UK: Legal Review of 2009 – Part 2

Adjudication

Enforcement of adjudication decisions – or, more precisely, attempts to resist enforcement – continued to occupy much of the time of the Technology and Construction Court.

Arguments about natural justice still arise but are not usually successful. Such arguments often arise out of what have been called kitchen sink references, particularly concerning final accounts, where every matter in dispute is referred for adjudication. The argument is that it is not possible for such extensive disputes to be dealt with fairly within the short period allowed. Judges have accepted, in principle, that such circumstances could arise; however, there has so far been no case in which enforcement of an adjudicator's decision has been refused on this ground.

In HS Works Ltd v Enterprise Managed Services Ltd (8 April) (see below), one of the applications for enforcement before the judge concerned an adjudication of this kind, and the respondent to the reference argued that the adjudicator should have resigned. However, the judge said that this was not one of those exceptionally rare cases where this should have happened. The judge also made the point that the tight time frame was in the legislation, so rough justice must in some situations have been contemplated. The judge approved the adjudicator's use of spot checks to assess the credibility of some of the heads of claim.

In Dorchester Hotel Ltd v Vivid Interiors Ltd (19 January), the respondent to an adjudication asked the court to intervene, on the basis that the timetable was too tight and gave rise to a real risk of there being a breach of natural justice. This was another adjudication concerning a final account claim, which was set out in 37 lever arch files and issued just before the Christmas break.

The Court ruled that it had power to intervene in ongoing adjudications on such grounds, but would only do so in rare cases and would not do so in this case. The judge nonetheless said:

Of course, disputes may have been escalating for some time and the respondent to an adjudication may well be familiar with the issues, however extensive they are. In Bovis Lend Lease v Trustees of The London Clinic (28 January), the Court held that the employer had not been "ambushed" by the loss and expenses claim and the amount of material submitted by the contractor did not mean there had been a breach of natural justice.

Breaches of natural justice must be serious in order to invalidate the adjudicator's decision, and will usually involve one or other party not having a proper opportunity to comment on an important matter affecting the claim and its outcome. In Primus Build Ltd v Pompey centre Ltd and anor (16 June), the adjudicator had made an award for a claim for loss of profits on the basis of a calculation based on the claimant's accounts, even though both parties had agreed that the accounts were irrelevant. The adjudicator had not given the parties the opportunity to make submissions on what he was doing. The court held that this was a breach of natural justice and the award could not be enforced.

Multiple Adjudications

A situation before the courts with increasing frequency is where there have been multiple adjudications, and how various awards may affect each other. The general rule is that an adjudication award should be complied with straight away and, if necessary, enforced by the courts, even if another decision is pending which may mean that any payment made under the first decision has to be paid back, or even if the second decision has already been given but is disputed and an application to enforce it is still pending.

However, in HS Works Ltd v Enterprise Managed Services Ltd (8 April), the court had before it simultaneous applications to enforce two awards, one requiring payment by one party, the other by the other. In this situation, the court held that sums due under one adjudication could set off against those due under the other, with the resulting net amount only being paid.

With multiple adjudications taking place, there may be challenges to adjudicator's decisions on the ground that the decision is on a dispute that has already been decided in another adjudication. Balfour Beatty Engineering Services v Shepherd Construction Ltd (1 September) was concerned with an adjudicator's decision to award a sub-contractor an extension of time, where there had been an earlier adjudication rejecting a claim for an extension. The Court, however, accepted the argument that, in the earlier adjudication, the claim for an extension had been based on a prospective analysis, which the adjudicator decided was the wrong approach, whereas in the second adjudication the claim was based on a retrospective analysis, so the disputes in the two adjudications were different.

In Vision Homes Ltd v Lancsville Construction Ltd (4 August), two adjudications (with different adjudicators) proceeded at the same time on a similar issue. The court said that the statutory Scheme for Construction Contracts (which applied to the adjudications) makes no provision for an adjudicator to resign where the referred dispute had already been referred to adjudication but no decision in that adjudication had yet been made. Thus it is possible for two adjudications on the same dispute to take place at the same time. However, only the first decision to be given would be enforceable, unless open to challenge on another ground.

