Update: construction

Apparent bias

In Fileturn Limited v Royal Garden Hotel Limited [2010] EWHC 1736 (TCC), Mr Justice Edwards-Stuart considered an allegation of apparent bias on the part of an adjudicator during enforcement proceedings in relation to an adjudicator's decision.

The parties to this summary judgment application had been involved in an adjudication, which was decided by the adjudicator, Mr R Sliwinski. Sliwinski had previously been a director of Alway Associates, which (through Mr Richard Silver) represented

Fileturn in the adjudication. It appeared that Sliwinski had acted as an adjudicator in ten adjudications in which Alway Associates had represented one of the parties, and it was this pre-existing relationship that prompted the allegation of apparent bias in the adjudication to which the summary judgment application related.

The parties agreed that the test for apparent bias was whether the informed and fair-minded observer, having considered the relevant facts, would conclude that there was a real possibility that Sliwinski was biased (Porter v Magill [2002] AC357).

The judge looked at the facts including details of Sliwinski's relationship with Silver and the number and types of appointment Sliwinski received in relation to matters where Alway Associates was acting on behalf of a party to an adjudication or other dispute resolution procedure.In looking at these, the judge emphasised that he was not involved in a fact-finding exercise but rather should make an assessment of the likely outcome of the case if it proceeded to trial.

The judge concluded that a reasonably fair-minded and informed observer would draw a number of conclusions, including: (1) although Silver requested the appointment of Sliwinski on about 12 occasions (of which only one resulted in an appointment), there is no evidence that shows Sliwinski was aware of that; (2) in only five to ten per cent of adjudications conducted by Sliwinski had Alway Associates acted as a representative of one of the parties; (3) Sliwinski and Silver must have had a reasonably close professional association while they were co-directors of Alway Associates, but there is no evidence that during this period (or since) they had any association outside of their professional activity; and (4) Sliwinski has had no continuing financial or other interest in Alway Associates business since February 2004.

The judge concluded, therefore, that a fair-minded and informed observer would conclude that Sliwinski's involvement with Alway Associates between March 2001 and February 2004 did not give rise to a continuing bias six years later in favour of a party represented by Alway Associates. He therefore found the defendant had no real prospect of succeeding at trial on its argument based on apparent bias.

The test for apparent bias is reiterated in this case and it is clear there must be something more than a pre-existing relationship between the parties seeking the nomination of an adjudicator and the adjudicator to give rise to apparent bias.

Conditions precedent

In WW Gear Construction Limited v McGee Group Limited [2010] EWHC 1460 (TCC), Mr Justice Akenhead interpreted what the claimant regarded as a 'condition precedent' in an amended clause of a JCT trade contract (TC/C).

The claimant had developed a site in London. The defendant, McGee Group Limited, is a ground works contractor retained by the claimant. Disputes arose between the parties concerning payments, including McGee's claim for delay and disruption-related loss and expense.

An adjudication had been decided against the claimant and, in the present proceedings, the claimant sought a declaration as to the meaning of a particular clause in the trade contract; a clause which the claimant asserted constituted a condition precedent and which the defendant said was not.

The relevant part of the clause related to the content and timing of McGee's submission of its claim with the important wording being: 'and such application shall be formally made in writing and fully documented and costed in detail, and it shall be a condition precedent to the trade contractor's entitlement under this clause 4.21.1 or clause 4.25 that the trade contractor has complied fully with all of the requirements of this clauses [sic] including, for the accordance [sic] of doubt, the said time period of two months'.

In interpreting a condition precedent, the judge referred to Gilbert-Ash (Northern) Limited v Modern Engineering (Bristol) Limited and Bremer Handelsgesellschaft Schaft v Vanden Avenne Izegen, in which it was clear that conditions precedent should be construed strictly.

The judge regarded the clause in question as an 'if' clause of the type considered by Mr Justice Vinelott in London Borough of Merton v Stanley Hugh Leach Limited; that is, provisions which only operate in the event that the contractor invokes them by making a written application and then if an application is made the architect must form an opinion whether the contractor has suffered direct loss and/or expense in the circumstances of the kind there set out.

