Case notes... from Ann Wright

When is a clause not a clause?

Although this is not a construction case, it illustrates one of the sub-disputes that can occur over the arbitrator’s authority and whether an argument arises ‘under the contract’ or ‘out of the contract’ or ‘in connection with the contract’.

The difference matters if an arbitrator can only decide issues arising ‘under the contract’ and in this case, it was argued that the contract had been rescinded. The argument was about the effect of arbitration clauses in the charter contracts made with eight one-ship companies which were part of the Russian State-owned Sovcomflot Group.

The owners of the one-ship companies alleged that the contracts were only made because the chartering companies had bribed senior officers of Sovcomflot. As a result, the owners wanted to rescind the charters and they applied to the court for confirmation. The charterers on the other hand wanted to stay the proceedings to arbitrate, citing an arbitration clause that covered ‘any dispute arising under this charter’.

The owners argued that if the main charter had been made improperly, and without the proper authority, then any contractual agreement to arbitrate was also improper and could not apply.

In dismissing the appeal, the House of Lords held that the arbitration clause was valid and the court proceedings could be stayed while the arbitration took place.

Moral: Arbitration agreements can remain even in disagreeable circumstances.

Case: Fiona Trust & Holding Corporation and other v Privalov and others. Subnom Premium Nofta Products Ltd v Fili Shipping Ltd (House of Lords October 2007)

Finishing line

In 2000 Treasure & Sons started to refurburbish Dinmore Manor for Martin Dawes under a JCT 1998 Standard Form of Prime Cost Contract. The original date for completion was November 2002, but practical completion was achieved in December 2004.

However, not all the work had been completed and the architect wanted to issue more instructions, so Treasure’s director Mr Daniels agreed verbally with the architect and QS that Treasure would remain on site and instructions and monthly payments would continue all as before.

This is what happened and the architect continued to instruct new work until after December 2005.

Treasure eventually finished all the work in March 2007. The completed project was substantial and Treasure’s draft final account was for £15m of which £14m had already been paid.

The difference was largely due to Treasure’s loss and expense claim.

After a couple of false starts, Paul Greenwood was appointed as adjudicator and on August 21, 2007, he decided that Dawes should pay £1,018,821.12 plus VAT, interest and the adjudicator’s fees and expenses.

Dawes resisted on the grounds that the agreement to let Treasure remain on site after practical completion was an oral variation to the original written contract. Therefore, an adjudicator had no jurisdiction and Greenwood’s decision was invalid.

The court disagreed, holding that there was nothing in the original contract that prevented a contractor accepting instructions for new work after practical completion.

Therefore, the agreement to stay on was not an oral variation and the adjudicator’s decision stood.

As a result Dawes had to pay £1,222,818.05 including VAT and the adjudicator’s £25,000 fees.

Moral: Your agreements may already be covered by the contract.

Case: Treasure & Sons Ltd v Martin Dawes (TCC October 2007)

A problem to address

Rohde Construction was working for Nicholas Markham-David refurbishing a house near Salisbury, Wiltshire, that was owned by Markham-David’s wife.

Markham-David and his wife were separated and at the time he was living rent-free in a different house owned by his daughter in Hamilton Road, Salisbury.

The written contract was informal in nature and there was no adjudication clause.

The work went reasonably well until both men fell out at the end of the project largely over the question of what sum, if any, remained for payment by Markham-David. Although there were some attempts to settle the dispute these failed.

Relations disintegrated and eventually there was a stand-up row one Sunday afternoon at Markham-David’s house when the police were called and Mr Rohde was told to leave.

After that there was no direct contact between the men and in early 2001 Rohde employed a claims consultant to run an adjudication for him.

On March 30, 2001 the adjudication notice was sent by special delivery to Markham-David’s last-known address. This was not delivered as Markham-David had moved and the letter was eventually returned unsigned.

Rohde pressed on and the newly-appointed adjudicator sent another two letters which were also returned undelivered.

Nevertheless, the adjudication proceeded without Markham-David’s involvement and Rohde was eventually awarded £37,589 on May 18, 2001.

When Rohde tried to enforce the award the court held that as the adjudication notice had not been served, the adjudication had never started. In any event it was invalidated by the obvious and significant unfairness in the way the proceedings were conducted.

Rohde’s claim to enforce the adjudicator’s decision failed and was dismissed and Rohde had to pay the costs.

Moral: First find the other party.

Case: Rohde Construction v Nicholas Markham-David (TCC March 26, 2007)