England and Wales High Court (Technology and Construction Court) Decisions

Bovis Lend Lease Ltd v. Braehead Glasgow Ltd [2000] EWHC Technology 108 (19th April, 2000)

Case No: HT/00/35 and 36
IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION
TECHNOLOGY and CONSTRUCTION COURT

Royal Courts of Justice
Strand, London, WC2A 2LL
Date: 19th April 2000

B e f o r e :

THE HON MR JUSTICE DYSON

Mr R FERNYHOUGH QC and Ms F O'FARRELL ( instructed by Messrs Masons of Manchester for the Claimants)
Mr ANDREW WHITE QC (instructed by Messrs Norton Rose for the Defendants)

JUDGMENT

I direct pursuant to CPR Part 39 PD 6.1 that no official shorthand note shall be taken of this judgment and that copies of this version may be treated as authentic, subject to editorial corrections

The Hon. Mr Justice Dyson

Mr Justice Dyson:

1. ("Bovis") as contractor and Braehead Glasgow Limited ("Braehead") as employer for the design and construction of a shopping and leisure centre at Braehead, Glasgow. MPM Capita ("MPM") was appointed by Braehead as Employer's Agent. The duties of MPM included monitoring Bovis' work, and issuing certificates authorising payment. Messrs Cyril Sweet were appointed as Braehead's Quantity Surveyors for the purposes of the project. Their role included valuing the work as it proceeded and making valuation recommendations to MPM. There are before me applications by Bovis for summary relief in respect of two interim applications for payment, nos 53 and 54. The sums claimed (excluding interest and VAT) are respectively £2.2M and £6,645,619, ie a total of £8,845,619 excluding VAT and interest. Bovis claims these sums pursuant to Part 24 of the CPR, or alternatively seeks interim payments pursuant to Part 25. Braehead resists these applications on the grounds that (a) it is arguably entitled to deduct LADs of £6.955M for late completion, and/or (b) it is entitled to set off a counterclaim for damages for other breaches of contract. It has provisionally quantified these damages in a sum exceeding £16M. The allegations are that Bovis failed properly to manage the works, failed to exercise proper cost control, and is responsible for extensive defective work.

2. Bovis contends that these other claims for damages are wholly without foundation. As for the asserted right to deduct LADs, at most Bovis makes a modest concession. On any view, it is said on behalf of Bovis that it is entitled to recover several million pounds at this stage. It should be said at the outset that this is interlocutory litigation on a massive scale. There are 13 lever arch files bulging with documents. There are various witness statements, several of which exceed 50 pages in length. At first sight, this is not promising territory for an application for summary judgment or for an interim payment.

3. The correct approach to Part 24 applications has been the subject of guidance from the Court of Appeal in Swain v Hillman, a decision of 21 October 1999. It was held that the words "no real prospect of being successful or succeeding" speak for themselves and do not need amplification. The word "real" is to be contrasted with "fanciful". Lord Woolf MR said: "Useful though the power is under Part 24, it is important that it is kept to its proper role. It is not meant to dispense with the need for a trial where there are issues which should be investigated at the trial. As Mr Bidder put it in his submissions, the proper disposal of an issue under Part 24 does not involve the judge conducting a mini trial. That is not the object of the provisions. It is to enable cases, where there is no real prospect of success either way, to be disposed of summarily". Judge LJ said: "If there is a real prospect of success, the discretion to give summary judgment does not arise merely because the court concludes that success is improbable."

4. With that introduction, I turn to the issues that have been argued before me.

Liquidated and ascertained damages

5. I shall start with the issue of LADs. Clause 26 of the contract entitled Braehead to LADs in the event that the works were not completed by the sectional completion dates identified in the contract. There have been no formal grants of extension of time. The figure of £6.955M has been calculated on the basis that there has been no award of any extension of time, and that none is due.

6. Bovis asserts that Braehead is not entitled to deduct or recover any LADs at all since it contends that it is entitled to full extensions of time in respect of both sectional and project completion. It accepts, however, that it is arguable that it may not be entitled to a full extension of time. Its case for the purposes of these applications is as follows:

1. a partial extension of time was awarded or agreed to be awarded as a result of the meeting held on 5 March 1999;
2. any delays to completion were caused by sub-contractors of Bovis, and pursuant to clause 19.2 of the contract, Braehead were not entitled to deduct LADs in respect of that delay;
3. Braehead is not entitled to LADs because it failed to make a requirement in writing pursuant to clause 24.2 of the contract. Further, or alternatively, it is not entitled to LADs in respect of the delayed completion of some sections of the works, because it failed to issue a notice of failure to complete in accordance with clause 24.1.

