In the case of Hillcrest Homes Limited v Beresford and Curbishley Limited (Feb 2014) the Technology and Construction Court (TCC) decided that claims that had been advanced in negligent misstatement and misrepresentation could not be adjudicated.

Background

Hillcrest was a property developer. It entered into a JCT Design and Build Contract 2005 (the Building Contract) with B&C, for the design and construction of a substantial residential property at Sleepy Hollow, Castle Hill, Prestbury.

The Employer's Requirements provided that structural engineers - Howard Taylor Associates (HTA) (who had been appointed by Hillcrest prior to the Building Contract) - should be retained and appointed by B&C to continue and complete the design. The Employer's Requirements further provided that HTA were to be novated to B&C upon execution of the Building Contract - and a draft novation agreement was incorporated.

Unknown to B&C, however, the appointment between Hillcrest and HTA did not contain an equivalent obligation upon HTA to enter into a novation. While HTA did eventually sign a novation (after a lengthy period in which it relied upon the lack of contractual stipulation), this was long after the works had been completed.

The adjudication

In November 2012, B&C commenced adjudication against Hillcrest - its complaint being that B&C had entered into the Building Contract on the understanding that HTA's appointment would be novated to them, at the point of executing the Building Contract. B&C asserted that, by implying that the obligation to novate had been mirrored in Hillcrest's appointment with HTA, Hillcrest had made a negligent misstatement - and that this constituted an actionable misrepresentation. B&C therefore claimed damages under section 2(1) of the Misrepresentation Act 1967, though it is not clear from the judgment what the nature of these damages were.

The adjudicator agreed and found that B&C was entitled to damages as a consequence.

The judgment

Hillcrest sought a declaration from the TCC that the adjudicator's decision was unenforceable, on the grounds that B&C's claims for negligent misstatement and misrepresentation were outside the scope of the adjudication provisions introduced by Article 7 of the Building Contract.

In wording mirroring that contained in the Construction Act itself, Article 7 provided that: "if any dispute or difference arises under this Contract, either party may refer it to adjudication...".

Hillcrest argued that a claim for damages for negligent misstatement or misrepresentation was not - on a proper reading - a matter that "arises under this Contract". In support of this proposition, it relied upon the Court of Appeal's decision in Fillite (Runcorn) Limited v. Aqua-Lift (1989) - which came to this very conclusion in the context of an arbitration clause.

B&C did not agree, and relied upon the later decision of the House of Lords in Fiona Trust v Privalov [2007]. In this latter case, which again concerned an arbitration clause, Lord Hoffman found that parties to a commercial contract ought - as rational business people - to be taken to have intended (without more) for all of their disputes to be dealt with by the same tribunal. In other words, there would be a starting presumption that an arbitration clause would be broad in its coverage.

The judge agreed with Hillcrest, and found that the adjudication clause did not extend to disputes or differences arising out of alleged negligent misstatement or misrepresentation. In consequence, he decided that the adjudicator did not have the requisite jurisdiction in this respect. In making this finding, the judge:

  • found that there was "considerable force" in Hillcrest's submission that the Fiona Trust principle should not apply to adjudication clauses, given that the latter are present or implied by reason of statutory intervention (a point that was not developed);
  • decided that there must be something in the fact that the Building Contract used different wording in the provisions governing adjudication (Article 7) and arbitration (Article 8). Though Article 7 required a dispute or difference to have arisen "under" the contract, Article 8 (while in fact deleted in this particular contract) rendered arbitration applicable to: "any dispute or difference ... of any kind whatsoever arising out of or in connection with the contract". The judge found that the: "draftsmen must be taken to have intended that the disputes capable of being referred to arbitration were wider than those capable of being referred to adjudication". It is difficult to argue with this logic.

Comment

Subject to complying with the 'minimum' requirements of the Construction Act, it is of course open to parties to draft the terms of their adjudication clause as broadly or as narrowly as they wish. While there is clearly sense in the Fiona Trust principle in the context of arbitration, it does not necessarily follow that the same approach is appropriate for adjudication. Indeed, not all disputes that arise in connection with a construction contract may be well-suited to adjudication - and misrepresentation could well be the best example.

If a dispute is to be taken to adjudication, particularly if it is something outside of the norm, then it is important to think hard about its legal basis and whether the clause actually goes that far. If it does not, then litigation or arbitration will be your only route.