Case notes... from Ann Wright

Bitter pillar to swallow

Camber engaged Pillar to build 12 houses, including the garages, boundary fences and ancillary works. The contract was based on a letter of intent dated September 11, 2003, giving a contract sum of £1,327,476. This was derived from a summary in an earlier letter from Pillar which had given a lump sum for each element.

Although the letter of intent referred to the payment provisions in a JCT IFC 1998 contract, no contract form or appendix was ever completed. When Pillar and Camber fell out in October 2003, Pillar applied to the Royal Institute of British Architects for nomination of an adjudicator.

Camber objected to the nomination but the adjudicator gave a non-binding indication that he had jurisdiction. Camber said that it would take part in the adjudication only if such action would not prejudice its case that the adjudicator had no jurisdiction.

However, Camber also issued a cross-claim for £258,965, citing Pillar’s defective work and delays. Pillar waived its own entitlement to rely on the lack of withholding notices from Camber and allowed the adjudication to proceed on all the issues.

The adjudicator decided Pillar was due £46,000. When Pillar tried to enforce this, Camber returned to its arguments about jurisdiction, citing the uncertainty of the contract, the IFC 98 form and that there had been no real dispute.

But the judge held that by making its cross-claim, Camber had agreed to an ad hoc adjudication and withdrawn its earlier procedural objections. Pillar was entitled to payment.

Moral: Ad hoc can put you in hock.

Case: RC Pillar & Son v The Camber (TCC March 2007)

Inn Time

Shepherd Construction was building City Inn’s new Bristol hotel. The contract was based on an amended JCT 1980 under Scottish law. Liquidated and ascertained damages were £30,000 per week.

Work started on January 26, 1998 and was due to finish on January 29, 1999. Practical completion was actually certified as being March 29, 1999, although some work carried on after that date. City Inn had sacked its architects in December 1998 and the replacement architect, Keppie, certified an extension of time to February 22, 1999.

This left a delay of five weeks and City Inn duly deducted LADs of £150,000. After adjudication, Shepherd was initially awarded the money back. However, City Inn then started a series of court cases to allow it to re-instate the damages.

City Inn’s first argument was that an amended clause 13.8 in the contract prevented Shepherd from being given an extension of time for architect’s instructions unless Shepherd had complied with certain procedures. City Inn said that as Shepherd had ignored those procedures it should be given no extension at all.

City Inn also felt that none of the 11 delays Shepherd had identified were on the project’s critical path and therefore could not delay completion.

Finally, City Inn claimed that Shepherd was in culpable delay because Shepherd had been late installing the lifts and the staircase balustrades. Therefore, Shepherd had no entitlement to an extension of time. In a carefully thought-out judgment of 125 pages, the court considered all of the above points and analysed the facts surrounding each of the delays.

The judge concluded that although clause 13.8 stood, it was not effective where instructions caused a delay simply because of their lateness. This was assuming Shepherd had complied with other clauses such as asking for information in writing.

In the single instance where the instruction was not late in the substructure, the judge felt City Inn’s architect had waived the requirements of clause 13.8.

Equally, City Inn was wrong about the critical path. Proper analysis showed the late instructions did delay completion.

Finally, although the lifts and stair balustrades were Shepherd’s own delays, these only reduced the extension and did not eliminate it.

As a result, Shepherd was still entitled to an extension until after the certified practical completion and City Inn could not deduct LADs.

Moral: Some instructions are more equal than others.

Case: City Inn v Shepherd Construction, Outer House, Court of Session, November 30, 2007

Train of thought

In June 2005 a railway cutting at Gerrard’s Cross was being enclosed with concrete tunnel sections. This would allow a new Tesco supermarket to be built over the site.

Part of the tunnel collapsed, blocking the track with debris and closing the line between Beaconsfield and Denham for 51 days. The rail track carried Chiltern Railways’ trains but none of Chiltern’s property was damaged.

As part of the agreement to allow Tesco to build, the then Strategic Rail Authority made it take out public liability insurance for £155m ‘in respect of legal liability which may be incurred by [the insured] in respect of death or bodily injury ... and loss or damage to property...’

Before the project had started, Tesco had agreed a deed of covenant with Chiltern that Tesco would pay up to £155m ‘on demand such sums as shall from time to time fairly compensate for all and any costs, losses or expenses arising out of or resulting (directly or indirectly) from .... the carrying out of the works ... on its existing and/or future railway passenger business’.

Chiltern claimed under the deed for loss of passenger business during and after the close-down while passenger numbers were being re-built to their old levels. Tesco settled Chiltern’s claim in June 2007 for an undisclosed sum.

In turn, Tesco claimed under its public liability insurance for reimbursement of the sum it had paid Chiltern.

However, the insurers argued, and the court agreed, that the public liability policy only applied to tort, not to the contract under the deed of covenant.

Therefore, as Chiltern had not suffered any physical loss, there was no claim in tort and no claim under the policy.

Moral: Be assured you are fully insured.

Case: Tesco Stores v Constable and Others, Queen’s Bench Division (Commercial Court), September 14, 2007