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

IN THE HIGH COURT OF JUSTICE
TECHNOLOGY AND CONSTRUCTION COURT
HIS HONOUR JUDGE HUMPHREY LLOYD Q.C.

B E T W E E N:

Richard Fernyhough QC and Michael Bowsher appeared for the claimant instructed by Wragge & Co.
Andrew White QC and Robert Clay appeared for the defendant instructed by Berwin Leighton.

The following is the text of the judgment approved by the judge subject to editorial corrections.

1. The claimant (Harmon) has applied for an interim payment pursuant to Rule 25.7 of the CPR. The relevant parts of that rule are as follows:

It was accepted that despite the reference in paragraph (1)(b) to paragraph (1)(a) the two paragraphs were independent conditions. Although the drafting of the Rule is not good I assume also that paragraph (c) is also a further alternative condition to (a) and (b) even though the bridge between it and paragraph (d) is "or" which might suggest that the three preceding paragraphs were cumulative. That reading would not make any sense as it is clear that they each deal with three separate situations: admission of liability finding of liability and prospective finding of liability. The Rule was made in accordance with section 32 of the Supreme Court Act 1981 which states:

Thus to meet section 32(2) Rule 25.8 provides:

2. Harmon was unsuccessful in the tenders that it submitted in 1995 for the fenestration package for the New Parliamentary Building (NPB) in Bridge Street Westminster which is also known as Portcullis House. The trade contract was placed with Seele/Alvis Fenestration Ltd (Seele/Alvis). Harmon commenced proceedings against H of C. In 1998 its ultimate holding company Apogee Enterprises Inc. (Apogee) decided to abandon the European market and withdrew financial support from its five European subsidiary companies. Harmon went into creditors' voluntary liquidation on 10 March 1998. As a result of a trial of some 28 principal preliminary issues I decided that the conduct of the defendant (H of C) in the manner it which it dealt with Harmon's tenders rendered it liable under four heads:

In the judgment that I gave (to which I shall from time to time refer) I decided that under each head the damages would include the costs that Harmon (or its associates) had incurred in submitting all its tenders and its gross margin or profit that it (or its associates) might have recovered had H of C awarded the contract to Harmon on the basis of its tender of November 1995 as H of C ought to have done. However although I found Harmon had been treated not only unlawfully but badly by H of C and that the conduct of Mr Makepeace was dishonest (and his evidence was in material areas not credible) I decided that Harmon was not entitled to aggravated or exemplary damages. Harmon is pursuing an appeal against that decision and against my conclusion that the fact that Harmon ceased to trade in March 1998 and had a provisional liquidator appointed was a factor to be taken into account in assessing Harmon's damages and in assessing any loss of profit to which it may be entitled. H of C has decided not to appeal against any of the many conclusions that I reached and the issues that I decided that were adverse to it.

4. H of C oppose the application on a number of grounds. First in relation to Harmon's claim for loss of margin H of C maintain that

5. In respect of both loss of profit and tender costs H of C's case was that no order should be made because Harmon is in liquidation. Under Rule 25.8 an interim payment may be adjusted for example by requiring the whole or part of the payment to be repaid. If the liquidator of Harmon were to receive a sum from H of C then like any other payment he would be bound either to spend it on the necessary costs of the liquidation (eg to defray the costs of the action or to reimburse those funding it) or to distribute it to creditors. It was not to be expected that he would take a course that might render him personally liable for repayment (see Re Armstrong Whitworth [1947] Ch 675). If therefore he thought that either of these steps might expose him to a claim for recovery of an amount overpaid then the sum would have to be placed in the Insolvency Services Account until after judgment on the quantum trial. Placing money in the ISA attracts substantial ad valorem fees and earns an unattractive rate of interest (which combined produce a derisory effective rate of return) so payment would not help Harmon's creditors or the liquidator. Making an order would not benefit the liquidator. Harmon had declined to provide H of C with some form of guarantee of repayment from a solvent third party. This was not surprising since the liquidator might remain personally liable. Thus no interim payment should be made. Since this part of H of C 's case depends on whether irrecoverability is a bar to an order under Rule 25.7 I shall consider it first.

