Orange EBS Ltd v ABB Ltd
HH Judge Frances Kirkham
Background to the dispute
The dispute relates to a contract between ABB and Orange
for mechanical services work at the John Redclife Hospital in Oxford
and the form of the contract was the DOM/1 1980 Edition with ABB’s
terms and conditions incorporated into it. The contract price was for
£98,227.00 and it was envisaged that there would be two weeks
of work off site and 12 weeks of work on site. By March 2002 Orange
had apparently completed 75% of the work, however by 28 May 2002 Orange
had withdrawn from the site and in early June 2002 ABB issued
a notice contending that Orange had failed to complete their
work and ABB were refusing to grant Orange further
access to the site.
For the purpose of the adjudication the dates of correspondence between
the parties are of some importance.
ABB wrote a letter to Orange dated 6 July which contained
the following statement:
Due to the nature and extent of the defects
in your work and your abandonment of the site, the employers are unwilling
to re-admit you to the site. In the circumstances the subcontract
is terminated.
Please provide us with a final account for work
done adjusted to take account of defects and incomplete work. In due
course we will let you have full details of the cost of remedial works
and details of any other losses suffered by ABB.
For the time being the position is that there
are no further sums due to yourself in respect of the contract.
Orange replied to this letter on 8 July disputing ABB’s
allegations as to defects and denying that they had abandoned the works.
They sent a further letter on 10 July in which they referred to “the
contractual dispute that now exists between our companies”. There
appears to have been no further correspondence between the parties until
2 December 2002, when Orange wrote to ABB alleging
that ABB had wrongfully denied Orange access to the
site and/or terminated the subcontract. Orange enclosed their
final account seeking a gross valuation of £270,417, which apparently
represented damages in respect of ABB’s breaches of contract.
In their letter Orange also notified ABB that they
intended to refer the dispute to adjudication and they enclosed a notice
of intention to refer to adjudication with the letter. In that notice
Orange sought decision on four matters as follows:
- ABB had wrongfully terminated the
subcontract.
- Orange were entitled to an extension of time for completion.
- ABB should pay Orange the sum of £203,930.04
plus VAT (net sum claimed by Orange in the final account)
or such other sums the Adjudicator assessed as being due.
- Orange were not liable for allegedly defective work.
After receipt of the final account on 2 December, ABB instructed
a costs consultancy to investigate and evaluate Orange’s
final account.
On 12 December ABB’s solicitors wrote to Orange
contending that at that stage there was no dispute between the parties
which was capable of adjudication because ABB had not had an
opportunity of considering Orange’s final account. ABB
said they were looking into Orange’s final account but
they would not be able to complete the exercise until 20 January 2003,
when they would then respond substantively to it. ABB suggested
that if Orange were agreeable, then within 7 days of 20 January
2003, if they had not reached an agreement on the final account then
an adjudicator should be appointed to determine the dispute. If, however,
Orange insisted on issuing a notice of adjudication before
ABB had had an opportunity of responding to the final account
then ABB would dispute the adjudication on the grounds that
there was no dispute between the parties at the present time.
Orange’s representatives responded by letter of 13 December
saying they were taking their client’s instructions and would
reply in due course.
The next letter that was received was dated 6 January 2003 from Orange’s
representatives, in that letter they made reference back to ABB’s
letter 6 July 2002. Then Orange enclosed with the letter a
formal notice of intention to refer to adjudication where it set out
the dispute as follows:
The dispute arose on or about 5 June 2002 [sic]
and concerns the sum due to Orange in respect of their final
account and/or damages under the subcontract as a result of wrongful
termination of Orange’s subcontract by ABB,
including:
3.1 valuation of Orange works;
3.2 the amount of damages and/or alternatively direct loss and expense
incurred by Orange as a result of delay and disruption to
the works;
3.3 the repayment of monies improperly withheld by ABB from
those otherwise due to Orange;
3.4 dismissal of monies claimed by ABB against monies otherwise
due to Orange.
3.5 Interest…
Orange sought decisions to the effect that:
- ABB had wrongfully terminated the subcontract
- Orange were entitled to an extension of time for completion
- ABB pay Orange £203,930.04 plus VAT (i.e.
the net sum claimed in Orange’s final account) or such
other sum as the Adjudicator assessed as being due; and
- Orange were not liable for the alleged defected work.
ABB’s solicitors responded on 6 January repeating their
position that they had not had an opportunity to consider the final
account and if the adjudication proceeded they would dispute the Adjudicator’s
jurisdiction on the ground that no dispute existed. They invited Orange’s
representatives to refrain from seeking the appointment of an adjudicator
until Orange had responded to their suggested procedure as
set out in their letter of 12 December 2002.
