Twintec Ltd v Volkerfitzpatrick Ltd [2014] EWHC 10 (TCC)

This summary was provided by CMS Cameron McKenna LLP.

For more information visit http://www.cms-cmck.com/Construction/Construction-Disputes

summary

In this case the Court granted an injunction restraining an adjudication from proceeding. The adjudicator had been appointed pursuant to a provision that had not been incorporated into the agreement between the parties and the adjudicator therefore had no jurisdiction.  Any decision he reached would be a nullity and no purpose would be served by the adjudication continuing.  The claimant also argued that the adjudication was unreasonable and oppressive because it had been commenced at a time when complex High Court litigation was proceeding covering the same issues.  The Court rejected this submission. Having regard to the statutory right to refer disputes to adjudication at any time, exceptional circumstances were required before a Court could restrain an adjudication on the ground that it was unreasonable and oppressive.     

Technology and Construction Court, Mr Justice Edwards-Stuart

background

A dispute arose over the construction of a wine warehouse and bottling plant near Bristol for Accolade Wines.  Complex proceedings (“the Accolade proceedings”) involving seven parties were commenced in the TCC relating to the allegedly improper construction of the pile support and floor slabs, which, Accolade contended, meant that they had to use alternative storage facilities while remedial work was carried out.  Accolade’s claim was for damages in excess of £170 million.

Volkerfitzpatrick Limited (“VFL”) had employed Twintec Ltd (“Twintec”) to construct the floor slabs for the warehouse, which were later deemed by Accolade to have been defectively constructed.  In October 2007 VFL issued a Letter of Intent (“LOI”) to Twintec stating that it was VFL’s intention to award the warehouse floor slab works to Twintec.  VFL stated that they were not yet in a position to enter into the sub-contract but requested Twintec to proceed with all works necessary to achieve the design and construction programme ‘in accordance with’ the documents referred to in the LOI.  The LOI stated that upon issue of VFL’s formal sub-contract agreement, the LOI would cease to have effect and be superseded by the terms of that agreement.  The LOI requested Twintec to sign and return a copy of the LOI to VFL, which Twintec did.  No formal sub-contract was ever entered into.

One of the documents referred to in the LOI was the DOM/2 standard form of sub-contract, which included a provision for disputes to be referred to adjudication.

In August 2013 VFL joined Twintec into the Accolade proceedings. Twintec served their defence in November 2013 and the trial was due to take place in October 2014.

In December 2013 VFL served notice of adjudication on Twintec pursuant to the adjudication clause in DOM/2.  VFL claimed the sum of £850,000 for extensive testing of the floor slabs of the warehouse floor contending that Twintec’s poor workmanship in relation to the floor slabs was an effective cause of the need to carry out the tests.  VFL sought to recover these costs as either damages for breach of contract or pursuant to an indemnity that they claimed was a term of the sub-contract with Twintec. 

VFL obtained the appointment of an Adjudicator by the President of the Royal Institute of Chartered Surveyors in accordance with the procedure in DOM/2; however Twintec sought injunctive relief from the TCC to prevent the adjudication from proceeding. Twintec argued that the Adjudicator had no jurisdiction because he had not been properly appointed.  Twintec contended that the adjudication provisions of the DOM/2 standard form had not been incorporated within the LOI and therefore the Scheme for Construction Contracts would apply, and the Adjudicator should have been appointed pursuant to the Scheme.  They also argued that the adjudication was oppressive and unreasonable given that there was complex High Court litigation at the same time and there would therefore be additional costs, duplication and unproductive use of resources if they were to defend the adjudication at the same time as the Accolade proceedings.

issues

The Court was asked to decide:

  • Whether the adjudication terms of DOM/2 were incorporated in the agreement comprised in the LOI;
  • Whether the Adjudicator had jurisdiction;
  • Whether the reference to adjudication was oppressive and unreasonable; and
  • Whether an injunction should be granted restraining the adjudication from going ahead.

decision

The Court granted injunctive relief and found that:

  • The conditions of the DOM/2 form of sub-contract were not incorporated as a whole into the LOI. The LOI provided that the formal sub-contract, if made, was to be of retrospective effect. When therefore the LOI provided that Twintec were to carry out the works “in accordance with” the terms of DOM/2, it meant that Twintec would have to do whatever was necessary to ensure that, if the DOM/2 conditions were applied retrospectively, Twintec would not find themselves in breach of any of them. Provisions of DOM/2 regarding the mode of dispute resolution were not incorporated into the LOI, both as a matter of construction and because this was not necessary in order to give business efficacy to the LOI.
  • The Scheme for Construction Contracts would therefore apply, which meant the Adjudicator did not have jurisdiction. He had been wrongly appointed and should have been appointed pursuant to the Scheme.
  • The adjudication was neither oppressive nor unreasonable. Having regard to the statutory right to refer a dispute to adjudication “at any time” pursuant of section 108 of the Housing Grants, Construction and Regeneration Act 1996, the facts of the case must be exceptional before the Court would be justified in concluding that a referral of a dispute to adjudication is unreasonable or oppressive. The additional costs, duplication and use of resources that would be necessary in defending the adjudication alongside High Court proceedings was a burden that parties to a construction contract would sometimes have to accept.
  • However, as the Adjudicator’s appointment was invalid, any decision that he makes would be a nullity. No useful purpose would be served by allowing the adjudication to proceed. This was therefore an exceptional case in which the Court was justified in granting an injunction to restrain the referral of adjudication from proceeding further.

This summary was provided by CMS Cameron McKenna LLP.

For more information visit http://www.cms-cmck.com/Construction/Construction-Disputes

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