Building
brief
November 2001 – edition
1
Contents
Delays in initiating arbitration ........................................................................................................................ 2
Section 51 ..................................................................................................................................................... 3
International Chamber of Commerce news ................................................................................................... 4
The Pre-Action Protocol for Construction and Engineering Disputes ............................................................ 5
Merrett v Babb .............................................................................................................................................. 6
Adjudication .................................................................................................................................................. 7
Expert instructions – let’s have a look ........................................................................................................... 8
Long-stop liability .......................................................................................................................................... 9
Tortious liability of professionals ................................................................................................................. 10
Interest on late payment ............................................................................................................................. 11
Limited Liability Partnerships ...................................................................................................................... 12
Novation ...................................................................................................................................................... 14
The Competition Act 1998 – The European Way ........................................................................................ 15
Retentions ................................................................................................................................................... 16
ACE Awards lunch ...................................................................................................................................... 16
Little Britain Challenge Cup ........................................................................................................................ 17
Editorial
Building Brief contains a wide range of articles ranging from commentary on the Competitions Act and
recent cases on professional liability to how the new court rules are being worked out post-Woolf.
We can anticipate further cases on these new rules as the judges work out precisely how they are to be
applied. In the meantime a higher than usual level of uncertainty is to be expected, particularly in relation
to the awarding of costs.
The Technology & Construction court is far less busy than it used to be but whether this is because of the
rule changes or because of the new protocol is not clear. Whatever the cause, many more disputes are
being settled by negotiation or are being referred to mediation or adjudication.
The broad lines for a standard adjudication procedure are generally gaining ground amongst experienced
adjudicators. The courts are emerging with an (almost) coherent body of case law as to when they will and
when they will not enforce adjudicator’s decisions.
On the non-contentious side, certainly as yet, we can perceive no slackening in the pace. We touch on the
issue of novation in this issue and will comment in the next issue on the search for the holy grail of the
appropriate construction contract, following Latham and Egan.
In future we would like to send you Building Brief by e-mail as a PDF file. If you would like to receive it this
way, please e-mail liane-evans@blm-law.com.
Robert Stevenson
Building
brief
1
Delays in initiating arbitration
The new Arbitration Act 1996 came into force at the end of January 1997. As yet, there have not been
many cases which test to what extent the pre-existing law has been changed by this new Act but one
recent case provides an illustration: Durtnell & Sons Ltd (‘Durtnells’) v The Secretary of State for Trade and
Industry (‘SSTI’), reported in The Times, 21 July 2000.
On occasions, although there is an arbitration clause in a contract, the procedure for appointing an
Arbitrator breaks down. The old law (section 10 of the Arbitration Act 1950) and the new law (section 18 of
the Arbitration Act 1996) provide that the parties can apply to the court to make an appointment. The
contract between Durtnells and the SSTI was the GC Works 1, Edition 2. The Arbitration clause reserved
to the employer the right to choose a nominating body when the parties could not agree on the identity of
an arbitrator.
Durtnells tried for some three-and-a-half years after the end of the contract to negotiate a settlement to
their claim. When they eventually served a notice of arbitration the SSTI refused to operate the clause.
Durtnells waited a further two years before making an application to the court pursuant to section 18. The
notice of arbitration was served after January 1997 so the new Act applied. Interestingly, in his judgment
HHJ Toulmin CMG QC stated that he understood and accepted why Durtnells would be reluctant to initiate
an arbitration against an important commercial client, but once the notice was given there was no excuse
for the subsequent delay in applying to the court.
There are a number of authorities on the operation of the old section 10. Broadly speaking, they gave the
court a broad, unfettered discretion whether or not to grant the claimant their application, even if the
arbitration had been commenced within the limitation period.
The new 1996 Act is unusual in that it is prefaced in section 1 by a statement of principles upon which the
Act is founded and by which it should be construed. They read:
a) the object of arbitration is to obtain the fair resolution of disputes by an impartial tribunal
without unnecessary delay or expense;
b) the parties should be free to agree how their disputes are resolved, subject only to such
safeguards as are necessary in the public interest;
c) in matters governed by this Part the court should not intervene except as provided by this Part.