On 9 January 2003 Mr Hough was appointed as Adjudicator and by agreement
gave two decisions. The first decision on liability was published on
14 February 2003. Mr Hough decided that ABB’s conduct
in refusing Orange access to the site and proposing to terminate
the subcontract on 5 July 2002 amounted to a repudiatory breach which
Orange had accepted. The subcontract had been brought to an
end and both parties were therefore discharged from further performance
of their obligations under the subcontract and Orange were
entitled to accrued rights under the subcontract and the damages for
breach of contract. Chris Hough gave his second decision on 4 March
2003 and decided that:
- the variation account totalled £18,881.42
- Orange were entitled to an extension of time for completion
from 29 March to 5 June 2002
- Orange had been disrupted in their work
- Orange were entitled to recover loss of profit.
- Chris Hough concluded the total value of those claims was £155,011.22.
- He decided Orange was not in breach of their contract
and it was not defective.
Taking into account payments that had previously been made to Orange,
Mr Hough awarded Orange the total sum of £90,283.77 plus
VAT plus ongoing interest and decided that ABB should be responsible
for his fees.
The applications before Court
Orange sought to enforce the Adjudicator’s decisions
together with the fees it had paid to the Adjudicator, by way of summary
judgment pursuant to CPR Part 24.
ABB accepted that the Adjudicator had jurisdiction to determine
whether ABB were in repudiatory breach of the subcontract,
therefore Mr Hough’s first decision was valid. He also had jurisdiction
to decide that Orange were entitled to damages as a result
of the wrongful termination. Mr Hough had decided that those damages
amounted to £194.78 out of the total sums awarded to Orange.
The Adjudicator did not have jurisdiction however to decide how much
ABB should pay Orange pursuant to Orange’s
final account claim, because there was no dispute between the parties
within the meaning of the HGCRA in respect of these issues at the time
Orange commenced the adjudication. The final account claim
made up the vast majority of the sums awarded to Orange pursuant
to Mr Hough’s second decision.
The only relevant question for HH Judge Frances Kirkham to decide was
whether a dispute had arisen for the purposes of the HGCRA or not. She
referred to a number of cases including Halki Shipping
Corporation v Sopex Oils Ltd, Sindall v Solland and Edmund Nuttall v
R G Carter.
In addition her attention was drawn to a decision by Forbes J in Beck
Peppiatt Ltd v Norwest Holst Construction Ltd.
She concluded from review of the case law that rather than following
the decision in Edward Nuttall v R G Carter was going to follow
the decision in Halki, which had been followed by His Honour
Judge Lloyd Q.C. in Sindall v Solland and also by Forbes J
in Beck Peppiatt case. She concluded that she was bound by
the decision in Halki and that the meaning for dispute as adopted
by Halki was “there is a dispute once money is claimed
unless and until the Defendant submits the sum is due and payable”.
She also felt she should give careful attention to the guidance provided
by Forbes J in Beck v Peppiatt, and in particular she referred
to the decision of HH Judge Lloyd Q.C. in the case of Sindall v
Solland which had been quoted with approval by Forbes J, namely
that: -
For there to be a dispute for the purposes
of exercising the statutory right to adjudication it must be clear
that a point has emerged from the process of discussion or negotiation
that has ended and that there is something which needs to be decided.
Having applied that case law to the correspondence between the parties
prior to the adjudication, she concluded that a dispute arose as to
whether Orange were entitled to pay for damages for ABB’s
breach of contract in terminating early, at the latest on receipt of
ABB’s letter of 6 July however there was no suggestion
that ABB would be willing to pay Orange any damages
for breach of contract as ABB were denying they were in breach
of the subcontract at that stage. By the time Orange wrote
their letter of 8 July the issue was live and to be decided. However,
at that stage Orange had not provided any information to ABB
as to the sums that they claimed as damages for ABB’s
breach. It was not until 2 December that Orange submitted its
final account which they allege quantified the damages they were claiming
for ABB’s breach of the subcontract. Orange
had accepted that the final account sum was well over twice their previous
applications and it was over three times the March 2002 application.
Orange also accepted that ABB had not seen figures
of this magnitude until 2 December 2002 and, in fact, some of the items
claimed were entirely new as a consequence HH Judge Frances Kirkham
considered that ABB could not be said to have failed to refuse
to pay those sums. She concluded therefore that there was no dispute
as at 6 July 2002 as to the amount payable to Orange as damages
for ABB’s breach of contract or as sums due under the
subcontract.
She proceeded to consider whether and when such a dispute as to the
sums that were due under the subcontract for damages did arise.
If I apply the simple test in Halki, I
must decide whether ABB had refused to admit or failed to
pay Orange’s final account by the time Orange
issued its notice to adjudicate on 6 January 2003. Orange
made their claim on 2 December 2003 by 6 January 2003 ABB
had not admitted the claim nor had they paid it. The dispute had arisen.
In view of Forbes J’s approval of the test
in Sindall v Solland, it is right that I consider whether,
as at 6 January 2003 when Orange served its notice to adjudicate,
the process of discussion or negotiation had ended and whether there
was something which needed to be decided…
I have found this aspect of the application difficult.
