UK: Construction, Property & Real Estate (Case Law Review – October 2006)

Last Updated: 20 October 2006

ADJUDICATION

Pay-when-paid
Pay-when-certified

Construction Act Review by Peter Sheridan, Shadbolts Construction Law Journal 2006 Vol. 22 No. 5 p.324
The focus of the regular column is s.113 of the HGCR Act and its effect on pay-when-paid clauses and their near relative pay-when-certified. The nearness of the relationship was, of course, emphasised by the outcome of Midland Expressway v Carillion (Nerys Jefford) in the TCC (see now the CA decision, but not on this point), which is one of the main points of focus of the article. The other is Durabella v J. Jarvis. The article gives the Latham background to the legislation and considers s.113 itself which is criticised for the outcome of the Midland Expressway case.

Award of costs: appeal allowed

John Roberts Architects v Parkcare Homes (No. 2) Construction Law Journal 2006 Vol. 22 No. 5 343 CA
The CA reversed the TCC’s decision that an adjudicator had no power to award costs in the event of the adjudication being discontinued. The CA held that it would be very odd if the power to award costs only arose where there was a substantive contested decision. That would mean that either party, having behaved unmeritoriously in advancing claim or defence, could then avoid the consequences of the expense generated by throwing in their hand at the eleventh hour. Therefore under clause 9.2 of CE/99, which had been used to replace clause 29 in the CIC Model Adjudication Procedure 3rd Ed. used, the adjudicator could award costs "as part of what he had to decide".

Construction Law Vol. 17 Issue 7 August/September 2006 contains the following articles:

Could I just say?
by Paul Newman, Hugh James
(on Boardwell v K3D Partnership: refusal to enforce decision in favour of claimant).

Architects bound
by Fraser McMillan, Pinsent Masons
(on Castle Inns (Stirling) v Clark Contracts: on the extent to which fresh adjudicable disputes can be generated by subsequent payment certificates).

See Rohde v Markham-David under Keating Chambers Reported Cases on setting aside enforcement where the defendant was unaware of the adjudication proceedings.

ARBITRATION AND DISPUTE RESOLUTION

Challenges to awards

Kershaw Mechanical Services Ltd v Kendrick Construction Ltd [2006] CILL 2359 TCC
The main significance of the case is the argument, and subsequent discussion in the judgment of the philosophy underpinning judicial interpretation of the provisions in the Arbitration Act governing challenges to awards. The court rejected the idea of a philosophy of outright non-intervention and distinguished between s.69 challenges (as in this case) and s.68 serious irregularity challenges as in the Lesotho Highlands case.

Note: the court observed that, in a s.69 challenge, the court should receive a copy of the award and of any document referred to in the award which would be necessary to determine the matter.

See Taylor Woodrow v Barnes & Elliott under Keating Chambers Reported Cases on the court’s discretion whether to determine a question of law in an arbitration when reference is sought.

Dispute Resolution Magazine Vol. 12 No. 3 Spring 2006 contains the following articles:

Importing and exporting ADR
by Carrie Menkel-Meadow, Georgetown University.

Resolving public conflicts in developing countries
by David Fairman, Consensus Building Institute.

ADR Missionaries
by Michael Palmer, Strategies for Good Outcomes.

ADR in Paraguay
by Carlos Dario Ruffinelli Céspedes, Moreno Ruffinelli & Asociados

The South African Truth and Reconciliation Commission
by Richard Goldstone.

Comparative considerations: toward the global transfer of ideas about dispute system design
by Amy Cohen and Ellen Deacon, Ohio State University.

Lessons learned: challenges in the export of ADR
by Lukasz Rozdeiczer, Georgetown University.

The ICC International Court of Arbitration Bulletin 2006 Vol. 17 No. 1
contains the following items:

2005 Statistical Report
1422 parties were involved in new disputes filed with the Court, from 117 countries. Mainland China has overtaken Hong Kong for the first time. France and Germany continue to dominate Western European references, but Eastern European business is growing. The number of parties from the UAE has doubled. The USA is the most heavily represented country of all.

New Chairman
Professor Pierre Tercier of Switzerland has been appointed as the new Chairman of the Court from March 2006.

Terms of Reference
by Serge Lazareff, Paris Bar.

The language of the arbitration: reflections on the selection of arbitrators and procedural efficiency
by Eliseo Castineira ICC, and Markus Petsche, Gide Louyrette Nouel.

