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Adjudication – Challenging enforcement

Posted on by fluroltd

You may think that receiving an Adjudicator’s Decision is the end of the matter. However, there are occasions where the losing party to an Adjudication does not pay up. The winning party can then apply to the Technology and Construction Court (the “TCC”) to enforce the Adjudicator’s Decision.

The TCC’s standard approach is to enforce an Adjudicator’s Decision. The principal reasons for the TCC to decline to enforce is that the Adjudicator lacked jurisdiction on specific grounds or there has been a breach of natural justice. Further, there is now an increasing use of fraud allegations by resisting parties as a defence to enforcement.

Challenges to Enforcing an Adjudicator’s Decision

Lack of Jurisdiction
There are various grounds on which an Adjudicator’s jurisdiction can be challenged. Two of the most common grounds are:

  • The dispute referred to Adjudication had not crystallised at the time the dispute was referred.
  • The dispute referred to Adjudication was the same or substantially the same as a dispute already decided by an Adjudicator.

Where a party wishes to raise a challenge to jurisdiction at the enforcement stage, it is important for that party to reserve its position to do so as early as possible during the initial Adjudication proceedings, which in turn depends on when that party became aware of the circumstances giving rise to such a challenge.

If the resisting party did not reserve its rights, that party may be taken to have waived its right to do so and the TCC is unlikely to entertain a jurisdictional challenge at the enforcement stage.

Importantly, there is a danger in relying on a general reservation of rights. In the case of Bresco Electrical Services Ltd (in Liquidation) v Michael J Lonsdale (Electrical) Ltd [2019] EWCA Civ 27, (in which Blaser Mills represented the successful party) the Court of Appeal concluded that:

  1. A challenge to jurisdiction should be made “appropriately and clearly”.
  2. It is favourable for a party to reserve its position based on a specific objection “otherwise the adjudicator cannot investigate the point and, if appropriate, decide not to proceed, and the referring party cannot decide for itself whether the objection has merit”.

While a general reservation is not necessarily ineffective, a challenge to jurisdiction should be specific where a specific ground is known to the party wishing to challenge jurisdiction.

Breach of Natural Justice
Examples include the Adjudicator’s failure to:

  • Consult with both parties;
  • Give a party sufficient time to respond to a submission;
  • Take into account submissions from one party;
  • Take into account a party’s defence/counter-claim;
  • Give reasons for the Decision.

In practice, the TCC is very reluctant to refuse to enforce an Adjudicator’s Decision on the ground that there has been a breach of natural justice. The recent case of AZ v BY [2023] EWHC 2388 (TCC) offers one rare example in which the TCC was willing to do so. In this case, certain communications between the parties which were marked ‘without prejudice’ were submitted to the Adjudicator by the Referring Party in support of its Referral.

The Judge concluded that the “fair-minded and informed observer would conclude that there was a real possibility that, having seen the without prejudice material, the adjudicator was unconsciously biased”. Consequently, the TCC granted the Responding Party a declaration that the decision was unenforceable.

Importantly in this case, the without prejudice material was placed “front and centre within the adjudication” and the material contained implicit admissions by the Responding Party which were plainly inconsistent with its open position in the Adjudication.

While AZ v BY clarifies the position on the disclosure of without prejudice material in Adjudication, it also serves as a reminder to parties of the difficulties in challenging enforcement on the grounds of a breach of natural justice.

Finally, and almost as a footnote, it has been established law since the 2000 case of Bouygues UK Ltd v Dahl-Jensen UK Ltd [2000] EWCA Civ 507 that the courts will enforce an Adjudicator’s decision even where the Adjudicator was demonstrably wrong, as long as the Adjudicator answered the question posed.

Fraud
The courts will not allow the standard policy of enforcing Adjudicators’ decisions to be undermined simply because the other party makes an allegation of fraud. However, the court is unlikely to grant summary judgment in favour of an enforcing party where there is credible evidence that an Adjudicator’s Decision was founded (innocently or otherwise) on fraudulent conduct by the successful party.

The general principles as to whether a party may successfully allege fraud to avoid an Adjudication enforcement were set out in SG South Limited v Kings Head Cirencester LLP [2009] EWHC 2645 (TCC).

