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BuildLaw - Issue No 11 Sept 2011 1

BUILDING DISPUTES TRIBUNAL www.buildingdisputestribunal.co.nz

WELCOME & 2010 - THE YEAR IN PERSPECTIVE

ISSUE 8 DEC 2010

BUILDLAW

CONTENTS

Welcome & 2010—

The Year in

Perspective

1

Construction NEC3 and

NZS 3910: Chalk and

Cheese?

4

Interim

Determinations : Time

is up for the

Independent Engineer

8

Limitation Periods for

Building Defect Claims

– The Art of drawing a

line in the Sand

22

Adequacy of Reasons—

Revisited 28

The Third

International

Construction Law

Conference in Hong

Kong

34

The Society of

Construction Law

Australia and the

Society of

Construction Law New

Zealand Welcomes

Delegates to the

Fourth International

Construction Law

Conference in

Melbourne in May

2012

38

Legislation Update: The Building

Amendment Bill (no. 3) & The Weathertight Homes Resolution Services (Financial Asistance Package) Amendment Bill.

40

Proportionate Liability - A Fix too Far?

42


Welcome to the 11th edition of BuildLaw® which I hope you will have time to read in the midst of all the excitement and drama of the Rugby World Cup. On a more subdued note, this issue goes to press at a time when building activity in New Zealand for the June quarter was the lowest it has been for a decade and residential building activity has fallen to the lowest level in 18 years with the number of new homes approved hitting a record low in January this year.

Quarterly Newsletter of Building Disputes Tribunal (NZ) Ltd

WELCOME

ISSUE 11 SEPT 2011

BUILDLAW

CONTENTS

Welcome

1

Proportionate

Liability:

the Australian

Experience – Part 3

3

Payment Claims &

Payment Schedules

Revisited

9

Put the Appointment

on ICE 11

NewsFlash—

NEW FIDIC GOLD BOOK

CONTRACT GUIDE

18

A LONG CLIMB TO

JUSTICE 26

SIMPLE GAME, TRICKY RULES

28

Stanley v Rawlinson Court of Appeal

-

LIKE TALKING TO A BRICK WALL

30


Quarterly Newsletter of Building Disputes Tribunal (NZ) Ltd

There are some bright lights for recovery however, and although the value of residential building consents in July 2011 fell $70 million compared to the same month last year, the value trend indicates a tentative rise for the latest three months, and the value of non-residential building consents was up $50 million.

So here’s hoping the trend continues and building activity across all sectors and in all regions continues to improve – the industry certainly has the capacity and is well placed to respond to any demand for greater production!

On a much cheerier note, I am delighted that highly respected UK Barrister, Arbitrator, Mediator, Adjudicator, writer, lecturer, commentator, and all round raconteur, Tony Bingham, and Pinsent Masons, the world’s leading adviser to the global construction market, have joined other international arbitrators and law firms in lending their support to our humble efforts in the South Pacific. This issue brings a taste of Tony’s inimitable writing style which will become a regular feature of BuildLaw and an article by Sarah Thomas, a highly respected partner in the Projects and International Construction Group at Pinsent Masons UK, on the new FIDIC Gold Book, the latest in the FIDIC series of Contract Guides in relation to the new Design, Build and Operate form.

We conclude our present coverage of the topic of proportionate liability with the third in the series of articles by David Levin QC titled ‘The Australian Experience’. The first and second articles in the series may be found in Issues 9 and 10 of BuildLaw® or under the Resources Tab on the BDT website (www.buildingdisputestribunal.co.nz) in the Articles section. The first article on the topic of proportionate liability by the Hon. Justice David Byrne; “Proportionate Liability – Some Creaking in the Superstructure”, may be found in Issue 8. We will keep you apprised of any developments to change the present joint and several liability regime in NZ – please let us know if you hear any rumblings that would be of interest to our readers. Gareth Lewis, Partner at Grimshaw & Co, reports on the recent High Court decision in NCB 2000 Ltd v Hurlstone Earth Moving Ltd which provides further guidance on the validity of payment claims and payment schedules. We congratulate Gareth and the team at Grimshaw & Co on the recent opening of



their office at 33 Mandeville Street in Christchurch which has its specialist focus on insurance claims and construction disputes. We discuss the bizarre goings on in the ‘trilogy’ of UK cases involving Lanes Group v Galliford Try involving successive adjudicator nominations and an adjudicator expressing provisional views. Please feel free to distribute BuildLaw® to your friends and colleagues – they are most welcome to contact us if they wish to receive our publications directly. We are passionate and proud of serving the industry and the community. We are grateful as always to our contributors. I do hope you find this Issue of BuildLaw® interesting and useful.

John Green Director PS: Here’s hoping for an AB’s victory and just for Sarah (and the rest of Wales) - pob hwyl Gymru



Proportionate Liability: the Australian Experience – Part 3 - David Levin QC1

1. In my earlier articles on proportionate liability (PL) I discussed

some issues which must be considered before enacting

legislation to change the existing system of solidary liability to

one of PL.

2. The ambit of PL in Australia

I now want to address the ambit of PL. The legislation enacting PL can (and in Australia

has) limited the areas which are subject to the new regimes. In all of the Australian

legislation there are specific areas of potential liability where PL is not to operate. These can

be extensive: in Victoria, for example, PL does not apply to certain claims under the

Transport Accident Act 1986, the Accident Compensation Act 1985, the Workers

Compensation Act 1958, nor the Equal Opportunity Act 1995, for example.2 The Act excludes

PL from operation under seven other statutes and allows for further exclusion by regulations.

So it cannot be claimed that PL generally applies to damages claims in Australia. The

precise ambit of any PL scheme in N.Z. should be carefully considered.

3. The practical results of PL in construction contracts

Owners and developers usually spend a great deal of effort identifying a head contractor with

sufficient skill, experience and financial security to undertake the requisite construction

obligations. Extensive due diligence is commonly undertaken to ensure that the other

contracting party has sufficient assets to withstand any dispute. However if disputes arise

which can be characterised as ‘apportionable claims’ the party ultimately or substantially at

fault might be of little or no financial worth who is not able to compensate the owner or

developer for its loss. It should be borne in mind that almost any contractual claim can be

pleaded as a Trade Practices Act dispute and many straightforward contractual claims could

be drawn up as ‘arising from a failure to take reasonable care’. Thus although one party

1 David Levin has been a silk at the Victorian Bar since 1997. He specialises in construction and computer litigation

practising from chambers in Victoria and Cambridge. David is a Principal Arbitrator and Mediator with the Building Disputes Tribunal and is available for appointment through the Website www.buildingdisputestribunal.co.nz

2 s.24AG(2) Wrongs Act 1958



might conceive of the dispute in straightforward contractual terms which would not admit of

PL allegations, the other party might initiate the dispute process and draft the claim in terms

which could be characterised as ‘apportionable claims’. In a different scenario in Spowers3

the plaintiffs sued an architect and a contractor alleging each failed to take reasonable care,

causing defects in their building project. The architect alleged that, if liable, the claim was

an apportionable one and it was entitled to have its liability limited by reference to other

concurrent wrongdoers. The architect joined the building surveyor and project engineer.4

Before judgment the plaintiffs executed a deed of settlement with the architect which then

amended its claim to seek contribution towards the settlement sum from the surveyor and

the engineer under s. 23B(4) of the Wrongs Act 1958 (Vic) (i.e. the pre-existing statutory

contribution provision). The Victorian Court of Appeal held that the architect was entitled to

claim contribution, no finding of PL having been made in a judgment by the Court.

4. In a recent paper for the Victorian Bar by Cameron Macaulay S.C. (now Macauley J of the

Victorian Supreme Court) and Tony Horan, the authors opined that any remaining defendant

(D2) in an action raising PL issues where D1 had settled with the plaintiff appeared to have

two choices:

a. in line with Vollenbroich, D1 remains nominally as a defendant exclusively so that its

comparative liability is taken into account when apportioning liability against D2 under

section 24AI; or

b. in line with Spowers, D2 could pursue a contribution claim against D1 on the basis

that 24AJ provides no protection to D1 because judgment had not been given in

respect of the apportionable claim against it.

