UK: The Court Process And The Tender Process

Last Updated: 8 April 2008
Article by David Thomas QC

First published in Construction Law International in March 2008

The process of the Court

Towards the end of 2007, the English Court of Appeal produced an important decision dealing with an attempt to strike out a claim for abuse of the process of the Court on the basis that the claim could and should have been brought in previous litigation. The judgments in Aldi Stores Limited v WSP Group Limited and Aspinwall & Company Limited [2007]EWCA Civ 1260 show that, in an appropriate case, a party may choose to pursue its claim separately from multi-party litigation which it could join. However, the ever-increasing case management role of the Court was also underlined and the ultimate decision of whether a claim should be pursued separately or with other litigation may in future be one for the Court rather than the Claimant.

The Aldi Stores case arose from damage to Aldi’s retail store in Luton, UK. This and another store, ‘B&Q’, were built on the site of an old chemical works. The stores were designed and built by Holmes plc. WSP and Aspinwall provided specialist engineering and environmental consultancy services. Other specialist professionals and sub-contractors were also involved in the project. The two stores suffered damage as a result of differential settlement. Aldi and B&Q alleged that this was due to the negligent design and execution of the ground investigation and remediation.

Aldi started proceedings against Holmes for negligence and breach of warranty. Holmes brought WSP and Aspinwall into the action to recover contribution from them on the grounds that they too would, if sued, have been liable to Aldi either in negligence or under warranties that they had given. Aldi did not join either of those parties but pursued Holmes (which went into administration) to judgments on liability and quantum at a series of short hearings. Aldi believed that Holmes had the benefit of insurance to cover Aldi’s claim and the primary layer of insurance duly paid out.

B&Q and the freeholder also brought proceedings but their action was against each of Holmes, WSP, Aspinwall and a number of the other contractors and professionals. In all, eight parties came to be involved and this ‘main action’ was set down for a 12 week trial. Throughout, Aldi kept their proceedings separate and moved them on vigorously. When they secured the series of judgments against Holmes, the Court ordered Holmes’ contribution claims against WSP and Aspinwall be heard with the main action.

However, in the months leading up to the trial of the main action, Aldi found that a £2 million layer of Holmes’s insurance refused to indemnify. Aldi decided to commence proceedings against the relevant insurers under the Third Party Rights Against Insurers Act. They did so rather than joining the main action to seek recovery from WSP and Aspinwall. The main action settled in the first week of trial. Subsequently, disclosure of documents in Aldi’s insurance action showed that the insurers had a good defence. Aldi discontinued and started an action against WSP and Aspinwall.

Justice Jackson in the Technology and Construction Court struck the case out as an abuse of process, ruling that Aldi could and should have joined the main action. He put particular emphasis on the waste of the Court’s resources in having to deal with the same claim twice over.

The Court of Appeal allowed Aldi’s appeal from Justice Jackson’s decision. They applied the principle laid down by the House of Lords in Johnson v Gore-Wood [2000] 2 AC 1 that the question whether a claim that could have been brought in previous proceedings was an abuse was to be approached as a broad merits-based decision taking account of the public and private interests involved and the facts of the case. Whilst applying this principle, the Court of Appeal made clear that the decision for the judge is not the exercise of a discretion; there could be only one correct answer to whether or not there was an abuse.

The Court affirmed that the fact that a claim could have been brought in previous proceedings did not necessarily mean it was abusive to bring it in a second action. In this case Aldi’s strategy was a sensible cost effective way of proceeding. Its claim was much smaller than the claims in the B&Q action and it understandably wished to avoid being involved in a lengthy multi-party trial. It was also reasonable for Aldi to continue with its strategy of pursuing insurers and it could not reasonably be said that Aldi should have known it would fail until disclosure.

Moreover, Aspinwall and WSP were made aware by Aldi that it had a claim against them and it might be pursued. They did not respond. The judge had held that no response was called for because they could take comfort from the fact that a second action might be struck out. The Court of Appeal disagreed, holding that they should have responded, putting Aldi on notice of their position, and it was highly material that they joined in the settlement of the main action in full knowledge that there might be a second claim against them from Aldi.

Although there was no rule of law that there could not be abuse of process unless the defendant sued in the second action had sufficient identity with the defendant in the first action, it was nonetheless a significant factor that the second action was brought by Aldi against different parties to its first action. Thus, there were good reasons why Aldi acted as it did and its conduct was not abusive.

The public interest also supported this conclusion. There was a real public interest in not encouraging a single set of proceedings against a wide range of defendants or to complicate proceedings with numerous cross-claims.

Perhaps of most practical significance was the fact that the Court went on to say that if circumstances such as these arose again in complex commercial multi-party litigation, the right course was to apply to Court for directions. Indeed it was said that this must be done and there would be no excuse for not doing so in future.

The Tender Process

2007 has also been notable for developments in the law relating to the tendering element of the procurement process. Attention has increasingly focused on tendering, especially in the public and utilities sectors where it is governed by a rigorous regulatory regime, enacted in the United Kingdom as a result of EU directives.

However, two reported decisions from Northern Ireland concerned situations where the regulations did not apply, and they show that the common law also provides constraints on how employers let construction contracts. The first, J & A Developments Ltd v Edina Manufacturing [2007] BLM Vol 24 No 7 was of interest because it gave a rare consideration of the position in private sector projects.

Following earlier case law in the 1990s in Blackpool and Fylde Aero Club v Blackpool Borough Council (1990) 1 WLR 1195and Harmon Facades Ltd v The Corporate Officer of the House of Commons (1999) 67 ConLR 1 concerning public sector tender processes, the J & A case confirmed that a tender contract is a collateral contract between tenderer and employer, which comes into existence with the submission of a valid tender, and that this obtains also in the private sector. The employer had breached the contract, the process adopted having incorporated the Code of Procedure for a Single Stage Selective Tendering, by inviting three tenderers into a meeting and requesting them to reduce their prices.

The latter part of the year has seen the reporting of Scott v Belfast Education and Library Board [2007] CILL 2510 in the Northern Ireland High Court’s Chancery Division. The court had to consider as a preliminary issue whether the tender documents gave rise to a tender contract containing an implied duty of fairness and good faith upon the employer, and whether a material ambiguity would breach that requirement. Good faith, which is a very contentious subject in English law (for these purposes that of Northern Ireland), was not argued, but the court held that there was an implied term as to fairness and that it would require the absence of any material ambiguity which would significantly affect the tender.

The ongoing direction of the law is unmistakeably in the direction of greater obligations upon employers to be transparent and fair in the conduct of tender processes and greater opportunities arise accordingly for action by disappointed tenderers when these requirements are breached. The contractor in J & A Developments v Edina Manufacturing, who had refused to reduce his price, obtained damages for his wasted tender costs and an element for loss of potential profit. Such challenges may be expected to become more widespread as this area of the law develops.

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.

For further information on how our members can assist you, please contact the Senior Clerks, John Munton and Nick Child, in the first instance, on +44 (0) 20 7544 2600. They and their teams of Clerks will be pleased to advise you on the member of Keating Chambers appropriate to your requirements.

© KEATING CHAMBERS

http://www.keatingchambers.com

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