Construction and infrastructure updater

August 2011

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Advance Payment Bonds and the Uniform Rules

The Court of Appeal in the following case had to consider what effect the novation of the rights and obligations under three shipbuilding contracts had on the construction of three advance payment guarantees which the guarantor (in this case) had issued in favour of the buyers to guarantee certain advance payments which the buyers had made to the shipbuilders as required under the shipbuilding contracts.

Meritz Fire & Marine Insurance Co Ltd v Jan De Nul N.V. & ANR [2011] EWCA Civ 827

The buyers entered into three separate shipbuilding contracts (Contracts) with a Korean shipyard (HWS) for the purchase of dredgers. The terms of the Contracts were materially the same. It was a term of each of the Contracts that the buyers make advance payments towards the purchase price for each vessel.

The Guarantor (the Guarantor), agreed to secure the advance payments made by the buyers and issued three separate advance payment guarantees (APGs) in favour of the buyers.

It was a term of each of the APGs that HWS was not entitled to merge, consolidate with another corporation or change its ownership without the consent of the Guarantor.

HWS merged with another company and was renamed Buyoung at about the time that the last APG was executed by all the parties. The Guarantor was given written notice of this transfer shortly after it has happened but did not raise any objection to such merger. A few months later Buyoung transferred its shipbuilding business to a newly incorporated company, Asia Heavy Industries (Asia Heavy).

Almost a year after the second transfer the buyers served notice of default under two of the ship building contracts on Asia Heavy reserving their rights to terminate. A few months later in March 2009, the buyers terminated two of the Contracts for delay and demanded repayment of all money paid. In April 2009 the third Contract was similarly terminated on the ground that an item had been seized by a third party creditor. Asia Heavy did not pay any of these demands to the buyers.

The buyers then demanded payment from the Guarantor under the three APGs, stating that demand was made in conformity with clause 17 (the termination clause) of the Contracts.

Clause 17 of the Contracts entitled the buyers to terminate the Contracts upon notice if at any time before takeover of the vessels the buyers could show that the builder was in delay of one of its milestones by more than 150 days or if the builder was insolvent.

The issue before the Court of Appeal was what effect did the transfers have on the APGs issued by the Guarantor.

The terms of the APGs

Paragraph 2 of the APG provided that:

“If, …the Buyer shall become entitled to a refund of advance payments made to the Builder prior to the delivery of the Vessel, we hereby irrevocably and unconditionally guarantee the repayment of the same to the Buyer within Thirty (30) days after demand is made not exceeding the sum [specified] together with interest…”;

Paragraph 4 of the APG provided that:

“The Buyer’s demand for payment under this Advance Payment Guarantee … is payable upon our receipt of the Buyer’s signed statement certifying that the Buyer’s demand for refund is made in conformity with Clause 17 of the Contract and that the Builder has failed to make the refund”; and

Paragraph 10 provided that:

“…This Advance Payment Guarantee … is subject to the Uniform Rules for Demand Guarantee of the International Chamber of Commerce (ICC) Publication No. 458.”

The APGs were governed by English law.

The Uniform Rules

The incorporation of the Uniform Rules (Rules) into the APGs was an important aspect of this case. The Rules were issued by the ICC in 1992 and replaced an earlier version (No 325).

The Rules are intended to apply worldwide to demand guarantees, bonds, and other payment undertakings under which the duty of the guarantor or issuer to make payment arises on the presentation of a written demand and any other documents specified in the guarantee

The Rules do not apply to suretyship or conditional bonds or guarantees or other accessory undertakings under which the guarantor’s duty to pay arises only on actual default by the principal.

A characteristic feature of all guarantees which are subject to the Rules is that they are payable on presentation of one or more documents ranging from a written demand (without a statement of default or other documentary requirements) to guarantees which require presentation of a judgment or arbitral award.

To help eliminate abuse of guarantees through unfair demands by beneficiaries, the Rules provide in Article 20 that a demand should be: (i) in writing; and (ii) accompanied by a statement by the beneficiary that the principal is in default and the nature of the breach (Article 20 must be expressly excluded if the parties do not want it to apply).

The Arguments

The Guarantor’s main argument was that the APGs were not performance bonds but were traditional “see to it” guarantees pursuant to which the buyers had to prove that the ship builder was truly liable under the Contracts.