  • Fraud can be raised as a defence in Adjudication provided that it is a real defence to the claim.
  • Where a defence of fraud is raised, it must be supported by “clear and unambiguous evidence and argument”.
  • The TCC drew a distinction between cases in which fraudulent behaviour, acts or omissions which were or could have been raised as a defence during the initial Adjudication proceedings and those in which such behaviour, acts or omissions which emerged after the initial Adjudication proceedings took place. The TCC concluded that, in the former case, if the behaviour, acts or omissions were in effect adjudicated upon, the decision is enforceable and generally only in the latter case may allegations of fraud be raised after the initial proceedings as a defence to enforcement.

The TCC revisited the use of fraud allegations as a defence to Adjudication enforcement in the case of PBS Energo AS v Bester Generacion UK Ltd [2019] EWHC 996 (TCC). In this case, Bester acted as a main contractor to construct a power plant and it engaged PBS as its sub-contractor. The parties fell into dispute and the sub-contract was terminated. PBS referred a dispute to Adjudication, seeking a valuation of the sum due to it upon termination of the sub-contract. The Adjudicator decided that Bester was liable to pay PBS £1.7 million as the total value of the works completed, less previous payments.

Alongside this Adjudication were underlying TCC proceedings between the parties. After the Adjudicator’s Decision was made, Bester became aware of documents that indicated fraudulent behaviour by PBS as part of the disclosure process during the TCC proceedings. Among other issues, these documents revealed that PBS had sold equipment, which it submitted had been manufactured for the sub-contract with Bester and held to Bester’s order in the Adjudication proceedings, and installed such equipment in another power plant.

PBS Energo provides helpful guidance on when a fraud defence may successfully be raised in Adjudication enforcement, particularly in terms of what a court may expect by way of “clear and unambiguous evidence”.

Conclusions
A Responding Party in Adjudication should seek to raise jurisdictional challenges with the Adjudicator as soon as any grounds become apparent to that party. In particular, that party should reserve its position to raise jurisdictional challenges at enforcement stage and the reservation itself should be specific where possible.

If the Responding Party considers the Referring Party has engaged in fraudulent behaviour, acts or omissions in relation to the Adjudication proceedings, the Responding Party should raise these concerns to the Adjudicator during the proceedings. Otherwise, the Responding Party may not be able to later successfully avoid enforcement of an Adjudicator’s Decision on grounds of alleged fraud. If such fraudulent behaviour only becomes known to the Responding Party after the Adjudication proceedings have concluded, that party may raise such allegations of fraud at the enforcement stage so long as such allegations are supported by clear and unambiguous evidence.

Regardless of whether there are any apparent grounds to challenge jurisdiction, the Responding Party should fully engage with the Adjudication process and adhere to the timeline which has been set by the Adjudicator. This is particularly important given how rare it is for an Adjudicator to confirm that they lack jurisdiction and given how reluctant the TCC is to declare an Adjudicator’s Decision unenforceable.

How can Blaser Mills help?
Our Construction & Engineering team routinely refers disputes and responds to disputes referred to Adjudication. We are also experienced in enforcing Adjudication Decisions in the TCC.

Our advice is to ensure that our clients, whether the referring party or the responding party to an Adjudication, are fully prepared. In particular, we consider potential jurisdictional issues from the outset of our instructions and prepare our clients accordingly.

Navigating construction procurement methods

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Procuring a construction project involves several methods and strategies. The key differences usually lay between the use of standard form contracts (often heavily amended) or bespoke contracts.

Clients may choose to retain full control over the professional team and design process, appointing an independent contractor (known as the traditional route), or opt for the design and build approach, wherein the client hands over a design to the contractor for completion and novates the architect and other professional team members.

Additionally, clients can explore construction management, where they directly employ individual subcontractors, or contract management, where they hire a contractor who then manages subcontractors. The choice of procurement method ultimately depends on the unique circumstances of the project, with no one-size-fits-all solution.

If the project is highly technical and very prototypical (e.g. a power station), or the client is a repeat client who wants to contract on the same basis for each project (e.g. a high street restaurant chain) then they may insist upon a bespoke contract and either one which is specifically designed for the project or one which they use on a regular basis.

