Tag Archives: Engineering Contracts

Construction: Employer could not challenge adjudication in enforcement proceedings

In construction disputes if an adjudicator has decided the issue referred to him, and he has acted in accordance with natural justice, his decision will be enforced by the court.

The defendant must pay now and argue later.

There are two narrow exceptions to this rule:

1. Involves an admitted error. For example a calculation error admitted by everyone, including the adjudicator. Here in the absence of an arbitration clause, the court would have jurisdiction to make a final decision on the point, and correct the error. However if there is an arbitration clause in the construction contract, the court would not have the power to determine the issue and the decision would be enforced.

2. Involves the proper timing, categorisation or description of the relevant application for payment, payment notice or payless notice. However it would not be open to a defendant to seek to avoid payment of a sum found due by an adjudicator by raising the very issue on which the adjudicator ruled against the defendant in the adjudication.

If the issue is a short and self-contained point, which requires no oral evidence or any other elaboration than that which is capable of being provided during a relatively short interlocutory hearing in the court enforcement proceedings, then the defendant may be entitled to have the point decided by way of a claim for a declaration.

It is envisaged at paragraph 9.4.3 of the Technology and Construction Court Guide that separate Part 8 proceedings will not always be required in order for such an issue to be decided at the enforcement hearing.

This procedure will rarely be used, because it is very uncommon for the point at issue to be capable of being so confined.

Very often, the defendant’s point is straightforward: the adjudicator was wrong and that, with regard to its timing, or its content, the relevant payment notice was invalid and/or that the defendant’s pay less notice was valid and prevented payment. Here, the defendant will have issued Part 8 proceedings seeking a declaration to that effect, and the claimant may issue its own enforcement claim or,the parties may agree that, if the defendant loses its Part 8 claim, it will pay the sums awarded by the adjudicator in any event.

These “consensual approach” cases all involved a significant degree of agreement between the parties. In particular, they all involved CPR Part 8 claims issued by the defendant challenging the decision of the adjudicator, and seeking a final determination by way of court declaration.

In all those cases:

1. There was a tacit understanding that the parties’ rights and liabilities turned on the decision as to whether or not the particular notice had been served in time and/or was a valid application for payment or payment/pay less notice.

2. The issue of a separate Part 8 claim was important in two respects:

2.1 it provided a means whereby the defendant could detail its challenge to the adjudicator’s decision so that the claimant could see and understand the precise basis of the challenge and the declarations sought and

2.2 the existence of a separate Part 8 claim meant that the court knew what was going to be involved at any subsequent hearing. This was vital to the court for the making of directions. A Part 8 claim means more involved arguments than would ordinarily arise on an adjudication enforcement, so the court will be able to list the hearing for a longer timeslot, and will be less concerned about fixing it within the usual 28 days.

Problems have arisen elsewhere because there has been no such consent.

This was the position in Hutton Construction Lted v Wilson Properties (London) Ltd [2017].

Here the High Court laid down the following guidelines for these cases:

1. The defendant must issue a CPR Part 8 claim setting out the declarations it seeks or, at the very least, indicate in a detailed defence and counterclaim to the enforcement claim what it seeks by way of final declarations. A prompt Part 8 claim is the best option.

2. Where there is a dispute between the parties as to whether or not the defendant is entitled to resist summary judgment on the basis of its Part 8 claim, the defendant must be able to demonstrate that:

(a) there is a short and self-contained issue which arose in the adjudication and which the defendant continues to contest;

(b) that issue requires no oral evidence, or any other elaboration beyond that which is capable of being provided during the interlocutory hearing set aside for the enforcement; and

(c) the issue is one which, on a summary judgment application, it would be unconscionable for the court to ignore. For example, that the adjudicator’s construction of a contract clause is beyond any rational justification, or that the adjudicator’s calculation of the relevant time periods is obviously wrong, or that the adjudicator’s categorisation of a document as, say, a payment notice is wrong, when, on any view, it was not capable of being described as such a document.

Such an issue could still only be considered by the court on enforcement if the consequences of the issue raised by the defendant were clear-cut. If the effect of the issue that the defendant wishes to raise is disputed, it will be most unlikely for the court to take it into account on enforcement. Any arguable inter-mingling of issues would almost certainly be fatal to the defendant being able to claim that their challenge falls within this limited exception.

The dispute between the parties as to whether or not the issue should be dealt with on enforcement would have to be dealt with shortly at the enforcement hearing itself. Due to the inevitable time constraints of such a hearing it will be rare for the court to decide that the issue can still be raised as a defence to the enforcement application even though the issue and its effect is disputed.

