Keating Chambers Case Law Review June 2005

By Keating Chambers Professional Support Director
Professor Anthony Lavers LL.B, M.Phil, Ph.D, MCI.Arb, MRICS, Barrister

Catriona Dodsworth summarises the most significant proposals of the DTI, highlighting those areas where the Latham recommendations have not been adopted and the few where they have been exceeded, such as the suggestion that adjudicators might be given the power to open up and review interim certificates which the parties have agreed to be final and binding.

Suzanne Reeves criticises the consultation from the sub-contractors’ viewpoint as ‘tinkering at the edges’ since an adequate payment mechanism needs sanctions or incentives to achieve anything significant. She would like to see cross-contract set-off outlawed as Sir Michael had originally suggested ten years ago.

By a 2-1 majority, the Second Division of the Inner House allowed defenders David Philp’s appeal against the enforcement order made against them. The majority held that the adjudicator’s jurisdiction expired after 28 days, unless extended in accordance with paragraph 19(1) of the Scheme (the Scottish Scheme is the same as that of England and Wales on this point). The CILL Editors express serious doubts about the approach taken by the majority.

This case is the subject of the article ’28 days means 28 days’ by Fraser McMillan of Pinsent Masons, Construction Law June 2005 Vol. 16 Issue 5 p.32.

Construction Act Review

Improving payment practices in the construction industry: the DTI’s consultation on proposals to amend the Construction Act and the Scheme for Construction Contracts by Peter Sheridan and Dominic Helps, Shadbolts, Construction Law Journal 2005 Vol. 21 No. 4 p. 306

Following their review of the Latham Group’s report, the authors use their regular column to consider the March 2005 DTI consultation document. They conclude that the Government has identified those issues which command general consensus, for reform of the primary and secondary legislation. They regret that the DTI seems to be rejecting clear Latham recommendations on extending the Act to PFI concession agreements, residential owners and process plants and on a less strict approach to agreements in writing.

The article is based on the first author’s Ph.D thesis on moves towards harmonisation of construction law and their impact upon dispute management in international contracts. There is an interesting section on Sino-foreign joint venture international projects and consideration of ‘soft’ concepts such as ‘good faith’ and ‘amiable composition’.

The House of Lords delivered a major statement on challenges to arbitration awards in reversing the decision of the Court of Appeal. Lord Steyn, giving the principal speech, referred to the far-reaching changes made by the Arbitration Act 1996 to the prospects of challenge. In this case, being an ICC arbitration, challenge on point of law was excluded. The majority (Lord Phillips dissenting) held that there was no excess of jurisdiction by the arbitrators:

Contains the following articles:

Inference is not good enough
by Anthony Edwards, Park Lane Chambers , On incorporation of arbitration clauses.

Working with a mediator
by Paul Newman, Hugh James

The Journal of International Arbitration June 2005 Vol. 22 No. 3

Contains the following articles:

Security for costs in international commercial arbitration
by Weixia Gu, University of Hong Kong

Private arbitration and regulatory adjudication in the telecommunications industry
by Alexis Mourre, Castaldi Mourre Sprague, Paris

Recognition and enforcement of interim measures of protection ordered by arbitral tribunals
by Jean-Paul Beraudo, Paris University

CEPANI reviews its rules
by Guy Keutgen, Universite Catholique de Louvain, on the Belgian Centre for Arbitration and Mediation

International Arbitration Law Review April 2005 Vol. 8 Issue 2

Contains the following articles:

The ICC Dispute Board Rules
by David Cairns and Ignacio Madelena, B Cremades y Asociados, Madrid

Selection of arbitrators in international commercial arbitrators
by Emilia Onyema, Queen Mary College, London

The Paris Court of Appeal looks at a request for the annulment of an award for breach of EC Competition Law
by Thierry Tomasi, Denton Wilde Sapte, Paris

Procedural irregularity: setting aside or remitting awards under English and Irish law – a comparative assessment
by Laurence Shore, Herbert Smith, London and Gearoid Carey, Matheson Ormsby Prentice, Dublin

Noting that the 1999 FIDIC Red and Yellow Books contain some 30 sub-clauses specifying events which may give rise to a claim by a contractor, the author produces a useful list setting out the clause number, its subject and an outline of the contractor’s potential entitlement. The other principal benefit of the article is its consideration of the mandatory claims procedure to be followed by the contractor, in which the position under the Silver Book is also mentioned. The author is Legal Adviser to the FIDIC Contracts Committee.

JCT has completely revised and updated its suite of contracts – all the JCT 98 documents have been significantly amended. The contracts no longer have separate supplements, for example for sectional completion or contractors’ design portions. JCT Forms on Disk has been replaced by the JCT Contracts Digital Service. Amendments will not be published any more, but will be incorporated into a revised edition immediately.

See www.jctcontracts.com for further details and on-line ordering.

Contains the following articles:

The perils of selective reading
by Michael Phipps, Thurston Associates (on the JCT Major Project Form Sub-Contract.)

Corporate manslaughter – a new regime?
by Jane Hughes, Kendall Freeman, (on the new draft Bill.)

Planning for business continuity
by John D Wright, JD Risk Associates, (on risk management.)

Sub-contractors Actionstrength failed in their appeal against the Court of Appeal’s decision that their claim for direct payment against the employer must fail. The employer’s promise to pay direct in the event of main contractor default was a guarantee caught by the Statute of Frauds s.4. The sub-contractors’ argument that the employer was estopped from pleading the statute was described by Simon Brown LJ in the Court of Appeal as "hopeless" and the House of Lords agreed.