(‘This Part’ refers to the bulk of the Act but excludes the section dealing with Consumer
Arbitrations.)
The judge ruled that whilst he did have a discretion whether or not to grant the application, it should be
exercised consistent with the above principles. He granted the application but gave leave to appeal. The
SSTI subsequently settled the arbitration and abandoned the appeal.
This decision constitutes a significant departure from the law before the 1996 Act.
Robert Stevenson
Building
brief
2
Section 51
In the past twelve months there have been further developments on costs orders pursuant to Section 51 of
the Supreme Court Act, which are relevant to those involved in the construction industry and their insurers.
This section, essentially, provides that the courts have the full power following a hearing to determine by
whom and to what extent costs are to be paid.
The point is most graphically illustrated in the Court of Appeal authority of T G A Chapman Ltd and
Another v Christopher and Another (1998). In this case, a factory premises and its contents were
extensively damaged by a fire, caused by the negligence of the defendant. The defendant lived at home
with his mother and had no assets. His mother had a building contents and liability policy with Halifax
Building Society. The policy, which had a limit of indemnity of £1million, covered not only the defendant’s
mother but also the defendant.
The claimant successfully sued the defendant and judgment was given in the sum of £1,129,212 plus
interest and costs. The defendant’s insurers settled the damages for £1million (the limit of indemnity) and
the claimant sought to recover the costs from the defendant’s insurers pursuant to Section 51 of the
Supreme Court Act. Essentially, the court determined that there was a risk that an unsuccessful defence of
an action against an insured would bring about a costs liability for insurers when the following
circumstances existed:
1) the insurers determined that the claim would be fought
2) the insurers funded the defence of the claim
3) the insurers had conduct of the litigation
4) the insurers fought the claim exclusively to defend their own interests, and
5) the defence failed in its entirety.
In the case of Cormack v Washbourne (formerly trading as Washbourne & Co), the claimant successfully
sued a surveyor and recovered damages and costs which exceeded the available limit of indemnity. The
claimant applied to join the defendant’s insurers with a view to obtaining an order that they pay their costs.
The application was dismissed on the basis that no order against insurers could be justified
(1)
(2)
when the insured defendant actively wished to defend the action, despite the risk of indemnity
being exceeded; and
when after the insured ceased actively to wish to defend, insurers acted reasonably in defending
where the insured was advised of the limit being exceeded, the defence was still in the general
interests of the defendant, and a QC’s advice justified the decision. Further, the court should only
impose liability on insurers if their conduct was so self-motivated as to justify the same.
It is clear from the Cormack case that the courts will not readily order insurers to pay costs pursuant to
Section 51 of the Supreme Court Act. Having said that, applications for costs orders pursuant to Section
51 is a developing area of the law.
Keith Lonsdale
Building
brief
3
International Chamber of Commerce news
The Commission on International Arbitration of the International Chamber of Commerce (ICC) has
produced a final report on construction industry arbitrations. The Commission was led by Judge Humphrey
Lloyd QC and the Immediate Past President of the Chartered Institute of Arbitrators Nael Bunni. Their
contribution was balanced by an equal number of members from Civil Law jurisdictions.
The report makes a number of recommendations, fully explained in the report. One of the most prominent
relates to programmes or critical path networks (CPNs). It begins: ‘Claims for delay and disruption require
careful handling.’ It goes on, when speaking of causation events: ‘The use of CPN techniques greatly
facilitates this process and should be requested by the tribunal provided that they have already been used
in the management of the project. … Where CPN techniques have not been used during the construction
period of the project, the retrospective preparation of the CPN is almost always expensive and can
produce misleading or unhelpful results.’
These recommendations provoked more debate at a recent UK ICC conference than at any other. Even
those in favour of CPNs were in broad agreement with the recommendations of the report, which called for
transparency in the establishment of a CPN. The tribunal must be informed about the logic of the CPN,
and the assumptions incorporated in the model and the data entered must be clear to all parties.