Because it is a potential abuse of the court process, a defendant who unsuccessfully raises this sort of challenge on enforcement will almost certainly have to pay the claimant’s costs of the entire action on an indemnity basis. Conversely, if the claimant does not agree to the defendant’s proposal to deal with the issue on enforcement, but the court finds that the issue does fall within the limited exception, it is the claimant who runs the risk of being penalised in costs.

In this particular case

1. It was common ground that:

1.1 The proper meaning and interpretation of the documents was a straightforward matter for the court. No other evidence of any kind was required.

1.2 If the adjudicator was wrong, and those documents did not constitute a proper claim for payment or a payee’s notice, then the defendant’s payless notice was valid and there is no entitlement to summary judgment.

So it was one of those rare cases where the substantive point in issue can be determined at the enforcement hearing.

2. The defendant’s challenge was of a type which should have been the subject of a separate Part 8 claim at the outset. The defendant’s solicitor’s correspondence did not make clear how and why the enforcement was being resisted. Neither did the witness statement.

So, it was only when the Part 8 claim was provided that the claimant (and the court) was given an inkling as to the defendant’s stance. But even that was inadequate. No specific declarations were sought in the Part 8 claim.

Further the defendant endeavoured to rerun the issues in the adjudication and rely on other matters too, such as the earlier sequence of interim applications and how they were dealt with by the parties. The court, on an adjudication enforcement, simply could not deal with all of the points – and more – raised in the adjudication.

The defendant now wished to rely on a number of factual matters. Once they have been set out properly, they might be agreed, but the claimant had not had sufficient time to consider them and its precise response. There may well be disputes. That was another reason why the defendant’s challenge was wholly inappropriate for any consideration on the summary judgment application.

The adjudicator’s decision ran to 73 closely-typed paragraphs. The adjudication had lasted from 11 October to 15 November 2016. The court had seen only some of the documents relating to the adjudication.

Absent any consent from the claimant, it could not be right, to let the defendant shoehorn into the time available at the enforcement hearing the entirety of that adjudication dispute.

“Such an approach would mean that, instead of being the de facto dispute resolution regime in the construction industry, adjudication would simply become the first part of a two-stage process, with everything coming back to the court for review prior to enforcement. That …. cannot be permitted.^

The challenge to the adjudicator’s decision failed and the claimant was entitled to summary judgment.

The defendant could pursue its Part 8 claim separately. The defendant would need to amend that claim and there needed to be a proper exchange of pleadings.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Building Contract: alternative time for Pay Less Notice implied

Under section 111(3) of Housing Grants, Construction and Regeneration Act 1996 (as amended) (“the Act”) a payer can serve pay less notices.

By sub-section (5) the pay less notice must be given “not later than the prescribed period before the final date for payment” but not before the notice by reference to which the notified sum is determined. That notice may be an invoice.

The Act requires the following sequence of events:

-a payment due date,
-service by the contractor of a notice stating the sum due within five days thereafter,
-service of a pay less notice (if required) by the employer not later than the “prescribed period” prior to the final date for payment and,
-finally, payment (of the sum stated in the last notice) on the final date for payment.

Section 111(7) provides that the “prescribed period” means either such period as the parties may agree or, in the absence of such agreement, the period provided by the Scheme for Construction Contracts (“the Scheme”), which is 7 days. So, if there has been no agreement as to the prescribed period, then it is 7 days.

In Manor Asset Ltd v Demolition Services Ltd (Rev 1) [2016] the dispute was about the non-payment of Demolition Services Ltd (DSL)’s invoice for 60% of the price which DSL issued on 23 October 2015, asserting that it had achieved the first milestone in accordance with the terms of the building contract. DSL said under the building contract “payment [was] to be made within 72 hours of receipt of invoice, issued when the milestone [was] achieved”, namely on or by 26 October 2015. So, it contended that the pay less notice issued by Manor Asset Ltd (MAL) on 28 October 2015 was invalid. The adjudicator said that MAL should have issued a pay less notice before 23 October 2015.

However the High Court said that the Act made it clear that the pay less notice could not be issued before the invoice to which it related.

Unless there was a compelling reason to give them any other meaning, the contract words “Payment to be made within 72 hours of receipt of invoice” were clear and unequivocal. They must be understood as referring to “the final date for payment.” They could not have been referring to the deadline for service of the pay less notice.

Clause 4.5.4 of the contract had said the prescribed period for service of the pay less notice expired on the date 5 days before the final date for payment. That date would have been non compliant with the Act and impossible since it would have been 21 October 2015. That date would have been two days before the notice stating the sum due which had only been afforded by the issue of the invoice.

On that reasoning the parties would have reached no agreement about the prescribed period, with the result it defaulted to the even more non compliant and impossible period ending “7 days” before the final date for payment, under the Act.

This was, therefore, a situation where the building contract made no express provision for what was to happen in relation to pay less notices.

