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Commentary
This is an interesting case in a number of respects.
The recognition by the court that some consultants may
have a duty to their clients to report on the failings of their fellow
professionals may, at first sight, seem somewhat academic. After all,
where all of the consultants are joined into the action, then the court
has ample power to apportion the blame according to who was primarily
responsible. The court may be expected to apportion blame without too much
regard to who should have been sneaking on who.
The sting in the tail, however, comes with the limitation
point. The broad effect of this judgment is to double the limitation
period. Take, for example, the case of a failing by an engineer. Assuming
that the engagement is under hand, the employer will have six years from
the date of the damage to pursue a case in tort against the engineer. But
he will then have another six years from then to pursue a case in tort
against the architect for failing to report on the engineer's
failing.
Conoco & Others v Phillips
Petroleum Company and Others
The Commercial Court, Mr Justice Morrison
Facts
The parties entered into an agreement concerning gas in
the Audrey Field in the North Sea whereby their respective interests were
to be determined by an expert, ERC. Conoco and British Gas contended that
one such decision (the third re-determination) was not binding on them,
firstly because there was "manifest error" in their work, and secondly
because ERC's re-determination was not carried out in accordance with the
agreements made between the parties.
The agreement set out the rules and procedures to be
followed by the expert at Exhibit D, and provided that:
In his final decision, which shall be in writing,
the expert shall give fully detailed reasons therefor, and such decision
shall be final and binding on all Unit Interest Owners save in the
event of fraud or manifest error.
Issues and findings
How should the court approach challenges to expert
determinations?
A balance must be struck between respecting the parties'
autonomy in agreeing to a final expert determination on the one hand, and
acknowledging their rights to determination by the court of their
contractual entitlements on the other.
Is the striking of that balance a matter of policy?
No. It is a matter of contract.
Was it for the court to construe the Exhibit D Rules?
No. It was the intention of the parties that the expert
should place its own interpretation on the language of the Exhibit D
Rules.
On the facts of this case, was there manifest error?
No. Manifest error means oversights and blunders so
obvious as to admit of no difference of opinion.
Commentary
This case illustrated a dilemma that has been faced by
the courts before in relation to expert determinations, adjudicators'
decisions and certificates. On the one hand, where the parties have agreed
that a particular issue should be decided by a third party, then the
parties should be held to that bargain, and the decision of the third
party should be honoured. On the other hand, where one of the contracting
parties alleges that the third party has not done what was required of
him, or has reached a decision that is obviously wrong, then the court is
often tempted to intervene. The very process of considering the latter
question frequently involves the court performing the very exercise that
was agreed to be performed by the third party.
A number of recent decisions, such as in NRHA v Crouch and Crown,
Drake & Scull v McLaughlin & Harvey, Balfour Beatty v Channel
Tunnel and this one evidence the first consideration. Others, such
as Cameron v Mowlem, John Barker v London Portman Hotel and TBV
v Elm illustrate the latter consideration.
A particularly interesting feature of this case is the
observation of Mr Justice Morrison that the balance should be struck, not
on public policy grounds, but according to the language used in the
contract in question. This point is likely to be of key importance in the
drafting of adjudication rules under the Housing Grants, Construction and
Regeneration Act. Where the contract or the adjudication rules expressly
confer a wide discretion on the adjudicator to interpret the dispute being
put before him, and the basis upon which he makes his decision, then it
will be the more difficult to challenge the adjudicator's decision. If, on
the other hand, the contract or adjudication rules do not confer such
discretion, then it may be fairly easy for a dissatisfied party to
challenge the decision on the basis that he has answered the wrong
question, or approached it in an impermissible way.
There is also an interesting point arising from this case
concerning reasons. The expert was required to give reasons for his
decision, and those reasons represented the fuel upon which the challenge
was based. Had the decision been given without reasons it seems unlikely
that any challenge could have been launched at all.
Copthorne Hotel (Newcastle) Ltd v
Arup Associates
His Honour Judge Hicks QC, Official Referee
(Judgment
formally handed down 1st October 1996)
Facts
Copthorne were developers of a Hotel, and originally
instructed Mr Ronald Chipchase as Architect and Mr Tony Elliott as
Quantity Surveyor. Mr Elliott estimated that the construction cost of Mr
Chipchase's design at £9.5 million.
In order to obtain certain grants, it became apparent to
Copthorne that they would have to instruct an established national firm,
and Arup was duly instructed on a multi-disciplinary basis in place of
both Mr Chipchase and Mr Elliott.
Arup produced a number of cost plans. In the event, the
total construction cost as pleaded was £15.2 million. Copthorne sued Arup
for, inter alia, inaccurate cost estimates.
At this trial, various liabilities were decided,
including cases that:
- At a meeting in April 1988 Arup already confirmed that
the Hotel could be completed for £8 million plus or minus 5%
- That Arup's estimate in September 1988 contained an
inadequate allowance for piling (the estimate was for £425,000 against an
outturn cost of £975,000).
- That in May 1989, Arup put forward a cost plan for
£11.186 million when it should have been approximately £13.474
million.
Issues and findings
Did the plaintiff prove its case on the alleged oral
advice?
No. In particular the court noted that there were no
contemporary documents supporting the alleged oral advice.
Did the plaintiff prove its case on the cost of piling?
No. There was no available "res ipsa loquitur" argument
merely because the actual cost greatly exceeded the estimate.
Could the plaintiff succeed on the May 89 estimate?
No, because by then the plaintiff was already committed
to the project. The plaintiff's argument that South Australia v York
Montague had elided the tests for damage in tort with damage in contract
rejected.
Commentary
There has been something of a spate of viability cases
recently, although this is a very rare case of a claim against a Quantity
Surveyor for under estimating construction cost reaching trial.
Although cases such as this typically turn upon their own
facts and evidence, there are some more generalised points illustrated by
this judgment.
First, it is extremely difficult to succeed on a case
based on oral advice given years ago unless that oral advice is supported
by contemporaneous documentation. In this case, recollections of the
relevant meeting varied, and contemporaneous documentation did not
adequately support the plaintiff's case. A court is bound to be
predisposed to give a defendant the benefit of any doubt in these
circumstances.
