Do I not like that

30.07.10

 

This article was written by Ashley Pigott, partner, in Wragge & Co LLP's Dispute Resolution group and published in the July issue of Construction Law.

The Role of Negative Declarations in Construction Cases

Negative declarations are becoming more and more popular it seems in construction particularly in adjudications. A recent example came before the Technology & Construction Court in Buildability Limited v O'Donnell Developments Limited 2009 EWAC 3196 in which the Claimant sought, amongst other things, "a declaration that the Defendant is not entitled to an extension of time".

Hitherto negative declarations have been largely the preserve of the insurance, intellectual property and planning fields of law.

A negative declaration has been described as an "unusual" remedy which would "hardly ever" be made (Guaranty Trust Co of New York v Hannay & Co 1915 2KB at 564-565). However the approach to the exercise of the Court's discretion as to whether or not to grant a negative declaration changed following the case of Messier-Dowty Limited v Sabena 2000 1 WLR 2040 at 2050-51 where Lord Woolf said "that employment of negative declarations should be scrutinised and their use rejected where it would serve no useful purpose. However where a negative declaration would help to ensure that the aims of justice are achieved, the Courts should not be reluctant to grant such declarations. They can and do assist in achieving justice. While negative declarations can perform a positive role, they are an unusual remedy insofar as they reverse the more usual roles of the parties. This can result in procedural complications and possible injustice to an unwilling Defendant. This in itself justifies caution in extending the circumstances when negative declarations were granted, but, subject to the exercise of appropriate circumspection there should be no reluctance to their being granted when it is usual so to do".

In the case of BP International Limited v Energy Infrastructure Group Limited 2003 EWHC 2924 Morrison J said that "proceedings in which the only claims are for negative declaratory relief are no different from any other action save that it is for the Claimant to show that the grant of such a declaration is "useful" in the context of the disputes between the parties. But in every case the Claimant must show that there is a dispute which he "bona fide" desires to try". Negative declarations have been commonly used by insurers where a party may need a declaration as to the meaning of an insurance policy. There have been cases where an insurer needed to know whether or not they were required to conduct the Defence of a threatened claim against an insured.

Negative declarations have also been given to enable developers to proceed without fear of injunction, for example in Greenwich Healthcare NHS Trust v London & Quadrant Housing Trust 1998 1 WLR 1749 Lightman J was persuaded to give a negative declaration.

Similarly in intellectual property cases there have been declarations that there have been no breaches of patent e.g. Arrow Generics Limited and Another v Merck & Co 2007 EWHC 1900.

Lord Woolf in Sabena referred to procedural complications and possible injustice to an unwilling Defendant. In the insurance cases where an insurer seeks the negative declaration along the lines that the policy does not cover the insured for the event complained of, the burden of proof is not reversed simply by the fact that the insurer becomes Claimant.

Concerns have been expressed in the insurance industry about the prospect of injustice being done by, effectively, forcing an insured to litigation when he may not be ready for it.  In "negative tactic that has so far been condoned by the Courts" by Martin in Lloyds List 6 July 2005 it was argued that underwriters had a right "to force, at a time of their own choosing, the assured into making a decision as to whether or not to claim" and the Article warned "if this trend is allowed to proceed unchecked, London's reputation as the World's leading insurance market and reliable forum for the resolution of insurance disputes could be adversely affected".

What then are the possible uses for a negative declaration in the construction field?

One example might be the case where a party needs to determine when a limitation period might expire under a main contract so as to enable them to issue proceedings against a sub-contractor in order to preserve claims against that sub-contractor. 

Another might be where one party, for whatever commercial reason needs to achieve finality on the contract. For example seeking negative declarations that a contractor has no claim for loss and expense or any further extensions of time or possibly where such an application could be used to flush out evidence from a hitherto unwilling Claimant. 

An example from the construction field is the case of Midland Expressway Limited ("MEL") v CAMBBA: (No. 3) 2006 EWHC 1505. In which the contractor had put in a claim for £56 million in respect of alleged mitigation measures taken by the contractor throughout the course of the contract. The employer had then spent over a year with expert planners and had prepared several volumes of expert report setting out the case that the contractor was not delayed by any employer related events.  Shortly after rebutting the contractor's claim in that way the employer commenced adjudication proceedings ("the MEL adjudication") seeking declarations that the contractor had no claim for mitigation measures either in the form submitted or at all. 