It was therefore necessary to construe the contract or imply a term, that the prescribed period was to be “nil” – thus enabling MAL to serve a pay less notice at any time within 72 hours after receipt of the invoice. In other words, it could be served at any time between receipt of DSL’s invoice and the expiry of the 72 hours following such receipt.

MAL’s “pay less” notice dated 28 October 2015 was therefore out of time and DSL was entitled to summary judgment on it’s claim.

This blog is posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Failure to serve Pay Less Notice did not prevent final account being challenged for all time

In Paice & Anor v MJ Harding (t/a MJ Harding Contractors) [2015] the contractor argued that:

1. if an employer wishes to pay less than the sum stated in the contractor’s account under clause 8.12 of the building contract, which incorporated the JCT Intermediate Form 2011 edition, it must issue a “Pay Less Notice”.

2. So the employer could only set aside the adjudicator’s decision to award the sum stated in the contractor’s clause 8.12 account in subsequent litigation by showing that its Pay Less Notice was validly served in time.

3. So if the employer failed to to serve a valid Pay Less Notice in time, it would deprive the employer of the right to challenge the contractor’s account.

The High Court pointed out that this would apply for all time even if the contractor had seriously overvalued his account and that the contractor would thereby obtain a windfall that the employer could never recover.

That would subject interim certificates to a more draconian regime than that which applies to the Final Certificate.

In the case of Final Certificates, if the employer commences adjudication or litigation within 28 days of it being issued, it ceases to be conclusive in respect of the matters raised in the litigation or adjudication (clause 1.9).

The High Court said that what would be due under clause 8.12.5 would be the “… amount properly due in respect of the account”.

In this case the adjudicator had not determined what was “properly due”.

He had decided that, in the absence of a valid Pay Less Notice, the employer had to pay the amount stated in the contractor’s account within 28 days.

The Court of Appeal has now backed the High Court. They said the employer could challenge the valuation arrived at on the contractor’s final payment application by applying for a further adjudication even though they had failed to issue a proper payment or Pay Less Notice.

The court said the employer’s failure to serve a Pay Less Notice had limited consequences. These were mainly that the employer had to pay the total shown on the contractor’s account and dispute the figures later. The employer had paid that amount, as the previous adjudicator had ordered. The employer could now proceed to adjudication in order to ascertain the true value of the contractor’s claims and of the employer’s counter-claims. So the High Court Judge had got this right.

So whilst the employer must comply with the adjudicator’s decision in the meantime by paying the sum ordered, it remains open to the employer to initiate further adjudication or litigation to decide what sum is properly due in respect of the contractor’s account.

Clearly the employer will want to avoid this drain on cash flow by serving the Pay Less Notice in time, especially if there are doubts as to the continuing solvency of the contractor when it comes to refunding the over payment.

This case helps in respect of final account payments. Here, a failure to serve a payment or Pay Less Notice will not usually prevent an employer from later challenging the true value of the work through adjudication or court proceedings.

The Court of Appeal has left the position in regard to interim payments less clear.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Contractual limitation clause did not trigger defence under Section 1(3) of the Limitation Act 1980

In a construction case a typical limitation clause in a collateral warranty said:

“Notwithstanding the date hereof no proceedings shall be commenced against the Contractor after the expiry of twelve years from the date of issue of the last written statement by the Client that practical completion of the Project has been achieved under the Contract”.

This presented a procedural bar to any right the beneficiary of the warranty may have against the contractor being enforced in proceedings brought by the beneficiary issued after the cut-off time.

In the case of Bloomberg LP v Malling Pre-Cast Ltd [2015] the High Court ruled that this clause did not of itself extinguish the underlying substantive right, which might remain.

So, in proceedings by the beneficiary of the warranty against them, the project’s engineers might issue Part 20 proceedings against the scheme’s contractor claiming a contribution under section 1 of the Civil Liability (Contribution) Act 1978 and the limitation clause did not prevent that.

So the contractor had not demonstrated that the engineer had no real prospect of succeeding in its Part 20 Claim.

Outwith the clause, it may be that issues of limitation would arise later in the Part 20 proceedings or even in the main action but it was too early in the proceedings to say.

If as a matter of general law, the contractor could be said to have “ceased to be liable by virtue of the expiry of a period of limitation or prescription which extinguished the right on which the claim against” the contractor was based, this would entitle the contractor to a limitation defence under the proviso contained in section 1(3) of the Limitation Act 1980, quite independently of warranty’s limitation clause, in respect of the damage.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Adjudication: Linked issues formed single dispute

In Whitney Town Council v Beam Construction (Cheltenham) Ltd [2011] Akenhead J gave guidance as to one way of identifying whether or not two separate disputes had been invalidly referred to an adjudicator:

“A useful if not invariable rule of thumb is that if a disputed claim No 1 cannot be decided without deciding all or part of disputed claim No 2, that establishes such a clear link and points to there being only one dispute.”