7. I shall take these points on turn.

(a) Partial extension of time

8. It is conceded, subject to point (c), that even if Bovis were to succeed on the partial extension of time point, it would still be liable to Braehead in LADs in the sum of £3.8M. There is a great deal of evidence and documentation before me as to whether it was agreed that an extension of time should be awarded at least up to 31 August 1999 in respect of certain sections of the work and the whole Project. Bovis contends that such an agreement was made. Braehead disagrees. I bear in mind the nature of these proceedings, and the fact that it is not appropriate for me to attempt to resolve disputed questions of fact. It is not, therefore, right for me to review the evidence in great detail. I shall, however, consider it in outline.

9. In November 1998, Bovis was saying that it would not be able to complete the Project until 31 August 1999, ie 4 weeks late. The principal reasons that it advanced were (a) delays due to poor performance by Harty (the cladding subcontractor that took over on the demise by liquidation of Harmon), and (b) additional work that had been requested to the Leisure Centre, which was part of Section 7 of the works. On 27 November, Bovis formally requested an extension of time of 31 days up to 31 August. On 28 January 1999, MPM responded saying that they had been given been given insufficient detail to support a formal notice for an extension of time. Nevertheless, MPM said that they were prepared to recommend to Braehead that adjustments be made to the Sectional Completion Dates to take account of all events up to 31 December 1998.

10. On 5 March, an important meeting took place. The notes of Mr Downie (Bovis' Commercial Manager) record that it was agreed that MPM would issue an instruction for an extension of time for agreement by Bovis, and thereafter, Cyril Sweet would agree adjustment of preliminaries on that basis. The notes of Mr Danks (Braehead's Project Manager) record that the project completion date should be extended to 31 August. Mr Danks has explained in his witness statement that the purpose of the meeting was not to deal with Bovis' claim for an extension of time under the terms of the contract. Rather it was to see whether a commercial deal could be done in relation to an extension of time without the need for a fully particularised application by Bovis, or a detailed analysis of such an application by MPM and Braehead. He says that Braehead made a commercial offer to extend the time for completion of sections 1 to 6 and the Leisure element of ection 7. There was agreement that the Mall element of Section 2 and the Leisure element of Section 7 should be extended to 31 August, but that is as far as it went. At that time, he says that Bovis was advising that there was still a real prospect of completing the Project (save for the Mall element of section 2 and the Leisure element of section 7) by 31 July.

11. The evidence of Mr Danks about the meeting of 5 March is to a large extent supported by Mr Adams of MPM, although there are differences on matters of detail. In particular, he confirms that the purpose of the meeting was to discuss a possible commercial settlement in relation to the extension of time issues. He says that no agreement was reached. He was asked to advise Braehead whether a 4 week extension would be a reasonable commercial deal. Thus it was that on 25 March, he issued RCE 296. This he did in order to obtain costs from Bovis in relation to revised completion dates which could form the basis of a commercial settlement. The dates were those that had been provided by Bovis in Decemebr 1998. He insists that RCE 296 was not intended to be, and was not, a recommendation to Braehead as to what extension of time to award under the contract.

12. On 7 July 1999, Bovis agreed the extensions of time stated in RCE 296, but reserved their rights to claim more. Thereafter, Cyril Sweet agreed with a Bovis representative to pay additional preliminaries on the basis of an extension of time of four and a half weeks. These additional preliminaries were certified in Valuation No 52. Bovis relies on this agreement as showing that the issue of RCE 296 was, in effect, the grant of extensions of time under the contract. On the other hand, Braehead relies on correspondence such as the letter by Bovis dated 25 May as indicating that Bovis well understood that RCE 296 was no such thing, and that there was no binding agreement to grant extensions of time.

13. Mr Fernyhough QC relies on yet further documents in support of his argument. For example, there is the letter from Mr Danks dated 8 November 1999, in which he says "On the question of extension of time it was agreed in March that an extension to the end of August would be given, and MPM will now issue the appropriate notice confirming this, after which I suggest that we at last finalise the formal Deed of Amendment....This proposal is put forward as a package and I believe represents a reasonable way to progress matters". A Deed of Amendment had been put forward by Braehead in August as the way of dealing with the various matters that were under discussion. These included changes to the sections, and the completion dates. It is at least arguable that Mr Danks was not intending to resile from the position that he had previously held that, on the information currently provided by Bovis, the grant of an extension of time could only be made as part of a commercial package.

