RMP Construction Services Ltd v Chalcroft Ltd [2015] EWHC 3737 (TCC) (21 December 2015)

Prior to 1 October 2011, the adjudication and payment regime in the Construction Act applied to written construction contracts only. This changed on 1 October 2011. Adjudicators can now be asked to investigate the terms of an oral contract, an exercise which arguably, due to the quick nature of an adjudication, adjudicators are inadequately placed to carry out. When combined with the established principal that an adjudicator's decision will be binding even if wrong, unless subsequently challenged in arbitration or litigation, it is therefore, all the more important now to ensure that the terms of a construction contract are clearly recorded in writing.

This is exactly what happened in this action for summary judgement in front of Stuart-Smith J in the Technology and Construction Court

The Key Facts

The Claimant was a ground works subcontractor ("the Sub Contractor") which carried out works for the Defendant ("the Main Contractor") relating to the construction of a Shell petrol station.

The Main Contractor served a pay less notice which under the Main Contractor’s version of the terms of the contract (the sub contract order) was arguably served in time. Under the Sub Contractor’s version of the terms (a series of emails), the Scheme for Construction Contracts applied and the pay less notice was served late, entitling the Sub Contractor to the full amount applied for.

The Sub Contractor referred the matter to adjudication and the Adjudicator found in favour of the Sub Contractor. When the Main Contractor did not pay the awarded sums, the Sub Contractor sought to enforce the adjudicator’s decision.

Evidence of the formation of the contract consisted of several email exchanges, a letter of intent and a sub contract order. None were without problems. The emails contained scant details limited to scope and an overall price. The Main Contractor did not prove the letter of intent had actually been issued, but even if it had it referred to a non-existent form of contract (the “JCT Design & Build Contract Without Quantities”) and payment by reference to unspecified valuation dates. In the absence of an adequate payment mechanism in the letter of intent and/or emails the Scheme for Construction Contracts applied. 

The sub contract order was unsigned and certain terms rejected by the Sub Contractor in writing. At best Stuart-Smith J thought it was just reasonably arguable that the Sub Contractor had accepted the terms of the sub contract order by conduct.

The Decision

Stuart-Smith J held that the adjudicator had jurisdiction because, however the contractual arrangements between the parties are correctly to be described, they mandated the use of the Scheme and he was properly appointed by the Scheme's procedure. Stuart-Smith J’s clear view was that parties should not be allowed to raise formalistic obstacles to the enforcement of adjudicators' decisions.

Secondly the case emphasises that an adjudicator’s decision will be enforced even if he has made an error of law in referring to the wrong contractual provisions. Stuart-Smith J commented that this was an error of law that fell within the category of errors of procedure, fact or law which the Court of Appeal has repeatedly emphasised should not prevent enforcement.

Practical Implications

The decision illustrates the dangers of relying on conversations and unsigned draft agreements, as this can ultimately lead to the parties spending time and money in proceedings to establish what the terms of the agreement were. It is essential to ensure that key contractual provisions are always documented, especially those as fundamental as payment provisions.

http://www.bailii.org/ew/cases/EWHC/TCC/2015/3737.html

Persimmon Homes Ltd and others v Ove Arup & Partners Ltd and another [2015] EWHC 3573 (TCC) (7 December 2015)

In the second December judgement in our Foundations Update from Mr Justice Stuart-Smith, the court reiterated the latest established principles in respect of the interpretation of contract terms. In the judgment, Stuart-Smith J reiterated that the overarching objective for the Court is to identify the intention of the parties, something that may be achieved by determining "what a reasonable person having all the background knowledge which would reasonably have been available to the parties would have understood the parties to have meant".

Background

Over a period of some 17 years, the Defendant (“Arup”) advised the Claimants, a consortium of developers, who bought and developed previously derelict land at Barry Docks in Cardiff (“the Consortium”). When the ground works contractor discovered asbestos, the Consortium sued Arup for breach of contract and negligence for failure to warn the Consortium of the asbestos.

Arup fell back on its limitation clause in the appointment documents which read:

“The Consultant’s aggregate liability under this Agreement whether in contract, tort (including negligence), for breach of statutory duty or otherwise (other than for death or personal injury caused by the Consultant’s negligence) shall be limited to £12,000,000.00 (twelve million pounds) with the liability for pollution and contamination limited to £5,000,000.00 (five million pounds) in the aggregate. Liability for any claim in relation to asbestos is excluded.”

Decision

Stuart-Smith J gave short shrift to the Consortium’s various attempts to interpret a way round this exclusion clause. In particular, the Consortium argued that excluding liability removed the professional consultant's incentive for performing the services properly; the court disagreed. In doing so, it reflected increasing judicial willingness to enforce terms agreed by commercial parties of equal bargaining power.

Practical Implications

The case serves as a reminder to consider exclusion clauses very carefully when negotiating and concluding professional appointments as such clauses will be interpreted on a straight forward reading, just like any other clause.  

http://www.bailii.org/ew/cases/EWHC/TCC/2015/3573.html

Fulton Shipping Inc of Panama v Globalia Business Travel SAU (formerly Travelplan SAU) [2015] EWCA Civ 1299 (CA) (21 December 2015)

Where a claimant acquires a benefit as a result of doing something by way of mitigation which arises out of the consequences of a breach of contract by the defendant and is in the ordinary course of business, should that benefit be brought into account when assessing the claimant's loss?

This issue was considered by the Court of Appeal in December, which whilst a shipping case, the principles relating to mitigation are equally applicable to construction cases.

Background

The Defendants (“the Charters”) chartered a small cruise ship from the Claimants (“the Ship Owners”) in 2004 called the “New Flamenco”. The charter was due to come to an end in November 2009. In breach of contract, the Charters returned the vessel 2 years early in 2007. The Ship Owners sued for damages calculated by reference to the net loss of profits which they alleged that they would have earned during the additional two year period.

In reality, there was no available chartering market at the time of redelivery in 2007, therefore the Ship Owners sold the vessel in 2007 for $23.7 million. If the vessel had been sold when the charter was due to end in 2009, the value would have been $7 million. The Ship Owners had made a $16.7 profit as a direct result of the Charter’s breach of contract. However, the Ship Owners argued that the difference in value was legally irrelevant and did not fall to be taken into account in assessing the damages payable by the Charters.

Decision and Practical Implications

The court held that the profit to the Ship Owners should be taken into account. In so doing, the court laid down a single guiding principle which has implications for the law of mitigation and damages in the context of contract law generally. Where the benefit arises out of the consequences of the breach in the ordinary course of business and by way of mitigation of the innocent party’s loss, that benefit may be brought into account when assessing the damages due from the wrongdoer.

http://www.bailii.org/ew/cases/EWCA/Civ/2015/1299.html