The issue of cross-claims, as a possible way of defeating an adjudicator's award, never seems to go away, even if the cross-claim has not been the subject of another adjudicator's award. In Letchworth Roofing Co v Sterling Building Co (20 May), the respondent argued that the adjudicator should have considered the respondent's cross claim, as a valid form of defence, even though it had not been the subject of a valid withholding notice. The court held that the adjudicator was right not to consider the cross claim, and in any event it was a decision that he was entitled to reach. Nor was the cross claim part of the matters referred to the adjudicator. The only issue before the adjudicator was the validity or otherwise of the withholding notice.

Sometimes the implications of an adjudicator's decision may not be clear. Hart v Smith (3 September) was concerned with two adjudicator's decisions. In the second, the adjudicator declared that the employer was entitled to certificates of non-completion. The employer argued that it followed from the adjudicator's decision that it was entitled to a specific sum as liquidated damages and that this sum should be set off against the sum awarded to the contractor. The court declined to infer from the adjudicator's declaratory award that he had awarded liquidated damages in the sum claimed. The court also held that, even if this could be inferred, it would not set off this amount against the sum awarded to the contractor without hearing further argument, in view of the general principle that each award should be the subject of separate enforcement.

However, in ROK Building Ltd v Celtic Composting Systems Ltd (30 October), the court held that an adjudicator's decision as to a sub-contractor's entitlement to payment should be interpreted as an order for the amount to be paid, not merely a declaration of what was due.

Adjudication is, of course, only an interim procedure, and the dispute may later be resolved differently by a court or arbitrator. A stay of execution of the adjudicator's award may sometimes be granted by the court if there is a real possibility that the successful party would not be able to repay the amount of the award in the event that the dispute is later resolved differently. In Mead General Building Ltd v Dartmoor Properties Ltd (4 February), the Court laid down principles to be applied where a claimant entitled to summary judgment following adjudication was subject to a company voluntary arrangement and sought to avoid a stay of execution of the judgment. In this case, the Court declined to order a stay, because the main reason for the claimant's financial difficulties was the failure of the respondent to pay the amount awarded by the adjudicator.

In Camden LBC v Makers UK Ltd (27 March), where it was likely that an adjudication award would not be enforced due to a company's financial position, the other party requested the court to prevent the company from pursuing adjudication in the first place. The relevant dispute was already before the court. The court, however, declined to accede to this application, on the basis that the company had a statutory right to adjudicate and was entitled to pursue adjudication as a commercial lever.

In Jim Ennis Construction Ltd v Premier Asphalt Ltd (24 July), a dispute had been referred to adjudication nearly six years after it had arisen, with the effect that any proceedings issued to reverse the adjudicator's award could be statute-barred. The court held that the right to refer the dispute to court following the adjudicator's award constituted a fresh cause of action, arising from an implied term in the contract, so there would be a further period of 6 years running from payment of the adjudicator's award in which to commence proceedings.

This case needs perhaps to be treated with some caution. It is an interesting argument (that there is an implied contractual term allowing a party to challenge an adjudicator's decision, giving rise to a fresh cause of action). However, the fact is that the dispute could be referred to court or arbitration at any time – one does not have to await the outcome of an adjudication, unless this is a requirement of the contract. If limitation is running out, a party concerned about the possibility of an adverse adjudicator's award may still be best advised to get the dispute before the court within the limitation period.

It is important to comply with the procedural rules, or the adjudication may well be invalid. In Vision Homes Ltd v Lancsville Construction Ltd (referred to above), an adjudicator was held to have no jurisdiction because an amended notice of adjudication had been served following the request to the nominating body for an appointment under the Scheme for Construction Contracts. The request could not therefore be regarded as continuing.

Linnett v Halliwells LLP (24 February) raised the question of whether one of the parties (the respondent) was liable for the adjudicator's fees where it had not agreed them and had challenged the adjudicator's jurisdiction. The court held that it could not be inferred from the silence of the party in question that it had agreed the adjudicator's fees but, by participating in the adjudication, albeit while maintaining its jurisdictional challenge, it had entered into a contract with the adjudicator for the provision of the adjudicator's services, under which it was obliged to pay a reasonable fee to the adjudicator. If that was wrong, it was obliged to pay the adjudicator on a restitutionary basis.

