Mallino Development Ltd v Essex Demolition Contractors Ltd [2022] EWHC 1418 (TCC) (10 June 2022) started as a Part 8 procedure (i.e. an unconventional court procedure for an issue which does not involve a substantial dispute of fact) seeking to circumvent the enforcement of the second of two adjudication decisions, eventually tried under the Part 7 procedure (the conventional procedure for a claim before the court where there is a substantial dispute of fact).
On or about 24 April 2018, Mallino Development Limited (“Mallino”) employed Essex Demolition Contractors Limited (“EDC”) to carry out works to the Dark Wall Attraction (“the Works”), part of the expansion of a visitor experience at the historical Bodmin Jail, and part of a larger redevelopment including a hotel and gift shop.
The parties entered into a JCT Standard Building Contract Without Quantities (2016 Edition) (“the Building Contract”). The Building Contract contemplated 3 sections of work, as follows: Section 1 - Demolition of the existing hospital building to ground level; Section 2 - Excavation works to the level 1 formation; Section 3 - All other remaining works.
On the same date (on or about 24 April 2018), the parties entered into a variation agreement, in which provision was made for Mallino to tender for the Works save for the Demolition works (“the Variation Agreement”). The Variation Agreement provided for Mallino thereafter to award and enter into a new building contract for the Works with EDC or another contractor depending on who it was that was awarded the remainder of the Works following the tender.
Recital C of the Variation Agreement provided
“(EDC) has agreed to initially carry out only the demolition and majority of excavation works as described on the pricing schedule works comprised within the contract works for the Development and to allow the Employer to retender for the remainder of the works comprised within the Development”
Specific provisions of the Variation Agreement were:
“2.1 With the agreement of (EDC) which is hereby given (Mallino) shall issue tenders for the works comprised in the Development save for the demolition works in respect thereto and shall invite (EDC) to tender for the same.
2.2 Following receipt of tenders issued pursuant to the agreement in clause 2.1 above (Mallino) shall award and enter into a contract for the whole of the works comprised in the Development and the Contract (New Contract).
2.3 In the event that the New Contract is awarded to and entered into with (EDC) then the Contract shall be deemed terminated and (EDC) shall proceed with the works under the terms of the New Contract. In which event: all payments made to (EDC) by (Mallino) under the Contract shall be deemed paid under the New Contract; All works carried out under the Contract shall be deemed carried out under the New Contract; All obligations owed by one party to the other under the Contract as at the time of termination shall be deemed owed by such party to the other under the New Contract.
2.4 In the event that the New Contract is awarded to and entered into with a contractor other than (EDC) (New Contractor) then at the option of (Mallino), (Mallino) may by notice in writing served on (EDC) no later than 7 days after entering into the contract with the New Contractor either terminate (EDC)'s employment under the Contract or novate the Contract to the New Contractor.
2.5 In the event that the Contract is terminated then: (Mallino) shall within 21 days pay to (EDC) all sums due under the Contract for the work undertaken by (EDC) together with (EDC)'s reasonable costs of demobilisation; (EDC) shall not be entitled to loss of profit or overhead contribution on works not completed under the contract.”
In the event, EDC carried out Section 1 and Section 2 of the Works and achieved practical completion of those works on or about 10 August 2018. However, it was not invited to tender for the Section 3 works, which were instead awarded to another contractor (PIN-CM) on or about 27 July 2018.
Disputes arose between the parties which were the subject of two adjudications. Although not identified by name in the litigation, the author acted as the adjudicator in both.
The dispute in the first adjudication essentially involved the question of whether Mallino breached the Variation Agreement. A decision on that dispute was made on 15 April 2020. I concluded that there was, namely the failure by Mallino to tender the Section 3 works. The dispute in the second adjudication involved the question what if any sum(s) EDC was entitled to be paid by Mallino as a result of my decision in adjudication No. 1. A decision on the second dispute was made on 22 September 2020.
There was a good deal of alignment between the conclusions in the judgment and the two earlier adjudicator’s decisions.
