England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Rolls Building
		14th June 2016

MR. JUSTICE FLAUX:

1. The defendant in this case, Marketing Ways Services Ltd., which is a Saudi Arabian company, was the main contractor on a major project for the Ministry of Municipality and Rural Affairs (which I will describe as 'MOMRA') of the Kingdom of Saudi Arabia for the delivery of a slaughterhouse waste treatment facility in Mina, Saudi Arabia, which, amongst other purposes, was to be used for the incineration of animal waste following the Hajj Pilgrimage in each of the years from 2014 onwards.
2. The first claimant, Todaysure Matthews Ltd., is an English registered company. It is now a subsidiary or related company of the second claimant, Matthews International Corporation, which is a United States corporation, as its name suggests. The second claimant was included in these proceedings because of a concern that an issue might arise as to which claimant was the correct claimant for the purposes of at least one of the claims but, as the matter has proceeded, it is quite clear that it is the first claimant which is the correct claimant throughout. In those circumstances, I will proceed without any need to differentiate between the two claimants.
3. The first claimant was the subcontractor for the defendant in relation to the manufacture and supply of the incinerator systems to be installed in the facility. That subcontract was contained in or evidenced by a purchase order dated 5 March 2014, issued by the defendant, which contained the following terms: the "Delivery address", provided: "Shipping to be arranged by the client who will provide Todaysure Matthews Ltd. with advanced notice in line with TML's programme of works (attached)". Then it was described as subject to "Incoterm: exworks Todaysure Matthews Ltd." The payment terms were 30 days from receipt of invoice; 50 percent on order; 10 percent 30 days; 10 percent 60 days; 10 percent 90 days; 10 percent 120 days from the date of order, 10 percent to be withheld until the project was signed off.
4. Although the scope of supply or works on the second page of the purchase order described the scope of the work as "the manufacture and installation of two rotary kiln incineration facilities", it is quite clear from the evidence that is before the court, including the sworn evidence of Mr. Schofield, the managing director of the first claimant, and Mr. Paul Rahill, who is the president of the Cremation Division of the second claimant, that the inclusion in the purchase order of the words "and installation" were in error. Although the first claimant had been asked initially to quote for installation, and for that matter for shipping, in the event the first claimant was requested not to include that in the works for which the subcontract provided. That is borne out by the fact that the contract price shown in the purchase order of £8,570,000 was the figure which the first claimant had quoted for the manufacture of the incinerators, not for their installation.
5. The position was that the project proved to be somewhat troublesome from the very outset. When, in due course, proceedings were commenced by the claimants the defendant not only put in a defence but also sought to make a counterclaim (which I will return to later in this judgment). However, following the defendant's solicitors coming off the record, the defendant has not taken any part in this trial. Nonetheless, on the material that is before the court, I am entirely satisfied that the defendant has been well aware that the trial of this matter was to take place on 14 June and following days and is on notice that the trial is taking place. In those circumstances, at the request of Mr. David Quest QC, on behalf of the claimants, I acceded to his application that I should proceed to try the case on the merits notwithstanding the absence of the defendant.
6. I will set out such part of the chronology of events as is necessary for the purposes of determining whether or not the claimants are entitled to judgment on their claims. The claimants began the fabrication of the incinerators during the course of the months of March, April and May 2014. What happened is that MOMRA sent a consultant, called Mr. Voss, to visit various subcontractors, including the first claimant. He produced a report, which is in the bundles before the court, which set out, amongst other things, the contractual position and made it quite clear that the claimants were only undertaking the fabrication of the incinerators and not their installation, commissioning or testing. It was also stated by the claimants to Mr. Voss that the contract did not include shipping and that they were awaiting shipping information from the defendant. They also stated that the incinerators would be ready for shipment by 4 July 2014.
