The construction and engineering team at relishes solving legal conundrums. This week, when should an adjudicator award interest, collateral warranty assignments, and ransom provisions to avoid at all costs
Awarding interest when not claimed
Does an adjudicator have a duty to award interest on a claim even if interest has not been expressly claimed?

Notices of adjudication (which govern the ambit of the dispute referred) can often be vague. For example, the notice may claim "sums due under application number 1 etc". If the referral notice does not expressly claim interest, the adjudicator still has to decide what is "due". This involves looking at the claimant's entitlement under the contract and deciding all elements of that entitlement. If a payment is due to the claimant, and has been paid late, and the contract expressly, or by implication (for example, under the Late Payment of Commercial Debts (Interest) Act), provides for interest on late payment, then the interest element is "due" in addition to the principal sum. Accordingly, the adjudicator should, as part of their decision-making process, consider what interest, if any, the claimant should be awarded. The position under the scheme for construction contracts is that the adjudicator "may" decide what interest is payable. There is therefore no duty but an adjudicator would always be wise to consider interest, whether expressly claimed or not.

Awarding interest under the scheme
Does an adjudicator have the power under the scheme for construction contracts to award interest if there is no contractual provision for it?

There is a clear division of opinion among adjudicators. Paragraph 20(c) of Part 1 of the scheme says the adjudicator may, "having regard to any term of the contract relating to the payment of interest, decide … [what] interest shall be paid". Certain adjudicators have taken this as a power to award interest in any event. The wording of paragraph 20(c) is ambiguous. Does it mean that the adjudicator has the power to award interest but must have regard to any term of the contract (if any) or does it mean that they cannot award interest unless there is a term of the contract?

We believe that the power is restricted to circumstances where there is a term, either expressed or implied, (for example, by statute) that interest is payable. If the scheme intended to grant a general power to award interest, paragraph 20(c) would have been worded, "may award interest, having due regard to any term of the contract …". However, the jury is still out on this one.

Assigning collateral warranty
As a contractors, should I be comfortable with providing deeds of collateral warranty that have no restriction on the number of times they can be assigned or should I try to negotiate a limit on the number of assignments?

Normally, the number of assignments is restricted because your insurer has insisted on a maximum number. Contractors often worry that by allowing the benefit of the warranties they provide to be assigned by beneficiaries, their liabilities are increased. This is not true. When the benefit of the warranty is assigned, the old beneficiary no longer has any rights under it. Therefore, there is only one party to whom the contractor can be liable under that particular warranty.

It is sometimes argued that if the benefit of the warranty is assigned numerous times, the warranty may fall into the hands of a "difficult" beneficiary or a new tenant may use the property for a slightly different purpose, thereby potentially increasing the magnitude of any consequential losses. However, if you accept that the benefit of the warranty can be assigned at least once, this could happen anyway.

If the owner of the property changes several times in a few years, then, if there are restrictions on the number of assignments, this potentially has the effect of making the warranty redundant before the expiration of the limitation period. However, if you agreed to provide the warranty in the first place, you presumably accepted the full relevant limitation period.

Recoverable losses
I have been asked to sign a contract that contains a clause excluding liability for "indirect and consequential losses". How much protection does this offer me?

The law places limits on the damages recoverable by a claimant. The rules are complex, but briefly they allow all losses that flow naturally from a breach to be recovered, unless the contract expressly excludes them. Other (special) losses may only be claimed if both parties were aware of them when entering into the contract. In the case of a defective building, the cost of repairs and alternative accommodation will almost certainly be recoverable, as will an element of lost profits in the case of business premises. However, the loss of a lucrative contract will not be recoverable unless the parties knew about it at the time.

Recent cases have established that an exclusion of "indirect and consequential losses" covers only those special losses that would not have been recoverable anyway. It is therefore of little use to you. A better approach is to define those losses for which you accept liability and exclude all others; for example, the British Property Foundation model form of warranty restricts liability to the cost of repairing defects only.

Avoid being held to ransom

I employ various professional consultants using a form of appointment. Under the appointment, the consultant grants me an irrevocable royalty-free licence to use all drawings, specifications and other information prepared by the consultant on the particular project for any purpose connected with it. One consultant says it will only agree to this on the condition that all of its fees are fully paid in accordance with the appointment. Should I accept this? No! This is a ransom provision. If just one penny claimed by the consultant under the appointment remains outstanding, the consultant will be able to withdraw your right to use the drawings until all of its fees are paid. Also, if you are withholding money (having served the requisite notices under the Construction Act) and there is a genuine dispute over the consultant’s fees, you may be unable to continue with the development until those fees are paid and the licence reinstated, even if it later turns out that you were justified in doing this. The consultant will have the usual contractual remedies to recover its fees. There is no reason why you should be held to ransom, and completion of the development delayed in this way.