Following injury to a workman employed by sub-contractor Pentax in leaving the site, the workman obtained verdicts against Pentax and main contractor Multiplex. Multiplex were entitled to an indemnity from Pentax. Pentax claimed the same sum from its insurer, National Vulcan. The insurer appealed against the verdict, arguing that Pentax’s liability to Multiplex was not in respect of personal injury but was in respect of a contractual indemnity. The NSW CA, dismissing the appeal, held that the wording of the policy was sufficiently wide to include the sums which Pentax had to pay Multiplex under the contractual indemnity: it was a sum "for or in respect of personal injury".

Contractors OBG had successfully sued receivers wrongly appointed by creditors for the tort of wrongful interference with contractual relations, in connection with their contract with client North West Water. However, the CA, allowing the receivers’ appeal, held that, although the receivers had interfered with OBG’s business, there had been no intention to interfere with a contractual relationship in any relevant sense. The receivers had thus not committed the tort of wrongful interference.

Surveyors negligence and loss of a chance

Chartered surveyors were held liable in respect of failure to make inquiries regarding probable designation for residential development under local plan.

Reliance and causation were to be determined on the basis of "loss of a chance", applying Allied Maples Group v Simmons & Simmons.

No duty of valuer to borrower

A chartered surveyor instructed by a bank reported on the value of the property on which a loan was secured, stating that the report was solely for the bank’s use. The bank showed the report to the borrower who based his asking price on it in marketing the property. The borrower alleged negligent over valuation leading to failure to sell, but the court held the surveyor to owe no duty of care to the borrower.

The court struck out a winding-up petition sought by the local authority client against a contractor with whom it was engaged in several arbitrations. The contractor would be able to plead set-off between its own cross-claim and the alleged petition debt since they were closely related. Special circumstances would have been necessary to allow the petition to proceed.

Costs after partial success

Under Part 44 of the Civil Procedure Rules, the Court has discretion to allow full recovery of costs even where a party did not succeed on all the issues pleaded. In this (non-construction) case, the judge held that the trial would have run for just as long and covered similar ground even if one area of argument had not been pleaded.

The article considers developments of the duty of insurers towards insureds, redressing the perceived imbalance in the post-contractual rights and duties of the parties. The Court of Appeal reviewed the position in the motor case of Drake Insurance v Provident Insurance and the author examines whether it means that assured and insurer have mutual duties of good faith or different ones. He concludes that the Drake case is part of a wider trend whereby insurers are coming to be regarded as obliged to deal with claims made under a duty of good faith.

Where a shareholder, even though not a director, funds, controls and directs litigation by the defendant company in order to promote or protect his own interests, there is no reason why a costs order should not be made against him. The CILL Editors note this as a further extension of the decision in Gemma v Gimson where a costs order was made against directors.

This is a limitation case upholding Pirelli v Oscan Faber and Ketteman v Hansel. The first instance decision was that "if cracks first appeared within six years of the issue of proceedings, [the claim] is not statute-barred". The CA rejected the appeal of the defendant engineers; Murphy v Brentwood has not overruled either of these authorities, which continue to govern cases on the accrual of the cause of action in tort in latent damage cases.

Even if evidence of a successful party’s financial position indicated that it was probable that it would be unable to pay sums awarded at a substantive trial, hat would not normally be sufficient to stay the execution of a summary judgment enforcing an adjudicator’s decision. Such evidence might in principle constitute special circumstances justifying a stay but the purpose of adjudication, namely summary enforcement of an interim result, would normally prevail.

Following a meeting with the project managers on the Channel Tunnel Rail Link project, contract administrators increased disallowance of items in contractors’ claims. The contractors alleged improper interference, causing the client to breach the contract and sought interim injunctions. The project managers argued that under the (amended) NEC contract there was no duty of impartiality on the project managers. The court entertained doubts about this and held that there was a serious issue to be tried, but refused the injunctions, since on the balance of convenience, damages would be an adequate remedy.

In an arbitration award from Hong Kong published with the consent of arbitrator and parties, it was held that under clause 23 of the Hong Kong RICS Contract an architect could grant an extension of time for instructions or variations only causing delay when the date for completion was past.

This case contains a useful review of the modern law on the distinction between liquidated damages and penalties. On the facts, the liquidated damages provision in the JCT WCD 1998 for £45,000 per week was a genuine pre-estimate of loss and the actual loss suffered by the developer, Tilebox, was higher. The contractor therefore failed to obtain a declaration that the provision was a penalty.

This is the report of the CA’s dismissal of the contractor’s appeal in the ‘Thelwall Viaduct’ case. The contractor had argued that there was no dispute or difference capable of reference to arbitration. However, the CA’s view was that ICE (5^th Edition) Clause 66 should not be construed legalistically so as to preclude timely commencement of arbitration proceedings. The CA held the judge’s analysis to have been correct, given the claimant’s resistance to the defective work allegations. Note that Jackson J’s ‘seven propositions’ on the dispute/no dispute issue appear to have been upheld by the CA. Note also that the decision expressly related adjudication cases to arbitration.

Although on the facts Serco was found not to be entitled to set-off sums against the adjudicator’s decision, the judge set out circumstances where set-off might be allowed, which provides an important gloss to Levolux v Ferson.