post

BLACKPOOL BOROUGH COUNCIL V VOLKERFITZPATRICK AND OTHERS [2020] EWHC 387 (TCC): IMPACT ON CONSTRUCTION LAW

While the evidence to be provided by corrosion experts acting for the Claimant in this matter (Blackpool Borough Council) was not ruled inadmissible, this judgment passed by His Honour Judge Steven Davies in the Manchester Technology & Construction Court gives a stern warning to experts acting under CRP Part 35.

The Claimant was seeking around £6 million in damages from Volkerfitzpatrick Limited and their co-defendants, arising out of a breach of contract in relation to the design and construction of a new tram depot in Blackpool. The case involved expert evidence to be provided by a structural engineer (Mr. Davis) and corrosion expert (Mr. Clarke) on behalf of the Council.

A joint expert (Socotec) was appointed to carry out corrosion testing at the site. During the process of the joint expert carrying out its testing, Mr Davis and Mr. Clarke contacted Socotec and independently instructed them to carry out further testing which was to be secretly carried out without notifying the other corrosion experts meeting periodically to discuss and observe Socotec’s testing.

Judge Davies first explained the widely cited duties of an expert witness in the case of The Ikarian Reefer [1993] 2 Lloyd’s Rep 68 (at pp 81-82). These included the duty to provide evidence which is independent and uninfluenced by the exigencies of litigation and to provide evidence which is based on an objective unbiased opinion amongst others.

The Judge also referred to Peet v Mid Kent Healthcare NHS Trust [2002] 1 WLR 210, which sets out the law on the propriety of unilateral contact between one party and a single joint expert.

In doing so, Judge Davies also reiterated the warning by Coulson J in Bank of Ireland v Watts Group plc [2017] EWHC 1667 TCC and by Fraser J in Imperial Chemical Industries Limited v Merritt Merrol Technology Ltd [2018] EWHC 1577 (TCC), where experts had failed to display proper independence.

The ruling in this case distinguished between whether Judge Davies was being asked to give a view on whether the activities of Mr. Clarke and Mr. Davis fell short of best practice and whether their conduct rendered their expert evidence inadmissible.

Judge Davies made it clear that it would have been preferable for Mr. Clarke and Mr. Davis to have made their views on alternative testing known to the other experts prior to independently instructing the joint expert, and, if their pleas fell on deaf ears, sought support from their instructing solicitors to apply to the court for an order, if such a suggestion was practical and necessary.

He, however, did not accept that the evidence provided gave any support to the fact that such a request was nefarious and underhanded.

“For completeness, I should say that even considering all of the separate allegations in the round I do not consider that they come anywhere near justifying the draconian order sought by the defendant and supported by the other parties.”

This judgment, together with the Coulson and Fraser judgments, should be a stern warning for experts to not assume they have free rein to instruct and collect evidence how they deem necessary, although the order did not succeed.

The judgment is also support for the notion that the exclusion of expert evidence is a severe sanction which should be reserved for the most extreme of transgressions and only those that hold sufficient evidence to justify the exclusion of the expert’s evidence.

A skilled judgment was delivered by Judge Davies in this case, providing support for the importance of transparency with regard to dealings with a joint expert and the heavy burden that such experts carry when supporting the Technology and Construction deliberations.

About the Author

John Stocker is a specialist construction, engineering and major projects lawyer with 18 years of experience advising in the field and who speaks regularly at conferences and seminars and has published several articles. John is admitted to practice in England and Wales (2003) and in the High Court of South Africa (2002).

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy, infrastructure and natural resources sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and other technical experts.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

This article is not intended to constitute legal or other professional advice and it should not be relied on in any way.

For more information or assistance with a particular query, please in the first instance contact Adam Mikula on 020 7947 5354 or by email on adm@prospectlaw.co.uk.