The alternative is to use a standard form of contract, of which the most popular is the JCT suite of contracts. Alternative contracts include the NEC and specialist contracts such as those produced by the Institute of Civil Engineers (ICE), the Institute of Chemical Engineers (IChemE) and even FIDIC which tend to be used for large scale industrial projects, more often in Europe than in the UK.

The vast majority of commercial construction contracts in the UK are either the traditional route JCT or Design and Build JCT.

The traditional route offers clients greater project control but requires a higher level of design input. In contrast, Design & Build is favoured when the client doesn’t provide a full design, often to expedite project commencement or when certain design aspects are less critical.

The method of procurement and the nature of contract is very much dependent on the individual circumstances of the project. We are able to assist in this respect and guide clients to the most appropriate form of contract. For further information please contact Lewis Cohen on LNC@blasermills.co.uk or call 07956 964466.

Hold the front page: The Courts have considered the Building Safety Act

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For the first time, the Building Safety Act has been tested in the Courts. Kate McLauchlan looks at the impacts for developers and commercial landowners.

Origin of the Building Safety Act 2022

The Building Safety Act (“the Act”) was introduced following the Grenfell Tower fire in June 2017 and the Government’s subsequent review into the safety of high-rise residential buildings in particular.

The Act provides clarity as to how buildings should be constructed, maintained and made safe and applies to all buildings with additional requirements for ‘Higher Risk Buildings’ i.e. residential buildings at least 18 meters in height or with at least 7 storeys.

In particular, the Act entitles an ‘interested person’ to apply to the Courts for a Remediation Contribution Order (“RCO”) to require a former or current landlord, or the original developer, to contribute to the cost of remedying ‘relevant defects’ in a ‘relevant building’.

Triathlon Homes LLP v Stratford Village Development Partnership, Get Living Plc and East Village Management Limited

On 19 January 2024, the Courts handed down the first judgment clarifying when the Courts may grant an RCO.

In this case, Triathlon Homes (TH) owned affordable and social housing in the blocks of flats in question. The remaining privately rented units were owned by subsidiary companies of Get Living Plc (GLP) which was a real estate investment trust which also owned Stratford Village Development Partnership (SVDP), the company which originally developed the properties. The flats were managed by East Village Management Limited (EVML) which was jointly owned by GLP and TH.

In November 2020, EVML discovered serious fire safety defects on the external cladding of the building. A remediation programme began very quickly with works funded by grants from the government’s Building Safety Fund (BSF). The total cost was expected to be over £24.5 million, of which TH was liable for £16.03 million. TH therefore applied to the Courts for an RCO against SVDP (the developer) and GLP (its parent company) for that amount.

The case turned on whether it was ‘just and equitable’ for an RCO to be made. The Court did not agree with SVDP/GLP’s arguments that an RCO was unnecessary because the remedial works, which had already commenced, were due to be fully funded by the Building Safety Fund. Alternatively, SVDP/GLP argued that TH should pursue the contractor or consultants involved in the designing and construction phases for damages under normal contract rules. The Court was not persuaded by this argument either.

The Court decided that RCOs are intended to be a ‘no-fault’ remedy and therefore the Court did not consider it relevant that TH had the possibility of succeeding in a claim against another contractor when deciding whether it was ‘just and equitable’ to make an RCO. The Court held that the purpose of the legislation is to allow applicants to source alternate funding without needing to be involved in lengthy, expensive litigation. It considered that it was just and equitable for remediation costs to fall to the original developer, especially as it had been readily supported by its wealthy parent company.

Although funding was made available by the BSF, the Court found that there was strong public interest in reimbursing those funds where possible as the Fund would be put at risk without further support.

The Explanatory Notes to the Act place the original developers at the top of the hierarchy for liability wherever possible, ahead of freeholders and subsequent landlords.

What does this all mean?

The important message from this recent case is that not only does this legislation impose liability on developers and landlords alike, but also the Courts are very willing to uphold Parliament’s intention to make those entities accountable for the enormous, but necessary, remediation costs involved in improving building safety.

This case demonstrates that parent companies are not exempt simply because they are separate entities. The Courts will always consider all of the facts before deciding whether it is fair to make an RCO.

Developers will most likely be placed with the burden of meeting remediation costs. However, where a developer does not have the financial resources to do so, those corporate entities with the deepest pockets are likely to be pursued first in practice, wherever they fall on the hierarchy of liability. Therefore, this case should put all entities on notice of how they may be implicated if remediation works are needed, irrespective of whether or not they are at fault. This may include management companies and landlords.