Secondly, an interesting point arises where an estimate
is greatly short of actual cost. It is not always easy to particularise
the actual negligence, especially in cases where there is no documentary
evidence left as to how the defendant's estimate was arrived at. Suppose a
particular piece of work should have been estimated at £100,000, but was
in fact estimated at £10,000. Without knowing how that figure was arrived
at, it is often difficult to point to the particular respect in which the
defendant had got it wrong save by reference to the overall figure. This
case is a reminder that it is no good merely pointing to the outturn cost;
a plaintiff must prove that the estimate was negligent.
Thirdly, the case illustrates the well established
principle that advice given after the plaintiff has committed himself is
not ordinarily actionable. This point occurs time and again in dry rot and
DPC cases: having exchanged contracts, a purchaser calls in a dry rot/DPC
contractor, and in due course complains that the contractor negligently
failed to find dry rot/damp. In these circumstances, the dry rot/DPC
company is not liable for the cost of the bad bargain, although of course
it may be liable in respect of the further spread of the attack before it
is eventually discovered.
In this case, the plaintiff took a somewhat novel line,
arguing that this orthodoxy had been overturned by the House of Lords
decision in South Australia v York Montague. The court found that the
traditional tort test had not been varied. Thus if Lemming A says to
Lemming B as they are plunging off the cliff: "Don't worry, this is
absolutely fine" then Lemming B cannot successfully sue Lemming A in
court, however negligent the advice.
Costain Civil Engineering Limited and
Tarmac Construction Limited v Zanen Dredging and Contracting Company
Limited
Official Referees' Business
His Honour Judge David
Wilcox
(Judgment delivered 8th December 1996)
Facts
Costain and Tarmac were in joint venture for the
construction of the A55 Conwy Bypass and river crossing for the Welsh
Office. The original intention was to form a dry basin for the casting of
certain tunnel elements, and to then flood and backfill that basin. During
the course of the works, supplemental agreements were entered into such
that, instead of back filling the basin, it was used to provide a marina
for the Crown Estate Commissioners. The supplemental agreements were
profitable to the joint venture.
The main contract was ICE 5th Edition, and the joint
venture engaged Zanen under the blue form.
The joint venture instructed Zanen, purportedly by way of
variation under the blue form subcontract to execute the work necessary
to accommodate the changed plan.
By an interim award, the arbitrator found that this work
was outside the scope of the contract, such that Zanen was entitled to be
paid on a quantum meruit basis. The arbitrator awarded Zanen not only
£370,756 plus on costs in respect of the works themselves, but also a
further £386,000 to reflect the profit being obtained by the joint venture
on the work, and to reflect the competitive advantage that Zanen had, in
that they were already on site and mobilised with their equipment.
The joint venture appealed.
Issues and findings
Was the work covered by the subcontract?
No. The variations clause of a subcontract cannot oblige
the subcontractor to carry out works which are not part of the main
contractors obligations under the main contract.
Can a quantum meruit include a sum in respect of the
profit being earned by the recipient of the service?
Yes.
Can a quantum meruit take account of the competitive edge
that the provider of a service has which would enable him to strike a
better bargain?
Yes.
Commentary
This is the first judgment reported in CILL of His Honour
Judge David Wilcox, who was appointed as a London OR last year. It is a
case of very considerable importance in the assessment of quantum
meruit.
It has often been assumed that quantum meruit in
construction cases must always be assessed on a "cost plus" basis. The
construction industry has never known quite what to do with the House of
Lords decision in the mining prospecting case of Way v Latiller, which
suggests that in appropriate circumstances, the entitlement of a provider
of a service may be assessed as a percentage of the benefit obtained by
the recipient of the service.
This case makes clear that "cost plus" is not the
invariable measure for quantum meruit. The question is "what is a fair
commercial rate?". Where the recipient of the service can reasonably
expect a substantial profit from the enterprise, the fair commercial rate
may be greater than would otherwise be the case. Similarly, if the
provider of the service enjoys some other commercial advantage, such as
already being on site or, presumably, having some specialised
knowledge.
Generally speaking, this emphasis on a hypothetical
commercial bargain will generally imply a minimum of "anticipated cost
plus" because otherwise, presumably, the provider of the service would say
"no".
Dew Group Ltd v Costain Building &
Civil Engineering Limited
In this Scottish case, Lord Weir had to decide whether
the subcontract pursuers were entitled to pursue their own arbitration
against the main contractor, or whether they were bound to join in a main
contract arbitration.
On the facts of the case, Lord Weir decided that the
subcontractors were indeed entitled to pursue their own separate
arbitration.
Europa Holdings Ltd v. Circle
Industries Ltd
His Honour Judge Anthony Thornton QC
(Judgment
delivered 2nd June 1995)
Facts
This case involved claim and cross-claim arising out of
the Canary Wharf development; Europa claimed approximately £1.1m plus
interest and Circle counterclaimed approximately £420k plus interest.
In 1992, Circle unsuccessfully endeavoured to obtain a
Order for Security for Costs against Europa. Whilst it was established
that Europa, if unsuccessful, would be unable to pay Circle's costs, yet
an order for security was refused because such an order would stifle the
claim.
Europa, unable to afford continuing legal costs, sought
leave to be represented by its principal shareholder and director, Mr
Keepax.
Issues and findings
Do Sections 27 and 28 of the Courts and Legal Services
Act 1990 empower the Court to permit a company director rights of audience
and the right to conduct litigation on behalf of the company?
Yes.
Should pre-CLSA guidelines govern the exercise of the
Court's discretion in this matter?
No.
Was it right to grant Mr Keepax the right of audience and
the right to conduct litigation in this case?
Yes.
Commentary
Despite, or perhaps because of, the sums spent on this litigation, all
parties seem to have been tilting at windmills here. Neither Europa
nor Mr Keepax had the assets to meet Circle's substantive claim, and
after this Application was heard but before Judgment was delivered Circle
itself appointed a Receiver. It is thus ironic that this ultimately
futile case has been a pathfinder in two respects, ie:-
- To show that security for costs will not be
ordered where it would stifle the claim (the Court of Appeal decision
on security, reported in July 1992)
- That in an appropriate case, a company can
save on its own legal costs by being represented by a director (this
decision).
Extrudakerb v White Mountain
In July, the Queen's Bench Division in Northern Ireland
entered the debate as to whether arbitration agreements could be
incorporated by reference; it said that they could.
Expectations that the decision was to be reversed were
frustrated by settlement of the case before the Court of Appeal in
Northern Ireland could deliver its judgment.