This argument was rejected by the court of first instance because:

  • the APGs were stated to be subject to the Rules which expressly stated that the terms of the underlying contract were of no concern to the beneficiary and the guarantor;
  • the obligation to pay was triggered on the demand being made in the specified form.

The Guarantor on appeal sought to argue that:

  • on a true construction of the APGs, the Guarantor had guaranteed the obligations of HWS to make the repayment and not the obligation to anyone else. Once the obligation of HWS had disappeared (i.e. by the transfer to Buyoung), the APGs no longer had any application; and
  • no demand in conformity with the termination clause of the Contracts could have been made (as required under the APGs) once the ship builder was no longer HWS but Asia Heavy.

The Guarantor relied on Commercial Bank of Tasmania v Jones [1893] AC 313 as authority for the proposition that where a debtor has been released by novation, the guarantor was discharged.

In essence the Guarantor sought to argue that the APGs were discharged on the day that the transfer to Buyoung took place.

The buyers on the other hand argued that:

  • the APGs were on demand guarantees - the Guarantor promised to repay the sums advanced if HWS did not, HWS had not paid and had therefore failed to pay within the meaning of the APG;
  • the contract documents had been presented and, in the absence of fraud, the Guarantor was bound to pay.

What effect did the transfers have on the APGs?

The court of first instance found that each of the transfers was effective according to Korean law to discharge HWS from their obligations and require the buyers to look only to Buyoung and/or Asia Heavy for performance of the contracts to build the dredgers.

Lord Justice Laws noted that much could be said about the Guarantor’s claim that the Guarantor took on the risk of HWS’s defaults and not the defaults of any person who might be their successors (whose financial integrity or business acumen the Guarantor would not have assessed). However, the Guarantor failed to object to the transfer within the six month period as required under Korean law. As a result, paragraph 2 of the APGs required the Court of Appeal to take a literal construction on the basis that the APGs were to be operated against documents without regard to the underlying contract.

Lord Justice Laws looked at the fact that:

  • advance payments had been made by the buyers;
  • the buyers had stated to the Guarantor that they had terminated the Contracts in accordance with clause 17 of the Contracts; and
  • the fact that the ship builder had not challenged the claim for a refund in an arbitration.

Accordingly, the Court of Appeal held that the buyers were entitled to a refund of the advance payments. In the absence of that refund, the buyers were entitled to repayment by the Guarantors.

Payment under the APGs was to be made against a signed statement certifying that the buyers’ demand was made in conformity with clause 17 of the Contract and the ship builder had failed to make the refund - this is what the buyers’ statement did. It did not matter whether there was in fact any liability to make the refund under the Contracts. Similarly, the decision of the Privy Council in Commercial Bank of Tasmania v Jones was not supportive of the Guarantor’s appeal.

The Court of Appeal confirmed that this case was authority in relation to a traditional “see-to-it” guarantee in respect of which the guarantor is not liable if the principal debtor is not liable under the underlying contract but was of no relevance to the guarantee in this case where payment is to be made against documents. If the documents were in order (as they were in this case), then the Guarantor must pay.

Editors’ comments

The Court of Appeal’s decision confirms that in this case the APGs were not traditional “see to it” guarantees or contracts of surety (where the duty to pay is dependant upon liability under the underlying contract) but were instead performance bonds where the primary obligation was to pay upon the presentation of the correct documents.

The incorporation of the Uniform Rules for Demand Guarantee of the International Chamber of Commerce into a guarantee is likely to mean that a guarantee is an independent document which operates without regard to the underlying contract.

View: Meritz Fire & Marine Insurance Co Ltd v Jan De Nul N.V. & ANR [2011] EWCA Civ 827

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Conclusiveness and prevention

In the following case the court had to consider:

  • the conclusiveness of an adjudicator’s decision between the parties:
  • the conclusiveness of the contractor’s final account and final Statement; and
  • whether the delays complained of were caused by the employer’s acts of prevention.

Jerram Falkus Construction Limited v Fenice Investments Inc (No 4) [2011] EWHC 1935 (TCC)

The employer engaged the contractor to carry out the development of a site in Camden. The contract incorporated the JCT Design and Build Form 2005, as amended by the parties.

The original contract completion date was 25 May 2009 which was extended to 15 June 2009. Practical completion was achieved on 9 September 2009, a delay of 86 days. The employer deducted liquidated damages for the period of delay.

The contractor maintained that the employer had no entitlement to liquidated damages because the employer deleted the relevant event provision in the standard form which provided for acts of prevention by the employer. Consequently no extension of time could be granted for such acts and therefore “time was set at large”. The contractor also claimed loss and expense.