On balance, I conclude that, by 6 January 2003, sufficient time had
elapsed for a valuation, then any discussion or negotiation of Orange’s
claim… I conclude (if that be right to apply the approach in
Sindall v Solland), that by 6 January 2003, the process of negotiation
and discussion of Orange’s claim had come to an end so the dispute
then arose…
In the circumstances Mr Hough had jurisdiction
to decide as he did in both decisions and Orange are entitled to judgment.
Dean and Dyball Construction Limited v Kenneth Grubb Associates Limited
28 October 2003 - TCC
HH. Judge Seymour QC
Background to the dispute
The dispute related to a contract formed on an exchange of letters
between Dean and Dyball (D&D) and Kenneth Grubb Associates
(KGA).
KGA sent a letter dated 24 May 2000 to D&D (the
Proposal) in which KGA offered to design a tidal gate in a
40 week period and oversee the commissioning of the tidal gate across
the entrance of a marina at Watchet in Somerset. KGA suggested
that the ACE conditions of engagement B(2) should form the terms and
conditions of the contract. The offer was open for acceptance for 30
days from 24 May.
D&D acknowledged receipt of the Proposal but nothing further
was heard from them until 23 August 2000 when D&D sent
a facsimile to KGA as follows:
We confirm acceptance of your fee proposal for
the above works, in the form of your letter addressed to our Mr. P.J.
Cross and dated 24 May 2000. We will be appointing you to carry
out the full scope of services described under section 3 of your proposal.
Our official appointment letter will follow
in due course, however in the time we would be grateful if you
would continue to work to the programme of 36 weeks to commissioning
of impounding gate - this period to have commenced 31 July 2000.
No “official appointment letter” was ever sent to KGA.
The tidal gate once installed did not function as expected and as a
result KGA designed various remedial works, which were carried
out by D&D.
The tidal gate still failed to operate correctly and consequently D&D
wrote to KGA on the 30 August 2002 as follows:
We would advise that the Gate, which was due to
impound the Marina in July 2001, has never been properly commissioned
and fully handed over to our Employer, and has never operated to the
reasonable satisfaction of the Marina operator...
This situation is wholly unacceptable, and has
arisen from your failure to comply with your professional obligation
to design a Tidal Lock Gate for Watchet Marina Harbour suitable for
the purpose.
As a result of the failure of the Gate to operate
satisfactorily, we are making a claim against you for the additional
costs we have incurred in ensuring the safety of the Marina...
The sum at the time was quantified at £369,938.90.
On the 17 June 2003 D&D by their solicitors wrote a further
letter, the material terms of which were as follows: -
Further to our previous correspondence on this
matter we now enclose with this letter an updated summary of the costs
that our clients [D&D] have incurred as a result of your
negligence and breach of contract.
The costs were then put at a total of £470,073.60. D&D’s
solicitors gave a Notice of Adjudication on 22 July 2003, which included:
-
Following its detailed design by KGA,
the gate was fabricated and installed by Taylor and Sons Ltd in the
period up to June 2001. Under the terms of the Offer Letter [that
is the Proposal Letter] KGA had a responsibility to oversee
the commissioning of the gate and this process commenced during 2001…
…it did not function in the manner and with
the consistent reliability which was a fundamental requirement of
a gate to impound tidal waters in a marina.
…KGA designed an additional mechanical
solution ... which was intended to ensure the rise and fall of the
gate in the manner that had originally been envisaged.
….the gate still failed to operate in accordance
with specifications. In particular it proved impossible to guarantee
“fail safe” operation. This had always been a fundamental
element of the design, because if the gate were to fail and allow
water to drain out of the marina, there would be potentially very
high cost caused by any damage to yachts in the marina at the time.
There were also a number of other problems around
the workings of the gate including with the of the net clearance provided
by the gate, the “slamming” of the gate during operation,
problems of the stop logs and frame modifications. These, and other
problems encountered, will be dealt with fully in the Referral Notice.
KGA were formally notified of a claim
against them on the 30 August 2002 and that letter (and the claim
document enclosed with it)will be included with the Referral Notice.
A further letter from Dean and Dyball
Construction which stated that ongoing problems were still
being incurred was posted to KGA on the 3 February 2003.
In an attempt to discover what were the causes
of the problems with the gate, Ove Arup and Partners were instructed
to produce a report on the gate design. A copy of this report was
posted to KGA on 21 May 2003, and one will be appended to
the Referral Notice.
As a result of the design failures of the gate,
Dean and Dyball Construction consider that KGA are in
breach of their contract with Dean and Dyball Construction.
D&D’s case as set out in the Referral Notice dated
29 July 2003 was formulated as follows: -
The dispute concerns Dean & Dyball Construction’s
entitlement to damages and interest as a result of a breach of contract
by KGA.
It will be established later in this Referral
Notice that KGA were appointed by Dean & Dyball Construction
under the Association of Consulting Engineers Conditions of Engagement
1995 agreement B2 (ACE Agreement) to provide certain consultancy services
(the consultancy services) to Dean & Dyball Construction.