6. Both parties referred to decisions on interim payments under RSC Order 29 rule 11 although the Court of Appeal has said in Biguzzi v Rank Leisure [1999] 1 WLR 1926 that case law prior to 26 April 1999 is not binding in the interpretation of the CPR nor should it be persuasive on the exercise of discretion under the CPR. Some of them are nonetheless helpful in identifying or clarifying the factors which might influence the exercise of the power conferred by Rule 25.7. I was referred to well-known decisions such as British and Commonwealth Holdings plc v Quadrex Holdings Inc [1989] QB 842 and Shearson Lehman Brothers v Maclaine Watson [1987] 1 WLR 480 Others (such as Schott Kem Ltd v Bentley [1991] 1 QB 61) were concerned with the equivalent of Rule 25.7(1)(c) and with questions such as the degree of satisfaction required. In that and other cases it was considered that a two-stage process was needed ie to deal first with potential liability which is irrelevant to this application.

7. Rule 25.7 has to be interpreted and the powers granted by it have to be exercised in accordance with the overriding objective as required by Rule 1.2. The overriding objective includes ensuring that parties are on an equal footing. Depriving a party of money which one party has but which is rightfully the other's does not place the latter on an equal footing with the former. Nevertheless it might be equally wrong to order an interim payment to a party who might not be able to repay it if an adjustment were required under Rule 25.8.

8. The case advanced by H of C was essentially based on the potential irrecoverability of any money that might be paid if an interim order was made which required to be adjusted by a repayment. Harmon did not suggest that the liquidator would freeze any money that he received. It was to be assumed that it would be expended to defray the costs of the liquidation (and in particular of the litigation) and to pay creditors. Nor did Harmon really question the proposition that a liquidator would be bound in law to apply the funds in those ways. Harmon suggested that if the liquidator decided to do so he might be liable to H of C as it would become a creditor. It was also submitted that an over-payment would qualify as an expense for the purposes of Rules 4.218 of the Insolvency Rules (see paragraphs (a) and (m)). That may be so but it assumes that there are assets. In my judgment it is not consistent with the overriding objective or with the powers of case management to take a course which is likely to lead to a further claim whose outcome is not certain. Accordingly if irrecoverability were a bar no order would be made for any sum for which there was a realistic prospect of success of recovery.

9. However in my judgment the fact that any sum paid might be irrecoverable is irrelevant except that where the amount or an element of it may be a matter of judgment or discretionary care will be taken not to over-compensate the applicant. First the object of Rule 25.7 is to give the applicant part of what it is or will be entitled to receive. A court does not normally decline to assess damages because of the possibility of an appeal against the amount of the award (as opposed to an appeal on liability). A stay of execution may be granted but even then the defendant will have to persuade the court that there is a good reason why the claimant should not be paid. Secondly Rule 25.7 does not provide for an order to be made on conditions. The absence of any such reference suggests that the court's function is to decide what is or may be due and not to be concerned about what the claimant might do with the award when it is received or its recoverability. Thirdly the Rules provide no link between Rule 25.7 and Rule 25.8. If it had been intended that the possibility of irrecoverability precluded an interim payment order being made or was to affect the exercise of the power then some overt link would have been made. However I have no doubt that conditions could be attached where in an appropriate case it was thought necessary to meet the overriding objective set out in Rule 1.1. Rule 1.2 requires the court to give effect to the overriding objective when it exercises any power or interprets any Rule. Thus if any Rule does not contain adequate provision to achieve the overriding objective it will have to be made to do so by "interpretation". Alternatively if the circumstances require the power (eg that given by Rule 25.7) will have to exercised so as to achieve the overriding objective and if this means attaching conditions then such conditions are authorised by Rule 1.2.