The contractor promptly withdrew its claim. Meanwhile another adjudication ("the Department Change adjudication") had been commenced relating to the costs attributable to "Department Changes" i.e. changes instructed by the Secretary of State under the Project Agreement with MEL. In this adjudication CAMBBA joined in as an interested party as they could under their agreement with MEL and said to the Adjudicator that they did not want to have their £56 million mitigation measures claim determined and in particular how much of the £56m caused by Department Changes. because they had withdrawn it. The Adjudicator refused to consider the withdrawn claim calling it a "non dispute". Jackson J in CAMBBA No. 3 agreed that CAMBBA could withdraw their claim saying "It would have been quite wrong to force CAMBBA to press on with a claim for the direct costs of DC11 (Department Change) before that claim had been prepared".

Thus CAMBBA were able to avoid a negative declaration being made in the Department Change adjudication.  However, the Adjudicator in the MEL Adjudication pressed on regardless of the purported withdrawal of the claim.  In the event, after nearly two years of that adjudication he never reached a decision.  However, the declarations sought included that MEL: (1) did not delay CAMBBA; (2) render necessary the alleged mitigation measures and (3) prevent or impede CAMBBA and has no liability to make any payment in connection with [the Department's Change].

The Court did not at any time suggest that such negative declarations were not capable of being made. 

A more recent example of a negative declaration case is Forest Heath District Council v ISG Jackson Limited 2010 EWHC 322. In this case the claimant sought declarations as to who was responsible for the delays caused by a change to a paint specification. The significance being that the claimant had lost an adjudication on the issue and effectively was seeking a final determination by a Part 8 declaration that they were not responsible so as to avoid paying on the adjudication decision. 

Mr Justice Ramsey considered the principles to be applied.

The Court has to consider whether in all the circumstances, it is appropriate to make such an order... it seems to me that, when considering whether to grant a declaration or not, the Court should take into account justice to the claimant, justice to the defendant, whether the declaration would serve a useful purpose and whether there are any other special reasons why or why not the Court should grant the declaration". (quoting Neuberger J in FSA v. Rourke (2002).

As set out by Pumfrey J in Nokia Corporation v Interdigital Technology Corporation 2006 EWHC 802 (PAT) at 20 the relevant principles in relation to negative declarations made be summarised as follows: "(i) the correct approach to the question of whether to grant negative declarations is one of discretion rather than jurisdiction. (ii) the use of negative declarations should be scrutinised and their use rejected where it would serve no useful purpose, but where such a declaration would help ensure that the aims of justice were achieved, the Court should not be reluctant to grant a negative declaration. (iii) before a Court can properly make a negative declaration, the underlying issue must be sufficiently clearly defined to render it properly justicable"". 

Mr Justice Ramsey then applied those principles and said "in the TCC the ability of a party to obtain a declaration on a point of law where there is little dispute of fact, can be a useful means of resolving an important issue between the parties, which, for instance, may assist the parties in resolving a complex dispute by negotiation or ADR.  In the context of adjudication, the resolution of an issue as to jurisdiction may provide a means of avoiding wasted costs of an adjudication: see section 9.4 of the TCC guide.  In addition, in appropriate cases, a declaration under Part 8 might permit a party to obtain a final determination of a dispute which was the subject of a temporarily binding decision by the adjudicator or allow the parties to resolve their differences on the basis that a finding by the Court has shown that an essential part of the adjudicator's decision was wrong".  [Note: the reference to section 9.4 of the TCC guide is a reference to other proceedings arising out of adjudication and includes applications for declaratory relief].

On the facts of the Forest Heath case Mr Justice Ramsey decided that this was not an appropriate case for a negative declaration because there was a substantial dispute of fact and that any declaration would be unlikely to serve a useful purpose given the fact that there were allegations about concurrent delays for various events not necessarily linked to the paintwork specification.  He said "A negative declaration (if it was justified on the facts) that the decision to paint the steelwork on site was not taken as a result of the late finalisation of the steelwork design, would necessarily open up the underlying issues of what, in fact, was the reason for painting the steelwork on site and the delay.  In addition, to make a declaration as to one issue would serve no useful purpose and would not resolve the underlying dispute of the period of culpable delay and entitlement to extension of time under the contract". 

It seems therefore that the TCC has had to deal with negative declarations particularly in relation to adjudication proceedings and that whilst professing a willingness to make such declarations in appropriate cases finding such an appropriate case has proved difficult.  In CAMBBA there was a reluctance to force an unwilling litigant effectively to try and make a case that he was unprepared to make and in Forest Heath the factual basis for the claim was too complex for a negative declaration. 

It seems likely therefore that negative declarations will play a part in adjudication proceedings and the experience is that adjudicators are being asked to make negative declarations more and more.  It is perhaps a moot point as to whether adjudication was intended for such claims.

For further information about this published article, contact Kathryn Hobbs on +44 (0)121 685 2785, Rebecca Davies on +44 (0)121 685 3819, Gayle Redding on +44 (0)121 685 2708 or Rebecca Lum on +44 (0)121 260 9973

This published article may contain information of general interest about current legal issues, but does not give legal advice.