7. That report caused some consternation on the part of the defendant, who wrote a detailed letter to the claimants raising matters of complaint and concern about packing and shipping and installation and commissioning, the upshot of which was that there was a meeting on 7 June 2014 attended by representatives of the defendant, including Mr. Boylan, and both Mr. Schofield and Mr. Rahill to discuss issues as to the scope of the contract. This is described by Mr. Schofield in his witness statement, in relation to which he has confirmed the truth of the contents of his statement. I see no reason not to accept his evidence, which states in para.59 of the statement:

"This meeting of 7^th June 2014 was set up to clarify, among other things, TSM's scope of works, in particular the shipping of the equipment. At the meeting it was confirmed by Mr. Boylan that the installation of the incinerators was not part of TSM's scope and would be carried out by a subcontractor engaged by MWS under the supervision of TSM. There was no ambiguity in my mind with regards to the shipping of the equipment. This was withdrawn from TSM's scope and it was agreed that it was MWS's responsibility to pack and collect from the source of the manufacture and deliver the equipment to the project site".

It is not necessary to read any more. It is quite clear from that evidence that it was agreed between the parties at the meeting on 7 June 2014 that installation, packing and shipping did not form part of the scope of the work which was being undertaken by the claimants pursuant to the subcontract. If there were any doubt about that (which there is not) it was also confirmed quite clearly in the exchange of emails which took place the following day, 8 June 2014.

8. There was, however, discussion between the parties about the claimants providing supervision of the installation which would take place. This is a matter which is dealt with by Mr. Rahill in his witness statement at para.54 and 55, where he describes a subsequent meeting on 1 and 2 July 2014 in Italy, which was attended by himself and Mr. Schofield, together with, amongst other people, a gentleman called Mr. Gemmell of Dynamo who were subcontractors for the defendant. One of the outcomes of the meeting was that it was decided that the installation supervision would be provided by the claimants, but at a fee for doing so.
9. On 5 June 2014 it had also been agreed, following a further exchange of emails between the parties, that the claimants would take such steps as they could to expedite the fabrication work, always on the basis that the defendant would pay for those extra costs of expedition. As a consequence, the claimants were able to procure that at least a majority of their subcontractors expedited the work and therefore the incinerators themselves were ready for shipment on 29 June 2014. It is fair to say that the equipment which had been manufactured by the claimants pursuant to the contract was to be shipped from a number of different locations, including the second claimant's manufacturing facility in Florida, and although one of the points that is taken by the defendant in the counterclaim is that the goods were to be delivered by the first claimant ex its works in Cheshire, in my judgment, it is quite clear that throughout the defendant was well aware that different equipment, including the major items, were to be fabricated elsewhere; in the case of the major items, in Florida. The defendant arranged for shipment from the different locations without demur. There was never any suggestion that there was a requirement that all goods should be available for shipment from the premises in Cheshire and, in any event, there is no evidence before the court from the defendant that it incurred any loss as a consequence of having to ship from Florida rather than from the United Kingdom to Saudi Arabia.
10. The equipment in question began to arrive in Saudi Arabia on 3 August 2014, and the project team from the claimants arrived at around the same time. It became rapidly apparent that there were major problems in the sense that none of the civil works for which the defendant and its subcontractors were responsible, such as the preparing and levelling of the site and the building of the bunkers in which the animal waste was to be stored prior to incineration, had been carried out and none of the work to build the housing for the incinerators, and the cooling and ventilation, all of which should have been completed by 11 July 2014, had in fact been carried out at all.
11. , As a consequence of that, on 10 August 2014 Mr. Rahill wrote a detailed letter to the defendant setting out the delays that were caused by the fact that the site was not prepared in any way. There was never any response to that disputing anything that Mr. Rahill said, and I am quite satisfied that the conditions as described by him in that letter represented the position as it was in August 2014.
12. The claimants were also pressing for payment, which had not been made in accordance with the terms of the contract. Over the next few weeks Mr. Rahill, in particular, continued to press Mr. Mattar, the president and chief executive officer of the defendant, in relation to the non-payment of the outstanding invoices. That culminated in an email from Mr. Schofield to Mr. Mattar on 8 September 2014 in which he said that he had just returned from a week's holiday and he had noted that the issue of late payments had still not been resolved. He said:

"As there is an air of nervousness brewing, can you confirm what is the situation with release of these overdue monies? Is there a problem? Can you give me an update?"

