Construction Brief: latest decisions March 2022

This article was co-authored by Tegan Johnson, Solicitor Apprentice, Sheffield.

This update includes a round-up of recent court decisions dealing with the concepts of verbal agreements, and adjudication decision enforcements through the lenses of insolvency, abuse of process and the Construction Act.

Verbal agreements and contract amendments

Mansion Place Limited v Fox Industrial Services Limited [12.11.21]

As much as we all agree that recording an agreement in writing is best practice, that isn’t always how things work in practice. This case is a reminder of the importance of witness evidence, when it comes to oral agreements.

As a result of delays on a project, both the employer, Mansion Place Limited (Mansion), and the contractor, Fox Industrial Services Limited (Fox), had potential claims; Mansion for contractual liquidated damages and Fox for loss and expense.

Mansion served a pay less notice during the project, in which they had deducted LADs they considered themselves entitled to.

However, prior to this, directors of each party had taken part in a telephone conversation in order to smooth over the relationship. Two different accounts resulted of the conversation. Fox contended an agreement had arisen whereby neither party would bring their claim (for LADs/loss and expense) in order to continue with the works. This would preclude Mansion from serving the pay less notice.

Mansion brought proceedings seeking a declaration that there was no agreement.

Considering the evidence of the directors on the call, but putting more stock behind contemporaneous evidence, the judge concluded an agreement had in fact been reached. There was no written record of the call at the time and the content of the agreement may have been commercially insensible, but nonetheless the judge found in Fox’s favour.

A later email from Fox setting out the terms agreed was not denied, and the account given by Mansion (a simple conciliatory call) was deemed unlikely to lead to the change in behaviour seen between the parties.

The judge declared in Fox’s favour as to the existence and content of the agreement.

Enforcing adjudication decisions (construction contracts)

Cubex (UK) Limited v Balfour Beatty Group Limited [04.11.21]

This case provides a useful overview of several grounds that a party may use to resist enforcement of an adjudicator’s decision.

There was an alleged contract between Cubex (UK) Limited (Cubex) and Balfour Beatty Group Limited (BBG) relating to a parcel of specialist works within a larger works package – to design and manufacture doors. However, Balfour Beatty Group Limited then contracted with a third party for the same works.

Cubex claimed that BBG’s actions were a repudiatory breach of the contract between them, whereas BBG denied there was a contract as relied upon by Cubex. An adjudicator’s decision was reached in Cubex’s favour, finding that a contract was formed at a meeting between both parties when all essential terms were agreed. Cubex sought to enforce.

BBG resisted enforcement on four grounds:

  • They have real prospects of showing the contract related to excluded operations under the Housing Grants, Construction and Regeneration Act 1996 (the Act) and the adjudicator had no jurisdiction.
  • They have real prospects of showing Cubex referred, and the adjudicator decided upon, more than one dispute, and/or the contract never existed, either of which would mean the adjudicator had no jurisdiction.
  • They have real prospects of showing the adjudicator acted in breach of the principle of natural justice by deciding the issue of contract formation on a point neither party had put evidence forward for or made submissions on.
  • Cubex’s delay in bringing the proceedings (the decision was dated May 2018 and proceedings brought in September 2021) was inordinate.

The court found that the design and supply contract was not a construction contract for the purposes of the Act. This was fatal to the enforcement of the adjudication decision and its enforcement, although the judge considered the other grounds in addition.

On the second ground, BBG did have a reasonable prospect of claiming the adjudicator was not appointed properly under a contract about which there is no dispute (because of uncertainties around it). The third ground, a breach of natural justice, may have succeeded as the failure to raise the point to the parties was a material issue. The final ground would not have succeeded as there is no obligation to bring proceedings by a given date within the limitation period.

It is always useful to know how the grounds to prevent enforcement work, but equally to know when one can adjudicate. First and foremost, you must make sure you have a construction contract .

Enforcing adjudication decisions (abuse of process)

G&D Brickwork Contractors Limited v Marbank Construction Limited [14.10.21]

In the unusual circumstances where a matter has already been litigated before an adjudication is commenced, here the court was asked to enforce the resulting adjudication decision.

G&D Brickwork Contractors Limited (G&D), a specialist sub-contractor, was engaged by Marbank Construction Limited (MCL). The dispute arose over the value of the works carried out. G&D issued a claim for breach of their payment clauses; the claim was struck out more than once as a result of multiple and continued breaches of process by G&D.

G&D then commenced an adjudication for the same matter and MCL participated without prejudice to its contention that the adjudicator did not have jurisdiction to hear them. The adjudicator found in favour of G&D, who sought to enforce. MCL sought to establish a breach of process, in which case the court would have discretion to strike out the enforcement proceedings.

The judge asked two questions in deciding the matter: is it an abuse of process in these proceedings for G&D to litigate (through enforcement proceedings) the same issues again as had been raised in the first claim? If yes, then should they nevertheless allow the proceedings to continue?

The court concluded the proceedings were an abuse for several reasons, including:

  • Sanctions had been imposed in the prior proceedings for serious and repeated procedural defaults, and the claim had been struck out twice, so it would be impossible for the court now to take a “benevolent or indulgent view” of the more recent failures.
  • Enforcement proceedings should not be treated any more favourably than any other second court action, nor should the claimant be allowed a second bite of the cherry.
  • The judge found no such unusual circumstances sufficient to justify the proceedings continuing.

The claim for enforcement was struck out.

While potentially difficult to navigate at times, the procedural requirements of the courts are there for a reason – parties must be careful to follow it or may risk being denied their claim.

Adjudication and insolvency

John Doyle Construction Limited (in liquidation) v Erith Contractors Limited [07.10.21]

We previously considered this case, when the court set out five clear principles to consider when reviewing an insolvent party’s application to enforce an adjudicator’s decision. The principles limited the circumstances in which a court would allow enforcement to narrow instances. At the time, Fraser J denied John Doyle Construction Limited (JDC) their application for summary judgment. JDC appealed.

The appeal raised three fact-specific points arising out of Fraser’s J’s judgment. JDC did not seek to argue that the conclusions reached were wrong, but that there were alternate offers of security (aside from those explicitly analysed) which were not considered.

The three points were:

  • An offer from JDC’s liquidators to pay the judgment sum into an escrow account or court as security for counterclaim or set off (which JDC argues was adequate security) was not considered by the judge.
  • The judge concluded that a Deed of Indemnity would be engaged on commencement of litigation by JDC only, and did not provide security for Erith Contractors Limited (Erith). JDC holds there were side letters which provided assurance that this would have been engaged in any proceedings.
  • The judge held that Insolvency Rule 6.42 did not provide adequate security for Erith. JDC contends this is an error.

The appellant court notes that there is a burden on the insolvent party to make very clear all issues, which JDC did not do by providing “unnecessarily extensive” documentation without mention of security. This is a basic issue with the case.

On the first ground, the Court of Appeal concluded the offer was not clear - and in fact was not made - and the judge did not have to consider it.

On the second, the side letters referred to in the appeal were not brought to the judge’s attention and were not convincing. Equally, there was no certainty that protection would be available to Erith in this case and that alone was reason enough to reject this security.

The final ground was decided not to be open to JDC on appeal for multiple reasons, including that they had never suggested it was adequate security to the judge and, regardless of the order of priority, there was no evidence there would be sums to distribute. The appeal was dismissed and enforcement was not allowed.

There are multiple learning points here, perhaps none more simple than that an insolvent party must make a genuine attempt and provide a very clear picture of the issues at hand.

Read other items in the Construction Brief - March 2022

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