BDW Trading Ltd v Ardmore Construction Ltd [2024] EWHC 3235: The first ruling on whether a 20-year-old fire safety defects claim can be referred to adjudication.
This is the first judgment to consider whether an adjudicator has jurisdiction to determine a claim under the Defective Premises Act 1972 (DPA). The claim was for the costs of rectifying historic fire safety defects, where the time for bringing the claim had been retrospectively extended by way of section 135 of the Building Safety Act 2022 (BSA) to 30 years.
Background
Basingstoke Property Company Limited (BPCL) engaged Ardmore Construction Limited (Ardmore) by way of an amended JCT 1998 Standard Form of Building Contract With Contractor's Design relating to apartments (the Contract). Practical completion (PC) occurred between December 2003 and June 2004. Subsequently BPCL assigned its interest and rights under the Contract to BDW Trading Limited (BDW).
The Contract included the standard wording in the JCT form of contract that disputes or differences 'under' the contract could be referred to adjudication. This is the same wording used in s108 of the Housing Grants, Construction and Regeneration Act 1996 (the Construction Act) providing the statutory right to adjudicate disputes under a 'construction contract'. In contrast the standard wording for the arbitration clause in the JCT forms refers to disputes 'arising under…or in connection' with the contract.
Following the pattern of many fire safety disputes, in the wake of the Grenfell tragedy, BDW undertook investigations into the cladding materials and discovered that the development was missing cavity barriers and brought a claim against Ardmore for the costs of the remedial works.
The Defective Premises Act 1972
Section 1 of the DPA imposes a duty on those taking on work for or in connection with the provision of a dwelling to see the work 'is done in a workmanlike or, as the case may be, professional manner, with proper materials and so that as regards that work the dwelling will be fit for habitation when completed.' This duty is owed to the developer and those with an equitable or legal interest in the dwelling.
Case law has established that these three elements form a single composite duty. In other words, even if the designer or contractor failed to carry out work in a workmanlike or professional manner or with proper materials, that would not amount to a breach of the DPA unless the dwelling was also unfit for habitation. This duty may not be excluded or restricted by the parties in their contract (s6(3) DPA).
Historically, there were few claims brought under the DPA, as the limitation period was 6 years from completion and there was the additional hurdle of showing the defects had rendered the dwelling unfit for habitation. However, following enactment of the BSA, which took effect on 28 June 2022, the time period for bringing a claim was extended from six years for a claim for breach of the s1 duty to 15 years prospectively and 30 years retrospectively (i.e., going back to 1992), which is substantially longer than the period a breach of contract claim can be brought (being 6 years from the breach under a simple contract or 12 years under a deed).
The only caveats to this extension is that a claim which has previously been settled or finally determined by a court or arbitration cannot be revived and a claim will be dismissed if the court concludes it breaches the defendant's human rights.
The Adjudication
Emboldened by the extension to the DPA's limitation period, BDW referred a dispute relating to fire safety defects to adjudication on 21 March 2024, some 20 years after PC. The adjudicator, in his temporary binding decision, accepted that there was a right to adjudicate and awarded BDW circa. £14.5m in damages for the replacement cladding scheme.
Ardmore did not pay the sum awarded and sought to resist enforcement of the decision. They argued that the adjudicator did not have jurisdiction to determine the DPA claim, as it was not a claim 'arising under' the contract, and that the decision was unenforceable because it amounted to a breach of natural justice.
Judgement
Ardmore argued it could not have a fair hearing given the lack of documentation it had maintained in relation to this project due to the passage of time. While the judge acknowledged,
'the longer the period since the works in respect of which complaint is made, the more careful the court will need to be in scrutinising any complaint of unfairness',
in this case, the natural justice challenge failed as it was not proven to be material. This was partly due to Ardmore's own record keeping policies and failure to investigate the claim earlier and partly because during the adjudication BDW produced relevant documents which Ardmore had requested. While Ardmore raised a natural justice challenge, they don’t seem to have claimed these issues amounted to a breach of human rights.
The key conclusion of the court that will be of interest to many is that the contractual adjudication clause (which matched the statutory wording), referring to disputes arising under the contract, should be interpreted broadly so that it included DPA claims. The court referred to the 'Fiona Trust' principles which apply to arbitration clauses and provide for such clauses to be interpreted broadly. It held there should be no distinction between clauses referring to disputes 'under' and those referring to disputes 'arising out of' or 'in connection with' a contract. Furthermore, commercial common sense suggests that contracting parties would want to be able to refer any dispute arising out of their relationship to adjudication, unless it is clear from the wording that some disputes were excluded.
Conclusion
We were already seeing an influx of DPA claims, given the extended limitation periods, and commentators predict we will now see more, especially those related to fire safety defects, referred to adjudication to take advantage of this quicker and less expensive alternative to litigation. Whether adjudication is the correct forum for such claims is a topic for another day!
However, this case does not mean that all DPA claims can be adjudicated; there must also be a statutory or contractual right to adjudicate the dispute. Claims under section 1 of the DPA are limited to residential developments, and the statutory right to adjudicate only arises under a 'construction contract'. So, whilst purchasers of the freehold and leasehold interests in residential developments may bring claims under the DPA, they may not have a contractual or statutory right to adjudicate the dispute. As claims could be brought in respect of developments completed as far back as 1992, and the statutory right to adjudicate only applied to 'construction contracts' entered into on or after 1 May 1998, there may also be 'construction contracts' which do not contain a right to adjudicate. We would suggest that future claims are likely to be brought in similar circumstances to this case; by a developer against a contractor (or designer) after the limitation period for a breach of contract claim has expired.
Given the well-known challenges of preparing a response in the compressed timetable of adjudication, which are only increased when dealing with a claim that arose 20 years ago or more, and the size of the potential award for these types of claims, contractors and design professionals who face a potential claim should ensure they maintain sufficient records and do not delay in dealing with any notified claim.
The judgment was particularly interesting as there had been previous caselaw which provided that misrepresentation claims could not be adjudicated under contracts containing the same wording (Hillcrest Homes Ltd v Beresford & Curbishley Ltd [2014]) , as such a claim was not a dispute 'arising under' the contract. Ardmore have now been granted permission to appeal the decision, so watch this space!