The contractor submitted its Final Account on 17 November 2009 claiming £200,000 for loss and expense of a total balance of £311,393.78. The Final Statement was submitted on 1 July 2010.

The parties were unable to agree the Final Account, particularly which party was responsible for the delay and commenced a number of adjudications.

In the third adjudication, the adjudicator, on 28 October 2010, found that the contractor was not entitled to an extension of time for alleged: (i) delays caused by British Gas and EDF; and (ii) the employer’s late instructions dealing with a problem of floor levels. The adjudicator was satisfied that these acts of delay did not constitute acts of prevention by the employer.

In March 2011, the contractor started proceedings, seeking various declarations relating to the contract. There were a number of issues before the court. This report considers only two of those issues.

Was the decision in the third adjudication conclusive?

The contract contained a number of provisions regarding the conclusiveness of the Final Account and Final Statement. In particular, clause 1.9.4 provided that in the event of a dispute or difference on which the adjudicator had given a decision after the submission of the Final Account and Final Statement then either party could commence arbitration or legal proceedings within 28 days of the adjudicator’s decision.

The employer maintained that as the issues raised in the current proceedings by the contractor were precisely the same as those which had been decided in the third adjudication, and the contractor’s failure to challenge the adjudicator’s decision within the prescribed 28 day period meant that the adjudicator’s decision was conclusive.

The court’s decision

The court agreed with the employer. It was plain that the court was being asked to decide all of the same issues argued in front of the adjudicator, with even the same authorities being cited in both instances. Since the third adjudication took place after the Final Account and Final Statement had been submitted, clause 1.9.4 was triggered.

The court concluded that clause 1.9.4 was plainly intended to ensure that if there was an adjudication after the Final Account had been provided, the losing party had 28 days in which to challenge the result, otherwise the result became conclusive. The imposition of a deadline also made “commercial common sense” since it would prevent the losing party to an adjudication from challenging the decision, months or years later.

Did the contractor’s Final Account and Statement become conclusive?

The period for rectification of defects under the contract expired on 13 January 2011.

The contractor argued that clause 4.12.4 of the contract rendered the Final Account and Final Statement conclusive as at 13 February 2011, unless the employer challenged anything in the Final Account or the Final Statement.

“4.12.4 The Final Account and Final Statement as submitted by the Contractor … shall on the expiry of one month from whatever occurs last:

1 the end of the Rectification Period in respect of the Works …

be conclusive as to the balance between the parties except to the extent that the Employer disputes anything in that Final Account or Final Statement before the date on which, but for the disputed matters, the balance would be conclusive.”

The employer maintained that it had disputed the contractor’s Final Account in its letter on 24 January 2011 in which it had submitted its own version of the Final Account.

The court agreed with the employer. On the facts, there was a clear and detailed challenge by the employer. Save to the extent that the employer admitted certain items in the Final Account in its letter of 24 January 2011, the employer’s challenge prevented the contractor’s Final Account and Final Statement from becoming conclusive.

Did the employer’s acts set time at large?

It is well established following the case of Peak Construction (Liverpool) Limited v McKinney Foundation Limited (1970) 1 BLR 111 that an employer can not hold a contractor to a specified completion date if the employer has by his own act or omission prevented the contractor from completing the works (the prevention principle).

However, acts of prevention by the employer which cause delay do not necessarily set time at large if the contract expressly provides for an extension of time in respect of such events (Multiplex v Honeywell [2007] Bus LR 109).

In this case, there was no such extension of time provision and so in deciding whether the prevention principle applied, the court considered Hamblen J’s analysis of an employer’s acts of prevention in the case of Adyard Abu Dhabi v SD Marine Service [2011] EWHC 848 (Comm), reported in our May 2011 Updater where he said:

“The conduct therefore has to render it “impossible or impracticable for the other party to do the work within the stipulated time.” The act relied on must actually prevent the contractor from carrying out the works within the contract period or, in other words, must cause some actual delay.”

The court noted that Hamblen J stressed the importance of the contractor proving that delay to the works was because of the employer’s act of prevention - if there were two concurrent causes of delay, the prevention principle would not be triggered because the contractor would not be able to show that the employer’s conduct made it impossible for him to complete within the stipulated time.