The judge held that the requirement to make a timely application in writing was a pre-condition to the recovery of loss and/or expense and that McGee had no entitlement to recover monies unless and until it made such an application.

This is a useful case for practitioners involved with the drafting of construction contracts as it provides more certainty that conditions precedent will be enforced if the wording is sufficiently clear.

Liquidated damages: commercial justification?

In September, the Commercial Court granted summary judgment to a shipbuilder that wanted to enforce a liquidated damages clause. The defendant argued that summary judgment should be resisted on the grounds that the liquidated damages did not represent a genuine pre-estimate of the claimant's loss following the breach of contract but the court took the robust view that the 'genuine pre-estimate of loss' test was not of paramount importance in the circumstances but rather found that there was 'commercial justification' for the liquidated damages provision and granted summary judgment on this basis.

In Azimut-Benetti Spa (Benetti Division) v Healey [2010] EWHC 2234 (Comm), a special purpose company (SPC) incorporated in the Isle of Man contracted with a yacht builder to build a yacht for Mr Healey (the defendant). Lawyers were involved on both sides to negotiate the contract. The SPC was at all times owned by Mr Healey and he entered into a separate guarantee to guarantee the SPC's obligations under the contract.

The yacht builder included within thecontract at clause 16.3 a provision that, in the event of late payment, it could end the contract and retain (or recover) 20 per cent of the contract price by way of liquidated damages, returning any other part of the price it had already received.

The SPC defaulted on one instalment and the yacht builder terminated the contract and sought to exercise its rights under clause 16.3 to withhold 20 per cent of the contract price. It also sought to claim payment from Healey under his guarantee.

When Healey did not pay, the yacht builder applied for summary judgment and Healey argued that clause 16.3 was a penalty and not a genuine pre-estimate of the loss that the yacht builder would suffer as a result of the breach. The judge said that he did not accept that the court needed to investigate the likely loss to the builder, but instead considered whether there was a clear commercial and compensatory justification for the clause.

This approach follows the obiter dictum of Mance LJ in Cine Bes Filmcilik ve Yapimcilik v United International Pictures [2003] EWCA CIV 1669 that clauses operating on breach may be neither a penalty nor a genuine pre-estimate of loss but can be commercially justifiable. It also follows the dictum of Clark LJ in Murray v Leisureplay that a clause may be commercially justifiable so long as its dominant purpose is not to deter the other party from breach.

This is of interest to practitioners in terms of the drafting of liquidated damages provisions, as it appears the court will exercise caution before striking down a clause as penal in commercial agreements '“ particularly where the clause is not intended to deter a breach of contract but has a commercial justification.

Changes to the TCC guide

On 1 October 2010, the second revision of the second edition of the Technology and Construction Court guide came into effect.

A few of the more fundamental changes are listed below, but practitioners should carefully consult the guide in relation to any proposed or current proceedings in the TCC to ensure there is compliance with the guide.

1. The range of the TCC's claims has expanded to cover many factual or technically complex cases, including personal injury group actions; public nuisance claims; negligence claims against lawyers (in connection with planning, property, construction or other technical disputes); and procurement disputes arising from the Public Contract Regulations 2006.

2. Pre-action, the court can deal with an application from a party during the pre-action protocol procedure where one party fails to comply with the protocol without a need for the claimant to issue a claim form. Also, if parties wish to use one of the TCC's alternative dispute resolution procedures, they can apply to the TCC before proceedings have been issued.

3. Certain guidance is given in relation to witness evidence including guidance on the use of concurrent expert evidence (hot-tubbing). This reflects Jackson LJ's recommendation in his report in relation to support for a pilot on the use of concurrent evidence.

The new guide is a must-have for all practitioners using the TCC as, althoughit is guidance only, it has a bearing on the conduct of proceedings.