Resisting an adjudicator's decision: Air Design -v- Deerglen

Resisting enforcement of an adjudicator's decision on the basis of an alleged lack of jurisdiction. By Allan Warrender.

Summing upThe case: Air Design (Kent) Limited -v- Deerglen (Jersey) Limited [2008] EWHC 3047 (TCC).The issue: Whether an adjudicator's decision can be resisted at enforcement stage if it concerns disputes arising from more than one contract.The implication: Whether or not disputes arise from more than one contract will depend on the facts established by the court. Notwithstanding, an adjudicator may have jurisdiction to decide this question if it relates also to the substantive matters referred to him for a decision.

Although it is a brand new year, old familiar matters continue to feature in the courts. Resisting enforcement of an adjudicator's decision on the basis of an alleged lack of jurisdiction is fairly well-trodden ground. Nevertheless, parties continue to develop novel arguments regarding an adjudicator's lack of jurisdiction as this offers one of the few opportunities of resisting enforcement.

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This case relates to a dispute on an office development in Jersey between a main contractor, Deerglen, and its mechanical services subcontractor, Air Design. Not untypically, the contractual matrix between the parties was far from straightforward. Both accepted that Air Design had been contracted by Deerglen in April 2007 to provide mechanical services under what was termed "the basebuild contract".

In May 2007, the parties reached agreement on the value of mechanical fit-out works in order to accommodate a tenant known as CPA. Although Deerglen intimated a desire to enter into a formal contract for these works, no such contract was entered into and the fit-out works were the subject of instructions issued under what was termed "a letter of intent".

In September 2007, the parties reached agreement on the value of a Building Management System (BMS) that Deerglen had instructed Air Design to provide.

Finally, the parties entered into a supplementary agreement in November 2007 which aggregated the values of the various works undertaken by Air Design and set out a mechanism and timetable for all future payments. Crucially, this agreement referred to the total value of the various works as forming "the contract sum". This supplementary agreement, which was in the form of a letter issued by Deerglen, contained Deerglen's valuation of all the variations executed to that date.

Differences arose between the parties as to the value of these variations, the unpaid balance of sums referred to in the November 2007 supplementary agreement and the validity of contra charges. These differences were referred to adjudication.

Separate contracts

In the adjudication, Deerglen argued that there were up to four separate contracts between the parties. As only the basebuild contract contained a reference to adjudication, Deerglen contended that the adjudicator had no jurisdiction over disputes that arose on the other contracts.

Air Design's position in the adjudication was that the works carried out in respect of the CPA fit-out and the BMS were variations to the basebuild contract and that the supplementary agreement was simply varying the terms and timings of payments.

As a preliminary matter, the adjudicator reached the view that the dispute referred to him arose from a single contract and that the supplementary agreement was nothing more than an agreement to vary the payment terms under the single contract.

The issue of enforcement of the adjudicator's substantive decision came before Justice Akenhead in the TCC. He found, as a matter of fact, that the basebuild contract contained a provision for the ordering of variations. He noted that, in regard to instructed works in connection with the BMS, there was a clear reference to the "existing contract". There was no indication that the BMS works were to form a separate contract.

In regard to the CPA fit-out works, Justice Akenhead observed that the parties' agreement stated that Air Design would be entitled to "net costs reasonably and necessarily incurred" should a formal contract not be implemented. In the absence of a formal contract, he concluded that the only basis on which these works could be instructed was as a variation under the basebuild contract. In support of that conclusion, he noted that Air Design's quotation for the fit-out works had contained a statement that the "contract conditions are based upon the original basebuild contract".

Justice Akenhead also identified two other factors that effectively overrode any consideration of whether or not there was more than one contract in determining if the adjudicator had jurisdiction to act.

First, he said that it was necessary, in this instance, for the adjudicator to consider whether there was more than one contract in order to embark on the substantive decision making process. As such it was part of the adjudicator's jurisdiction to decide whether or not, and if so to what extent, the basebuild contract had been varied.

