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Jean-Yves Gilg

Editor, Solicitors Journal

Jean-Yves Gilg

Editor, Solicitors Journal

Jean-Yves Gilg

Editor, Solicitors Journal

Jean-Yves Gilg

Editor, Solicitors Journal

Construction update

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Construction update

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Anna Stillman considers when one can imply a term into a contract, adjudicator bias, an update on BPF and CIC publications and the proposed health and safety reforms

Implying contract terms

As 2011 drew to a close, the Technology and Construction Court was called upon to decide in Leander Construction Ltd v Mulalley and Company Ltd [2011] EWHC 3449 (TCC) whether a term could be implied into a sub-contract obliging the sub-contractor to proceed with its works regularly and diligently. This request from the contractor was made despite the fact that a failure by the sub-contractor to proceed regularly and diligently gave the contractor the express right to terminate the sub-contract.

Mr Justice Coulson held that it was not necessary to imply this term, and, importantly, that precedent was clear in establishing that where a sub-contractor is required to complete its works by a set date no such term could be implied.

In this case, Leander (the sub-contractor) had been employed by Mulalley to carry out certain groundwork, drainage and concrete frame works at a development in London. Leander was employed on Mulalley's own terms and conditions.

During construction, Mulalley became aware that Leander was adhering to dates set out in an activity schedule that formed part of the sub-contract. For this reason, Mulalley withheld £131,078.12 from Leander in respect of the alleged delay and issued two withholding notices pursuant to the sub-contract (which, incidentally, was entered into before the new construction Act came into force). Leander brought a claim in the TCC challenging the validity of the withholding notices.

The sub-contract did not contain an express term requiring Leander to carry out its works regularly and diligently but it did contain a term allowing Mulalley to terminate the sub-contract if Leander did not carry out its works regularly and diligently, and, in relation to the activity schedule, this was a sub-contract document, but the dates within it were accepted not to be contractually binding because of a note in the schedule that said 'all of the dates below are indicative dates only and are subject to change'. Mulalley contended that a term should be implied into the sub-contract such that Leander was obliged to carry out its works regularly and diligently on the basis of the existence of the clause allowing it to terminate the sub-contract if Leander failed to carry out its works regularly and diligently.

Mr Justice Coulson concluded that it was not necessary to imply such a term to make the contract effective as the sub-contract would continue to operate without this term. Also, the previous case law, although not binding on him, indicated that the courts would not be prepared to imply such a term in these circumstances. In these circumstances, the withholding of sums from Leander was invalid.

In general, a term will only be implied into a contract where:

  • it is required to make the contract work (for business efficacy);
  • it is implied by law (for example, the payment provisions of the Housing Grants, Construction and Regeneration Act 1996 (as amended) when the provisions in the contract do not comply with them or the contract is silent); or
  • it is a specific custom or practice.

In order to imply a term for business efficacy, the court must be satisfied that the term: '(1) must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that 'it goes without saying'; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract' (BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1978)).

The message for practitioners from this case is obvious '“ if you want a party to a contract to have certain obligations, the contract must say so. In terms of programming for construction works, one can make compliance with a programme (and milestones contained in it) obligatory or simply require that the works are carried out regularly and diligently.

Adjudicator bias

In December of last year, the Court of Appeal issued a decision on forum shopping in adjudication, and allegations of adjudicator bias and whether these should prevent enforcement of an adjudicator's decision.

In Lanes Group Plc v Galliford Try Infrastructure Ltd (t/a Galliford Try Rail) [2011] EWHC 1035 (TCC), Lanes Group was a subcontractor to Galliford and the parties were in dispute. Galliford applied for the appointment of an adjudicator. Galliford's solicitors had had previous experience of the appointed adjudicator (which was described as a 'robust clash') and so Galliford decided not to send their referral to that adjudicator. Instead, they served a new notice of adjudication and applied to the ICE for a new adjudicator to be appointed. The adjudication proceeded with the new adjudicator. Lanes did not submit their response as requested, and, at first, refused to take part in the adjudication.

The adjudicator issued a document, 'Preliminary Views and Findings of Fact', setting out his provisional conclusions. He requested parties' comments in relation to this. Both parties responded to this document and the adjudicator then issued his decision, awarding £1.3m to Galliford.