It would be sensible if any proposed PL legislation in N.Z. addressed the complexities of

compromise, settlement and costs. Given that over 95% of proceedings commence do

resolve prior to judgment a sensible and practical system of encouraging settlements to take

place and penalizing parties which hold out for an unreasonable quantum should be at the

centre of any procedural change.

5. Is there any way to avoid the proportionate liability restrictions?

Consideration must also be given in any legislation to the contractual entitlement to opt out

of PL, if that is what the parties desire. In Australia there is a mish-mash of opting out

3. Godfrey Spowers (Victoria) Pty Ltd v Lincolne Scott Australia Pty Ltd & Ors [2008] VSCA 208 4. Usually now the surveyor and the engineer would have been joined as defendants rather than as third parties.



entitlements: some States expressly permit contracting out of PL5; other States,6 both

Territories and the Commonwealth are silent on the issue and so it is assumed that opting

out is allowed; Queensland however expressly prohibits contracting out.7 Naturally the

opting out can only be effective for contractual liability; it will have no effect on tortious or

misleading and deceptive conduct claims.

6. PL can also be circumvented by parties to litigation entering into a compromise. The

plaintiff and the first defendant in Aquatec entered into a compromise whereby an agreed

sum was paid by one to the other on a counterclaim. The agreed sum for which judgment

was sought could not be said to be an award of damages;8 the PL legislation could not apply

to it.9 Likewise if the claim arose today it would not be a ‘claim for damages’ under Part

IVAA of the Wrongs Act 1958.

7. Arbitration and PL

An unresolved issue in Australia is whether PL could or must be applied to disputes which,

by reason of the terms of the contractual agreement between the parties, are subject to

arbitration. Arbitration clauses commonly apply to construction contracts. Contribution

could apply between parties before the arbitrator10 although generally there is no procedure

for joinder of further respondents.

8. Certain of the Australian statutes include the word ‘tribunal’ in the definition of ‘court’, which

could be thought to thereby include arbitral tribunals.

9. In NSW,11 Tasmania12 and Victoria13 the relevant legislation provides that ‘”court” includes

tribunal, and in relation to a claim for damages means any court or tribunal by or before

which the claim falls to be determined’. However the word ‘tribunal is not included in the

definition in Queensland where ‘court, in relation to a claim for damages, means any court

by or before which the claim falls to be decided’.14 No assistance can be found in the Acts

Interpretation Act 1954 (Qld) as to whether word ‘court’ in legislation impliedly includes

5. s.3A(2) Civil Liability Act 2002 (NSW); s.3A(3) Wrongs Act 1954 (Tas); s.4A Civil Liability Act 2002 (W.A.); 6. South Australia and Victoria 7. s.7(3) Civil Liability Act 2003 (Qld) 8. A requirement under s. 129 of the Building Act 1983 (now repealed) 9. See Aquatec-Maxcon Pty Ltd v Barwon Region Water Authority No 2 [2006] VSC 117 at [88] and [352] 10. Indeed in N.Z. the definition of ‘court’ in the Contributory Negligence Act 1947 expressly includes ‘arbitrator’ 11. Civil Liability Act 2002 s.3 12. Civil Liability Act 2002 (Tas) 13. Wrongs Act 1958 (Vic) s.24AE 14. S.19 Civil Liability Act 2003 (Qld)



‘tribunal’ or ‘arbitrator’. Under the WA legislation15 ‘court’ is not defined at all. Similarly in

South Australia the legislation16 provides no definition of ‘court’ and does not refer to

arbitration.

10. In the ACT and Northern Territory, by the usual canons of statutory construction it would be

expected that the legislation would be interpreted so as to exclude arbitrations from the PL

provisions. In the ACT, whereas in many Parts or Chapters of the Act17 the word ‘court’ is

defined to expressly include arbitrator18, in Chapter 7A (which provides for apportionment)

no such definition is included. This would imply that the PL legislation was not intended to

cover arbitrations. In the Northern Territory, the legislation uses a definition of ‘court’ which

appears to expressly exclude arbitration. It provides that ‘"court" means the court, tribunal

or other statutory body determining a proceeding’.19

11. Under the Wrongs Act 1958 (Vic) PL provisions,20 reliance upon such provisions effectively

demands the joinder of all possibly responsible parties to the proceedings. The court cannot

have regard to the comparative responsibility of any person who is not a party to the

proceedings, unless that party is dead or wound up. However an arbitrator has no power to

join any other party to an arbitration without the consent of the existing parties and the

proposed new party. Thus the Victorian PL legislation is inconsistent with arbitration

practice, and in that jurisdiction, at the least, the term ‘court’ in the Act should not be

construed to include an arbitral tribunal.

12. In the other states and territories (other than South Australia) the provisions as to j o i n d e r

are framed in a permissive rather than mandatory format: the defendant may seek to

nominate other parties also possibly liable, but need not join them to the proceedings.

However the plaintiff is authorised to join any possible concurrent wrongdoer.21 In

circumstances where a claimant cannot obtain an order for joinder to an arbitration of other

15. Civil Liability Act 2002 (WA) 16. Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001 (as amended); Acts Interpretation Act

1915 17. Civil Law (Wrongs) Act 2002 (ACT)

18 See s.19 in Chapter 2 Part 2.5 dealing with ‘proceedings against and contributions between wrongdoers’; s.92 in Chapter 7 Part 7.1 dealing with damages for personal injuries and s.101 in Part 7.3 dealing with contributory negligence; s. 172 in Chapter 13 dealing with misrepresentation; and ss.180 and 186 in Chapter 14 dealing with limitations on legal costs

19 Proportionate Liability Act 2005 (NT) s.3 20 Joinder is required subject to narrow exceptions by reason of s.24AI(3) Wrongs Act 1958 (Vic) 21 E.g. s.43F(1) of the Civil Liability Act 2002 (Tas); s.32C Civil Liability Act 2003 (Qld); s.5AN Civil Liability Act 2002 (W.A.);

s.11(1) Proportionate Liability Act 2005 (N.T.); s.107J(2) Civil Law (Wrongs) Act 2002 (ACT); s. 87CH Trade Practices Act 1974 (Cth); s.1041R Corporations Act 2001 (Cth); s.12GV(1) ASIC Act 2001 (Cth).



parties alleged by a respondent to be also proportionately liable, for the reasons set out

above, the PL legislation should not be held to apply. Careful examination of the relevant

legislation is always required, but in no jurisdiction is arbitration expressly incorporated in

the provisions. Commonly, the terms ‘court’, ‘plaintiff’ and ‘defendant’ are used, terms

consistent with the application of the legislation to court proceedings not arbitrations.

13. In South Australia a slightly different set of provisions applies. Pursuant to ss 9 and 10 of

the Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001 the

defendant must identify for the plaintiff any person not a party to the action who may be

liable in relation to an ‘apportionable liability’. If no joinder takes place the judgment in the

initial action determines for all subsequent actions for the same harm against concurrent

wrongdoers the amount of the damages, the proportionate liability of the party or parties to

the initial action and any finding of contributory negligence. There is no definition in the

South Australian Act of ‘plaintiff’, ‘court’, ‘action’ or ‘judgment’: all are terms associated with

litigation rather than arbitration which would ordinarily refer to ‘claimant’, ‘arbitration’,

‘notice of dispute’ and ‘award’. ‘Defendant’ is defined, but only to include third parties, itself

a concept alien to arbitrations. Furthermore, whereas ‘claimant’ is used in the Act in relation

to the long-standing provision dealing with contribution, only the term ‘plaintiff’ is used in

relation to proportionate liability. It is unlikely that the S.A. legislation will be held to apply

to arbitrations.