In that case a claim for a final account and a claim for the financial consequences of termination were ruled part of a single dispute.

In Wycombe Demolition Ltd v Topevent Ltd [2015] an adjudicator awarded £113,666.63, with interest and his fees and expenses due from the employer (“Topevent”) to the claimant contractor (“Wycombe”).

Topevent complained that the adjudicator had no jurisdiction because more than one dispute was referred to him. The adjudicator was addressing both the issue of valuation and, what they said, were separate issues arising out of the termination/cessation of the works, and that they were two entirely separate disputes.

The High Court said it was plain from the Notice of Adjudication that the dispute between the parties concerned the outstanding payment due to Wycombe, following the cessation of works on site.

That payment was made up of a number of elements, including both the value of variations, and the financial consequences of termination and demobilisation.

There was a claim for one final payment comprising all outstanding sums, including the £4,000, for “wrongful termination of contract.” Wycombe wanted one final payment so as to be able to close their books on this contract. That could only be achieved if the adjudicator addressed all their outstanding claims. So there was a clear link between their rejected claim for the cost consequences of the “wrongful termination”, and the overall claim for all sums outstanding. They were not separate disputes.

Secondly Topevent’s representative had written a letter saying that the valuation of Wycombe’s work could not be carried out properly unless the amount of incomplete work was taken into account. That letter made a direct link between those two issues.

Accordingly, both elements of the claimed payment were part of a single dispute. They were simply different components of the total sum in dispute.

Even if there were two separate disputes paragraph 11.1 of the TecSA Rules which were the basis of the adjudicator’s appointment made it clear that the adjudicator could deal with “any further matters which all Parties agree should be within the scope of the Adjudication”.

The disputes concerned with the valuation of the work, and the dispute about termination, were addressed without qualification by both parties during the adjudication.

Indeed, Topevent’s counterclaim of approximately £180,000 was based on the latter. But Topevent had never suggested that the termination dispute should not be dealt with in the adjudication. In fact, they wanted it so decided.

So if were two separate disputes, Topevent’s acquiescence in, and failure to object to, the adjudicator dealing with both disputes, gave him the necessary jurisdiction anyway.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Operation of extension of time provisions not pre condition to liquidated damages claim

Can it be said in absolute terms that any failure on the part of a Contract Administrator (“CA”) to operate the extension of time provisions under a building contract prevents a claim for liquidated damages?

In the High Court case of Henia Investments Inc v Beck Interiors Ltd [2015] the Claimant, Henia Investments Inc (the “Employer”) sought declarations concerning its building contract (“the Contract”) with Beck Interiors Ltd (“the Contractor”) in relation to an Application for an interim payment that the Contractor had issued.

The Contract was the JCT Standard Building Contract without Quantities 2011 as amended.

One of the issues was whether a failure on the part of the CA to make a decision in respect of a contractually compliant application for extension of time rendered the CA’s Non-Completion Certificate invalid or otherwise prevented the Employer from deducting and/or claiming liquidated damages?

The court actually decided the case on other grounds but as a non binding aside it said the language of the principal liquidated damages provision, Clause 2.32, did not suggest that the CA fulfilling its duty to operate the extension of time provisions was a condition precedent to the Employer’s entitlement to deduct liquidated damages.

It seemed odd that, if there was to be a condition precedent that no liquidated damages should be payable or allowable unless the extension of time clauses have been operated properly, it was not spelt out as such.

This was more especially the case as Clause 2.32.1 expressly imposed two other conditions precedent, namely the need:

– for the CA to have issued a Non-Completion Certificate for the Works and

– for the Employer to have notified the Contractor before the date of the Final Certificate that he may require payment of, or may withhold or deduct, liquidated damages.

The lack of any precondition as to the extension of time clauses having been operated properly could be explained commercially by the facts that:

1. There can be serious arguments between the Contractor and the CA (as there were here) not only as to whether delays have occurred by reason of which extensions of time can be granted but also as so as to whether the Contractor has properly complied with the notification and particularisation requirements required by Clause 2.27.

2. The extension of time application may range from being a wholly good to a hopeless one or it may relate to the whole of the delay or only a very small part.

In short, there may turn out to be no or only a limited entitlement to an extension of time, leaving intact all or most of the Employer’s liquidated damages entitlement.

3. The Contractor is not left without remedies which, in the short term, it can pursue through adjudication and in the long-term final dispute resolution processes.

It can challenge the refusal to grant an extension and/or the deduction of liquidated damages and, in the case of adjudication, secure relief if it can persuade the adjudicator that it is appropriate and that the Employer and the CA are wholly or partly in the wrong.