Ferguson v Davies
Court of Appeal
Henry, Aldous and Evans
LLJ
(Judgment delivered 21st November 1996)
Facts
The plaintiff sued the defendant, initially for £486.50,
later amended to £1,745.79.
In the standard form of County Court defence, the
defendant ticked the box saying that he disputed the claim because he had
already paid it but also acknowledged liability for £150, and sent a
cheque to the plaintiff for £150 to the plaintiff "as a full payment on
the County Court Summons".
The plaintiff presented the cheque, and then sought to
pursue the balance of his claim.
At first instance, the Court decided that the plaintiff's
presentation of the cheque for £150 amounted to a compromise, such that he
was not entitled to pursue the balance. The plaintiff appealed.
Issues and findings
Had the action been compromised?
No. There is a difference between an open admission and
an offer by way of compromise. There was no consideration supporting any
compromise here.
Commentary
The question of whether a claimant who receives a cheque
for less than the full claim can bank the cheque and pursue the balance is
one that recurs time and time again. It seems that there are at least
three bases upon which the claimant may be able to pursue a claim for the
balance.
First, this case shows that if there was in fact no
dispute about liability for the sum that was paid, then there can be no
consideration to support any contract by way of accord and satisfaction in
respect of the balance.
Secondly, even if the defendant has put the whole of his
liability into dispute, then it seems that the plaintiff is entitled to
bank the cheque and at the same time write to the defendant saying that he
is accepting the cheque, not in full and final satisfaction, but on
account; that was decided in Day v McLea in 1899.
Further, it seems that if the cheque was banked by an
employee of the plaintiff company with authority to bank cheques but not
authority to compromise claims, then again there can be no binding
contract of accord and satisfaction; that was the decision of the New
Zealand case of Dunrai Manufacturing v C L North in 1988.
Floods of Queensferry Limited v Shand
Construction & Others
His Honour Judge Humphrey Lloyd QC., Official
Referee
(Judgment delivered 13th February 1997)
Facts
This case arose out of a FCEC "Blue Form" of subcontract
between the plaintiff company and the defendants for work done on the A494
Mold Bypass. The claim was for over £1 million of which £97,000 was
admittedly due subject to a counter claim of £500,000.
The plaintiff claimed against the contracting defendant
pursuant to the contract, and also for misrepresentation; the plaintiff
also made claims in restitution for other members of the defendant company
group who had taken over the business of the contracting defendant, and in
that capacity received payment from the Welsh Office.
The writ was issued in 1994. In the Autumn of 1995, the
plaintiff company was ordered to provide security for costs, and the
action was stayed until that was done. The defendants served notice of
intention to seek an order against the managing director and majority
shareholder of the plaintiff company, Mr Flood, pursuant to Section 51 of
the Supreme Court Act 1981. In consequence, the plaintiff company assigned
to Mr Flood "absolutely all its assets including the causes of action". In
February 1996, His Honour Judge Thornton allowed Mr Flood to be
substituted as plaintiff, on the basis that Clause 2(3) of the FCEC Form
did not prevent a valid assignment; the Court of Appeal reversed that
decision in December 1996.
Security was obtained by the plaintiff company.
The plaintiff and Mr Flood applied for an order that Mr
Flood be joined as co-plaintiff, and, on the basis that the plaintiff
company has no money to finance the retention of Solicitors and Counsel,
that Mr Flood be permitted to conduct the litigation on behalf of the
Company as well as on behalf of himself.
RSC Order 15 Rule 4(1) provides as follows:-
4. -(1) Subject to rule 5(1) two or more persons may
be joined together in one action as plaintiffs or as defendants with
the leave of the Court or where -
(a) if separate actions were brought by or against
each of them, as the case may be, some common question of law or
fact would arise in all the actions, and
(b) all rights to relief claimed in the action
(whether they are joint, several or alternative) are in respect
of or arise out of the same transaction or series of transactions.
Statutory Provision
Section 27(2)(c) of the Courts and Legal Services Act
provides that:-
A person shall have a right of audience before
a court in relation to any proceedings only in relation to the following
cases ... where ... he has a right of audience granted by that court
in relation to those proceedings.
Section 28(2)(c) provides that:-
A person shall have a right to conduct litigation
in relation to any proceedings only in the following cases ... where
... he has a right to conduct litigation granted by that court in
relation to those proceedings.
Issues and findings
Was the misrepresentation claim a claim for the "benefit
of the subcontract" within the meaning of Clause 2(3) of the FCEC
Form?
Yes.
Was the plaintiff's claim against other members of the
defendant company group such a claim?
No.
Did the court have a discretion as to whether to permit
Mr Flood to be joined as a plaintiff under Order 15, Rule 4(1)?
No. If the requirements of that rule were satisfied, then
Mr Flood was entitled to be joined as co-plaintiff.
Should Mr Flood be permitted to conduct the litigation on
behalf of his company?
No. Europa Holdings v Circle Industries not followed.
Is there an absolute rule that co-plaintiffs must have
common representation?
No.
Should Mr Flood be granted rights of audience on behalf
of his company?
No.
Commentary
This case and the Europa case are plainly irreconcilable,
such that we now have conflicting authority as to whether an impecunious
company can save itself the cost of engaging Solicitors and
Barristers.
In this case, Judge Humphrey Lloyd took the traditional
view that self representation is a privilege ordinarily available to
individuals but not limited companies, and that this principle applies not
only to the right to speak in Court (the right of audience) but also to
the traditional Solicitors role (the right to conduct litigation).
Mooney v Henry Boot Construction
Limited
Balfour Beatty v Kelston Sparkes
Contractors Limited
(Judgment delivered 10th July 1996)
Court of Appeal,
Staughton LJ, Simon Brown and Aldous LLJ
Facts
In each of these Appeals, which were heard together, the
subcontractors (Mooney and Kelston Sparkes respectively) had entered into
subcontracts in the FCEC Blue form. The main contractors (Henry Boot and
Balfour Beatty respectively) had obtained settlement of claims under the
main contract. In each case, arbitrators appointed pursuant to the
subcontracts ordered the main contractors to pass on a proportion of the
sums recovered by the main contractor. In each case, the Arbitrator's
awards were appealed by the main contractors.