The ACE Agreement includes the provision (at Clause
B2.2.3) that:
“The Consulting Engineer shall exercise reasonable skill, care
and diligence in the performance of the Services"
KGA on learning that an adjudicator had been appointed wrote
to him by letter of 11 August 2003 the material part of which was :
Thank you for your letters in respect of the above
matter. We are in a difficult position since in the absence of a formant
ACE agreement with Dean & Dyball we are advised that the question
of an adjudication clause is in doubt.
To date we have received a copy of a report by
their [D&D] technical advisors Arup, to which we responded
fully and suggested a meeting. In our view there is no proven reason
for the problems at Watchet and considerable reason to believe that
the problem is caused by factors for which Dean and Dyball hold responsibility
rather than us. Dean & Dyball’s lawyers Clarke Willmott
had neither taken up our offer of a meeting or responded to our letter,
but instead proceeded with an application for adjudication, which
appears to be premature and doubtful in law.
With regard to the alleged sum expended by D&D
of £531,260.00, we have not had the opportunity to date of reviewing
this or the component elements. It will be necessary for us to review
all invoices, plant records and labour costs.
The adjudicator having considered the Arup report decided that KGA
had failed to take account of the frictional resistance of the system
used to raise and lower the gates and this was the cause of the gates
failing to function correctly.
Applications before the Court
D&D sought summary judgment to enforce the Adjudicator’s
decision.
KGA sought to oppose D&D’s application
for summary judgment on a number of grounds including: -
(a) There was no dispute extant between the parties at the time of
the Notice to Adjudicate; and
(b) The contract was not one to which the provisions of Part 2 of the
HGCRA applied because it did not fall within S107; and
(c) The Adjudicator in arriving at his decision had adopted a procedure,
which was unfair, namely conducting separate interviews with the parties
and their respective experts.
There was no dispute extant between the parties at the time
of the Notice of Adjudication
The Judge considered that the objections raised by KGA focused
not on whether there was an actual dispute at the date of the Notice
but on the whether Notice was formally defective in failing to:
(a) state precisely when and how KJA had rejected the claim
made by D&D
(b) identify a cause of action in law which could support the allegation
that KGA were liable to D&D and formulate concisely
an “issue” or “issues” to be considered by the
adjudicator.
In relation to (a) the Judge said:
In my judgment whether, at the point of giving
a notice of adjudication, there is a crystallised dispute in respect
of the matter sought to be referred when the quantum of the sum claimed
and the alleged composition of that sum has altered from a sum previously
claimed is a question of fact and degree the answer to which depends
upon what, on the facts, the dispute between the parties was actually
about. If liability in respect of a claim is not, at the point of
giving notice of adjudication, in dispute, so that the only dispute
is about quantum, it is likely to be difficult to say that there is
a dispute about a formulation of quantum which is new at that stage
and which the responding party has not had an opportunity to consider…..
…the situation is different if liability
itself is in dispute and the party alleged to be liable has not accepted
that it is bound to pay to the other party any sum whatever. In such
a case there is a crystallised dispute as to liability – it
is denied- and a crystallised dispute as to the obligation of the
party alleged to be liable to make a payment to the other party –the
responding party’s position is that it will pay nothing. Those
crystallised disputes do not cease to be crystallised simply because
the quantum of the claim is altered.
In relation to (b) the Judge said:
What precisely must be set out in a notice of
adjudication for it to be effective as such depends upon what is
required by the relevant rules agreed by the parties as a matter
of contract, or by the Scheme, as the case may be….While the
formulation of the Notice……seems to me to be lacking
in focus and unduly discursive, in my judgment it was tolerably
clear on a fair reading of the Notice as a whole……RGA
was in law responsible to it D&D for the deficiencies
alleged in the operation of the Gate and, if so, to what sum by
way of damages was D&D entitled.
The contract was not one to which the provisions of Part 2
of the HGCRA applied because it did not fall within S107.
KGA’s submissions in respect of this point relied in
part on the contents of a witness sworn in support of KGA which
alleged that some of the terms of KGA’s appointment were
agreed orally and there was no written correspondence to confirm the
terms or evidence in writing of the oral terms.
In addition and on a slightly different point KGA argued that
D&D had not clearly elected to adopt the ACE Conditions
into the appointment and consequently without clear acceptance by D&D
of the incorporation of the ACE Conditions they were not incorporated.
The Judge decided that the contract was concluded by D&D
sending its facsimile of the 23 August 2000, (which was a counter offer,
the date for acceptance of RGA’s Proposal having expired) and
RGA getting on with the work. Although the facsimile of 23 August 2000
envisaged an “official appointment letter” would be sent
and in fact was not, this did not indicate a lack of intention to enter
into a contract at that point on the terms contained in the facsimile.
