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Hillcrest Homes v Beresford & Curbishley: a bridge too far

The recent case of Hillcrest Homes Ltd v Beresford & Curbishley Ltd deals with important issues regarding the enforceability of an adjudicator’s decision. It also highlights that parties should not overlook other substantive issues when faced with CPR Part 8 proceedings and deciding whether to defend them.

Hillcrest Homes Ltd v Beresford & Curbishley Ltd

Beresford & Curbishley Ltd (the contractor) was employed by Hillcrest Homes Ltd (the employer) under a JCT Design and Build contract (2005 edition, Revision 2, 2009) to design and construct a large residential property at Sleepy Hollow, Castle Hill, Prestbury (the building contract). Prior to the contractor’s engagement, Howard Taylor Associates (the engineer) was appointed as the structural engineer.

The Employer’s Requirements stated that the engineer should be retained and appointed by the contractor to continue and complete any necessary design, and that the engineer would be novated to the contractor on execution of the building contract. A draft novation agreement was annexed to the building contract.

Despite the contractor’s attempts during the course of the works, the engineer refused to enter into a novation agreement. This was not wholly surprising since the engineer’s appointment contained no express obligation to enter into a novation with the contractor. However, in October 2012, following practical completion of the works, the engineer had a change of heart (following what appears to have been pressure from the employer and others), and provided the signed novation agreement to the contractor for execution. However, the contractor refused to sign the novation agreement at this juncture.

The adjudication

In November 2012, the contractor commenced adjudication proceedings in respect of the purported novation. It contended that the engineer’s services had not been novated and requested the adjudicator to make a declaration that the employer made a negligent misstatement regarding the novation, which entitled the contractor to recover damages and/or loss and expense.

In his decision, the adjudicator found (among other things) that:

  • There was a negligent misstatement that constituted a misrepresentation. As a result, the contractor was entitled to claim damages under the Misrepresentation Act 1967.
  • The novation did not accurately represent the appointment envisaged prior to the building contract and was void as a result. (The basis of the adjudicator’s findings on this point had not been argued or addressed by either of the parties.)

The CPR Part 8 proceedings

In October 2013, the employer commenced CPR Part 8 proceedings for:

  • Declarations that the adjudicator’s decision was unenforceable.
  • An order that the contractor pay damages for breach of contract for referring to adjudication a dispute that fell outside the scope of the building contract.
  • A final determination that the novation was binding on the employer and the contractor.

Declarations as to the enforceability of the adjudicator’s decision

HHJ Raynor QC held that the employer was not entitled to any of the declarations it sought because:

  • The claim for damages arising under section 2(1) of the Misrepresentation Act 1967 was not a claim arising “under the contract“, but was instead a claim arising under the Misrepresentation Act 1967. Therefore it was outside the scope of the adjudication provision contained in article 7 of the building contract and the adjudicator had no jurisdiction to determine it.
  • More than one dispute was referred to adjudication. Firstly whether there was a negligent misstatement and, secondly whether there had in fact been an effective novation.
  • The adjudicator’s decision was reached in breach of natural justice as he had determined the novation issue (whether the novation agreement of 26 October 2012 was void) on a basis that had not been put forward by either party, and which the employer had no opportunity to address during the adjudication.

Damages for breach of contract

HHJ Raynor QC dismissed the employer’s claim for damages, stating that it would only be a breach of contract to refer a dispute to adjudication if the building contract had contained an implied term that there should be no reference to adjudication other than as contemplated under article 7. There was no implied term and so the contractor had not acted in breach of contract.

Final determination regarding the novation

In respect of the novation agreement, the employer had sought declarations regarding whether:

  • The engineer’s execution of the novation agreement on 26 October 2012 was effective to novate its services to the contractor with retrospective effect.
  • The contractor was in breach of contract by refusing to sign the novation agreement.

On both points, HHJ Raynor QC held the answer was no:

  • The engineer’s execution of the novation agreement was not effective to novate the appointment. Among other reasons, the court found that the contractor had not consented to entering into a novation agreement at a materially later point in time after the execution of the building contract and certainly not after practical completion of the works. In essence, the contractor was denied the benefit of the novation agreement throughout the entirety of the works. Further, in the absence of an effective novation, throughout the project the engineer had been an “employer’s person” in accordance with clause 1.1 of the building contract.
  •  The contractor had not acted wrongfully in refusing to sign the novation.

It followed that the employer was not entitled to any of the declarations sought by way of final determination. In essence, save for the decision in relation to negligent misstatement, the adjudicator’s unenforceable decision has been replaced with the court’s substantive decision.

What do I take from this case?

It was entirely academic that the employer succeeded with the declarations regarding the enforcement of the adjudicator’s decision given its damages claim was dismissed and it was not entitled to any of the declarations as to the validity of the novation. Accordingly, the contractor succeeded in defending these CPR Part 8 proceedings.

As to the court’s various findings regarding the enforcement of the adjudicator’s decision, although they do not constitute new law, they are a useful reminder of the principles applicable to enforcement both in relation to natural justice and jurisdiction. Specifically, in light of the court’s decision regarding more than one dispute, when drafting and negotiating contracts, parties should consider amendments that make provision for the referral of more than one dispute to adjudication.

As to the substantive issue in this case, namely the validity of the engineer’s novation, this case highlights the importance of an employer ensuring the party whose appointment is to be novated is contractually obliged to enter into the proposed novation. Specifically, an employer needs to ensure that when negotiating professional team appointments, the terms of the appointment in relation to novation agreements (and collateral warranties) are consistent with the obligations under the building contract. This is something that Hillcrest failed to achieve here. As is apparent from this case, a party will not succeed in requiring a member of the professional team to novate their services (or enter into a collateral warranty) if there is no obligation in the appointment to do so!

Finally, when deciding to commence or defend CPR Part 8 proceedings, parties need to evaluate every aspect to establish if they are likely to be the successful party in overall terms. For example, a party may be best advised that, even if it has a good case on jurisdictional issues, it limits the scope of the declarations being sought where there is at least a reasonable prospect that it will not succeed on the underlying substantive issue.

Conversely, in the event that a party is faced with CPR Part 8 proceedings involving a challenge to the enforcement of an adjudicator’s decision, it should not be put off from defending the  proceedings, even if there would seem to be good grounds to challenge enforcement, when those proceedings also raise substantive issues where it is likely to be the overall winner. On receipt of CPR Part 8 proceedings, the respondent needs to weigh up its prospects on all issues before deciding whether or not to contest them.

Pinsent Masons LLP acted for Beresford & Curbishley Ltd in the CPR Part 8 proceedings but were not engaged in relation to the adjudication.

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