UK: Case Law Update 2011 - Issue 2

ADJUDICATION

Reservation of position on jurisdiction

Aedifice Partnership Ltd v Shah [2010] 132 Con LR 100 TCC

A dispute over professional fees which the claimant surveyors referred to adjudication, the respondent client submitted that there was no adjudication agreement and that the adjudicator had no jurisdiction. The adjudicator indicated that he thought that he had jurisdiction and the respondent asked for his reasons. In enforcement proceedings by the claimant, the respondent successfully argued that he had reserved his position on jurisdiction and that his request for reasons did not constitute an agreement that the adjudicator had the power to decide his own jurisdiction. It would be open to the claimant to proceed with a contractual or quantum meruit claim.

See Beck Interiors v Russo under Keating Chambers Reported Cases on whether a surety of a party to adjudication was bound by the adjudicator's decision.

Insolvency

Pay now and argue later – or I'll wind you up
by James Bowling, 4 Pump Court, Construction Law Journal 2010 Vol. 26 No. 8 p.601

The article pits the Insolvency Act 1986 against the HGCR Act on the issue as to what debts are payable. On the one hand the HGCR Act "otherwise disputable debts can become temporarily indisputably due", since the presumption is that adjudicator's decisions will be enforced even if wrong. By contrast, the Insolvency Act focuses on the taking into account of all disputes in deciding whether a debtor is insolvent. A court has to be convinced that a dispute or cross-claim is not genuine, for a petition to be upheld. The article reviews the case law, including the recently decided Shaw v MFP Piling in the TCC to the effect that the mere fact that a debt is indisputably due under the HGCR Act does not mean it is indisputably due for the purposes of the Insolvency Act 1986.

HGCR Act case index

Case Law Index by Peter Sheridan, Construction Law Journal [2010] Vol 26 No 8 p.607

The Construction Act Review in this issue comprises the 10th annual HGCR Act case law subject index, comprising cases on adjudication and other issues under the Act. There are now over 350. The index is in 2 parts, first, an alphabetical list of cases with references and level of court and then the case law subject matter list with over 130 headings, some of which are HGCR Act section numbers and some of which are issues, such as declaratory relief and summary judgment.

This issue of the Con LJ also includes a short article entitled 'Adjudication on the rise in Germany' by Ragnar Herbst of Baker & McKenzie, Frankfurt.

See Cleveland Bridge v Whessoe-Volker Stevin under Keating Chambers Reported Cases on the effect of s.106(2) HGCR Act on a LNG terminal steel and pipework contract.

Enforcement when claimant in difficulty

Integrated Building Services Engineering Consultants Ltd v PIHL UK Ltd [2010] BLR 622 Court of Session Outer House

The Scottish Court refused summary judgment by way of enforcement of an adjudication decision on the ground that there was clear and uncontested evidence of insolvency of the claimant. Scots law recognises the equitable principle of balancing of accounts, not only in bankruptcy or liquidation but when a party is on the verge of insolvency. The BLR Editors referred particularly to the basic principles governing this area in English law in Wimbledon Construction v Vago (Simon Hughes).

Failure to exhaust jurisdiction

RBG Ltd v SGL Carbon Fibers Ltd [2010] BLR 631 Court of Session Outer House

Under Scots law, summary enforcement of an adjudication decision could be refused where the adjudicator failed to consider fully submissions and evidence submitted by the responding party, under the principle of failure to exhaust jurisdiction. The BLR Editors give their opinion that a similar result might be expected on the same facts under English law for breach of natural justice.

Appointment of arbitrator

Chalbury McCouat International Ltd v PG Foils Ltd [2010] BLR 593 TCC

The case concerned the relocation of plant from the Netherlands to India under a contract between an English and an Indian company. The arbitration clause referred only to "EU law" and the defendant argued that it should be allowed to arbitrate in India. The court gave effect to the arbitration clause, although poorly worded, and held that the seat would be in Europe, probably England, rather than India. The claimant had asked for appointment by the Law Society, but the court preferred the LCIA as a "well-respected independent international arbitration institution experienced in the appointment of arbitrators in such cases".

ARBITRATION AND DISPUTE RESOLUTION

The Journal of International Arbitration Vol. 27 No. 6 December 2010
contains the following articles:

Enforceability of multi-tiered dispute resolution clauses
by Didem Kayali, Turkey.

Arbitrating overseas oil and gas disputes: breaches of contract versus breaches of treaty
by Michael Blyschak, McCarthy Tétrault.