In the Mooney v Henry Boot case, Judge Humphrey Lloyd QC.
found at first instance for the contractor, on the basis that the sum
in question recovered by the main contractor was probably not in fact
due under the main contract, and that the main contractor was entitled
to keep the windfall. In the Balfour Beatty v Kelston Sparkes Case,
Mr Recorder Crowther QC. found at first instance that, where the engineer
under the main contract gives instructions by way of variation in light
of unforeseen ground conditions, then the subcontractor is entitled
to a fair proportion of sums recovered by the main contractor in respect
of those instructions.
Contractual Provisions
Clause 10(2) of the FCEC Blue form provides as
follows:-
(1) Subject to the subcontractor's complying with this sub-clause,
the Contractor shall take all reasonable steps to secure from the
employer such contractual benefits, if any as may be claimable in
accordance with the Main contract on account of any adverse physical
conditions or artificial obstructions or any other circumstances that
may affect the execution of the subcontract Works and the
subcontractor shall in sufficient time afford the Contractor all
information and assistance that may be requisite to enable the
Contractor to claim such benefits.
(2) On receiving any such contractual benefits from the Employer
(including any extension of time) the Contractor shall in turn pass on
to the subcontractor such proportion if any thereof as may in all the
circumstances be fair and reasonable.
(3) Save as aforesaid the Contractor shall have no liability to the
subcontractor in respect of any condition, obstruction or circumstance
that may affect the execution of the subcontract Works and the
subcontractor shall be deemed to have satisfied himself as to the
correctness and sufficiency of the Price to cover the provision and
doing by him of all the things necessary for the performance of his
obligations under the subcontract.
(4) Provided always that nothing in this Clause shall prevent the
subcontractor claiming for delays in the execution of the subcontract
Works solely by the act or default of the Main Contractor on the ground
only that the Main contractor has no remedy against the Employer for
such delay.
Issues and findings
Is Clause 10(2) merely procedural, or does it give the
subcontractor a substantive right?
It gives the subcontractor a substantive right.
Does Clause 10(2) bite on what the main contractor
actually recovers, or only on what can be shown to have been due under the
main contract?
On what the main contractor actually recovers in respect
of claimable benefits.
What does "claimable" mean?
The test is whether a claim for a benefit can be made in
good faith.
Should the appeal against Judge Lloyd's decision be
allowed?
Yes.
Does Clause 10(2) bite on sums recovered by the main
contractor pursuant to instructions issued in light of unforeseen ground
conditions?
No. Clause 10(2) only bites on Clause 12 itself. There
are other provisions in the subcontract dealing with subcontractors'
entitlement for variations.
Commentary
It is ironic that the Court of Appeal has overturned both
of the first instance decisions, in the first case deciding that Judge
Lloyd was too generous to the main contractor, and in the second case
deciding that Mr Recorder Crowther was too generous to the subcontractor.
If nothing else, the case illustrates that the more procedure is built
into contractual arrangements, the more scope for legal uncertainty.
Of the cases, the first seems the more straight forward.
In short, the Court of Appeal found that the contract called for the main
contractor to pass on a fair and reasonable proportion of what it
recovered for unforeseen ground condition claims, and it was hardly a
meritorious position for the main contractor to argue, in effect, that it
should be permitted to keep the whole of its recovery on the ground that
the money had not really been due to it at all.
The second case is more surprising. Both parties had
appealed the first instance decision, and the end result, although still
entitling the sub contractor to a fair and reasonable proportion of the
main contractor's recovery, may be thought surprisingly restrictive. Under
Clause 12 of ICE, where there are unforeseeable ground conditions, the
contractors may have to change to more expensive methods. The engineer
might or might not issue a variation order in respect of the issue; the
main contractor is entitled to be paid either way. But in the light of
this new decision, it is only where the engineer does not issue the
variation order that the automatic sharing provision of clause 10(2) of
the sub contract will bite.
Although this decision is of profound importance to the
way in which subcontractors' claims must be pleaded, it may make
comparatively little difference to the end result. Whichever procedural
route is adopted, a main contractor must provide details on discovery to
his sub contractor of what he has obtained from the employer, and
arbitrators will always be predisposed to require main contractors to pass
a fair and reasonable proportion of that money "down the line".
Philip Alexander Securities v
Bamberger
In July of 1996, the Court of Appeal declared that
Section 2 of the Consumer Arbitration Agreements Act 1988, which
distinguishes between domestic arbitrations and international
arbitrations, was discriminatory and therefore impermissible pursuant to
Articles 6 and 59 of the EC Treaty.
Although this decision is ostensibly limited to the case
of consumer arbitration agreements, it is being suggested in some quarters
that, by application of the same logic, all refusals of stays under
Section 4 of the Arbitration Act 1950 are similarly illegal.
RG Carter (West Norfolk) Limited v Ham
Gray Associates Ltd
In June last year, the Court of Appeal dismissed an
appeal against the decision of Judge Bowsher reported in CILL in September
1994 (CILL page 967).
In that case, Judge Bowsher had refused to set aside a
default judgment by the defendants, following a consent "unless" order.
The facts appear from the earlier CILL report; far from finding any
grounds to review the exercise of Judge Bowsher's discretion, the Court of
Appeal endorsed Judge Bowsher's approach, and said that judgments signed
after failure to comply with an order after repeated extensions of time
and unless orders should be upheld unless substantial reasons are
advanced. Delay, said the Court of Appeal, is the enemy of justice.
Roche Products Limited v Freeman
Process Systems and Another
Black Country Development Corporation v
Kier Construction
His Honour Judge Hicks QC.
Judgment handed down 10th
July 1996
Facts
In each case, the Plaintiffs issued proceedings in Court,
and the Defendants sought a stay in order that the disputes may be
referred to Arbitration.
In each case, the arbitration clause was incorporated by
reference, and the issue arose as to whether such incorporation was
effective.
In the Roche case, there was an additional complication,
in that the plaintiff employer sued not only the defendant contractor, but
also its guaranteeing parent.
Issues and findings
Can an Arbitration clause effectively be incorporated by
reference?
Not following Ben Barrett v Boot, yes.
In the exercise of its discretion, should a stay be
refused to avoid multiplicity of proceedings?
In this case, no.
Commentary
The question of whether an arbitration clause can effectively be incorporated
by reference is now rather equally balanced. The point was addressed
directly by the Court of Appeal in Aughton v Kent, each of
the two Judges reaching directly contrary opinions. In both this case
and the Ben Barrett v Boot case, Official Referees took the point head
on, and have reached contrary decisions. There are a number of other
decisions where the arbitration clause was not treated as incorporated
by reference, they may perhaps be regarded as turning on their particular
facts.