The facsimile of the 23 August incorporated by reference not only the
Proposal letter and all its terms, except where they were specifically
altered by the facsimile, but also documents and in particularly the
ACE Conditions referred to in the Proposal.
In relation to the subsequent oral terms agreed between the parties,
while it was not necessary to making a decision on the point as the
ACE terms were incorporated into the appointment and consequently adjudication
was available upon the express terms of the contract rather than S.107,
the Judge considered it a “strange result if a “construction
contract” to which S.107 of the 1996 Act applies at the time it
is made is taken outside the ambit of the section because of some variation,
however minor, is subsequently made orally and not evidenced in writing.”
The Adjudicator in arriving at his decision had adopted a procedure
which was unfair, namely conduct separate interviews with the parties
and their respective experts.
The ACE adjudication procedure specifically provided for the Adjudicator
to meet with the parties separately. Natural justice requires that if
an Adjudicator receives a communication which is significant to the
adjudication from one party alone in the absence of the other, the Adjudicator
should inform the absent party of the substance of the communication
so as to give the absent party an opportunity to deal with it.
In the absence of an express provision allowing the Adjudicator to
meet with the parties separately, the Judge expressed doubts that it
would be appropriate for an Adjudicator to adopt such a procedure, certainly
if the Adjudicator failed to provide the other party with the substance
of the evidence or discussions that took place and allowing the absent
party the opportunity of responding. There was, however, no suggestion
that evidence on behalf of D&D had been given or which RGA was unaware
or that KGA did not have an opportunity to respond. KGA’s objection
was simply one of form.
Composite Projects Ltd v Andritz AG
Date of judgment 30 April 2003 before HH Judge Frances Kirkham
Background to the dispute
The dispute related to a subcontract between Composite
Projects (“Composite”) and Andritz AG
(“AAG”) for work relating to a new waste water
treatment works and sewage sludge recycling centre at Sandown on the
Isle of Wight. AAG had by two subcontracts, subcontracted
two packages of work to Composite. The first package was for
the installation of electrical power, wiring and control wiring, low
voltage control wiring and containment to the plant used in the processing
of sludge and installation and wiring (including containment) to the
control panel for the plant.
The second subcontract was for the installation of building services
to the building in which the sludge processing plant was housed. It
included the installation of lighting, emergency lighting, small power
distribution, power to roller doors, containment, fire and gas alarm
systems, heating and ventilation and building management systems. The
disputes, which were the subject of the application before HH Judge
Frances Kirkham, concerned only the second subcontract.
The Applications before the Court
Composite had made an application pursuant to CPR Part 8 for
a declaration in relation to the application of the HGCRA to the second
subcontract. They were seeking a declaration that their work under
that subcontract fell within the definition of “construction
operations” as defined in section 105 of the HGCRA and that
consequently the second subcontract constituted a “construction
contract” as defined in section 104 of the HGCRA.
AAG however opposed the application on the ground that the
court had no jurisdiction to hear the applications and that Part 8 procedure
was inappropriate.
Did the subcontract fall within the definition of “construction
contract” and did the work under the second subcontract fall
within the definition of “construction operations”?
The relevant sections of the HGCRA are:
104 construction contracts
1. This Part A “construction contract”
means an agreement with a person for any of the following –
… (a) the carrying out of construction
operations…”
105 meaning of “construction operations”
2. The following operations are not construction
operations within the meaning of this part:
…(b) assembly, installation or demolition
of plant or machinery or erection or demolition of steelwork for
the purposes of supporting or providing access to plant or machinery,
on a site where the primary activity is: -
3. Nuclear processing, power generation, or water
or effluent treatment, …
Composite’s case was that the work which was the subject
of the second subcontract did not fall within S.105(2) as construction
operations which were excluded from the ambit of the Act, as the electrical
installation that Composite were carrying out was not connected with
the effluent plant but was related to the building within which the
plant was contained.
AAG’s case, however, was that the electrical
installation was integral to the effluent plant by reason of evidence
from their engineer Herr Undasch who referred to as-built drawings which
he claimed showed the electrical services which were installed by Composite
were fully integrated into the sludge processing plant. AAG
also relied on the fact that under Health and Safety Regulations, the
sludge processing plant was not allowed to be operated without lighting
or fire and gas alarm systems. These systems were the systems that were
being installed by Composite and, as such, they formed an integral part
of the overall installation of the waste water treatment plant.
HH Judge Frances Kirkham decided that the services which were the subject
of the second subcontract were physically integral to the building
but were not integral to the sludge processing plant and there was no
reason to suppose that the sludge processing plant was not capable of
being operated without any of the services installed pursuant to the
second subcontract. She accepted for the purposes of the application
that AAG were correct in that the plant could not be operated
in the absence of lighting and gas and fire alarms because of Health
and Safety Regulations but that in her opinion it was insufficient to
show that these services were required for the operation of the sludge
processing plant. She accepted Composite’s submission that buildings
in other contexts may not be permitted by virtue of Health and Safety
Regulations to operate without adequate lighting or functioning alarm
systems and yet couldn’t define those services as required for
the operation of the plant.
