Speak to our friendly staff directly  +44 (0)20 7242 2523

A leading set specialising in commercial, construction, insurance and property law

This document is from our archive and no action should be taken in reliance on it without specific legal advice.

Construction case law update: February 2011

Redwing Construction Ltd v Wishard [2010] EWHC 3366 (TCC) – 2/12/10

The Facts 

The Claimant (C) was employed by the defendant (D) under a standard JCT Prime Cost Building Contract (2006 Rev. 1 with amendments) to complete a refurbishment of a domestic property.  The contract provided for C to be paid the Prime Cost, the Contract Fee and any direct loss and/or expense ascertained under the contract.  A number of variations were ordered and C did not complete the Works by the original Date for Completion of 12 December 2008, Practical Completion not being achieved until 31 July 2009.  An extension of time was awarded until 31 January 2009 but C’s applications for extensions of time up to 1 May 2009 were disputed and referred to adjudication (the First Adjudication).  There was then a subsequent adjudication (the Second Adjudication) relating to whether D was entitled to an adjustment of the Contract Fee rate.  D brought proceedings to enforce the Second Adjudicator’s decision.

The Issue

The court had to determine (1) whether the dispute decided in that Second Adjudication had been effectively decided in the First Adjudication and (2) whether the Second Adjudicator’s correction or amendment to his decision went beyond the correction of a clerical error. 

Held

(Akenhead J.)

The crystallised dispute referred in the First Adjudication was as to (a) the further extension of time to which C was entitled and (b) a consequential entitlement to the Contract Fee at the rate of £3,500 a week. The argument that reference in the Notice of Adjudication and the Referral seeking payment of the “Contract Fee in the sum of £3,500 and/or loss and expense (or such other sum as the Adjudicator shall determine)” was sufficient to encompass any claim for an adjustment of the Contract Fee weekly rate was rejected.  There was no crystallised dispute at that stage in relation to any possible adjustment to that rate. Further, on the facts there was no evidence that the First Adjudicator had subsequently been granted jurisdiction on that issue.  Although the First Adjudicator had made a finding of fact and direction precluding any adjustment of the Contract Fee he had no jurisdiction to make that finding or direction and that part of his decision was tangential or obiter to what he was required to and did decide on the disputes referred to him.  The Second Adjudicator did therefore have jurisdiction to rule upon C’s entitlement to an adjustment of the Contract Fee rate and the Second Adjudication decision was enforceable.

The Second Adjudicator had made a very obvious error and was applying the Slip Rule when correcting that error.  The revision to the Second Adjudication decision was also reached within a reasonable time as it came out within 2 days of the original decision.

Pantelli Associates Ltd v Corporate City Developments Number Two Ltd [2010] EWHC 3189 (TCC) – 2/12/10

The Facts

Further to a compromise agreement, the Claimant (C) firm of quantity surveyors sued the Defendant (D) for unpaid fees arising out of two building projects.  D counterclaimed raising allegations of professional negligence.  An unless order required D to provide proper particulars of the allegations of negligence, causation and loss by way of an application to amend.  C objected to the proposed amendments on the grounds that D had not provided proper particulars. It was common ground that the particulars of negligence were limited to adding the words ‘failing to’ or ‘failing adequately or at all to’ as prefixes to various contractual obligations.

The Issue

The court considered that the application raised a ‘potentially important point as to the proper practice for the pleading of claims for professional negligence’.

Held

(Coulson J.)

The amendments made to the particulars of breach were inadequate, did not meet the test in CPR r.16.4(1)(a) and did not amount to a proper pleading of a case of professional negligence.  This was because they were generic allegations which made it impossible for C to obtain proper witness statements or expert reports to rebut.  It was standard practice that, where an allegation of professional negligence was raised, the allegation must be supported in writing by a relevant professional with the necessary expertise.  However, D had failed to obtain any form of expert evidence that the work carried out by C was in some way below the standard to be expected of an ordinarily competent quantity surveyor.  It was wrong in law and in practice to make unsupported allegations of professional negligence.  The allegations of professional negligence and the counterclaim were struck out.