The report as a whole provides interesting reading and food for thought in its analysis of construction
arbitrations. What is striking is that, no matter what their legal background, those responding to initial drafts
had remarkably similar experiences and points to make.
These recommendations of course apply equally to national as well as international arbitration and
litigation. For further details consult www.iccuk.net.
Robert Stevenson
Building
brief
4
The Pre-Action Protocol for Construction and Engineering Disputes
The Pre-Action Protocol for Construction and Engineering Disputes came into effect on 2 October 2000. It
applies to all construction and engineering disputes including professional negligence claims against
construction professionals. Its objective is to encourage early exchange of information to enable parties to
settle potential claims before commencement of proceedings. Before issuing proceedings, the claimant
must send each proposed defendant a letter of claim. The defendant should acknowledge receipt in writing
within 14 calendar days. Within 28 days of receipt of the letter of claim, or another period that the parties
agree (up to a maximum of four months), the defendant must send a letter of response. If the defendant
fails to acknowledge receipt or to send a response, the claimant can commence proceedings without
further compliance with the protocol. The protocol sets out the information that the claimant’s letter and the
defendant’s response should contain.
The defendant is not obliged to give details of their insurer. As soon as possible after receipt of the
defendant’s response, the parties should meet. The meeting is without prejudice, but any party who
attends can disclose that the meeting took place and when it took place, the identity of any party who
refused to attend and why or, if there is no meeting, why no meeting took place and, finally, any agreement
reached.
There are exceptions to this protocol: for example, when enforcing adjudication decisions, or where an
adjudication has already taken place and an action of review has been initiated. A litigant who ignores the
protocol, other than as outlined in these exceptions, does so at the risk of heavy penalties in costs. The
aim of the protocol is to reduce the number of cases coming to court. To the extent that too many actions
both large and small are instigated without proper investigation and reflection on the merits of the claim,
this protocol is to be welcomed.
Michèle Weinstock
Building
brief
5
Merrett v Babb
(Court of Appeal – 15 February 2001)
It has now been confirmed by the House of Lords that employees owe a permanent duty of care to their
clients and can be personally liable if a dissatisfied client pursues a negligence action against the firm.
John Babb was a salaried employee of a firm of surveyors. In 1992, he was instructed to carry out a
valuation report in connection with a mortgage application on a house. Allegedly, he failed to notice cracks
in the walls of the house. The following year Mr Babb left the firm and in 1994 the firm went bankrupt.
Three years later Mr Babb was sued in his personal capacity for the negligent valuation. This was possible
because the firm’s professional indemnity insurance had been cancelled by the trustee in bankruptcy
without run-off cover being put in place. Mr Babb lost £40,000 as a result of the ruling, which has cost him
the equity in his house and much of his savings.
The decision as it now stands means that all employed professionals such as insurance brokers, solicitors,
financial advisers etc face the prospect of personal liability in the event of a negligence claim. In order to
avoid such alarming consequences, prudent professionals who have concerns about their employer’s
solvency or the availability of insurance cover should now be considering taking out personal indemnity
insurance. Such insurance would have to provide cover even after the employee had left his employer.
Carol Lim Apel
(A more extensive report on this important case appears in BLM’s magazine Disclosure)
Building
brief
6
Adjudication
Discain Project Services Ltd v Opecprime Development Ltd (2001)
An adjudicator acting under the Housing Grants, Construction and Regeneration Act 1996 had engaged in
communications by way of conversations with the claimant’s representative. The defendant was not privy
to these conversations and the adjudicator did not communicate them to the defendant even though they
dealt with matters in issue which were the subject of the written submissions by the parties.
The defendant had successfully resisted an application for summary judgment on the claim (see Discain
Project Services v Opecprime Development Ltd (2000)) and was given permission to defend on the basis
that the adjudicator had breached the rules of natural justice and/or had failed to act impartially by having
secret communications with the claimant.
