Building contract – Adjudication – Award – Claimant contracting with defendant to carry out building works – Defendant refusing to sign novation agreement after contract – Defendant commencing adjudication alleging negligent misstatement and actionable misrepresentation – Adjudicator finding in favour of defendant and awarding damages – Claimant challenging decision – Whether claimant entitled to declaration that adjudicator’s decision unenforceable – Application dismissed
By a Design and Build Contract in the JCT Standard Form (2005 Edition, Revision 2, 2009), the defendant building contractor agreed with the claimant developer to undertake the design and construction of a substantial residential property in Prestbury, in compliance with the contract documents which included the Employer’s Requirements, drawn up by structural engineers (HTA) appointed by the claimant for the purposes of the development prior to the making of the building contract. The Employer’s Requirements provided that HTA should be retained and appointed by the defendant to continue and complete the design. HTA was to be novated to the defendant upon execution of the building contract and a draft novation agreement was incorporated.
The defendant’s response to the demand that it sign the novation agreement was to commence adjudication proceedings against the claimant on the basis that the defendant had entered into the building contract on the understanding that HTA’s appointment would be novated to it at the point of executing the building contract. The defendant argued that, by implying that the obligation to novate had been mirrored in the claimant’s appointment of HTA, the claimant had made a negligent misstatement which constituted an actionable misrepresentation. Therefore, the defendant claimed damages under section 2(1) of the Misrepresentation Act 1967. The adjudicator found in favour of the defendant.
The claimant applied for a declaration that the adjudicator’s decision was unenforceable because the defendant’s claims for negligent misstatement and misrepresentation were outside the scope of the adjudication provisions in article 7 of the building contract. On a proper reading of the contract, a claim for damages for negligent misstatement or misrepresentation was not a matter that “arises under this contract”: Fillite (Runcorn) Ltd v Aqua-Lift (1989) 45 BLR 27. The defendant contended that parties to a commercial contract ought, as rational business people, to be taken to have intended that any dispute arising out of the relationship into which they had purported to enter would be decided by the same tribunal: Fiona Trust & Holdings Corporation v Privalov [2007] UKHL 40; [2007] 4 All ER 951.
Held: The application was dismissed.
(1) The submission to adjudication of a dispute outwith the scope of article 7 of the contract did not constitute a breach of contract. It would only be a breach to do so if there was to be implied in the contract that there should be no reference to adjudication other than as contemplated under article 7. The implication of such a term would only arise if its implication was necessary to give business efficacy to the contract or otherwise was an obvious inference from the facts. In the present case, the implication was not necessary to give business efficacy to the contract. Nor was the implication of the term to be an obvious inference from the agreement: Fiona Trust and Holding Corporation v Privalov [2007] UKHL 40; [2007] 4 All ER 951 distinguished; Griffin (t/a K & D Contractors) v Midas Homes Ltd (2000) 78 Con LR 152 and Linnett v Halliwells LLP [2009] EWHC 319 (TCC); [2009] PLSCS 81 considered.
(2) The execution by HTA of the novation agreement was not effective to novate its appointment. On the true construction of the Employer’s Requirements, read as a whole, what was contemplated and required for there to be an effective novation was the execution by all three parties of a deed in specified form. The draft novation agreement was a formal document which expressly provided for its execution by all parties as a deed. In any event the Employer’s Requirements expressly provided for novation to take place on the execution of the building contract. The defendant, by signing the building contract incorporating the Employer’s Requirements, never consented to novation taking place at a materially later time, and certainly not after practical completion of the works.
(3) The novation contemplated by the Employer’s Requirements and building contract incorporating the same, on their proper construction, was a novation happening at the commencement of the works under the building contract, so that HTA would be in a contractual relationship with the defendant throughout the execution of the works and would therefore know as those works progressed that there would be liability to the defendant in the event of breach of their contractual duties. A contractual relationship with rights and obligations throughout the execution of the works was of material benefit to the defendant; that, and not what actually materialised, was what the defendant consented to under the building contract. In all the circumstances, the claimant was not entitled to any of the declarations sought.
Serena Cheng (instructed by DWF LLP) appeared for the claimant; Patrick Clarke (instructed by Pinsent Masons LLP) appeared for the defendant.
Eileen O’Grady, barrister
