Case Law and Legal Updates - February 2021

The Fraserburgh Harbour Commissioners v McLaughlin & Harvey Limited [2021] CSOH 8

Fraserburgh employed McLaughlin under the NEC3 Engineering and Construction Contract 2005-2006, to carry out works at the North Harbour. McLaughlin completed the works, however Fraserburgh discovered defects and issued court proceedings, seeking damages for a breach of contract.

However, McLaughlin disagreed that the dispute could be referred to court, and argued that prior to doing so, it was a requirement under clause W2 of the contract to adjudicate the dispute.

The court agreed with McLaughlin, confirming that adjudication was the main form of dispute resolution under the contract, and this process had to be followed, before commencing court proceedings. Thus, Fraserburgh’s claim was dismissed.

NB: NEC3 contracts heavily rely on cooperation between parties, and it is important to remember that although some clauses such as the “W” clauses are referred to as options, parties are still bound by them if included in the contract, and this does not undermine their impact on the dispute procedures.

For further information, please see: THE FRASERBURGH HARBOUR COMMISSIONERS AGAINST McLAUGHLIN & HARVEY LTD [2021] ScotCS CSOH_8 (26 January 2021) (bailii.org)

Secretariat Consulting PTW Ltd & Ors v A Company [2021] EWCA Civ 6

A Company appointed Secretariat Consulting as an expert witness for an arbitration, relating to delays. Another party appointed an expert witness from Secretariat International (which is linked to Secretariat Consulting) for a separate arbitration, but arising from the same matter. The only difference was that the arbitration was against A Company.

Initially, the court held that the Secretariat company owed a fiduciary duty of loyalty to A Company, and could not represent other parties acting against A Company, arising from the same matter. Thus, the court granted an injunction.

The Court of Appeal upheld the injunction, but did not agree with the judge’s reasons for granting one, as English law does not expressly impose the above fiduciary duty on an expert to the instructing party. Instead, the Court of Appeal held that there was a conflict of interest, which contradicted the contractual clauses in the confidentiality agreement and would prevent the Secretariat company from acting in the separate arbitration.

For further information, please see: Secretariat Consulting PTE Ltd & Ors v A Company [2021] EWCA Civ 6 (11 January 2021) (bailii.org)

New Year, New Contracts

NEC launched a new suite of Facilities Management contracts in January 2021, consisting of four contracts:

  1. Facilities Management Contract (FMC) – primarily aimed at developers to employer a project manager to oversee the project for a specified period;
  2. Facilities Management Short Contract (FMSC) – aimed at a developer and a simpler, low risk form of contract for less complicated projects;
  3. Facilities Management Subcontract (FMS) – aimed at a project manager appointed under an FMC to subcontract work; and
  4. Facilities Management Short Subcontract (FMSS) – used for simpler projects with low risk and aimed at a project manager appointed under any of the above contracts to subcontract work for a specified period.

NEC continue to emphasise the importance of cooperation throughout their contracts, and ensure smooth sailing of projects, by maintaining provisions such as “early warning” in this suite of contracts.

For further information, please see: NEC4: Framework Contract - NEC Contracts

Clin v Walter Lilly & Co Ltd [2021] EWCA Civ 136

The Claimant (Mr Clin) appointed the Defendant (Water Lilly) under a JCT contract, to carry out works in relation to the conversion of two adjoining houses, into one house. Consent was required to demolish the houses, since they were situated in a conservation area. The Defendant commenced the works, and the local authority notified the parties that conservation area consent was to be obtained, before proceeding further.

This delayed the progress of the project by a year and a dispute arose to determine liability for the delays, and the Defendant’s entitlement to an extension of time. The Claimant upheld their argument that the works did not amount to demolition and consent was not required, so they should not be liable.