This debate will be overtaken by the Arbitration Act
1996, the Delphic terms of which provide at clause 6(2) that:
The reference in an agreement to a written form
of arbitration clause or to a document containing an arbitration
clause constitutes an arbitration agreement if the reference is
such as to make that clause part of the agreement.
Section 5(1) of the new Act provides, however, that Part
I of the Act (which is most of it) only applies where the arbitration
agreement is in writing, and Section 5(3) provides that:-
Where parties agree otherwise than in writing
by reference to terms which are in writing, they make an agreement
in writing.
Part I of the new Act, section 9(4) says that a stay of
court proceedings is mandatory. Part II of the Act applies in the case of
domestic (ie non-international) arbitrations; section 86 provides that
Section 9 (4) does not apply in the case of domestic arbitrations, and
instead the Court does not have to grant a stay of the litigation if it
thinks that there are sufficient grounds for not requiring the parties to
abide by the arbitration agreement.
The literal effect of this rats' nest is probably that
where there is reference to a set of conditions including an arbitration
clause, that constitutes an "arbitration agreement" but not an
"arbitration agreement in writing". As such, the court still has a power
to stay court proceedings, but the substance of the new Act (Part I) would
not apply, nor the provisions of the Arbitration Act 1950 (which is being
repealed). A more attractive interpretation would be that the new
legislation is probably trying to permit incorporation of arbitration
agreements by reference. Either way, it much to be regretted that the new
Act is drafted in such an obscure way, and the different treatment of
arbitration agreements in writing and arbitration agreements that are not
in writing will leave ordinary commercial men non-plussed.
The judge then went on to revisit the subject matter of
the McAlpine v Unex case (CILL page 952). In that case, the guarantor did
not volunteer to accept the results of the arbitration, and so the court
proceedings against him were not stayed. By contrast, the guarantor in
this case was prepared to abide by the results of the arbitration, and
accordingly the action against him was stayed.
South Australia Asset Management
Corporation v York Montague Limited
United Bank of Kuwait Plc v Prudential
Property Services Limited
Nykredit Mortgage Bank Plc v Edward
Erdman Group Limited
House of Lords
Lords Hoffmann, Goff, Jauncey, Slynn,
Nicholls
(Judgment delivered 20th June 1996)
Facts
In each of these cases, Defendant valuers had made
valuations pursuant to which Plaintiff lenders had lent money. The
valuations were negligently high, and the loss suffered by the Plaintiffs
was exacerbated by a fall in the property market between the date of the
valuation and the time that the asset could be realised.
In the Court of Appeal, 6 of the cases were heard
together under the name Banque Bruxelles Lambert v Eagle Star; the whole
of the loss suffered by the Plaintiff, including that contributed by the
fall in the market, was held to be recoverable.
Issues and findings
Is a Plaintiff lender entitled to recover the extent of
the fall in the market from a negligent valuer?
No.
Is there a limit on damages recoverable in these
circumstances?
Yes, the difference between the defendant's valuation,
and what the valuation should have been.
Commentary
In the construction law context, the main relevance of
this decision is in those cases where an architect, surveyor, management
contractor or construction manager has given the employer some advice,
upon which the employer relies in deciding to proceed with the project. If
that advice turns out to be negligent, and causative of the employer's
loss (in a sense that the employer has relied on the advice in proceeding
with the project, but would not have proceeded with the project if he had
received the correct advice) is the plaintiff entitled to recover that
part of his loss which reflects the fall in the value of the property
market?
This question has arisen in a number of cases which have
recently been before the courts (see eg. Gable House v Halpern (CILL July
1995, page 1072) but recently these cases appear to have been settled
before trial of that issue. The last such case which was not settled
pre-trial was T & S Contractors v Architectural Design Associates,
reported at 1993 CILL, page 842. In that case, the Plaintiff was entitled
to recover the whole of his losses, including those caused by the fall in
the value of the property market.
In this case, the House of Lords has found that such loss
is not recoverable, but the decision is by no means as cut and dried as it
might at first appear. There are at least two circumstances in which a
plaintiff may indeed be able to recover this full loss.
First, a plaintiff may be able to recover his full loss
if he pleads the case, not by way of damages for breach of a duty of care
(contractual or otherwise) but by way of damages pursuant to the
Misrepresentation Act 1967. Such course would not have been open to any of
the plaintiffs in these valuation cases, because the contract induced by
the negligent valuations was not a contract with the defendant valuers,
but with the defaulting borrower. But in the context of at least some
construction industry cases, particularly claims against contractors who
make negligently optimistic assessments of what is achievable, an action
pursuant to the Misrepresentation Act may be possible, and indeed
preferable in that the burden of proof of negligence is effectively passed
to the defendant.
Secondly, a plaintiff may be able to recover the fall in
the value of the market by a contractual route if there is a warranty of
some sort from the defendant. Lord Hoffman was careful in his judgement to
distinguish the measure of damages for breach of warranty from the measure
recoverable for injury caused by negligence, but his reasoning is markedly
opaque. He seems to equate damages for breach of a contractual duty to
take care with a tortious duty, but where does that leave the ordinary
implied collateral warranty in these cases, formulated by Lord Denning in
Esso v Marden as a warranty that the estimate be a sound and reliable
estimate?
The position is not clarified by Lord Hoffman's example
of the mountaineer, where there would appear to be no causative link at
all between the negligent diagnosis and the mountaineer's injury.
It thus remains a matter of some speculation as to how
these loose ends will be tied up.
St Albans City and District Council v
International Computers Ltd
In the Summer 1996 Review we noted that the first
instance decision in this case, where the local authority was obtaining a
windfall, had been remarked upon with surprise.
That aspect of the decision was overturned on Appeal by
the Court of Appeal in August. The case concerned software errors whereby
the community charge rate was set too low for 1990/1991. The Court of
Appeal found that the local authority could not recover by way of damages
from ICL, the loss of community charge that it was able to make good
later.
St Modwen Developments Limited v
Bowmer & Kirkland Limited
(Judgment delivered 20th August 1996)
His Honour Judge
Fox-Andrews Q.C.