If faced with an application for an RCO, the entity in question should consider the hierarchy of liability and submit their own RCO application if necessary.If you need assistance with the Building Safety Act or any property litigation or construction matter, please contact Blaser Mills Law on 020 3814 2020 and ask for Sara Davies for Property Litigation or Tess Turner for Construction.

This article is for general information only and does not constitute legal or professional advice.

Construction law update: The payment regime and why you must comply!

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In the last few months of 2023, we represented parties in three different adjudications; an Employer, a Main Contractor and a Sub-Contractor. The common denominator was that all three involved a Referral for a true value adjudication of works undertaken and in each case there were issues concerning compliance with any payment regime and the ineffectiveness of payless notices.

In this article, we consider the requirements of the statutory regime and offer guidance as to how to comply.

What is a Payment Regime in the Construction Industry?

A Payment Regimes is nothing more complicated than the contractual provisions directing when payments are to be made and what the timetable is for applications and payment notices.

The principal parties are the ‘payer’ (often the Employer) and the ‘payee’, often the Contractor.

In the first instance, the payment regime may be set out in the contract. If it is then it must comply with the minimal requirements set out in the Housing Grants Construction and Regeneration Act 1996 (“the Act”).

Where the contractual payment regime is insufficient, or the contract does not provide a regime, the Statutory Payment Regime (Scheme for Construction Contracts 1998) will apply.  The Scheme applies where certain payment provisions are missing, or in some circumstances, the entire Scheme will apply as there is no contractual payment provision at all.

The starting position is that the payee makes an application for payment on a regular basis. The payer then has a limited number of days to assess and issue a valuation of the application. It then issues a Payment Notice setting out the sum it intends to pay. If it intends to deduct money from the assessed value of the application it has to issue a Payless Notice.

The regularity of the payee’s payment applications must comply with the contractual payment regime, and if not applicable, the Statutory Payment Regime. The same applies to the payer when issuing payment notices. This is particularly important where the payer decides to withhold some or all of the payment and issues a Payless Notice. Failure to comply with the relevant regime will render such a Payless notices invalid.

Statutory Payment Regime

There are two key considerations here; content and timing.

Content

The payee’s payment application must be written, specifying the amount of any payment(s) it considers to be due and how those payments are calculated. In short, the payee must be able to support and evidence its claim and calculations.

When issuing a Payment Notice, the payer must also clearly set out how the Payment Notice is calculated, to what it relates and specify the amount it proposes to pay. This is crucial when issuing a Payless Notice – it is simply not enough to deduct an amount from the payment notice without clearly explaining the reasoning.

Timing

If the contract does not provide a regular period for payment, then the Statutory Payment Regime  requires invoices to be issued every 28 days. This is known as the ‘relevant valuation period.’ It does not matter what point in the month this 28-day period runs from but it must be consistent month to month.

The payment ‘due date’ is 7 days after the expiry of the relevant valuation period. Therefore, payment is due 7 days after the date of the invoice (assuming it is has been issued in accordance with the above.)

The ‘final date’ for payment is 17 days from the due date and the date for issuing a payment notice/payless notice is 5 days after the date on which payment becomes due.

For example, if an invoice was raised on 30 January in any given year payment would be due 7 days later on 6 February. The final date for payment would be 17 days later on 23 February. Payment Notices or Payless Notices are only valid if served no later than 5 days after this, on 28 February. Any Payless Notices received after this date would not be enforceable.

Smash and Grab Adjudications

Compliance with the Statutory Regime or a contractual provisions can be difficult, but if undertaken correctly, it opens the option for a technical adjudication, colloquially known as a ‘smash and grab’ adjudication.

Where the payer fails to issue a Payment Notice then the payment application stands as the assessed value. Where the payer gives an assessment of value or even a Payment Notice then in the absence of a valid Payless Notice the payer has no right to make a deduction.

In either case, in the event of non-payment of the assessed sum due, this constitutes a dispute which the payee can refer to Adjudication. The adjudicator is not asked to determine the value of the work in question but instead whether the payee has complied with the relevant regime (contractual or statutory) and if so in the absence of a Payless Notice, the payee will be awarded payment on a technicality.  