As a result, the court concluded that for the prevention principle to apply, the contractor had to be able to demonstrate that the employer’s acts or omissions have prevented the contractor from achieving an earlier completion date and that, if that earlier completion date would not have been achieved because of concurrent delays caused by the contractor’s own default, the prevention principle would not apply.

On the facts, the court found that:

  • the delay which arose in dealing with the problem to the floor levels was actually due to the contractor’s failure as design and build contractor to spot the error earlier. The employer was entitled to require the contractor to deal with the problem - the fact that the contractor was dilatory was not the employer’s responsibility; and
  • any delay caused by British Gas and EDF was the contractor’s responsibility because the contractor in fact failed to ensure that the site was ready to accommodate their works.

As a result, the contractor failed to establish that the employer had any liability for the delays complained of. Even if the relevant event entitling an extension of time in the contract for the employer’s acts of prevention had not been deleted, the contractor’s claim for an extension of time would still have failed.

Editors’ comments

The contractor in this case “got nowhere near” demonstrating that the prevention principle had been triggered. In view of Adyard Abu Dhabi v SD Marine Services in order for the prevention principle to apply the contractor must be able to prove that the act complained of is likely to or did cause actual delay to the progress of the works.

The case is also illustrative of the need to ensure precision when drafting bespoke amendments to standard construction contracts.

The court also noted its concern of “the hopeless nature of the points” pursued by the contractor given that the contractor had already lost of all the points in front of the adjudicator and anticipated that there may well be costs implications for the contractor at a subsequent costs application.

View: Jerram Falkus Construction Limited v Fenice Investments Inc (No 4) [2011] EWHC 1935 (TCC)

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Adjudication and natural justice

In the following case, the court had to consider whether an adjudicator had breached the rules of natural justice by failing to notify the parties to an adjudication of his proposed methodology and the figures that the adjudicator proposed to adopt.

Hyder Consulting (UK) Limited v Carillion Construction Limited [2011] EWHC 1810 (TCC)

The contractor appointed a consultant engineer to carry out design services in relation to the Network Rail East London Line, as part of the improvement of the London transport system for the 2012 Olympic Games, under an agreement made on 25 August 2009.

The parties agreed:

  • that the consultant was to be paid a substantial proportion of its services on the basis of the actual cost according to an agreed schedule of rates;
  • some of the consultant’s actual costs would be deducted because some of these costs could not be claimed by the contractor under its contract with Network Rail (the Disallowed Costs).
  • a pain/gain provision under which the consultant was either:
    • entitled to 50% of the amount by which its actual cost fell below the agreed Target Cost; or
    • obliged to pay 50% of any excess.
  • The Target Cost for the original scope of work was £4.37 million.

Although the parties agreed provisions in relation to variations and additions to the scope of services they failed to include provisions in their agreement to revise the Target Cost in the event of any variations and additions instructed under the agreement.

The nature of the dispute

The dispute between the parties concerned the amount of fees (if any) which the consultant was entitled to and, in particular, the proper amount for Disallowed Costs - the parties were about £4 million apart. The contractor contended that the Disallowed Cost was about £5 million whilst the consultant’s figure was just under £1 million.

There was no dispute that there had been significant additions and variations to the original scope of the consultant’s services but there was a further dispute about whether the concept of the Target Cost remained applicable and if it did, what the final value of the Target Cost should be.

The consultant referred the disputes to adjudication on 23 February 2011. At this stage, the consultant had claimed fees of £16.75 million in its application No 21a and had been paid £12 million on account.

The adjudicator ordered the contractor to pay £3.1 million in respect of the balance of the fees. The consultant issued enforcement proceedings on 16 May 2011. The contractor resisted the summary judgment application on the basis that the adjudicator acted in breach of natural justice by failing to notify the parties of the methodology that he proposed to use when calculating a value for the Target Cost and the figures that he proposed to use for the purpose of making that calculation.

The adjudication

At a meeting with the adjudicator, each party was given the opportunity to outline its case. Following that meeting the adjudicator requested certain information regarding the resource costs from the parties. The consultant provided the information on 8 April together with numerous spreadsheets.

The contractor was granted additional time to consider the material and to submit its responses to the requests for information from the adjudicator.

The adjudicator made his decision on 2 May and concluded that:

  • The Disallowed Cost was approximately £1.5 million (a figure which was closer to the consultant’s calculation of these costs).  
  • The Target Cost was £17 million (about £2 million higher than the consultant’s figure and much higher than the contractor’s figures of £6.5 - £8.8 million).
  • The consultant’s application no 21a was valued at £15.1 million; no further consideration of the pain/gain sharing mechanism was required since this figure was less than the adjudicator’s Target Cost figure.
  • As a result a figure of £3.1 million was due to the consultant.