Facts
The Plaintiff (SMD) engaged the Defendant (BK) for the
construction of an office block. Disputes arose. Mr Harold Crowter was
appointed arbitrator. There was an express agreement, recorded in Mr
Crowter's Order for Direction number 1:
It is agreed that I may use my professional knowledge and
experience in assisting in the determination of any of the matters
in dispute in this reference, although the parties are given leave
to address me further on this point at the pre-hearing review.
By his first interim award, Mr Crowter awarded BK the sum
of £57,549.29 for shortfall in the recovery of company overhead
requirements due to prolongation of the financial period with financial
charges and simple interest. SMD applied for an order that such award
should be set aside or alternatively remitted for the reconsideration of
Mr Crowter together with the court's opinions on the questions of law
arising.
Issues and findings
Had the arbitrator misdirected himself by awarding loss
of head office overheads on a formula basis?
After reviewing the authorities, no.
Commentary
This decision does not break new ground, but it does
drive yet another nail in the coffin of the argument that formula
calculations are never appropriate.
In line with modern thinking, the decision underlines the
point that the formula should not be applied indiscriminately; it should
only be applied where there is evidence that the delayed contractor was
there by prevented from earning overhead recovery on other
projects.
Sweatfield Limited v Hathaway
Roofing Limited
Sir Michael Ogden QC., sitting as a Deputy High Court
Judge.
(Judgment delivered 31st January 1997)
Facts
The plaintiff, formerly known as JT Design Build Limited,
subcontracted roofing and cladding work to Hathaway.
The subcontract work fell behind, partly because of bad
weather, and partly because of earlier disputes between JT and Hathaway
which, while settled, impaired cordial relations between JT and
Hathaway.
On 27th January 1995, JT complained that Hathaway's
operatives were not working a full day, and sought Hathaways assurance
that Hathaway would use its best endeavours to mitigate further
deterioration of the programme, and would work normal site hours.
In a telephone conversation on 1st February, JT asked
Hathaway to increase the number of men on site; Hathaway said that would
not be practical, but if JT issued an instruction to accelerate then
Hathaway would respond by setting out the additional costs involved. JT
adverted to their intention to bring additional men on the site; Hathaway
objected to that course.
On the following day, JT bought onto site 6 operatives
from another subcontracting company; it was found as a fact that those
men were undertaking Hathaway's subcontract work.
Hathaway immediately left site, and claimed that JT were
in repudiatory breach.
JT claimed that Hathaway were in repudiatory breach by
leaving site.
Issues and findings
Were JT in repudiatory breach by ordering or permitting
those other workers to do Hathaway's subcontract work?
Yes.
Commentary
The interesting point about this case is not so much that
JT were in breach by bringing on the additional men, but that that breach
should be regarded as repudiatory. The amount of subcontract work that
had been executed by the additional workmen seems to have been very small
indeed, and it seems that no de minimis or similar approach was
considered.
The legal doctrine of repudiation was not explored in
detail in the judgment. Traditionally, it is thought that there are two
circumstances in which a breach of contract by one party may be treated as
repudiatory namely:-
- Any breach of condition, ie. a term which the parties agreed,
whether by express terms or implication of law is such that any breach
shall entitle the other to terminate the contract.
- Fundamental breach, ie. where the breach of any term (whether
condition, warranty or intermediate term) is so grave as to have the
effect of depriving the other party of substantially the whole of the
intended benefit of the contract.
It is not immediately evident into which category the
supplementation of labour falls, and it is interesting to compare the
approach of Deputy Judge is that of Lord Wilberforce in Woodard Investment
Development Ltd v Wimpey Construction U.K. Ltd [1980] 1 WLR 277, in which
he said:
Repudiation is a drastic conclusion which should
only be held to arise in clear cases of a refusal, in a matter going
to the root of the contract, to perform contractual obligations.
Following this decision, main contractors, management
contractors and construction managers will need to be particularly
cautious before bringing in labour to supplement that of a slow moving
subcontractor.
Is the main contractor any better off in omitting part of
a slow moving subcontractor's work, in order to then let it to someone
else? Probably not, because to omit work with a view of letting it to
someone else is ordinarily regarded as a breach of itself. Ironically, the
likely effect of this decision will be to encourage main contractors to
determine subcontracts in their entirety pursuant to express
provision.
There is also something of a moral for those who draft
subcontract conditions on behalf of main contractors: include an express
right to supplement the subcontractor's labour if the works fall behind
program.
TBV Power Limited v Elm Energy
Mr Recorder David Blunt QC., Deputy Official
Referee
(Judgment delivered 19th July 1996)
Facts
TBV agreed to design, construct and install for Elm a
rubber tyre fuelled electricity generating plant. Under the contract, Elm
was entitled to reject the plant in it entirety, and to repayment of all
sums paid if the plant failed to achieve the certificates from the
engineer as to performance of the plant. The engineer held that the plant
had failed to meet the required levels of performance. Elm rejected the
plant and claimed to be entitled to repayment of sums as certified by the
engineer and upheld by the adjudicator of some £29 million.
TBV issued proceedings challenging the validity of the
engineer's decisions on the grounds of unfairness and/or failing to have
regard to material circumstances. Elm sought to strike out that claim
under Order 18 Rule 19 on the ground that, the plant having failed to
achieve the minimum performance criteria laid down in the contract, the
engineer was
required
to issue the certificate in question, and
accordingly that no judgement or exercise of discretion was involved.
Issues and findings
Should the claim be struck out?
No.
Commentary
This decision represents an interesting contrast with the
Conoco Decision.
The key point is essentially a procedural one. All TBV
had to do was to plead a case that, on the facts, the contractual
machinery had broken down. The court could not determine that question
without a full trial. An earlier attempt by Elm to obtain Summary Judgment
pursuant to the Bond had been unsuccessful.
The practical effect of the judgment is to render the
contractual machinery largely worthless, insofar as the contractual
machinery was intended to provide a prompt and certain way of resolving
disputes. As in the Conoco case, the moral appears clear - a
certification/adjudication procedure is unlikely to be effective unless
there is clear express language showing that the certificates/ decisions
are enforceable summarily even in the case of challenge.