D Morgan Plc v Mace & Jones [2011] EWHC 26 (TCC) 17/1/11

The Facts

In an earlier judgment four out of five allegations of negligence made by the Claimant (C) against the Defendant (D) were dismissed.  In relation to the one allegation of negligence that was upheld and the four that were rejected, C’s case on causation failed on both of the relevant limbs and, in any event, the vast bulk of C’s claim for damages was irrecoverable.  If that were not the case, any damages recoverable by C were within the sum of £2.6 million which had already been paid out by the original co-defendant.  It was accepted that D was generally entitled to its costs but there were various disputes between the parties in respect of the level of those costs.

The Issue

The court had to determine (1) whether there should be a reduction in the amount of costs that C otherwise had to pay D because of their success on the one ground of negligence, (2) whether D was entitled to indemnity costs, either from the outset of the proceedings or the date on which their Part 36 offer had expired and (3) the amount of the interim payment on account of costs due to D.

Held

(Coulson J.)

(1) C was not entitled to a reduction in the amount of costs otherwise payable to D because of their success on the one ground of negligence because the arguments on liability, causation and loss were all intertwined and even if D had admitted that allegation it would have had no significant effect on the course of the trial or the costs incurred.  (2) The exaggerated and fundamentally flawed nature of the claim against D took the case close to the boundary of what might be considered “the norm” within the test set out in Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hammer Aspeden and Johnson [2002] EWCA Civ 879.  The fact that there had been a lack of proper disclosure by C and dilatory conduct of the proceedings by them was not of any real significance when determining the basis of the costs assessment.  On balance, as at July 2010 this was not a case where indemnity costs would have been appropriate.  However, the position then changed because C settled its pleaded claim against the party who was, on any view, the principal defendant and the exaggerated and flawed claim against D became the subject of an offer.  The refusal to accept that offer, when seen against the background of the real problems with maintaining the claim against D alone, was unreasonable to a high degree and therefore very similar to the situation in Excelsior.  Costs would be assessed on an indemnity basis from the date when the offer expired because of the failure to accept the offer despite the speculative nature of the claim against D and the wholly unsatisfactory and unreliable nature of the evidence of C’s principal witness.

CN Associates (A Firm) v Holbeton Ltd [2011] EWHC 43 (TCC) 26/1/11

The Facts

The Claimant (C) firm of quantity surveyors was employed on a residential refurbishment project.  D purchased the relevant property for that purpose from an individual (T) who was a director of a construction project management company (Co).   The proposed terms of C’s engagement were set out in a letter from it to Co and a contract was formed between C and Co.  C’s first invoice was addressed only to Co but, upon Co’s request, it was re-issued to D ‘c/o’ Co marked for the attention of T.  The next four invoices were addressed in the same manner.  After those invoices had been provided, solicitors acting for D wrote to C enclosing a draft ‘appointment’ in the form of a letter to C which was to be executed and signed as a deed by both parties.  C sought a number of amendments to the terms of that draft appointment.  The invoices from that time onwards were again addressed to D ‘c/o’ Co.   The draft appointment was never executed.  Nearly three years after the project was completed, C wrote to D seeking payment of the balance of fees and raised an invoice for that sum.  No agreement having been reached, C served a Notice of Adjudication on D.  The Referral proceeded on the basis that Co acted as an agent of D with authority to negotiate the terms of the appointment and relied upon the fact that payments were in fact made by D.  Arguments were raised as to the variation of those terms and estoppel.  In the adjudication one of the points argued by D was that the Adjudicator had no jurisdiction because the construction contract relied upon was said to be contained in the early exchange of letters between C and Co to which D was not a party.

The Issue

The court had to determine whether there was an effective reservation by D in relation to the jurisdiction of the Adjudicator and, if not, whether the parties agreed to give to the Adjudicator jurisdiction to decide his own jurisdiction.  If there was an effective reservation whether the Adjudicator had jurisdiction.