14. I agree with Mr White QC that there is plainly a serious issue of fact about what agreement, if any, was reached in relation to extensions of time. Each party is able to find support for the forensic points that it wishes to make. But I cannot say that there is no real prospect that the evidence of the Braehead witnesses on this issue will be accepted after a full trial, when they have been cross-examined, and all the relevant material has been considered in detail.

15. Mr Fernyhough also submits that the evidence shows at the very least that Bovis were entitled as a minimum to the extensions of time set out in RCE 296. He says that no Braehead witness asserts otherwise. But there is substantial evidence in the witness statement of Mr Adams of MPM to the effect that no entitlement to an extension of time under the contract has been made out by Bovis: see paras 90, and 124-145 of his statement.

(b) Delays caused by sub-contractors

16. It is not clear how much of the delay is said by Bovis to have been caused by sub-contractors, and in particular the cladding sub-contractors. Bovis is not entitled to an extension of time for delay caused by sub-contractors. Clause 19.2 of the contract precludes the deduction of LADs by Braehead from Bovis where delay has been caused by a sub-contractor, save to the extent that such sums have been recovered by Bovis from the defaulting sub-contractor. Bovis asserts that if, contrary to its primary case, there were any delays for which it is not entitled to an extension of time, then these delays were caused by its sub-contractors, notably its cladding sub-contractors. That being so, Braehead is not entitled to deduct LADs save to the extent that Bovis has recovered such LADs from the culpable sub-contractor. It is submitted that, since there has been no such recovery from any sub-contractor, Braehead is not entitled to LADs.

17. The short answer to this point is there is an issue as to whether any delay was caused by the cladding or any other sub-contractors. This matter is dealt with in the witness statements of Mr Danks, Adams and Leslie. In short, they assert that the delays to the project were caused by Bovis and its sub-consultants, and not by its sub-contractors. On behalf of Bovis, Mr Downie contests this view of the facts. He may be right. In his second statement, he makes what appear to be good forensic comments on some of the correspondence. The factual inquiry that will have to be undertaken at trial will be complex. It is impossible for me at this stage to form any view as to the likely outcome of this issue.

(c) Lack of clause 24 notices

18. It is common ground that clause 24 imposes two conditions precedent to Braehead's right to receive LADs. The first is that it shall have issued a notice in writing of failure to complete a Section by the Sectional Completion Date. The second is that Braehead shall have made a requirement in writing. Clause 24.2 provides: "subject to the issue of any notice under clause 24.1 the Contractor shall, as the Employer may require in writing not later than the date when the Final Statement (or as the case may be, the Employer's Final Statement) becomes conclusive as to the balance due between the parties....pay or allow to the Employer liquidated and ascertained damages at the rate stated in Appendix 1...for the period between the Completion Date of a Section and the date of practical completion of such Section".

19. It is accepted by Mr Fernyhough that valid notices under clause 24.1 were issued in respect of each Section of the Works except Section 3 and a part of Section 5 before the date for payment of the two valuations which are the subject of these proceedings. But, he says, the notices relied on by Braehead in relation to these two parts of the Works were given too late.He submits that on this ground alone, the LADs must be reduced by £315K from £6,955M to £6,640M. In my judgment, this submission is well-founded. Mr White submits that Braehead can rely on the two notices that were issued in April 2000, ie after the date for payment of the two valuations. Alternatively, he submits that the requirement for a notice is a procedural requirement which was waived by Bovis.

20. In my view, Braehead could not rely on notices issued after the date for payment to make deductions of LADs from those payments. That seems to me to follow from the true construction of clause 24.2. Nor am I impressed with the waiver point. As Mr Fernyhough says, the point was taken at the meeting of 3 November 1998.

21. I turn to consider whether Braehead failed to make a written requirement within the meaning of clause 24.2. Mr White relies on two letters as constituting such requirements.