The High Court considered the definition of “demolition” in Shimizu (UK) Limited v Westminster City Council [1997] 1 WLR 168, which states that demolition is not limited to “where every single part of the listed building should be pulled down. It is now commonplace…for the façade to be left standing while clearing the remainder of the site for redevelopment…The question is ultimately one of fact for the decision of the Lands Tribunal…”.

The High Court held the works fell within this definition and the Claimant was liable, as they failed to carry out the level of due diligence required under the contract, which included obtaining consent. Thus, entitling the Defendant to an extension of time.

The Claimant appealed on the basis that only parts of the building had been removed, and this would not impact the “character and appearance of the conservation area”, therefore would not fall under the definition of “demolition” under Shimizu, and consent was not necessary.

The judge stated the “character and appearance” of conservation areas is not a factor courts should consider, when determining if consent is required and if removing a building can be classed as “demolition”. Also, the initial application of the “demolition” test by the court had been applied correctly, therefore, the Claimant’s appeal was dismissed.

NB: This emphasises the importance not to undermine implied obligations under the contract, such as obtaining consent and that any arguments relied on should be well presented at the court of first instance. It also shows that although Demolition works are assessed quantitatively, there is no requirement for such works to entail entire destruction/removal of a building.

For further information, please see: Clin v Walter Lilly & Co. Ltd [2021] EWCA Civ 136 (08 February 2021) (bailii.org)

JSM Construction Ltd v Western Power Distribution (West Midlands) Plc [2020] EWHC 3583 (TCC)

The Defendant (Western Power) employed the Claimant (JSM) for installation works, which were completed, following which, the Claimant requested final payment. The Claimant also claimed damages for disruptions caused by the Defendant’s failure to carry out their due diligence, in relation to ground investigations.

The Defendant applied to strike-out the claim and refused to make a final payment to the Claimant on the basis that the contract did not provide for this; it included reference to interim payments, but was silent as to final payments. The Claimant argued that final payment provisions were implied into the contract under the Scheme.

The court held that there is no requirement under s110 of the Scheme requiring parties to include specific provisions for final account payments. It was however difficult, to conclude the matter without considering the surrounding factual and legal issues, which the court was unable to do in a strike-out application. Thus, the Defendant’s application was dismissed.

NB: It is not necessarily a requirement of a construction contract to have a clause regarding final payment. However, the court made clear it was difficult to decide on a matter, without considering the broader picture – both the factual and legal issues. Therefore, it is important to make sure that the contract actually does what you think it does, and you should not assume certain provisions are included without checking it, or obtaining legal advice. After all, why would you not want a final account provision, setting out how and when you will be paid?

For further information, please see: JSM Construction Ltd v Western Power Distribution (West Midlands) Plc [2020] EWHC 3583 (TCC) (31 December 2020) (bailii.org)

Rochford Construction Ltd v Kilhan Construction Ltd [2020] EWHC 1941 (TCC)

In 2018, Rochford engaged Kilhan to construct a reinforced concrete frame.

The subcontract stated "Works are lump sum ... RCL will issue activity schedule to KCL, application date end of month ... commercial ... valuations monthly as per attached payment schedule end of month. Payment terms thirty days from invoice as per attached payment schedule. S/C payment cert must be issued with invoice."

On 20 May 2019, Kilhan issued an Interim Payment Application (“IPA”) in the sum of £1.4m. On 23 October 2019, Rochford responded with an Interim Payment Notice (“IPN”) for the sum of £1.2m. Due to the vague payment terms a dispute arose and the matter was referred to adjudication.

The adjudicator concluded that the due date of the IPA was 30 days from the date it was served i.e. 30 days from 20 May 2019 which was 19 June 2019. Rochford had served their IPN outside of this window so it was not valid, Rochford was therefore directed to pay the sum owed.

Rochford refused to pay and when Kilhan issued Part 7 enforcement proceedings Rochford responded by issuing Part 8 proceedings.