14. The Tasmanian Supreme Court is the only superior court in Australia which has yet

addressed the issue of whether PL applies in commercial arbitrations. Notwithstanding a

definition of ‘court’ which includes tribunals,22 in Aquagenics Pty Ltd v Break O'Day Council23

the Tasmanian Full Court (Evans, Tennent and Wood JJ) expressed their views (obiter) as to

the applicability of the Civil Liability Act 2002 (Tas) to arbitrations conducted in Tasmania

under the Commercial Arbitrations Act, opining that such legislation was unlikely to have

application.24

15. There are powerful arguments in favour of such a conclusion. The contrary view:

a. ignores the importance of construing the text of the relevant statutory provisions

consistently. If ‘the court’ in s.43B(1)(a), (1)(b), 3(a) and 3(b) of the Civil Liability Act

2002 (Tas), for example, includes a commercial arbitration then it should mean the

same in s.43F of the same Act which empowers ‘the court’ to give leave for joinder of

22 See footnote 5 above 23 [2010] TASFC 3 24 Supra at [33] (EvansJ (with whom Wood J agreed); [95-98] Tennent J



other persons as defendants in proceedings involving an apportionable claim. Yet the

notion of an arbitrator having the power to join a party to an arbitration who is not

subject to the arbitration agreement runs contrary to fundamental norms of

arbitration law across the world.25

b. ignores the fact that, an arbitrator would not have power to compel the parties to

consent to the joinder of an outside party to the arbitration.

c. ignores the importance of the PL legislation operating in a forum which has

jurisdiction over all potential defendants.26

d. ignores the distinction between the definitions to be found in prior Tasmanian

legislation and those in the Civil Liability Act 2002, a distinction highlighted by

Tennent J in her Honour’s judgment (albeit obiter) at [98]. In the definitions in s.2 of

the 1954 Wrongs Act (Tas)

"action" includes a counter-claim and proceedings by way of arbitration; "court", used in relation to a claim, means the court before which the claim falls to be determined, and, except in subsections (6) and (7) of section three, includes an arbitrator before whom the claim falls to be determined;

There are no similar reference to arbitrations or arbitrators in the PL legislation

e. downplays the fact that the PL provisions in Tasmania, as in other Australian

jurisdictions, are not applicable in all situations. Indeed they apply in relatively limited

situations under Tasmanian law.27 They would not apply, for example, when

Commonwealth legislation was in issue.28

16. Furthermore the analysis applied by Blow J in Aquagenics at first instance,29 of implying a

term that “the arbitrator is to have the authority to give the claimant such relief as would be

available to him in a court of law having jurisdiction with respect to the subject matter”30

into any contract which had an arbitration agreement for the settlement of disputes between

25 This criticism is now supported by Evans J at [27]-[32], with whom Wood J concurred 26 Wealthcare per Cavanough J at [38] 27 s.43A(3) Wrongs Act 1954 (Tas); See also, a propos of the Victorian legislation, Cavanough J in Wealthcare at [37] 28 See Dartberg Pty Ltd (As Trustee for the Pollard Children Trust) v Wealthcare Financial Planning Pty Ltd (2007) 244 ALR

552 29 Aquagenics Pty Ltd v Break O'Day Council (No 2) [2009] TASSC 89 at [21-25] 30 Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160 per Gleeson CJ at 167



the parties, fails to consider the requirements prescribed for the implication of terms into

contracts.31 The touchstone for the implication of a term into all contracts of the particular

type is necessity.32 This would require the implication of any term the omission of which

would be ‘totally inconsistent with the nature of the relationship’. Why would it be

inconsistent with the nature of the relationship between the parties to an arbitration

agreement if they not agree to empower the arbitrator to give effect to the PL provisions of

the relevant statute where the effect of such a term would be to compel the claimant to

institute separate proceedings to recover any damages in respect of an apportionable claim

for which the respondent is found not to be entirely responsible by the arbitrator’s award?

17. Thus in arbitrations the pre-existing contribution provisions should be held to apply: the

respondent to an arbitration found liable by an award will have to attempt in other litigation

to recover contribution from any parties also liable, facing the risk that the court might not

follow the arbitral award as to liability or quantum, which would not be binding on it.

31 See Esso Australia Resources Ltd v Plowman (Minister for Energy & Minerals) (1995) 183 CLR 10 esp Mason J at 30. Any criticism of the logic applied by Blow J at first instance is now supported by the judgment of Tennent J on appeal at [81]-[93] and [108]. The remaining judges expressed no conclusion on the point as the same was unnecessary in the light of their primary determination.

32 Liverpool City Council v Irwin [1977] AC 239 esp Lord Wilberforce at 254-6, referred to with approval by Brennan J in Esso Australia Resources Ltd v Plowman (1995) 183 CLR 10 at 30

See Dartberg Pty Ltd (As Trustee for the Pollard Children Trust) v Wealthcare Financial Planning Pty Ltd (2007) 244 ALR 552

Aquagenics Pty Ltd v Break O'Day Council (No 2) [2009] TASSC 89 at [21-25]

Payment Claims & Payment Schedules Revisited

- Gareth Lewis Gareth Lewis is a partner at Grimshaw & Co in

AUCKLAND with experience in construction disputes, commercial litigation and

employment law

The High Court has considered further issues relating to the validity of

payment claims and payment schedules in its recent judgment: NCB

2000 Ltd v Hurlstone Earth Moving Ltd (AK CIV 2010-404-00809 23 June

2011).

NCB engaged Hurlstone to undertake earthworks and drainage for a

commercial development in East Tamaki. Its agreement with Hurlstone



was recorded by letter which provided for progress payments on a

fortnightly basis and incorporated the general conditions of NZS

3910:2003. In 2009 Hurlstone issued payment claims to NCB. NCB

disputed the final two payment claims made in August and October. NCB

asserted it had overpaid Hurlstone in sum of $34,393. The parties were

unable to resolve the dispute.

Hurlstone issued a payment claim to NCB under the Construction Contracts

Act on 27 October 2010. It sought payment of $121,061 for the period

from May to October 2009, including variations. NCB responded by way of

letter dated 12 November 2010. The letter referred to the Construction

Contracts Act and under the heading "Payment Schedule" set out the

works charged and the variations approved. NCB itemised the payments it

had made and claimed there was an overpayment of $26,950.

Hurlstone issued a statutory demand dated 30 November 2010. It claimed

NCB's letter dated 12 November 2010 was not a valid payment schedule

and NCB was liable for the claimed amount pursuant to section 22 of the

Construction Contracts Act. NCB applied to the High Court to set aside the

statutory demand.

The Court first considered whether Hurlstone's payment claim was valid.

Wylie J rejected arguments the payment claim was invalid for alleged non-

compliance with formalities as to form, timing and service required by NZS

3910: 2003. He held the payment claim was properly constituted and

served in terms of the Construction Contracts Act and that was sufficient.

Wylie J also dismissed an objection that the payment claim included

amounts from earlier payment claims, stating there was nothing in the Act

to prevent such an approach.

The Court then considered whether NCB's letter dated 12 November 2010

constituted a valid payment schedule in terms of section 21 of the Act.

Although the letter did not specifically refer to the payment claim, the

Court decided an overly technical approach should not be taken. It was

sufficient that the letter identified the property which was the subject of

The Court first

considered

whether

Hurlstone's

payment claim

was valid. Wylie J

rejected

arguments the

payment claim

was invalid for

alleged non-

compliance with

formalities as to

form, timing and

service required

by NZS 3910:

2003. He held the

payment claim

was properly

constituted and

served in terms of

the Construction

Contracts Act and

that was

sufficient.



the claim. The letter did not set out the reasons for the difference

between the scheduled amount and the amount claimed, however the

Court concluded NCB was entitled to rely on its earlier response to the

payment claims issued in August and October 2009 which did provide

reasons.

The issue of whether amended payment claims/schedules can be provided

in respect of the same claim and whether payment claims/schedules can

incorporate extraneous documents are matters that are frequently argued

in adjudications under the Construction Contracts Act, so NCB v Hurlstone

judgment will be of assistance to adjudicators.

This judgment continues the approach of the Courts to examine the

substance of payment claims/schedules rather than the technical form,

consistent with the Court of Appeal decision in George Developments Ltd v

Canam Construction Ltd [2006] 1 NZLR 177 (CA). The outer limits of this

principle will no doubt be the subject of further decisions.

This judgment

continues the

approach of the

Courts to examine

the substance of

payment claims/

schedules rather

than the technical

form

Put that appointment on ICE if you would please!

Galliford Try Infrastructure (GTI) engaged Lanes Group (Lanes)

as its subcontractor to re-roof the Network Rail Traction

Maintenance Depot in Inverness. It did so pursuant to an order dated May 2008 made under the Civil

Engineering Contractor’s Association Subcontract (Blue Form) terms and conditions.

Ultimately, on 28 April 2009 GTI terminated Lane’s employment and/or claimed to have accepted its

repudiatory breach and sought damages.