The contractor complained that the adjudicator’s assessment of the Target Cost was the result of the adoption of a methodology which was different to that advanced by either side. As the adjudicator had failed to give either party an opportunity to comment on the methodology, this was a breach of natural justice.

Had the contractor been given an opportunity to comment, the contractor would have pointed out that certain adjustments should be made to the Target Cost and this would have reduced the adjudicator’s assessment of the Target Cost, which would or might have triggered the pain/gain adjustment and reduced the figure that the adjudicator decided was due to the consultant.

Breach of natural justice: the legal principles

The contractor relied on the following authorities:

  • the decision in Cantillon –v- Urvasco (2008) (reported in our March 2008 Updater), where Akenhead J observed that breaches of the rules of natural justice will be material in cases where the Adjudicator has failed to bring to the parties’ attention a point or issue that is either decisive or of considerable importance to the outcome of the dispute and which the parties ought to be given the opportunity to comment upon. Any breach must be material and more than peripheral and this was a question of degree.
  • The decision in Primus Build v Pompey Centre (2009), where Coulson J, although recognising that “an Adjudicator cannot, and is not required to, consult the parties on every element of his thinking leading up to a decision,” concluded that where the adjudicator identifies a possible alternative way in which a claim could be advanced, the adjudicator will normally be obliged to raise that point with the parties in advance of his decision.
  • Paragraphs 13.51 and 13.53 of the textbook Coulson on Construction Adjudication, 2nd edition where the author writes:

“The authorities make it clear that the adjudicator is not generally obliged to indicate to the parties that he has formed a particular preliminary view, in order to seek their express comment on it, unless … his view is based on a new approach, which neither party could have anticipated. Whether the failure to share his preliminary views will amount to a serious breach of the rules of natural justice on the part of the adjudicator will always depend on the facts”

Breach of natural justice: applying the principles

The judge noted that the decision was not easy but that:

  • adjudication was a rough method of interim dispute resolution and that “unless the rules of engagement are fundamentally disregarded by the Adjudicator such that the outcome is materially affected, the Court will not usually intervene”; and
  • it was well established by case law that a defect in the reasoning of the adjudicator will very rarely give rise to good grounds for resisting enforcement.

The court noted that that this was not a case where the adjudicator had taken into account material that was not before the parties, or where he had applied his own knowledge and experience to resolve a particular issue.

In this case, both parties had made submissions, both factual and legal, about the correct approach to the assessment of the Target Cost and then left the matter to the adjudicator. Mr Justice Edwards-Stuart held that it was open for the adjudicator to adopt his own approach if he had decided to reject the submissions of both parties.

As a result, the contractor had not demonstrated that any failure by the adjudicator to allow the contractor to comment on his methodology in the valuation of the Target Cost amounted to a breach of the rules of natural justice. The judge reasoned that:

  • the calculation of the Target Cost was always an issue in the adjudication (each party having made more than one submission about the relevant terms in relation to the calculation of the Target Cost);
  • the adjudicator’s calculation of the Target Cost was driven by his construction of clause 9.5 of the agreement between the consultant and the contractor (clause 9.5 dealt with the instruction of variations and additional services but did not include provision for how the Target Cost ought to be recalculated), on which both parties had made submissions;
  • the adjudicator had not used any information that the contractor had not had an opportunity to consider; and
  • aside from the allegation of the breach of rules of natural justice, the judge noted that the adjudicator appeared to have conducted the adjudication “with care and considerable diligence”.

As a result summary judgment was given in favour of the consultant.

Editors’ comments

The case is interesting as it discusses the extent to which an Adjudicator is required to invite comments on proposed methodology for arriving at a decision.

The case also demonstrated that there is a fine line for an adjudicator between wanting to help the parties on the one hand, and making one side’s case for them on the other. Here, the adjudicator rejected both parties' submissions and adopted his own approach using the material before him but was not required to raise that point with the parties in advance of this decision.

View: Hyder Consulting (UK) Limited v Carillion Construction Limited [2011] EWHC 1810 (TCC)

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Limitation Period

In the following case, the court had to consider the effect of a contractual limitation provision which provided for a short limitation period of 1 year in respect of claims against the contractor.