There was no response to that, nor was there any suggestion that monies were being withheld by reason of any failure in performance on the part of the claimants. It is quite clear that, even if any such allegation had been made, it would have been wholly without merit.

13. A meeting was arranged for 17 September 2014 in Saudi Arabia and Mr. Rahill and Mr. Schofield flew out to Riyadh to meet Mr. Mattar. Much to their consternation and surprise, when they landed they discovered that the defendant had in fact made a demand on the performance guarantee, which had been issued to the defendant by the National Commercial Bank in Riyadh, against a counter-guarantee from the Royal Bank of Scotland, which in turn had obtained a standby letter of credit issued by RBS Citizens NA on the application of the second claimant. That performance guarantee was one which, in the usual way, would entitle the defendant to make a demand for the full amount of the price in the event that there was an issue about performance, but it was in terms that in the event that there was a dispute, there would have to be a final accounting between the parties as to what, if any, sums were due under the performance guarantee. It is accepted by the defendant, by way of admission in the defence, that that is the form of guarantee which this was and that, in the circumstances, it must follow from that that unless there is any merit in the counterclaim the defendant was never entitled to call on the performance guarantee and the claimants are entitled to be repaid. At all events, although that guarantee was called on by the defendants, when Mr. Mattar was challenged by Mr. Rahill in September 2014, Mr. Mattar originally denied having made a demand (which is plainly a lie). Eventually he accepted that he had made a demand, but he was completely unable to provide any explanation for doing so. That led to the claimants issuing the present proceedings in September 2014. They sought and obtained an interlocutory injunction to restrain any further activity on the guarantee, including payment thereunder, and eventually the parties agreed that the injunction should be replaced by a consent order.
14. The consent order, dated 21^st October 2014, provided that the defendants would not make or pursue any demand under the performance guarantee unless it first requested the issuing bank (the National Commercial Bank) to pay the amount direct to the defendant's solicitors, who would then pay it into court. If, notwithstanding that, the defendant received any money directly from NCB, under or in respect of the performance guarantee, it would pay those sums to the solicitors. Obviously, the intention of that consent order was that any money that was paid out by the bank pursuant to the demand that had been made would be held, in the first instance, by the defendant's solicitors, who were King & Wood Mallesons, and then paid by them into court. For reasons which I will come to in a little while, that did not happen.
15. The position on site was that towards the end of September 2014, just before the Hajj Pilgrimage, for logistical reasons the claimants' staff were asked by MOMRA to leave the site, the intention being that they would return to the site to continue the supervision of the installation after the Hajj Pilgrimage. That did not prove possible because the defendant, which was the project sponsor of the claimants for immigration purposes, failed to obtain the necessary permits for the claimants to access the site after the Hajj Pilgrimage, and that was notwithstanding repeated requests by the claimants. By this stage it is quite clear that relations between the claimants and the defendant had broken down.
16. On 17 December 2014 there was a meeting between the parties and MOMRA in Riyadh, at which MOMRA encouraged the parties to find a way of completing the work. The claimants agreed to return to site and to take on the responsibility for some of the installation work on the basis that MOMRA agreed that they would be responsible for paying the claimants for that installation work. Although the cost of that installation work, or the fees that the claimants charge for it, originally formed part of the claim made against the defendant in the action, that claim has no longer been pursued by the claimants before me because they have correctly recognised that any claim that they can make is one which should be made against the Ministry and not against the defendant.
17. At the case management conference before me on 30 April 2015, the defendant intimated an intention to amend its pleading to allege failures by the claimants to complete installation of the facilities by 31 January 2015, and their commissioning and testing and handover by 28 February 2015. It is correct that the defendant did then subsequently amend the pleading to raise that allegation by way of counterclaim. It is no doubt for that reason that the matter was dealt with at some length in the witness statements of the claimants' witnesses, all of whom came and gave evidence before me and deposed to the truth of their statements on oath. However, the defendant has produced no evidence in these proceedings whatsoever in support of the counterclaim and, in particular, has produced no evidence in support of that aspect of the counterclaim.