HHJ Bowsher QC held that although the adjudicator was not biased, his engaging, albeit reluctantly, in
conversations with the claimant’s representative without the defendant’s knowledge would lead a fairminded and informed observer to conclude that there was a real possibility or real danger of bias on the
part of the adjudicator. An adjudicator has to conduct proceedings as fairly as the limitations imposed by
the Act permit and in accordance with the rules of natural justice.
The judge was of the opinion that if an adjudicator received ‘relevant information’ by telephone, he was
required by Paragraph 17 of the Scheme for Construction Contracts (England and Wales) Regulations
1998 SI 1998/649 and indeed by ordinary courtesy or natural justice to notify the other party of that
‘relevant information’ to allow them the opportunity to comment. Judgment was given for the defendant.
Adjudicators need to be careful when talking to parties despite their powers under the Scheme to act
inquisitorially and take the initiative in ascertaining the facts and law. Any discussions between an
adjudicator and any of the parties relating to matters other than purely administrative should be conveyed
to the other party for comment.
John Bradley
Building
brief
7
Expert instructions – let’s have a look
Along with most other areas of civil litigation, Lord Woolf’s recent reforms include new rules on the use of
experts and how they may provide evidence. These are found in Part 35 of the Civil Procedure Rules.
One of the more controversial parts is rule 35.10, which provides that the substance of all ‘material’
instructions to experts, whether written or oral, must now be summarised in the expert’s report prepared for
court proceedings. Accordingly, these instructions will not be privileged against disclosure. Predatory
litigators should note that the court will normally only order disclosure of such instructions if it is satisfied
that the expert’s report has inaccurately or incompletely stated the substance of material instructions. Even
so, this represents a significant new risk to be borne in mind in the management of cases, and turns on its
head the old premise that all communications with experts are privileged.
Forward-thinking litigators have devised a nifty two-step in an effort to avoid this risk. Quite simply, they
appoint an expert to provide advice only, not court evidence. This ‘adviser’ can offer a practical view on
such helpful things as the chances of winning and how to instruct the expert witness. A further expert is
then instructed, to provide evidence as expert witness for the court. Instructions to this expert witness are
disclosable and his/her status is irreproachable.
But do beware. There is no absolute guarantee that the court will not order disclosure. As a general rule it
is safest to keep all communications with experts as neutral as possible and to avoid making your own
suggestions which may well be disclosable. Finally, one other way in which privilege may find protection is
in Human Rights legislation. In Burt and another v Greer (unreported), rule 35.10 was challenged as being
ultra vires and in breach of the Convention on Human Rights.
And in General Mediterranean Holdings SA v Patel (1999), although rule 35.10 was put to one side,
Toulson J recognised that legal confidentiality was a right of great constitutional importance and could not
be denied by ‘mere words’. Also mentioned were problems with breach of Article 6 (‘right to a fair trial’) and
Article 8 (‘everyone has the right to respect for his private life and family life, his home and his
correspondence’).
For the time being then, it might be worth the extra expense of obtaining expert advice and reviewing pro
forma letters of instruction you have been using for years.
Bill Miller
Building
brief
8
Long-stop liability
Cave v Robinson, Jarvis & Rolf
A recent solicitors’ negligence case is likely to raise the eyebrows of insurers as it could have the effect of
lengthening the period during which claims in negligence can be brought. The case has effect only on
claims in respect of tortious negligence, not contract, but could have an effect on a number of industries
including contractors, architects, engineers and other professionals.
Cave engaged his solicitors to sell land near some water that was jointly owned by two companies
controlled by Cave and his friend Cooper. The solicitors were also to ensure that Cave and Cooper
separately acquired mooring rights for 100 years. The transaction took place in March 1988 when the land
was sold to Hyde Securities, who went into receivership in 1994. The receivers contended that, owing to
negligent drafting by Cave’s solicitors, Cave and Cooper had not acquired mooring rights. Accordingly,
Cave brought proceedings, but not until January 1999.