For a PDF of this blog click here

post

YUANDA v MULTIPLEX AND ANOTHER [2020] EWHC 468 (TCC): IMPACT ON CONSTRUCTION LAW

This case examines the basis under which a main contractor, which in this case is Multiplex Construction Europe Limited (“Multiplex”), would be entitled to enforce payment under a performance bond or, alternatively put, whether an injunction against the Australia and New Zealand Banking Group Limited (the “Bank”) postponing exercise of the right, warrants continuation.

Deliberation turned on interpretation as to whether the underlying rights, which the performance bond sought to warrant, still hung in the balance as a result of a pending decision pursuant to an adjudication referral under the Housing Grants, Construction and Regeneration Act 1996 (the “Construction Act”). The case also required critical dissection of the fabrication of the guarantee as well as the obligations arising under the subcontract.

The Honourable Mr Justice Fraser delivered a crisp and predicable ruling on 28 February 2020 that, on true construction, the guarantee created a “secondary liability” on the Bank in terms of the call on the bond to first identify a valid claim by Multiplex against Yuanda (UK) Company Limited (“Yuanda”) who was the subcontractor in this case, remarking:

“Establishing and ascertaining sums due under the sub-contract depends upon that underlying  contract, not upon the terms of the Guarantee.”

The Honourable Justice shrewdly deferred to the decision of the adjudicator, expected some 7 days later, which would establish the answer to the question whether the sums under the guarantee were, de facto, ultimately due.

A stern warning was delivered by Justice Fraser in this decision not to treat fairly constructed performance bond obligations as being equivalent to an on-demand guarantee.

Justice Fraser also reinforced the notion that it would not be fair for the Court to usurp a deliberative process in motion under the Construction Act, where the Court is not compelled.

The decision leaned heavily on the decision of the Rt Hon Lord Justice Coulson in Ziggurat LLP v International Insurance Company plc [2017] EWHC 3286 wherein Coulson J considered a similar worded version of an ABI Model Form of Bond and declared it to be an “instrument of secondary liability” whereby the surety cannot be in a worse position, as against the employer than the contractor. Justice Fraser correctly distinguished that this Coulson decision involved insolvency of the contractor rather than underlying breach of contract but concluded that this did not change the fundamental principle laid down in Ziggurat which was that the secondary liability should, and must, be established before a claim under the performance guarantee will succeed.

“The Guarantor guarantees to the Contractor that in the event of breach of the Contract by the Sub-Contractor, the Guarantor shall subject to the provisions of this Guarantee Bond satisfy and discharge the damages sustained by the Contractor as established and ascertained pursuant to and in accordance with the provisions of or by reference to the Contract and taking into account all sums due or to become due to the Sub-Contractor”

The distinction between a performance bond and an on-demand bond was set out by Justice Fraser with crystal clarity distinguishing the fraud exception set out in Alternative Power Solution Ltd v Central Electricity Board [2014] UKPC 31 from a performance bond which turned on a condition.

Justice Fraser also commented upon the withdrawn contention that Multiplex acted fraudulently when Yuanda made its earlier urgent granted injunction that a claim alleging fraud must: a) include a material fact that tilts the balance and justifies an inference of dishonesty (JCS Bank of Moscow v Kekhman [2015] EWHC 3073 (Comm); b) be based on a clear instruction to plead a claim in fraud based on reasonably credible material; and c) the claimant must be able to plead facts upon which a claim in fraud may be proven as the court will not allow a party to prove a claim in fraud other than on the those primary facts.

About the Author

John Stocker is a specialist construction, engineering and major projects lawyer with 18 years of experience advising in the field and who speaks regularly at conferences and seminars and has published several articles. John is admitted to practice in England and Wales (2003) and in the High Court of South Africa (2002).

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy, infrastructure and natural resources sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and other technical experts.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

This article is not intended to constitute legal or other professional advice and it should not be relied on in any way.

For more information or assistance with a particular query, please in the first instance contact Adam Mikula on 020 7947 5354 or by email on adm@prospectlaw.co.uk.

For a PDF of this blog click here

post

NEC: A COUNTER-INTUITIVE APPROACH TO PRICING COMPENSATION EVENTS?