Lanes originally commenced an adjudication in December 2009 and brought court proceedings in

November 2010. Those proceedings were stayed, subject to an arbitration before Mr Justice Ramsey in

January 2012.



On 10 March

2011, the ICE

appointed Mr

Howard Klein to

act as

adjudicator. Mr

Klein wrote to

the parties on

the same date

confirming that

he had accepted

the appointment.

On 9 March 2011 GTI applied to the Institute of Civil Engineers (ICE) for

nomination of an adjudicator. GTI suggested that Mark Dixon be

appointed because he had previously acted as adjudicator.

Lanes claim consultants wrote to the ICE saying it would be inappropriate

for Mr Dixon to be appointed:

My clients object to this gentleman. Mr Dixon acted as Adjudicator in a previous Adjudication between the parties. My

Clients consider that the matter was not handled to my clients’ satisfaction and further…if he was appointed, in this current

matter, that Mr Dixon would be biased against my clients.

GTI’s solicitors protested to the ICE about this “extraordinary and serious

allegation of bias”.

On 10 March 2011, the ICE appointed Mr Howard Klein to act as

adjudicator. Mr Klein wrote to the parties on the same date confirming

that he had accepted the appointment.

On 11 March 2011, GTI’s solicitors immediately wrote to the ICE

complaining that Mr Klein was likely to be biased given his previous

involvement acting on the other side of an acrimonious dispute.

GTI then made a second application to ICE on 11 March 2011 to have

another adjudicator appointed. The ICE declined to appoint on the basis

that it had shortly before appointed Mr Klein. GTI refused to participate

further in the proceeding and failed to serve its Referral Notice (the

equivalent to our adjudication claim) within the mandated period.

Mr Klein’s position at that stage was that unless he resigned for want of

jurisdiction or a Court removed him, he remained the nominated

adjudicator to adjudicate upon the dispute.

On 21 March 2011 GTI made its third application to the ICE for a

nomination of an adjudicator and on 24 March Mr Atkinson was appointed

by ICE as adjudicator to resolve and adjudicate upon the dispute or



disputes which had purportedly arisen between the parties.

On 24 March 2011 Mr. Atkinson accepted that appointment and on 27

March 2011, GTI sent its Referral to Mr Atkinson.

Lanes then issued proceedings on 1 April 2011 seeking an injunction to

restrain GTI from “continuing or making further applications to

adjudicate a particular dispute”. Lanes argued that GTI’s conduct was

unfair, unreasonable and oppressive and amounted to a repudiatory

breach of the adjudication agreement in that there was a deliberate and

conscious refusal by GTI to serve the Referral within the agreed period

such that the adjudication with Mr Klein could not proceed.

Justice Akenhead held that it was impossible to repudiate an

adjudication agreement because the statute requires in an unqualified

way that a party to a construction contract has the right to refer a

dispute to adjudication at any time. His Honour considered that the

party cannot lose its right to adjudicate by in some way “repudiating”

the adjudication agreement and the concept of repudiation does not

apply to statutory rights.

Mr Justice Akenhead ruled that:

There is at the very least a lacuna in the HGCRA and in many

standard form adjudication agreements which would allow a referring party, time and again, if it did not “like” the adjudicator

nominated, to withhold service of the referral documentation so that the adjudication lapses, thus enabling it to seek a

nomination which it does “like”. Clearly that would involve what would be perceived by many as an abuse of contractual and

statutory process.

Mr Justice Akenhead observed that:

There is a respectable argument, albeit not deployed in this case,

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.

The comments from Mr Justice Akenhead make it clear that the situation

of successive applications for an adjudicator intended to result in

Justice Akenhead

held that it was

impossible to

repudiate an

adjudication

agreement

because the

statute requires in

an unqualified

way that a party

to a construction

contract has the

right to refer a

dispute to

adjudication at

any time.



an ‘acceptable appointee’ is unlikely to be countenanced by the Court

and the lacuna may well be unravelled if an argument were deployed

to the effect that “the Court could by injunction restrain a party, albeit

with appropriate safeguards, from pursuing the same relief for the

same dispute, time and again, in adjudication”.

In the result, the Judge held first, that no fair minded and informed

observer would conclude that there was a real possibility that Mr Klein

was biased in the first adjudication, and second, as the first

adjudication had lapsed there was no obstacle to the second

adjudication being commenced.

Then there was another disaster.

Eventually, following two other applications to the Technology &

Construction Court (TCC), Mr Atkinson, the second adjudicator

appointed to deal with the dispute, decided that Lanes should pay GTI

£1.36m and that GTI should pay his fees.

The problem was, during the course of the adjudication, the

adjudicator issued a document titled “Preliminary Views and Findings of

Fact” setting out his views on the substantive issues in the adjudication

in which he made various findings of fact based on the witness

evidence of the claimant, GTI. This 35-page document was issued on

14 April 2011 before Lanes had served its response and the date for

the decision had still not been agreed. It gets worse.

Whilst initially Lanes view was it would not provide a response because

it disputed the entitlement of GTI to submit the dispute to a second

adjudication, in discussion with GTI and the adjudicator, Lanes was

given until 20 or 22 April 2011 to make its response, so it was known

by the adjudicator that Lanes wished to be heard.

The “Preliminary Views” document read like a draft determination. It

The comments

from Justice

Akenhead make it

clear that the

situation of

successive

applications for

an adjudicator

intended to result

in an ‘acceptable

appointee’ is

unlikely to be

countenanced by

the Court



also contained a statement by the adjudicator that “the Preliminary

Views and Findings of Fact” are a step in making my Decision and I am

not bound by them nor do I commit myself to communicate nor issue

further “Preliminary Views and Findings of Fact”.

On 20 April 2011, shortly after the “Preliminary Views” document was

released by Mr Atkinson, Lanes served its response in the adjudication

to which GTI served a reply on 29 April 2011 and Lanes issued a

rejoinder on 12 May 2011.

About a month after issuing his “Preliminary Views” document, the

adjudicator issued his “Decision”. The Decision dated 17 May 2011 and

amended on 20 May 2011, substantially reflected the findings the

adjudicator made in his “Preliminary Views” document and there were

many similarities between the two documents in respect of findings to

the same effect and in the same language.

Lanes then issued proceedings in the TCC challenging this decision,

seeking declarations that:

(a) The adjudicator had no jurisdiction because GTI had previously commenced, but not pursued, an adjudication

on the same point before a different adjudicator, and was therefore not entitled to start again; and

(b) The adjudicator’s decision was the product of apparent

bias.

GTI brought a separate claim to enforce the decision.

The Decision:

Judge Waksman QC held that there was no implied, absolute or

qualified bar preventing a party from starting an adjudication again in

situations where no decision resulted. He first referred to the case of

Hart Investments v Fidler where Judge Coulson QC (as he then was)

found that it was open to the relevant party to start again in

circumstances where the Referral was not served first time round. In

The “Preliminary

Views” document

read like a draft

determination.

It also contained

a statement by

the adjudicator

that “the

Preliminary Views

and Findings of

Fact” are a step in

making my

Decision and I am

not bound by

them nor do I

commit myself to

communicate nor

issue further

“Preliminary

Views and

Findings of Fact”.



addition, he referred to the decision of Jackson J (as he then was) in

Midland Expressway v Carillion in which it was held that a party could

withdraw its claim which had been inadequately formulated and which

could not succeed as it presently stood and that there was nothing in

the Act or the Scheme to suggest otherwise.

If there was an intention to restrict a party which had commenced an

adjudication, but a decision had not been reached, Judge Waksman QC

held that the parties could have expressly said so in their contractual

adjudication agreement (unlike under the NZ statute).

As to whether or not there was apparent bias, Lanes alleged that the

preliminary views document looked and read like a decision, and

suggested that the adjudicator had already made up his mind. Lanes,

quoting Dyson LJ in Amec Capital Projects v Whitefriars City Estates,

submitted that: “a fair-minded and informed observer, having

considered all the circumstances which have a bearing on the

suggestion that the decision-maker was biased, would conclude that

there was a real possibility that he was biased.”