Issues no longer contested in view of the findings made in the earlier adjudication decisions
These included:
1. The Building Contract and the Variation Contract constituted a single overarching contract (Decision 1, at 6.1(a));
2. Mallino breached clause 2 of the Variation Contract when it failed to re-tender its Section 3 Works (Decision 1, at 6.1(b));
3. The purported termination notice dated 22nd November 2019 was ineffective because, in breach of clause 2.4 of the Variation Contract, it was issued more than 7 days after Mallino appointed PIN-CM to undertake the Works (Decision 1, at 6.1(c));
4. EDC was entitled to recover the value of the work carried out but not yet paid and its reasonable demobilisation costs (Decision 1, at 6.1(d)).
Were the adjudicator’s other decisions of assistance?
The extent to which an earlier adjudicator’s decision is binding had been the subject of another judgment in the TCC just two days before, in Essential Living (Greenwich) Ltd v Elements (Europe) Ltd [2022] EWHC 1400 (TCC) (08 June 2022).
The author was again the adjudicator in that matter. Mrs Justice O’Farrell decided in Essential (at [84(vi)]) that it was a matter of fact and degree, requiring careful analysis of the evidence and argument on each disputed item, as to whether an Adjudication Decision was binding on any other discrete issue referred to and determined by the adjudicator, unless and until the Adjudication Decision was overturned, modified or altered by the court.
I had in Mallino decided that if it had been appointed EDC would have been able to assemble the appropriate resources and skills to carry out the Section 3 Works (Decision 2, at 5.24).
In the litigation EDC pleaded, invoking that finding, that EDC would have been able to carry out the Section 3 works if appointed. Had the issue arisen in a subsequent adjudication could that finding, according to Essential, be regarded as a matter decided as a discrete issue in the earlier adjudication? Whether that runs the risk of colliding with another principle - that factual findings and conclusions in one set of proceedings will not be treated as evidence of those facts in another set of proceedings1 (which may itself not be entirely secure, whether at common law2 or as a result of the Civil Evidence Act, 19683 ) is not entirely clear – albeit that that principle appears anyway to apply only between different parties.
Having said that, the learned judge arrived at the same conclusion in the litigation as had been reached in the adjudication, albeit by a different route, namely that as Mallino had not formally challenged the EDC submission, the finding in the adjudication had become an agreed fact.
The learned judge also held that Mr. Gorman who gave evidence for Mallino, still did not understand how the Variation Agreement was intended to be operated, notwithstanding the fact that Mallino had lost two adjudications and Mallino had agreed for the purposes of the litigation that Mallino breached Clause 2 of the Variation Contract when it failed to re-tender the Section 3 Works.
Contract administration
Turner and Townsend (“T&T”) were the Project Managers, Cost Managers and Quantity Surveyors appointed by Mallino for the Works. T&T advised on 13 May 2019 that they were no longer acting in that capacity. Total Project Integration Limited (“TPI”) was appointed as a replacement Contract Administrator and Quantity Surveyor under the Building Contract. In the Summer of 2017, a Mr Robert Cox was asked to take over the project management responsibilities at Bodmin Jail. Mr Cox was a qualified building surveyor but not a quantity surveyor. He started his career at E.C. Harris in 1999 where he worked in the Hotels Team until 2009 when he moved to the role of Head of Hotels at T&T. Mr Cox in October 2018 became Managing Director at Mallino where he continued his work on the Bodmin Jail Project, now acting as the client rather than one of the client’s appointed professional consultants. Eventually, in October 2021, he was promoted to the role of CEO of Mallino.
Mr Cox came in for a good deal of criticism from the judge, who regarded him as a difficult witness, appearing in his answers and conduct during his cross-examination to be unnecessarily argumentative and partisan. He did not understand how the Variation Contract was intended to be operated; indeed appeared not to have read and understood the terms of the Variation Contract.
Project Managers/Contract Administrators may want carefully to consider and reflect on these criticisms and to treat them as an aid in discharging their important roles in connection with the contracts that they are charged with administering.