Rochford claimed that the adjudicator’s decision was “clearly wrong” because he failed to take into consideration the express contractual terms that the date for making a claim fell on the last day of each month and the payment due date was fixed when Kilhan issued an invoice.

Cockerill J referred to s110 of the Housing Grants, Construction & Regeneration Act 1996 which states that every construction contract must “provide an adequate mechanism for determining what payments become due under the contract”.

The drafting here was incomplete so the judge referred to the decision in Bennett (Construction) Ltd v CMC MBS Limited [2019] EWCA Civ 1515, which held that where a contract fails to comply with the Housing Grants, Construction & Regeneration Act 1996, a “piecemeal incorporation of the Scheme [for Construction Contracts (England and Wales) Regulations 1998 (as amended)] (the “Scheme”) can be done”.

Cockerill J held that “pegging the final date to service of invoice…is impractical” and that the payment terms were defective so the Scheme would apply.

Under paragraph 4 of the Scheme, payment is due 7 days after the “relevant period” or when the payee makes a claim, whichever is later.

Cockerill J upheld the adjudicator’s decision finding that the due date was the date the invoice was submitted i.e., 20 May 2019. As the scheme applied this therefore meant that Rochford had failed to issue both payment and the IPN within the required time-frame so their Part 8 claim failed.

NB: in this matter the inadequate payment terms led to substitution of the Scheme date. To avoid this scenario, you should ensure that your contract has clear payment terms expressly covering: the date when the application must be served, a definition of ‘due date’, the final date for payment and the date when the IPN should be served.

 

It is also critical that if a party does not want to pay the full amount claimed by another party that they serve their Pay Less Notice on time to ensure that it is valid.

 

For further information, please see: Rochford Construction Ltd v Kilhan Construction Ltd [2020] EWHC 941 (TCC) (12 March 2020) (bailii.org)

D McLaughlin & Sons Limited v East Ayrshire Council [2020] CSOH 109

DM&SL was a contractor employed by EAC to carry out construction to Hurlford Primary School, East Ayrshire. A dispute was referred to adjudication.

DM&SL sought to enforce the adjudicator’s award but EAC challenged the adjudicator’s decision contending that the adjudicator made errors in judgment. 

EAC argued that the Final Certificate is conclusive evidence in the adjudication and the adjudicator erred by failing to treat it as such.

In Scotland errors of law or fact by the adjudicator do not permit a challenge to enforcement however EAC “sought to argue that there was authority in England to the effect that there was an exception to these general principles, allowing in certain limited circumstances an error by the adjudicator to be relied upon in the challenge to enforcement’. As such, this exception should be recognised and followed by the courts in Scotland as their position fell within that exception.’

The Court found that in principle it is permissible for ‘an unsuccessful party to adjudication to seek final determination of the dispute during enforcement proceedings in the Scottish courts’ but warned that the circumstances where this approach is suitable would be ‘few and far between’.  ‘Whether any issue was suitable for final determination at the enforcement stage would be a matter for the relevant judge.’

In this case EAC’s case did not fall within such an exception.

NB: this case tells us that in England and in limited circumstances in Scotland an error of law or fact made by an adjudicator may be sufficient to challenge the enforcement of an adjudicator’s decision. This is however a rarity and depends upon the circumstances and the view of that particular judge.

For further information, please see: D McLAUGHLIN & SONS LTD AGAINST EAST AYRSHIRE COUNCIL [2020] ScotCS CSOH_109 (30 December 2020) (bailii.org)

Hochtief Solutions AG v Maspero Elevatori S.p.A [2020] CSOH 102

Hochtief formed an unincorporated joint venture called ‘Forth Crossing Bridge Constructors’ (FCBC) and were appointed as contractor, to carry out works at the Forth Replacement Crossing.

FCBC entered into a sub-contract with Maspero to design, manufacture and install lifts at the Forth Replacement Crossing.