The distinguishing feature appeared to be whether the actual electrical
services installed by Composite were attached or connected to the plant
in question or to the building. As such she concluded that the work
which was the subject of the building services subcontract fell within
the definition of “construction operations” set out in Section
105, did not fall foul of the construction operations which were excluded
from Section 105 and, as such, the building services subcontract constituted
a construction contract as defined by Section 104 of the HGCRA.
Does the Court have jurisdiction to deal with the Part 8 claim?
AAG applied for the Part 8 claim to be dismissed on the ground
that the Court had no jurisdiction to hear the claim and in particular
relied upon clause 20 of the Building Services subcontract:
20 Settlement of disputes
All disputes arising in interpretation or execution
of the present contract, its annexes or in connection with documents
issued by both parties to the contract, including additional agreements
concerning modifications to the contract will be settled amicably.
If no agreement can be reached or if such agreement is not observed
voluntarily by one of the parties, the jurisdiction in the event of
a dispute will be in Graz, Austria. Austrian law will be applied…
AAG also relied upon Article 23 of EC Council Regulation No.
44/2001. Article 23 states: -
If the parties, one or more of whom is domicile
in the Member State, have agreed that a court or the courts of a Member
State are to have jurisdiction to settle any disputes which have arisen
or which may arise in connection with a particular legal relationship,
that court or those courts shall have jurisdiction. Such jurisdiction
shall be exclusive unless the parties have agreed otherwise.
AAG’s case was that all disputes between the parties
under the Building Services subcontract must be referred to the Court
in Graz.
AAG also attempted to adduce evidence showing the intentions
of the parties to the Building Services subcontract by reference to
any contract between two third parties higher up the contractual chain.
HH Judge Frances Kirkham was not prepared to draw any inferences as
to what the intentions of the parties to the Building Services subcontract
were on the basis of that evidence, because the wording of clause 20
in the Building Services subcontract was to be construed objectively.
The dispute in the proceedings arose from the application of the HGCRA
and whether by statutory implication the statutory Scheme for Construction
Contracts was applicable. It was not a dispute about the interpretation
or execution of the Building Services subcontract or the annexes, nor
was it a dispute in connection with documents issued by the parties,
nor was it a dispute about additional agreements concerning modifications
to the contract. It was thus not a dispute, which the parties had agreed
to have settled by the Austrian Court for the purposes of Article 23.
While the Austrian Court might ultimately be the forum in which substantive
disputes between Composite and AAG should be settled, that
did not prevent the English Court from enforcing the temporary decision
of an Adjudicator properly made. In particular, HH Judge Frances Kirkham
referred to the inclusion in Article 23 of the word “settle”.
She considered that that must refer to the final resolution of a dispute.
The decision of an Adjudicator is not a final resolution in a dispute
and neither was the enforcement of such decision by the English Court.
As a consequence she concluded that the Court had jurisdiction to determine
the Part 8 claim and make declarations of the nature sought by Composite.
Is the Part 8 procedure appropriate?
HH Judge Frances Kirkham considered it was. She considered the fact
there was no further factual expert evidence needed to determine whether
or not the work fell within the definition of “construction operations”
was in the HGCRA, the fact the application was for declarations and
not the enforcement of the Adjudicator’s decision meant that Part
8 was the appropriate procedure for determining the dispute. The outcome
of the application would be helpful to the parties and to any Adjudicators
to understand whether the latter had jurisdiction. She considered that
Composite had adopted a sensible and pragmatic approach which was helpful
to the parties and saved unnecessary expenditure on costs.
Galliford (UK) Ltd t/a Galliford Northern v Markel Capital Ltd
12 May 2003
HH Judge John Bherens
Background to the dispute
The claim arose out of a construction project in Leeds for which
Galliford (UK) Ltd (“Galliford”) was
the main contractor and in respect of which Michael Heal Associates
Ltd (“MHA”) acted as consultant and structural
engineers. Galliford appointed MHA to advise and prepare
a detailed design in respect of a conversion of the Wellesley Hotel
in Leeds from a hotel into flats. Galliford alleged that MHA
failed to advise on the adequacy of its design and crucially Galliford
assumed the design was adequate during its negotiations with the employer
when it adopted design responsibility of the contract. Part way through
the conversion of the hotel the construction of the existing roof slab
was found to be inadequate to support the additional floors safely and
the design had to be substantially changed, which resulted in a 24 week
delay to project and £2,118,332 additional direct and time related
costs.
A letter of claim was sent by Galliford to MHA on
2 July 2001.
A further detailed letter was sent in March 2002.
On 31 July 2002 MHA passed a resolution for voluntary winding
up and a liquidator was appointed.