18. In the circumstances, as I say, although there is detailed evidence given by the witnesses, other than recording that I am quite satisfied, having read that evidence, that there is absolutely no substance whatsoever in the allegation made by the defendant of failure to complete installation and commissioning by certain dates, it is not necessary in order to deal with the claimants' claims, or to otherwise deal with the counterclaim, to go into the detail of events after the return of the claimants' staff to the site in January 2015. As I have already recorded earlier in this judgment, the reason for the delay in return to the site was entirely the fault of the defendant because the defendant had failed to provide the necessary permits. It would follow from that that, in any event, even if the point about late installation were arguable, one suspects that one complete answer to it is that the claimants were not permitted to come back on site until such time as those dates could never have been achieved. But, as I say, given that no evidence is put forward by the defendant in support of that aspect of the counterclaim, it is not necessary to proceed further.
19. The defendant did purport to terminate the contract in August 2015 and threatened a further amendment in relation to that termination, but that amendment was never pursued and by that stage, or soon thereafter, the defendant effectively ceased to be involved in the proceedings.
20. It follows, therefore, that the court is dealing with, in the first instance, claims which are essentially extremely straightforward. The first claim is a claim for the balance of the price. The position is that of the 90 percent which is due, the final 10 percent not being due until after commissioning and completion which is yet to occur because the project appears not to have been completed, the claimant has only paid 70 percent and therefore a 20 percent figure of £1,714,000 is outstanding. The only conceivable defence to the claim for the payment of that balance of price would be the counterclaim and, for reasons which I will come onto in a moment, there is no substance in any of the counterclaim and, in those circumstances, the claimants are clearly entitled to recover that balance of the price.
21. The second item of claim is the cost of the expediting of the fabrication works which, as I have said, the defendant undertook to pay. Mr. Rahill confirmed on oath that the figure of £465,973, represented in an invoice dated 15 August 2014, was in respect of those costs of expedition and I accept that evidence. It follows that, again subject to any issues to do with the counterclaim, that figure is recoverable.
22. So far as the supervision of installation is concerned, again it was agreed that that would be undertaken by the claimants but only on the basis that the defendant would pay for it. Invoices have been produced by Mr. Rahill which come to a total figure of £316,583, and again Mr. Rahill has deposed as to the accuracy of those invoices and I accept that evidence.
23. Before turning to the claim in respect of the return of the monies in relation to the performance guarantee, which I will come to in a moment because it gives rise to a further aspect of the story, I shall deal relatively briefly with the counterclaim. As I have indicated, the defendant has not adduced any evidence at all in support of the counterclaim and for that reason alone the counterclaim would have to be dismissed. But even when it is analysed and the defendant is given the benefit of any doubt there might have been if it had produced any evidence, each of the aspects of the counterclaim is misconceived.
24. I take the various heads of the counterclaim from the list of issues agreed between the parties for the purposes of the case management conference. The first head was whether the claimants were in breach of the subcontract by delivering the incinerators in Florida rather than in the United Kingdom. I have already dealt with that point because I have already indicated that the defendant was well aware that the incinerators were going to be manufactured in Florida. The defendant accepted their delivery ex the works in Florida and arranged shipment from Florida without any complaint, nor has the defendant demonstrated any loss as a consequence of shipment from Florida rather than the United Kingdom.
25. The second head is failure to package the equipment. This is a somewhat confused aspect of the counterclaim. It appears to be being said that the claimants were responsible for packing the equipment. The reality is that, whilst the claimants were responsible for the usual packing, for example the insertion of the relevant equipment into containers, the arranging and cost of actual loading and packing on board any ship or other transport was a matter entirely for the defendant. This aspect of the counterclaim really relates to the latter matter, which, as Mr. Quest rightly says, is a confusion of "packaging", on the one hand, and "packing" on the other. It is accepted by the claimants that they were responsible for the packaging, as I have said, such as putting the equipment into the container or wrapping it securely, but the loading and packing of the equipment on the relevant transport (whether it is road transport or the ship) was the responsibility of the defendant as shipper. It follows from that that there is nothing in this aspect of the counterclaim either.