It could be argued that it is unfair on the Contractor to have liquidated damages deducted at a time when the CA has failed to consider extension of time claims. The answers to that were:

A the ready availability of those short and long-term remedies

B the existence of numerous potential defaults on the part of both Employer and Contractor which could cause serious financial consequences for the other and

C the mere fact that unfairness could happen in the short term does not necessarily or obviously require clauses to be interpreted to be conditions precedent to the ability of either party to secure such financial advantage in that short term.

So a failure on the part of the CA to operate the extension of time provisions did not preclude the Employer from deducting liquidated damages where the explicit conditions precedent in Clauses and have been complied with.

However under other building contracts, if the effective operation of extension of time provisions is clearly a condition precedent it may be a precondition to the Employer’s claim for liquidated damages.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Construction: paperwork not clear enough to amount to interim payment applications

In the High Court case of Caledonian Modular Ltd v Mar City Developments Ltd [2015], the defendant denied liability for any part of the amount awarded by an adjudicator. The adjudicator’s decision turned on the date on which the claimant had notified the defendant of the sum due under the letter of intent for the construction project.

On the claimant’s view, the relevant interim payment application was made on 13 February 2015. If that was right, it was common ground that the defendant’s payless notice of 25 March 2015 was out of time and invalid.

But the defendant said that the documents of 13 February were not a claim for or notice of the sum due for payment, and that the claimant’s claim was not made until 19 March 2015. If that view were correct, it was common ground that the defendant’s payless notice of 25 March would be within time and would have provided a complete defence to the claimant’s claim.

If the documents of 13 February did not constitute a fresh application for an interim payment, or a valid payee’s notice no further sums were due from the defendant to the claimant and the adjudicator had been wrong to conclude to the contrary.

The court said:

1. Neither the covering email of 13 February 2015, nor the three documents enclosed with it, stated that they were a new application for an interim payment. The documents said variously that they were a ‘final account application summary’ and an ‘updated account’.

2. A later invoice of 19 March 2015 did not say that it was in any way a default payment notice or that the payee’s notice had originally been provided on 13 February 2015. If that had been the claimant’s position, they would have said so in clear terms.

3. In between the email of 13 February and the invoice of 19 March, the defendant expressly asked the claimant what the 13 February documents were. Unsurprisingly, the defendant was confused as to what, if anything, they were supposed to do with those documents. The claimant’s explanation did not even begin to suggest that the documents of 13 February were in fact an entirely new interim application, or that a fresh claim had been made less than a fortnight after the last, in the middle of the month and not at the month’s end.

In all three documents that the claimant relied on as being applications for interim payment, the claimant had had the opportunity to say clearly that those documents were what they now said they were, namely a new application for an interim payment and/or a payee’s notice, but the claimant failed to do so.

This omission was significant. It suggested that the claimant’s case now, that the documents were in fact a fresh claim, was “something of an afterthought.”

The only other alternative explanation was that the claimant believed that it was in its best interests to be “studiedly vague” about the nature of the documents, so as to set up precisely the argument they advanced successfully in winning the adjudication.

On any view, if they intended to serve a valid payee’s notice on 13 February, they could and should have said that that was what they were doing.

They were even asked a question which, if that had indeed been their intention, required only that simple answer. It was not provided.

Accordingly, the court granted a declaration that the documents of 13 February 2015 were not a valid application for an interim payment, or a valid payee’s notice and that no sums were due in consequence of the adjudication.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Main contractor had arguable defence on design issue.

In Iliffe & Anor v Feltham Construction Ltd [2015] fire destroyed a large house which was in the course of construction. The fire started in the roof.

The Claimants sued the Defendant building contractor [“Feltham”] claiming damages in excess of £3,500,000.

They applied for summary judgment for damages to be assessed, and for a substantial interim payment. For the Claimants to succeed in getting summary judgment they had to show that the Defendant has no real prospect of successfully defending the claim and that there is no other compelling reason why the case should be disposed of at a trial.

The Specification for Phase 1 of the build stated that the JCT Intermediate Building Contract with Contractor’s Design 2005, Revision 2, 2009 would apply.

Even before the contract for the Phase 1 works was executed, the parties conducted themselves as if the terms of the standard form of contract applied. So, for example, Feltham submitted valuations of work done to the architect who then certified payments due from the Claimants to Feltham on documents headed “Certificate of Progress Payment issued under the JCT Intermediate Building Contract with Contractor’s Design 2005”; and the architect issued architect’s instructions and took other administrative steps as he would as architect acting under the Standard Form Contract.

When the architect later sent the Phase 1 contract documents to the defendant for signature, the architect wrote:

“The [Phase 1] contract documents will then be used as a basis for Phase 3 with [those] works being a variation to the contract based on the agreed sum for Phase 3.”