On 15 August 2002 Galliford commenced adjudication proceedings
under the 1996 Act these proceedings were fully contested by MHA’s
insurers. In particular, the insurers disputed the Adjudicator’s
jurisdiction on the grounds that there was no concluded contract in
writing between Galliford and MHA. The Adjudicator
rejected this argument by letter dated 6 September and determined that
he did have jurisdiction. The Adjudicator then published its decision
on 14 October 2002. He decided that MHA was liable to Galliford
in respect of the changes to the roof slab design and of changes to
the infill steelwork design but not in respect of other matters. He
assessed quantum in the sum of £722,586 inclusive of interest
and ordered MHA to pay that sum within 14 days. He also directed
that MHA should pay his fees.
No part of the sum awarded by the Adjudicator was paid to Galliford
and Galliford did not seek to apply to the court to enforce
the Adjudicator’s decision.
The Applications before the Court
Galliford made an application for summary judgment but not
as one would normally anticipate for enforcement of the Adjudicator’s
decision, but instead made an application in relation to a claim under
the Third Parties (Rights Against Insurers) Act 1930 which in summary
provides that where an injured party establishes that an insured party
is liable to it for the injuries that it suffered, and the insured party
passes a resolution to wind itself up then the injured party may enforce
the contract of insurance against the insurer in order to recover its
established losses.
Galliford therefore contended that the adjudication decision
itself was insufficient to establish MHA’s liabilities
and therefore Galliford was bound to succeed under the 1930
Act.
In defence of the application the insurers denied that they were liable
to indemnify MHA because of a breach of a condition precedent
in the insurance policy which required MHA to notify the insurers
of Galliford’s claim and/or circumstances which may lead
to Galliford’s claim immediately upon MHA becoming
aware of it and that notification must be in writing. The insurers alleged
that MHA was aware of the claim and/or notifiable circumstances
in February 2001 but failed to inform the insurers until July 2001.
They claimed the notification clause was a condition precedent to the
insurer’s liability.
Galliford denied that MHA were aware of the claim
and/or notifiable circumstances in February 2001.
The main dispute, however, centred around whether the Adjudicator’s
decision constituted the ascertained relevant liability for the purposes
of the 1930 Act so as to transfer and vest MHA’s rights
under the insurance policy to Galliford. In order to consider
this point it is necessary to consider the Act and the insurance policy
itself.
Under the terms of the policy, the insurers agreed subject to certain
terms and conditions as well as limitations and exclusions to indemnify
MHA against “Loss” arising from any Claim or Claims
made against MHA during the period of insurance by reason of
a wrongful act committed by MHA in or about the conduct of
its business.
Loss was defined as “MHA’s legal liability for
damages awarded against MHA”.
By an endorsement on the insurance policy MHA’s cover
was extended to cover certain payments which might be required from
MHA during adjudication procedures.
The relevant terms of the 1930 Act are as follows:
Section 1 of the 1930 Act provides:
Where under any contract of insurance a
person (hereafter referred to as the insurer) is insured against liabilities
to third parties which he may incur, then...
(b) in the case of the insured being a company,
in the event of ... a resolution for a voluntary winding up being
passed, with respect to the company... if either before or after that
event, any such liability as aforesaid is incurred by the insured,
his rights against the insured under the contract in respect of the
liability shall notwithstanding anything in any Act or rule of law
to the contrary, be transferred and vested in the third party to whom
the liability was so incurred.
The Act was considered by the Court of Appeal in Post Office v
Norwich Union [1967] 1 All ER 577, and in the House of Lords in
Bradley v Eagle Star [1989] 1All ER 961 in which Lord Brandon
expressly approved the reasoning of Lord Denning in the Post Office
case. He cited with approval of the following passages:
Under that section the injured person steps
into the shoes of the wrongdoer. Thereof transferred to the wrongdoers
“rights” against the insured under the contract”.
What are those rights? When do they arise? So far as the liability
of the insured is concerned, there is no doubt that his liability
to the injured person arises at the time of the accident, when negligence
and damage coincide; but the “rights” of the insured person
against the insurers do not arise at that time. The policy in the
present case provides that “the [Defendants] will indemnify
the insured against all sums which the insured shall become legally
liable to pay as compensation in respect of loss of or damage to property”.
It seems to me that [Potters] acquire only a write to sue for the
money when their liability to the injured person has been established
so as to give rise to a right of indemnity. The liabilities to the
injured person must be ascertained and determined to exist either
by judgment of the court or by an award of an arbitrator or by agreement.
Until that is done, the right to an indemnity does not arise.
The definition of loss in the insurance policy to which MHA
were insured was the same as and indistinguishable from the definition
in the Post Office case. It followed therefore that there was no transfer
of MHA’s rights against the insurers as at the date of
the resolution to wind up MHA. As of that date the adjudication
procedure had not been commenced and consequently it could not be said
that MHA were liable to Galliford as no liability
had been established either by judgment, arbitration or otherwise. The
crucial question which the Judge had decided on was whether there was
a transfer and vesting of MHA’s rights against the insurers
to Galliford following the Adjudicator’s decision October
2002.