Disputes arose between the parties and in July 2018 the parties came to an agreement covering Maspero’s ongoing performance. Disputes continued despite this and in November 2018 FCBC gave notice to terminate the sub-contract, requesting payment of sums due (to replace Maspero to complete the works).  

Maspero disputed termination of the sub-contract and the matter was referred to adjudication. The adjudicator found in favour of FCBC, concluding the termination was valid and that FCBC were entitled to payment.

FCBC sought to enforce this decision, but Maspero challenged this on the basis that the adjudicator had ‘exceeded his jurisdiction’ as the dispute now fell outside of the sub-contract and instead under the new agreement reached in July 2018.

They further argued that the adjudicator had ‘failed to exhaust’ his jurisdiction by failing to address defences raised by Maspero

FCBC argued that their claim fell within clause 12.3.1(c) of the sub-contract which entitled them to payment where works were required to be completed or corrected following termination.

Maspero argued that FCBC’s claim fell outside of this clause as they were claiming for negligent design which was not applicable under this clause. The adjudicator was required to consider this defence as the sums claimed by FCBC exceeded the sub-contract sum. 

The court found that Maspero did not notify the adjudicator at the outset that the dispute fell under a separate agreement (agreed in July), which was not a variation to the initial sub-contract and thus, outside the adjudicator’s jurisdiction. Instead, this was only mentioned in the response, but Maspero did not reserve their position, allowing the adjudicator to proceed. Therefore, there was nothing to suggest this would affect the ongoing adjudication and their first argument failed.

In relation to failing to exhaust jurisdiction, the court rejected Maspero’s argument and decided that the adjudicator had considered the relevant provisions, including clause 12.3.1(c), which “permitted recovery, including the costs of re-design, on the grounds identified’. Therefore, the claim for costs fell within this clause and the adjudicator’s decision was enforced.

The key point from this case is to “stick to your guns” as they say. Any jurisdiction challenges should be clear and notified to the adjudicator and opposing party early on. Not only that, but any challenges should be detailed enough to allow the adjudicator to consider the merits of any challenge, and should be reserved by the party challenging jurisdiction, throughout the adjudication. Doing so, will reduce the obstacles faced during enforcement proceedings.

For further information, please see: (FIRST) HOCHTIEF SOLUTIONS AG AND OTHERS AGSINST MASPERO ELEVATORI S.p.A [2020] ScotCS CSOH_102 (17 December 2020) (bailii.org)

General Litigation

Helice Leasing S.A.S v PT Indonesia (Persero) TBK [2021] EWHC 99 (Comm)

A lease was novated, under which Helice became the lessor and PT became the lessee of the aircraft. The lessee failed to pay the required rent under the lease, which led the lessor to issue proceedings. Following this, the lessee paid a small amount of the outstanding rent, but due to the other defaults in payment, the total amount due had increased and the lessor claimed these breaches are referred to as “Events of Default”.

The lessee sought to set aside the claim and apply for a stay of proceedings on the basis that the claim form was not validly served and there was a breach of the arbitration agreement.

The court held that the claim form was validly served, as although the lease required notices to be served to the Indonesian address, it did not expressly extend to the service of legal proceedings and the lessor had notified the lessee that they issued the claim form to the address stated on the Companies House website, but the lessee failed to inform the lessor of a change of address.

The court also held that the intention of the parties under the lease, was to resolve any dispute via arbitration and therefore granted a stay of proceedings.

This case highlights a few key points to consider. The first being the importance of ensuring that any notices are served to the correct address and any changes to service addresses are notified to the other parties. The second being the importance of ensuring that not only do you understand the dispute resolution procedures under the lease, but you also follow them, unless agreed otherwise. Lastly, this case shows the encouragement of courts to exhaust the use of alternative dispute resolution procedures, before litigating matters.