Taking the initiative
An area not much debated in the adjudication literature is the extent to which an adjudicator can or should take the initiative in ascertaining the facts and the law, and where the dividing line lies between taking the initiative and descending into the arena.
In statutory adjudications paragraph 13 of the Scheme for Construction Contracts (England and Wales) Regulations (“the Scheme”)4 provides:
“The adjudicator may take the initiative in ascertaining the facts and the law necessary to determine the dispute, and shall decide on the procedure to be followed in the adjudication.”
The author’s own experience is that there have been many occasions when it has seemed both appropriate and important to take the initiative. The most compelling question for me has tended to be whether I could rest easy making potentially the wrong decision based on the material that the parties - whether deliberately or not - have chosen to put before me. The answer for me is typically “no”.5
- Cantillon Ltd. v. Urvasco [2008] EWHC 282 (TCC), at [70] to [71] (whether the adjudicator was constrained by a particular claimed period for prolongation preliminaries/site overheads costs or was entitled to allow such costs for a different and later period).
- Victory House General Partner Ltd. v. RGB P&C Ltd. [2018] EWHC 1143 (Ch), at [29] to [37] (whether the adjudicator in considering the true construction the parties’ memorandum of understanding entered into as a result of project delays was constrained by the arguments advanced by the parties and was thus to be considered as "going off on a frolic of his own" – a term described as inapt, demeaning and unfair to the adjudicator, who will be doing his best to arrive at an answer in often difficult circumstances: see Coulson on Construction Adjudication 4th edition at 13.68, footnote 91).
- RGB P&C Ltd. v. Victory House General Partner Ltd. [2019] EWHC 1188 (TCC), at [35] to [73] (whether in considering the extension of time to which RGB was entitled - which had financial consequences in terms of liquidated damages payable to Victory House and was material to RGB's claim for loss and expense - the adjudicator acted in breach of natural justice in that he undertook his own analysis allegedly without any reference to the parties and without affording them any opportunity to advance their own cases as to the course he proposed to take.
A second breach of natural justice which had allegedly arisen in respect of claims made by sub-contractors and included in RGB's claims, but, in this instance, because the adjudicator failed to address key aspects of Victory House's defence also failed.)
For other notable cases on this topic, see GPS Marine Contractors Ltd. v. Ringway Infrastructure Services Ltd [2010] EWHC 283 (TCC), [2010] BLR 377, in which an adjudicator was held entitled given his power to take the initiative in determining the law, to reject both parties’ agreement that a method statement was a contract document; Herbosh-Kiere Marine Contractors Ltd. v. Dover Harbour Board [2012] EWHC 84 (TCC) in which an adjudicator’s decision was not enforced because , inter alia, he had breached the rules of natural justice by deciding the case not only on a basis not argued by either party at any stage but also without giving each party the opportunity to make submissions at least on the method of assessment which the adjudicator considered that he should adopt; Roe Brickwork Ltd v Wates Construction Ltd [2013] EWHC 3417 (TCC), in which Mr Justice Edwards Stuart held that:
‘there is no rule that a judge, arbitrator or adjudicator must decide a case only by accepting the submissions of one party or the other. An adjudicator can reach a decision on a point of importance on the material before him on a basis for which neither party has contended, provided that the parties were aware of the relevant material and the issues to which it gave rise had been fairly canvassed before the adjudicator’;
Hillcrest Homes Ltd. v. Beresford and Curbishley Ltd [2014] EWHC 280 (TCC), in which HHJ Raynor QC decided that the Adjudicator had determined the issue of whether a Novation Agreement was void on a basis which had not been put forward by either party and which Hillcrest had had no opportunity to address. On that basis, there was a material failure to comply with the rules of natural justice rendering the adjudicator’s decision unenforceable; Corebuild Ltd v. Cleaver and another [2019] EWHC 2170 (TCC), in which an adjudicator decided a dispute on a factual basis that had not been adverted to by him or argued by the parties; Liverpool City Council v. Vital Infrastructure Asset Management [2022] EWHC 1235 (TCC); Van Oord UK Ltd. v. Dragados UK Ltd. [2022] ScotCS CSOH_30, in which an adjudicator who did not fully accept the views of either delay expert chose a baseline programme that neither expert had proposed and that both had actually rejected (with justification given) and in so doing selected a critical date that was not canvassed by either party. Dragados argued that he was not entitled to do that, having failed to make the parties aware of what he was contemplating and thereby deprived them of the opportunity to address his findings. The court agreed, with the judge pointing out that the adjudicator's approach may have been amended had Dragados been given the opportunity to submit a defence.