Arbitrating labour disputes in Switzerland
by Alexandra Johnson, Geneva and Isabelle Wildhaber, University of Gallen.

LCIA India: Will it change the international arbitration scene in India?
by Sarosh Zaiwalla

The revised IBA Rules on the taking of evidence in international arbitration
by Detlev Kühner, BHM Avocats, Paris

The resurgence of Scotland as a force in international arbitration
by David Wilson, MacRoberts

Arbitration Law Monthly Vol. 11 No. 2 February 2011
contains the following articles:

Public policy on AJT v AJU in the Singapore High Court
(on refusal of the Court to recognise award).

Changes to the Civil Procedure Rules
on a new Paragraph 12 in the Practice Direction on Part 62 CPR: applications for permission to apply to the court.

Curial powers of the English courts
on Chalbury McCouat v PG Foils: absence of designated seat.

The supportive power of the courts
on Travelers Insurance v Countrywide Surveyors (refusal by court of pre-action disclosure for arbitration).

Stay of proceedings
on Claxton Engineering v TXM Olaj-ES Gazkutato (dispute as to existence of arbitration agreement and stay of English litigation).

Removal of an arbitrator
on Goel v Amoega
(failure to remove arbitrator for alleged bias).

Commencing an arbitration
on Easybiz Investments v Sinograin Chinatex
(combined notices of multiple arbitrations).

Pre-action disclosure in arbitration

Travelers Insurance Co. Ltd v Countrywide Surveyors Ltd [2010] CILL 2947 TCC
The insurers, Travelers, sought pre-action disclosure of documents by the insured surveying firm, Countrywide. Under the professional indemnity policy, the insurers could only avoid the policy for non-disclosure in the case of fraud. The claims concerned allegedly fraudulent valuations by Countrywide valuers. Disputes under the policy were to be referred to arbitration. Travelers tried to obtain the documents by a CPR 31.16 application for pre-action disclosure, but the court held that it would have no power to order this where the underlying dispute is to be decided in arbitration. Nor could the court order pre-action disclosure under s.44(3) of the Arbitration Act, which is intended to be invoked in exceptional circumstances only where there is a demonstrable risk of harm to the evidence.

Arbitration Law Monthly Vol. 11 No. 3 March 2011
contains the following articles:

Commencing an arbitration
on extension of time for commencement: Anglian Water Services v Laing O'Rourke in the TCC.

Jurisdiction
on challenges to an award: Broda Agro Trade (Cyprus) v Alfred Toepfer in the CA.

Time limits for commencing an arbitration
on William McIlroy v Quinn Insurance in the TCC.

Jurisdiction
on whether an arbitrator is functus officio following a settlement: Dawes v Treasure

Disregard of Spanish law challenged

BvA [2010] 132 Con LR 73 (Commercial Court)

A share purchase agreement dispute was subject to arbitration. Following a majority award, the minority arbitrator accused the majority of ignoring Spanish law. The unsuccessful party sought to challenge the award under ss 68 and 69 Arbitration Act, alleging breach of their s.46 obligations by the tribunal in failing to apply Spanish law. The court held that for such a challenge there had to be a conscious disregard of Spanish law, and it would not be sufficient to show an error. The arbitrators had carefully considered the relevant Spanish law provisions. There was no realistic prospect of success for the challenge.

Party who takes no part in proceedings

Broda Agro Trade (Cyprus) Ltd v Alfred C Toepfer International GmbH [2010] 132 Con LR 1 Court of Appeal

In (non-construction) GAFTA arbitration proceedings, the appellant Broda denied that there was a contract and stated that proceedings had been commenced in the Russian courts. GAFTA invited submissions on jurisdiction, but Broda maintained that it was a matter for the Russian courts. GAFTA decided that it had jurisdiction and in the substantive hearing Broda denied that there was a contract. In the English courts, Broda questioned the existence of an arbitration agreement, relying on s.72 Arbitration Act on the ground that it had taken no part in the arbitration. The CA held that, although it had taken no part in the jurisdiction hearing, it had done so in the substantive hearing and so could not rely on s.72.

CONSTRUCTION AND ENGINEERING CONTRACT DISPUTES LAW

Liquidated damages

Azimut-Benetti SpA v Healey [2010] 132 Con LR 113 Commercial Court

The buyer of a yacht sought to resist a claim for summary judgment under a guarantee on the ground that the liquidated damages clause (set at 20% of contract price) was a penalty. The provision in question had been heavily negotiated, but Benetti had maintained that it represented the minimum it would cost to re-sell the yacht. The court reviewed the law on penalties and granted summary judgment. The clause, read as a whole, had a clear commercial and compensatory justification, and had been freely entered into, during negotiations in which both parties had expert representation. The clause placed obligations on both parties. It was not even arguably a penalty and the court would apply the presumption that such provisions should normally be enforced.