For further information, please see: Helice Leasing S.A.S v PT Garuda Indonesia (Persero) TbK (Rev 1) [2021] EWHC 99 (Comm) (20 January 2021) (bailii.org)

Libyan Investment Authority & Ors v King & Ors [2020] EWCA Civ 1690

This matter was an appeal by the Defendants against the decision of the Court to allow the Claimants to amend their Particulars of Claim to include new claims following the expiry of the limitation period.

Section 35(5)(a) Limitation Act 1980 gives the Court the power to allow a claim with a new cause of action “if the new cause of action arises out of the same facts or substantially the same facts as are already in issue on any claim previously made in the original action”.

CPR r.17.4(2) contains a similar provision but omits the wording “as are already in issue”.

The Defendants argued that as the Re-Amended Particulars of Claim had been struck out there was no claim “in issue”, so the new claims could not be considered to have arisen out of the same or substantially the same facts.

The Court of Appeal found in favour of the Defendants holding that the Claimants could not amend their case as the Re-Amended Particulars of Claim had already been struck out so were no longer “in issue”.

NB: This case affirms that the court may only allow the inclusion of a new cause of action if the facts are substantially the same as those contained within the original claim. The limitation period must always be kept in mind. 

For further information, please see: Libyan Investment Authority & Ors v King & Ors [2020] EWCA Civ 1690 (14 December 2020) (bailii.org)

Cases from Barton Legal’s Webinar

The following cases can be found on our website [insert link]:

  1. Aqua Leisure International Ltd v Benchmark Leisure Ltd [2020] EWHC 3511 (TCC)
  2. RGB Plastering Ltd v Tawe Drylining and Plastering Ltd [2020] EWHC 3028 (TCC)
  3. Bothma (t/a DAB Builders) v Mayhaven Healthcare Ltd [2006] EWHC 2601 (QB)
  4. Pring & St Hill Limited v C J Hafner T/A Southern Erectors [2002] EWHC 1775 (TCC)
  5. Fastrack Contractors Ltd v Morrison Construction Ltd [2000] 1 WLUK 44
  6. Flexidig Limited v M&M Contractors (Europe) Limited [2020] EWHC 847 (TCC)
  7. Hart Investments Ltd v Fidler [2006] EWHC 2857 (TCC)
  8. Surrey and Sussex Healthcare NHS Trust v Logan Construction (South East) Ltd [2017] EWHC17 (TCC)
  9. JJ Rhatigan & Co (UK) Ltd v Rosemary Lodge Developments Ltd [2019] EWHC1152 (TCC)
  10. Global Switch Estates 1 Ltd v Sudlows Ltd [2020] EWHC 3314 (TCC)
  11. D McLaughlin & Sons Limited v East Ayrshire Council [2020] CSOH 109
  12. Barhale Limited v SP Transmission Plc [2021] CSOH 2
  13. Fraserburgh Harbour Commissioners v McLaughlin & Harvey Ltd [2021] CSOH 8
  14. Bresco Electrical Services Ltd (In Liquidation) v Michael J Lonsdale (Electrical) Ltd [2020] UKSC 25
  15. Stellite Construction Ltd v Vascroft Contractors Ltd [2016] EWHC 792 (TCC)
  16. AMEC Civil Engineering Ltd v Secretary of State for Transport [2004] EWHC 2339 (TCC)
  17. University of Brighton v Dovehouse Interiors Limited [2014] EWHC 940 (TCC)
  18. MG Scaffolding (Oxford) Ltd v Palmloch Ltd [2019] EWHC 1787 (TCC)
  19. Land End Developments Construction Limited v Kingstone Civil Engineering Limited [2020] EWHC 2338 (TCC)
  20. Hutton Construction Ltd v Wilson Properties (London) Ltd [2017] EWHC 517 (TCC)
  21. Bennett (Construction) Ltd v CIMC MBS Limited [2019] EWCA Civ 1515

Please note, these updates are for educational purposes only and should not be relied on as legal advice.  Barton Legal do not make any representations as to the legal validity of them and any claims that this is legal advice will be unsubstantiated.