Lanes did not want to pay, and, at enforcement proceedings, argued that the decision should not be enforced because:

1.the only validly appointed adjudicator was the first one and a party can only refer a dispute once to adjudication. If a submission is made and not followed through, that is the end of the matter;

2.the adjudicator was biased in that he had reached conclusions in his 'Preliminary Views and Findings of Fact' before considering Lanes' submissions.

The Court of Appeal expressed disapproval of the practice of forum shopping by parties to get an adjudicator they wanted, but the judges also stated that there were 'formidable difficulties' with Lanes' arguments. There were no authorities to suggest that a claimant loses its right to adjudicate if an adjudication is not pursued after preliminary steps are taken. The contract, ICE adjudication procedure and scheme all recognised a right to restart adjudication in a variety of circumstances. In these circumstances, the court confirmed the validity of the second adjudicator's appointment.

In relation to bias, the test to be applied is that set out in Porter v Magill [2001] UKHL 67, which is 'whether the fair minded and informed observer, having considered the facts, would conclude that there was a real possibility that the tribunal was biased'. The fair minded observer is taken to know all relevant facts (and to have distinguished between what is relevant and what is irrelevant) and not be complacent, unduly sensitive or suspicious.

There was said to be nothing wrong with a decision maker setting out provisional views at an early stage to allow parties to address any issues arising from these. What is not permissible is for a final decision to be reached before all relevant evidence and arguments are heard. The adjudicator had stated that his 'preliminary views' represented preliminary views only. The court said that this was not considered to be a pre-determination of the issues in advance of hearing from both parties, and there was no apparent bias or apparent pre-determination of the issues. The adjudicator's award was enforced.

This case again demonstrates the difficulties in avoiding enforcement of an adjudicator's decision. One must have a very good reason not to comply. The issue of forum shopping is an interesting one and the court was clear in its view that there is a hole in the Housing Grants, Construction and Regeneration Act which allows a party to effectively shop around until it gets an adjudicator it likes. The court perceived a respectable argument to fill the hole that that 'one can only refer a given dispute once to adjudication, provided that there is no valid ground for challenging either the adjudicator's impartiality or jurisdiction or that, on some valid ground or another, the decision produced by the adjudicator on the dispute is not enforceable'. Of course, this argument was not raised and so the court did not form a view on it. Who knows, this might be the argument run in the next case before the court'¦

BPF and CIC new editions

The British Property Federation has confirmed that it intends to publish new editions of its consultancy agreement and its purchaser/tenant and funder collateral warranties. The consultancy agreement needs amendment following the implementation of the amended Housing Grants, Construction and Regeneration Act. No dates have been given for the publication of the new editions but they are expected soon. The Construction Industry Council has also issued a 2011 edition of its consultant's contract.

Health and safety review

28 November 2011 was an important date for health and safety. It was when the government released a review by a Professor Löfstedt, Reclaiming Health and Safety for All: An Independent Review of Health and Safety Legislation, which contains a number of key recommendations for simplifying health and safety regulations. It also published its report, The Government Response to the Löfstedt Report, outlining the steps it intends to take by the end of 2014 in relation to health and safety legislation.

The government has stated that it is committed to implementing Professor Löfstedt's far-reaching recommendations. Perhaps the most talked about issues are the planned 50 per cent reduction in the number of health and safety regulations by 2015 (largely by consolidating existing regulations) and the de-regulation of the self-employed (excluding those in building trades). Among other points of interest to construction practitioners include a review of:

  • The approved codes of practice, specifically the Construction (Design and Management) Regulations 2007 and its associated code of practice.
  • The Work at Height Regulations (which govern the use of safety equipment for working at height) and the Electricity at Work Regulations 1989 (which regulate the testing of electrical appliances, like kettles, in the workplace).
  • Those health and safety regulations that impose strict liability, with a view to qualifying them with 'reasonably practicable' or amending them to prevent civil liability attaching to a breach.

It remains to be seen what progress will be made to meet the recommendations, but, if achieved, we will be seeing some very different looking health and safety legislation.