Later in its instruction to the Defendant the architect said Phase 3 “generally would include the mechanical subcontract installation, comprising the supplying and installation of … a two way logburning stove with heat exchanged [sic], all with insulated stainless steel flues … the design and installation for the mechanical systems will be carried out by Affleck Mechanical Services Limited.”

Affleck sub-sub-contracted the design and installation of the flues to Docherty Chimney Group Limited [“Docherty”] who in turn sub-sub-subcontracted it to Mr Calloway who carried out the installation of the flues in or about late 2011.

At first instance, the High Court concluded that the parties entered into a contract which incorporated the terms of the JCT Intermediate Building Contract with Contractor’s Design 2005, Revision 2, 2009, for the following reasons:

1. The tender package which was sent to Feltham invited it to tender on the terms set out in that package, with the intention that the parties would enter into a contract.

2. The Specification stated that the work would be on the terms of the JCT Form and that the Contractors Designed Portion would include the design of and construction of the heating system.

Whilst it was anticipated that the work of producing the design and carrying out the heating installation would be carried out by sub-contractors, that did not derogate from responsibility for the design remaining with Feltham because that aspect was to be included in the Contractors Designed Portion.

The inclusion of the logburner’s and flue’s design in the Contractors Design Portion did not matter in other respects since none of the parties had suggested that the chimney or its installation were inadequately designed. The case brought by the Claimants alleged defective workmanship and not defective design. Nor had there been anything to suggest that the flue was inherently unsuitable. The Claimants’ case against Feltham rested on the workmanship of subcontractors beneath it in an area of work which fell squarely within its responsibility.

Feltham’s tender did not contradict the proposal that the JCT terms should apply, so by necessary implication, Feltham tendered on the basis that the terms would apply as set out in the employers’ tender package.

The effect of the tender was that the installation of the logburner and flue was included in section 10 of Feltham’s priced tender.

Nothing in the tender documents either said or implied that Feltham’s obligations as to the logburner and flue, would be limited to placing an order with Affleck. Feltham had contractual responsibility for the acts and omissions of Affleck.

The architect’s email instructing Feltham to carry out the Phase 3a works was an acceptance of Feltham’s tender to the extent of the Phase 3a works and, as such, incorporated the JCT Terms, which the Specification said, and Feltham’s tender accepted, would apply to all of the Phase 3 works.

The architect’s instruction email was also an acceptance of Feltham’s tender so far as it related to the Contractor’s Design Portion, on which both the Specification and the Tender were consistent, and which covered the works being sub-contracted to Affleck.

Feltham understood the architect’s email in that manner because it immediately entered into its sub-contract with Affleck on terms which included the DOM/1 standard form of sub-contract and even put Affleck on express notice that the main contract provisions were the JCT Intermediate form of contract.

The logburner and its flue had been used on a number of occasions for the equivalent of 2-3 weeks before the fire happened.

The High Court found that the fire was caused by the installation of the chimney and that, if properly installed, the fire would not have taken place. The flue had been installed too close to combustible material in the roof space.

The flue would not have caused the fire if it had been installed properly and with adequate separation from that material.

As there was no realistic prospect of any alternative explanation or cause coming to light if the case went to trial, those conclusions were reached with the certainty necessary to justify summary judgment against Feltham.

Feltham was contractually responsible for the acts and omissions of its subcontractors. It followed that Feltham was in breach of Clause 2.1 of the JCT Intermediate Standard Form Building Contract and that it was liable to the Claimants for the fire.

Even if the court was wrong and Feltham had not been subject to the relevant JCT Standard Form terms, Section 13 of the Supply of Goods and Services Act 1982 applied and Feltham would have in breach of the condition implied by that section that the works be designed and carried out with reasonable care and skill.

It did not matter whether the cause was entirely attributable to the acts or omissions of Affleck and the sub-contractors beneath it or, whether (as Mr Calloway suggested) Feltham was directly responsible for “scalloping” or otherwise ensuring that there was adequate separation around the flue. Feltham’s contractual liabilities would be the same.

The summary judgement has now been set aside by the Court of Appeal who were persuaded to require a full hearing of the case before any judgment is arrived at since Feltham might have some arguable defences.

The court accepted that there was unquestionably a contract between the Iliffes and Felham for the execution of the Phase 3 works. On 5 July 2011 the parties were agreed that Feltham should carry out the Phase 3 works in accordance with Feltham’s tender and subject to the conditions of the JCT contract. After that both parties acted on that basis.

Feltham carried out the Phase 3 work. The interim payment certificates were issued under the JCT contract. Mr Iliffe paid the sums certified to Feltham. The fact that the Iliffes reserved the right to withdraw the latter stages of the Phase 3 works (which never happened) did not diminish the existence of the contract.