Second, Justice Akenhead found that in reviewing the wording of the supplementary agreement, the parties clearly intended to treat their contractual relationship as stemming from one contract, irrespective of what contractual arrangements were in place beforehand.

Accordingly, the court enforced the adjudicator's decision.

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Hundreds protest over Staythorpe foreign labour

Hundreds of union members are protesting at Staythorpe power station over claims that British workers are losing out to workers from overseas.

Unite and the GMB union said jobs at the plant in Nottinghamshire were being filled by Spanish and Polish workers.

But engineering firm Alstom said that over the 30-month lifecycle of the build, British workers would complete the "majority" of the work, and would form the "overwhelming majority" of permanent staff.

A spokesman said: "A project of this type is complex and requires the right mixture of skills. We hire a mixture of British and non-British, EU workers to provide the balance we need.

"We give British firms an equal chance to bid for work on the project. Any claim that there will be no UK workers on the mechanical engineering phase is simply inaccurate and false. UK labour is already being employed in the mechanical phase."

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Bovis Lend Lease sues Harley St hospital for £4.2m

Bovis Lend Lease has embarked on a ВЈ4.2m legal battle with the trustees of the London Clinic Ltd, a charity which runs a Harley Street hospital, following a row over an ВЈ11.5m refurbishment contract which finished over a year late.

In a writ lodged in the Technology and Construction Court, Bovis alleges that the London Clinic has failed to pay the ВЈ4.2m which an adjudicator decided the contractor was owed when he found that Bovis was entitled to a time extension of 40.2 weeks.

The contract, which began in July 2004 and was built for a fixed price, started to overrun in October 2004.

Inviron, Bovis' M&E subcontractor, was due to begin services installation work on 8 October. Bovis claims that in order for this work to go ahead, London Clinic's design team needed to have designs ready for 23 April.

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But Bovis alleges that the designs were issued late, and M&E installation could not begin until May 2005 - 26.5 weeks late.

On top of that, there were further delays during the final period of the contract, which the contractor alleges were due to "numerous and far-reaching" design changes.

Bovis says it made several applications for extensions of time, but was only granted an extension of 4 weeks in March 2005. Practical completion was reached in August 2006 - 54 weeks late.

At this point, London Clinics charged Bovis for Liquidated and Ascertained Damages at the contractual rate of ВЈ40,000 per week, which Bovis claims was unjustified.

Adjudicator Tony Bingham decided in November last year that Bovis was in fact entitled to a time extension of 44.2 weeks (including the 4 weeks it had already been awarded). He also ordered London Clinics to repay the Liquidated and Ascertained Damages deducted in the 40.2 week period. London Clinics was told to pay a total sum of nearly ВЈ4.2m within 14 days of the decision.

But Bovis alleges that London Clinics has failed to pay and has indicated that it does not intend to pay. It is now seeking to recover the cash through the courts.

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Why failure to plan is at the root of many project failures

Certain key actions can reduce uncertainty in planning and programming of construction projects. By David Goodman, managing director of Brewer Consulting.

Summing upThe issue: The actions that can be undertaken to reduce uncertainty in construction planning and programming. The implication: By embracing, to at least some degree, certain programming and planning actions detail in the article prior to and during a construction project so that the uncertainty often faced can be addressed and hopefully minimised to the benefit of all.

The title to this article may be a well-worn adage but it remains as true as ever, successful projects are usually those that have been well planned and the unsuccessful ones are usually those that have not. With such uncertain times ahead in the industry we need to be able to plan and programme our projects with as much certainty as possible in the hope to avoid costly and unwanted disputes. This article examines the status of programming and planning and details two possible actions that can be taken to reduce such uncertainty.