1. The first is dated 27 October 1999, in which Braehead said : "CSC will make post valuation deductions for LADs....". The second is dated 26 November 1999. In this letter Braehead stated: "With specific regard to liquidated damages, pending receipt and analysis of a fully documented and substantiated application for an extension of time we have no alternative other than to deduct damages from the contract completion date of 31 July 1999". Mr Fernyhough relies on a decision of Judge Carr in JF Finnegan v Community Housing Association 65 BLR 103 in support of the argument that a "requirement in writing" should "indicate at least the basic details which are being relied on to justify the deduction including the period of overrun and the figure for deductions which is claimed"(page 115). It is not sufficient to make a requirement that LADs be paid or allowed without also condescending to the minimum basic details of the amount claimed and how it has been calculated. It seems to me that, although this is a short point of construction, it is one that is not by many means free from difficulty. I note that in Jarvis Brent Ltd v Rowlinson Constructions Ltd [1990] Const LJ 292, HH Judge Fox-Andrews QC held that cheques paid in respect of payment certificates constituted requirements in writing that the sums in question "were to be and had been deducted by the employer as liquidated and ascertained damages" (page 297). The cheques were for sums that had been reduced to take account of the claims for LADs. It seems to me that this may be regarded as a somewhat bold decision.

22. In the present case, however, there were letters from the employer making it clear that LADs would be deducted. The complaint is that the letters did not specify the amounts to be deducted, still less how they were to be calculated. It seems to me that, with respect to Judge Carr, it is highly arguable that his interpretation of "require in writing" is incorrect. The reason he gives for saying that the requirement should indicate the "basic details" of the calculation is that the details "then become a matter of record and not left to the memories of men several years later as to why a specific figure was claimed for deductions". If that had been the rationale for the provision, I find it surprising that the clause did not spell out what information the requirement in writing had to contain.

23. The reality is that there are only 3 elements to a claim for LADs. The first is the date when the Works or Section of the Works ought to have been completed. For the purposes of a deduction of LADs, this is fixed, for the time being at least, by the giving of a notice under clause 24.1. The second is the date of practical completion of the Works or the relevant Section. The third is the application of the amount or amounts included in the contract for LADs to the period between the two dates just mentioned, a matter of simple arithmetic. The only element that may be uncertain is the date of practical completion, and I accept that it can give rise to controversy in some cases. But by far the most controversial element is likely to be the date when the work ought to have been completed, since this raises the question of the contractor's entitlement to extensions of time. In my view, it is unrealistic to suppose that the draftsman of clause 24.2 inserted the provision for a written requirement solely because he thought it necessary that the employer should expressly state the date on which he contends practical completion has been achieved, or the fact that in his opinion practical completion has not yet been achieved, so that this matter is not left to the memories of men years later on. In my view, the more obvious rationale for the provision is simply that the employer should not be permitted to make a deduction for LADs without making it clear to the Contractor that that is what he is doing. It is designed to avoid unexplained deductions from interim payments. Putting the matter at its very lowest, there is a reasonable argument that the interpretation of Judge Carr is incorrect.

24. I am satisfied that Braehead has a real prospect of succeeding in its arguments that its letters of 27 October and 26 November were requirements in writing within the meaning of clause 24.2

Conclusion on the LADS issues

25. For the reasons already given, therefore, Braehead had an arguable entitlement to deduct LADs in the sum of £6,640M.

The Braehead Counterclaim

26. This counterclaim comprises more than 150 separate allegations. In view of my conclusion on the LADs issues, Braehead needs to satisfy me only that it has a real prospect of succeeding at trial on its counterclaim to the extent of approximately £2.2M. Mr Fernyhough has conceded that Braehead has established that it has a real prospect of success on its counterclaim to the extent of £1,601,717. It is not in dispute that Braehead can set off against the Bovis claim any part of the counterclaim that it may establish. It follows that, if I am persuaded that Braehead has a real prospect of success on its counterclaim in a sum greater than about £600k, then I should give unconditional permission to defend.

27. Mr Fernyhough makes a number of general points about the counterclaim. First, most of the allegations were not made during the contract, and appeared for the first time in the Counterclaim Schedule that was served with the Defence and Counterclaim. Secondly, only a small number of the allegations, I think about 18, are the subject of specific evidence in the Braehead witness statements. Thirdly, most of the allegations are extremely generalised, and there is no breakdown of the losses claimed. The reason advanced by Braehead for the lack of particularity is that it has not had access to the detailed records that are necessary to provide full particulars. Mr Fernyhough accepts that Braehead has not had the documents that support any of the subcontractors' final accounts until recently. Even now, the documentation (much of it in draft form) has been provided for only about half of the subcontractors. But, he submits, Braehead has had complete access to all the back-up documentation relied on in support of the applications for interim payment during the contract. In the light of these general observations, Mr Fernyhough submits that I should view these substantial claims for damages with very considerable scepticism and caution.