Tony Cox (Dismantlers) Limited v Jim 5
Limited
(Judgment delivered 28th August 1996)
His Honour Judge
Bowsher QC. Official Referee
Facts
An agreement was entered into between the Plaintiffs, who
were demolition specialists, and the Defendants, who were builders,
whereby the Plaintiffs were to transfer certain development land to the
Defendants, and to execute certain infrastructure work, in respect of
which they were to be paid a price of £800,000. The agreement made no
mention of VAT.
Issues and findings
Was the £800 to be regarded as inclusive or exclusive of
VAT?
Distinguishing Franks & Collingwood v Gates,
exclusive
Commentary
It is perhaps surprising that this issue has not been
before the courts more often. It is clear that when a consumer in a shop
is quoted a price for a pound of beans, then she does not have to pay VAT
on top. It is also clear that when one contractor quotes another a rate
for brickwork, then VAT must be paid on top. It is by no means always
clear where the borderline between these two cases will lie.
Where the employer is a consumer, and she accepts a quote
for building work which made no mention of VAT, then Franks &
Collingwood v Gates (1983) CILL p 30, 1 Con LR 21 probably remains good
authority for the proposition that VAT is to be treated as included in the
price, regardless of the employer's nationality or residence. It is worth
bearing in mind that the point is not merely one of construing the
contract; even if the price is treated as exclusive of VAT, it is be no
means clear that the contractor can require the employer to pay the VAT.
After all, the VAT legislation requires the contractor to account to
Customs and Excise for the VAT, with no statutory right over against the
employer, and the question arises: "What is the contractor's cause of
action to recover the VAT from the employer?". In the light of the
statutory position, it is difficult to see that any term could be implied
as a matter of law. It would require a clear case to justify rectification
of a contractual provision from "A shall pay B £100" to "A shall pay B
£117.50". Similarly, for a term for the payment of VAT to be implied as a
matter of business efficacy it would have to pass the officious bystander
test, i.e. whether both parties would have said "Of course" if asked
whether VAT was to be paid on top. In practice, the employer may need to
do little more than assert that she expected the contractor to be
responsible for the VAT to prevent rectification or the implication of a
term as a matter of business efficacy.
ORSA EXPERT WITNESS
PROTOCOL
OFFICIAL REFEREE'S SOLICITORS
ASSOCIATION
EXPERT WITNESS - PROTOCOL
CONSULTATION DRAFT
ORSA believes that the relationship between solicitors
and expert witnesses is of the utmost importance in view of the duties of
both to the court or other tribunal. This protocol has been prepared with
a view to assisting clarity of communication and to provide a framework
against which solicitors and experts are able to operate freely. It is not
intended that this protocol should operate in a rigid way but that
reference to it will enable experts and solicitors to consider key areas
at an early date.
PROTOCOL.
A. Selection
1. The solicitor shall provide sufficient information
to the expert to enable him to confirm whether or not the issues, as
identified by the solicitor, are matters on which the expert is
competent to act as expert witness. ORSA encourages the appointment of
experts who maintain active professional practices.
Conflicts and confidentiality
2. The solicitor shall provide the expert with a list
of relevant parties and the expert shall state whether or not he has any
connection with any of the parties named or reasonably inferred from the
list.
Information
3. The expert should normally expect to provide
information about his experience and suitability for the role in which
he is under consideration together with details of his proposed basis of
charge. If the solicitor intends to approach more than three persons to
discuss their potential suitability for an appointment as an expert
witness, he should inform each expert that he is one of a number under
consideration.
Independent of Expert
4. In any selection and appointment process the
solicitor should remember that a witness who is not selected or whose
appointment is subsequently terminated may be free to take an
appointment from other parties. The solicitor may wish to ensure that
documentation and information made available as part of any selection
process is carefully chosen and when necessary documentation is
retrieved at the end of the process or an appointment.
B. Brief
5. As soon as possible after the expert has been
appointed the solicitor shall explain the client's commercial and legal
objectives in a manner commensurate with the independence of the expert
and prepare for the expert a brief which shall be in a form suitable for
the nature and complexity of the matter on which the expert is asked to
form an opinion. The Brief will normally contain the following
information:
- Party making appointment.
- Subject matter.
- Contacts.
- Nature of proceedings.
- Timetable fixed in any proceedings and current status.
- Pleadings in any action which has commenced.
- Details of other experts appointed by the party making appointment
and others if known with field of expertise.
- In a large or complex matter the method by which experts are to
co-ordinate their services. Is there to be a lead expert with which
other experts will liaise?
- Area in which the expert is called upon to give his opinion.
- Specific issues on which the expert is asked to advise and the
context of the expert's role. In an appropriate case the solicitor
should prepare a detailed Statement of Issues for the expert.
- Time scale with which the expert is asked to prepare:
- initial review and advice as technical issues pleaded;
- draft report for discussion and review of brief;
- report for issue.
- Details of key documentation and details of location of all relevant
documents. In a straightforward case appropriately bundled documents
should accompany the brief but in a complex case the expert may be
required to review documentation and the brief itself will contain only
limited documentation.
- The brief should outline principles of privilege and discovery.
6. On receipt of the brief the solicitor and the expert
should review the nature and extent of the brief with regard to the role
of the expert and the roles of any other experts appointed by the
solicitor. The proliferation of experts should be avoided. The solicitor
should be aware that there may be no need to appoint an expert in every
relevant discipline and that a carefully selected expert may be able to
cover more than one area.
7. The solicitor and the expert should keep the brief
under review at all times and advise each other if relevant issues
change in the material way. The expert should not undertake work outside
the brief without the approval of the solicitor.
8. The scope of the expert's appointment should be
defined and the expert appointed in a way that will avoid costs being
wasted or too many experts appointed.
9. The solicitor may wish to discuss with those
representing other parties the matters on which expert opinion is
required in order to assist and refine the brief.
Timescales
10. The solicitor and the expert shall agree the
overall timescale and the programme within which the expert shall work.
If the solicitor or the expert becomes aware of any matter likely to
affect that timescale, each should advise the other. The exact timing
and sequence will vary from case to case. These issues should be
discussed at an early stage.
Hearing date
11. The solicitor should keep the expert advised of the
timescale set in any litigation or arbitration or of any timetable which
is to be met and of any changes that are likely to be made including the
expected length of, or dates of, any hearing or trial.
12. The expert when advised of any hearing or trial
date on which he is likely to be required to attend or give evidence
shall make that date available and inform the solicitor if there are any
pre-existing commitments likely to affect the expert's ability to fulfil
the appointment.