The Judge concluded that the Adjudicator’s decision created a
contractual obligation enforceable summarily on the part of MHA
to comply with the Adjudicator’s decision even though the decision
was necessarily a provisional decision and the Adjudicator’s decision
was therefore not equivalent to a judgment or an arbitration award;
it was no more or no less than a contractual obligation to pay. Although
the Adjudicator’s decision was enforceable summarily, there was
a defence to an application to enforce an adjudicator’s decision
where the Adjudicator has exceeded his jurisdiction. At the time of
the Post Office decision the adjudication procedure did not exist. It
was the Adjudicator’s decision which was a contractual obligation,
this did not amount to a legal liability for a debt or damages which
was established by legal action, arbitration or agreement, therefore
there was no loss under the insurance policy for which MHA
could have sued the insurers. As a consequence, when MHA passed
the resolution to be wound up, there was no equivalent right which could
be passed to Galliford which they could then pursue against
the insurers. The Adjudicator’s decision was a contractual obligation
but not an absolute obligation and it did not become an absolute obligation
until the Adjudicator’s decision was enforced by judgment of the
court or agreed. In the circumstances, Galliford had issued
the proceedings prematurely and as a consequence they were dismissed.
The Judge gave permission to appeal and he accepted that the point
in dispute was one where there was no direct authority and was of some
general importance.
Simons Construction Limited v Aardvark Developments
Limited
29 October 2003
H.H.Judge Seymour QC
Background to the Dispute
Two disputes were referred to Mr. Barker the Adjudicator. The first
by Simons Construction Limited (Simons) ,
the second and later dispute, by Aardvark Developments
Limited (Aardvark).
In relation to the first reference Mr Barker considered that it was
premature as there was no crystallised dispute between the parties.
Simons by their solicitors then purported to notify Mr Barker
that his services were no longer required. Mr Barker charged £200
plus VAT in respect of the first reference.
By the time of the second reference a dispute had crystallised between
the parties. Mr Barker proceeded to determine the dispute but required
the 28 day period in which to make a decision to be extended on two
occasions. The final extension being to 17 June 2002. Mr Barker on 17
June published what he described as an “Adjudicator’s Draft
Decision for the parties comment” comments were required within
7 days. Neither party commented on it and on 25 June 2002 the decision
was published again as a “Final Decision” without any changes
to the substantive text. Mr Barker charged £2,880 plus VAT in
respect of the second reference.
Applications before the Court
Mr Barker applied against both Simons and Aardvark
for his outstanding fees.
Simons’ case by way of defence to the claim was:
(a) in relation to the first reference, the reference was a valid and
effective reference, Mr Barker had made it clear that he was not prepared
to reach a decision within 28 Days and in those circumstances Simons
were entitled to determine his appointment and not pay his fees; and
(b) in relation to the second reference, the “Draft Decision”
issued for comment was not a decision but an invitation to debate the
conclusions within it, while the “Final Decision” was not
binding as it had been published later than the rules governing the
second reference allowed Aardvark’s case in relation
to the second reference was that as there was no material difference
between the “Draft decision” and “Final Decision”
then the “Draft Decision” was in fact Mr Barker’s
decision and this had been given in time.
The Judge did not accept Aardvarks submissions, and made the
following comments:
It seems to me that it is clear that the “Draft
Decision” was not, as such, a decision in respect of the matters
the subject of the Second Reference. The Draft Decision was not signed
or dated. It was marked on the title page as “For the Parties
Comment”. That is indicative, in my judgment, of a Draft Decision
not being intended as necessarily final. Rather each party was afforded
on opportunity to make any observations on the Draft Decision which
it wished.
In relation to Simons arguments the Judge made the following
comments:
...Whether the failure to produce a final decision
by no later than 17 June 2002 meant, as was contended on behalf of
Simons, that the Final Decision, when produced, was not binding
on Simons and Aardvark. That could only be so, in
my judgment, if the failure of an adjudicator to produce a decision
within the timescale prescribed by the contract by which he was appointed
adjudicator, as varied by the agreement of the parties, deprive him
of jurisdiction to produce a binding decision thereafter.
The Judge then proceeded to consider what the JCT contract between
the parties in fact provided for in these circumstances and concluded
that it was silent as to the consequences of an adjudicator failing
to make a decision within the relevant time period.
He also considered the JCT Adjudication Agreement and in particular
clauses 5.1 and 5.2. those two clauses enabled the adjudication agreement
to be terminated only if both parties agreed and the adjudicator could
then be deprived of his fees.
If the adjudicator failed to reach his decision within the relevant
period either party could serve a fresh referral notice and a new adjudicator
appointed. It was implicit from this that the first adjudicator ceased
to have jurisdiction in relation to the dispute. Up until the giving
of a fresh referral notice, the first adjudicator retained jurisdiction
and the parties were required to comply with the first adjudicator’s
decision if published prior to either party giving a fresh notice of
adjudication.
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