But that, was not the only contractual issue that arose. There was also an issue, or a potential issue, concerning design responsibility.

Had it been a contractor’s design and build contract, it would not have mattered how the fire started the fire was obviously attributable to a design or construction fault and Feltham would have been liable.

The High Court Judge had accepted that principle, though he concluded that it did not matter, since defective construction rather than design had caused the fire.

The Court of Appeal disagreed it was at least arguable that the design responsibility of Feltham was limited to part only of the mechanical works of the heating system.

The specification and the schedule of works required Feltham to “complete” the design of the heating system rather than undertake the whole of that design.

That made sense because Affleck had done most of the design work (in direct consultation with Mr Iliffe and his architect) before Feltham received the tender package.

Furthermore Feltham’s priced schedule only allowed a relatively small sum (£4,000.00 of £209,877.00) for that remaining design work.

All parties knew Feltham had adopted Affleck’s costings without any mark-up. It appeared from Affleck’s quotation and the accompanying narrative that that quotation did not include designing the flue system.

So the documents had not been sufficiently clear to establish, for summary judgment purposes, that Feltham’s contract included responsibility for the design of the flues.

Also, the Court of Appeal felt unable to uphold a summary judgment on liability in favour of one party, when very similar issues were going to be the subject of a full trial between the other four parties.

It seemed highly likely that the Iliffes would, at trial, prove that defective installation work caused the fire. But, the courts still did not know what actually caused the fire. There had been no judicial investigation of the facts. The courts had only seen the result of various experts interviewing the factual witnesses. At a number of points one of the reports said that the expert needed to know what particular witnesses would say about various issues.

The position as to causation of the fire had not been so clear as to justify the grant of summary judgment on liability in favour of the claimants. Also it was inappropriate to do so when similar issues were yet to be determined at a full trial as between the other parties.

In the particular circumstances of this case that was a “compelling reason” not to enter summary judgment within the meaning of CPR 24.2(b). A judge in multi-party litigation must aim to do justice as between all parties involved in the case.

So the summary judgement was quashed.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Adjudication payment triggered implied contractual right to recover overpayment

Adjudication in construction disputes is designed to provide provisional resolution of disputes to preserve cash flow but the outcome is subject to final determination in later legal proceedings.

Provisions are implied into a construction contract under section 108(5) of the Housing Grants, Construction and Regeneration Act 1996, read with the Scheme for Construction Contracts (England and Wales) Regulations 1998 (“the Scheme”).

By providing that the decision of an adjudicator is binding and that the parties shall “comply with it”, paragraph 23(2) of the Scheme makes the decision enforceable for the time being. It is enforceable by action founded on the contractual obligation to comply with the decision combined, in a normal case, with an application for summary judgment.

The limitation period for enforcement will be six years from the adjudicator’s decision. But the decision is only binding and the obligation to comply with it only lasts “until the dispute is finally determined” in one of the ways identified.

By use of the word “until”, paragraph 23(2) appears to contemplate that there will necessarily be such a determination. The short time limits provided by paragraph 19(1) also indicate that adjudication was envisaged as a speedy provisional measure, pending such a determination.

But there is nothing to prevent adjudication being requested long after a dispute has arisen and without the commencement of any proceedings.

Also its unlikely that the Scheme imposes on either party any sort of obligation to start court or arbitration proceedings in order to confirm its entitlement.

Either or both of the parties might understandably be content to let matters lie.

The Supreme Court in Aspect Contracts (Asbestos) Ltd v Higgins Construction Plc (2015) has now provided some guidance as to when those proceedings must be brought and has come to some conclusions which could have bizarrely inconsistent results.

In that case Aspect had failed to pick up some asbestos on a survey which later impeded and added cost to Higgins’ contruction work. Higgins were awarded over £600,000 adjudication which was 75% of their claim. Aspect paid.

The contract was not entered into as a deed so the limitation period for bringing proceedings for breach of it was 6 years rather than 12 years from breach.

More than 6 years after their breach of contract Aspect sought recovery of monies they had paid Higgins under that adjudication award. However they issued proceedings for it within 6 years of paying it.

Aspect rested its claim on an implied term, alternatively in restitution.

The implied term was that:

“in the event that a dispute between the parties was referred to adjudication pursuant to the Scheme and one party paid money to the other in compliance with the adjudicator’s decision made pursuant to the Scheme, that party remained entitled to have the decision finally determined by legal proceedings and, if or to the extent that the dispute was finally determined in its favour, to have that money repaid to it.”

The court said it was a necessary legal consequence of the Scheme implied by the 1996 Act into the parties’ contractual relationship that Aspect must have a directly enforceable right to recover any overpayment to which the adjudicator’s decision had led to, once there had been a final determination of the dispute.

