You can't contract out

A subbie, Sweeney, fell out with its contractor Karl Construction. The subsequent adjudication decided that Karl should pay Sweeney £39,872.24 plus VAT and interest as the subcontract did not make adequate provision for payment.

Karl objected and sought a judicial review, arguing that, as both parties had agreed the subcontract, the payment provisions did comply with the Construction Act, so there was no dispute and the adjudicator was wrong.

Karl also argued that the adjudicator should have at least invited submissions from both parties before departing from their agreed position.

The court disagreed: "If we accept Karl's argument on the first issue, then the parties would somehow be free to contract out of the mandatory provisions of the Construction Act."

It was an adjudicator's job to decide the law as they understood it, said the court, not as Karl and Sweeney understood it.

On the second issue, the court decided that as the adjudicator had only six weeks to make a decision and decide the law, and as the process was not adversarial, there was no need to obtain the parties' submissions.

Stop and check
Ensure a supplier hasn't gone bust before you send the cheque.

Canary Riverside Development was building a housing and hotel complex in London Docklands, using Bovis Lehrer McGovern as construction manager. In January 2000 trade contractor Timtec submitted a bill to Canary for £286,000 in interim valuations. The invoices were dated 23 December but were stamped by Canary as received on 5 January.

On 14 January Timtec went into administration. Without realising this, Canary issued a cheque on 17 January.

As soon as it realised what had happened, Canary stopped the cheque. Initially, Timtec's administrator planned to complete the work but later backed out.

Canary completed Timtec's work using another contractor and with materials bought from Timtec's administrators. Timtec, however, demanded payment of the stopped cheque and began legal proceedings. Canary applied for leave for the matter to be decided by an adjudicator instead.

The court, however, pointed out that as Timtec had already started legal proceedings (and the ruling of an adjudicator can be overturned by a court), Canary could put its case in a counterclaim.

It refused Canary's request for adjudication.

Gutter gripes
If you fail to spot or rectify a patent design defect, the designer is not responsible for any damage caused.

Baxall and Norbain shared an industrial unit in which they stored electrical security systems. When heavy rain overflowed the roof valley gutter for a second time, damaging the industrial unit and its contents, the firm became really fed up. The overflows weren't just trickles of water, they were severe enough to cause over £740,000 worth of damage to the stock inside the building. Baxall & Norbain thought that the gutters were under-designed and had inadequate overflows, so it sued the designer, Sheard Walshaw Partnership.

Before signing the lease, Baxall and Norbain had commissioned a building survey from Lambert Smith Hampson, which had failed to spot the lack of overflows despite using torches.

The judge ruled that the first flooding was due to blocked drains and lack of overflows. These were patent or clearly discernible defects that Baxall and Norbain should have taken steps to mitigate. The designer was therefore not responsible.

However, the second flooding was due to lack of overflows and inadequate design capacity. This was a latent or covert defect for which the designer was responsible.

Walshaw Sheard appealed against the ruling and the Court of Appeal held that the surveyor should have spotted the lack of overflows. It was this lack that caused the flood even if the gutter design had been inadequate. Accordingly, Sheard Walshaw was not liable.

Binding decision
If two parties take their dispute to an adjudicator, the adjudicator's decision is enforceable even if wrong in law.

A contract based on CD 98 incorporated revised contractor's proposals with a proviso that any specific requirements not in the Employers' Requirements had to be agreed. A clause in the contract required the parties to choose to base payments either on work stages or elapsed time. As the parties had not made this choice, the provisions of the Construction Act scheme were implied. However, other subclauses required the employer to make a written payment notice, which it had not done.

The adjudicator had ruled that the employer was under "an absolute imperative obligation to pay the contractor the amount stated in the application for the interim payment in the absence of the written notices".

The employer refused to pay arguing:

1. As the parties had not selected either alternative, the whole of the clause fell away so the other subclauses were not applicable.
   
2. The contractor had not shown the sums claimed were "due under the contract".
   
3. The adjudicator had exceeded his jurisdiction by addressing the wrong question.

The court found that as both parties had submitted the case to the adjudicator, they agreed on the scope of the dispute, so even if the adjudicator had made errors of law in the contract provisions, his decision was binding. The decision was therefore enforceable unless the employer went to court and won a judgement.