In BDW Trading Ltd ("BDW") v Ardmore Construction Ltd ("Ardmore"),the Technology and Construction Court ("TCC") recently determined that, by virtue of The Building Safety Act 2022 ("BSA 2022"), an adjudicator appointed under a construction contract had jurisdiction to determine a claim for defects under the Defective Premises Act 1972 ("DPA 1972") on a project competed some 20 years previously.
Background
Ardmore designed and constructed an apartment block in Hampshire (the "Development") for Basingstoke Property Company Limited (the "Employer") under a JCT contract. The contract was worth £22,593,000, and practical completion was achieved between December 2003 and June 2004. The Employer assigned its interests and rights under the contract to BDW. BSA 2022 amended the Limitation Act 1980 ("LA 1980") so that the limitation (legal time bar) period for claims under DPA 1972 was retrospectively increased from 6 years to 30 years. Fire safety defects were identified at the Development, prompting correspondence between BDW and Ardmore.
BDW referred a claim regarding the fire safety defects to adjudication in May 2024. The adjudicator found in favour of BDW, ordering Ardmore to pay £14,454,914.45 in damages to BDW and determining that Ardmore breached its duties under the contract and/or its duties under section 1(1) of DPA 1972. Ardmore raised several grounds of challenge to resist enforcement of the adjudicator's decision. BDW raised enforcement proceedings in the TCC.
Ardmore grounds of challenge and TCC findings
No jurisdiction to determine non-contractual matters
Ardmore resisted enforcement of the adjudicator's decision by contending the adjudicator did not have jurisdiction to determine DPA 1972 claims under the contract. Ardmore relied on the wording used in the adjudication clause in the contract, which allowed the referral to adjudication of a dispute or difference which "arises under this Contract".
Ardmore argued that a claim under DPA 1972 did not arise under the contract. Ardmore contrasted this adjudication clause wording with the arbitration clause wording in the contract, which allowed an arbitrator to decide a dispute "arising under this Contract or in connection therewith" and contended this showed the adjudication clause was to have a more restricted scope.
The court rejected Ardmore's position, deciding that the difference in the wording between the adjudication and arbitration provisions did not reflect an intention by parties for the adjudication clause to be construed more narrowly than the arbitration clause, and that the adjudication clause was intended to cover any dispute arising out of the parties' contractual relationship. Further, the contract stated that Ardmore would have the same liability of the relevant design professional including under DPA 1972 when performing design, which supported the approach that alleged breaches of DPA 1972 could be referred to adjudication as a dispute which "arises under this Contract".
Crystallisation of dispute
Ardmore argued that the adjudicator's decision should not be enforced because the dispute had not crystallised before the adjudication started. Ardmore contended that, following a letter of claim from BDW, further information was required to allow proper consideration of BDW's claim, including the scope and cost of the remedial works claimed for.
There was only a 13-day gap between BDW's final letter providing further details and the start of the adjudication, which Ardmore argued was insufficient time for the crystallisation of a dispute on works that completed 20 years previously. Also, BDW submitted two new expert reports in the adjudication.
The court dismissed this ground of challenge. BDW had set out its "essential claim" in its letter of claim. BDW issued its letter of claim in July 2022, meaning that sufficient time had elapsed by the time adjudication was raised on 21 March 2024 for the dispute to crystallise. The letter of claim identified Ardmore's responsibilities under the contract and DPA 1972, and that the claim related to fire safety defects.
BDW subsequently shared some expert reports and information on remedial works and quantum with Ardmore and offered Ardmore the opportunity to inspect the site. Ardmore should have carried out investigations, looked to recover documents, and engaged its own expert to inspect the site, consider liability and advise on the claim, instead of reiterating that it required further documentation. The age of the claim should have provided impetus to Ardmore to be more proactive.
Unfairness
Ardmore also opposed enforcement by arguing that the use of adjudication to pursue a £15 million claim in respect of a 20-year-old project was unfair and breached the requirements of natural justice. Ardmore contended that adjudication was primarily designed to resolve live or recent disputes.
Ardmore had negligible documentation left from the project and had to rely on BDW's disclosure of its documents which was limited and which the adjudicator had limited powers to compel. This created an inherently unfair situation for Ardmore.
The court dismissed this ground of challenge. The mere passage of time is not enough in itself to create unfairness, although the more that time has passed then the more a court must scrutinise any complaint of unfairness. Ardmore's lack of documentation was not due to the disposal of documents after the original limitation period had expired (before it was extended retrospectively via BSA 2022) but was a result of Ardmore's poor record-keeping. Prior disputes with BDW on the project should have alerted Ardmore to the need to retain project documents for longer.
Ardmore's disclosure requests had been ordered by the adjudicator and met by BDW, and Ardmore did not identify any additional disclosure or complain of any omissions. Additionally, Ardmore failed to carry out an inspection following BDW's invitation. The court also held that Ardmore had failed to show the alleged breach of natural justice had a "potentially significant effect" on the result of the adjudication in that it was "decisive or of considerable importance to the outcome and is not peripheral or irrelevant".
Conclusion
This significant TCC decision is likely to cause widespread concern throughout the construction industry. Stale claims concerning dwellings and founding on DPA 1972 section 1(1) (as amended by BSA 2022 to cover works completed up to 30 years previously) may now be capable of being referred to adjudication. The impact of this judgement will to an extent depend on a decision awaited from the UK Supreme Court in URS Corporation v BDW Trading as to whether section 1(1) DPA 1972 claims can be pursued by commercial developers as well as individual purchasers of dwellings.
Key Takeaways
- BSA 2022's amendment of LA 1980 increased the limitation period from 6 to 30 years for claims under section 1(1) of the DPA 1972, which requires works to a dwelling to be done in a workmanlike or professional manner and with proper materials so that the dwelling will be fit for habitation when completed.
- The TCC has clarified that adjudication clauses in contracts which allow reference to adjudication of disputes arising "under this contract" will extend to claims under section 1(1) of DPA 1972 (as amended by BSA 2022 to cover works completed up to 30 years previously).
- Parties facing such claims should take a proactive approach and consider liability, the value of the claim and the instruction of experts for pertinent inspections.
- Given the retrospective extension by BSA 2022 of the limitation period for claims under section 1(1) of DPA 1972 from 6 years to 30 years, it would be prudent for parties engaged on potentially affected projects to review their document retention policies and processes.
- The impact of this judgement will to an extent depend on a decision awaited from the UK Supreme Court in URS Corporation v BDW Trading as to whether DPA 1972 claims can be pursued by commercial developers as well as individual purchasers of dwellings.
- Parties alleging a breach of natural justice carry the burden of establishing the breach and its materiality.
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