Construction update - January 2007

Supplemental agreement adjudicable

Case summary: During the course of works carried out pursuant to a construction contract a supplemental agreement was concluded in writing adjusting the total contract price to include variations and compensation events. Later, the contractor claimed additional payment but the employer resisted payment on the basis that events underlying the claim had been compromised by the supplemental agreement. The contractor commenced adjudication. The employer contended that the adjudicator lacked jurisdiction because the dispute concerned the meaning and effect of the supplemental agreement which was not a construction contract as defined by the Housing Grants, Construction and Regeneration Act (HGCRA). On the facts the court concluded that the supplemental agreement varied the original agreement and was therefore subject to the adjudication provisions of the original contract.

Comment: The court considered a number of early authorities and distinguished one: Shepherd v Mecright (2000). It is a question of fact in each case whether a supplemental agreement is to be treated as no more than a variation to an existing contract and therefore subject to all its terms, or a stand alone agreement that is not subject to all the terms of the original contract.

McConnell Dowell Constructors (Aust) Pty Ltd v National Grid Gas plc (formerly Transco plc) (3/10/06)

Costs punishment for failure to comply with adjudicator's decision

Case summary: The losing party to an adjudication indicated it was contesting enforcement until shortly before the hearing took place. The court therefore ordered the defaulting party to pay indemnity costs for unreasonably and unnecessarily putting the claimant to the expense of commencing enforcement proceedings. It is well known that the court will only refuse to enforce an adjudicator's decision if it was made in excess of jurisdiction or in breach of the rules of natural justice. It now appears that a refusal to pay an adjudicator's decision, except on grounds that fall within the recognised exception, will result in liability to pay costs on an indemnity basis.

Comment: In the absence of a defence based on one of the recognised grounds any attempt to resist payment is likely to be viewed as unreasonable conduct justifying an order for indemnity costs if enforcement proceedings are commenced.

Gray & Sons Builders (Bedford) v Essential Box Company Ltd (11/10/06)

Intention to enter into a contract not enough

Case summary: For a party to a construction contract to be entitled to refer a dispute to adjudication there must be a contract in writing. The contractor in this case failed to obtain enforcement of an adjudicator's decision because the court found there was no contract in writing for the purposes of Section 107 of the HGCRA. The court found that although documentation had passed between the parties indicating an intention to use a particular Joint Contracts Tribunal (JCT) form (and referring to specific JCT clauses) that intention had not been implemented.

Comment: An unimplemented express intention to enter into a construction contract using a specified JCT standard form of contract (or any other standard form) is not sufficient to effect the incorporation of the specified form or to create a contract evidenced in writing for the purposes of Section 107 of the HGCRA.

Redworth Construction Ltd v Brookdale Healthcare Ltd (31/7/2006)

No withholding notice: no defence to winding up proceedings

Case summary: When a contractor failed to pay certain agreed invoices the sub-contractor issued a winding up petition. The contractor applied to halt the advertising of the petition on the grounds that the debts were bona fide disputed on substantial grounds as there was a cross claim which exceeded the amount claimed. The court refused to halt proceedings because the absence of a withholding notice under the HGCRA meant that there were no substantial grounds for disputing the petition.

Comment: Failure to serve a valid withholding notice will prevent the raising of cross claims in subsequent winding up proceedings.

Medlock Products Ltd v SCC Construction Ltd (13/7/2006)

Don't delay on condition precedent

Case summary: Under a public liability all risks insurance policy it was a condition of claims that the insured provide the insurer with all relevant documentation. The Court of Appeal found that it was an implied term of the policy that compliance with the condition precedent had to be within a reasonable time. The Court of Appeal also confirmed that the absence of prejudice did not entitle the court to ignore the non-compliance with the condition precedent. Whether or not prejudice is relevant depends on the facts of each case. There is no absolute principle that the question of prejudice due to delay should be excluded or included when assessing the reasonable time for compliance.

Comment: Conditions precedent in insurance policies must be fulfilled within the stipulated period or, if none is stipulated, a reasonable time. Prejudice may be relevant in determining a reasonable period, but the absence of prejudice does not nullify the condition precedent.

Shinedean Ltd v Alldown Demolition (London) Ltd (in liquidation) and AXA Insurance UK plc (20/06/2006)

Subsequent conduct relevant when construing unwritten contract

Case summary: Parties reached an oral agreement for refurbishment works. There was a written list of items of work to be carried out and an estimate. The client disputed the final bill alleging many additional items were part of the original agreement. As the contract was partly oral the court had difficulty in assessing what was included in the original agreement. The Court of Appeal confirmed that when construing a written contract the court cannot look at subsequent conduct, but must decipher the intention of the parties from the terms of the contract. However, when an agreement is partly oral, subsequent conduct can be examined to see if it assists in determining the parties' original intentions.

Comment: Oral and partly oral contracts lead to greater uncertainty and are best avoided. If not, then subsequent actions by the parties can be admitted in evidence to help the court determine what was originally agreed.

Brian Royle Maggs (T/A BM Builders) v Marsh and Marsh Jewellery Co Ltd (7/7/2006)