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Farrer & Co | Case law updates from the Court of Appeal

Autumn saw a busy period for the second most senior court in England and Wales, with the Court of Appeal (CoA) delivering its judgments on Arcadis Consulting (UK) Ltd (formerly Hyder Consulting (UK) Ltd) v AMEC (BCS) Ltd (formerly CV Buchan Ltd) (Arcadis) and the highly anticipated case of S&T (UK) Ltd v Grove Developments Ltd (Grove).

In Arcadis, the respondent (AMEC) engaged the appellant (Arcadis) to carry out particular design works in connection with two large projects, in anticipation of a "protocol agreement" under which the parties would work together on different construction projects involving pre-cast concrete components (which, in any event, did not materialise). Arcadis effectively performed its services under a letter of intent.

One of the projects is now alleged to be defective due to Arcadis' design work, and AMEC pursued Arcadis in respect of these defects. In turn, Arcadis sought a declaration that its liability was capped based on an exchange of certain terms and conditions between the parties, but the judge at first instance decided in favour of AMEC, ruling that Arcadis was not entitled to rely on the liability cap.

Arcadis appealed, and the CoA had to decide whether the terms and conditions (including the cap on liability) were incorporated by reference into the parties' contract. The CoA overturned the first instance decision and ruled that Arcadis' liability was limited, in what ultimately turned on the narrow facts of the case and the proper construction of the terms and conditions. However, whilst Arcadis is fact specific, it is a warning sign to any developer engaging a contractor under a letter of intent that it should not lose sight of what is being agreed (including any limitations of liability) prior to the conclusion of the building contract.

In Grove, the appellant (S&T) was engaged by the respondent (Grove) to build a hotel. Completion was set for October 2016 but was not achieved until March 2017. Multiple adjudications took place between the parties relating to, inter alia, S&T's entitlement to a full extension of time and the validity of a pay less notice issued by Grove. In anticipation of a potentially adverse result in the third adjudication, Grove issued declaratory proceedings, effectively asking the Technology and Construction Court (TCC) to declare that the pay less notice was valid and that Grove (in principle) was entitled to start an adjudication to establish the true sum due to S&T relating to a specific interim application (a "valuation adjudication").

In the first instance decision, the TCC held that Grove's pay less notice was valid and, even had it not been, Grove was entitled to commence a valuation adjudication. S&T duly appealed to the CoA.

The CoA agreed with the TCC and held that the pay less notice was valid. Although the question of whether Grove was entitled to commence a valuation adjudication was academic (given the pay less notice was valid), the CoA confirmed the TCC's ruling that Grove was entitled to pursue valuation adjudication, notwithstanding the absence of a valid pay less notice. However, the CoA asserted that an employer is only entitled to commence a valuation adjudication after it has paid the sum due under the relevant notice.

Whilst developers may find comfort in the knowledge that, even if the requisite notices have not been served, a valuation adjudication may still be commenced, the CoA's ruling that such an adjudication must follow payment of the notified sum could prove extremely damaging (particularly in the event of a contractor's insolvency). Fundamentally, a developer should always be aware of its payment obligations under its building contract and be alive to the consequences of failing to serve a valid payment or pay less notice.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, December 2018

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