The Judge agreed. He considered that the “Preliminary Views”

document:

[r]eads like a judgment and one that must have taken

some days to prepare. It is obviously intended to be a judgment at some point because of the preamble,

background facts, recital of adjudication and so on, along with the list of issues which as a list was complete. Given

that on is face it looked like a draft judgment, and one made before any response from the other party, it does

indeed appear as if the author has made up his mind.

He did note that there were words of qualification on the face of the

document; however, his overriding impression was that the adjudicator

had already made up his mind at a time when the timetable was still

being discussed and Lanes had not even served its response.

Judge Waksman QC was critical of a number of aspects of the

“Preliminary Views” document. First, it had been issued by the

Judge Waksman

QC held that

there was no

implied, absolute

or qualified bar

preventing a

party from

starting an

adjudication

again in

situations where

no decision

resulted.



adjudicator without any advance notice. Second, it was odd to use

language like “I find” and “I find and hold”, “Decision’ etc if it were a

simple discussion document, or some indication of provisional view.

Third, the references in the document to the absence of submissions by

Lanes were “unfair” in that whatever it said originally, Lanes had agreed

to engage in the process, and fourth, he stated that it was “odd” to have

a provisional view document at all in the absence of a response from

Lanes.

His Honour had little difficulty in concluding that Lanes had established

its case of apparent bias. He held that Mr Atkinson’s decision was

unenforceable and the summary judgment application was dismissed.

Judge Waksman QC added:

[i]n the normal run of an adjudication I would not have thought that

documents expressing provisional views on which parties were

then invited to comment were likely to be helpful or appropriate.

They may be, where the parties expressly ask the adjudicator to do

just that although it is not clear that this will always assist in a

process which is meant to be concluded in a narrow time frame

and confined in scope. Of course, where the adjudicator considers

that there might be another basis for one or other party’s claim,

which had not been addressed by either, it is obviously incumbent

upon him to put this to the parties for their comment… But that is

an entirely different situation.

Case Details:

Lanes Group Plc v Galliford Try Infrastructure Ltd [2011] EWHC 1679 (TCC), 6th July 2011, Judge

Waksman QC

See also: Lanes Group Plc v Galliford Try Infrastructure Ltd [2011] EWHC 1035 (TCC) and [2011]

EWHC 1234 (TCC)

His Honour had

little difficulty in

concluding that

Lanes had

established its

case of apparent

bias. He held that

Mr Atkinson’s

decision was

unenforceable

and the summary

judgment

application was

dismissed.



NEW FIDIC GOLD BOOK

CONTRACT GUIDE

-Sarah Thomas Partner at Pinsent Masons

AUTHOR PROFILE

Sarah Thomas is a partner with international law firm Pinsent Masons

(www.pinsentmasons.com), specialising in infrastructure projects both in the UK and overseas and has

extensive experience of using and adapting all FIDIC forms - particularly in the water, waste, energy and mining

sectors. Sarah can be contacted direct on

[email protected] or +44 (0)207 490 6273

1. Introduction

The International Federation of Consulting Engineers (FIDIC)

has just published the latest in their series of Contract

Guides, this time in relation to the new Design, Build and

Operate form (FIDIC "Gold Book"). FIDIC Gold Book remains

the only internationally recognised design, build and operate

standard and so not surprisingly was the subject of much

discussion from industry commentators when first published

(in 2008). At the time, criticism was directed in particular to

the clauses dealing with project operation (a first for FIDIC),

the fact that it is reserved for greenfield projects and that it

has no funding element. It was hoped that the Contract

Guide might address some of these issues and in doing so

widen its potential application for future projects.

In this [Newsflash/article] we examine several of the key

criticisms raised against the Gold Book and consider whether

these have been addressed in the Contract Guide.

2. Applicability for Brownfield Sites and BOT/PPP Projects

FIDIC Gold Book states in its introduction that it is applicable only to greenfield sites and has no

provision for upgrade of existing facilities. As these types of projects make up only a relatively small

portion of DBO projects in general, it was hoped that the Contact Guide would include the much

promised changes to make the Gold Book suitable for brownfield sites as well. However, we will have to

wait a bit longer for this as according to the Contract Guide: "FIDIC intends to publish a separate

document for the brownfield scenario."



Another key issue noted when the Gold Book was first released (particularly in the UK), was the lack of

any financing element, which ultimately makes the form unsuitable for PPP/BOT projects. Likewise,

provisions to adapt the Gold Book for PPP/BOT are not included in the Contract Guide. It is also

doubtful that the form could be used even as a subcontract in a BOT/PPP project, since such

subcontracts would need to be on a back-to-back basis with the overarching project agreement, and so

would only be suitable following substantial amendment.

3. Contractor Obligations Over the Operation Period

In the Foreword to the Gold Book, FIDIC envisaged that it would be used by separate construction and

operating companies acting as the "Contractor" under a joint venture/consortium agreement. However,

imposing obligations on the JV/Consortium as a whole causes particular problems in a DBO project.

Consider Sub-Clause 4.1 of the Gold Book. This imposes a duty on the Contractor to ensure that the

Works are "fit for the purposes for which the Works are intended as defined in the Contract" and states

that the "Contractor shall be responsible for ensuring that the Works remain fit for such purposes during

the Operation Service Period" [Emphasis added]. Construction companies have a business model that

relies on design/build risk being significantly decreased on issue of the completion certificate. Such

companies will have to consider carefully their continuing exposure over the 20 year Operation Service

Period. Operators have a long term risk model, but are reliant on the design and build expertise

provided by the constructor and would not ordinarily assume fitness for purpose in their O&M contracts

(which are service contracts that are output focussed after all). Operators would therefore find it difficult

to model the construction risk without guarantees from the constructor, with such guarantees dependent

on the projected financial viability of the constructor over the 20 year Operation Service Period.

In addition, under Sub-Clause 4.2 of the Gold Book, performance security must be provided by the

Contractor throughout both the design-build and operational phases of the project. Despite the value of

the bond being reduced 1 year following the completion of outstanding construction works, this provision

may be onerous to the Contractor (depending on the type of project and value of the bond). It has been

questioned whether an institution will provide such long term guarantees, and whether the reduced risk

following commissioning still justifies such protection. This is especially the case when Sub-Clauses 4.25

and 15.2(e) already provides a mechanism under which the Contractor must report any adverse changes

in its financial situation and allows the Employer to terminate the contract if the Employer believes the

Contractor will not satisfy its financial obligations. Therefore a Contractor renewing the necessary bond

coverage not only faces the increased cost of renewing, but should such cost be prohibitive, the

Employer has the right to terminate. Thankfully this is one issue which the new Contract Guide does



address. The Guide acknowledges that: "some Employers may choose not to require a Performance

Security during the Operation Service Period as they may see this phase of the Contract as being

equivalent to a "service contract" where a Performance Security is not appropriate". This provides strong

justification for a Contractor to resist providing a performance security for the Operation Service Period.

4. Reporting Criteria

The Contract Guide is less helpful on the interpretation of provisions dealing with monthly reporting. The

position is clear during the construction period. Sub Clause 4.21 states that during the design-build

phase monthly progress reports are to be submitted and that "reporting on progress shall continue until

the Contractor has received the Contract Completion Certificate”. However the contract is silent on

frequency during the operations phase. The clause goes onto say: "Details of the content of the

progress reports for the Design-Build Period and the Operation Service Period shall be as specified in the

Employer's Requirements" and later on, that "the particular reporting requirements during the Operation

Service Period shall be specified in the Employer's Requirements." The drafting is therefore ambiguous

as to whether the progress reports are to continue to be provided monthly during the Operation Service

Period or at some other frequency.

The Contract guide does not discuss frequency and so it would be prudent to ensure that the Employer's

Requirements specify the frequency of operational progress reports (as well as the content).

5. Design Obligations

Sub-clause 5.1 of the Gold Book states: "The Contractor undertakes that the designers shall be available

to attend discussions with the Employer's Representatives at all reasonable times". However when

applied to a 20 year operation period this could prove to be an onerous obligation.

