Articles from the Silver Shemmings Ash Team on contractual matters, recent case law changes and items of interest in the construction and property world

Severing an adjudicator’s decision in MTD Contractors Ltd v Willow Corp Sarl

August 19, 2019 | Silver Shemmings

In the second of two adjudications the referring party sought, amongst other things, a declaration as to the proper construction of a supplemental agreement between the parties in respect of delay and the granting of practical completion. The adjudicator found that practical completion should be granted once a schedule of outstanding works had been agreed. In subsequent Part 8 proceedings the Court held that this element of the decision could be severed as it was a “short and self-contained issue”, albeit one which was a “plain error.” The Court concluded this was possible as the remaining elements of the decision could be enforced. 

What happens when letters of intent have expired and building contract is unsigned in Anchor v Midas

The Court held that the absence of a signature would not preclude a party from being bound to a building contract if it had been substantially agreed. The Employer in this case refused to sign a contract following expiry of the letters of intent it had issued because it wished to further negotiate the risk register. The bases upon which the Court found the Employer was bound by the Contract were as follows:

  • Agreement to the contract sum; 
  • Agreement to the schedule of amendments; 
  • Agreement to Novation and form of agreement; 
  • The Contractor’s monthly reports noted that the Contract had been agreed; and 
  • The Contractor had issued payment applications and extensions of time under the Contract. 

Refusal to stay enforcement on basis of outcome in related proceedings in MTD Contractors Ltd v Willow Corp Sarl

The parties endured three adjudications, as follows:

  1. The first moiety of the retention
  2. A Pay Less Notice (which dealt with deductions for defects)
  3. The second moiety of the retention 

The Employer commenced Part 8 proceedings to halt enforcement of A3 on the basis of the connection between the validity of any defects decided under A2, and the release of the remaining retention. 

The Court found this connection was exaggerated, there also being no natural justice issues. It declined to hear the Part 8 proceedings at the same time as the enforcement proceedings. The decision from A3 was accordingly enforced. 

Using a trading name during an adjudication does not invalidate it in MG Scaffolding (Oxford) Ltd v Palmloch

In its notice of adjudication, the referring party designated the respondent as “MCR Property Group”, a trading name of Palmloch. The Court determined that the notice was still valid, on the following bases:

  • This was the trading name used by the respondent on its invoices and on the purchase order itself; 
  • On an objective analysis, the reasonable recipient would have been able to identify the correct party; and
  • In substance over form, the notice would be understood, unambiguously, to refer to the correct party. 

When is a construction contract not a construction contract in Engie Fabricom UK v MW High Tech Projects UK

The defendant in this case was the main contractor on the Energy Works Hull project, procured under an EPC arrangement to construct a gasification plant. It subcontracted the construction activities to the claimant, Engie. Following a payment dispute, Engie referred the matter to adjudication and obtained an award in its favour. High Tech made jurisdictional challenges from the outset, alleging that, as the “primary activity” of the site was power generation, the adjudicator had no jurisdiction by virtue of section 105(2) Construction Act (the Act being incorporated into the contract by way of the following amendment: this clause 47 applies only to the extent (if any) required by the Construction Act 1996, as amended.) The judge was referred to several authorities (as below), eventually finding that the High Tech had a real prospect of defending the claim:

  • Conor Engineering v CNIM in which it was held that the primary activity of a site housing a new plant for both waste incineration and electricity generation was waste incineration. 
  • North Midland Construction v AE&E Lentjes in which it was held that power generation was the main activity on a site (which formed the background to the steelwork dispute). 
  • Laker Vent Engineering v Jacobs E&C in which it was held that the primary activity on a site with a paper plant and a CHP plant used to power it (and taking up only 10% of the site) was paper production. 

With the application for summary judgment dismissed, the matter shall now proceed to trial. 

The meaning of “disallowed cost” in Network Rail Infrastructure v ABC Electrification 

ABC was engaged by NR under an ICE Target Cost contract. NR had amended the definition of “Disallowed Cost” to include anything due to the negligence or default of the Contractor. 

In proceedings, NR then sought to argue that costs arising out of a breach of any of ABC’s obligations under the Contract should be Disallowed Cost (and therefore totally at ABC’s risk). Although ABC responded that this interpretation would sit at odds with the ethos of a target cost contract, the Court sided with NR, adopting the ordinary and natural meaning of the word “default”. CE commented that this case should serve as a “red alert” to contractors under Prime Cost contracts and that while amendments to the Disallowed Cost definition are not uncommon, they are normally more narrowly categorised (i.e. deliberate default).

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