Recent construction cases round-up 5

United Kingdom

Dinkha Latchin t/a Dinkha Latchin Associates v General Mediterranean Holdings SA & another [2003] EWCA Civ 1786

If an employer has asked a professional to perform work on a speculative basis up to a certain point in a project's development, this should be made clear from the outset and regularly re-iterated. An employer who ignores this advice risks being presented with an unexpected and unwanted bill for fees that the courts, depending on the facts, are likely to enforce.

The Claimant was an architect who was demanding payment for services provided in relation to 4 aborted projects in Tangiers. The architect claimed that, although there was no express agreement between the parties, he was nonetheless engaged under a contract and was therefore entitled to be paid. The Defendant maintained that the work was carried out by the Claimant on a speculative basis in the anticipation that fees would be earned if, and only if, any of the projects went ahead and the Claimant was formally appointed as the architect.

The Court of Appeal reiterated the accepted position, originating from the perceived commercial reality, that in the absence of any other facts, the giving to and carrying out of instructions by a professional normally gives rise to an implied promise to pay. It then refused to overturn the trial judge's finding that the conduct of the parties was such as to give rise to an intention that beyond a certain date (which had been identified by the trial judge as a finding of fact) any further work by the Claimant would be remunerated. Consequently an agreement for fees to be paid had to be implied.

Evidence crucial to the trial judge's finding of fact as to the date when the parties agreed the architect should be remunerated for his work included the Defendant instructing the Claimant to do substantial amounts of design work and to go to Tangiers to liaise with various parties.

Hallamshire Construction plc v South Holland District Council [2004] All ER (D) 139

The case is a useful reminder of the problems that can arise in situations where parties want to continue with substantial additional works but have not agreed the details relating to those works.

Hallamshire Construction plc (HC) was the main contractor for the first phase of the refurbishment of the South Holland Centre, a theatre and arts complex in Spalding, Lincolnshire. HC's contract with South Holland District Council (SH), the owners of the centre, incorporated the JCT 1980 Local Authorities version with Quantities form of contract. HC successfully tendered for the phase two works, which concerned fitting out works, but difficulties arose regarding the negotiation of the bills of quantities. These problems had still not been resolved by the time that SH wanted the phase two works to commence. The parties therefore agreed that this phase would be dealt with by means of a variation to the existing contract issued by way of an architect's instruction (AI). The AI provided that the phase two works would be carried out in accordance with the bills of quantities, drawings and specifications that were the subject of negotiation between the parties with "all costs in connection with this variation to be agreed at fair and reasonable costs" by the quantity surveyors nominated under the contract. The phase two works were completed while the bills of quantities were still being negotiated. A dispute as to HC's fees arose, causing the matter to be referred to arbitration.

HC argued that the AI did not have contractual effect as a variation, meaning that no contract existed governing the phase two works. This was on the grounds that the basic contractual principles of offer and acceptance had not been satisfied. Instead there was no more than an agreement to agree, which is not enforceable in English law. Consequently HC was entitled to be paid on a quantum meruit basis.

HC also contended that the AI had not been complied with anyway on the basis that no agreement as to price had been reached. This was because the wording in the AI that "all costs in connection with this variation to be agreed at fair and reasonable costs [by the quantity surveyor]" required a complete bible of work items and prices as a whole, which never occurred. The wording did not envisage a process where rates in the bills could be agreed individually in a piecemeal fashion.

The arbitrator found that the AI did have contractual effect as varying the existing contract, and that in compliance with the AI the parties, through a process of negotiation and conduct, had reached agreement with regard to both scope and price. In accordance with the contract between the parties, HC was able to appeal to the High Court on any questions of law arising out of the award made in the arbitration.

The court found that the issue of whether the AI had contractual effect did not raise an issue of law and therefore could not be appealed. However the question as to whether the AI required the bills of quantities to be agreed on a composite or piecemeal basis was appealable. The court found that the process of agreement required of the quantity surveyors was one involving the agreement of individual work items and their cost, not the negotiation and finalisation of an entire contract or a composite set of bills of quantities. Applying the arbitrator's findings of fact, an agreement had been reached as to both the scope and cost of the work to be undertaken.

Bath & North East Somerset District Council v Mowlem Plc [2004] EWCA CIV 115

The courts demonstrated a more flexible approach to the granting of interim injunctions and hinted at a willingness to use injunctions to break deadlock between employers and contractors and ultimately get projects moving again.

The council entered into a contract with Mowlem for the restoration of the historic spa building. After the work was supposedly complete problems with the paint that had been applied to the pools became apparent. The contract used by the parties, which was based on the JCT Standard Form (Local Authorities with Quantities) 1998 edition, required the contractor to comply with instructions issued by the architect. Failure to do so within a 7 day period entitled the employer to engage others to carry out the requested work.

The council's architect instructed Mowlem to remove the paint, but Mowlem refused, causing the council duly to instruct another contractor to do the work. Mowlem then refused the new contractor access to the site, forcing the council to obtain an interim injunction to prevent Mowlem from denying access. Mowlem appealed against the interim injunction.

The case of American Cyanamid v Ethicon (1975) introduced a "balance of convenience" test to be applied in deciding whether interim injunctions should be ordered. Essentially the risk to a plaintiff who is ultimately successful at trial that the damages awarded will not adequately compensate for the loss suffered should be balanced against the risk of the same to the Defendant. Mowlem relied on the fact that the contract provided for the payment of liquidated damages in the event of delay to argue that if the council were ultimately successful at trial regarding the paint liability issue, they would be adequately compensated. This was on the basis that the only loss in the meantime would have been delay, which would be addressed by the liquidated damages clause.

The Court of Appeal refused to over-turn the interim injunction. Instrumental to this decision was the finding that at trial the council would be able to rely on the actual, and probably higher level of loss that it would suffer without the injunction, which liquidated damages might not cover.

The council could also rely on wider considerations, namely the likelihood that delay to the project would cause loss to the general public by adversely affecting economic regeneration in the area generally. Finally the Court of Appeal was seemingly influenced by the fresh impetus that granting the injunction would give to the progress of the project:

"It is frankly ridiculous to suggest that, in a situation in which there is no obvious disadvantage to Mowlem if an injunction is granted, that the court should decline to grant an injunction and thereby leave sterilised in some sort of limbo the completion of the Bath Spa project for who knows how long".

Co-operative Group (CWS) Ltd v International Computers Ltd [2003] EWCA CIV 1955

A recent decision of the Court of Appeal decision emphasised that at trial, not only must justice be done, it must be seen to be done as well.

The Claimant (CWS) had alleged repudiatory breach of contract (a contractual breach that entitles the other party to treat the contract as discharged) and misrepresentation by International Computers Ltd (ICL) relating to an alleged contract under which ICL had agreed to develop a software system to integrate the computer system in CWS's stores. The trial judge, HHJ Seymour QC, found there had been no contract between CWS and ICL, and that even if there had been, ICL had not breached it, repudiated it, or gained it by any misrepresentation.

However, in arriving at this decision, Judge Seymour made adverse findings regarding the motives of CWS's senior managers, the credibility of its witnesses and the competency of its legal advisors. CWS appealed the overall decision on the grounds that this was unfair and tainted the whole judgment.

The Court of Appeal was only concerned with the decision making process employed by Judge Seymour – not the final decision itself. The Court of Appeal ruled that the judge's findings of bad faith and false evidence against CWS, its principal witness and a CWS employee who was not even a witness, had rendered the trial unfair. This was because even though these findings heavily influenced Judge Seymour for the purpose of deciding other disputed issues of fact and law in the case, CWS had no opportunity to rebut them. For example, ICL at no point during the proceedings raised any issues of this nature and Judge Seymour only made his concerns known in his written judgment - not during the trial itself. Consequently, "to ensure that justice and fairness are seen to be done", CWS was entitled to a retrial.

For further information please contact Stephen Hodgkins at stephen.hodgkins@cms-cmck.com