Case Law - January 2021

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

Hochtief formed an unincorporated joint venture called ‘Forth Crossing Bridge Constructors’ (FCBC).

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 arrangement covering Maspero’s ongoing performance. Disputes continued despite the agreement and in November 2018 FCBC gave notice to terminate the sub-contract.

Maspero contested the termination of the sub-contract 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 also argued that the adjudicator had ‘failed to exhaust’ his jurisdiction by failing to address the defences posited 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 outer house of the Court of Session found that Maspero never expressly stated within the July agreement that an adjudicator did not have jurisdiction to address this point and there was nothing to suggest this would affect the ongoing adjudication. Therefore, Maspero’s first argument failed.
  • The court rejected Maspero’s argument and concluded that ‘clause 12.3.1(c) permitted recovery, including the costs of re-design, on the grounds identified’, therefore the claim based on negligent design fell within this clause.

Issues of design were also relevant when considering this issue of mitigation of loss.

Sainsbury's Supermarkets Ltd v Ryan Jayberg Ltd [2020] EWHC 3404 (TCC)

SSL entered into a Framework Agreement with RJL for RJL to provide refrigeration systems. The refrigeration systems provided by RJL use carbon dioxide and require “external heat rejection cooler devices ("the CO2 Units") to cool the refrigerant”.

SSL brought a claim against RJL for negligence and breach of contract.

It was SSL’s case that between 2010-2014 RJL supplied and/or installed new carbon dioxide refrigeration systems at 78/79 of its supermarket stores. From 2014 it was found that the CO2 Units had suffered corrosion and a number were replaced.

SSL alleged the corrosion was caused by RJL’s breach of contract and/or negligence when providing advice in respect to installation.

RJL served its defence on 18 July 2019 and argued that it was not engaged to design or advise on the COUnits but only to install and supply them. There was no such requirement in the specification for a minimum service life.

In September 2019, SSL served proposed Amended Particulars of Claim. SSL’s original case claimed breach of contract and/or negligence and in the amended POC they alleged breaches of statutory duty. 

RJL refused to allow the amended particulars on the basis SSL had sought to add a new claim after expiry of the limitation period.

SSL issued an application seeking to rely on the amended POC in on 2 June 2020 pleading pursuant to CPR 17.1 and/or 17.4.

 

  •  The court found that parts of a SSL’s proposed amendments could not be permitted as they constituted a new claim which “did not arise out of the same, or substantially the same, facts and matters already pleaded, outside the limitation period”.

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 (only issues around jurisdiction and natural justice).  However, EAC sought to rely on an English authority to the extent that there are limited exceptions that do allow an adjudicator’s decision to be challenged because of an error of fact or law. The courts of Scotland should follow suit as this was a circumstance where the adjudicator’s decision should not be enforced.

  • 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.’
  • It was held that EAC’s case does not fall within such an exception.

Rochford Construction Ltd v Kilhan Construction Ltd [2020] EWHC 941 (TCC)

The Sub-contract at the centre of the dispute stated that "Works are lump sum ... [the claimant] will issue activity schedule to [the defendant], application date end of month ... 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".  The payment schedule referred to was never produced.

One of the key points of the dispute was whether the interim payment provisions of the sub-contract complied with the Housing Grants, Construction and Regeneration Act 1996 and whether or not the Scheme for Construction Contracts should apply. 

The claimant argued that the use of the term ‘end of month’ made it clear that a payment application had to be issued on the last day of the month.

The Court held:

  1. In relation to the due date for the payment application:
    1. The term ‘end of month’ was too ambiguous to say it meant the last day of the month;
    2. The facts of the case did not make it clear what the term ‘end of month’ meant;
    3. The other contract provisions were not written in this way;
    4. The ‘end of month’ should be construed as meaning when the time period started to make an application, in the interest of fairness and contractual certainty.  The court also observed that the defendant had made claims after the end of the month;
    5. The above factors meant that the scheme had to apply as the payment provisions were uncertain.
  2. The final date for payment:
    1. As the payment terms were uncertain, due to a lack of payment schedule and the fact the terms of the contract were not being adhered to (may be because of their uncertainty), the Scheme had to take force and override these terms in respect of the final date for payment.