10. That irrecoverability is basically irrelevant is in my judgment not inconsistent with decisions on the former RSC Order 29 rule 11 (if they may be looked at as being helpful as I have set out above.) In particular Neill LJ's restatement in Schott-Kem at pages 71-74 shows that the risk of irrecoverability is as it were built into the test which the Court of Appeal considered desirable for the assessment and determination of a reasonable proportion and that it is not necessary to establish need or prejudice merely that the defendant has money to which the claimant is or will probably be entitled. The following passages are relevant amongst others (but they must of course be put in the context of the complete exposition):

11. Harmon also relied on three other cases in the Court of Appeal. In Crimpfil Ltd v Barclays Bank Ltd [1995] CLC 385 judgment on liability was given and an interim payment order was then made in favour of the plaintiff company which was in administration (see page 388C). It does not seem that the Court of Appeal was asked to say that no order whatever should be made since the company had disposed of its plant and premises and closed down its business (see page 388C). The trial judge had been asked to take this factor into account and had done so by approaching the assessment with caution (see page 389F). The earlier case of Stringman v McArdle [1994] 1 WLR 1653 also concerned with an interim payment order following judgment on liability. The plaintiff was an infant and a tetraplegic. The issue was whether the payment should be made to the Court of Protection. It was however accepted that an amount of the proposed payment would be less than the amount to which the plaintiff would ultimately be entitled. Stuart-Smith LJ said (at page 1657H):

Stringman was considered in Campbell v Mylchreest 23 January 1998 CA unreported. The plaintiff was injured in a car accident. Liability was not disputed. The issue was whether the court should consider the use to which an interim payment would be put as a factor in deciding the amount of a payment. The trial judge had not considered that it might affect the defendant's case on quantum. The Court of Appeal said that he ought to have done so but nevertheless upheld the order. Auld LJ described "the central thrust" of the judgments in Stringman was "that it was not the concern of the defendant or the court what the plaintiff intends to do with the money".

12. Of these cases only Crimpfil was concerned with recoverability. It showed that under the RSC a court was entitled to make an order if it were sure that the claimant would recover a certain amount and had assessed a reasonable proportion of it. If paragraph (c) of Rule 25.7 (1) were to read as supplementing paragraph (b) (which I do not think it is) then in my judgment the court's powers would be similarly described. The other cases are not of much assistance. If a parallel were to be drawn between Harmon and a claimant under a disability then the approach of the Court of Appeal in Stringman would only be relevant if there were some dispute about who should handle the amount awarded. I do not consider that either Stringman or Campbell is authority for the proposition that the possibility that the fact that the Court is not concerned with how money is spent means that it should shut its eyes to the possibility of irrecoverability.

13. In my judgment the interest of a defendant such as H of C should be sufficiently protected by Rule 25.7(4). If the court thinks that the claimant is bound to recover a part of the damages to be assessed or to borrow the language of Rule 24.2(a)(ii) "the defendant has no real prospect of successful defending [that part of] the claim" then the reasonable proportion will be 100% or 100% less a nominal discount. Mr White for H of C rightly accepted that if a claimant were entitled to summary judgment for an amount then it would be unnecessary to require a condition or guarantee if that sum was ordered to be paid under Rule 25.7. If the court considers that the claimant will probably recover a part (but might not do so) then some lower proportion will be ordered. If that is equivalent to saying that there is almost certainly no real prospect that that proportion will be recoverable then equally no condition or guarantee of repayment should be applied. However the proportion may also reflect the possibility of irrecoverability. Again I understood Mr White to accept that it would not be wrong to do so and thus to apply discount to reflect that factor. If the court is however unsure about the balance or about part of the claim the total of which it is otherwise able to assess no interim payment will be ordered for it would not be reasonable to do so (even though "nil" is not a proportion). If the court although unsure nevertheless thought there should be a generous payment then a condition to secure repayment might be included in the order. It follows that H of C in offering Harmon 100% of its claim for wasted tender costs rather than a reasonable proportion of it was not wrong in making it subject to a condition guaranteeing partial recoverability (and that Harmon was equally not wrong in refusing it).