Held

(Akenhead J.)

Although there was no express reservation by D the words it used in its Response and Rejoinder were sufficient when judged objectively for D to reserve its position.  It was therefore unnecessary to consider whether the parties had agreed to give the Adjudicator jurisdiction but was necessary for the court to review whether there was such jurisdiction.  It was not possible on the summary judgment application to determine the various issues as to whether or not Co initially acted as agent for D or as to the contractual position between the parties.  D just passed the threshold of establishing a realistic prospect of a successful defence but as a condition for permission to defend D was ordered to pay into court within 14 days the full amount of the claim.

The Halo Trust v The Secretary of State for International Development [2011] EWHC 87 (TCC) 27/1/11

The Facts

In 2010 the Department for International Development (DFID) undertook a public procurement exercise in relation to mine clearance and related work in Cambodia.  Initially Framework Agreements were signed between DFID, the Claimant (C) and Mines Advisory Group (MAG) and G4S whereby they could be invited to participate in demining work globally.  C believed that it should have ‘won’ the contract and that there were breaches by DFID of the Public Contracts Regulations 2006 (as amended by the Public Contracts (Amendment) Regulations 2009 (the Regulations).

The Issue

The court had to determine whether DFID should continue, at the suit of C, to be restrained by the operation of Regulation 47H of the Regulations from placing its contract with MAG for £3.5m’s worth of work in relation to the demining work.  It was common ground that in relation to applications under Regulation 47G(1) as here the Court should apply the principles and practice set out in American Cyanamid Co v Ethicon [1975] AC 396.

Held

(Akenhead J.)

There was no serious issue to be tried in respect of the alleged breaches of the Regulations but, even were that threshold passed, the balance of convenience was such that DFID should no longer be restrained from entering into its proposed contract with MAG.

McCain Foods (GB) Ltd v Eco-Tec (Europe) Ltd [2011] EWHC 66 (TCC) 27/1/11

The Facts

The Claimant (C) purchased a BGPur system (the System) from the Defendant (D) under an Equipment Purchase Agreement including a Specification.  The System was intended to remove Hydrogen Sulphide from biogas produced in C’s waste water treatment processes at one of its plants.  The clean biogas was intended to be used by C in the generation of electricity through a Combined Heat and Power plant to provide a source of power and electricity for the plant which C said entitled it as an Ofgem accredited generator of renewable electricity to obtain Renewables Obligation Certificates.  C alleged that the System proved impossible to commission successfully and it therefore treated D as being in repudiatory breach of contract and accepted that breach, or, rescinded the contract in consequence of which it sought recovery of monies paid under the contact and damages.  The claim was denied by D who counterclaimed for money outstanding under the contract.

The Issue

The court had to determine whether the System as designed and supplied was compliant with the specification and fit for its intended purpose and whether there was any breach of contract and/or misrepresentation if that was not the case.

Held

(Mr Recorder Acton Davis Q.C.)

Although the claim was, in part, based upon alleged representations and/or the existence of a collateral contract, the dispute could be decided on the express terms of the contract alone.  As a matter of contractual interpretation the risk for the inability to commission the System was that of D.  It was impossible to commission the System and D was thus in breach of contract.  Even if that were not the case, taken as a whole various e-mails and telephone conversations amounted to certain assurances as to the capabilities of the System.  D could not rely upon the entire agreement clause in the contract to defeat the misrepresentation claim based upon those assurances.  Damages would be awarded for breach of contract.

AES-3C Maritza East 1 EOOD v (1) Credit Agricole Corporate and Investment Bank and (2) Alstom Power Systems GmbH [2011] EWHC 123 (TCC) 31/1/11

Facts

The Claimant (C) sought summary judgment against the first defendant bank (D1) in respect of two demands made on an on-demand bond.  The Peformance Bond (the Bond) was provided to the Second Defendant (D2) under a contract for the construction of a power plant in Bulgaria.  The contractors under the engineer procure and construct contract with C were two Alstom Group companies.