Application of the Vienna International Sales Convention in Arbitration
by Alexis Mourre, Castaldi Mourre Sprague.

ICC arbitral awards relating to banking

Journal of International Arbitration Vol. 23 No. 4 August 2006
contains the following articles:

Determination, interpretation and application of substantive law in foreign investment treaty arbitrations
by Virtus Igbokwe, Osgoode Hall Law School

Peace talks before war: the enforcement of clauses for dispute resolution before arbitration
by Sarah Leonard, Corrs Chambers Westgarth and Kanaga Dharmananda, Francis Burt Chambers.

Validity and efficacy of stabilisation clauses – legal protection v functional value
by Abdullah Faruque.

The notion of time in ICSID’s case law on indirect expropriation
by Bjorn Kunoy.

Egregious error of law as grounds for setting aside an arbitral award
by Jean-Paul Beraudo, Paris I University.

Recent developments in OHADA arbitration
by Gaston Kenfack Douajni
(OHADA is the French acronym for the Organisation for the Harmonisation of Business Law in Africa).

Arbitration Law Monthly August 2006 Vol. 6 No. 7
contains the following articles:

Serious irregularity
on ABB AG v Hochtief (defects in reasoning).

Appeal on point of law
on Sukuman v Commonwealth Secretariat (exclusion of the right of appeal).

Jurisdiction
on Republic of Ecuador v Occidental Exploration and Production Co. (No. 2) (scope of bilateral investment treaty).

Conflict of laws

on Halpern v Halpern (law applicable to aspects of arbitration).

Costs
on Sea Trade Maritime Corporation v Hellenic Mutual War Risks Association (The Athena) (reserving the award of costs).

Arbitration International 2006 Vol. 22 No. 2
contains the following articles:

The role of arbitration within today’s challenges to the world community and to international law
by Karl-Heinz Böckstiegel.

Achieving the dream: autonomous arbitration
by Prof. Julian Lew QC, Queen Mary, University of London.

Efficient management of transnational disputes: mutual gain by mediation or joint loss in litigation
by Thomas Wölde, Essex Court Chambers.

The arbitral tribunal’s role in default proceedings
by Judith Butchers and Philip Kimbrough, Kimbrough Associés, Paris.

Some thoughts on teaching international ADR and the case for reality-based simulations
by Jack Coe, Pepperdine University.

Access to information and awards
by Emmanuel Jolivert, ICC.

Acquisition of skills and accreditation in international arbitration
by Doug Jones, Clayton Utz.

Arbitration by the numbers: the state of empirical research on international arbitration
by Christopher Drahozal, University of Kansas

Promoting effective arbitration through legal assistance programmes
by Patricia Shaughnessy, Stockholm University.

The William C. Vis. International Commercial Arbitration Moot and the teaching of international commercial arbitration
by Eric Bergsten, Pace Law School.

Arbitration: the Journal of the Chartered Institute of Arbitrators Vol. 72 No. 3 August 2006 contains the following articles:

Dispute resolution by non-official institutions in traditional China
by Bobby Wong, Barrister, Hong Kong.

Aspects of Russian legislation relating to recognition and enforcement of foreign awards: the Noga case
by Nikolai Lazarev, Norton Rose.

Default power of the Chief Justice to appoint arbitrators: Indian Arbitration and Conciliation Act 1996 s.11
by OP Malhotra, Senior Advocate, India.

Anti-suit injunctions and arbitration proceedings
by Michael Black QC, 2 Temple Gardens and Rupert Reece, Gide Loyrette Nouel, Paris.

Arbitrations and judges – how much interference should we tolerate?
by Sir Anthony Colman (Worshipful Company of Arbitrators Master’s Lecture 2006).

International arbitration, yesterday, today and tomorrow
by Sir Bernard Rix, Lord Justice of Appeal.

Corruption in arbitration and mediation compared
by Arthur Marriott QC, Leboeuf, Lamb Greene and MacRae.

Public policy and corruption in international arbitration: a perspective for Russian-related disputes
by Richard Kreindler, Shearman and Sterling, Frankfurt.

