Practical Law

In the first paragraph of his judgment in Able Construction (UK) Ltd v Forest Property Development Ltd [2009] EWHC 159 (TCC), Mr Justice Coulson remarked that:

“This is an adjudication enforcement application under CPR Part 24 which raises a number of issues that are becoming a feature of these straightened times. From my particular vantage point, it appears that the current recession is providing the first real test of the adequacy of the adjudication regime introduced by the Housing Grants, Construction and Regeneration Act 1996 since the initial flurry of cases when the legislation first came into force.”

As the recession deepens, there has been a stream of redundancies and insolvencies across the construction industry. Parties are increasingly worried about cash flow, particularly with the threat of insolvency looming. The Government and ODA pledges for the 2012 Olympics (and other projects) will not be enough to save everyone.

With this as a backdrop, we wondered whether this was just a seasonal “blip” or whether, in practice, there has been an increase in the number of construction disputes across the board. We decided to ask some industry contacts and some members of PLC Construction’s consultation board.

What did they tell us?

The TCC

We have heard on the grapevine that people are busy dealing with more disputes and pre-action advice. Certainly the TCC has been busy in the last few months dealing with adjudication enforcement applications (as we have reported) and we have noticed an increase in the number of hits on certain PLC Construction materials (such as those that deal with the challenge to and enforcement of adjudicator’s decisions). It has even resulted in a developing area of case law: the recent trend of one party seeking declarations from the court during the adjudication (see Legal updates, Dorchester Hotel v Vivid Interiors and Dalkia v Bell).

It is not just adjudication disputes that are on the rise. Construction News recently reported that Mr Justice Coulson, a TCC judge, has a heavy caseload (he’s dealing with the Wembley Stadium disputes and Carillion’s Thermae Bath Spa scheme). At a recent hearing, he advised Carillion that the Bath Spa case “may not go as quickly as some hoped”, with preliminary matters not likely to happen until “sometime in the middle of the year”: meaning the court’s summer term.

In recent years, the TCC has prided itself on actively managing cases and dealing with matters, such as preliminary issues, early in the proceedings. Perhaps that was a sign of the times and the pendulum has swung back towards the “heavyweight litigation” of yesteryear.

Funders and step-in rights

We hear that funders are getting closer to exercising their step-in rights, looking at ways to keep projects going at minimum cost (and minimum loss). Non-contentious construction lawyers may love to talk about step-in rights, but they are rarely used in practice. Will this recession result in another legal development, as funders have no choice but to exercise their step-in rights?

A barrister’s view

We asked Lynne McCafferty what recent experience tells her about the state of the construction industry. She advised us that:

• She has seen a substantial increase in the number of clients asking for advice on applying for security for costs against their opponent.
• Parties are running creative challenges to adjudicators’ awards in high value cases, simply to buy more time to pay (and in spite of the risk of indemnity costs orders). Lynne has even blogged on this.
• More parties are applying for a stay of enforcement of adjudicators’ awards, notwithstanding the case law shows that such stays are rarely granted (for example, Lynne was instructed on Mead General Building Ltd v Dartmoor Properties Ltd [2009] EWHC 200).

An adjudicator’s view

Matt Molloy remarked that, because adjudication is a quick and effective process, getting an adjudicator’s decision may be the difference between a party securing payment of money owed to it and ending up in a long queue of unsecured creditors. He has seen an increase in the number of referrals and:

• A marked increase in the number of adjudication referrals relating to “cash flow” issues (that is, a claim where there is often no real substance in the defences being proffered; one party is simply trying to hang on to its money for as long as possible).
• An increase in the use of statutory demands as a way of trying to get money owed, even though this option is limited in application.
• More parties becoming insolvent after the decision is issued.
• More publicly funded parties (such as those involved in PPP/PFI projects) adjudicating, as well as companies and individuals.

A solicitor’s view

Berwin Leighton Paisner LLP‘s engineering, construction and procurement team advise us that, in recent months, they have:

• Experienced an increase in instructions from their employer clients about payment disputes (in particular, disputed final accounts) and adjudication proceedings threatened by contractors, probably as a result of cash flow difficulties.
• Seen a steady flow of instructions from administrators appointed in connection with projects where the development company has gone into administration, and from developers where the contractor has gone into administration. They are being asked to advise on the various contractual and construction law issues which arise in this context.

The future

With the recession showing no sign of abating quite yet, we can only guess how long these trends will continue.