The obvious basis for recognising that right was by way of implication arising from the Scheme provisions which were themselves implied into the construction contract.

If and so far as the court’s decision abolishes the basis on which the payment was made an overpayment is, retrospectively, established. Repayment must then be required either by contractual implication or, if not, then as an independent restitutionary obligation.

Since Aspect’s cause of action arose from payment and was only for repayment, then whether it was analysed as in implied contractual terms or restitutionary terms, it was a cause of action which could be brought at any time within six years after the date of payment to Higgins on 6 August 2009.

Higgins complained that this gave Aspect a one-way throw and undermined finality. By delaying commencement of the present claim until 2012, Aspect can sue to recover all or part of the £658,017 paid to Higgins, without having the risk of ending up worse off, since Higgins was barred by limitation from pursuing the £331,855 balance of its original claim.

That, however, resulted from Higgins’s own decision not to commence legal proceedings within six years from April 2004 or early 2005 and |Higgins has assumed the risk of not confirming (and foregoing the possibility of improving upon) the adjudication award it had received.

Adjudication had been conceived as a provisional mechanism, pending a final determination of the dispute.

Though it was understandable that Higgins should wish matters to lie as they were following the adjudication decision, Higgins could not ensure that matters would so lie without either pursuing legal or arbitral proceedings to a conclusion or obtaining Aspect’s agreement. In the absence of Higgins doing that there would be finality.

This post is made out of general interest. It does not replace the need to get bespoke legal advice in individualcases.

VAT: University building was extended rather than continued so no zero rating

Section 30(2) of Value Added Tax Act 1994 (“VATA”) provides that a supply of goods or services is zero-rated if the goods or services are of a description for the time being specified in Schedule 8 VATA.

Item 2 in Group 5 of Schedule 8 VATA specifies:

The supply in the course of the construction of:—

(a) a building … intended for use solely for … a relevant charitable purpose …

of any services related to the construction other than the services of an architect, surveyor or any person acting as a consultant or in a supervisory capacity.

Note 16 to Group 5 provides as follows:

For the purpose of this Group, the construction of a building does not include:-

(b) any enlargement of, or extension to, an existing building …”

In the First-tier Tribunal (Tax) case of York University Property Company Ltd v Revenue & Customs [2015] it was decided to build a chemistry building in two phases due to an initial lack of funds to complete the whole building. At the time phase 1 was completed, it was not known when phase 2 would be completed.

Phase 1 was a three-storey building shaped like a rectangle, with a sacrificial wall on one of its short sides.

A donation was made to the University, in 2010, enabling phase 2 to be completed. The University wanted the phase 2 works to be zero rated for VAT.

Phase 2 was in the same style and was of similar size and shape to phase 1, and was joined to phase 1 where the sacrificial wall previously stood.

Following completion of the phase 2 works, there was one single three-storey rectangular building that was double the length of the phase 1 construction. Without looking closely at the building it would now be impossible to tell that the two parts of the building were constructed at different times.

There was no disagreement between the parties that both the phase 1 and phase 2 works related to “a building … intended for use solely for … a relevant charitable purpose” within the meaning of this provision, and HMRC accepted that the phase 1 works fell to be zero-rated on that basis.

Of the precedent cases there had been only one where a second phase of works was found to be a continuation of the original development rather than an extension to a completed building.

The tribunal said the fact that the phase 1 construction contained a sacrificial wall in anticipation of the phase 2 works was of marginal relevance.

In one of the precedent cases the first phase single storey wing included foundations and steel beams of sufficient strength to support the additional storey to be added in phase 2, but this had not affected the tribunal’s conclusion that it was an enlargement of an existing building rather than a continuation.

The only precedent case at all supportive of the University’s argument, that phase 2 was a continuation, was different as it had rested on the finding that the kitchen and laundry block built in the second phase (included in the planning consent) was integral to the development, in that the hospital could not function without it. There had been only an 18 month gap between completion of the first phase and the commencement of the second phase. Moreover, in that case the Commission for Social Care Inspection had required that the kitchen and laundry facilities be built, and had granted an extension of time for that to be done.

In this case the Chemistry Department’s vision could not be achieved until phase 2 was completed, but there was no suggestion that the phase 1 construction could not function and be used for chemistry research until phase 2 was completed.

Phase 1 did so function, as did the Chemistry Department as a whole, for some 9 years until phase 2 was completed in 2013.

Phase 1 could have continued to so function indefinitely, without phase 2. There was no suggestion that any public authority required phase 2 to be completed within any stipulated timeframe, or at all.

So phase 2 of the building was, for purposes of Item 2 in Group 5 of Schedule 8 VATA, an enlargement of or extension to phase 1, rather than a continuation of the original development of the building and so not eligible for zero rating.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.