CONSTRUCTION AND ENGINEERING CONTRACT LAW

Assignment allowed

Co-operative Group (CWS) Ltd v Stansell Ltd [2006] BLR 233 and [2006] TCLR 5 CA
Co-operative Retail Services by resolution transferred all its property and assets to the Co-operative Group (both were societies registered under the Industrial and Provident Societies Act). When CWS commenced arbitration proceedings against CRS’s contractors Stansell, the defendants took the point that the resolution was ineffective to transfer rights against them, by virtue of clause 18.1 of the then JCT standard form. The trial judge upheld this, but the CA allowed the appeal. The wording of the Act was held to be wide enough to support the statutory assignment of rights. But for the statutory nature of the assignment, the clause would have been effective to prevent it. Linden Gardens v Lenesta Sludge (Richard Fernyhough QC and Marcus Taverner QC) is therefore still good law.

Meaning of provisional sum

Midland Expressway Ltd v Carillion Construction Ltd [2006] BLM July 2006 Vol. 23 No. 7 p.1 CA
The first instance hearing of this case (in which Nerys Jefford appeared) concerned a whole range of issues including, notably, the use of ‘equivalent project relief’ provisions in PFI contracts. This appeal to the CA was on a discrete point: the meaning of ‘provisional sum’ and the contractors’ entitlement to be paid. The CA dismissed the contractors’ appeal, upholding the employers’ case that a provisional sum was only payable at all under the contract if and to the extent that the employer so instructed. The appropriate actual amount would be substituted. The CA criticised the lack of clarity of the contractual provision and the BLM editors recommend that "The safest course is to insert into the contract a clause which provides for the provisional sum to be omitted and an appropriate valuation of the work actually carried out to be substituted for it".

Construction Law Vol. 17 Issue 7 August/ September 2006 contains the following articles:

Minor works by design
by Michael Phipps, Thurston Consultants (on JCT Minor Works With Contractor’s Design version).

FIDIC MDB Harmonised Construction Contract
by Robert Bryan, Simmons & Simmons.

The changing nature of risk
by Philip Norman, Pinsent Masons.

Teamworking in practice
by David Mosey, Trowers & Hamlins

Collateral warranties mean what they say?
by Neil Kelly, MacRoberts (on Safeway Stores v Interserve: Philip Boulding QC and David Thomas QC).

Compulsory employers’ liability insurance
by John Wright, JW Risk Associates.
See ERDC v Brunel University under Keating Chambers Reported Cases on quantum meruit as a basis for payment for work done under and after letters of intent.

Liquidated damages

A fresh look at liquidated damages by Thomas Thompson Construction Law Journal 2006 Vol. 22 No. 5 p. 289
The article considers the old classic cases including Temloc v Errill (Paul Darling), Philips Hong Kong v AttGen of Hong Kong (Richard Fernyhough) and Piggott Foundations v Shepherd (Marcus Taverner) and examines the purpose of the liquidated damages/penalty rule. The author, a former civil engineering contractor, supplements his view of the law with the product of his own practical experience.

Prevention principle

Prevention and damages: who takes the risk for employer delays?
by Stephen Rae, Stapleton International, Construction Law Journal 2006 Vol. 22 No. 5 p.307
The article goes back to first principles on employer acts of prevention and effect on liquidated damages. There is significant treatment of Australian case law, which has figured largely in modern development of the subject. The author is highly critical of the late Ian Duncan Wallace’s forthright views on the Australian authorities, which have themselves been referred to in the Australian courts.

See Construction Partnership UK v Leek Development under Keating Chambers Reported Cases on what constitutes actual delivery of a notice of determination.

See Associated British Ports v Hydro Soil Services under Keating Chambers Reports Cases on whether unfitness of works was due to design or workmanship and on foreseeability of physical conditions.

Subsequent conduct allowed as evidence
Maggs v Marsh [2006] All ER (D) 95 CA
A contract for refurbishment of a house was partly oral and partly written. The judge had refused to allow post-contractual conduct as evidence of what the parties had actually agreed by way of extra works and payment for them. However, the CA, allowing the appeal, held that the principle that post-contractual conduct could not be used in construing a written contract did not apply to oral contracts and did not apply to the oral parts of part written/part oral contracts.

See Offer-Hoar v Larkstore under Keating Chambers Reported Cases on assignment of a contractual right of action from vendor to purchaser of site.

Letters of intent

What are your intentions?
by Beverley Whittaker, Stevens & Bolton, New Law Journal 28 July 2006 p.1200
The article is not restricted to construction, but it concentrates on two recent construction law cases on letters of intent, namely Skanska Rashleigh Weatherfield v Somerfield and Mowlem v Stena Line Ports (Piers Stansfield).

