Case notes... from Ann Wright

Attributions and retributions

Aedas and Skansa were involved in renovating schools in Midlothian. When Aedas asked for its periodic payments, Skanska refused, claiming it had a large, ongoing fund of contra set-offs that were always much more than Aedas was claiming.

Clause 12.4 of the contract said that for a withholding notice to be effective it should be made in time and specify any amount proposed to be withheld, the ground or grounds for such withholding and the amount of the withholding attributable to each ground. The Housing Grants Construction and Regeneration Act 1996 has similar wording at Section 111(B):

‘... if there is more than one ground, each ground and the amount attributable to it’.

The problem was Skanska’s notices. They did not clearly attribute the amount it was withholding to each separate ground, the amount often exceeded what was due, time and place were not specific, and they mentioned nine set-off charges in general terms, but with valuations against only four.

However, these amounted to £1m and exceeded the amount Aedas had claimed. Aedas asked the court for summary decree that in a full trial Skanska was bound to fail as it had not issued effective notices of withholding. Unfortunately for Aedas, the judge disagreed. He said he could only support Aedas if Skanska was bound to fail. It was not enough if it was only unlikely that Skanska would not succeed. His view was that the contract and the 1996 Act allowed Skanska to calculate the contra claims and then set-off a global sum.

Moral: Adjudication may be the better forum.

Case: Aedas Architects v Skanska Construction (UK) Ltd (Outer House, April 2008)

The missing link

Cubitt, a superstructure contractor, was building 55 homes, an office, porter’s lodge and a restaurant shell in Hampton Wick. Richardson is a specialist roofer.

Cubitt had sent the invitation to tender on 13 January 2003. There was to be a 50-week contract period from March 2003, with liquidated and ascertained damages of £30,000/week. Neither this invitation, nor the subsequent one in April, mentioned Cubitt’s SC/1 conditions. Richardson’s quote on 2 May for £445,528.22 was based on its own terms and conditions.

Much of the subcontract was agreed at a meeting on 12 May, including Richardson waiving its terms and conditions in favour of DOM/1. After agreeing price reductions, Cubitt sent Richardson a letter of intent on 29 May for £401,666.58, which referred to DOM/1 being used for payment terms if the work was cancelled. Cubitt then sent its formal order #0102/C on 6 June. It included reference to the letter of intent of 29 May as a numbered document.

This reference was hand-written in ink. In the standard printing the order referred to Cubitt’s conditions: ‘Ref. Cubitt/SC1 (copy attached)’. However, Richardson claimed the SC/1 had not been enclosed.

The distinction between DOM/1 and Cubitt’s SC/1 is important as clause 12 of SC/1 contained conditions precedent before an extension of time would be issued. Clause 11 of DOM/1 had no such restriction.

Richardson started work on 7 July 2003 and completed in October 2004. Cubitt waited for over a year, until November 2005, before it said it intended to deduct liquidated damages for an alleged eight-week culpable delay. Richardson immediately applied for an extension of time and adjudication. After an abortive start in December 2005, Richardson took Cubitt to adjudication in June 2007.

The adjudicator decided Cubitt’s SC/1 conditions applied. Richardson then started an arbitration, but Cubitt wanted to stay the arbitration until it could run another adjudication. However, the judge found that Cubitt could not prove it had sent its Cubitt/SC1 with the order in June 2003. Therefore the letter of intent really formed the basis of the subcontract and the DOM/1 conditions did apply. Furthermore, He refused to stay the arbitration and Richardson was allowed to continue.

Moral: You may have to prove you sent the subcontract conditions.

Case: Cubitt Building and Interiors Ltd v Richardson Roofing (Industrial) Ltd (TCC May 2008)

When goods go bad

Willen Lake at Milton Keynes is a public leisure area where Whitecap Leisure provides water activities, including water skiing. Instead of boats to tow skiers, Whitecap bought a cable system from engineering firm Rundle.

Whitecap placed the £157,000 contract with Rundle in November 2001. The payment terms were 30% on placing the order, 20% on completion (scheduled for 15 April 2002) and the remaining 50% in six equal monthly payments. The contract contained clauses limiting Rundle’s liability for defects.

Rundle started delivering and assembling the equipment before the end of 2001. Whitecap started using the cable tow in May 2002. Unfortunately there was a succession of problems with the equipment which continued on and off through 2002 and the following two seasons. Whitecap withheld the monthly payments and by October 2002 Rundle was threatening to sue for £77,317.54.

Several attempts at a compromise were made in 2003. By early 2004 Rundle agreed to use its best endeavours to improve performance in return for lower payment by instalments. However, the problems continued and in August 2004 the tow was out of action for another two weeks. In November Whitecap rejected Rundle’s cable tow as unfit for purpose.

Whitecap used an alternative supplier; it let Rundle take most of its equipment away, but continued to use some Rundle parts in the new installation. When Whitecap sued for damages, the judge ruled that it had taken too long and had lost the right to reject Rundle’s equipment. However, the Court of Appeal held that although under the Sale of Goods Act section 35(4) Whitecap had to reject the goods within a reasonable time, in view of the complaints, it had effectively rejected the equipment and could recover various amounts it had paid.

But Rundle was entitled to damages for the equipment Whitecap had retained and, due to the limiting clauses in the contract, Whitecap could not recover its economic loss.

Moral: Reject earlier rather than later.

Case: Whitecap Leisure Ltd v John H Rundle Ltd (Court of Appeal April 2008)