True Value Adjudications

Many Employers and Contractors are unaware of these requirements and so their contracts do not comply with the Statutory Regime. In such circumstances, where disputes over payment arise and neither party has complied, it is necessary to seek a true valuation of the works undertaken via an adjudication. By nature, these involve more work, evidence and may require an extension to the 28 days timescale to be determined.

Our Recent Cases

1) Our client was an Employer who had appointed a Contractor to complete construction works. A dispute arose when our client (for various reasons) did not pay the contractor who then referred the matter to adjudication. As the contractor had brought the adjudication based on it having applied for payment in accordance with the Statutory Scheme, the Adjudicator had to consider whether the requirements of the Statutory Scheme had been met. The Adjudicator concluded that the contractor had not adhered to the Scheme and that therefore our client was not in breach of their payment notice obligations and no payment was due.

2) Our client was a main contractor who was completing building works for a development company. Our client sub-contracted an element of the works to a sub-contractor. A dispute arose as to what was payable to the sub-contractor and whether payless notices were valid. In this case, it was clear that the Statutory Scheme had not been complied with and our client referred the matter to an Adjudicator for a true value of the works undertaken by the sub-contractor. The sub-contractor was unable to demonstrate the value of work it had undertaken and no further payment was found to be due.

3) We acted for a sub-contractor company which contracted to undertake maintenance works under a framework agreement. Payless notices were issued by the contractor and our client contested their validity., Our client later commenced a true value adjudication which was successful.

Analysis

In each of these disputes our clients were successful for two specific reasons:

1              They maintained good records; and

2              They won on the law by analysing the facts and applying the law appropriately.

Non-compliance with the contractual (or statutory) regime is commonplace and generally does not cause an issue where the parties have a good relationship and there is no dispute. Unfortunately, disputes will inevitably arise in some construction contracts in terms of valuation and payment. 

Operating under compliant contracts and understanding what notices are due, in what form and when are key to succeeding in adjudications.

If you need assistance with a construction dispute, or advice on how to ensure your payment regime is compliant, please contact us on 020 3814 2020.

This article is for general information only and does not constitute legal or professional advice.

Insolvency in the Construction industry – An update

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Insolvency in the Construction Industry is on the rise and the impact is being felt in and around Buckinghamshire. Lewis Cohen, Partner and Head of Construction & Engineering, looks at the impact and sets out some key pointers.

South Buckinghamshire is a green and affluent part of the country, but in late October, the Construction & Property sector was rocked by the news that Inland Properties PLC (and various subsidiaries) had appointed Administrators.

Inland, based in Beaconsfield, is a major brownfield developer with a portfolio of successful residential projects across the South-East of England. In addition, the very large and respected M&E Engineering Sub-Contractor, M J Lonsdale Ltd, headquartered in Slough, and Staines based Richardson Roofing (Industrial) Ltd both also appointed Administrators.

In total, according to a report in Construction News, 37 construction related companies appointed Administrators in October 2023 compared with 19 in October 2022, with the year-to-date total at 312 which is a 58 % increase on the same period in 2022.

Whilst less than 500 Administrations is not a significant number, it has to be understood that Administration is only suitable for a small number of insolvent companies and that the vast majority go straight into liquidation.

Far more worrying is a report from Insolvency Practitioners, Begbies Traynor, who run the Red Flag Alert reporting system. They have advised that almost 6,000 construction related companies are close to being insolvent.

The current level of interest rates which has significantly increased the costs of borrowing, and inflation, both in general and in relation to Construction Industry specific materials have made it much harder to finance and build out developments.

In many cases, developments, which will have been conceived pre-Covid and before the significant inflationary pressure on the cost of fuel and the cost of transporting materials as a result of the invasion of Ukraine, are now struggling to complete.

In the last 12 months the team has advised a number of developers and contractors where all these factors have contributed to substantial delays and in some cases stalled projects.

How can I protect my project?

Employers

Employers must be cautious. Gone are the days of a quick turnaround.

First, and perhaps most obvious is do not overreach:

  • Make sure that there is plenty of contingency in the budget;
  • Keep your funder involved at all times; and
  • Set realistic estimates on timescale for completion and the expected profit margins.

