Construction case update: March 2016

• United Kingdom

• Construction and engineering - Articles

17-03-2016

Penten Group Ltd v Spartafield Ltd [2016] EWHC 317 (TCC)

The key facts

Spartafield Ltd (“the Employer”) engaged Penten Group Ltd (“the Contractor”) to carry out building works under a letter of intent dated 19 July 2013. The parties intended to enter into a JCT Intermediate Building Contract with contractor’s design, 2011 Edition (ICD 2011), although no contractual terms were ever concluded. Issues later arose between the parties which culminated in the Contractor’s employment being terminated by the Employer in April 2015.

In the first adjudication brought by the Employer on 13 October 2015, the Employer sought various declarations including the following redress: “That a valid Construction Contract exists between the parties, and the terms of that Contract include the provisions of ICD 2011”. In his decision, the adjudicator determined that the parties had entered into a valid construction contract but that the terms of that contract were not the JCT Contract but the letter of intent.

Proceedings then took an unusual twist on 10 December 2015, when the Contractor issued a notice of adjudication seeking to confirm that the terms of the first adjudicator’s decision were enforceable, as the Employer was refusing to accept that the terms of the contract between the parties was governed by the letter of intent. This adjudication was set aside after the Employer challenged the adjudicator’s jurisdiction. Further notices issued by the Employer on 12 January 2016 and 20 January 2016 on identical terms and these too were set aside. These notices sought the following declarations:

“….the first Adjudicator was neither required nor had the necessary jurisdiction to decide on the terms of the contract between the Parties if he did not accept that it was ICD 2011.

That a contract between the Parties is in existence based on the simple requirements for a valid contract sum and contract sum analysis, an agreed completion date, and agreed unamended contract conditions.”

On 20 January 2016, the Contractor served a further notice of adjudication claiming money under the letter of intent.

The decision

The Court granted declaratory relief to the effect that the parties were bound by the first adjudicator’s decision regarding the letter of intent. In reaching his decision, Coulson J reminded the court of the decision in Absolute Rentals Ltd v Glencar Enterprises Ltd (2000) CILL 1637, where the Court referred to adjudication as “a robust and summary procedure” and that “there may be casualties” along the way.   

Practical implications/comment

Firstly, the decision makes it clear that it would be impossible for an adjudicator to determine whether a valid contract exists without determining the terms of the contract between the parties. Secondly, it was determined that a party cannot artificially restrict a responding party’s defence by arguing that because a notice made no reference to a particular point, in this case the letter of intent in the first notice, that point was not open to be decided in the adjudication; see also Pilon Ltd v Breyer Group PLC [2010] EWHC 837 (TCC). Finally, the Court made it clear that, at least in an ordinary case, a dispute about terms and a dispute about claims under those terms are all part of the one dispute.

Read the full judgment

Walter Lilly & Co Limited v Jean Francois Clin [2016] EWHC 357 (TCC)

The key facts

Walter Lilly (“the Claimant”) was a building contractor that specialises in renovation of prime residential properties. Mr Jean-Francois Clin (“the Defendant”) was the owner of Nos. 48 and 50 Palace Gardens Terrace (the “Property”), which is in the Royal Borough of Kensington and Chelsea (“RBKC”). The judgment concerned various preliminary issues that were set out in an order made on 18 December 2015, relating to a claim for an extension of time.

The parties entered into a contract on 25 September 2012. Under the terms of the contract, the Claimant was to carry out demolition, refurbishment and reconstruction works at the Property to form a single residence.

On 17 July 2013, whilst work was underway, RBKC wrote to the Claimant and the Defendant’s architect stating that it considered the extent of proposed demolition to amount to “substantial demolition” under section 74 of the Planning (Listed Building and Conservation Areas) Act 1990 and that, as a result, conservation area consent was required. Accordingly, the critical demolition works were suspended by the Claimant and did not resume until about a year later. The Claimant claimed an extension of time in respect of this delay, submitting that consent had not been obtained by the Defendant for demolition works that were necessary to execute the works.

The Defendant asserted that RBKC’s position was incorrect and that the works did not involve “substantial demolition”. He argued that the suspension of work was a result of the Claimant giving RBKC the impression that the extent of the demolition work went beyond the existing conservation area consent. However, according to the Claimant, the Defendant eventually revised the design of the development, carrying out reduced demolition work, with a further planning application submitted on 19 December 2013. Permission was granted in June 2014.

At the heart of the preliminary issues to be settled was question of whether there was an express or implied term in the Building Contract to the effect that the Defendant was responsible for ensuring that all required consents were obtained prior to the commencement of the works.

The decision

Edwards-Stuart J found that there was no express term in the contract placing responsibility on either party. He went on to review the relevant case law on implied terms, in particular Attorney General of Belize v Belize Telecom [2009] 1 WLR 1988 and Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Limited [2015] UKSC 72. Summarising the key points, Edwards-Stuart J stated at 40 that:

“I must bear in mind also that the court is concerned only to ascertain the objective intention of the parties, it is not to have regard to the private intention of either party or to imply a term that the court considers to be fair and reasonable. The search is to find the meaning which it would convey to a reasonable person having all the background knowledge that the parties to the contract could reasonably be expected to possess.”