Construction Law Vol. 22 Issue 1 Jan/Feb 2011
contains the following articles:

The duties of quantity surveyors
by George Woods, 4 Pump Court

Tort on trial
by Mark Lloyd-Williams and Michael Mendelblat, Herbert Smith

Document retention
by Gurbinder Grewal, HBJ Gateley Wareing (on e-disclosure)

Risk transfer – the first hurdle (on risk disclosure in insurance)
by John Wright, JD Risk Associates

Defects – what are your rights?
by Louise Shiels, Dundas & Wilson

Revisions to the TCC Court Guide
by Ed Freeman, Clyde & Co

CONTRACT AND PROCUREMENT LAW

International Construction Law Review Vol. 28 Part 1 January 2011
contains the following articles:

Good faith clauses in construction contracts
by Brian Mason, Mallesons Stephen Jaques, Melbourne.

Public procurement review mechanisms and rules on damages in German law
by Dr. Helmut Wirner, Hochtief AG, Essen.

Testing the water – a new FIDIC subcontract
by Emma Kratochvilova and Michael Mendelblat, Herbert Smith.

Standard construction contracts in the USA
by Justin Sweet, University of California, Berkeley.

Implied terms as to prevention and employer delay in construction contracts
by Aidan Steensma, CMS Cameron McKenna

Salient features of the proposed new Portuguese Arbitration Act
by Patricia Rosario, Santos Rosário e Abrantes Garcia, Lisbon

Construction Law Vol. 22 Issue 1 Jan/Feb 2011
contains the following articles:

Changes eliminating differences?
by Michael Phipps, Thurston Consultants on JCT Project Bank Account Documentation and Revisions 1 and 2 of JCT Minor Works Contract 2005.

Benefits of new procurement routes
by David Mosey, Trowers & Hamlins on partnering contracts.

Tenderer's rights when procurement process ended

Montpellier Estates Ltd v Leeds City Council [2010] 132 Con LR 129 QBD

The Council failed in its application to strike out a claim by Montpellier, a tenderer for the Leeds Arena scheme, alleging breach of the Public Contracts Regulations 2006. Montpellier's case was that Leeds introduced a Public Sector Comparator against which bids would be assessed, without giving details of it and which, it alleged, was used as a pass/fail test. The Council argued that it had a right to terminate the procurement process without awarding a contract, which it had done, and that it was not necessary to apply award criteria to the decision to terminate. Montpellier's complaint about lack of transparency also extended to the Council pursuing, in parallel with the procurement exercise, another scheme as a 'secret competitor'.

In the result, the application by Leeds failed because 'in the light of the developing law in this area, Montpellier should not be deprived of arguing the point'. Also of interest is the rejection of the argument that the existence of a tender contract could not be pleaded given the application of the Regulations.

See Alstom Transport v Eurostar International under Keating Chambers Reported Cases on the factors to be shown for an interim injunction based on alleged unlawful award of contract uncertainty and for lack of clarity of information supplied.

See Exel Europe v University Hospitals Coventry and Warwickshire NHS Trust under Keating Chambers Reported Cases on the factors to be considered for relief from automatic suspension of the procurement process following challenge by a tenderer.

GENERAL AND PROFESSIONAL NEGLIGENCE

Obligations of quantity surveyor

Dhamija v Sunningdale Joineries Ltd [2010] CILL 2937 TCC
The defendant quantity surveyors failed in their application to strike out the clients' claim because determination of the allegation of breach of the duty of reasonable skill and care could only be achieved by reference to more detailed evidence. The court confirmed that quantity surveyors are under an implied term duty to act with reasonable skill and care in valuing works properly executed. The court rejected the implication of a term that the quantity surveyor was only under a duty to value work properly executed and not obviously defective. The case is notable for its consideration of the obligations of quantity surveyors and especially of Sutcliffe v Chippendale & Edmondson on which Hudson 11th edition is criticised.

Economic loss in rail incidents

Network Rail Infrastructure Ltd v Conarken Group Ltd [2010] 132 Con LR 143 and [2010] BLR 601 TCC

In two incidents involving lorries, the rail system was disrupted and Network Rail became liable to train operating companies for non-availability of the lines. The TCC held that Network Rail was entitled to recover both the costs of remedial works and the payments it had had to make to the train companies, as economic loss demonstrably consequential upon the physical damage to their property caused by the negligence of the lorry drivers. These sums could also be recovered in trespass.