Secondly, go out to tender with open eyes:

  • Do not award the contract on price only. If one contractor is 25% cheaper than the others, that should set alarm bells ringing;
  • Do not be scared of asking for a Parent Company Guarantee or a Performance Bond; and
  • In this market, look for contractors who are busy and have a track record.

Thirdly, remain involved during the construction phase:

  • The terms and conditions are to protect both parties.  Too many developers do not adhere to the contract and fail to give appropriate notices – especially Payment Notices;
  • If the Contractor is falling behind or the Contract Price is increasing, you need to step in and take control and not let matters drift; and
  • Ensure your professionals are fully engaged and not delaying the project.

Contractors

For Contractors, the advice is similar.

First, and as with Employers do not over commit:

  • Do you have both the requisite skills and capacity to undertake the Contract?
  • Is the project viable? and
  • What cash reserves do you need if any?

Secondly, be realistic when tendering:

  • Do not discount the tender if you cannot complete the work at the bid price;
  • Make sure the timescale for the project is viable; and
  • Do not be afraid to award to push back on punitive contract terms and in this climate, ask for an agreement on price fluctuations.

Thirdly, remain involved during the construction phase:

  • As above, the terms and conditions are to protect both parties.  Record all instructions in writing and give notices of delay in compliance with the contract;
  • Look ahead and order materials in good time. Likewise review the design in advance and make sure that the design is sufficiently detailed. If not raise this with the design team; and
  • If the Employer falls behind in making payments or issues spurious pay less notices do not be shy in issuing a Notice of Intention to Suspend or commencing an Adjudication.

Insolvency

There are rigorous requirements on Directors to ensure that they are not trading insolvently. This requires proper accounting methods and regular reviews of cash flow and turnover. 

Do not ignore early warnings. If there are any doubts consult your accountant.

Finally, if a contract is in difficulty take legal advice to protect your position and where possible enter into dialogue to negotiate a positive outcome for all involved.

For further information or advice please contact Lewis Cohen on lnc@blasermills.co.uk or call 07956 974 466.

This article is for general information only and does not constitute legal or professional advice.

Navigating adjudication

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Adjudication

Whilst adjudication has been available for a number of decades, legislation passed in 1996 provided statutory legislation as a formal dispute resolution procedure which is available for all construction projects other than contracts for residential homes, unless provided for by the contract itself.

The procedure is fast track. The referring party issues a Notice of Intention to Refer and a nominating body such as the RICS or RIBA appoint an adjudicator. Within seven days of the Notice the referring party then has to issue its claim document (known as a referral) and any supporting information. Subject to an additional 14 days which the adjudicator can seek, the adjudication must be completed within 28 days of issue of the referral.

This process was intended to promote cash flow within the Construction Industry and was particularly targeted at interim payments.

The process has been hijacked, to a large degree, by lawyers and is now seen as a particularly efficient way of addressing disputes, either during the currency of a contract or at the end, replacing what would otherwise have been an expensive piece of litigation or arbitration, especially with respect to extensions of time and final accounts.

There are a set of standard rules governing adjudication, although the parties can vary these by agreement or through the mechanism of the original contract.

The standard rule on costs is that each party bears its own costs and the adjudicator is entitled to award his/her costs against either or both of the parties as appropriate. The normal course of events is for the losing party to pay the adjudicator’s costs in full.

Lewis Cohen is a qualified adjudicator having obtained a diploma in adjudication from the RICS. He has conducted a large number of adjudications and has also written regularly on this area of law.

Our advice when referring an adjudication is to ensure that the referring party is fully prepared.

When defending an adjudication our advice is always to consider whether the adjudication should be defended and if so then to ensure that adequate resources are made available very quickly to prepare a defence in what is often no more than 7-10 days from receipt of the referral.

For further information please contact Lewis Cohen on 07956 964466 or email lnc@blasermills.co.uk.

This article is for general information only and does not constitute legal or professional advice.

Mediation: A powerful tool in Dispute Resolution and Litigation

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Mediation was first introduced to the United Kingdom in the early 1990s by a small number of construction solicitors who had encountered it in the USA. It was rapidly adopted by the Technology & Construction Court and also by the Family Court. Over the last 20 years it has become a mainstay of litigation in England and Wales and is central to litigation in the construction industry.