Legislative Changes

During the year, the Local Democracy, Economic Development and Construction Act was passed. This contains amendments to the current statutory provisions for adjudication and payment. These amendments are not expected to come into effect in England until April 2011.

It will no longer be a requirement for a contract to be in writing (or evidenced in writing) for the adjudication provisions to apply. This has continued to be an issue; for example, in Adonis Construction v O'Keefe Soil Remediation (5 August), the court held that there was no written contract, and so the adjudicator had no jurisdiction.

However, the question of whether there has been a contract at all will still arise, because the provisions of the Act can not apply if there is no contract for them to apply to. In Estor Ltd v Multifit (UK) Ltd (12 August), on application for summary judgment in respect of the adjudicator's award, the court held that there was an arguable case that there had been no contract between the parties, so the defendant had leave to defend (on conditions, including payment into a court).

There were cases on interpretation of existing legislative provisions. Certain construction operations are excluded from the Housing Grants Construction and Regeneration Act (so that the provisions under the Act for adjudication and payment would not apply to contracts for those operations). The operations in question are, broadly speaking, assembly and installation of plant and machinery in power stations. This issue had given rise to two different approaches – a broad interpretation, which would also exclude other operations in connection with the assembly and installation of the plant and machinery, and a narrow interpretation, which would not exclude other operations. The court held in North Midland Construction plc v AE&E Lentjes UK Ltd (18 June) that the narrow construction was to be preferred.

Section 113 of the Housing Grants Construction and Regeneration Act contains an exception to the general rule outlawing "pay when paid" provisions in the event of the contractor not being paid due to the employer's insolvency. The definition of "insolvency" in the contract included an administration order made by the court under the Insolvency Act 1986. The question in William Hare Ltd v Shepherd Construction Ltd (25 June) was whether this definition included a self-certifying administration of the kind introduced by way of amendment to the Act in the Enterprise Act 2002. The court held that it did not. The court considered various rules of interpretation, including the importance of the natural and ordinary meaning of the words used and the fact that any exception to the prohibition of "pay when paid" should be construed narrowly.

Service of Proceedings

There were a number of cases during the year concerning service of proceedings, more specifically, where service has been left until late and sometimes extensions of time have had to be sought. Solicitors acting for claimants and defendants both need to be familiar with the rules on service of proceedings, the former to ensure that they get it right, the latter to ensure that they do not miss an opportunity to take proper advantage of an error that invalidates the service. Compliance with the rules is a matter on which the courts tend to be strict. In Andrew Brown & Ors v Innovatorone PLC & Ors (19 June), service by fax on the defendants' solicitors was held to be invalid, because, although the defendants' solicitors had written to the claimants' solicitors informing them that they were acting for the defendant, the claimants had not been informed that the defendant's solicitors had instructions to accept service.

The court also refused to validate the service by permitting service by an alternative means. It has power to do this, but there has to be a good reason to exercise that power, and it should not be done over-readily.

The point will normally only be of practical importance where the period for service has since expired, and the period of limitation for commencing a new action may also have since expired. In those circumstances, though, the point may be very important indeed.

In FG Hawkes (Western) Ltd v Beli Shipping Co Ltd (17 July), the court set aside an order extending time for service of the claim. There were some points in favour of the claimant. The defendants knew about the claim, knew that proceedings had been issued and would not be prejudiced by a short extension of time. But these factors did not outweigh the strong reasons for not extending time - the neglect or oversight on the part of the claimant or its solicitors in getting on with service, in particular not ascertaining the address for service earlier.

In Duckworth v Coates & Ors (31 July), five extensions of time had been obtained for service of the claim. The court set aside the fourth and fifth extensions, which was sufficient to render the service of the claim invalid (and thus bring an end to the proceedings). The claimant had not shown good reasons for needing these extensions of time. The argument that it was proportionate to grant the extensions was missing the point.

It is also important to ensure that actions are properly constituted when they are commenced, because it may be too late to rectify the situation later. In Pickthall v Hill Dickinson LLP & Anor (11 June), a bankrupt had started proceedings when, because he was a bankrupt, he had no title to the cause of action and, therefore, no right to sue. The proceedings should have been started by his trustee in bankruptcy. After his discharge from bankruptcy, the cause of action was assigned to him by the trustee in bankruptcy. By that time, the limitation period in relation to the claim had expired.