Cave was outside the ordinary period for bringing a claim in negligence. However, where it could be shown
that there is a fraud or ‘deliberate concealment’, Section 32 of the Limitation Act provides that where ‘any
facts relative to the Plaintiff’s right of action have been deliberately concealed … the period of limitation
shall not begin to run until the Plaintiff has discovered the fraud, concealment or mistake’. The Act goes on
to say that the ‘deliberate commission of a breach of duty in circumstances in which it is unlikely to be
discovered for some time amounts to deliberate concealment of the facts’.
The solicitors drafted the deed transferring the property and rights, mistakenly believing that this would
confer the mooring rights. The failure to confer the rights was a breach of duty on the part of the solicitors.
The solicitors did not deliberately draft the deed so as to prevent Cave and Cooper from obtaining mooring
rights but as the breach of duty was unlikely to be discovered for some time, Cave said that that was
sufficient to give him the benefit of the ‘deliberate concealment’ provisions of the Limitation Act. The Court
of Appeal agreed. In doing so, the Court of Appeal made ‘deliberate’ and ‘unintentional’ breaches of duty
essentially indistinguishable from one another.
This case could have major implications as claims could be raised long after the event in question without
any notification at the time.
John Bradley
Building
brief
9
Tortious liability of professionals
You can run, but you can’t hide
Architects’ duty of care has been extended so that they are answerable to subsequent occupiers of a
property in respect of latent defects which would not be anticipated to be reasonably detectable following a
normal inspection.
In the law of negligence one door never closes but another opens. In Baxall and Norbain v Sheard
Walshaw (2000) the circumstances in which an architect owes a duty of care to clients and any future
owner or occupier of a property have been widened once again.
The claimants brought an action against the architects they employed to design and install the building’s
roof and guttering. The architects in turn had instructed specialist subcontractors to undertake the task.
Following two periods of flooding caused by heavy rainfall, it was discovered that there were two major
flaws with the roof drainage system. A number of overflows had not been installed and the design of the
drainage system itself was inadequate to cope with predicted water flow.
It was found that each flood had been caused by a different set of circumstances. A combination of
blockages in the drains and the absence of overflows caused the first flood. The court held that the
defendant was not at fault for either of these. In particular, it was noted that the surveyors who checked the
premises before the claimant took up occupation failed to notice the absence of overflows: any proper
inspection should have revealed this
omission.
The second flood was caused by the absence of overflows and the inadequate design of the drainage
system. Once again, it was held that the claimant had had a reasonable opportunity to inspect the property
and the absence of overflows could and should have been noted. However, it could not be said that an
inspection should necessarily have revealed the poor design of the system. As architects for the project,
the defendants should have ensured that the design and installation of the drainage system was up to
scratch. Accordingly, the defendants were responsible for one of the primary causes of the second flood
and were therefore held to be liable for all loss arising from that flood.
This decision does not represent any remarkable shift from the status quo. Indeed, the court was anxious
to show that it was merely applying the principles laid down in Donohue v Stevenson (1932) and Murphy v
Brentwood District Council (1991). The claimant had proved that the architects should have foreseen
possible harm to subsequent occupiers of the premises and also that the relationship was sufficiently close
that the architects owed the occupier a duty of care. Nonetheless, all professionals whether architects or
otherwise should be aware that their responsibilities do not end when the contract is complete and that any
errors of judgment they make may come back to haunt them long after the property has passed into other
hands.
James Chambers
Building
brief
10
Interest on late payment
The Late Payment of Commercial Debts (Interest) Act 1998
If payment under your contract is delayed, if you have inadequate or non-existent contractual remedies for
claiming interest and you are a business of fewer than 50 employees then this Act should be used in
claiming interest.
It provides that qualifying debts (broadly speaking any debts that would arise under consultancy
appointment or a construction contract) carry simple interest at 8% over the current bank base rate.
Most standard-form contracts provide some kind of contractual remedy for late payment, but the Act states
that this has to be ‘substantial’, ie sufficient to compensate the supplier for late payment or for deterring
late payment.
Until 1 November 2000, the Act could only be used where the employer was a large business (ie 50 or
more employees) but now the only limitation is that the supplier must be a small business and that the
contract was entered into after the Act came into force in June 1998.