GENERAL AND PROFESSIONAL NEGLIGENCE

No duty of care to third party under injunction

Customs & Excise Commissioners v Barclays Bank [2006] 3 WLR 1 HL
Although not a construction case, this decision of the HL is worth noting as part of the law on negligence and the limits of recoverability of economic loss. The bank was notified by a third party i.e. the claimant, of a freezing order which covered an account holder with the bank. The bank failed to implement the freezing order and the third party suffered loss accordingly. However, it was held that the bank owed no duty of care to prevent such financial loss.

Alleged negligent misstatement by omission

Sutradhr v Natural Environment Research Council [2006] UKHL 33 HL
Although not a construction case, it is included as an application of the limits on the law of negligent misstatement. A Bangladeshi claimant, who had been affected by drinking water contaminated with arsenic, failed in a claim against the NERC in respect of a report issued by the British Geological Survey, which did not mention such a risk. This was alleged to have influenced the Bangladeshi authorities, but no duty to the claimant existed.

Negligence claim for fire damage fails

Wessanen Foods Ltd v Jofson Ltd [2006] BLM Vol. 23 No. 7 July 2006 p.4 TCC
The defendant was held not to be liable for losses suffered by the claimant factory owner following fire damage to the claimant’s factory. The fire had started in a fork-lift truck hired by the claimant from the defendant. The claimant alleged negligence by the defendant in the electric cable used on the truck, in failure to warn the claimant of known problems and in failing to send a maintenance engineer when initial problems were encountered. The BLM report is largely concerned with the contractual provisions; there was also a belated attempt to plead a tortious duty of care, but the court held this to be exactly the same as the contract claim and dismissed both. There is some useful consideration of the limitation of liability provisions in the contract, although this was not essential, given the finding of no liability on the facts.

Failure to guard against arson

Sandhu Menswear Co. Ltd v Woolworths plc [2006] BLM Vol. 23 No. 7 July 2006 TCC
The defendants, Woolworths, were held to be liable in negligence for allowing a large quantity of waste to accumulate adjacent to the claimants’ premises. This was used by arsonists to start a fire which damaged Sandhu’s premises. The defendants had failed to carry out the regular checks which their own fire safety guidelines required, had made no inquiries of police, fire brigade or other occupiers as to risk of arson, had carried out an inadequate risk assessment and had made insufficient arrangements for the removal of the waste. These were breaches of the duty of care owed by the defendants to Sandhu.

Negligent valuation damages

Green v Alexander Johnson [2006] Construction Law Journal Vol. 22 No. 5 p. 336 CA
The Court of Appeal had to consider an appeal on the measure of damages in a case where negligence was admitted in advising on the compromise of proceedings for obtaining vacant possession of an investment property. The CA upheld the finding that diminution in value was the appropriate measure, relying on comparison of market values at a given date. The ‘vacant possession basis’ argued for by the defendant might not always be objectionable, but any departure from the conventional approach required justification.

South Australia Asset Management v York Montague (Vincent Moran) was discussed.
Note: the court commented that in such cases "it is essential that each party should make clear precisely what bases of assessment it seeks to advance and that the expert evidence should be clearly directed to the bases that are going to be put forward".

See Plymouth and South West Co-operative Society v Architecture Structure and Management under Keating Chambers Reported Cases on negligent advice by architects on contract strategy and cost savings.

PRACTICE AND PROCEDURE

Appearance of bias in judge

Smith v Kvaerner Cementation Foundation Ltd [2006] BLR 244 CA
The appellant had had his personal injury claim dismissed by a Recorder. He sought leave to appeal on the grounds (i) that the Recorder was from the same chambers as counsel on both sides and (ii) that the Recorder was acting for companies in the same group as the defendant. The defendants argued that he had been told of these facts and had waived his rights. The Court of Appeal allowed the appeal, ordering a retrial before another judge. Although there was no breach of natural justice in the ‘same chambers’ argument, the appellant could have objected to the Recorder’s apparent involvement with companies related to the defendant and his waiver had not been given freely, because not in full knowledge of the legal position. The Court of Appeal gave great weight to the appellant’s right to a fair trial under article 6 of the European Convention on Human Rights.

Third party costs order

Total Spares and Supplies Ltd v Antares SRL [2006] EWHC 1537 Ch. Div.
A third party costs was made against an Italian company director who transferred the defendant company’s assets to another company and then allowed the defendant company to be struck off the Italian company register. The transferee company was also ordered to pay a proportion of costs incurred after the transfer of the assets.

