Case Law Update

A high bar for natural justice

A breach of natural justice is one of the grounds upon which a party may attempt to resist enforcement of an adjudicator's decision. The essential idea is that each party has the right to a fair hearing and to be heard by an impartial tribunal. The basic principles of procedural fairness must be followed. For example, each party must be given an equal and reasonable opportunity to present its case and respond to the other side's case, and each party must be fully appraised of the arguments against it and be given a reasonable opportunity to comment.

However, the interim nature of adjudication, and its stream-lined process, makes the application of natural justice somewhat more limited than usual. The Courts will only interfere with the decision of an adjudicator in rare circumstances, and so the alleged breach of natural justice must be 'serious' enough: it must be material and more than peripheral (as per Akenhead J in Cantillon Ltd v Urvasco Ltd [2008] EWHC 282 (TCC)). Of course, this is always going to be a question of degree in each case.

Last month, both the Scottish and English Courts reminded us of the high bar set for parties seeking to challenge an adjudicator's decision on this basis.

In Bell Building Projects Ltd v Arnold Clark Automobiles Ltd [2017] C SOH 55 and Aecom Design Build Ltd v Staptina Engineering Services Ltd [2017] EWHC 723 (TCC), the Outer House of the Court of Sessions and the TCC (respectively) enforced two separate adjudication decisions despite arguments from the resisting parties that the adjudicator had breached the rules of natural justice.

In Bell v Arnold, Lord Tyre rejected Arnold Clark's argument that it had not been given a fair opportunity to present its case or respond to Bell's. Arnold Clark had been provided with material from Bell late in the process (the weekend before the adjudicator's decision was due) and had been asked for further evidence by the adjudicator the day before the decision was due. However, it had been given an earlier opportunity to inspect Bell's material at its offices, which it refused; a major contributing factor to the evidence having to be considered over the weekend. Also, the adjudicator had offered an extension to give Arnold Clark more time to submit its further evidence, which it did not agree to. It was held, therefore, that no injustice had arisen. Arnold Clark had failed to engage in the process and it could not now complain of unfairness.

In Aecom v Staptina, Fraser J rejected Aecom's argument that the issue of how deductions for defects were to be quantified had not been fairly canvassed during the adjudication. The adjudicator had decided the issue on the basis of the material before her (and Aecom had made submissions regarding how the deductions were to be calculated). It did not matter that the adjudicator's ultimate rationale was one for which neither party had contended – she was not bound to accept only the potential alternatives proffered by the parties.

This decision shows that the general rule that an adjudicator should not decide a point on a factual or legal basis not put forward by either party should not be taken too literally. Parties who wish to challenge enforcement on this basis should consider the circumstances very carefully, before arguing that an adjudicator was on a frolic of his or her own.

All is fair in love and war?

The Unfair Contract Terms Act 1977 (UCTA) regulates contracts in the United Kingdom by restricting the operation and legality of certain categories of contract and certain types of clauses. For our purposes, UCTA is specifically relevant in the context of the enforceability of exclusion or limitation of liability clauses.

Where a party's standard terms and conditions are imposed on the other, UCTA provides that an exclusion or limitation of liability clause will only be enforceable if it is reasonable.

Circumstances where a party's standard terms and conditions have been used and not negotiated with the other side, however, are relatively rare in the construction industry, with most projects tendered for on a competitive basis and contracts heavily negotiated between the parties (although the use of standard terms becomes more common further down the supply chain).

In more usual circumstances, where the relevant contract has been negotiated, UCTA's reasonableness test will only apply where and to the extent that a term seeks to exclude or restrict liability for negligence.

The test requires that the term must be a fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made. What is fair and reasonable will depend on the particular circumstances of the case in question. Generally, the Courts will consider things like the parties' respective bargaining positions, whether the contract price was impacted by the existence of the exclusion clause and whether or not a party would expect to see the relevant clause in similar contracts.

The issue of excluding liability for negligence and the enforceability of the relevant clause was considered recently in the case of Goodlife Foods Ltd v Hall Fire Protection Ltd [2017] EWHC 767 (TCC). Hall Fire had supplied and installed what turned out to be a defective fire suppression system at Goodlife's factory. A fire occurred and Goodlife brought a negligence claim against Hall Fire for damages in excess of £6 million.

Hall Fire sought to defend this claim by relying on a broad exclusion clause from its standard conditions, which excluded HFP from being liable for any losses directly or indirectly resulting from its 'negligence or delay or failure or malfunction of the systems or components provided by HSF for whatever reason'. Goodlife argued this clause breached UCTA and, as such, could not be relied upon.

Despite the breadth of the clause, Davies J held that the clause was not onerous, unusual or unreasonable as a whole. The Court placed substantial weight on the fact that Hall Fire's terms and conditions were not uncommon (albeit at the extreme end of the spectrum), and the exclusion itself focused on losses which one party would normally expect the other to insure against anyway. It was noted that if a defect was found Hall Fire would be obliged to fix it, whilst if loss was suffered as a result of the defect, insurance would be expected to step-in. Accordingly, the exclusion clause was held not to be unreasonable.

This case provides some interesting commentary in relation to how exclusion clauses will be dealt with by the Courts. In particular, it shows that even clauses which exclude wide portions of potential loss will not automatically be held to be unreasonable - the outcome will depend upon the specific clause and facts of each case.

Industry and Regulatory Update

Keeping pace with JCT 2016

JCT users will be keen to know that the following further 2016 editions of the JCT suite were released last month:

  • Framework Agreement
  • Major Project Construction Contract
  • Major Project Construction Sub-Contract
  • Measured Term Contract
  • Prime Cost Building Contract
  • Constructing Excellence Contract
  • Constructing Excellence Contract Project Team Agreement
  • Pre-Construction Services Agreement (General Contractor)
  • Pre-Construction Services Agreement (Specialist)
  • Consultancy Agreement (Public Sector)
  • Repair and Maintenance Contract
  • Adjudication Agreement
  • Adjudication Agreement Named Adjudicator

This completes the 2016 suite of contracts, with hard copies of the full suite available to purchase from JCT. The suite is sold in two parts, with Volumes 1 to 3 available now and Volumes 4 to 6 available to pre-order for despatch on 30 June 2017. Electronic versions are already available through the JCT Contracts Digital Service.

Importantly, JCT has commenced the withdrawal of the 2011 suite. It is now no longer available through JCT On Demand (though this service itself will cease to be available to users from 30 June 2017). Users will still be able to access electronic versions of the 2011 suite via the JCT Contracts Digital Service until 30 April 2018, after which time they will be archived. Hard copies will also remain available until this date.

Closing the gap: new gender pay gap regulations

New Regulations brought into force in April 2017 mean that employers with over 250 employees must collect, collate and then, by April 2018, publish specific data designed to identify a gender pay gap.

This includes average hourly rates of pay and bonus pay for men and women, the difference in pay between men and women broken down by salary quartile, and the proportion of men and women who are paid a bonus. The data must be published on employers' own websites and also on a designated Government website , allowing the public to make comparisons between different employers.

Employers have the option to add statements putting their data into context and can also set out what initiatives they are taking to improve their gender pay gap. Whilst the Office for National Statistics reports that, in the construction industry, male operatives earn 15.3% more than females, and male project managers earn 3.2% more than females, the gender pay gap for construction supervisors is 45%, meaning that, unfortunately, there is still a significant amount of progress to be made in the industry in this regard.