Robert Stevenson
Building
brief
11
Limited Liability Partnerships
The Limited Liability Partnership Act came into force in April 2001. The intention of this Act is to create a
new business ‘institution’ in the form of a limited liability partnership.
At present there are only four basic forms of business institution available: (1) sole trading, (2) partnership,
(3) limited partnership, and (4) limited companies. Many organisations – in particular small businesses and
large partnerships – have found these to be unsuitable for the modern business environment. None of
them provided a perfect fit for their requirements.
A partnership structure only allows individual partners to limit their liability in strict circumstances.
Generally, a partner is personally liable for every act of every partner in the firm. The Limited Partnership
Act 1907 does offer some protection for sleeping partners: they are allowed to limit their liability to the
value of their initial investment. Liability for ‘active’ partners, however, may only be limited by express
restriction on a partner’s authority and any third party has to be notified for it to be effective. This
arrangement is clearly not conducive to many kinds of business relationship. In particular many partners in
multinational law or accountancy firms have long been uneasy about the threat of joint liability actions. The
reality is that they may face liability – and possibly financial ruin – for the actions of a single partner whom
they may not even have met.
Incorporation is often the solution for many kinds of business partners. At present it affords the only
serious method of limiting liability. Liabilities accrue in the name of the company without personal liability of
the directors. The problem with incorporation is that it imposes much more onerous obligations on the
directors of the company in terms of administration, accounting and publicity. Such restrictions can be
expensive to implement and inflexible to use. In addition, companies are subject to high levels of
corporation tax. Many of these rules apply equally to small private companies and large conglomerates
and such an arrangement is often particularly burdensome for small businesses with a small profit margin.
After many years of lobbying, the government has introduced the Limited Liability Partnership (‘LLP’). The
LLP cloak will be available to any two or more persons carrying out a trade or profession.
It is anticipated that secondary legislation will be introduced at a later stage, which will apply other aspects
of company law to LLPs. This will include provisions relating to insolvency, proposed penalties for
members of LLPs for wrongful or fraudulent trading, and an adaptation of the Directors’ Disqualification Act
to allow a member of an LLP to be disqualified.
The main provisions of the LLP Act are:








an LLP will be a separate legal entity with unlimited capacity
although the liability of the firm will be limited, one partner will maintain unlimited liability and the
others will be limited to the extent of their stake in the firm
the stakeholders of a LLP will be described as members. Two or more members are required for
a LLP to be
incorporated. They must subscribe their names on the incorporation document which sets out
requisite details of the LLP such as registered office address and members’ names (less onerous
than the details required for companies). The incorporation document must be registered with the
Registrar of Companies
the rules and regulations of partnership law still apply but the rights and duties of the members
are also governed by the incorporation document and any agreement reached between the
members. This need
not be filed
members are deemed to be agents of the partnership and the partnership shall be bound by their
actions
unless their authority to act is restricted and the third party is aware of that
an LLP must file annual accounts at Companies House. This is a wholesale incorporation of the
Companies Act requirements
an LLP will be taxed as a partnership and as such is not subject to corporation tax
So, the requirements for an LLP are less stringent than those relating to incorporation and the tax
advantages are clear. The Government has estimated that some 15% of partnerships will adopt the new
structure. The larger multi-national partnerships which have not already adopted the LLP structure of
another jurisdiction will welcome the legislation and, despite the tough accounting provisions, it also offers
an attractive alternative to smaller businesses that are perhaps reluctant to incorporate.
Building
brief
12
However, partnerships or businesses of any size considering a move to an LLP should first weigh up the
importance of limited liability against the additional cost of complying with the regulations. Professional
indemnity cover for the individual members of the partnership will remain necessary as illustrated in the
case of Merrett v Babb (2001).
The Act is in the process of bedding down and the current concerns for finance directors considering
converting a partnership to an LLP include the way the Inland Revenue will treat work in progress.
Similarly, under certain interpretations, the liabilities of partnerships to pay annuities to former partners
would render them insolvent if the rules to limited companies were applied. This issue and others will have
to be resolved before LLPs become a generally acceptable alternative to partnerships.