14. I shall consider the applications in reverse order in that I shall first examine the claims for the wasted costs of tendering and then the claims for loss of gross margin. The evidence was contained in witness statements and reports; Harmon filed two statements from Mr J.T. Deckman an Executive Vice-President of Apogee a statement from Mr Andrew Smith a partner in the solicitors acting for Harmon. two further (supplemental) reports or statements or reports from Mr E.G. Hay Davison FRICS (who had given evidence at the trial) and a report on issues relating to the liquidation from Mr N.L. Burton FRICS who was a partner in GVA Grimley and adviser to Harmon's liquidator. H of C filed a witness statement from Mr Michael Goldmeier a partner in the solicitors acting for H of C a report from Mr G.N. Ashworth FRICS of Davis Langdon & Everest and a voluminous report from Mr David J. Lee FCA which assembled financial information about Apogee and its operating companies. In addition I was asked to look at some additional documents that had not been exhibited to the statements or reports or which had not been included in the corpus of evidence at the trial (which was obviously also to be taken into account.)

15. Although no applications were made there were well-founded grumbles from H of C about the way in which Harmon's evidence had been presented. I had made orders intended to give Harmon an opportunity of finding out (by being given documents and having meetings) about the course of the work undertaken by Seele/Alvis on the basis that any claim for loss of margin and profit would or might have to take account of events which could have eroded or increased that claim. A meeting did place but Harmon's evidence did not initially at least follow the course which both I and H of C had expected that it would take. There was thus rather more lack of precision than I had thought would occur and H of C submitted that it was placed at a certain disadvantage. On the other hand the notes of the meeting annexed to Mr Ashworth's first report show that Harmon did not obtain answers to all the questions raised. In addition it is fair to record that H of C did not field Mr Baxter of Gardiner & Theobald the project quantity surveyors who gave helpful evidence at the trial. He would have been able to be more authoritative than Mr Ashworth, who necessarily did not have first-hand knowledge.

16. An application of this kind which is made before the trial of the quantum claim, on the basis of limited material and which necessarily must have problematic or speculative aspects will inevitably have rough edges and may warrant a broad approach. H of C emphasised that it had not seen certain documents, eg those relating to the continuation of Harmon's business, just as Harmon had only limited knowledge of the course of Seele/Alvis' contract, although I have little doubt that it has been given all the information upon which H of C rely to show that Seele/Alvis encountered difficulties which would have eroded Harmon's allowances for margin. I shall take full account of H of C's reservations, although they cannot be used as a reason not to make an order if it is clear that something is due and should be paid (using the criteria set out above). They justify a careful examination of Harmon's claims and a conservative assessment of them.

17. H of C similarly made submissions to the effect that Harmon had to produce evidence to dispose of points made by H of C. Some of these were understandable but some were within H of C's power to dispel in a concrete manner, if based on fact, particularly as they could have been anticipated and especially bearing in mind that this application had been made some time ago. Although this application is not the trial on quantum it clearly foreshadows it and in places both parties regard it as in the nature of a rehearsal for it, and certainly rather more than a reading through. In considering H of C's case I am therefore reluctant to accede to it where it could have been substantiated, such as the effect of events encountered by Seele/Alvis that might have affected Harmon's margin. Some of these were listed by Mr Ashworth as reservations to his assessments of margin. For example, I discount ferry strikes. They are part of ordinary risks some of which may eventuate and cause costs or losses to be borne but others of which operate to off-set those in the former category. They would have to be significant to be considered and if significant they would be capable of some quantification. The effects of ferry strikes were not quantified by H of C.

18. Had Harmon been awarded the contract then it would have recovered the costs of tendering from the amounts paid to it under the contract. Accordingly this claim is relevant only if nothing is awarded in respect of loss of gross margin.

