Case notes... from Ann Wright

Name of the game

Rok Build was designing and building a primary school and flats at King Henry’s Walk, London N1, for Harris Wharf Development Company. The contract, based on the JCT standard form with contractor’s design (1998), was for £3,999,812 and was signed on 10 December, 2003. The project reached practical completion on 12 July 2005 and a final account meeting took place on 29 April, 2006, but the parties did not agree.

Rok claimed £940,926, including £350,000 for losses and expenses. In its letter of 20 July 2006 Harris disputed £602,287 of Rok’s account and also considered it would withhold £278,450 for liquidated damages and Rok’s non-provision of training manuals. Rok started an adjudication on 7 July 2006 describing itself as Rok Build Ltd trading at Rok Centre, Guardian Road, Exeter. Rok Build is wholly owned by Rok Development Ltd and the ultimate owner is Rok Plc.

However, in the contract the contractor was Walter Llewellyn & Sons Ltd. Although it had the same registered office address as Rok Build, it was owned by Llewellyn Management Services Ltd, also a subsidiary of Rok Plc. Although the adjudicator had agreed that Rok Build was a party to the contract, the court did not. As there was no evidence that the contract had been formally assigned to Rok with Harris Wharf’s consent (which was needed under the contract), the judge felt it was at least arguable that Rok Build was not entitled to summary judgment.

Moral: Know with whom you speak and gird for battle.

Case: ROK Build Ltd v Harris Wharf Development Company Ltd (TCC 15 Dec, 2006)

Get it in writing

Yet again construction causes problems with its eagerness to rush into starting work before signing a contract.

Inviron wanted Bennett to sub-sub the electrical installation at a project in Wimbledon. The main contractor, YJL, had to approve Bennett before the sub sub contract could be formalised. Meanwhile, work started on 13 April, 2004. On 23 April 2004 Inviron sent Bennett a letter headed: ‘SUBJECT TO CONTRACT’ with the title: ‘Subject CIPD Wimbledon Letter of Intent’. The letter confirmed the documents forming the basis of the secondary subcontract, including Inviron’s contract, its sub-contract with YJL, the form of enquiry dated 8 March and a meeting on 23 March. The sub-sub contract sum was to be £169,157 and the instruction to start on 13 April was confirmed.

If the secondary sub-contract was not concluded Bennett could recover only its direct costs. In that event, Inviron would not pay for any breach of contract, losses of profit, contract or expectation. There were significant variations. By January 2005 when the dispute crystallised, Bennett was claiming £542,827 for work done and had been paid £203,763. The first adjudicator quit because he felt that without a contract in writing complying with section 107 of the Construction Act he had no jurisdiction.

Bennett had another go in September 2006 and on 23 November 2006 the adjudicator awarded Bennett £253,748. Bennett was in court to enforce this award. However, the court agreed with Inviron that the wording of the letter of intent meant that it was not intended to have any contractual effect. Furthermore, even if it had formed a contract, the significant changes and variations, many of them oral, prevented it from complying with section 107 as legally interpreted. The adjudicator had no jurisdiction and his decision was not enforceable.

Moral: Don’t rush on site before going into print.

Case: Bennett (Electrical) Services Ltd v Inviron Ltd (TCC Jan 2007)

Serial Adjudications

Ashwell was developing speculative housing at Caldecote, Cambridge.

The contractor was HG Construction. The contract was signed on 7 July 2004 and was based on the JCT standard form with contractor’s design (1998). It provided for sectional completion in 10 separate sections.

The job ran late and Ashwell became entitled to deduct liquidated and ascertained damages (LADs) from HG. That entitlement and other matters gave rise to four adjudications. This court case was to enforce decision number three requiring Ashwell to repay HG Construction £184,627 it had taken in LADs.

As a prelude to the first adjudication, HG Construction argued that Ashwell could not deduct LADs because it could not be precisely determined as to what work was in each section. Therefore liquidated damages could not be applied. Instead, Ashwell would have to prove that it had suffered unliquidated damages. No doubt HG Construction thought that it would be difficult for Ashwell to do this on a strongly rising housing market.

Ashwell wrote to HG on 14 September 2005 stating that its provisions for deducting LADs were valid and enforceable and asking HG to withdraw its contentions. HG failed to reply and Ashwell started adjudication number one to decide the matter before it deducted the LADs. Mr Chris Hough was the adjudicator and on 1 November 2005, he decided that the contract provisions for LADs were valid and enforceable and HG’s contentions were wrong.

On 11 September 2006, HG started the third adjudication asking another adjudicator to decide that Ashwell repay the £184,627 LADs it had by then deducted. The adjudicator, Mr John Riches, decided in HG’s favour saying there was no basis on which the LADs operated and they should be refunded.

The court disagreed and refused to enforce this decision. It said that the issue before the adjudicator in the third adjudication was the same as, or substantially the same, as the issue in the first adjudication that had been decided by Mr Hough. Therefore, Mr Hough’s decision stood, unless it was overturned in arbitration or litigation.

Moral: Adjudication gives you only one chance at deciding each dispute.

Case: HG Construction Ltd v Ashwell Homes (East Anglia) Ltd. (TCC, 1 February, 2007)