The Pre-Action Protocol issued by the Technology & Construction Court is the only protocol which stipulates that the parties must meet further to the exchange of pre-action correspondence to seek to resolve their differences. Whilst the protocol does not specify use of mediation, most solicitors, including this practice, always seek to make the meeting a mediation.

There are a number of mainstream mediation providers of which CEDR is the best known.

It is our experience that many cases settle through mediation and if not at the mediation itself then often shortly afterwards.

There is no right or wrong time to mediate; if there is willingness to meet and agree then a mediation can take place as early as prior to commencement of proceedings and even as late as during the course of a trial.

Mediations are often binary between two litigants to a dispute but can involve multi-party mediation which is particularly successful where there are a number of parties to a claim. Mediation itself is often likened to ‘shuttle diplomacy’ where the two parties meet with the mediator at the beginning of the day and the mediator then ‘shuttles’ backwards and forwards between the parties trying to reach a compromise.

In addition to mediation there are a number of other forms of ADR including Early Neutral Evaluation where senior representatives of the two parties in dispute meet to review the claim between them, often with the assistance of a third party.

Similarly, the existence of Dispute Review Boards has become increasingly common in large contracts where the contract provides the identity of one or more representatives of each party and one or more external advisors who will form a dispute review board to make recommendations or even a finding.

Arbitration is still considered to be a form of ADR, although it is now much more akin to High Court litigation, the difference being that the court will adopt a rigid timetable whereas arbitration can be much more flexible. Arbitration also differs from the court in that there may be one arbitrator appointed by the parties or the parties may each nominate an arbitrator and the two arbitrators each nominate a third arbitrator to form a three person tribunal.

For further information or advice in regards to mediation please contact Lewis Cohen on 07956 964466 or email lnc@blasermills.co.uk.

This article is for general information only and does not constitute legal or professional advice.

Collateral warranties – Why?

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When it comes to construction contracts, there are often multiple parties involved, each with their own interests and concerns. An important aspect of these contracts is third party rights, which allow individuals or organisations who are not directly involved in the agreement to enforce certain terms or protections.

In this article we look into third party rights in construction contracts, examining the legislation that governs them, the benefits they offer, and the importance of collateral warranties in ensuring their effectiveness.

Whether you are a contractor, subcontractor, or other party involved in the construction process, understanding third party rights is essential for protecting your interests and ensuring a successful project outcome.

What are third party rights?

Third party rights exist to enable a third party who is not a party to a contract to enforce the terms of the contract.

In construction documents, third party rights are often a set of rights expressly enforceable by a third party and set out in a schedule to a professional appointment or building contract.

Third parties who often acquire third party rights are as follows:

  • Funders;
  • Purchasers; and
  • Tenants who occupy the premises after completion.

Which piece of legislation regulates third party rights?

The Contracts (Rights of Third Parties) Act 1999 (“the Act”) regulates third party rights in a construction context.

The introductory text to the Act confirms that this is an act to make provision for the enforcement of contractual terms by third parties.

Section 1(1) of the Act allows the parties to a contract to grant a third party the right to enforce a term of that contract. Section 1(1) states as follows:

Subject to the provisions of this Act, a person who is not a party to a contract (a “third party”) may in his own right enforce a term of the contract if-

(a) the contract expressly provides that he may, or

(b) subject to subsection (2), the term purports to confer a benefit on him.

However, it should be highlighted that in accordance with subsection (2):

Subsection (1)(b) does not apply if on a proper construction of the contract it appears that the parties did not intend the term to be enforceable by the third party.

Prior to the introduction of the Act, parties relied on collateral warranties to protect third party rights, and indeed, this practice continues.

Whilst third parties can rely on the Act, it is restrictive. The Act does not allow a third party to be put under an obligation to do something (a burden) and only allows a third party to enforce the benefit of a contractual term.

Furthermore, where third party rights are not to be retained within a construction contract, the parties to the contract exclude the Act.

Why are third party rights required?

If a third party, for example a funder, purchaser or tenant involved in a construction project, suffers loss or damage caused by a party involved in the design or construction of a project, third party rights exist to protect their legal rights.

Defective design or workmanship could cause such parties different losses. An employer is likely to have a contract with the party responsible for a defect; however other parties may not have.

