

The case provides interpretation of the time limit for claims under Clause 1.9.4 of JCT Design and Build 2005, holding that the 28 day deadline means that the losing party in an adjudication must challenge the result within that time, by commencing arbitration or litigation. There is much useful discussion, rendered obiter by this finding on time limits, on the prevention principle and the cases of Multiplex Constructions v Honeywell (David Thomas QC and Marc Rowlands) and Adyard Abu Dhabi v SD Marine (Adam Constable QC and Lucy Garret). The prevention principle arguments advanced by Jerram Falkus, the claimant, were unsuccessful on the facts. The employer, Fenice, was entitled to levy liquidated damages.
William Webb

Hackney Empire Ltd v Aviva Insurance UK Ltd [2011] 138 Con LR 165

The case concerns the effect and extent of a bond issued by Aviva to guarantee obligations of the contractor on the Hackney Empire theatre refurbishment. Obligations assumed by the contractor under a side agreement were held not to be within the scope of the guarantee by Aviva and so it had no liability in respect of sums arising from those. The court had to consider the extent to which the surety was prejudiced by payments on account made to the contractor, for claims which were never fully substantiated.
David Thomas QC

Hyder Consulting (UK) Ltd v Carillion Construction Ltd [2011] 138 Con LR 212 TCC

Hyder succeeded in obtaining summary judgment enforcing an adjudicator's award against Carillion. Carillion challenged enforcement on the grounds of breach of natural justice: the adjudicator's use of his own methodology for calculating the Target Cost under the agreement and failure to allow the parties, specifically Carillion, to comment on it. The Con LR Editors conclude that "if the adjudicator's methodology itself is implicit from material supplied by one of the parties and upon which the other party has had an opportunity to comment, there will be no breach of natural justice."
Fionnuala McCredie

Urang Commercial Ltd v Century Investment Ltd [2011] 138 Con LR 233 TCC

The court granted enforcement of the adjudicator's award in favour of the contractor against the defendant owner, despite the adjudicator's error. The adjudicator had been wrong in holding that the defendant could not deploy a counterclaim against Urang's claims; there was only a requirement to serve a withholding notice for sums due in interim valuations, not in relation to other claims by the contractor. However, this one was an error within the adjudicator's jurisdiction and there was no breach of natural justice, so enforcement would be granted.
Samuel Townend

Carillion Construction Ltd v Stephen Andrew Smith [2011] CILL 3097 TCC

Mr Smith, the claimant, had commenced a third adjudication under his own name, after his company, the sub-contractor, had attempted to recover loss and expense from Carillion, the main contractor, in two previous adjudications. Carillion objected to the third adjudicator's jurisdiction and obtained a declaration that the dispute in the third adjudication was sufficiently similar to that in the second to constitute the same dispute, despite the existence of additional material and argument not available in the second adjudication. The court considered Quietfield v Vascroft (Abdul Jinadu) and Benfield v Trudson (Hatton) (Piers Stansfield).
Simon Hargreaves QC
William Webb

The articles and papers published by Keating Chambers are for the purpose of raising general awareness of issues and stimulating discussion. The contents must not be relied upon or applied in any given situation. There is no substitute for taking appropriate professional advice.

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.

Further Information
For further information on how our members can assist you, please contact the Director of Clerking, Paul Cooklin or Senior Clerk, Nick Child in the first instance on +44 20 7544 2600. The teams of Clerks will be pleased to advise you on the member of Keating Chambers appropriate to your requirements.

The articles and papers published by Keating Chambers are for the purpose of raising general awareness of issues and stimulating discussion. The contents must not be relied upon or applied in any given situation. There is no substitute for taking appropriate professional advice.

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