In the course of a scheme adjudication (actually, uncomfortably near the end!), a procedural problem has come to light. The question is deceptively simple.
X and Y were in contract. X became Z in some sort of corporate reorganisation. There is no evidential trail of Z having "inherited" X's contractual rights and obligations. Z gave Y a notice of adjudication, in which Z identified itself as "formerly X". The referral seeks remedy for X in respect of Y's alleged breach. Y has participated in the adjudication and responded to the referral.
Is the fact that the notice of adjudication was given by someone who is not demonstrably a contracting party fatal to the process?
The answer depends on whether X and Z are, in fact, the same person. Companies frequently change their names for a variety of reasons, say, after a merger or a rebranding. If X has simply passed a resolution to change its name to Z there is no difficulty. X and Z are the same companies and Z is right to describe itself as "Z, formerly X". In that case the notice of adjudication by Z is proper and there are likely to be no jurisdictional or contractual problems.
If the corporate reorganisation has resulted in the setting up of a different company, so that Z is not merely the changed name of X, then problems will arise. Z will have had no contract with Y and it is difficult to see how Z could give notice of adjudication in respect of a contract it did not enter into. This is subject to any formal assignment of rights to which Y has either expressly or impliedly consented. A useful rule of thumb is to check the company number. If the company numbers of X and Z are the same, then there is likely to be no problem. If they are different, then it is likely that Z is a different legal entity to X and that there will be significant jurisdictional and contractual problems.
How can we escape liquidated damages?
As a small specialist contractor we are becoming increasingly uneasy about the high level of liquidated damages being included in our contracts. What can we do?
Liquidated damages (LDs) should be a genuine pre-estimate of the losses the employer is likely to suffer if the project is delayed beyond the completion date, assessed at contract award; if they are not, they will be unenforceable as a penalty.
When negotiating a contract, LDs can be negotiated like anything else. If you are concerned that they are high, try asking the employer how they are calculated. This will give you an insight into whether they cover the likely losses flowing from delayed completion on the particular project and may provide you with an argument that they are a penalty and should be reduced. Remember, LDs will not necessarily be a penalty just because they are either disproportionately large compared with the contract price or because they are impossible to accurately estimate, provided a reasonable approach to the estimate has been taken.
Also, remember that LDs are there for your benefit too: they cap the amount that can be recovered from you for delayed completion. Hence, even if the employer's actual losses caused by delayed completion increase significantly from the estimate by the end of the contract, the employer's losses are capped at the LDs figure.
Can our employer use his own labour?
We are specialist subcontractors working under a main contractor on a prestigious project. The main contractor is running late and is pressurising all his subcontractors, including us, to increase our labour. We are reluctant to do so without an undertaking that we will be paid, which has not been forthcoming. The main contractor now says that he will bring his own labour on to the site to work alongside ours carrying out our contract works. Is he entitled to do this?
No, unless he reaches a specific agreement with you. If he carries out his threat, then the courts would probably say the subcontract had been repudiated. This would entitle you to treat the contract as being at an end and to leave the site. As this is probably the exact opposite of what the main contractor wants, if you point this out to him it may mean that he will try to reach an agreement with you rather than acting unilaterally. An agreement could be on the basis of you supplying the materials and supervising the other labour, with there being an appropriate agreed reduction in your rates for the labour element.
Can we claim back costs as damages?
Our company has been involved in a large adjudication. We claimed that the employer had breached the contract by interfering with the valuation process. The adjudicator agreed. We have spent over £30,000 in costs. The adjudicator awarded his costs against the other party but said he had no jurisdiction to award our costs against the other party. Would we be able to claim these costs in subsequent proceedings as damages for breach of contract?
Unless the contract specifically empowers the adjudicator to award costs against a party the adjudicator was right that he had no jurisdiction to do so either under the act or under the scheme. There have, however, been arguments advanced that if a party breaches its contract, and forces the innocent party to go to adjudication, then there is nothing to stop the innocent party claiming the costs of the adjudication in any subsequent litigation or arbitration as damages. However, a recent case in the TCC has held that any attempt to do so would be to subvert the statutory scheme because both parties envisaged, when they entered into the contract, that the adjudicator would not have the jurisdiction to award costs. As a result damages for breach of contract could not be claimed. It remains to be seen if other judges take the same view.
Postscript
Got a question?
If you have a question for the Berwin Leighton Paisner team, send it to william_wiles@buildergroup.co.uk.
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