26. The third head is related to the second, failure to provide adequate information in relation to transport from Florida. It is wholly unparticularised and there is simply nothing in that point at all.
27. The fourth head is said to be a breach of contract in failing to install the incinerators at the site. That allegation falls with the defendant's false suggestion that the claimants were responsible for installation. It is quite clear, as I have said, that the scope of works did not include installation. So there is nothing in that point.
28. Likewise the point about provision of interconnecting cables, pipeworks and chiller systems; those were all matters which were either for the defendant or at least for its subcontractors other than the claimants, not a matter for which the claimants assumed any responsibility until after December 2014 when they took on matters at the expense of the Ministry, matters about which the defendant could not complain because they were not the subject of any work which the claimants undertook to carry out pursuant to the subcontract with the defendant.
29. The next head is alleged late delivery of equipment by particular dates. It is true that the rotary seals were delayed and were not delivered to the site until 9 September 2014, but, as Mr. Schofield says in his evidence, they were delivered before they were needed to be used. There were also various other miscellaneous items which were not delivered until later dates, but, in fact, since no civil works had been completed by the time those items were delivered, it would not have been possible to complete the installation so none of that late delivery of individual items caused any delay to the project.
30. There is then an allegation that the claimants were in breach in withdrawing their staff from the site. As I have already said in my findings on the facts, the claimants did withdraw staff from the site at the request of the Ministry at the time of the Hajj, and would have gone back had they been able to obtain the permits which the defendant should have obtained. It follows that there is no question of the claimants being in breach of contract in withdrawing the staff from the site, nor in relation to any delay in putting them back on site.
31. The final head of the counterclaim, which I have already dealt with, is the allegation of failure to complete installation of the facilities by the end of January, and their commissioning by the end of February. I have already indicated that that is wholly unsupported by any evidence and is clearly unsustainable.
32. It follows that the counterclaim must fail.
33. I return then to the position in relation to the performance guarantee. Notwithstanding the consent order, to which I have referred, on 16 February 2015 the National Commercial Bank provided the defendant with a cheque for the sum of £8,570,000 by way of payment under the performance guarantee, drawn on the National Commercial Bank's account at Barclays in the United Kingdom. Unbeknownst at that time to the claimants, and in contumelious breach of the consent order, the defendant presented the cheque and on 25 February 2015 received payment of the proceeds in full. The defendant did not inform the claimants that the cheque had been paid, nor did it pay the proceeds of the cheque to its solicitors pursuant to the consent order. In fact what happened is that Mr. Mattar lied to the claimants, telling them that the cheque had not been presented but was being held securely by the defendant's Saudi Arabian lawyers pending dispute between the defendant and the National Commercial Bank being resolved. Mr. Mattar even swore an affidavit in which he repeated that lie.
34. The claimants eventually discovered the true position from Barclays in January 2016, whereupon they brought contempt proceedings. Those contempt proceedings came before Sir Bernard Eder in March of this year. Mr. Mattar did not attend the hearing. He made a last minute application for an adjournment, which the learned judge refused, and the learned judge was satisfied to the criminal standard of proof that Mr. Mattar was in deliberate breach of the consent order and therefore in contempt of court. The learned judge considered that it was a particularly egregious contempt and that, in the circumstances, it was necessary to impose a sentence of 18 months' imprisonment. That sentence was imposed but the warrant remains outstanding, no doubt because Mr. Mattar has not come within the jurisdiction.
35. It is not necessary to say any more about the performance guarantee, other than, given that the counterclaim has been dismissed, it is obviously the case that the defendant must return the full amount of the guarantee, the full £8,570,000, and there is simply no defence to the claimants' claim for the return of that money.
36. In the circumstances, the claim succeeds in the sum of £11,066,566. The counterclaim is dismissed.
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