28. Mr White emphasises the fact that the counterclaim has been prepared by representatives of MPM and Cyril Sweet (independent professional persons) and from information provided by Mr Danks. The allegations of breaches of contract set out in the schedule to the draft counterclaim are verified by Mr Danks, Mr Adams and Mr Roden. In addition, these three have supplied further details in relation to a number of specific items in the schedule. The background to the counterclaim is that there has been a substantial cost overrun on the project. The contract sum was £184M. Braehead has paid £216M. Mr White tells me on instructions that Bovis' current estimate of the likely cost is of the order of £242M. Braehead contends that a substantial measure of responsibility for this overrun lies with Bovis. Bovis contends that in large measure the reason for the escalation in cost was the additional requirements introduced by Braehead. It is clearly impossible for me to reach any kind of conclusion at this stage as to where the responsibility truly lies. Braehead says that the reason why it has not been able to particularise its case on mismanagement and cost overrun as fully as it would have wished is because it has not received from Bovis all the information to which it is entitled under the contract. I have been referred to clause 13.4 and 13.5. Mr Roden explains at paragraphs 33 to 39 of his statement how he has been hampered by the lack of information in providing a detailed quantification of loss. But he asserts that the sums included in the schedule are his best estimate of the losses, using his professional judgment on the basis of the information available to him.

29. Both counsel took me through the principal items in the schedule and in some detail. I do not propose to go through these items. Even before we embarked on this course, I had grave misgivings as to whether this was appropriate in an application under Part 24 or 25 of the CPR. It was only towards the end of the one and a half day hearing that I was shown the decision in Swain v Hillman. This confirmed the provisional view that I formed when first reading the papers, that what I was being asked to do by Bovis was to conduct a "mini-trial" on the issues in the case, and that this was inappropriate.

30. Nevertheless, we did canter through the main items in the schedule at great speed. Mr Fernyhough sought to persuade me that, however complicated it might all seem to be, he could demonstrate that many of the claims made by Braehead were "bogus" or "absurd", and that, save to the extent earlier indicated, Braehead had no real prospect of establishing any of them at trial. I have reached the conclusion that many, if not most, of these claims cannot be dismissed in this way. In his schedule to his second witness statement, Mr Downie has provided detailed answers to each of the principal items of claim. In the light of the evidence of the Braehead witnesses, some of the documents to which I was take by both counsel, and their submissions, I found some of Mr Downie's answers more convincing than others. At the end of Mr Fernyhough's opening submissions, I had tentatively formed the view that many of the claims were unlikely to succeed at trial. But by the time I had heard argument from Mr White, and considered some of the material that he showed me, he had convinced me that Braehead has a real prospect of succeeding on its counterclaim to a substantial extent, and certainly in a sum far in excess of the figure of £600k to which I have referred.

Overall conclusion

31. Both of these applications must be dismissed. I am satisfied that Braehead does have a real prospect of successfully defending this claim. I am not satisfied that, if the claim went to trial, Bovis would obtain judgment for a substantial, or indeed any, amount from Braehead. In my view, these applications should never have been made. Bovis knew that the two valuations were not met by Braehead because of Braehead's concern about the massive and unexpected increases in cost and the time overrun that became apparent in 1999. In December 1999 and January 2000, sensible and constructive proposals were being discussed between the parties as to how to resolve their differences. For a reason which has not been explained to me, Bovis decided to resort to litigation rather than seek to negotiate further with Braehead. They served the proceedings on 10 January 2000, and gave Braehead an extension of time for the service of defence. On 10 February, they issued applications for the first case management conference. Then on 25 February, before the defences were served, and without warning, Bovis issued the applications under Part 24 and 25. Once the schedule to the defence and counterclaim had been sent to Bovis, if not earlier, it should have been apparent that these applications could not succeed. And yet Bovis pressed on. The words of Lord Woolf MR in Swain are salutary. He said:

32. What has happened in this case is that, far from saving expense, Bovis has substantially added to the cost of this litigation. The cost of this mini-trial (for that is what it has been) has been very heavy indeed.