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It is true that planning and programming has a greater status in the construction industry then ever before with the client, rightly so, becoming more aware of what can be achieved with the increasingly sophisticated planning software now available. It is not uncommon for a client to request from the contractor a fully resourced, fully logic-linked critical path programme of its proposed project along with monthly updated and look-ahead programmes as the works progress.

But it is also true to say that planning and programming still has a long way to go before its full potential is realised.

Insufficient data

It cannot be denied that on too many occasions a dispute arises between client and contractor due to the disagreement as to what a fair and reasonable extension of time award should be. When these disputes are reviewed by a third party it is often the case that adequate data is not available that details to a sufficient level either the intent of the contractor prior to the commencement of the works or the progress that was achieved during the undertaking of the works. With such limited data available, the true extension of time entitlement may never be fully realised, usually to the dissatisfaction of both parties.

In an attempt to avoid this scenario occurring the industry as a whole needs to agree what the key causes of this problem are and then, if possible, address them in a manner acceptable to all.

First, without doubt, for a construction project the programme, when successfully drafted and implemented, is the most powerful management tool available to all parties. It provides a road map to enable the successful construction of a project, detailing the inter-relationship between design, procurement and construction, as well as being the main tool for planning and managing future works. However, the programme is often driven by the project rather than the project being driven by the programme and thus such a useful tool becomes obsolete before the works even start.

For example, if a client asks for a project to be completed in 18 months, how many contractors actually state that it has looked at every possible time-saving opportunity and that the quickest build time is 22 months? Contractors are concerned that very few clients would accept this view and award the contractor the contract. Most clients will simply accept the bid of the contractor that provides a programme showing the works can be completed in 17 months.

It may be the case that the contractor with the 17-month programme has found an extremely time-efficient method of building the project, but more likely than not it has simply allowed the client's commercial requirement to determine the overall duration of the construction programme in order to win the work with the hope that opportunities may arise to extend the contract period once it has commenced on site.

In conclusion, it may be too idealistic to state that the programme must always drive the project but the other option is always more problematic.

Second, it is often the case that once the works commence on site the recording of as-built data and correctly and regularly progressed programmes become negligible, thus leading to the type of dispute highlighted earlier. It should be generally accepted that it is to the benefit of both the client and contractor that as-built data is regularly recorded and shared, thus minimising a divergence of opinion as to the status of the works at any one point in time.

But taking into account the necessity of the project team to manage the actual construction works on a day-to-day basis, the time required to record and produce such data is not always available and thus the opportunity is lost.

50/50 cost share

In conclusion, it may be far more sensible for a third party to be employed under the contract at a 50/50 cost share to record and agree such data. Perhaps such a role would reduce the difficulties encountered if it is necessary for the contractor to submit an extension of time claim to which the client responds that further substantiation is required.

By embracing, to at least some degree, each of the above points the uncertainty often faced at the beginning and during a construction project can be addressed and hopefully minimised to the benefit of all.

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Morgan Est facing £6.6m claim from Welsh Assembly

The Welsh Assembly government has launched a ВЈ6.6m claim against Morgan Est in the High Court in a row over improvement works to the A5.

The claim relates to problems on a stretch of the London to Holyhead trunk road between Ty Nant and Dinmael in Clywd, North Wales, which had to be closed for more than a year because of the danger of rock falls.

The problems began after improvement works to the road by Miller Civil Engineering (now Morgan Est) as part of a ВЈ4.1m contract carried out between 1994 and 1997. 

The works involved building a 620m stretch of straight road through a hillside, creating 30m-high cuttings in the rock, to be stabilised by rock anchorages.

In a writ lodged at the Technology and Construction Court, the Welsh Ministers claim a 2002 inspection found that two rock anchorages had corroded.

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Further investigations showed that a number of anchorages and face plates were deteriorating, while some had corroded to such an extent that they had lost all strength.

The road was closed in May 2006 for remedial works following a risk assessment. It was reopened in July 2007.

