The importance of confining an adjudicator’s jurisdiction

In Stellite Construction Limited v Vascroft Contractors Limited [2016] EWHC 792 (TCC), Carr J in the Technology and Construction Court severed part of an adjudicator’s decision on the basis that the adjudicator had exceeded their jurisdiction.

The key facts

Vascroft Contractors Limited (“Vascroft”) as the contractor were contracted to undertake shell and core works as part of phase 1 works on a house at Hath Park in Hampstead, London. Vascroft entered into a JCT Standard Building Contract Without Quantities, 2011 Edition valued at £5.07 million. The contract envisaged a completion date of 20 October 2014. The contract also provided for the payment of liquidated damages amounting to £23,000 per week of delay.

Vascroft was (for unknown reasons) unable to complete the works on time and so was served with a non-completion certificate by Stellite Construction Limited (“Stellite”) on 20 October 2014. Subsequent (phase 2) fit-out works were instructed by Stellite to be undertaken under a letter of intent dated 3 August 2015 (the “LOI”) which expired in November 2015. A substantive phase 2 building contract was never entered into.

Stellite brought a claim for £1.064 million in liquidated damages for late completion of the phase 1 works- damages which Vascroft had refused to pay.

Vascroft rejected Stellite’s argument that it had served a valid non-completion certificate, arguing that the breakdown of the contractual delay mechanism (which it alleged had not been properly administered by Stellite due to their entry into an LOI) had put time “at large” (meaning that there was no date for completion of the works such that Vascroft was no longer under an obligation to complete the works by the agreed completion date but rather was only required to complete within a reasonable period of time). It therefore was of the view that it was entitled to an extension of time and not liable to pay liquidated damages.

The matter was referred to adjudication, where it was decided that time for completion of the phase 1 works was indeed “at large” because the contract administrator was unable to grant an extension of time for the phase 1 works due to the delay caused by the Vascroft carrying out the phase 2 works agreed under the LOI. Furthermore it was held that as a result, no liquidated damages were owed to Stellite. The adjudicator further determined that a reasonable completion date was no later than 5 March 2016.

Stellite sought declaratory relief arguing that the adjudicator’s decision should be rendered unenforceable because:

  1. the adjudicator had breached the rules of natural justice by reaching a conclusion regarding time being “at large” for invalid reasons- the issue was never whether the scope of clause 2.29 (relating to “Relevant Events”) allowed an extension of time in the circumstances, which was the basis upon which the adjudicator rationalised this part of their decision; and
  2. the adjudicator had exceeded his jurisdiction by going on to decide a reasonable completion date- Stellite argued that the notice of adjudication did not require the adjudicator to determine a reasonable date for completion of the phase 1 works.

The decision

Carr J held that the adjudicator had not breached the rules of natural justice. He had applied“ventilated law to the material before him”, clearly understanding the issues in dispute and fairly and properly reaching the conclusions that he did.

Significantly however the adjudicator was held to have exceeded their jurisdiction in deciding a reasonable completion date- a part of his decision that was subsequently severed by the court.

Practical implications/comment

This case raises a number of important, commonly encountered issues that often arise in Part 8 declaratory relief or adjudication enforcement proceedings, notably whether the adjudicator has breached the rules of natural justice and exceeded their jurisdiction.

Significantly it reaffirms the importance of clearly defining the nature, scope and extent of the dispute within the notice of adjudication, which will ultimately dictate and help define the scope of an adjudicator’s jurisdiction.

The court’s decision to severe part of the adjudicator’s decision is a rare step and may provide reassurance to parties who feel aggrieved by part of an adjudicator’s decision, potentially allowing for some form of redress. The potential cost-benefit of undertaking such a compartmentalised approach to objecting to elements of an adjudicator’s decision has its merits and should not be underestimated.  

Drawing the line on extensions of time

The case of Carillion Construction Limited v Woods Bagot Europe Limited and others [2016] EWHC 905 (TCC) concerned sub-contractors’ entitlement to an extension of time under the DOM/2 form of sub-contract.

The key facts

In June 2007 Carillion Construction Limited (“Carillion”) as the contractor, entered into a JCT Standard Form of Building with Contractor’s Design, 1998 edition (incorporating Amendments 1:1999, 2:2001 and 4:2002), together with bespoke amendments, with Rolls Development UK Ltd (“Rolls”) as the employer (the “Contract”). The Contract related to works that were to be undertaken on the Rolls Building in London (the home of the TCC and Commercial Court). This provided for sectional completion and had the usual provisions relating to liquidated damages and extensions of time upon the occurrence of a “Relevant Event”. The works were delayed. Carillion and Rolls subsequently entered into a supplemental agreement agreeing that Carillion had no claims for an extension of time and agreeing a new contract sum which included the Carillion’s liability for liquidated damages. After further delays, a second supplemental agreement was later entered into.

Carillion entered into sub-contracts with EMCOR Engineering Services Ltd (“EMCOR”) and AECOM Ltd (“AECOM”) for the provision of mechanical and electrical services.

Carillion commenced court proceedings against EMCOR and AECOM for (among other things) the delay caused by each sub-contractor in which it claimed its own costs as well as those it was liable for under the Contract. EMCOR argued that it was entitled to an extension  of time, with both EMCOR and AECOM affirming that neither should be held liable for liquidated and ascertained damages because Carillion had no liability to Rolls for such damages, and/or had not paid such sums to Rolls and/or that such sums had not been deducted from sums otherwise payable by Rolls to Carillion.