Crescent Univ. City Venture, LLC v. Trussway Mfg., Inc., No. 407A19, 2020 WL 7415061, at *1 (N.C. Dec. 18, 2020).

Crescent was the developer of a project to construct student apartment buildings at the University of North Carolina in Charlotte, NC, USA.

Crescent contracted with AP Atlantic who were the general contractor. AP Atlantic contracted with Madison, the framing subcontractor who subcontracted with Trussway, the floor truss manager.

When students began to occupy the buildings the floors in a number of apartments started to sag, which was found to be because of defective floor trusses.

Crescent hired another contractor to repair the defective floor trusses incurring large repair costs and needed to pay for alternative accommodation for the displaced students.

This led to 3 separate lawsuits:

1.         AP Atlantic claimed against Crescent for their failure to pay;

2.         Crescent claimed against AP Atlantic’s parent corporation for damages for the defective floor trusses; and

3.         Crescent later sued Trussway for negligence by supplying and manufacturing defective trusses.

Judgment for the negligence case against Trussway:

The North Carolina Supreme Court held that Crescent could not bring a negligence claim which was based on purely economic loss as it was actually a contractual claim. Crescent and Trussway did not have a contract so were not in contractual privity with each other.

The court confirmed that the ‘economic loss rule’ as established in the Ports Authority case requires that a plaintiff’s claim fall under one of the four exceptions, which were not present here.  Alternatively, a claim can be based on violation of an extra-contractual duty under law which is separate from duties owned under the contract.

Claims for failure to perform duties under a contract cannot be brought in negligence and can be brought as a contractual claim. 

This case indicates that project owners and commercial developers should limit their cause of action against contractors and subcontractors to breach of contract claims.

The other 2 cases were not resolved by this judgment.

Another lesson from this case is that Developers must ensure they have some form of contract with all the parties to a project.

Maeda Corporation and China State Construction Engineering (Hong Kong) Limited v Bauer Hong Kong Limited

This dispute was concerned with the ‘time-bar’ provisions that are found in many EPC contracts, particularly clause 20.2.4 of the second edition of the FIDIC Silver Book.

The subcontractor, in its time bar notice, stated a different contractual reason for its claim than the one it brought in arbitration.

The Court of Appeal in Hong Kong held that a sub-contractor cannot bring a claim to arbitration if the sub-contractor did not bring this claim to the attention of the other party to the contract in its time bar notice.  The court held that such notices need to be definitive about the reason for bringing the claim and cannot be broad and ambiguous about the reason(s) for the claim.

The court held that the “wording of Clause 21.2.1 is clear and unambiguous. Within the stipulated time, the Subcontractor is required to give notice of the contractual basis, not any possible contractual basis which may turn out not to be the correct basis”. The court also held that to allow a party not to abide by the reason it gave in its time bar notice when bringing a claim to arbitration “would negate the commercial purpose of achieving finality, as a claim can be advanced on a different contractual basis in an arbitration which may be years down the line”.

Babcock Marine (Clyde) Ltd v HS Barrier Coatings Ltd [2019] CSOH 110

The parties entered into a contract for HS Barrier to carry out re-preservation of shiplift docking cradles at HM Naval Base Clyde.  

The contract incorporated the NEC3 Engineering and Construction Short Contract (June 2005) with bespoke Z clause amendments.

After the works commenced, a number of disagreements arose as to the amount of progress made and an adjudicator was appointed.

The adjudicator confirmed his appointment and enclosed a "Terms and Conditions of Appointment" which at paragraph 14 stated “If I require quantity surveying input during the Adjudication I will utilise the resources of [...]. This matter is at my absolute discretion and I will not require the consent of the parties.”

