The developer, DMW, engaged Walter Lilly to carry out construction work at Bolton's Place, Earls Court. Walter Lilly was to supply American Black Walnut natural timber veneers to certain rooms. The veneer faded and DMW withheld £90,000. Walter Lilly said that the fading was a natural occurrence, so disputed the sum. The dispute was referred to adjudication and the adjudicator decided that Walter Lilly was to supply and install the specific veneer, that the colour had changed and as a result the loss of identity was a breach of contract.
Walter Lilly maintained that DMW had still not actually identified a breach of contract. It commenced part eight proceedings, and asked the court for a declaration that: “Any natural fading of the American Black Walnut veneer supplied and installed by the claimant did not constitute or give rise to a breach of contract by the claimant.”
Part eight proceedings apply where the court has been asked to decided a legal issue. If there were any disputed facts (as is often, but not always, the case with most disputes) then the full part seven procedure would have been applicable.
Several issues arose. First, Walter Lilly argued that the part eight application should not be heard because it was simply an attempt to appeal an adjudicator's decision.
Second, Walter Lilly maintained that there were disputed facts. It was not simply the case that the wood had faded naturally, but that there was an inherent defect with the veneer, which was a breach of contract. Further that the wood as supplied was not that which had been chosen by DMW, and so there was a breach of an implied term of the Supply of Goods and Services Act 1982.
Mr Justice Coulson held that the part eight application could be considered. An adjudicator's decision, although temporarily binding, could be opened up by either party for a final decision. The court therefore had the ability to consider a fresh argument and arrive at its own conclusion.
Walter Lilly had not identified the particular breach of contract during the course of the work. However, at the hearing they had maintained that there were inherent defects, which would constitute a breach of contract. In order to determine that point the court would need to consider the circumstances in which the veneer had been selected, consideration of any samples, finishes used on the veneer, the nature and extent of the discolouration together with its cause. There was also the question as to whether the fading that had occurred was a natural consequence, or was abnormal.
The part eight procedure was not suitable for disputed factual matters. It was therefore not appropriate to grant the declaration requested as the declaration as too wide. However, the judge granted the following declarations:
- For the claimant to be liable for the fading of the American Black Walnut there must be a breach of an express or implied term of the contract on part of the claimant. The fading of the ABW cannot, in the absence of an identifiable breach, given rise to a liability on the part of the claimant
- If the only cause of the fading was natural light (as found by the adjudicator) then such condition, on its own, could not render the claimant in breach of contract.
This was not a part 24 summary judgment application. However, if it was, Mr Coulson would have come to the conclusion that the defendant had a realistic prospect of success.
Fenwick Elliott's View:
There are a couple of interesting points arising from this case. First, it reminds adjudicators that they must consider the appropriate legal tests in order to arrive at a decision. They really should ask themselves whether there has been a breach of contract and if so which term has been breached. This can help to avoid further argument and legal expense at a later date.
Second, it is in certain circumstances possible under a part eight application to render an adjudicator's decision unenforceable by virtue of simply legal arguments. While an adjudicator can get the law wrong and still arrive at a binding decision, that decision is only a temporary fact. If on or before enforcement an appropriate argument is put to a court in part eight proceedings (or to an arbitrator if arbitration applies) then the decision can be rendered ineffective.
In this case there was a dispute as to the facts, and so it was not possible for the judge to give the declaration requested. In those circumstances, it might be possible to commence a full part seven claim, and deal with the matter in a summary judgment application. However, a judge will not conduct a “mini trial” in a short summary judgment application and so any disputed facts would need to be able to be dealt with shortly and concisely.
Walter Lilly & Co vs DMW Developments
 EWHC 3139 (TCC)
This article first appeared on the Building magazine's website