If third party rights are excluded, third parties may be able to obtain rights by:

  • Collateral warranties – these can be used to specifically create a contract between a third party and the professional consultants/contractors; or
  • Assigning the benefit of the construction documents to a third party; or
  • Operation of the law of negligence – regardless of the existence of a contract, a duty of care is owed by those parties involved in a construction project and therefore third party claims in negligence are common.

However, there are various reasons why third parties may choose to rely on third party rights within a contract as opposed to relying on collateral warranties, assignments, or the law of negligence. Some of these reasons are as follows:

  • The construction industry is becoming increasingly familiar with third party rights and in particular how to handle the issues that may arise from the inclusion of third party rights within a construction contract.
  • Third party rights can be incorporated into a contract or a professional appointment and therefore the parties do not have to create additional agreements to establish the rights. Effectively, this saves time and money.
  • The law of negligence only allows for direct consequential loss and does not allow for pure economic loss. Therefore, a third party does not gain the same breadth of rights as those arising under a contract.
  • Often there will be a bar on assignment of the benefit of the construction documents to a third party.

What are collateral warranties and why are they needed?

A collateral warranty is a contract in respect of which an individual involved in a construction project warrants to a third party that it has complied with its obligations pursuant to that project.

Parties may choose to use a collateral warranty rather than relying upon the Act, assignments, or the law of negligence because:

  • The construction industry is historically comfortable with collateral warranties.
  • The Act does not allow a third party to be put under a burden. The Third Party Rights Act 1999 allows a third party to enforce the benefit of the contract terms only.
  • A collateral warranty is a separate contract between the parties to the collateral warranty. It may be enforced, and its benefit may be assigned on the terms set out in the collateral warranty.
  • An assignment of the entire benefit of a construction document means that the assignor could not later make a claim under the construction document.
  • An assignment would only assign the benefit of a construction document to one party. Separate collateral warranties can be given to more than one party.

Overall, it is clear that the protection of third party rights in respect of construction projects is crucial for the following reasons:

They provide security – if something goes wrong on a construction project, a party who has suffered a loss will want to be able to claim its losses directly from the person who caused the loss; and

Claims in negligence are less likely to succeed than claims in contract – the law of negligence does not allow claims for pure economic loss, and therefore parties need to be able to rely on a contract.

If you have any queries about any matters then please do not hesitate to contact Lewis Cohen on 07956964466 or email lnc@blasermills.co.uk.

This article is for general information only and does not constitute legal or professional advice.

Blaser Mills Law welcomes new Construction partner

Posted on by fluroltd

Blaser Mills Law is delighted to welcome Lewis Cohen as Partner in the Dispute Resolution team. With over 25 years of experience in the field of Construction & Engineering, Lewis brings extensive expertise and a proven track record of success to the firm.

Lewis acts for a range of commercial developers, residential homeowners, main contractors, and specialist sub-contractors as well as a number of consultants including architects, engineers and interior designers. Having previously worked in City firms, his clients are predominantly based in London and the Home Counties.

Lewis trained as a specialist litigator undertaking High Court Litigation, Adjudication, Mediation, and International Arbitration. He obtained an MSC from Kings College London in Construction Law and Arbitration and a Diploma in Adjudication from the RICS. He is also recognised as a specialist in the field of Construction Insolvency.

In his new role at Blaser Mills Law, Lewis will be responsible for leading a specialist unit to advise on all matters related to Construction & Engineering. He is comfortable drafting and negotiating contracts and is often called upon to troubleshoot difficult projects.

Lewis’s broad range of experience and deep knowledge of the industry will allow us to better service the requirements of our clients.  

Jonathan Lilley, Executive Chairman and Head of Property Litigation commented: “Lewis is well known to the firm, having acted alongside us for clients over a number of years. His knowledge and experience in the Construction industry is second to none and his appointment brings additional strength in depth to our property litigation team”.

Lewis Cohen added: “I am thrilled to join Blaser Mills Law and look forward to working alongside the excellent team to expand the department further”.

Blaser Mills Law very much welcomes Lewis, and we look forward to him making a positive contribution to the partnership.

If you would like to speak with Lewis on any Construction matters, please get in touch on 07956 964466 or email lnc@blasermills.co.uk.