Case notes

We will never surrender...

In 1997 Egger hired Skanska to build a state-of-the-art chipboard factory. It was environmentally friendly but ended up spewing claims, counter-claims, disputes, and defects.

Skanska’s contract stipulated a £12m guaranteed maximum price, and the job was to take a year. In the event, parties racked up £9m in legal fees and eight years later they were still at each other’s throats. There have been a number of court hearings to resolve liability and quantum. This case dealt solely with the parties’ legal costs, and it shows how judges can view parties who love to fight too much.

Egger’s MD, Mr Gardiner, was a strong personality who had no concept of the difference between changes under the contract giving rise to additional payment. His views were sufficiently strong to influence his cost consultants against their better judgment.

Skanska was not without fault as parts of its account were grossly inflated and based on contract analogous figures rather than cost.

This fed Egger’s suspicions, making a negotiated settlement impossible. To assess the legal costs, the court considered each head of claim, the work involved both in and out of court and the relative intransigence of the parties.

Overall Skanska’s net recovery was £2,883,037. However Egger was only ordered to pay up to 55% of the total costs of approximately £9m.

Moral: Don’t lose the war in winning the battle

Case: Skanska Construction (UK) Limited versus Egger (Barony) Limited T&CC March 2, 2005 [BLISS IB 8/11].

First they want you, then they don’t

MJ was a CCTV specialist that had trouble bringing a client into focus.

In 2000, Connex SE (SE) held the Kent train franchise and its sister company, Connex SC (SC) held Sussex. Both companies wanted to install CCTV at 50 stations in their areas. They appointed Condes as consultants.

At a project kick-off meeting in September, Condes told MJ to start work right away but that the phasing would be adjusted due to the splitting up of the contract between SC and SE.

No written contract was ever issued or signed. Only five days later, for some reason, Condes told MJ to stop work. MJ responded with a claim. On October 18, Condes and MJ agreed if MJ re-started, the claim would be dropped.

Fast forward to August 2001, and SC cancelled the remainder of its contract. In December SE followed suit. SC and MJ wrapped up cancellation costs in February 2002, but sister SE refused to pay. By November 2002 MJ had taken this as repudiation and on February 24, 2004, MJ went to adjudication, and won.

SE appealed. It argued that since it and SC were joint contractors, the February 2002 agreement with SC had released SE from its obligations. Besides, it said, MJ had waited too long to start the adjudication.

The Court of Appeal disagreed on both counts.

First, the discussions at the kick-off meeting in 2000 showed the contracts were split, and second, section 108 of the Construction Act allowed adjudication ‘at any time’. This meant exactly what it said.

Moral: Beware split-personality clients

Case: Connex South Eastern Limited versus MJ Building Services Group plc – Court of Appeal, March 1, 2005 [BLISS IB 8/4].

Laing way off track on £61m station hotel

By the mid-1990s, Liverpool Street station’s 100 year-old Great Eastern Hotel (GEH) had become dilapidated from lack of maintenance. The owners wanted to completely refurbish the property, and extend it, in order to produce a first-class business hotel.

Their grand plans included some demolition to make a modern interior with a large atrium, 266 bedrooms, restaurants and bars for 750 covers and conference and banqueting facilities suitable for 500 delegates.

GEH’s budget was £34.8m. As the design was not finalised, this included a contingency. For the same reason, GEH was to use a construction management contract. It appointed Laing as CM in June 1997.

GEH could have reverted to a JCT 1980 Contract with a guaranteed maximum price but didn’t, even though Laing’s team was experienced in traditional contracting, not construction management.

GEH’s programme was 113 weeks, but Laing’s master programme allowed a bullish 109. This confidence was misplaced because, in the end, this programme overran by 49½ weeks with the overall cost increasing to £61m.

GEH sued Laing for the effects of the delay and the additional £17m it had paid out to trade contractors and professional teams.

The court found that one major cause of delay was a temporary roof that should have been designed and installed in 10 weeks actually took over six months. Other delays were in demolition and getting Railtrack permissions.

Holding Laing responsible, the court said that instead of managing and minimising the problems Laing had tended to underplay and under-report the delays to the extent of using selective data to mask its incompetence.

Moral: Stick to the contract you know best

Case: Great Eastern Hotel Company Limited versus John Laing Construction Limited. T&CC Feb 24, 2005. [Bliss 1 1B8/7].