Whilst the Contract Guide acknowledges that: "if the Employer's Requirements contain any immutable

provisions or require that any part of the design...be carried out by a third party... then the responsibility

for those provisions or parts must be clearly separated from the general responsibilities...However if

such third party is designated as a nominated designer (Nominated Subcontractor) then according to the

provisions of Sub-Clauses 4.4 [Subcontractors] and 4.5 [Nominated Subcontractors], responsibility for

the design will remain with the Contractor", it does not address the issue of when this obligation should

cease. A design team is never going to be available for the full 20 year Operation Service Period. A

better approach would be to clarify that obligation expires on the issue of the Commissioning Certificate.



A further criticism of the design requirements is levelled against Sub-Clause 5.2, which relates to the

Contractor's Documents. It has been argued that there is undue complexity in distinguishing between

those Contractor's Documents that are open to inspection, from those submitted for review for "consent"

and those submitted for review "for approval". For example, for a document to be reviewed for approval

the Employer must: (i) describe in the Employer's Requirements that the document should be submitted

for review; and (ii) list the document as requiring approval in the Contract Data. Sub-Clause 5.3 provides

that should the Employer require further Contractor's Documents, they should be produced at the

Contractor's own cost. However, as these documents will not have been described in the Employers

Requirements as requiring review, and/or added to the Contract Data, presumably a variation would be

required for them to be subject to review and consent/approval.

The Contract Guide doesn't clarify matters; its only comment is: "As the [Contractor's Documents] form

such an important part of the work to be done by the Contractor, the Contract gives the Employer's

Representative and/or his Personnel, the right to inspect, review, comment upon and give consent to the

Contractor's Documents, and the Contractor is not permitted to proceed until such consent is given...

Any consent (or where specified, approval or review) shall not relieve the Contractor of any of his

responsibilities as to the correctness of such documents and his ultimate obligation that the Works be "fit

for purpose".

Of course, a broader question is whether adopting the Yellow Book approach to design review for a DBO

form is suitable at all and whether a more service-based approach, relying on the output specification,

would encourage more innovation from the Contractor. Whilst it is understandable that the Employer

would wish to approve certain Contractor's Documents (e.g. that relate to planning or similar high profile

consents that may be in the name of the Employer), given that the consent procedure (c.f. approval

procedure) does not act to transfer risk, one could argue that its inclusion in the design review

procedure therefore seems superfluous. Under the Gold Book, the Employer "gives his consent to a

document when he is satisfied that the Contractor's Documents conform to the Employer's

Requirements". As there is a requirement to pay the Employer's subsequent review costs should a

Contractor's Document be rejected following first review, a Contractor will be wary of providing

innovative designs for fear of the Employer rejecting them, especially where the Employer's

Requirements have not been drafted to allow for service based output requirements. Moreover, the

review procedure is designed for the Employer's control of the design, and to the extent that the

Employer wishes to review design documents, perhaps that should be at the Employer's cost; as the

Employer is best able to control such expenses.



6. Value Engineering

Another factor influencing innovation is the Value Engineering provisions – dealt with under Sub-Clause

13.2. Again, the DBO provision is essentially standard FIDIC (Yellow Book). The Contractor may submit

proposals at its own cost that may accelerate the Works, decrease costs, improve efficiency or

"otherwise benefit the Employer". It is questionable whether this will be utilised by the Contractor

considering that preparation of the proposal will be at the Contractor's cost and for the Employer's

benefit.

The Contract Guide tries to address this conundrum but by simply reiterating that "the benefits foreseen

by the Contractor must be benefits to the Works or to the Employer. Benefits to the Contractor in the

way of cheaper design or modified function are, by themselves, not enough". The Guide points out that

the Contractor will be financially motivated to perform value engineering because: "If there are savings

resulting from the value engineering, the share of this saving should be agreed prior to instructing the

variation. Alternatively, it is even better if the Special Provisions fix these proportions" – so encouraging

the Parties to address this issue pre-contract.

7. Adjustments for Changes in Technology

With the pace of new technology, it is not surprising that the Gold Book (at Sub-clause 13.7) allows the

Employer's Representative to instruct the use of new technology, new materials or new products to be

used during the duration of the Contract. Of course, this incentive only works if there are actual financial

savings. The Contractor is entitled to an increase in time/cost during the design-build phase, and

increased costs during the Operation Service Period so no issue there, but a prudent Operator will

always want to consider the impact of such new technology/materials/products on the quality of the

operational service. Sub-Clause 13.1 only allows objection to the variation on the grounds that it "will

have an adverse effect on the provision of the Operations Service". That is not the same as "may have"

and so gives the Contractor very limited rights, especially where changes in technology during the design

phase may impact on the Operation Service Period (and so the actual impact will not be known at this

stage).

This issue is not addressed in the Contract Guide except to state "if the [Technology Change] occurs

during the Operation Service Period, the Contractor is entitled to receive financial compensation". A

prudent contractor should therefore consider including more detailed provisions protecting the

Contractor from changes in technology that could affect operational quality.



8. Adjustments for Changes in Costs

Cost escalation over the 20 year operations period is addressed in the Gold Book under Sub-Clause 13.8,

which provides that "the Contract Price...Rates and Prices shall be adjusted in accordance with the

Schedules of cost indexation included in the Contract". There have been questions as to whether

indexation is the most appropriate mechanism to protect the Contractor from cost escalation or whether

periodic reviews (perhaps with occasional benchmarking against local market prices) are more

appropriate.

The Contract Guide is quite helpful here. It notes that it is normal "for a long-term DBO contract to

contain some provision for cost escalation, especially during the Operation Services Period" and goes on

to say that "the inclusion of a "hardship" clause may even be justified and appropriate during the

Operation Service Period given its long (20-year) duration. In such a clause, the Parties recognise that it

may be impracticable to make provision for every contingency which may arise, and state their intention

that the Contract shall operate between them with fairness and without prejudice to the interests of

either of them." It is a pity that the Guide did not go on to suggest particular drafting. Wording along

the lines of "fairness" or not so as to "prejudice to the interests of the parties" are likely to lack the

necessary certainty to be enforceable. Contractors should also ensure that the Schedules of indexation

are included as the Contract Guide makes it clear that there will be no mechanism for cost escalation if

they are not.

9. Operational Risk

As regards the allocation of risks during the Operation Service Period (Sub-Clauses 17.3 and 17.4), the

Gold Book does not allow for the effect of any Employer input into the operational services (say for

example the Employer is responsible for influent or control of waste materials in a wastewater treatment

or waste recycling plant). Whilst the Contractor is not responsible for delays/interruptions unless he has

caused them (sub-Clause 10.6), what about actual damage to the process? The Contract Guide does not

specifically address this. It simply says: "If a risk arises and the Parties cannot agree where the risk lies,

the matter will be decided by the Dispute Adjudication Board (DAB), and the risk will be carried or

shared by the Party or Parties named by the DAB" over which the Contractor has no control.

Sub-Clauses 10.6 and 10.7 of the Gold Book deal with delays to service during the Operation Service

Period and failure to reach output specifications. Whilst the Contractor is liable for all losses (including

loss of revenue, loss of profits and overhead losses) resulting from delays or interruptions during the



operation period which are caused by the Contractor, such losses are hard to calculate and prove and

are subject to a liability cap. The Contractor is also liable for performance damages on failing to achieve

the production outputs and must take all steps necessary to restore the output to the required levels. If

underperformance continues for more than 84 days, the Employer may terminate the contract or make

reduced payments for the Service as calculated under the determination provisions. While providing

some recourse to the Employer, the loss/damage mechanism is unsophisticated compared to key

performance indicator/liquidated damages mechanisms provided for under contemporary DBO contracts.

Unfortunately the Contract Guide is silent on this point.

A further consideration is the use of insurance to spread the risk of operational failure. Despite the risk

allocation to the Contractor during the operations phase, business interruption insurance is not

mandatory under the Gold Book. It will benefit both Parties for such risks to be covered under business

continuity insurance where available, but a Contractor will have to consider carefully when including the

cost of such in its tender for fear of being under-bid. Further, as under Sub-Clause 10.9 ownership of

any output and revenues is the exclusive property of the Employer, does the Operator have an insurable

interest in the Employer's loss of revenue? The Contract Guide does address this issue stating that: "if

there are additional operational insurance which the Employer requires the Contractor to take out...the

Employer must make sure that such requirements are given in the Contract Data. Provided he does this,

the Contractor is responsible for including such requirements in prices...Examples of insurance cover

which might be required...are Machinery Breakdown, Loss of Profits and Loss of Profits following

Machinery Breakdown." Depending on the project, it may be beneficial for an Employer to require

insurance to protect against interruption during the Operation Service Period, but consideration should

be made as to the cost of renewing such insurance over the 20 year period. A mechanism where the

Employer shares in the burden of any increase in the premium above inflation would probably be the

best way to address such costs.

