Practical Law

I often wonder what it must be like to be the author of a legal text book, especially one that covers an area like adjudication law, where cases come out of the courts thick and fast. No sooner is a book published that it is out of date as a result of those new cases.

That’s certainly true following HHJ Raynor QC’s judgment in Hillcrest Homes Ltd v Beresford and Curbishley Ltd, which I think is a significant case (covering four important issues). I’m guessing it will appear on multiple occasions in the next edition of Coulson on Construction Adjudication and the like.

Hillcrest Homes Ltd v Beresford and Curbishley Ltd

This case was all about novation and declaratory relief.

Beresford and Curbishley Ltd (the contractor) agreed to design and construct a residential property at Sleepy Hollow, Prestbury, for Hillcrest Homes (the employer). The parties entered into a JCT Design and Build contract (2005 Edition, Revision 2, 2009).

In the employer’s requirements, it said the structural engineer’s appointment would be novated to the contractor when the building contract was executed. It wasn’t, as the structural engineer was reluctant to execute the deed of novation. By the time he did so in October 2012, the building works had reached practical completion (sometime in September 2012).

However, instead of accepting the executed novation at that time, the contractor started an adjudication seeking a number of declarations, which the adjudicator granted in a decision issued in December 2012:

• The employer had made a negligent misstatement regarding the novation, inducing the contractor to enter into the contract.
• The negligent misstatement was a misrepresentation entitling the contractor to damages.
• The structural engineer’s appointment was void and had not been novated.

As a consequence, it was now the employer’s turn to start proceedings, and off it went off to court. It also asked for a number of declarations, including that:

• The adjudicator’s decision was unenforceable because:
  • the claims for negligent misstatement and misrepresentation were outside the scope of the adjudication clause;
  •  more than one dispute was referred to adjudication; and
  • the adjudicator breached the rules of natural justice.
• The parties were bound by the novation executed by the structural engineer in October 2012.

Although  HHJ Raynor QC did not grant the declaratory relief the employer sought, he did find for the employer, and his judgment can be distilled into four important issues.

The scope of adjudication clauses

The adjudication clause only provided for “disputes arising under the contract” to be referred to adjudication, and made no mention of disputes arising “in connection with the contract” or similar. However, the contractor argued that, given the House of Lords’ decision in Fiona Trust, disputes concerning negligent misstatement nevertheless fell within the scope of the adjudication clause.

The court thought that there was “considerable force” in the employer’s submission that the decision in Fiona Trust was inapplicable because, unlike arbitration, adjudication is imposed on parties by statute. While that may be the case, it’s possibly inconsistent with Akenhead J’s conclusion in Air Design v Deerglen where he referred to the Fiona Trust principles and took a more pragmatic approach to an adjudication clause that only referred to “disputes arising under the contract”.

HHJ Raynor QC also drew a distinction between the contract’s arbitration and adjudication clauses, noting that the former provided for “any dispute or difference… of any kind whatsoever arising out of or in connection with this contract” to be referred to arbitration:

“It seems to me that the draftsmen [of the JCT contract] must be taken to have intended that the disputes capable of being referred to arbitration were wider than those capable of being referred to adjudication.”

HHJ Raynor QC therefore went on to find that the negligent misrepresentation claim was outside the scope of the adjudication clause. While this is undoubtedly a logical finding, given that public policy appears to be to encourage parties to resolve their disputes by means of ADR (which includes adjudication), it seems somewhat inconsistent to effectively prohibit misrepresentation disputes from adjudication unless the adjudication clause is wide enough.

More than one dispute

There are very few cases where the court has found that there was more than one dispute. Where possible, the courts have declined to do so, no doubt as part of the TCC’s long-standing support for adjudication, but HHJ Raynor QC found that two disputes had been referred in this case, namely disputes as to whether the:

• Contractor was entitled to damages for negligent misstatement and/or misrepresentation.
• Purported novation agreement was void and whether there had been novation of the services of the engineer.

I have some sympathy for the contractor because, while there were clearly two distinct issues in dispute, as the contractor pointed out, these appeared to go to the same single issue of:

“…whether there had been novation of the services of [the engineer] and, if not, which party was responsible for that state of affairs.”

Given the uncertainty as to whether more than one dispute had been referred, some might argue that HHJ Raynor QC should have preferred the contractor’s position. I think that the unfortunate consequence of this judgment might be an increase in “two or more disputes” challenges, meaning that parties will have to refer disputes separately, thereby increasing costs.

Breaches of natural justice

HHJ Raynor QC found that the adjudicator committed a material breach of the rules of natural justice because he decided the dispute on the basis of a matter not put forward by either of the parties, which is a similar situation to ABB Ltd v Bam Nuttall Ltd (which I wrote about last year).

From the facts available in the judgment, it seems that the adjudicator might have gone off on a bit of a frolic, although perhaps not in such a clear cut way as ABB v BAM. It’s a salutary lesson for adjudicators not to decide matters on points not argued by the parties without first offering the parties the opportunity of commenting.

Breach of contract

The employer argued that, by referring disputes outside the scope of the adjudication clause, the contractor was in breach of contract.

I have not seen this point argued before and, thankfully, HHJ Raynor QC dismissed it on the basis that there was no implied term that there should be no reference to adjudication other than as contemplated under the adjudication clause. He also reiterated the point that by taking part in an adjudication, a responding party remains liable for the adjudicator’s fees and expenses, notwithstanding that the adjudicator lacked jurisdiction (Linnett v Halliwells LLP ).

Given the extent of the issues covered, I’m guessing Hillcrest Homes Ltd v Beresford and Curbishley Ltd will make at least 10 appearances in the next edition of Coulson on Construction Adjudication. In true “Play Your Cards Right” fashion, is your guess “higher or lower”?