The Welsh Ministers allege that Miller breached its contract and claim that a number of factors contributed to the anchorages’ failure, which include:

The omission of caps over the anchor heads which allowed protective grease to escape; The faceplate on the majority of rock anchorages being cut so short that they were less than the 300mm required by the manufacturer’s detail; Damage to the rubber seal in many of the rock anchorages.

The Welsh Ministers are the statutory successors to the Secretary of State for Wales, the highways authority for motorway and trunk road construction in Wales when the contract was awarded.

Cash disputes soar as credit crunch bites

The number of court disputes between contractors and developers is starting to rise as cash rows flare-up across the industry.

Cases heard at the Technology and Construction Court have been declining in recent years as firms looked to use Alternative Dispute Resolution and mediation to sort out disagreements.

But a survey by law firm McGrigors LLP shows case numbers are on the rise again as contractors are no longer worried about losing future work from developers if they start a court fight with them.

During the third quarter of 2008 there were 32 construction cases filed at the Technology and Construction Court compared to just 28 in the previous quarter of 2008 and 29 in Q3 2007.

McGrigor partner Stuart Nash said a lot of the new disputes were between contractors and developers with contractors complaining they have been underpaid.

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Nash said: "When a developer tells a contractor that they will not pay the full bill for work as they feel the contract has not been properly fulfilled the tendency has been for the contractor to accept that through gritted teeth.

"They reasoned that there was no point in getting into an acrimonious court dispute with a client that should be their future source of work. The credit crunch has changed all that.

“With the slowdown in the construction sector contractors worry that there might not be a 'next project' from that client so they have less of a motivation to make concessions over their bill. The contractors figure that if there isn’t going to be any guarantee of repeat business why shouldn’t they try to force their client to pay in full?”

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Busy 2008 for dispute resolution specialist PJ English

Dispute resolution specialist Peter English says he has won ВЈ8m for his clients this year, and he anticipates that figure jumping to ВЈ11m in 2009.

His group, PJ English Associates, is currently working on 74 cases which represents a substantial increase on the figure of 15 at the same time last year.

“A lot of our work has stemmed from the high-profile case we handled on behalf of Southern Glass Services,” said English after an adjudicator ruled (10 months ago) that the 3% deductions from agreed payment terms being summarily removed by Barratt Southampton were out of order.

The money involved (ВЈ19,000) was paid back along with a further ВЈ5,400 to cover interest charges

Interestingly, after that debacle, Barratt has become one of the good guys and not a single case on English’s current schedule bears the name Barratt.

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Two of his largest cases at the moment involve acting for a groundwork contractor who claims to be owed money on two scores: ВЈ500,000 from a major house builder and another from a smaller contractor.

“The larger players are not bowing down like they might have done in the past,” said English.

“However smaller players, who are owed £8,000 to £12,000 perhaps, are still caving in and adopting the stance that they will live with the problem and try to work through it.

“I’d say all the house builders are currently trying it on apart.

“The others are knocking 5% irrespective off what their agree payment terms say.

“Another trick is for them to close a site when the scheme is only halfway through, then challenging their subcontractors to take them to court for breach and putting every obstacle in the way."

However, larger subcontractors are wising up, according to English. “They are saying вЂget stuffed – we’ll see you in court’ because they know they will win the court case,” he reports.

Of the 74 cases on English’s books at the moment, 38 are into the litigation or adjudication phase.

The balance, where the two sides have failed to settle amicably, are mostly waiting for a further input of effort or clarification before advice can be given on how best to handle them.

English expects half of this balance to eventually go into adjudication.

“In all , I’d expect to see 50-plus of our 74 cases being resolved by way of adjudication,” he said, “with another five or six being taken to court.”

English thinks most cases are in the bag even before he steps through the courtroom door simply because 80% of main contractors who summarily hang on to money they should pay out fail to issue a withholding notice (a legal necessity) which means it's almost game over before the bell sounds for the start of the formal sparring.

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