10. Contractor's Liability

One criticism of the Gold Book liability provisions (which largely mirror Yellow Book) are that they are

unclear when read alongside the new provisions dealing with operational liability in Sub-Clause 10.6.

Sub-clause 17.8 is a broad exclusion clause which, subject to certain express exceptions, excludes

liability for "loss of use of any Works, loss of profit, loss of contract or for any other indirect loss or

damage". However, one of the express exceptions to the 17.8 exclusion is Sub-Clause 17.9 which

provides for an indemnity from the Contractor to the Employer that arguably covers the majority of



indirect losses that may be suffered by the Employer. Such is the extent of the indemnity under 17.9

that commentators have noted that the consequential loss exclusion under 17.8 may as well be solely to

the benefit of the Employer.

Commentators have also noted potential overlap between the indemnity under Sub-Clause 17.9 which

covers "all errors in the Contractor's design of the Works and other professional services which result in

the Works not being fit for purpose or result in any loss and/or damage for the Employer" and Sub-

Clause 10.6 where: "if there are any delays or interruptions during the Operation Service which are

caused by the Contractor or by a cause for which the Contractor is responsible, the Contractor shall

compensate the Employer for any losses including loss of revenue, loss of profits and overhead losses".

This is important as liability under 10.6 is subject to a determination (and most importantly, a liability

cap) while the indemnity under 17.9 is not.

Disappointingly, the Contract Guide doesn’t specifically address these drafting issues although it says: "it

is very difficult for a Contractor to assess his risk exposure if he carries unlimited financial liability for the

consequences of certain events occurring" and so FIDIC does recognise that a Contractor would require

that it has a limit to its exposure to indirect risks.

11. Conclusion

The Contract Guide follows the traditional, narrow approach of such guides – providing a commentary

summarising the provisions of the Gold Book and re-stating their intent. As such, it does address some

issues of interpretation and provides a more detailed explanation of the mechanisms that are used in the

form. Perhaps not surprisingly, the Contract Guide does not provide alternative clauses or wording to

address criticisms that have been levelled against certain provisions. These will need to be dealt with by

the parties themselves – in the Particular Conditions/Special Provisions. There is a small section on

"Preparing Special Provisions" in the Guide but FIDIC make it clear that the reasons for change should

be limited to:

• where the General Provisions indicate that alternate wording may be used (e.g. Commencement Date in Sub-Clause 8.1);

• where the insurance provisions need to be changed;

• where there are legal or other requirements not reflected in the General Conditions; or

• if there are particular project features which render certain of the General Conditions inappropriate or unacceptable

Nor does the Guide widen the Gold Book's applicability to brownfield projects, a subject that we hope

FIDIC turns to next.



A LONG CLIMB TO JUSTICE

- TONY BINGHAM

If you ask someone to design and supply a staircase and it arrives as a heap

and not fit for purpose, you can shout breach – but does that mean you can

reject the goods?

Mr and Mrs Lowe are converting a barn for residential use. The quotation from W Machell Joinery Ltd

became the contract for various items. The oak staircase was described as: “Staircase including both

galleries” and “Tom can do drawings”; “£16,000 + VAT.” Machell is a 50-year-old family business; it

doesn’t use contract forms or small print. The quote was handwritten. So when trouble came, it came in

spades.

When the staircase arrived at the barn, Mr Lowe looked at the unassembled mass and waited for Machell

to install it. That’s what he thought he was getting for his £16k. Bad start, huh? By now the joinery firm

had been paid. Mr Lowe told Machell to take it all away. He obtained an oak staircase to his liking from

elsewhere and demanded his £16k back.

I think it is fair to say that the next person Mr Lowe got on the wrong side of was the judge in a four-

day trial. There was an attitude problem too: “Petulance bordering on childishness.” The only item which

amounted to a proven breach of contract was minor – easily remedied via a co-operative attitude. The

judge sent Mr Lowe away with nothing, save an order for costs against him. Oh dear.

Let me tell you about the so-called minor breach. Stairs these days have to pay attention to my two

grandsons. Archie has a devilish game of squeezing himself through banisters, while Luca enjoys

pushing his mum’s Pilates fitness ball through them, so it neatly drops on a victim below. When Machell

Joinery’s man Tom did the drawings, he forgot the rule about balls. Seemingly, if there is a likelihood of

stairs being used by under-fives, then the construction should be such that “a 100mm sphere cannot

THE DESIGN AND SUPPLY OF THE STAIRS CAME WITHIN A PROMISE THAT

THE SELLER, IN THE COURSE OF BUSINESS, MUST SUPPLY GOODS OF

SATISFACTORY QUALITY … IE. FREE FROM DEFECTS, SAFE, DURABLE



pass through openings; and children will not readily be able to climb the guarding”. The distance was

outside the limit.

“Breach!” shouted Mr Lowes’ legal team. That’s all very well, but is it enough to give Mr Lowe the right

to reject the goods? And how come it is a breach? When a joinery works produces the design drawings,

it becomes a design and supply construction contract. True, it is not a design, supply and install,

because the deal didn’t say that. But a design obligation puts the burden on the designer. The judge

agreed that even if Mr Lowe had set the spaces on the stairs too wide, the joinery outfit ought to have

warned the customer about my grandsons’ games.

So one way or another, the supplier was in breach. The court turned to an expert stair-man and asked

what it would take to tinker with the construction to satisfy the sphere test. The short answer was “not

much”. So that trial concluded, I guess, with the notion that it doesn’t pay to join the awkward squad.

Mr Lowe got leave to bring this modest-size dispute to the three-man Court of Appeal. Let me explain.

The breach of a term of promise – whether express or implied – has differing consequences because

promises in contracts have differing qualities. Little promises give a right to compensation for any loss.

Big promises are similar to big lies, sort of “it’s all over between thee and me” – type promises. Mr

Lowe’s lawyer argued that to manufacture something in breach of building regulations is a big breach.

No, said the joinery firm; it only takes a few tweaks to put things right. Hmmm. Two of the Court of

Appeal judges went one way, the third the other.

The design and supply of the stairs came within the promise that the seller, in the course of business,

must supply goods of “satisfactory quality” and are satisfactory if there is fitness for the ordinary

purpose of stairs. In other words, free from defects, safe and durable. Furthermore, the stair shall be fit

for any particular purpose, expressly or by implication made known to the seller. But if they do not

satisfy those rules, the breach is one of “condition”. A big term, even if the actual breach is minor as a

fact. So Mr Lowe reversed the first judge’s decision and got the price of these troublesome stairs repaid.

THE BREACH OF A TERM OR PROMISE, WHETHER EXPRESS OR IMPLIED,

HAS DIFFERING CONSEQUENCES BECAUSE PROMISES … HAVE DIFFERING

QUALITIES



You lawyers ought to read the case for the plain difference of opinion between the two senior Court of

Appeal judges. One said this was a new argument in the Court of Appeal that should have been run

before the first single judge only. He refused the appeal. The other thought it could come on and be

argued and the third judge backed him. Machell will pay all the appeal costs. As to the first trial, each

will pay his own costs. I bet those are higher than the price for the stairs.

SIMPLE GAME, TRICKY RULES -Tony Bingham

Author Profile

TONY BINGHAM

TONY BINGHAM is an

Arbitrator, Adjudicator,

Mediator and Barrister.

As well as that, Tony is

a renowned writer,

commentator and

lecturer.

Here’s a conundrum for you: what happens if part of a contract is within

an adjudicator’s jurisdiction and part is outside? And if a decision is

made on all of it, is it enforceable?

The Construction Act contains half a dozen clauses that require the

reader to raise their forefinger, put it on the top of their head and

scratch. At the same time you are required to mutter, “What the blazes

does this clause mean?” It’s a sort of parlour game.

