Update | Construction: expert evidence, arbitration proceedings

There have been two recent developments in the field of expert evidence that we should be aware of as construction law practitioners, particularly given that much of the work involved in contentious construction ?work involves the input of an expert on technical matters.

First, guidance has been published by the Civil Justice Council in relation to the instruction of experts giving evidence in civil claims. It is envisaged that this new guidance is to be annexed to practice direction 35. The guidance does little to alter the previous position in relation to expert evidence but is certainly worth reviewing when expert evidence is sought. There is no change to the objectives concerning the instruction of experts which are:

1. to encourage the exchange of full information about the expert issues involved in the prospective legal claims;

2. to enable the parties to avoid or reduce the scope of litigation by agreeing the whole or part of an expert issue before the commencement of proceedings; and

3. to support the efficient management of proceedings where litigation cannot ?be avoided.

Further, there is no change in the position that the expert's overriding duty is to the court and not to those paying him.

The parties are still not allowed to arrange conditional or contingency fee arrangements with experts as this runs contrary to an assumption of independence or objectivity. What the new guidance does do is to require experts to provide an estimate of their costs. A new rule provides also that the experts' fees and expenses could be limited by the court. Adverse cost orders could be imposed where experts cause any excessive delay or fail to comply with court orders.

Secondly, in Walter Lilly and Company Limited v Mackay and DMW Developments [2012] EWHC 1773 (TCC), the court looked (among other issues) at the approach to expert evidence in the context, here, of delay evidence. Mr Justice Akenhead was clear in his comments that an expert cannot prepare a report that says that the other side has not proved its case. He said 'it is not for an expert to suggest this type of thing'. Also, in this case, the expert had given his view of what had prevented practical completion in a project by determining the most 'significant' matters that caused the delay. Akenhead J commented that this approach reflects a subjective view as to what a client thought was significant.

Equitable set-off in adjudication

This case concerns enforcement of an adjudicator's decision, in which the defendant (the respondent in the adjudication) refused to pay a sum ordered to be paid by the adjudicator on the basis that it alleged that it was owed money by the claimant in relation to another project in another jurisdiction. In Beck Interiors Limited v Classic Decorative Finishing Limited [2012] EWHC 156 (TCC), Beck employed Classic to do certain decoration works. A dispute arose and an adjudicator awarded Beck £36,000 plus VAT. Classic did not pay that or any sum and argued instead that Beck owed Classic ‚¬60,000 in relation to projects in Dublin. The contract between Beck and Classic which was the subject of the adjudication did not contain any express contractual right to set-off. In these circumstances Mr Justice Coulson had to consider whether Classic had any equitable set-off rights.

The judge said that the general principle is that it is rare for the court to permit the unsuccessful party in an adjudication to set-off against the sum awarded by the adjudicator some other separate claim. That would defeat the purpose of the Housing Grants Act.

There are two possible exceptions, firstly where there were express set-off provisions in the contract, and secondly where the adjudicator did not order immediate payment instead giving a declaration as to the proper operation of the contract. Neither of those exceptions applied here. There was no express contractual set-off provision in the sub-contract and the adjudicator had told CDF to pay Beck 'without further ado'. There may be circumstances where the Adjudicator does not order payment immediately but instead gives a declaration as to the proper operation of the contract. This was not the case here but the Court looked at what the position might have been if that had been the case.

So did Classic have any right of equitable set-off? The judge considered Lord Denning's judgment in Federal Commerce & Navigation Limited v Molena Alpha Inc [1978] 1 QB 927 in relation to the law concerning equitable set-offs and concluded that only set-offs that arise out of the same transaction or are 'closely connected' with it can be taken into account. By 'closely connected', Lord Denning meant cross claims which are so closely connected with the original demand that 'it would be manifestly unjust to allow him to enforce payment without taking into account the cross-claim.'

Classic's cross-claim concerned a contract in Dublin and did not arise out of the same transaction that lay behind the adjudicator's decision. They were different contracts, entirely different projects, in two separate countries (and therefore two separate jurisdictions) and in two separate currencies. Classic did not therefore have any entitlement to equitable set-off.

As a result of the above considerations, the judge held that Classic's position was not an arguable defence to Beck's claim and the judge accordingly enforced the adjudicator's decision.

The case raised the spectre of equitable set-off being allowed against an adjudicator's decision where the adjudicator's decision required the contractual machinery to operate rather than ordering payment immediately. It will be interesting to see whether cases where there is a legitimate equitable set-off will give rise to judgment allowing set-off against an adjudicator's decision.

Ad hoc adjudication?

An interesting point came before the Technology and Construction Court at the beginning of October. It arose out of enforcement proceedings in respect of an adjudicator's decision. The question was whether a respondent in an adjudication could be said to have agreed to adjudication as a matter of resolving a dispute where the subject matter of the dispute was not 'construction operations' and therefore not within the scope of the Housing Grants, Construction and Regeneration Act.

The case is Clark Electrical Limited v. JMD Developments (UK) Limited [2012] EWHC 2627 (TCC). Here, JMD appointed Clark to do electrical works in North Yorkshire. A dispute arose and Clark began an adjudication seeking payment of alleged outstanding sums. An adjudicator was appointed by the CIC and sent his terms and conditions to the parties. One of the conditions of his appointment was that by way of security for his fees, he wanted each party to pay an appointment fee of £6,000. Invoices were sent to the parties.

On 7 March 2012, JMD emailed the adjudicator explaining to him that they were not familiar with adjudication and did not have any representation. They explained also that they had not received a copy of the Notice of Adjudication or any supporting documents from Clark.

On 13 March, JMD paid the £6,000 required of them by the adjudicator. By 19 March 2012 JMD had appointed consultants to act on their behalf in the adjudication and those consultants wrote to the adjudicator saying that the works that were the subject matter of the dispute were not 'construction operations' and were excluded under section 105(2) of the HGCRA. The consultants concluded that if the adjudicator made a non-binding conclusion that he had jurisdiction to consider the dispute, JMD would reserve its position entirely in relation to his jurisdiction.

The adjudicator agreed that the works were not 'construction operations' but also said that here was an ad hoc adjudication agreement arising out of the payment of the appointment fee by both parties. JMD took no further part in the adjudication and the adjudicator awarded to Clark the full amount of its claim.

The judge, HHJ Behrens QC accepted the general proposition that if parties agree to have a dispute decided by a third person then they agree to accept the award of that person or, putting it another way, they confer jurisdiction on that person to determine the dispute. Whether this is the case in any situation is a question of fact.

Clark's position was that in paying the £6,000, JMD agreed to adjudication as a means of resolving the dispute; and the issues raised by JMD's representative came too late. JMD on the other hand, said that it was 'fanciful to suggest' that their actions constituted a 'clear and unequivocal submission' to jurisdiction. The judge considered what JMD's email of 7 March would have meant to the 'reasonable adjudicator' and concluded that the reasonable adjudicator would say that JMD's email was simply a confirmation that JMD had not received the relevant documents; that it was not represented and that it was unfamiliar to the adjudication process. There was no submission to jurisdiction.

While in this case there was no ad hoc adjudication agreement, it is clear that it would be possible to have such an agreement and possible that at least one of the parties may not have intended to agree to adjudication as a means of resolving their dispute. Practitioners must take care to ensure that jurisdictional arguments are preserved and there can be no suggestion of any submission to adjudication where jurisdictional arguments exist.