Over the years we’ve seen a number of adjudication cases in the TCC involving professional negligence, one of the most significant being London & Amsterdam Properties v Waterman Partnership. We’ve also had plenty of commentators question the suitability of adjudication for resolving professional negligence disputes. So with Valentine’s Day last week, I thought it appropriate to look at the latest professional negligence adjudication case to come out of the TCC and to consider whether professional negligence and adjudication are really an unsuitable match.
The case in question is Coulson J’s judgment in MW High Tec Projects v Haase Environmental Consulting, which concerned the design of a waste to energy plant constructed in Horsham, West Sussex.
MW High Tec Projects v Haase Environmental Consulting
Biffa (we’ve all seen their lorries) was engaged by West Sussex County Council to design, build and operate a waste to energy plant. MW was one of the tendering contractors and its tender was based on a basic design proposal produced by its designer, HEC. MW’s tender was successful but, shortly after being awarded the EPC contract by Biffa, HEC started to propose design changes and enhancements that greatly increased the cost of construction.
I can understand how MW might have been somewhat irked by this given that it had entered into a fixed price contract with Biffa and could not recover these increased costs up the line.
MW said that, while HEC may have complied with its duty to take reasonable skill and care in making the changes, HEC failed to comply with its express obligations to meet the requirements of the EPC output specification and EPC delivery plan. MW said that the changes were not necessary and resulted from over-design, and that HEC was therefore liable for the cost of the changes.
HEC denied that it was liable for the cost of the changes and argued that, if the eventual design was not negligent, then there could not have been any breach of contract on their part.
MW cherry-picked just one of the changes, the uprated agitators (as in a device to put something into motion by shaking or stirring as opposed to a political agitator) and referred it to adjudication.
The adjudicator found that HEC’s overriding obligation was to produce a design that was not negligent and that, since the modified design of the agitators was not negligent, no claim for breach of the contract could arise against HEC. MW therefore had no way of recovering the increased cost of the agitators, even though it appears they were over and above what was required by the EPC documents. This would clearly also preclude many of MW’s other claims.
MW were not happy with the outcome of the adjudication and therefore sought a Part 8 declaration from the TCC as to the proper construction of HEC’s appointment.
Part 8 proceedings
Coulson J started by addressing the question of whether or not he should consider the declarations at all, which turned on the utility of those declarations. He was firmly of the view that the declarations would be of utility to the parties and, while I’m going to skip over the detail of this part of the judgment, it is a useful read for anyone making or resisting a Part 8 claim.
Coulson J then went on to consider HEC’s obligations, concluding that:
- Its principal obligation was to exercise reasonable skill and care, and that all other obligations were subject to this.
- HEC also had to comply with other obligations and, importantly, the requirement to ensure that the completed facility complied with the EPC documents, but said that:
“the adjudicator appears to have dismissed these obligations in their entirety.”
While some may accuse me of in-group bias, I confess to feeling somewhat sorry for the adjudicator at this point as I don’t necessarily agree that he dismissed the other obligations altogether. Rather, I think that he applied the principal obligation to these other obligations instead of considering the principal and other obligations separately, as Coulson J rightly points out he should have done.
Most professional negligence cases involve instances of under-design and the associated cost of failures, rather than over-design and the associated additional cost of works. However, Coulson J saw no reason why HEC could not be liable for the cost of over-design resulting from its failure to comply with the requirements of the EPC documents. The adjudicator appeared to think that such a conclusion would be unfair, but Coulson J questioned why (at paragraph 58):
“After all, HEC themselves came up with the Basic Design Proposal that was incorporated into the EPC Delivery Plan. Very soon after coming up with the Basic Design Proposal, and very soon after a contract had been agreed between the parties on the basis of the Basic Design Proposal, they then proposed a design which departed from it, in circumstances where they might reasonably have known that the departure would give rise to additional cost, and in circumstances where they might reasonably have known that MW would not be able to recover that additional cost up the line against Biffa….. In those circumstances, when HEC were in control of both the original and the subsequent design, why is it unreasonable to expect them to pay for the costs consequences of their failure to comply with the terms of the Appointment?”
In relation to the agitators, Coulson J said that HEC was prima facie in breach of its appointment because it failed to produce a design that was in accordance with the EPC documents. However, Coulson J then went on to consider the provisions in the appointment allowing for design changes. While the appointment provided that HEC could not knowingly increase the cost by changing the design, this was subject to MW providing prior consent. Coulson J said that HEC might be able to demonstrate that MW approved the design change, or that MW has waived its right to claim the cost consequences, albeit he said that this was a matter of fact to be looked at on a case-by-case basis.
I have rather skimmed over the detail, and I would urge you to read the case, particularly if you are involved with the interpretation of professional services appointments, whether as a lawyer or as an expert witness. Coulson J’s very logical and well explained reasoning makes what is clearly a complex professional negligence issue seem relatively simple.
No doubt some will say that this case is evidence that adjudication is an unsuitable means of resolving professional negligence disputes and that we should change to the Australian model of limiting adjudication to payment disputes, but I disagree. Neither the parties nor Coulson J made any reference to adjudication being unsuitable to resolve this dispute (it is certainly not in the judgment anyway), and there is no evidence that one or other of the parties had insufficient time to deal with the complex matters in dispute, or that the adjudicator had insufficient time to reach his decision. Parliament intended professional negligence disputes to be within the jurisdiction of an adjudicator and, provided the process is fair, I fail to see why professional negligence and adjudication cannot be the perfect match.
I wanted to end this piece on a light-hearted note, with a pun or joke about rubbish. However, all I could think of was a classic track by Elvis…