I appreciate that I said in my last blog that I would follow up with practical tips concerning loss and expense claims, however since then a couple of interesting cases have emerged from the TCC so the practical tips will have to wait for another week.
WW Gear v McGee Group
For those unfamiliar with the case, let me recap:
- McGee originally claimed about £2.5 million for costs relating to the excavations and groundworks it carried out for WW Gear on a development in central London.
- Following a 2010 declaration under CPR Part 8 that clause 4.21 of the JCT trade contract included a condition precedent (a two month time limit for making a loss and expense claim), McGee’s latest claim was based on clause 4.6 of the trade contract (valuation of variations). For those unfamiliar with the JCT provisions, they provide for a contractor to recover a fair allowance and additional preliminaries as a result of a change in conditions.
- After McGee started its fourth adjudication in April 2012 claiming the fair allowance and additional preliminaries, WW Gear applied for another declaration, this time based on the wording of clause 4.6. In effect, it hoped to shut the door to McGee’s claims again by obtaining a declaration that loss and expense arising from variations could only be claimed under clause 4.21, and not clause 4.6.
- WW Gear’s declaratory relief application was heard just two days before the fourth adjudicator was due to issue his decision. It failed for two reasons:
- due to the impact of a late declaration on the adjudicator; and
- because Edwards-Stuart J found that McGee could claim loss and expense arising from variations under clause 4.6.
Let me explain.
Reason 1 – the impact of a late declaration on the adjudicator
As Edwards-Stuart J said:
“If the adjudicator was required to take this judgment into account when preparing his decision, he would have had just over one working day in which to do so. This is a very short time.
This seems to me to be an unacceptable imposition on an adjudicator and one that may well result in unfairness, misunderstandings or mistakes – not least because the parties may well have no right or opportunity to make submissions to the adjudicator in the light of the judgment.”
It is not unusual for parties to apply for a declaration during an adjudication. Depending on the nature of the declaratory relief sought, it can be a cost effective way of dealing with an issue that goes to the heart of the adjudication.
The judgment refers to Dorchester Hotel v Vivid Interiors, which is a case where one party sought a declaration to prevent a breach of the rules of natural justice, or so it alleged. Coulson J refused to grant the relief sought, and confirmed that while the court had jurisdiction to deal with the application, it should exercise that jurisdiction sparingly because “the adjudication process [should be] allowed to operate free from the intervention of the Court”. He said such an application should be the “exception rather than the rule”.
The one thing that I noticed about the other Part 8 cases (like Dorchester Hotel) is that by the time of the court hearing, the other party had agreed to stay the adjudication pending the application’s outcome. That didn’t happen in WW Gear v McGee. The judgment doesn’t explain why that was, although one could speculate that it wasn’t in McGee’s interest to have a court declaration that could render its adjudication claim worthless.
Edwards-Stuart J made the point that had both parties agreed to give the adjudicator more time, to allow him to accommodate the court’s decision, then it may have been appropriate for the court to make a declaration, albeit not the declaration sought.
I can understand that, especially as the declaration related to issues of contract interpretation which were key to McGee’s claim. However, I wonder if the outcome would have been different if the application related to natural justice or jurisdictional issues. In that situation, if the court declared a breach or no jurisdiction, there would be nothing more for the adjudicator to do and no decision to finalise. In that instance, would it matter if the decision was due in one or two days? After all, there would be no “unacceptable imposition” on the adjudicator (although the party liable for his fees and expenses may not see it that way).
Reason 2 – ability to claim loss and expense arising out of variations under clause 4.6
I have dealt with a number of adjudications where loss and expense arising out of variations has been claimed as a fair allowance and/or additional preliminaries under the JCT variation provisions. The reason such claims are brought is almost always as a result of the contractor’s failure to comply with condition precedent notice provisions in loss and expense clauses.
While I have received some very well thought out submissions on this matter, I welcome the fact that there is now case law which provides guidance for parties and adjudicators.
Edwards-Stuart J considered the wording of clauses 4.6 and 4.21 and, in particular, the slightly different negative phrasing of the parts of the clauses preventing double recovery. He concluded that, if there are items of loss and expense that are potentially recoverable under either clause 4.6 or clause 4.21 and the contractor is unable to make a claim under clause 4.21 (for example because it has failed to comply with the relevant time limits), then there is nothing to prevent the contractor from recovering that loss and expense under clause 4.6.
While this would appear to provide a life-line for contractors that fail to comply with condition precedent clauses, it is worth noting:
- Redress under JCT variation provisions is only relevant where the loss and expense arises from variations, and not for other reasons. Edwards-Stuart J stressed that:
“…whether or not the contractor can make a claim under clause 4.6 or clause 4.21 will be very sensitive to the facts giving rise to the claim”.
- Contractors must not forget the need to demonstrate the causal link between the variation and loss and expense, that is the loss and expense arising from the individual variations.
As for employers, they may wish to consider amending JCT variation provisions so that loss and expense arising from variations can only be claimed under the loss and expense provisions.