WCS Engineering Construction Pte Ltd v. Glaziers Engineering Pte Ltd [2018] SGCH 28 (requiring, in wrongly dismissing a claim for set-off, proof beyond reasonable doubt without soliciting or receiving submissions from either party on what standard of proof should appropriately be adopted).
To hide behind the excuse that our system of law is adversarial and therefore justifies the adjudicator in arriving at a wrong answer based upon the parties’ chosen grounds of argument appears untenable. It is also intellectually dishonest.
It was EDC’s submission that the consequence of Mallino’s appointment of another contractor without complying with the terms of the Variation Agreement was that EDC’s employment under the Building Contract did not continue, meaning that the appropriate measure of damages was the loss of the whole of the profit and/or overhead contribution that it alleged would have been part of its price for the Section 3 Works. That seemed questionable. I therefore asked the parties to re-consider whether in reality any Mallino breach in failing to re-tender the Section 3 Works was that EDC may or may not have secured the New Contract, and that what EDC was deprived of by reason of that failure was the opportunity to compete; in essence the loss of a chance. Mallino was under obligation to issue tenders for the Section 3 works and to invite EDC to tender for the same, which it admittedly failed to do. Any measure of any EDC loss had to be by reference to that failure.
In the event, in the adjudication this turned out to be advantageous to Mallino. Significantly, in the litigation Mallino chose to advance that very argument in response to EDC’s primary contention that the court should conclude that EDC would have been the contractor for the rest of the works.
Measure of loss
EDC’s primary case was, in the adjudication as well as in court, that EDC would have been the contractor for the rest of the works and that it should in consequence recover the entirety of its Counterclaim without deduction for the loss of a chance/the risk that it would not have won the contract (judgment at [35] to [37]).
The judge said, consistent with the findings in the adjudication:
“I consider that on the evidence that goes too far. EDC’s success in any re-tendering exercise could not be regarded as a dead certainty on the balance of probabilities. There was always a risk that another contractor might enter the race or that PIN-CM might have produced a more competitive price.”
Other matters
A number of other matters were also influential in the decisions made in the adjudications, such as conduct of the parties, and the context in which the Variation Agreement - which provided the focus of the dispute - had been secured. Given the confidential nature of adjudication, it would be inappropriate to go into their detail.
The extent, if at all, that those matters may have influenced the judge in arriving at his findings is unclear, although as no reference was explicitly made to them in the judgment one must assume that they were considered either unnecessary or not relevant to the issues before the court.
Franco Mastrandrea, Partner, HKA
- 1Hollington v. F. Hewthorn & Co. Ltd [1943] KB 587, CA. Cf. Hui Chi-Ming v. R. [1992] 1 AC 34
- 2See, for example, Lord Hoffmann in Arthur JS Hall & Co. v. Simons and Barratt et al [2002] 1 AC 615, [2000] 3 WLR 543, [2000] 3 All ER 673, [2000] BLR 407, HL
- 3See, for example, Crypto Open Patent Alliance v Wright [2021] EWHC 3440 (Ch).
- 4The same powers exist in Scotland (the Scheme for Construction Contracts (Scotland) Regulations 1998), and Northern Ireland (the Scheme for Construction Contracts in Northern Ireland Regulations (Northern Ireland) 1999).
- 5For other adjudication examples where, in acting as adjudicator, I have felt it appropriate or compelled, lest I should make the wrong decision, to raise such issues as part of my powers to take the initiative, see the following reported cases: