Do notice provisions act as a condition precedent to entitlement to loss and expense?

FES Limited v HFD Construction Group Limited [2024] CSOH 20

Factual Background

HFD Construction Group Limited (HFD) entered into a contract with FES Limited (FES) to carry out fit-out works to a new office building in Glasgow. The contract was based on the Standard Building Contract with Quantities for use in Scotland (SBC/Q/Scot) (2016 Edition) with bespoke amendments.

During the COVID-19 pandemic, the project and FES encountered numerous delays. A dispute then arose over FES’ entitlement to an extension of time and FES’ claim for related loss and expense under the contract.

The dispute was referred to Adjudication in 2022. The main crux of the dispute was FES’ failure to give notice under clause 4.21.1 and whether the requirement to give notice was a condition precedent to any entitlement to loss and expense.

The entitlement to loss and expense in the contract is under clause 4.20.1, which is “subject to … compliance with the provisions of clause 4.21“.

It is worth noting that although these provisions apply to the Scottish JCT standard form, they directly align with the English and Welsh JCT Standard Form and so are relevant to dispute in England and Wales as well as in Scotland.

The Adjudicator found that the notice provisions were a condition precedent and therefore FES had no entitlement to loss and expense.

FES referred this matter to the court and requested a declaration that the notice provisions were not a condition precedent.

Judgment

The Judge held that the Adjudicator was correct. Clause 4.20.1 was a condition precedent and in turn, this meant that FES had no entitlement to loss and expense.

The Judge considered that the contract had been prepared by skilled professionals and that there was no ambiguity in the wording, therefore there was no need to analyses what may be regarded as commercial common sense.

“There is no nonsensical or absurd result arising from giving the words in the clause their ordinary or plain meaning in the context of the contract, or clauses 4.20 and 4.21, as a whole.”.

FES had raised numerous arguments based on commercial and practical sense but the Judge held that although it may be useful to look at this material to provide context for the debate, it cannot override the plain meaning of the words expressly used in the contract.

Takeaway points

• The wording ‘Subject to compliance with’ will likely be interpreted as a condition precedent, which is particularly noteworthy for entitlement to loss and expense claims under the JCT Standard Form.
• Parties should err on the side of caution and ensure strict compliance with the notice provisions to avoid losing any entitlement to claims they may have.

Does paying an adjudicator’s fees waive the right to resist enforcement for breach of natural justice?

Essential Living (Greenwich) Limited v Conneely Facades Limited [1]

Factual Background

Essential Living (Greenwich) Limited (“Essential“), applied for summary judgment against Conneely Facades Limited (“Conneely“), to enforce an adjudicator’s decision.

Conneely resisted enforcement on the grounds that there had been a breach of natural justice. Conneely claimed that the Adjudicator had pre-determined the case and therefore was apparently biased in his decision.

Essential engaged Conneely under a trade contract to carry out the design, construction, coordination and commissioning of rainscreen cladding, curtain walling, glass doors and glass screen works at a development at Greenwich Creekside.

The adjudication, referred by Essential, related to a claim for declarations to the effect that the Corium brick slip cladding system, designed and installed by Conneely, was defective. The claim amounted to circa £1 million.

Following the referral by Essential, Conneely sought disclosure of a previous adjudication decision and associated expert reports between Essential and another trade contractor. It was argued that these materials supported Conneely’s case that the defects were a result of breaches of contract by other parties and not due to any workmanship failures by Conneely. Conneely also argued that the documents would show that Essential were seeking double recovery of costs. The Adjudicator rejected the disclosure application on the grounds that the documents predated the defects by several months, the two trade contractors had different work packages and that the suggestion of double recovery was fanciful. Conneely later dropped its argument on double recovery.

The test for assessing whether there has been apparent bias is whether the fair-minded and informed observer would conclude that there was a real possibility that the decision-maker was biased [2] [3]. In the adjudication context this includes the following key principles:

• Adjudication decisions should be enforced summarily unless there is a serious breach of the rules of natural justice [4].
• Such breach must make “a material difference to the outcome” [5].
• The courts should approach complaints about alleged breaches of the rules of natural justice in adjudication with a degree of scepticism [6] [7].
• The adjudicator is not an arbitrator or a judge but has to carry out “onerous duties” because “adjudication is a rough and ready process carried out at great speed” [8].

Judgment

It was held that the Adjudicator’s decision was full and carefully considered and was not predetermined by the rejection of the disclosure application. The Judge was satisfied with Essential’s submissions that the Adjudicator fairly and thoroughly considered the issues before him and he did not consider it necessary to analyse the decision in any greater detail. The natural justice challenge was therefore rejected for the following reasons:

• The Adjudicator’s decision was not a breach of the rules of natural justice. The parties were given a full opportunity to address all issues.
• The Adjudicator at every stage of the process left the door open to Conneely to pursue both the previous adjudication documents and the causation and the double recovery points.
• If there was a breach of the rules of natural justice, it did not make a material difference to the outcome.
• There was no predetermination, Conneely were not able to point to any issue decided against them in the decision which the Adjudicator had previously expressed a view on.

The Judge also held that in the alternative, Conneely’s payment of the Adjudicator’s fees without reserving their position amounted to a waiver of the natural justice objection. Conneely was aware of the objection they had previously made and continued to pay the fees without any reservation.

Takeaway points

The Judgment is another example of how the Court will continue to endeavour to enforce adjudication decisions and will reject attempts made by parties to go over already decided upon ground. Establishing bias in an adjudication continues to remain a very high threshold.

Parties should properly reserve their position when paying Adjudicator’s fees so to avoid waiving any jurisdictional or natural justice objections which are already known during the course of the adjudication.

When is it reasonable to request the financial information about the Claimant in enforcement proceedings?

Complete Ceiling and Partitioning Systems Ltd v DE1 Ltd [2024] EWHC 2800 (TCC)

Factual Background

Complete Ceiling and Partitioning Systems (“CCP”) had been successful in an adjudication against DE1 Ltd (“DE1″), after DE1 failed to issue a pay less notice under a contract between the parties. This Adjudicator awarded CCP £94,921.10 plus interest and costs, which DE1 failed to pay.

Whilst DE1 did not dispute the enforceability of the award, DE1 raised concerns surrounding CCP’s financial position and its ability to repay the judgment sum if this may be required from the result of a later adjudication. Therefore, DE1 requested evidence of CCP’s current financial standing and whilst CCP made positive statements regarding its financial status, it failed to provide any substantive evidence. CCP stated that it would refuse to provide more information until DE1 made a formal application to stay any enforcement proceedings.

DE1’s failure to pay continued, so CCP issued adjudication enforcement proceedings. DE1 sought a stay of the enforcement on the grounds of CCP’s financial position.

It was only upon receipt of this application that CCP provided substantive evidence of its financial position.  Upon receipt of this evidenceDE1 dropped its application for a stay.

Therefore, the only issue before the Court was the question of costs.

CCP argued for indemnity costs, whilst it was DE1’s position that there should be no order for costs and it referred to CCP’s unreasonable refusal to disclose the financial information. If CCP had shared the information earlier as requested the costs of both applications could have been avoided.

Judgment

The Judge made no order as to costs, stating that CCP’s refusal to cooperate was not consistent with the Court’s expectations of the way litigation should be conducted. Had CCP provided the information when it was first requested, DE1 would have paid the award and proceedings wouldn’t have been issued.

The Judge further noted that by looking at the only information DE1 had available to it, (Companies House records) it would have been highly likely a stay would have been ordered. Whilst the onus was on DE1 to prove that CCP would likely be unable to repay a judgment sum, this burden of proof would have been discharged because CCP appeared insolvent from its latest filed accounts.

The Court held it was appropriate for DE1 to request the financial information to avoid wasted costs and court time.

However, the Court did highlight that DE1’s’s request here differed from the ‘fishing expeditions’ referred to in previous cases which would suggest that any request for financial information must be specific and explained.

Takeaway points

• Within enforcement proceedings, if a Defendant makes a reasonable request as to the Claimant’s financial standing, and it obviously appears from the information available in the public domain that the Claimant is facing financial difficulty – the Claimant should provide such information or risk been subject to an undesirable costs order.

A recent case clarifies the Court’s approach to contractual interpretation and when part 8 proceedings are suitable

Workman Properties Ltd v Adi Building And Refurbishment Ltd [2024] EWHC 2627 (TCC)

Factual Background

Workman Properties Limited (“WPL“) and ADI Building and Refurbishment Limited (“ADI“) entered into a JCT Design and Build Contract with amendments for the design and construction of the expansion of existing facilities at Cotswolds Dairy (the “Works“).

In May 2023, ADI wrote to WPL raising a formal complaint that the tender design contained in the Employer’s Requirements had not been developed up to RIBA stage 4/4(i) and accordingly this breached the Contract and ADI was entitled to claim damages and or additional time and costs.

In August 2023, ADI issued a notice of adjudication seeking various declarations relating to the missing information in the Employer’s Requirements. In this first adjudication, the Adjudicator decided that the statement at paragraph 1.4 of the Employer’s Requirements that “significant design has been developed to date which has been taken to end of RIBA Stage 4 with some parts of contractor specialist design elements together with Services design to Stage 4(i)…” gave rise to a contractual warranty by WPL and the fact that some of the design was not actually up to RIBA Stage 4/4(i) gave rise to a breach or a Change under the Contract.

WPL therefore brought a Part 8 claim to ask the Court to declare that ADI was responsible for completing all necessary works to develop the design up to RIBA Stage 4/4(i) and that WPL had not warranted that the design had been developed up to RIBA Stage 4/4(i).

Decision on the suitability for the Part 8

ADI argued that the case was unsuitable for the Part 8 procedure because it raised disputed factual issues and in any event it would be inappropriate to make the declarations sought without a full part 7 process where all factual and legal issues could be addressed.

ADI asserted that the disputed facts related to the parties respective knowledge of the design status, ADI’s tendering strategy, and alleged statements regarding the design status during the tender process.

WPL maintained that the facts relied on by ADI were irrelevant and inadmissible as they related to pre-contractual negotiations and the parties’ subjective understandings and intentions and so did not prevent the Court from making the Part 8 determination.

It was held that ADI had failed at any stage to identify in clear terms any particular facts included within its witness evidence or otherwise which (a) were relevant to the issue of contractual interpretation on the basis of well established legal principles and (b) were not facts which appeared either from contractual documents or other contemporaneous documents which were not in dispute, such that there was a substantial dispute of fact about them which made the case unsuitable for Part 8 proceedings.

The Judge went further to say that it is not for the claimant nor the court to “scrabble around in the undergrowth of the defendant’s evidence to identify any such particular facts. It is for the defendant in such a case to identify them in clear terms from the outset“. If ADI was able to do so and it was clear that the facts were relevant and disputed then they would have been able to apply to the Court for summary determination of unsuitability.

Accordingly, the Judge proceeded to determine the contractual interpretation issues under Part 8 since no evidence had been provided of disputed facts which related directly to this.

Decision on contractual interpretation

The Judge concluded that “all of the relevant contract terms point firmly towards the claimant’s case, save for the second part of paragraph 1.4 of the Employer’s Requirements” and that to say that paragraph 1.4 of the Employer’s Requirements amounted to a contractual warranty “involves treating the obligation to complete the existing design and to be fully responsible for the whole design as excluding all design work up to and including the end of stages 4/4(i)” which would mean that ADI “had no obligation to satisfy itself that it could safely, as design and build contractor, proceed straight to construction stage without checking that the existing design was sufficient and adequate for that purpose.”

Further it was said that if ADI decided to rely wholly on the consultants’ design this was at their own risk.

Takeaway points

This case is a reminder that:

1. Part 8 proceedings can be used as a tool for resolving disputes on contractual interpretation where it is unlikely to involve a substantial dispute of fact. A party wishing to argue that there are disputed facts must expressly point these disputed facts out to the Court; and
2. 2. The Court will rely on the language used in the contract itself for matters of interpretation. Evidence of pre-contractual discussions will have limited influence on contractual interpretation unless these discussions have been expressly incorporated into the contract.

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[1] [2024] EWHC 2629 (TCC)

[2] Helow v Secretary of State for the Home Department [2008] 1 WLR 2416

[3] Resolution Chemicals v Lundbeck [2014] 1 WLR 1943

[4] Carillion Construction Ltd v Devonport Royal Dockyard Ltd [2006] BLR 15

[5] Home Group Ltd v MPS Housing Ltd [2023] BLR 474 at paragraph 50

[6] Carillion Construction Ltd v Devonport Royal Dockyard Ltd [2006] BLR 15

[7] Home Group Ltd v MPS Housing Ltd [2023] BLR 474

[8] Lanes Group Plc v Galliford Try Infrastructure Ltd [2012] BLR 121 at paragraph 60