Construction Brief: latest decisions April 2018

This update includes a round-up of recent court decisions raising issues relating to limitation, smash and grab adjudications, adjudication enforcement, limitation of liability clauses and co-insurance arrangements.

Limitation on contribution claims

RG Carter Building Ltd v Kier Business Services Ltd (formerly Mouchel Business Services Ltd) [05.04.2018]

Limitation for contribution claims under Section 10(4) of the Limitation Act 1980 (the Act) only starts to run from the date of a binding and enforceable agreement as to the amount of the settlement sum.

Under Section 10(4) of the Act, parties can bring a contribution claim within two years of the date of an agreed settlement. This case turned on the meaning of “agreed”. RG Carter had built a new science block, which was designed by Kier. The building was defective and arbitration proceedings were brought against RG Carter. These were settled in 2015, with RG Carter agreeing to carry out remedial works at its own cost. An outline agreement was reached on 27 March 2015, with the scope of the works subject to further negotiation until a formal settlement agreement was signed on 29 June 2015. RG Carter then brought contribution proceedings against Kier in September 2017, following agreement of a standstill on 28 April 2017. The preliminary issue for the court was whether limitation had expired prior to that standstill.

RG Carter argued that there was no agreement until the settlement agreement was signed on 29 June 2015. Kier argued that the remedial works were agreed at the latest by 27 April 2015, and all that remained to be agreed thereafter were ancillary matters that did not prevent time from running. The judge found for RG Carter. A binding and enforceable agreement as to the settlement amount was needed, and the parties’ negotiations up until the settlement agreement was signed had clearly been “subject to contract”. Binding terms were therefore not in place until 29 June 2015. However, the judge made clear that it will not always be the case that “nothing is agreed until everything is agreed”. If it is the intention of the parties to reach an immediately binding agreement as to the settlement amount, but they agree to leave other details for later, time will run from the former binding agreement.

Contacts: Helen Neale and Helen Johnson

Subrogation and co-insurance

Haberdashers’ Aske’s Federation Trust Ltd and others v Lakehouse Contracts and others [19.03.2018]

If a subcontract contains a term requiring the subcontractor to take out its own insurance, this may prevent that subcontractor from claiming cover under the main contractor’s project insurance (even if that insurance expressly provides cover for subcontractors). This may also prevent the subcontractor from defending a subrogated claim on the basis that it is co-insured.

Related item: Contract is king in co-insurance disputes

Contacts: Iain Corbett, Tom Green and Cara Thomas

Adjudication enforcement – jurisdiction

M Hart Construction Limited and P K Maintenance Limited v Ideal Response Group Limited [07.03.2018]

Minor inaccuracies in a notice of intention to refer a dispute to adjudication will not necessarily invalidate an adjudicator’s jurisdiction.

This case concerned works initially carried out by a sole-trader under an oral contract, who later incorporated a company and issued invoices in the name of the company. Following non-payment, the company commenced adjudication. The adjudication notices erroneously referred to the original contract as being between the client and the company, rather than the client and the sole-trader. Later, however, the notices contended that there had been a novation from the sole-trader to the company. The client disputed jurisdiction on the bases that (1) any contract was originally entered into with the sole-trader and not the company, and (2) there was no novation to the company.

The adjudicator found that there had been a novation, and ordered the client to pay sums to the company. When the client failed to pay, the company sought enforcement. The TCC refused enforcement on the basis that that the client had a real prospect of showing that there had been no novation to the company. However, the judge stated that had she been satisfied that there had been a novation, the minor error in the adjudication notice stating that the original contract was with the company would not have deprived the adjudicator of jurisdiction.

Contacts: Helen Neale and Helen Johnson

Smash and grab adjudications

Grove Developments Ltd v S&T (UK) Ltd [28.02.2018]

Parties are entitled to adjudicate the “true value” of a payment application even if that application is the subject of a successful smash and grab adjudication.

The TCC held that while, in the absence of a payment or pay less notice, the sum in the contractor’s application is due and payable by the employer, that does not stop the employer from commencing a separate adjudication to assess the true value of the works.

Related item: Adjudication update: smash and grab no more?

Contacts: Sarah Maylor and Helen Johnson

Adjudication enforcement – oral contracts

Dacy Building Services Ltd v IDM Properties LLP [05.02.2018]

Adjudication enforcement in circumstances where there is a disputed oral contract (and therefore disputed jurisdiction) may be refused if there is a complex factual dispute.

The claim started life as an application by Dacy to enforce an adjudicator’s decision awarding sums to Dacy from IDM for works carried out on a development in Camberwell, London. IDM’s defence was that there was no contract between it and Dacy, and therefore the adjudicator lacked jurisdiction. The issue was whether Dacy had contracted with IDM or the main contractor (HOC UK Ltd), and this turned on what was agreed orally during a meeting at a Camberwell bus shelter. The adjudicator decided that there was an oral contract between Dacy and IDM, and awarded sums to Dacy. In the enforcement proceedings, Jefford J decided that the factual dispute was too complex to be decided on summary judgment, and there was a realistic prospect that IDM would succeed in its defence. She ordered an expedited trial.

The trial judge agreed with the adjudicator’s finding that there was an oral contract between Dacy and IDM but did explicitly state that disputes of this kind should normally be resolved summarily. It therefore remains to be seen how the courts will deal with these sorts of disputes in future.

Contacts: Helen Neale and Helen Johnson

Limitation clauses

Royal Devon & Exeter NHS Foundation Trust v Atos IT Services UK Ltd [20.12.2017]

The Court of Appeal overturned the first-instance decision of the TCC, taking a common-sense view in interpreting a poorly-drafted limitation clause.

The clause sought to limit liability:

“9.2.1 for any claim arising in the first 12 months of the terms of the Contract, the Total Contract Price as set out in Section 1.1; or

9.2.2 for claims arising after the first 12 months of the Contract, the total Contract Charges paid in the 12 months prior to the date of that claim”.

The claimant argued that the cap should be declared unenforceable as it was not capable of being construed. The defendant argued that there were two possible interpretations: a single cap which, depending on the circumstances, would either be as set out in para 9.2.1 or 9.2.2; or two caps, the first in respect of defaults occurring the first 12 months and the second in respect of subsequent defaults.

The TCC decided that the clause provided for an aggregate cap on liability, whereas the Court of Appeal held that the clause provided two separate caps. This case serves as a useful reminder that poor drafting and a lack of clarity in a contractual limitation clause can lead to significant and costly disputes.

Contacts: Helen Neale and Helen Johnson

Read other items in the Construction and Engineering Brief - April 2018