13. Where the expert has pre-existing commitments the
solicitor and the expert shall work together in order that the interests
of the client can best be served. The expert shall not take on new
commitments which might interfere with his existing responsibilities
without assessing the position with the solicitor.
C. Reports
14. The report should normally be issued as a draft for
discussion which should be accompanied with any documents not originally
supplied by the solicitor to the expert. The solicitor and the expert
should discuss the format of the report. It is wise for the solicitor
and the expert to test the experts' opinions in the light of alternative
facts contended for by the client's opponent.
15. When the expert's report has been finalised it will
normally be exchanged by the solicitor and not by the expert. Most
usually simultaneous exchange is appropriate, but in certain cases
sequential exchange may be required. The expert and the solicitor should
discuss this early in the appointment.
16. The expert and the solicitor will need to review
the status of the report if the underlying facts change or if the
expert's opinion alters.
D. Without prejudice meetings
17. It is common practice for a tribunal to order the
parties' expert witnesses to meet to identify those parts of their
evidence which is in issue. There is no standard format for such
meetings. What follows is intended as a guide.
18. Meetings of experts should normally take place
before exchange of the experts' reports. The predominant view of ORSA is
that if exchange takes place first it is more likely that "positions"
are taken too early to the detriment of proper discussion at the
meeting.
19. The meeting is likely to be most effective if it is
chaired by one expert and if an agenda is agreed in advance. It is
appropriate for the parties' solicitors in conjunction with the expert
to identify matters in issue to determine items for the agenda. Lawyers
and clients should not be present at the without prejudice meeting of
experts. It is important that the meeting of experts addresses the
matters of expert evidence that relate to the matters in issue in the
proceedings. The meeting is not the place for the lawyer to "surprise"
the other party's expert with a new theory or new documents.
20. Close liaison will be necessary between solicitor
and expert in order to make best use of the meeting. Occasionally it
will be appropriate to have meetings of experts to more than one
discipline, usually as a follow on from the initial meeting. For
example, Architect, Structural Engineer and Quantity Surveyor, where
appropriate, from all parties, might meet to discuss the nature and
extent of remedial works contended for.
E. Notes of without prejudice meetings
21. The expert should report to the solicitor promptly
after the meeting and discuss any apparent agreement or narrowing of
issues.
22. The expert should, in conjunction with other
experts of like discipline, prepare a written note signed by each of
them as to matters of opinion on which they are agreed and the matters
on which they are not agreed. The note should where possible give brief
reasons for the views held. It should be remembered that matters of fact
are for the tribunal or the agreement of the parties and not matters for
the experts to agree between them.
23. If areas of apparent agreement on matters of
opinion emerge at a without prejudice meeting, it is good practice to
record these promptly to ensure accuracy. It may be appropriate for the
expert to reflect on the issues following the meeting. A solicitor
should not instruct an expert to apply pressure upon other parties'
experts.
24. The expert does not normally have authority to bind
the client but the solicitor should make sure that the expert is aware
that matters which the expert agrees in a note of the meeting may be
binding on him.
25. The solicitor shall never impede the expert in
reaching agreement or forming an opinion but can give guidance to the
expert in formulating the note to reflect the matters in issue in the
proceedings.
F. Expert's duty and reporting
26. The expert will comply with the requirements of the
brief and exercise the reasonable skill and care of a person of the
expert's profession, occupation or experience in providing advice on the
matters in issue and in giving evidence the expert will act
impartially.
27. The expert shall not express a final concluded
opinion until all relevant issues of fact have been considered by him.
The expert will advise the solicitor if the brief appears incomplete or
whether the expert believes other information is likely to be
available.
28. The expert shall advise and assist the solicitor
generally where appropriate beyond the matters on which the expert is
required to give a formal opinion. The expert's reports should contain
the substance of the expert's evidence which it is intended to give at
the tribunal and should be prepared in a clear and succinct manner. The
solicitor and the expert should discuss the format of the report. It is
not the role of the expert to make a finding of fact and where an
opinion depends upon facts which are in issue this should be clearly
stated.
29. The solicitor will throughout the currency of the
appointment keep the expert up to date with information and issues as
they relate to the appointment. The expert will keep any opinion or
professional opinion under review and have regard to all relevant
matters when advising and assisting the client and the solicitor.
G. Fees
30. Fees should be clearly agreed at the outset of an
appointment. An appropriate breakdown and hourly rate equivalent should
be provided. Fees shall be inclusive except where expressly stated and
agreed otherwise.
Budget
31. The expert should normally provide a budget for
various stages of any appointment where the work is identifiable. The
solicitor and the expert should have regard to fees being proportionate
to the value or importance of the matters in issue.
Payment of fees
32. The expert and the solicitor should consider and
agree whether the solicitor appoints the expert and is responsible for
the expert's fees, or whether the solicitor acts as agent for the client
by whom all invoices are to be paid.
33. It should be made clear and agreed at the outset
how regularly fee invoices are to be rendered and what level of
information they are to contain and whether they are to be sent to the
solicitor or the client. The expert shall provide supporting information
and keep accurate contemporaneous records sufficient to justify the fees
claimed or as may be required in any taxation of costs or similar
procedure.
34. The solicitor should always advise the expert where
the agreement and payment of the expert's fee is subject to the approval
of legal expenses insurers and will notify his expert of any ceiling on
fees.
35. If the expert is appointed in a case where the
solicitor's client has a legal aid certificate in force the solicitor
must advise the expert of the basis on which interim fees can be claimed
from the legal aid fund and whether the expert is appointed on the basis
that the expert fees may be reduced on legal aid taxation.
Cancellation and commitment fees
36. If the expert is required to reserve dates in his
diary for a hearing he may wish to agree a reasonable cancellation
charge payable if that reservation is subsequently not required. The
level of charge, which may be on a sliding scale, should aim to
compensate the expert for disruption and inefficiency in rearranging his
diary at short notice and not aim to provide remuneration for the whole
of the period cancelled. Cancellation charges shall only apply if they
have been discussed and agreed at the outset of the appointment. The
expert should not normally charge a minimum or commitment fee.
Security
37. Where the solicitor has appointed the expert as
agent for the client, the expert may request that the client lodge with
the solicitor, or in a designated account, sufficient monies as may
provide reasonable security for the likely fees of the expert. The
solicitor and the client will have regard to the financial status of the
client.
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