Construction Brief: latest decisions April 2023
This article was co-authored by Bethan Price, Trainee Solicitor, London.
This update includes a round-up of recent court decisions and a CMA ruling dealing with breach of competition law, dispute resolution clauses and limitation, enforcement of an adjudication decision by a dormant company and terms and conditions of purchase orders.
The cartels of construction
Case 50697 [23.03.23]: CMA Investigation into the supply of demolition and related services in the United Kingdom
The Competition and Markets Authority announced on 23 March 2023, that they have fined 10 construction companies nearly £60 million, for breaking competition law when tendering for demolition and asbestos removal contracts.
Rigged bidding was found to have been carried out in relation to 19 contracts, occurring between January 2013 and June 2018. These contracts were for clients including the Metropolitan Police, the University of Oxford and Selfridges.
Previously, the CMA would have had to issue proceedings in the courts in order to obtain and enforce this decision. However, last year, as part of the wider steps taken by the government to bolster consumer protection laws, the CMA was granted the power to both decide when consumer law has been breached and to take certain actions as a consequence. The most significant penalties include being able to issue extremely large fines, in a similar fashion to those we have seen being used to enforce compliance with GDPR.
In this case, the maximum fine imposed on the company Erith, was for c. £17.5 million. Erith had a reported turnover of £175.7 million in its most recent accounts which indicates that the CMA were willing to fine at their maximum authority of up to 10% of a company’s global turnover.
In addition to the fines, the CMA also secured the disqualification of 3 directors, pursuant to the Company Directors Disqualification Act 1986. The directors decided to settle out of court and gave voluntary undertakings to the CMA which set out their admissions to the illegal behaviour and agreed periods of disqualification.
Michael Grenfell, the CMA’s Executive Director for Enforcement said; “Today’s significant fines show that the CMA continues to crack down on illegal cartel behaviour. It should serve as a clear warning: the CMA will not tolerate unlawful conduct which weakens competition and keeps prices up at the expense of businesses and taxpayers.”
The disqualification of the directors also shows that company directors should be warned that they may be personally liable if their company is found guilty of anti-competitive practices.
Contacts: Bethan Price, Louis Foscolo
PFI - limitation defence where proceedings issued in breach of the contractual dispute resolution procedure
Kajima Construction Europe (UK) Ltd, Kajima Europe Limited v Children's Ark Partnership Ltd [17.03.23]
Here, the Court of Appeal (CA) considered the enforceability and effect of a contractual dispute resolution procedure (DRP) where proceedings were issued at court before the expiry of the limitation period.
In 2004, Brighton and Sussex University Hospital NHS Trust (the Trust) entered into a Private finance initiative (PFI) with the Children’s Ark Partnership Ltd (CAP) to design, build and finance the redevelopment of the Royal Alexandra Hospital for Sick Children, Brighton (the project agreement). At the same time, CAP also engaged Kajima Construction Europe (UK) Ltd (Kajima Construction) to design, construct and commission the hospital (the construction contract). The project agreement contained a DRP which provided that all disputes should first be referred to a “liaison committee” for resolution and then, if not resolved, to the court. In 2013, CAP entered into a deed of guarantee with Kajima Europe Ltd (Kajima Europe) who agreed to guarantee the punctual performance by Kajima Construction of all duties to CAP under the construction contract.
Thereafter, the parties entered into a number of standstill agreements to extend the limitation period to 29 December 2021. That same month, CAP requested a further extension of the standstill period to 31 March 2022 to complete all remedial works. Having received no response, CAP issued proceedings and applied for a stay of proceedings to comply with the DRP and initiate the pre-action process. Kajima Construction and Europe then applied to strike out CAP’s claim on the ground that CAP had failed to comply with the DRP.
At first instance, Mrs Justice Joanna Smith DBE held that the DRP was unenforceable because the obligation to refer disputes to the liaison committee was not “defined with sufficient clarity and certainty”. Even if enforceable, Mrs Justice Smith stated she would not have exercised her discretion to do anything more than stay the proceedings.
The CA agreed with the first instance judgment and dismissed the appeal. The CA said that even if Mrs Justice Smith had overstated the applicability of stays, it had not affected the exercise of her discretion. They further held that if the appeal had succeeded, it would not have extinguished the claim. Kajima Europe had no limitation defence and would therefore be liable as the principal debtor under the guarantee.