Pure economic loss

Robinson v PE Jones (Contractors) Ltd [2011] EWCA Civ 9 CA

The claimant owner sought to sue the defendant contractors in respect of defective construction of a house, claiming economic loss, 12½ years after construction. Since the limitation period had expired, no action for breach of contract was possible and the claimant was unable to bring a claim under the NHBC scheme. On appeal from the TCC, the CA had to consider whether the contractor had concurrent liability in the tort of negligence which would entitle the claimant to succeed. The CA held the relationship between purchaser/owner and manufacturer/contractor to be primarily governed by contract, so that while tort imposes limited duties in respect of personal injury or damage to property, this would not extend to a duty to protect against pure economic loss co-extensive with contractual obligations. There may be exceptions where the duty of care is actually assumed by the defendant taking responsibility, so that a professional giving advice incurs such a duty.

PRACTICE AND PROCEDURE

Without prejudice rule exception

Oceanbulk Shipping and Trading SA v TMT Asia Ltd [2010] CILL 2943 Supreme Court
The Supreme Court allowed the appeal from the majority Court of Appeal decision reported in 129 Con LR. The context was a shipping dispute over freight forwarding agreements which had been the subject of a settlement not fully implemented. The Commercial Court had held that evidence of without prejudice negotiations should be considered to construe the settlement agreement. The majority of the Court of Appeal held that exceptions to the "without prejudice" rule should be strictly limited. The Supreme Court recognised interpretation as a separate exception to the without prejudice rule. There is no reason why the principles governing interpretation of an agreement should be different because the negotiations leading to it were without prejudice. The test is what a reasonable person, with all the background knowledge available to the parties, would have understood them to mean.

Performance bonds and call

Vossloh AG v Alpha Trains (UK) Ltd [2010] Con LR Vol 26 No 8 T211 (Ch.Div.)
This is a decision on a parent company guarantee of a train manufacture contract and how liability is triggered. The parent company sought a declaration that its liability was triggered upon proof of a breach of contract by a guaranteed party, proof being provided either by admission or a court's decision. The beneficiary contended that liability was triggered by a demand alone. The court's decision was that, outside of banking, there would be "a very strong presumption" against the existence of an obligation triggered by demand alone, in the absence of demand bond-style terms. On the facts of the case, the presumption had not been rebutted, because the clause setting out the guarantor's obligations was based on the establishment of a failure of performance.

The Commercial Litigation Journal No 35 Jan/February 2011
contains the following articles:

Privilege: lawyers only
by Julian Copeman and Heather Gething, Herbert Smith on R (on the application of Prudential v Special Commissioner of Income Tax.

International arbitration: game, set and match
by Ben Holland and Guy Pendelll, CMS Cameron McKenna on Dallah Real Estate v Ministry of Religious Affairs, Pakistan.

Disclaimers: best laid plans
by Dipti Hunter and Alexander Oldershaw, Davies Arnold Cooper on the viability of the 'sophisticated investor' defence.

Evidence: all the cards on the table
by Mike Wells and Donald McDonald, Kennedys on recent evidence and privilege cases.

Debt: call it quits
by Jonathan Arr, Macfarlanes on recent set-off decisions.

Unintended consequences
by Tim Hardy, CMS Cameron McKenna on Ocean Bulk Shipping v TMT: without prejudice negotiations.

Injunctions: Liverpool FC own goal?
by Andrew Waters, Bristows on RBS v Hicks & Gillett.

Guarantee distinguished from on demand bond

Carey Value Added SL v Grupo Urvasco SA [2010] 132 Con LR 15 Commercial Court

As part of a property development transaction, the defendant Grupo Urvasco, entered into a deed of guarantee and indemnity. Part of the Urvasco group had entered into an agreement with Carey. Carey sought enforcement of the deed of guarantee and indemnity. Grupo Urvasco successfully resisted summary judgment by showing that it had a real prospect of successfully defending the claim. The court distinguished between on demand guarantees or bonds, which would be appropriate for summary judgment, and guarantees/indemnities, which would not be appropriate for on demand enforcement. The nature of the instrument would be a question of interpretation of the content, without any preconceptions. The Con LR editors observe that "the traditional distinction between a deed creating primary and secondary liabilities is not necessarily a helpful analysis".

See LPI (Hotels) v Technical and General Guarantee Co under Keating Chambers Reported Cases on the irrecoverability of certain expert costs.