The Court held that the reasonable developer would know that he was likely to need conservation area consent, and that it needed to be obtained in advance. However, consent to conservation area consent cannot be taken for granted. This was not a case where, because nothing was expressly stated in the contract, it could be implied that the parties could have intended that nothing should happen about planning permission. Further, it would be obvious to an informed bystander that the party best placed to obtain planning permission is the employer, not least because he knows well in advance what he wants to do. Any reasonable person would know that a failure to make a timely application could result in a delay.

However, the essential point between the parties was whether a term should be implied to the effect that the employer will ensure that planning permission is obtained, or whether there should be a more limited obligation, to exercise reasonable diligence.

Edwards-Stuart J found that there was nothing inequitable about leaving the loss caused by the unreasonable actions of a third party, if the actions of RBKC were unreasonable, to lie where they fell: Porter v Tottenham UDC [1915] 1 KB 776. Commercial necessity does not require the employer to undertake the entire risk of the vagaries of obtaining planning permission. Imposing such an obligation is not necessary to make the contract work because it cannot prevent the local authority from acting unreasonably. If the necessary planning permission has not been obtained at the time when the contractor submits its tender, he must decide whether he wants to take on the risk, and can protect himself accordingly by inserting a clause into the building contract.

Practical implications/comment

Parties should always bear in mind the possible permissions that are required before entering into a building contract and ensure that provisions are made within the contract to allocate the associated risks.

Read the full judgment

AMD Environmental Ltd v Cumberland Construction Company Ltd [2016] EWHC 285 (TCC)

The key facts

The Defendant, Cumberland Construction Company Ltd (“Cumberland”), engaged the Claimant AMD Environmental Ltd (“AMD”) as a subcontractor to carry out mechanical and electrical works at the Hilton Hotel in Park Lane, London. AMD claimed a final account sum of £527,770.33 from Cumberland in an application dated 31 March 2015. Cumberland did not agree with the claim and there followed a number of exchanges before AMD referred the matter to adjudication on 2 September 2015.

Mr Molloy was appointed as the adjudicator and he found mainly in favour of AMD, ordering that the value of the works was £464,448.34, that Cumberland’s pay less notice was inadequate and that Cumberland was not entitled to set off any contrcharges from payments due to AMD in respect of the claim. Consequently, Cumberland were to pay AMD £77,993.26 plus VAT and interest up to the date of the decision and to be primarily liable for the adjudicator’s fees.

Cumberland did not pay AMD the amounts ordered, so AMD issued enforcement proceedings on 18 December 2015. Cumberland raised two defences which had also been raised in the adjudication – that the dispute had not crystallised and that the contract was not in writing – and also a new defence that the adjudicator had not considered all the matters in issue.

The defence of the contract not being in writing was swiftly dismissed as misconceived as the statutory requirement for a contract being in writing in order to be referred to adjudication was deleted under amendments to the Housing Grants, Construction and Regeneration Act in November 2011.

The decision

Mr Justice Coulson found the arguments in relation to a dispute not having crystallised hopeless. He firstly referred to the adjudicator’s ruling that a dispute had crystallised and Cumberland’s acceptance of the adjudicator’s decision by requesting an extension for service of a response and failure to reserve their rights during the adjudication in relation to jurisdiction. He then considered that even if he were wrong on this point, from the correspondence it was clear that a dispute had arisen and that absence of the particularisation of the claim or sufficient definition of it amounted to sufficient challenges to crystallisation of the dispute. Mr Justice Coulson stated that it would be rare for an argument relating to whether a dispute had crystallised to succeed and he referred to Beck Interiors Ltd v UK Flooring Contractors Ltd [2012] EWHC 1808 (TCC), one of the few recent cases where the argument had succeeded when a claim was sent to the responding party after business hours on Maundy Thursday and then a notice of adjudication was served the following Tuesday, leaving no business days for the responding party to reply.  

As part of the defence that a dispute had not crystallised, Cumberland sought to argue that the adjudicator’s request for further information and CMD’s provision of it amounted to a breach of natural justice. Mr Justice Coulson dismissed this argument stating that it was contrary to the Scheme, as it is essential that an adjudicator is able to request information to assist in reaching a decision.

Finally, the argument that the adjudicator had failed to address a matter in issue, amounting to a breach of natural justice, was dismissed. The judge stated that the case law when an adjudicator’s decision had been unenforceable related primarily to a failure to address principal questions put to it, rather than dealing with all issues. He stated that the arguments put forward were contrary to the basic principle that parties cannot raise jurisdictional challenges on the basis of disagreeing with an adjudicator’s reasoning. Referring to the decision, he found that some disputed matters had indeed been considered by the adjudicator. In the alternative, he found that following recent case law, failure to consider all issues did not amount to a breach of natural justice.

Practical implications/comment

This case serves as a cautionary reminder for parties seeking to challenge the enforcement of adjudicators’ decisions that such challenges are often held by the Courts to be “hopeless” and “without merit”. In this case, the Court enforced the adjudicator’s decision and ordered indemnity costs and a high rate of interest to be paid in recognition that enforcement proceedings were not required. This was because the adjudicator's decision should have been honoured "some time ago" and accordingly the arguments challenging it were hopeless.

Read the full judgment