The court at first instance ruled that, while the claim needed to be amended, commencing the action had not been an abuse of process. The Court of Appeal disagreed, particularly as the claimant knew that he had no title to sue when commencing the action, and struck out the action as an abuse of process.

Solicitors' Undertakings

Another recurring issue for solicitors is the undertaking customarily given by solicitors acting for vendors on a conveyance to redeem any charge on the property being conveyed, following completion. A number of cases in 2009 illustrate how vital it is for solicitors to ensure that they know what will be needed to comply with the undertaking and that they will be in sufficient funds following the sale to do so.

In Angel Solicitors v Jenkins O'Dowd & Barth & Ors (19 January), the solicitors in question were held liable, on summary judgment, to perform this undertaking, by paying whatever was required to be paid to the mortgagee bank to redeem the charges. The Court rejected the solicitors' argument that they should instead be liable for damages for failure to comply with their undertaking, which might have limited the amount that they had to pay to any lower amount that the bank would have accepted at the time of the sale. The Court was not concerned with the issue of how much the bank would require to be paid, or whether it would have accepted less at the time the undertakings were given, or with any claim that the solicitors may have against the sellers for reimbursement, which should be the subject of a separate action.

In Clark & Anor v Lucas Solicitors LLP (31 July), one charge was redeemed out of the purchase moneys, but there was a second one, about which the solicitors had not made enquiries prior to completion. The court ordered the solicitors to pay whatever it took to redeem the remaining charge, which was about twice as much as the purchasers had paid for the property.

In Thames Valley Housing Association Ltd & Ors v Elegant Homes (Guernsey) Ltd & Ors (27.10.09), the solicitors had not discharged their undertaking because they contended that there were issues with the mortgagee bank over how much was required to be paid. The court refused the solicitors' request to postpone an order requiring them to comply with the undertaking until those matters had been sorted out. The solicitors were, therefore, required to pay the amount that was being demanded by the bank.

Insurers

In the construction industry, disputes are a regular feature on a project, and are often sorted out before they become at all serious. It can sometimes be a problem to know what should be reported to insurers – should it include every storm in a teacup? After all, disputes that may at first seem quite trivial do occasionally escalate into something more serious.

In Laker Vent Engineering Ltd v Templeton Insurance Ltd (11 February), the insured was an engineering contractor, who was involved in an ongoing dispute with another party on a construction project. The insured notified its legal expenses insurers of the dispute when it decided to refer the dispute to arbitration. The insurers argued that the dispute should have been disclosed to them earlier and in particular on renewal of the policy.

The judge found that, as at renewal of the policy, the dispute had not yet progressed to a point where it could be regarded as a material matter to be disclosed to the insurers. The Court of Appeal held that this finding could not be challenged on appeal. The Court of Appeal also upheld the judge's ruling that, in the sphere of legal expenses insurance, a material factor in a situation like this would mean a real risk of escalation of the dispute beyond the risk ordinarily inherent in a complex construction contract.

Wickham Van Eyck v Norwich Union Ltd (29 October) concerned construction of a legal expenses insurance policy taken out by a firm of architects and whether it covered a dispute arising out of an agreement between the architects and another firm of architects, which the architects alleged was a joint venture agreement. The insurers contended that the dispute did not arise out of an agreement for the provision of services, such as would fall within the policy, but an agreement for regulating relations between the architects. The court held that the claim being made by the architects was in essence a claim concerning the terms on which services were provided by the architects to the other architects, and was covered by the policy. The policy did not require the provision of services to be dominant purpose of the agreement.

Insurers faced with a potential claim for personal injuries against an insured have sometimes applied to court on behalf of the insured for a negative declaration, i.e. a declaration that the insured is not liable, rather than waiting for a claim to be commenced. The court has discretion whether or not to grant such declaratory relief (whatever the merits of the case) and therefore whether to entertain such applications. In Toropdar v D (20 March), the court gave some guidance on when such applications would be appropriate (and when not).