Calculation of expenses and profit

Omak Maritime Ltd v Mamola Challenges Shipping Co [2010] 132 Con LR 196 Commercial Court

This maritime law case provides what the Con LR editors describe as an "interesting and instructive" analysis of the law of damages, where "the compensatory principle will be adhered to with the courts taking a practical and sensible view as to whether a 'loss' truly exists".

Where wasted expenditure following breach was exceeded by reletting at higher rates, the owners had suffered no loss. The wasted expenditure and the profit element could not be considered separately; the basic principle was to consider what the claimant's position would have been if the contract had been performed.

Early payment provision not a penalty

BNP Paribas v Wockhardt EU Operations (Swiss) AG [2010] 132 Con LR 177

The court had to consider whether provisions of the International Swap Dealers Association standard form for early termination compensation were penal. The court held that there was nothing penal in requiring the defaulting party to pay amounts that were due but unpaid. There was no prospect of the defendant establishing that the early termination provisions were penal.

Limitation and accrual of cause of action

City & General (Holborn) Ltd v Royal & Sun Alliance plc [2010] BLR 639 CA

The CA dismissed the appeal by the claimant employer against the TCC decision. The claimant had sought extensions of time for service of the claim forms for a negligence/nuisance claim. The TCC case administration unit had advised that service of the claim forms could be delayed but the TCC discharged the order to extend time and set aside the claim forms. The appeal argued that separate consideration was to be given to each head of claim, but the CA held that it was too late to raise this point before them. It was still open to the defendants to take a time bar point based on when the cause of action accrued.

KEATING CHAMBERS REPORTED CASES

Cleveland Bridge (UK) Ltd v Whessoe-Volker Stevin JV [2010 Con LJ Vol 26 No 8 p.670 TCC

Already reported in CILL, in a dispute over the final account of a sub-contract for pipework and steel on the Dragon LNG terminal at Milford Haven, the court had to decide whether the works were governed by the HGCR Act. It was held that the subcontract works included significant and substantial elements falling within the definition of excluded operations under s.105(2). While erection of the steelwork and the pipework was excluded, this did not extend to preparation of drawings and off-site fabrication. It was not possible to sever the excluded from the included and so the decision could not be partially enforced either.
Adrian Williamson QC
Lucy Garrett

Beck Interiors Ltd v Russo [2010] 132 Con LR 56 TCC

After the contractor obtained an adjudicator's decision in its favour, the respondent owner went into administration. The issue for the court was whether the adjudicator's decision could be enforced via personal guarantee against the sole director and majority shareholder of the respondent company. The judge's view was that it would require clear words to make the surety liable, drawing an analogy with arbitration, and that the respondent had a real prospect of successfully defending the claim, making it inappropriate to grant summary judgment.
Justin Mort

LPI (Hotels) Ltd v Technical and General Guarantee Co. SA [2010] 132 Con LR 90 TCC

Even though the Court endorsed a consent order, in relation to expert (accounting) evidence, it did not mean that all the costs of that evidence were recoverable. The point had been reached when the claimant should have realised that the continued use of the expert would not take its case significantly further and from that moment the expert costs were not recoverable.
Alexander Nissen AC

Alstom Transport – Eurostar International Ltd [2010] EWHC 2747 Ch. Div.

Alstom applied for an interim injunction to restrain Eurostar from entering into a contract with Siemens for design, supply and maintenance of high speed trains, alleging breach of the Public Contracts Regulations 2006, general EU treaty principles and breach of a tender contract. Alsom established that there was a serious issue to be tried and that damages would not be an adequate remedy, because of the high prestige of the contracts at stake, although on the balance of convenience the injunction was not granted due to harm to the public interest and Eurostar's business in halting the procurement process.
Sarah Hannaford QC
Jessica Stephens

Exel Europe Ltd v University Hospitals Coventry and Warwickshire NHS Trust [2010] EWHC 3332 TCC

The defendant NHS Trust succeeded in its application for relief from the automatic suspension of its procurement process as a result of the claimant tenderers' challenge of its decision. The TCC described the case as raising issues as to how such suspensions should be treated under the Public Contracts Regulations 2006 as amended by the 2009 Public Contracts (Amendment) Regulations. It considered the relevance of the American Cyanamid injunction test to the issue of whether the suspension should be continued or relief granted. On the facts, the court gave weight to the 'public interest' factor in continuing expeditiously with the procurement process when conducting the 'balance of convenience' exercise and the suspension was lifted.
Sarah Hannaford QC
Calum Lamont

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