This judgment is a warning for parties to contracts that include a DRP clause, and to solicitors drafting DRP clauses. Such clauses may be found unenforceable if they lack sufficient clarity and certainty regarding the DRP process.
Contacts: Amrinder Aulakh, Scott McKinnell
Can a dormant company enforce an adjudication decision?
WRB (NI) Ltd v Henry Construction Projects Ltd [10.02.23]
Henry Construction Projects Ltd (HCP) acted as main contractor on a development in North London and subcontracted WRB (NI) Ltd (WRB) to provide M&E services for this development. The claimant, WRB, sought to enforce an adjudicator’s decision in its favour against HCP, who refused to pay WRB in accordance with the Adjudicator’s decision. HCP also sought a stay of execution of any judgment on the basis of WRB’s financial status, namely that it was a dormant company.
In reaching a decision to refuse a stay of execution, Pepperall J considered the principles laid down in Wimbledon Construction Company 2000 Ltd v Vago , namely that:
- Adjudication is designed to be a quick and inexpensive method of arriving at a temporary result in a construction dispute.
- Adjudicators’ decisions are intended to be enforced summarily and the successful party should not generally be kept out of its money.
- The above two considerations should be firmly be kept in mind by a court exercising its discretion in deciding whether special circumstances exist to grant a stay of execution of an adjudicator’s award.
- If the successful party in the adjudication is insolvent, a stay will usually be granted.
- Inability of the successful party in the adjudication to repay the judgment sum may amount to special circumstances, but a stay will not usually be granted if its financial position remains the same or similar to that which it was at the time the contract was made, or if the successful party’s financial position is due wholly or in significant part to the Defendant.
The Judge concluded that the financial position of WRB had not changed since the contract was made.
This case illustrates that the party seeking to avoid enforcement proceedings may be unable to obtain a stay of execution for sums awarded in an adjudication decision even when the enforcing party is a dormant company with insufficient assets. Where there is little prospect of being repaid, such a decision would not be in spirit of adjudication. Additionally, the enforcing party should not generally be kept out of its money.
Contacts: Amrinder Aulakh, Scott McKinnell
Construction purchasing - terms and conditions on websites and delivery notes
BDW Trading Limited v Lantoom Limited [03.02.23]
This case involved the supply of local stone by a local supplier Lantoom Limited (Lantoom) to a national housebuilder BDW Trading Limited (BDW) on a residential project in Cornwall, built between 2012 and 2015. From 2014 onwards, it became apparent that there were issues with the finish of the stone supplied, which required replacement with stone from another quarry.
The main issue between the parties (which the judgment was focused on) was the applicable contractual terms and conditions that related to the supply of the stone. BDW’s primary case was that the contract was formed by the issue of a purchase order by BDW in 2012 incorporating BDW’s standard terms and conditions by reference to a link to their website address. Lantoom argued that their terms and conditions printed on the reverse of their delivery note applied. The delivery note had been provided with the stone upon arrival on site. The delivery note contained a space for a signature and a paragraph accepting the conditions of sale printed overleaf. The delivery note had been signed by a forklift truck driver working for BDW (although it was sometime later also signed by BDW’s site manager).
Mrs Justice Jefford, citing the case of Impala Warehousing and Logistics (Shanghai) Co. Limited v Wanxiang Resources (Singapore) Pte Limited , found that the reference to the website containing the standard terms on the top of the BDW purchase order (sent before delivery) was prominent on the face of the document, even if it was in relatively small font. Examined objectively, there could be little doubt that in dispatching the first consignment of stone, Lantoom had accepted an offer based on BDW’s standard terms. Lantoom had also asked BDW for the paperwork – consistent with the circumstances. It was also improbable that a national housebuilder would have ordered stone on an ad hoc basis or would have placed an order on the phone with little more than an order number.
In contrast, Lantoom’s delivery note did not involve any communication with the person at BDW with whom Lantoom had been dealing with the subject matter of the order. The delivery note was intended to be handed to someone on site. There was no possible basis on which it could have been anticipated that someone on site working for BDW would have the authority to contract with Lantoom on any basis, let alone on some basis other than BDW’s standard terms.
This judgment demonstrates that the common practice in the construction industry of referencing standard terms and conditions in purchase orders contained in website links can be effective in being incorporated into the purchase order and forming the terms and conditions of contracts. In contrast, it may prompt many in the construction industry to review their practices if they rely on their standard terms and conditions being incorporated by means of delivery notes.
Contacts: Amrinder Aulakh, Scott McKinnell