Our regular round up of the cases of most interest to construction comes from Andrew Croft and Ben Spannuth of Beale & Company Solicitors LLP, focusing on one that underlines the courts' reluctance to support challenges to the jurisdiction of adjudicators; and another that reinforces the position that 'the prevention principle is not an overriding rule of public or legal policy' and that it is possible to contract out of its application.
Platform Interior Solutions Limited v ISG Construction Limited
 EWHC 945 (TCC); Ter Haar QC
ISG Construction Limited (ISG), a construction services company, engaged Platform Interior Solutions Limited (Platform), commercial fit-out specialists, to undertake works forming part of ISG's redevelopment of a hotel in Edinburgh (the Sub-Contract).
Clause 27(1)(h) of the Sub-Contract stated: 'ISG may [...] terminate [Platform's] employment [...] if [Platform] [...] is in material or persistent breach of this Sub-Contract'. Clause 27(4) of the Sub-Contract provided that Platform 'shall within 14 days of being so notified, submit an application for payment for works executed' to be treated as a final account.
A dispute arose between the parties in relation to the gross valuation balance due to Platform, including its Valuation 12 Application for £556,186.27 and, as a result of ISG's alleged repudiation of the Sub-Contract and Platform's subsequent rescinding of the Sub-Contract, the retention amount of £65,082.16. ISG failed to respond to Platform's Valuation 12 Application with a Payment Notice or a Pay Less Notice. Platform served a Notice of Adjudication.
On 11 December 2019, the adjudicator held that Platform was due payment of £417,541.33 plus VAT from ISG (the Decision). Platform demanded payment from ISG. ISG refused to make payment as it had 'received advice that [the Decision] is invalid and unenforceable' and that, '[i]n relation to valuation [...] the Adjudicator has made fundamental errors affecting the validity and enforceability of her Decision'. On 23 December 2019, ISG notified the adjudicator that it was arranging payment of her fees, but that this 'does not constitute agreement that your decision is correct [...] valid or enforceable' and reserving its rights in full.
On 31 January 2020, Platform sought to enforce the Decision
ISG challenged the Decision on grounds that the adjudicator, inter alia, breached natural justice in reaching her award on a method of valuation advanced by neither party and failed to give adequate and cogent reasons for her decision. Platform submitted that, by paying the adjudicator's fees, ISG waived any right to challenge the validity of Decision.
Ter Haar QC rejected ISG's challenge to the validity of the Decision.
Ter Haar QC held that ISG did not waive such rights to challenge the Decision. ISG made it clear that it regarded the Decision as invalid and unenforceable and there was nothing in its payment of the fees from which it could be inferred that it had changed its mind. Nevertheless, Ter Haar QC rejected ISG's principal ground of challenge. With reference to AECOM Design Build Ltd v Staptina Engineering Services Ltd, it was found that the adjudicator was 'entitled to decide a point of importance on the basis of the material before her, and on a basis for which neither party had contended'.
In terms of the alleged failure to give reasons, Ter Haar QC considered Balfour Beatty Engineering Services (HY) Ltd v Shepherd Construction Ltd, in which it was held that a decision 'needs to be intelligible so that the parties, objectively, can know what the adjudicator has decided and why', and explained that adjudicators' reasoning should not be judged by the standards of judges or arbitrators. Ter Haar QC rejected this head of challenge, finding that the adjudicator's reasoning was clear. Whether or not she was right as a matter of law was not the question.
The decision emphasises that the courts will seek to enforce adjudicators' decisions wherever possible and that challenges based on a perceived lack of reasoning are problematic. The courts will generally only intervene where adjudicators have acted beyond their jurisdiction or in breach of the rules of natural justice. Parties should consider carefully the merits of challenging enforcement given the associated costs.
Jiangsu Guoxin Corporation Ltd v Precious Shipping Public Co. Ltd
 EWHC 1030 (Comm); Butcher J
Jiangsu Guoxin Corporation Ltd (Jiangsu) contracted to build shipping vessels pursuant to shipbuilding contracts with Precious Shipping Public Co. Ltd (Precious) dated 26 February 2014 (the Contracts).
Article VIII.1 concerned delays 'beyond the control of [Jiangsu] or of its sub-contractors'. Article VIII.2 provided that Jiangsu should notify Precious in writing 'of any delay on account of which [Jiangsu] claims that it is entitled [...] to an extension of the time for delivery of the VESSEL' and that '[ f]ailure of [Jiangsu] to give [Precious] notice of delay [...] shall preclude [Jiangsu] from claiming extension of the Delivery Date'.
Hulls 17B-20B were rejected by Precious, who contended that they were defective. Jiangsu argued that the rejection and cancellation of Hulls 17B-20B was wrongful and resulted in their being left at Precious' yard, where they occupied berths, thereby delaying the launch and construction of Hulls 21B and 22B, the contractual Delivery Date for which was 31 August 2015.
On 29 January 2016, 151 days after the contractual Delivery Date, Precious terminated the contracts for Hulls 21B and 22B by reason of the lapse of more than 150 days of 'non permissible delays'. Jiangsu treated this a repudiatory breach which it accepted on 3 February 2016.
This led to disputes which were referred to arbitration. Jiangsu's case was that the prevention principle applied on the basis that time was set 'at large' as a result of the alleged unlawful rejection of Hulls 17B-20B, which resulted in the occupation of berths at the yard and the delay of Hulls 21B and 22B such that it was entitled to an extension of time. Precious' position was that the Contracts provided a complete code of the circumstances in which Jiangsu was entitled to an extension of time and that there was no room for the application of the prevention principle.
The tribunal decided that Jiangsu 'was not entitled to extend the Delivery and/or Cancellation Date in circumstances where it failed to and/or did not operate, and/or exercise any relevant contractual machinery' and that 'there was no scope for the application of the prevention principle in light of the express terms of [the Contracts]'. Jiangsu appealed pursuant to s69 of the Arbitration Act 1996.
Butcher J dismissed the appeals. Jiangsu was prevented from relying on the prevention principle.
Butcher J considered whether express provision had been made for an extension of time such that the prevention principle would not apply. With reference to North Midland Building Ltd v Cyden Homes Ltd, specifically Coulson J's statement that 'the prevention principle is not an overriding rule of public or legal policy', Butcher J noted: '[i] t will not apply if the parties have provided for an extension of time in the relevant event(s)'. Whilst acknowledging that extension of time clauses should, in the case of ambiguity, generally be construed in favour of a contractor, Butcher J held that Article VIII.1 was not a force majeure clause confined to matters beyond the control of either party, but that the phrase 'other causes beyond the control of [Jiangsu]' should be given a wide meaning to include 'delays caused by [Precious] which are beyond the control of [Jiangsu]'.
This decision reinforces the position that 'the prevention principle is not an overriding rule of public or legal policy' and that it is possible to contract out of its application. Furthermore, it emphasises that the courts will continue to enforce contractual provisions agreed between parties of equal bargaining power and, by extension, the importance of complying with notice provisions at all times.
Originally published 21 August, 2020
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