Case notes

The Armageddon scenario

Last year Case Notes looked at a case where the contractor thought the project manager was acting unfairly. (Case Notes, CM, Jul/Aug 2005). In this case the issue was the potential unfairness of the construction manager.

SJH was developing Grosvenor Waterside in SW1 near the Thames using a construction management contract. Scheldebouw was the cladding trade contractor on buildings D E & F.

Mace was the construction manager and its duties were extensive and included deciding on and instructing variations.

Mace also had to ascertain and certify loss and expense for delays and disruption, agree the cost of variations, issue payment certificates and certify completion.

On August 26, 2005 SJH wrote to Scheldebouw that Mace's employment had been ended by mutual agreement and SJH would take on the CM's role itself.

Scheldebouw was to carry on with the trade contract as before. Scheldebouw was worried and complained.

On September 8, SJH replied that it was staying put since the CM is not a quasi-independent certifier like an architect under a JCT contract. Further extensive correspondence failed to resolve the issue so Scheldebouw applied to the court.

The judge found that the CM is in many respects a decision-maker. And while the decision-maker is not independent of the employer and may even be an employee, he had to use his professional skills and his best endeavours to make the right decisions as opposed to decisions which favoured the employer.

A developer was there to make a profit and would not always welcome a large award of loss and expense to a contractor. If the employer could take the CM's place he could also take the places of the architect and cost consultant. That would change the balance of the contract so much that it could be an Armageddon scenario for Scheldebouw.

SJH could replace the CM but not with itself.

Moral: Court decisions can be a Revelation.

Case: Scheldebouw BV versus St, James (Grosvenor Dock) Ltd. TCC January 16, 2006 [Bliss IB 3].

No interest in theory

The Soho Theatre Company owned Flat 5, 21 Dean Street, Soho and it was let to Vinestone who agreed to refurb it and then let it to BCL.

Duffy was the main contractor and Faberdex carried out the design, manufacture, supply and installation of the glazing. However the finished job had defects in the gas installation, water ingress, poor heating, electrical faults and inadequate safety provisions. This meant the flat was unfit for use and fixing it took from 16 July 1999 to 18 December 2002.

BCL sued for compensation for loss of use of the flat. Its claims included £341,962 in theoretical interest; paid service charges of £18,448 and £5,348 for water, electricity, satellite TV and other utilities.

The defendants said BCL could not claim for ‘loss of use' and the court agreed to look at the various items to determine whether BCL could include them in a full trial.

The judge considered that in principle BCL could claim for the service charges and the utilities as these had been incurred. However the loss of interest claim was only theoretical. The judge could only find cases that supported such a claim on a depreciating asset, not one which would appreciate like a flat. BCL's loss of interest claim was a non-starter.

Moral: There are limits to the costs that can be claimed.

Case: Bella Casa Ltd. versus (1) Vinestone Ltd.; (2) Paxton Locker Architects Ltd.; (3) Duffy Construction Ltd. And Duffy Construction Ltd. versus Faberdex Installations Ltd. - TCC December 2005. [Bliss IB 48]

Court blows cold on air-con case

Boper had been a sub-subcontractor installing air-conditioning units on a Hong Kong development, working for Fortress, the electrical subcontractor to main contractor Paul-Y-ITC. The practical completion certificate for the HK$5,689,250 Boper/Fortress sub-subcontract had been issued in February 1998.

Seven years later Fortress still owed Boper HK$479,143 for the fixed price contract plus an additional HK$885,000 for variations. Although there was no pay-when-paid clause, Fortress first claimed it was waiting for Paul-Y-ITC to pay. Fortress also said it had contra-charges, but had not claimed Boper was liable for these. Fortress had not listed any defects to Boper.

Fed up with these weak excuses, Boper sought a summary judgment that Fortress had no real prospect of defending Boper's claim.

Fortress defended by saying it and other subcontractors had spent over HK$1.8 million in contra charges. It also said the variations were worthless and they had not been properly authorized.

The judge noted that the contra-charge had been reduced to only HK$158,000 on close examination. Further, Fortress had still not explained why it thought Boper was responsible. As Fortress had paid HK$500,000 for the variations several years previously, it could not now claim they were void. Fortress was still too late and too vague to defend Boper's claim.

Moral: Beware excuses that change.

Case: Boper Engineering Limited versus Fortress, a division of AS Watson Group (UK) Limited. High Court, Hong Kong [Bliss IB 48]