The Issue

The court had to determine (1) whether a claim for sums not yet alleged to be due and payable and for which there was no notice to or claim against D2 could be demanded under the Bond, (2) whether the first demand was made fraudulently and (3) whether a second demand was defective if it was for the same sums in circumstances where the first demand had not been withdrawn.

Held

(Ramsey J.)

There was no basis for the allegation of fraud because the evidence provided no support for an assertion that C did not honestly believe the demand which was made to be a correct demand made under the Bond. 

It was evident that the question of whether there had been a relevant demand under an on-demand bond depended in each case upon the wording of the particular bond.  In this particular case, the Bond, like many on-demand bonds, was payable against an appropriately worded demand accompanied by such document as the demand required and without proof of the existence of a liability under the underlying contract.  The proper construction of the Bond was that the claim had to be based on an assertion by C that the sum was due and payable by D2 for breach of its obligations under the construction contract; prospective claims for sums payable by D2 at a future date were not to be the subject of demands under the Bond, even if those sums might inevitably be due and payable at a future date.  That was not to say that in cases where there were defects giving rise to claims for damages for breach of contract such claims could not be made; in such a case there is an accrued right to pay damages although the sum actually paid to make good those damages may not yet have been incurred.  That was different from the position in this case.  D1 therefore had a real prospect of successfully defending the claim on the first demand.  In any event, the first demand was invalid because it did not contain notices to or claims against D2 in accordance with the terms of the Bond. 

Since the first demand was invalid there was only one valid demand in the form of the second demand, were that not the case there would be difficulty in making a second valid demand for the same sums.  D1 had no real prospect of successfully defending the claim made in relation to the second demand.

(1) Liberty Syndicate Management Limited & (2) Liberty Corporate Capital Limited v (1) Campagna Ltd & (2) Campagna Limited [2011] EWHC 209  (TCC) 9/2/11

The Facts

The Claimants (Cs) were the corporate and sole members of various Lloyd’s syndicates and their managing agent.  Between 2003 and 2008 Cs underwrote a form of latent defects cover, mainly for residential property, which was known as the Premier Guarantee Scheme (PGS).  Under the PGS the Defendants (Ds) provided technical audit services with respect to newly constructed residential property and issued a Certificate of Approval in respect of the property once the house had been completed to their satisfaction.  Subsequently, when the property was sold, C would issue the policy to the homeowner.  There were two main elements to the cover provided:  5 years of cover with respect to the waterproof envelope and 10 years of cover with respect to ‘Major Damage’ to the property.  There were numerous claims under the policies in respect of damage to or lack of water tightness of properties built in Ireland and inspected and approved by Ds. 

Cs sued Ds for breach of contract and negligence, alleging that their checks and inspections of the houses fell below the standard of a competent technical auditor and that caused the excessive number of claims made under PGS.  The matter came before the court to determine various preliminary issues relating to the scope of the duty and alleged breaches of it by reference to sample properties. Cs argued that the duties of a latent defects technical auditor was generally analogous to that of a building surveyor whilst D argued that the standard of care was that of a building control inspector.

The Issue

The extent, if at all, to which a competent technical auditor in the position of Ds should have discovered the various defects in the construction of the insured properties.

Held

The case turned very largely on its facts.  It was clear that Ds did not contract to ensure that any building its technical auditors inspected would be defect free.  The duty of the auditors was to take reasonable care during the inspections that they were required to carry out to ensure that each building represented a standard risk from an insurance point of view.  The auditors were not required to check for strict compliance with building regulations, although to the extent that the regulations represented good construction practice, they would be expected to check for compliance so far as the regulations relate to the risks insured by the PGS (i.e. in relation to water tightness and structural stability). The auditors could not be characterised as either building control officers of building surveyors in the sense in which those roles are commonly understood; instead, the role under this engagement, and perhaps generally, was a combination of those two roles.