A trial of preliminary issues was ordered by the court to consider:

  1. based on the assumption that EMCOR was entitled to an extension of time pursuant to the EMCOR sub-contract, should that extension:
  • run continuously from the end of the current period for completion to provide an aggregate period within which EMCOR had to complete its works (as contended by EMCOR); or
  • fix additional periods during which EMCOR could undertake its sub-contract works, which were not necessarily contiguous but reflected the period for which it had been delayed and for which it was entitled to an extension of time (as Carillion contended)?
  1. to the extent that Carillion’s claim against EMCOR and AECOM covered its liability to Rolls for liquidated damages under the Contract:
  • was Carillion’s liability to the employer for liquidated and ascertained damages extinguished by entry into the further supplemental agreement; and
  • if so, how did that affect EMCOR and AECOM’s liability to Carillion?

The decision

The court held that:

  1. EMCOR was entitled to an extension of time under the sub-contract, which should be added contiguously to the end of the current date for completion of the sub-contract works. Thus any extension that was due to EMCOR under the sub-contract could be added to the end of the existing period for completion of their sub-contract works thus allowing there to be a single extended period for completion. Carillion had therefore been unsuccessful in arguing that the sub-contract permitted the main contractor to grant extensions of time that did not necessarily run contiguously with the existing period for completion. That would have allowed it to be fixed at any point after the existing period for completion had expired and thus would have enabled Carillion to take account of any periods during which the sub-contract was itself causing delay to the main contract works; and
  2. in relation to (ii) above, Carillion’s liability to Rolls for liquidated damages was not extinguished by any further supplemental agreement, as EMCOR and AECOM had contended, which would have enabled the repayment of liquidated damages applied before this date. The court held that the further supplemental agreement did not have the same effect as agreeing a new completion date under the Contract through application of its extension of time provisions. Furthermore it was noted that the supplemental agreements had clearly stated that no extensions of time had been granted.

Practical implications/comment

This ruling is novel in that it is the first to examine the operation of clause 11 of the DOM suite of sub-contracts. It raises significant questions regarding the practice of granting extensions of time to sub-contractors and the potential consequences of pursuing litigation in respect of alleged sub-contractor delays, in particular where there are numerous sub-contractors involved.

Contractors will take comfort from the decision that the further supplemental agreement did not extinguish  liability for liquidated damages. Sub-contractors will also note with some relief that the aggregate period of time of extensions may be added to the previously agreed date for completion and thus help diminish the period for which a sub-contractor may potentially be liable to the contractor for delay related damages.

No amendment clauses – when contract and conduct conflict

The Court of Appeal has provided guidance and clarity on the previous conflicting case law on the effect of “no amendment” clauses in contracts in the case of Globe Motors Inc v TRW Lucas Varity Electric Steering Limited [2016] EWCA Civ 396.

The key facts

TRW Lucas Varity Electric Steering Limited (“TRW Lucas”) entered into an exclusive supply agreement with Globe Motors Inc (“Globe”) to purchase all of its requirements for certain electric motors for cars (“the Agreement”).

The Agreement entered contained the following entire agreement and amendment clause "6.3 Entire Agreement; Amendment: This Agreement, which includes the Appendices hereto, is the only agreement between the Parties relating to the subject matter hereof. It can only be amended by a written document which (i) specifically refers to the provision of this Agreement to be amended and (ii) is signed by both Parties."

Judge Mackie QC in the High Court held that the parties had varied the agreement by including a subsidiary of Globe, Globe Motors Portugal Material Electrico Para A Industria Automovel LDA (“Porto”) as a party to the Agreement by means of implied variation of the contract by oral agreement. The Defendant appealed against this finding, submitting that Porto had not become a party to the Agreement by means of implied variation because (1) the conduct relied upon was not unequivocal and (2) Article 6.3 of the Agreement precluded variations other than in writing.

The decision

The Court of Appeal held that there was “ample evidence” to justify the conclusion that the parties conduct meant that the Agreement was varied to include Porto as a party, and followed the previous case of World Online Telecom Ltd v I-Way Ltd [2002] EWCA Civ 413 that a “no amendment clause” does not prevent the parties from varying an agreement orally or in any other informal manner.

In making its decision the court considered the conflicting authority of United Bank Ltd v Asif(unreported, 11 February 2000) where it was held that where an agreement contains a “no amendment clause” an amendment made orally without a signed written agreement will not be effective.  The court dismissed the reasoning in this case on the basis that the judges in United Bankfailed to consider any authority on the effectiveness of an oral variation to a contract containing a  “no oral variation clause”, oral variations of deeds and general contract principles.

In World Online Telecom it was held that an oral amendment to a contract containing a “no amendment” clause was valid on the basis that the parties had “made their own law by contracting, and can in principle unmake or remake it”. The Court of Appeal unanimously followed this decision and commented that the World Telecom decision was made with the benefit of textbook and judicial support, unlike the decision in United Bank. The Court of Appeal did accept that there may be evidential difficulties with claims that a contract has been orally varied, but confirmed that the court would still require strong evidence that the variation had been concluded from the parties conduct.

The Court decided that it preferred the World Online Telecom decision that oral variations to a contract containing a “no amendment” clause can be valid provided there is clear evidence of agreement, basing their decision upon the principle of party autonomy and the parties freedom to agree, create, discharge or vary terms and obligations as they choose.  

Practical implications/comment

The Court of Appeal’s decision shows that “no amendment” clauses do not always protect parties from informal variations.  A clause preventing oral variations may still be taken into account when deciding whether parties conduct shows that the parties clearly intended the variation, but if this can be shown, the principle of party autonomy prevails and oral variations will be valid even where there is a “no amendment” clause present in the contract.