Inframatrix Investments Limited v Dean Construction Limited [2011] EWHC 1947 (TCC)

The dispute between the parties arose out of the contract executed as a deed and entered into by the contractor with the employer to construction Phase 1 of a camera factory. The contractor, a specialist roofing and cladding contractor, was one of seven contractors engaged by the employer.

The employer sought damages for negligent workmanship by the contractor under the contract. The contractor issued summary judgment application on the basis that the claim was brought outside the limitation period and was bound to fail.

The limitation clause

The original draft proposed a 12 year limitation period for claims against the contractor but this was reduced to one year as a result of the contractor’s amendment.

Clause 17.4 provided:

“17.4 No action or proceedings under or in respect of this Agreement shall be brought against the Contractor after:
(a) the expiry of 1 year from the date of Practical Completion of the Services or;
(b) where such date does not occur, the expiry of 1 year from the date the Contractor last performed Services in relation to the Project”

Limitation clause: the arguments

The contractor carried out works on the site between November and December 2008 and asserted that the building was complete in February 2009. Between March and October 2009 several letters were sent between the parties concerning outstanding monies allegedly due to the contractor. Between October 2009 and December 2010 when proceedings were issued by the employer the parties attempted to resolve their dispute as required by the Pre-Action Protocol.

The main argument centred around the effect of clause 17 (b). The contractor maintained that the limitation period for claims was one year from the date when the contractor last performed the services.

The employer maintained that clause 17 (b) only took effect where practical completion was not going to be achieved because for example, the owner abandoned or changed the project - that was the effect of the words at the beginning of the clause “where such date does not occur.”

The employer also maintained that clause 17 (a) was not engaged as there was no date for Practical Completion of the Services.

Limitation clause: the court’s view

The court accepted that clause 17.4 was “not a happily drafted clause”.

The court relying on the decision of Lord Hoffman in ICS v West Bromwich Building Society [1998] 1 WLR 896 held that a reasonable person with the background knowledge of the contract would not interpret clause 17.4 in the limited way suggested by the employer - that interpretation that flouted business common sense.

The court’s view was that where, as here, there was no certificate of Practical Completion of the Services then the contractual limitation period expired 12 months after the last performance of services in relation to the Project.

Last performance of services

The contractor argued that the date of last performance of the services was 8 January 2009 when it completed the snagging items and that as a result the proceedings were more than 10 months out of time.

The employer submitted that the date of last performance of the services was 31 March 2010 when the contractor attended a meeting on site to inspect the cladding to assess the extent of defects prior to offering to return to site in April 2010 to carry out further work. As one of the items listed in the services schedule to be undertaken by the contractor was the correction of any defects to the cladding, the employer maintained that the inspection on 31 March 2010 formed part of the performance of the services.

The court rejected the employer’s submission for the following reasons:

  • The meeting in March 2010 took place as part of without prejudice negotiations following a pre-action letter sent to the contractor in October 2009. A meeting was a normal part of the protocol.
  • The meeting itself was a without prejudice meeting which meant the meeting did not prejudice or create rights under the contract.
  • The contractor’s offer to return to site to carry out works was rejected. Had further works been carried out there would have been a fresh limitation period in respect of that work.

As a result, the court held that the meeting and offer were part of the without prejudice negotiations conducted in accordance with the Pre-Action Protocol in an attempt to avoid litigation and were not the performance of services under the contract.

Waiver

The employer’s final argument was that the contractor had by their conduct waived the right to rely on clause 17.4.

However, the court rejected this argument. The court noted that there were two possible sorts of waiver that might be relevant - waiver by election and waiver by estoppel. Waiver by election occurred where a person has alternative rights inconsistent with one another and acts in a way consistent only with having chosen to rely on one of them. However, waiver by election had no application to the facts in this case.

For waiver by estoppel to succeed, the employer would have to establish that the without prejudice negotiations amounted to representations by conduct that the contractor would not rely on clause 17.4. The court did not think that this was realistically arguable.

As a result, the application for summary judgment to strike out the employer’s claim succeeded.

Editors’ comments

The case demonstrates that contractual limitation provisions are likely to be upheld by the court.

The case also highlights the need to review carefully amendments proposed by the other side in contractual negotiations and the dangers of agreeing to shorten the usual contractual limitation period.

View: Inframatrix Investments Limited v Dean Construction Limited [2011] EWHC 1947 (TCC)

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