Keith Lonsdale
Building
brief
13
Novation
It is becoming increasingly common to see professional appointments novated from the employer to the
contractor at some point during the project. The object for the employer is to have initial control of the
design, but for there to be a single point of responsibility (the contractor) if anything goes wrong. Such
novations can lead to divided loyalties for designers, particularly where the employer wishes the designer
to report in some way on the activities of the contractor, who is now the designer’s actual employer.
This inherent conflict and diversity of interest was well illustrated in a recent Scottish case of Blyth & Blyth
v Carillion Construction Ltd (2001). The contractor sought to recover from the consultant engineer on the
basis of alleged deficiencies in the preparation of the employer’s requirements. Carillion’s bid, based on
these requirements, substantially underestimated the amount of steel required.
Carillion’s claim was rejected by the court. On examining the facts the judge concluded that it could not be
seriously argued that before novation the contractor stood in the shoes of the employer, despite the
express wording of the clause of the deed. For example, one of the duties of the engineer was to assist the
employer in advising on the relative merits of tenders, one of which had of course been provided by
Carillion itself.
Having rejected that literal interpretation, the judge went on to find that the original employer had in fact
suffered no loss and may indeed have benefited from the engineer’s alleged deficiencies in preparing the
employer’s requirements as this may now lead to a lower bid. As the then employer had suffered no loss
there was no damage that the new employer (Carillion) could claim for.
This decision is likely to see many standard novation deeds being reviewed and recast with fresh thought
being given to precisely what is sought from Deeds of Novation, and what the implications of such deeds
might be.
Robert Stevenson
Building
brief
14
The Competition Act 1998 – The European Way
Attempts by governments to control the anti-competitive behaviour of businesses date back to the
nineteenth century with American antitrust legislation. The Competition Act 1998 which came in to force on
1 March 2000 was therefore nothing new but it does have a distinctly European flavour.
The regulatory authority is given strong powers to carry out ‘dawn raids’ and investigate ‘anti-competitive’
practices, much like the European Commission (the European competition authority).
The Act, like other European legislation, makes it unlawful for businesses to engage in anti-competitive
agreements and similar practices. It is also unlawful to abuse a ‘dominant position’ in the market. However,
beware! A ‘dominant position’ does not necessarily mean that a business has to control a majority of the
marketplace.
The Act also prohibits certain activities. It makes them unlawful from the outset rather than simply the
subject of an investigation (an approach which has been used in Europe for over forty years and in the US
for over a century).
Like the European Commission, the Office of Fair Trading is able to take interim action pending the
outcome of an investigation and can impose financial penalties.
But what does all this mean for businesses? The onus has moved from the competition authorities to
businesses. They must now consider whether any activity they undertake will breach the law. For example,
in the construction industry, partnering agreements (agreements which lead to a dominance of the market
place) and the use of cartels that result in market-sharing and in the imposition of a pricing structure (as
with cement companies) will all have to be examined carefully. Harsh penalties will encourage this careful
examination.
As a result of the Act, the examination of such activities will involve consideration of any relevant decisions
and statements of the European Commission. This is because the Act essentially mirrors European
legislation. For lawyers, the ready body of European case law will undoubtedly make it easier to consider
the lawfulness, or not, of any particular activity. It could be said that the Act will place a greater onus on
businesses to consider whether their actions could be ruled to be anti-competitive or not. In considering
that issue, there exists already a substantial corpus of continental European law precedents to assist in the
interpretation of the new Act.
Stavry Constantinou
Building
brief
15
Retentions
The campaign to abolish retentions rumbles on through the pages of the specialist press, driven by
representatives of subcontractors who suffer most from the inadequacies of the present system. In parallel
to this campaign, the process of adjudication itself has brought the matter much more to the fore.
In arbitration and litigation, retentions were invariably due for release by the time the matter came to a final
hearing. It was also not particularly cost-effective to commence an action purely to secure the release of
retentions. Adjudications, by contrast, can be commenced at any time and concluded within 35 days. This
makes specific claims for retention release a viable and economic option.
