Hillcrest Homes Ltd v Beresford and Curbishley Ltd [2014] EWHC 280 (TCC)

This summary was provided by CMS Cameron McKenna LLP.

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

summary

An adjudicator’s decision that an employer had made a negligent misstatement to the contractor regarding the novation of the structural engineer’s appointment and that the novation was void was unenforceable because (i) the adjudication clause only provided for “disputes under the contract” to be referred to adjudication, and made no mention of disputes arising “in connection with the contract” and  a claim for misrepresentation/negligent misstatement was not a claim arising “under” a contract; (ii) two disputes had been referred to the adjudicator, which was outside the scope of the adjudication clause; and (iii) the adjudicator committed a material breach of the rules of natural justice because he decided the dispute on the basis of a matter not put forward by either of the parties.

Technology and Construction Court, Judge Raynor QC

background

Beresford and Curbishley Limited (“B&C”), a contractor, agreed to design and construct a residential property at Sleepy Hollow, Prestbury, for Hillcrest Homes Limited (“Hillcrest”). The parties entered into a JCT Design and Build Contract (2005 Edition, Revision 2, 2009). Article 7 of the contract provided that either party could refer any dispute or difference arising under the contract to adjudication in accordance with the Scheme for Construction Contracts (England and Wales) Regulations 1998.

The employer’s requirements (“ERs”) prescribed for the structural engineer’s appointment to be novated to B&C when the building contract was executed. However, the structural engineer was reluctant to enter into the novation and, despite numerous requests, did not execute the deed of novation until October 2012. By that time, many months had passed since Hillcrest and B&C had entered into the building contract and the building works had already reached practical completion.

B&C then refused to execute the deed of novation and started an adjudication seeking a number of declarations concerning the validity of the novation. In a decision issued in December 2012, the Adjudicator found that:

  • Hillcrest had made a negligent misstatement in the ERs regarding the novation, which induced B&C to enter into the contract.
  • The negligent misstatement was a misrepresentation entitling B&C to damages.
  • The deed of novation executed by the structural engineer was void and his appointment had not been novated.

As a consequence, Hillcrest started proceedings before the Technology and Construction Court seeking declarations to the effect that the Adjudicator’s decision was unenforceable on the grounds that the Adjudicator had no jurisdiction and had breached the rules of natural justice. Hillcrest also claimed damages for breach of contract against B&C on the basis that B&C had submitted to adjudication disputes which were outside the scope of the adjudication clause.

issues

The Court was asked to decide the following:

  • Whether the decision of the Adjudicator was enforceable, which was dependent on:

(a)                Whether the claims for misrepresentation and/or negligent misstatement were within the scope of the adjudication clause;

(b)                Whether B&C submitted more than one dispute to the Adjudicator;

(c)                Whether the Adjudicator acted in a way which was a breach of natural justice.

  • Whether Hillcrest was entitled to damages for breach of contract, should the Court find the disputes submitted by B&C to be beyond the scope of the adjudication clause.

Decision

The Court found as follows:

The Adjudicator’s decision was unenforceable because:

  • The adjudication clause only provided for “disputes under the contract” to be referred to adjudication and this was not wide enough to cover a claim for misrepresentation/negligent misstatement. In so holding, the Court followed Fillite (Runcorn) Limited v Aqua-lift (1989) 45BLR 27 in which a similar conclusion was reached in relation to an arbitration clause which included the phrase “disputes arising under a contract”.  In Fiona Trust v Privalov [2007] 4 All ER 951 the House of Lords had held, in relation to arbitration clauses, that unless the language of these clauses made it clear that certain questions were intended to be excluded from the arbitrator’s decision they should be construed widely to include any dispute arising out of the relationship into which the parties had entered.  However the Court drew a distinction between that case and present one because (a) adjudication clauses are present or implied by reason of statutory intervention and (b) whereas the adjudication clause concerned disputes arising “under the contract”, the arbitration clause of the JCT contract provided for “any dispute or difference … of any kind whatsoever arising out of or in connection with this contract” to be referred to arbitration and the draftsmen of the JCT contract must therefore be taken to have intended that disputes capable of being referred to adjudication were wider than those capable of being referred to adjudication.
  • The adjudication clause did not permit more than one dispute to be referred to the Adjudicator. In this case two disputes had been referred, namely:

(i)                 Whether B&C was entitled to damages for negligent misstatement and/or misrepresentation; and

(ii)               Whether the purported novation agreement was void and whether there had been novation of the services of the structural engineer.

  • As a result of a and b above the Adjudicator did not have jurisdiction.
  • The Adjudicator committed a material breach of the rules of natural justice because he decided that the novation was void on a basis that not been put forward by either of the parties and which Hillcrest had had no opportunity to address.

The claim for breach of contract against B&C for referring disputes outside the scope of the adjudication clause was dismissed on the basis that the submission to adjudication of a dispute outside the scope of the adjudication clause was not a breach of contract and there was no implied term that there should be no reference to adjudication other than as contemplated under the adjudication clause. The Court also held that, having taken part in the adjudication, Hillcrest was liable for the Adjudicator’s fees and expenses.

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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