KEATING CHAMBERS REPORTED CASES

ERDC Group Ltd v Brunel University [2006] BLR 255 TCC
Formal execution of the contract documents being deferred until after planning permission was obtained, work proceeded under a series of letters of appointment and then continued after their expiry. The claimant contractor claimed entitlement on the basis of a quantum meruit for work done. The defendant denied that this should be assessed on a cost-plus basis and argued that defective work should be taken into account. The court rejected the defendant’s right to set off sums owing, but accepted that the quantum meruit should reflect any substandard work and an allowance for delay. The basis for the quantum meruit would be primarily reference to the rates and prices in the earlier work.
Simon Hargreaves

Rohde v Markham-David [2006] BLR 291 TCC

The claimant contractor obtained judgment enforcing an adjudicator’s award in its favour against the defendant client. However, the court granted the defendant’s application to set the judgment aside. The defendant and his wife had separated and left the matrimonial home; the claimant had used this address for all mail which was returned undelivered. The court considered this an exceptional case where the prejudice to the defendant outweighed that of the claimant. The defendant had acted promptly in challenging the judgment when he discovered its existence.
Elizabeth Repper

Construction Partnership UK Ltd v Leek Developments Ltd [2006] CILL 2357 TCC
Clause 7.1 notice requirements of JCT 1998 IFC required actual delivery of notices of default and determination. The TCC held that delivery of a notice by fax would constitute actual delivery for these payments.

Note: The CILL Editors state that "On a practical level, this judgment is quite important" because it had previously been assumed that ‘actual delivery’ meant physical delivery by hand. They express the opinion that email could be considered an appropriate method of delivery, although that was not decided in the case.

Justin Mort
Jessica Stephens

Plymouth and South West Co-operative Society Ltd v Architecture Structure and Management Ltd [2006] CILL 2366 TCC
The claimant clients succeeded in their action against the defendant architects for professional negligence in failing to advise of a suitable contract strategy and failing to advise on cost saving opportunities during the works. Accordingly, the additional costs incurred plus the cost savings ignored were recoverable.
Paul Darling QC
Justin Mort

Associated British Ports v Hydro Soil Services [2006] EWHC 1187 TCC
The claimant port operator brought an action for breach of contract in respect of reinforcement of the quay wall at Southampton against the defendant contractor, which counterclaimed for extra payment for unforeseeable physical conditions. The defendant also claimed against Part 20 sub-contract designers. In the result, the physical conditions were held not to be unforeseeable and the counter-claim failed. The unfitness of the works was held to be a matter of design.
Adrian Williamson QC
Adam Constable

Redworth Construction Ltd v Brookdale Healthcare Ltd [2006] All ER (D) 04 TCC
The claimant sought enforcement of an adjudication award in its favour, having made submissions to the adjudicator that its agreement with the defendant was a construction contract on the basis of certain documents. In the enforcement proceedings, the claimant sought to rely on different documents to support its case, but the court held that the claimant could not change its position. The evidence did not establish that there was a contract in writing and the enforcement action was dismissed.
Marcus Taverner QC

Offer-Hoar v Larkstore Ltd [2006] All ER (D) 419
This is the CA decision on the TCC’s decision late in 2005 in favour of the Part 20 claimant owner who had purchased a site which suffered a landslip, damaging adjoining properties. The court had to consider whether the owner could sue the Part 20 defendant, who had prepared a soils report for the vendor. The owner was held to have acquired the vendor’s right to sue the Part 20 defendant in contract. Linden Gardens v Lenesta Sludge (Richard Fernyhough QC) was applied on assignment. The CA upheld the TCC’s finding in favour of the Part 20 claimant, who could claim substantial damages from the Part 20 defendant for breach of contract by virtue of the assignment.
Dr. Christopher Thomas QC
Gaynor Chambers

Taylor Woodrow & Barnes & Elliott [2006] All ER (D) 05 TCC
The court held that it had a discretion under s.45 of the 1996 Arbitration Act to decide whether to determine a question of law referred to it. It then determined the question of law which was in dispute, holding that the claimants did not retain the risk of unforeseen structural works necessary before the contract could proceed. The case concerned the claimants’ acquisition of derelict hospital buildings for conversion to dwellings.
Richard Fernyhough QC
Elizabeth Repper

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. www.keatingchambers.com

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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