In Quinn Direct Insurance Ltd v Law Society of England & Wales (23 October), the Law Society had intervened in a firm of solicitors and obtained all the documents in the firm's possession. Many of these documents were, of course, subject to the privilege and confidentiality of the firm's clients. The Court held that firm's professional indemnity insurers could not have access to all these documents in order to see if there were grounds for avoiding liability for claims made against the firm. The fact that the insurance was part of a statutory regime, requiring all solicitors to have insurance, did not elevate the insurers into having any role in the regulatory procedure, similar to that of the Law Society. The insurers could make specific requests for documents, for the Law Society to consider.

The Court also held that the insurers could not obtain these documents under clause 6.2 of the insurance policy. The obligation of the insured under clause 6.2 to provide assistance applies only in relation to a claim that has already been made. An insured is not required to provide information solely for investigating whether or not a breach of the insured obligations can be established.

Insurers probably have more experience than most of being on the receiving end of fraudulent claims. In Shah v Wasim Ul-Haq & Ors (9 June), the claimants had genuine claims arising out of a car accident, but they also supported the claim of another claimant, who the judge concluded had not been in the car. The judge awarded them damages but made an order for costs which resulted in them making a net payment to the defendant.

The Court of Appeal said that the judge's approach was right. A claim that is dishonestly exaggerated would not be struck out, so dishonestly supporting another person's claim should not be treated any more harshly. The correct approach is to award the appropriate damages for genuine claims and reflect any dishonest conduct in the pursuit of the claim in the orders for costs. The Court of Appeal took a similar approach in Widlake v BAA (23 November), a case in which the claimant was held to have exaggerated her claim.

In our review of 2008, we ended with a case where the court gave leave for contempt proceedings to be brought by the insurers of the defendant in a personal injury action against the claimant who had made false statements in support of the claim. This year, the trial for contempt took place (Walton v Kirk (3 April)). The court ruled that a high level of proof was required and most of the allegations of contempt were dismissed. A discrepancy between a verified statement and video evidence would not automatically give rise to a contempt of court. However, it was held that verifying false claims for state benefit, together with a statement of truth, did constitute a contempt of court.

Nuisance

The tort of nuisance has been considered in several recent cases, particularly where large numbers of people have been affected by the use of land for particular activities or by a particular event (for example, the explosion at Buncefield).

Residents in Isleworth and Twickenham are making claims against Thames Water due to odours and mosquitoes caused by the Mogden Sewage Treatment Works. It is well established that a claim in private nuisance is a claim for damage to property. Such damage can include diminution in amenity value, even if there has been no physical damage, but essentially it is a property claim. Thus only people with a proprietary interest in property affected by the nuisance can make a claim.

Can residents without such an interest (for example, children residing in properties affected) have a claim for compensation under the Human Rights Act, where the defendant is a public body? Is any such right affected by the right of proprietary owners to bring a claim?

The Court of Appeal held, in Dobson & Ors v Thames Water Utilities Ltd & Anr (29 January), on preliminary issues, that the claims of the proprietary owners in nuisance would not prevent others, in appropriate cases, from obtaining compensation under the Humans Rights Act. However, those claims in nuisance are likely in many cases to be relevant to whether others could obtain compensation under the Human Rights Act, and may sometimes make such an award of compensation inappropriate.

Those with a proprietary interest and therefore entitled to bring a claim in nuisance would not be entitled to further compensation under the Human Rights Act.

In Colour Quest Ltd & Ors v Total Downstream UK Ltd & Ors (20 March), the court decided a number of preliminary issues regarding claims in nuisance in the litigation arising out of the explosion at the Buncefield oil storage depot in 2005. It had been conceded that the explosion was due to negligent overfilling of one of the storage tanks. On the issues of nuisance, the court held that: There can be a claim in private nuisance for a single or isolated escape. The defendants had argued that there could only be a claim in nuisance for a state of affairs.

• The claimants inside and outside the site have a claim in private nuisance against Total. The consent of the claimants inside the site to the storage of oil on the site does not prevent them having a claim, because of the negligence of the defendant, which vitiates the consent.
• Because the explosion endangered the health and comfort of the public at large, a claim could also be brought in public nuisance. The causes of action in private nuisance and public nuisance were not mutually exclusive.
• A business claimant could recover in public nuisance for trading losses as a result of access to and from its premises being obstructed by obstruction to the public highway.

On a separate point, the negligence of the company also prevents it relying on a contractual indemnity from its joint venture company, on the basis that the indemnity was not intended to indemnify a party in respect of its own negligence.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.