This is the first of a series of articles on the NEC standard form of contract.

The premise in developing the NEC standard form was to create a user-friendly contract, which provides clarity and simplicity through the use of simple language.  The question is whether it achieves this.  Judging by the confusion frequently seen in regard to the pricing of variations, or Compensation Events as this contract choses to call them, the contract could be said to fail in delivering clarity due to frequent misunderstanding and a sometimes counter-intuitive approach to pricing.

The method to be used is described under Clause 63.1 in the various Options as:

“The changes to the Prices are assessed as the effect of the compensation event upon:

•             the actual Defined Cost of the work already done,

•             the forecast Defined Cost of the work not yet done and

•             the resulting Fee

The date when the Project Manager instructed or should have instructed the Contractor to submit quotations divides the work already done from the work not yet done.”

This method identifies a base date for pricing, which for ease in this article, is referred to as the “switch date”.  This serves as a point in time to differentiate forecasted and actual costs used by the Contractor in pricing quotations.  In addition, account should be taken of the effect upon Planned Completion as shown on the latest accepted programme.

One key difference in pricing under NEC is that unlike other forms of contract, which require existing contract rates to be used where appropriate, NEC promotes the philosophy that no party should unfairly gain an advantage or suffer a loss as a result of the event.  This could of course be the case using already agreed contract rates.  The premise is then that the Contractor should be adequately compensated for the effect of the compensation event upon the Prices, whilst at the same time the Employer pays a fair price.

To arrive at this situation, rates and prices agreed within the Contract are not used, rather pricing will reflect an assessment of the effect of the event upon the Contractor’s Defined Cost.  In making this assessment, risk will also be priced into the compensation event.  It should be noted we are “assessing” the effect not “calculating” it.  This being the case only actual costs to the switch date will be included.  Thereafter costs are forecasted.  This is also true even when all of the work has been carried out after the switch date but before the date of the quotation being submitted.  This is where the greatest misunderstandings arise and the counter-intuitive assumptions are made. 

Effectively we are stepping into our “time-machine” and travelling back to the switch date to price based upon knowledge held at that point in time, although current knowledge will always have an effect on the outcome.  This is especially true in the case of risk where disagreement is likely to occur in regard to materialised risk at the point of preparation and submission of the Contractor’s quotation compared to risk evaluated at the switch date.  It should be remembered in pricing a quotation that we are dealing with Defined Cost, being the costs incurred in Providing the Works, and not actual cost.

This does not mean, however, that actual cost cannot be used.  If there is an express agreement between the Parties to use actual cost, then this will prevail.  The Project Manager cannot however insist on using actual cost unless all of the works were provided before the switch date.  Neither should the Project Manager be using the benefit of hindsight to carry out their own assessment, rather he should be assessing whether the forecast was correct in the given circumstances prevailing at the switch date based upon what would have been reasonable to have allowed for at that time.

The moral of this story is that parties should understand what is required by the Contract and in keeping with the requirements of Clause 10.1 act as stated in (the) contract and in a spirit of mutual trust and cooperation.

In the next article I will be looking at issues surrounding the contractual requirement for an Accepted Programme and acceptance by the Project Manager.

About the Author

John Blackshaw is a dual qualified specialist construction law lawyer who worked as a commercial manager, project/programme manager and contracts manager before qualifying as a solicitor. John has worked internationally for in excess of 25 years in North America, South America, and in Western, Central and Eastern Europe on a wide range of projects across the energy, nuclear, roads, rail, marine, infrastructure, automotive, industrial, residential and commercial sectors, both with Employers, and with Tier 1/Tier 2 Contractors as well as in-house.

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy, infrastructure and natural resources  sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and other technical experts.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

This article is not intended to constitute legal or other professional advice and it should not be relied on in any way.

For more information or assistance with a particular query, please in the first instance contact Adam Mikula on 020 7947 5354 or by email on adm@prospectlaw.co.uk.

For a PDF of this blog click here