My favourite is called Balderdash. Cleveland Bridge was the steelwork

subcontractor to the Whessoe-Volker Stevin joint venture at the Milford

Haven natural gas terminal. Their spat about the final account came to

adjudication. Cleveland insisted on being paid another £365,000 and the

good adjudicator person said yes, that’s what Whessoe-Volker must

pay. They didn’t obey, so Cleveland took them to the High Court.

The first head-scratching bit of Balderdash is why, oh why does the

Construction Act say that steelwork for the purpose of providing access

THE COURT IS NOT ALLOWED TO TRY TO DISMANTLE

OR RECONSTRUCT A DECISION. THE ATTACK ON THE

ADJUDICATOR’S DECISION EITHER SUCCEEDS AND

SETS IT ALL ASIDE, OR FAILS AND LEAVES IT

INTACT



Construction Act say that steelwork for the purpose of providing access to plant or machinery on a site

for the production, transmission or processing of gas is not a construction contract. Whereas it would be

on a site for the production of petticoats, motor cars or bagpipes! Balderdash is the reason. Anyway, this

steelwork by Cleveland Bridge does fall into this gas exception so the adjudicator can’t adjudicate …

except the £4m subcontract is also for steelwork well within the bagpipe list of works that are

construction contracts. So we have a contract for steelwork, part of which is within the Construction Act

and part of which is not. And lo! The act says when that happens, the Construction Act rules applies to

the bit that’s in but not to the bit that’s out. And everyone then shouts “Balderdash” and we all fall about

giggling in the parlour.

When the adjudicator first arrived, Whessoe-Volker told her to go away because all of the steelwork was

about access to a gasworks. Dear me, no, she said, correctly. She then proceeded to decide that there

was no full and final compromise settlement and ordered the £365k to be paid. But which part of the

£365k is for the part of the steelwork that can be adjudicated and which part is not? The adjudicator’s

formal decision gave no hint of any split or allocation. Can the court deploy the concept of severance?

Tricky.

Mr Justice Ramsey got to grips with the problem. Any agreement between two parties that is in part

within the Construction Act allows either party to call for an adjudicator for that part only. The

adjudicator has no jurisdiction over the other part of the same contract. If the adjudicator specifically

and correctly hives off the part in scope and decides that part, the decision about that dispute is binding.

But if, as happened here, the adjudicator was persuaded in error to adjudicate across the whole of the

contract, the judge has to decide if the court is entitled to sever.

This topic has cropped up in previous cases. The senior judge in the Technology & Construction Court

said that where a decision is made, part of which is outside the adjudicator’s jurisdiction, the whole of

the decision is unenforceable. “I do not think … the decision can be dissected to impose separate and

severable obligations to be bound by the adjudicator’s decision on each of the component issues on

which the adjudicator based that decision”.

WHEN THE ADJUDICATOR ARRIVED, WHESSOE-VOLKER TOLD HER TO GO AWAY BECAUSE ALL OF THE STEELWORK WAS

ABOUT ACCESS TO A GASWORKS



The judge went on: “I do not consider that the court can or should intervene and say what the

adjudicator may have found to be the value of the work relating to the element of the subcontract within

(the adjudicator’s) jurisdiction”.

So, adjudication is a “warts and all” decision. You are not allowed to afterwards go to the court to have

an adjudicator’s decision revised and replaced with what is or was thought to be right. You can bring the

whole dispute to the court or arbitrator of course. Then the whole lot is heard afresh. But the court is

not, meanwhile, allowed to dismantle or reconstruct a decision. The attack on the adjudicator’s decision

either succeeds and sets it all aside, or fails and leaves it intact. The high court accepts that there is no

room for the result of an adjudication to be partly made by the adjudicator and partly made by the

court. The court’s role is to enforce the decision in accordance with the promise in the contract to obey

the adjudicator…. Or not enforce at all.

Stanley v Rawlinson Court of Appeal Like Talking To A Brick Wall

-Tony Bingham

Neighbours. Love ‘em or hate ‘em, surely it makes sense to take a dispute to arbitration rather than

spend thousands thrashing it out in the courts?

THE WIND BLEW. THE

WALL TOPPLED. THE

STANLEYS ASKED A

LOCAL BUILDER FOR A

PRICE. THE BUILDER

THOUGHT EARTH HAD

BEEN PILED UP AGAINST

THE OLD WALL ON THE

RAWLINSONS’ SIDE. AH-

HA! IT WAS DOWN HILL

FROM THERE ...

This is a story about an old five foot-high brick wall between

the back gardens of Mr and Mrs Stanley and Mr and Mrs

Rawlinson. A part of it fell down during a night of heavy

winds in October 2001. No problem really. It was the

Stanleys’ wall. It fell onto the Stanleys’ side. Well, actually it’s

not only a story about the wall. It’s also a story of how

neighbours who had hitherto got on, fell out. Well, actually,

it’s also a story of how the bitter feud became litigation, (all

the way to the Court of Appeal) and how, I sadly admit, my

professional business of litigation had produced a nightmare.

I will also tell you how the feud could have been solved,

easily, cheaply and for good.



So, the wind blew. The wall toppled. It was 150 years old. That was in

2001. Five years on the rubble lay there. Then the Stanleys asked a local

builder for a price to rebuild the whole wall - £26,423 was the answer.

There was a side remark from the local builder to the Stanleys. He

thought earth had been piled up against the old wall on the Rawlinson’s

side. Ah-ha! It was downhill from there.

Here we are, 10 years later, wall still not repaired, two trials, solicitors,

barristers, experts taking different opinions, and four judges. A bitter

quarrel, with folk living next door that no doubt despise and detest each

other … and the expense is such that the wall could, by now, have been

rebuilt six times over with the money spent fighting the case, said the

Court of Appeal judge. And by the way, he also said that the appeal was

hopeless.

This case has no quirky point of law or ifs and buts. No unfairness. No

faux pas by the judges. Unsurprisingly the Stanleys went to a solicitor.

The solicitor puts a point of view to the neighbour. He now goes to a

solicitor. The accusation of piled earth is rejected. Both now engage

expert construction folk to fathom the true cause. Expert opinion doesn’t

come cheap. Nor does the lawyer’s time in assessing value and deciding

what to recommend to their client. Can you hear the fee notes being

prepared? Can you guess how long it takes before the wall repair cost is

matched, then overtaken, by those legal fees? The Stanleys decide to

sue. The Rawlinsons defend. Eventually it comes to trial. It takes three

days. The barristers are thorough. The experts are cross-examined. The

judge analyses the evidence, the circumstances, and decides the wall fell

down … because of the wind, that’s all. Ordinarily that means disaster for

the loser. They pay all their own costs and the costs of the other side.

But the Stanleys are not all done yet. Somehow they coax the three-man

Court of Appeal to hear their case. I search for a point of law that the

judge may have got wrong. Nothing. It is, for all purposes, a re-run. The

Court of Appeal very thoroughly looks at all that happened all over again

HERE WE ARE,

10 YEARS

LATER, WALL

STILL NOT

REPAIRED, TWO

TRIALS,

SOLICITORS,

BARRISTERS,

EXPERTS

TAKING

DIFFERENT

OPINIONS, AND

FOUR JUDGES



and emphatically dismisses the appeal. More and more expense for the

Stanleys. By now I bet there is no money to rebuild the wall.

Now, don’t get me wrong. Disputes of £26,000 can contain fundamentally

difficult concepts of law. A famous case called Ruxley vs Forsyth about

the mistake of a few inches in a swimming pool depth went all the way to

the House of Lords, using up the time ultimately of nine judges. But

unlike this garden wall case, it contained a tricky legal point. This is a

case driven by complete confidence that the neighbours have

“dissimulated”, said the court. In other words disguised or concealed the

truth. My guess is that the expense is fuelled by desire to win. And I tell

you this, sometimes when you tell a client they are likely to lose … they

are more likely to proceed. So this case has run all the way through

litigation and is a disaster.

If, instead, the Stanleys and Rawlinsons had come to arbitration, using

the special scheme talked about on this page last week, their maximum

expense would have been £2,000 per party. No solicitors, no barristers,

just the Stanleys and Rawlinsons. No experts, just an arbitrator who

decides construction cases. No appeal. No dithering. Just a straight

answer on the dispute … Win! Lose! All done.

And all done in time to get on with your life, even get back on

terms with your neighbour, and enough money to rebuild the

damn wall.



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