In a recent adjudication BLM acted for a subcontractor whose contract had been terminated. Both parties
argued repudiation. The adjudicator ruled the subcontractor whose contract had been repudiated was
entitled to the immediate release of his retention on the basis that there was no longer a contractual
obligation to return and rectify the work.
Those seeking release of retentions which may be being withheld ‘up the line’, either because there is no
certificate of making good or because there is no release of retention under the main contract, should
consider using the terms of the Construction Act. Is the subcontract in breach of the payment provisions?
(Section 110 of the Act requires ‘the provision of an adequate mechanism for determining what payments
become due and when’.)
Is the release of the retention in reality a pay-when-paid clause (contrary to Section 113 of the Act)? If so,
its non-release retention could be attacked under this section.
Robert Stevenson
Building Brief is published by Berrymans Lace Mawer, Salisbury House, London Wall, London EC2M 5QN
and printed in England by Greenaways Digital. Copyright © Berrymans Lace Mawer 2001
Building
brief
16
ACE Awards lunch
The ACE Annual Awards Lunch took place in May this year, with some 250 consultants and guests
attending the spacious Excel Centre in London’s Docklands.
The event was sponsored by the Department of the Environment, Transport and the Regions, the
Worshipful Company of Engineers, the Construction Best Practice Programme and Berrymans Lace
Mawer. Insurance brokers Griffiths and Armour provided the drinks reception.
Along with the established awards, this year’s events saw the first recipient of the ACE Client Best
Practice Award for projects with a building cost value of less than £5m. The winner was a housing project
constructed on badly contaminated ground at Timberyard Lane in Lewes, with consulting engineer and
ACE member firm Tully De’Ath and client Rydon Construction.
The ACE Client Best Practice Award for projects with a building costs of more than £5m went to the
Ramsgate Harbour Approach Road. Consulting engineers were ACE member Babtie with their client Kent
County Council Transport Management Unit, proving that co-operation is the essential ingredient to
achieving a successful civil engineering project.
Nigel Thompson CBE, deputy chairman of Ove Arup & Partners was one of two recipients of the ACE
Outstanding Achievement Award. The other was Steve Seddon of Oscar Faber. Nigel was chosen for
his outstanding contribution to international working parties in Kuwait and Bosnia, Steve for his vital
contribution the often hazardous Triangle project at the old Corn Exchange in Manchester.
Against fierce competition from his peers, Martyn Tulloch of Babtie won the Young Consulting Engineer
of the Year Award, after producing a report demonstrating the qualities that have made him such a
popular and successful young engineer. Thanks to the efforts of out-going chairman, Brian Clancy, and the
organisation by the ACE, the awards were another great success. The gathered professionals enjoyed
good company and hospitality, combined with a deserved tribute to the outstanding achievement of
members of the ACE.
Bill Miller
Little Britain Challenge Cup
A boat sponsored and crewed by BLM has brought back three trophies from the Little Britain Challenge
Cup Regatta, held in the Solent in September. Sea Scamp came first in two of the three races, and fourth
in the third; the boat came second in its class. She was one of the oldest vessels in the event.
Robert Stevenson, who skippered Sea Scamp, looks back on the succesful day: ‘We came second out of
the fifteen law firms taking part and seventh overall out of 200 boats. The whole crew turned in a
determined and spirited performance, those new to the boat quickly mastering her foibles and intricacies.’
The BLM crew were assisted on the boat by friends and clients of the firm. We look forward to reconvening
in 2002 to repeat this year’s success and to enjoy the ensuing festivities.
Disclaimer
This document does not present a complete or comprehensive statement of the law, nor does it constitute legal advice.
It is intended only to highlight issues that may be of interest to clients of Berrymans Lace Mawer. Specialist legal advice
should always be sought in any particular case.
O:\3 PUBLICATION ADMINISTRATION\PUBLICATION BACK ISSUES\NEWSLETTERS\BUILDING BRIEF\WORD VERSIONS\BUILDING BRIEF_WORD
VERSION_NOVEMBER 2001.DOC
Building
brief
17