The adjudicator’s decision was issued and a fee note was provided which specified “QS assistance – 28 hours @ £95 £2,660.”

At Clause 2.3 of the NEC Adjudicator's Contract (April 2013 edition) it states that "After notifying the parties of his intention, the Adjudicator may obtain from others help that he considers necessary in reaching his decision. Before making his decision, the Adjudicator provides the parties with a copy of any information or advice from others and invites their comments on it."

HS barrier brought proceedings stating that “To the extent that the defender was not advised of the appointment of the QS and the nature of the assistance provided by him, an opportunity has been afforded for injustice to be done.”

Judgment:

  • Lord Doherty found that “Paragraph 14 did not communicate an intention on the part of the adjudicator to employ quantity surveying assistance. Rather, it purported to make provision for what would happen if it subsequently transpired that the adjudicator considered that he needed quantity surveying input during the adjudication.”
  • It was in his view “going too far too fast to infer at this stage that the assistance provided by the surveyor was of a type which did not require to be disclosed.”
  • He was of the view “that even if the assistance provided by the surveyor was merely clerical and administrative, natural justice required that the adjudicator ought to have told the parties that the surveyor had been engaged; and that while detailed disclosure for comment would not have been necessary, the adjudicator ought to have indicated (at least in brief, broad terms) just what it was that the surveyor was doing”
  • He was unable, however, to decide whether there was a material breach of natural justice without inquiry more into the matter and noted it was “highly regrettable” that HS Barrier took 6 months to raise this event as he expected a defendant to raise it “expeditiously”.
  • This case makes it clear that adjudicators need to be as transparent as they can with the parties to an adjudication, especially when it involves them obtaining advise that will influence his decision and which he expects the parties to the adjudication to pay for.

 

APCO Construction, Inc. v. Zitting Brothers Construction, Inc., 136 Nev. Adv. Op. 64, 473 P.3d 1021 (2020)

This case related to the Manhattan West mixed-use development project in Las Vegas.

The Subcontract required APCO (the Contractor) to pay Zitting (the Sub-contractor) for 100 percent of the work done minus 10 percent retention within 15 days of APCO being paid by Gemstone (the Developer), commonly known as a ‘pay-if-paid’ clause.  The sub-contract also stated that if the main contract was terminated then APCO would pay Zitting for the work done up until termination after APCO was paid by Gemstone.

The contract between APCO and Zitting was terminated in August 2008, Zitting was then appointed by the subsequent contractor, Camco, until the project was shut down in December 2008. Zitting subsequently claimed against APCO and Gemstone for breach of contract due in part to lack of payment.

In APCO’s defence, it claimed that it was not obliged to pay Zitting as they had never received their payment from Gemstone.

The Nevada Supreme Court held that pay-if-paid clauses are not void or unenforceable per se but each clause must be examined on a case-by-case basis.  However, the court held that such clauses will be unenforceable if they require the sub-contractor to waive or limit its rights under NRS 624.624-.630 (which includes a right to prompt payment).  If the clause limits the sub-contractor’s rights under the Nevada Prompt Payment Act, then it will be deemed unenforceable.

Jack-In Pile (M) Sdn Bhd v Bauer (Malaysia) Sdn Bhd [2020] 1 MLJ 174

This case involved a contract that contained a pay-when-paid clause, where the subcontractor, Jack-in-Pile, would be paid after Bauer received payment from the Developer.

Jack-in-Pile argued that section 35 of the Construction Industry Payment and Adjudication Act 2012 (CIPAA) applied, which stipulates that pay-when-paid clauses are void.

The Federal Court of Malaysia held that the provisions of CIPAA do not apply retrospectively.  Any contracts that were entered into before 15 April 2014 would not be subject to the act. 

The court held that CIPAA should not apply retrospectively because it provides substantive rights to the parties that would not have been known about or envisaged by parties who contracted before CIPAA was implemented.  There were also concerns that allowing CIPAA to apply retrospectively would mean many contracts would be illegal and it was not practical to allow this.