25. H of C's principal objections centre on its contention that Harmon would have gone into liquidation in March 1998, even if it had been awarded the contract or that until that contention has been fully investigated it would not be right to make any assessment of damages or interim payment. Harmon maintains that such an investigation was unnecessary but for present purposes I disregard that objection in view of my answer to Issue 27 that the fact that Harmon ceased to trade in March 1998 and had a provisional liquidator appointed was a factor to be taken into account in assessing Harmon's damages and its loss of profit.

26. For the purposes of the present application it is therefore necessary to see whether it is possible on the present evidence to decide with a degree of certainty what would probably have happened had Harmon been awarded the contract on the basis of its tender of November 1995 since part of Harmon's answer to H of C's case is that Harmon would have survived. In considering the period up to March 1998 there appear to be six principal questions the answers to which may also deal with some other issues.

28. Secondly, when would Harmon have been able to sign the contract? In paragraphs 127-132 of the judgment I decided that after November 1995 Seele/Alvis took advantage of its position as the favoured tenderer to conduct hard and protracted negotiations and I noted that LML was so concerned about the stance taken by Seele/Alvis that in February 1996 it seriously considered an alternative. Seele/Alvis got letters of intent in April 1996 but the contract was not made until May 1996 (see paragraphs 133-135 of the judgment). Part of Seele/Alvis' change of stance was brought about by H of C's failure to deliver what it had promised to tenderers. Harmon would undoubtedly have taken advantage of that. Mr Fernyhough rightly pointed out that part of the time was occupied with matters relevant only to Seele/Alvis' Option B2 and that any such time should be discounted since Harmon's tender was for Option A1. Furthermore as Harmon was keen to get the contract I do not consider that it would have negotiated as toughly and for as long as Seele/Alvis. In my view Harmon would probably have got a letter of intent and signed a contract some three months earlier. This allows sufficient time for negotiations including any amendment to the trade contract terms with respect to novated suppliers (see paragraph 224 of the judgment).

29. Thirdly, what would have been the probable programme for manufacture and erection? This topic was the subject of post-hearing written submissions. H of C submitted, with reason, that the case advanced by Harmon departed from the assumptions that underlay its assessment of the sums that might have been paid to it, namely that the progress of the work might have been similar to that followed by Seele/Alvis. However H of C questioned those assumptions and had to resort to additional documents to explain how Seele/Alvis' valuations were arrived at. Harmon did much the same in trying to construct the programme that might have been adopted by it, by the use of existing documentation and evidence. It did not rely on anything that was not available to H of C, such as additional witness statements whether of fact or opinion. I shall therefore consider its case although I shall of course bear in mind the limitations to which H of C drew attention.

30. I start where I left off. In paragraphs 229ff of my judgment I considered what Harmon's programme might have been. I said in part:

31. Accordingly had Harmon been treated openly, fairly and equally (ie if H of C had met its obligations) then it would have been in a position to start off-site work from February 1996 and to have commenced manufacture in October 1996 (as envisaged by its October tender and as required by LML letter of October) with completion in November 1997, ie within 53 weeks (as set out on Harmon's programme at G11/127N). and within LML's requirements. It ought then to have been able to finish work on site in the first part of 1999. I do not accept Harmon's case that manufacturing might have begun in the Spring of 1996 as this makes no allowance for all that had to be done before manufacturing could start, and is contrary to Mr Boyle's evidence. H of C said that Seele/Alvis in fact commenced fabrication in December 1996, ie as contemplated by its contract and within the expected period of seven months (or 34 weeks) from the date of contract. It is thus feasible to assume that Harmon would have taken the same period. If its contract was made in February it is reasonable to conclude that it would have started manufacture about seven months later so October 1996 is a justifiable programme date which Harmon would have used. It also allows sufficient time for discussions with novated suppliers and all other preliminary and mobilisation matters, such as "tooling up". H of C said that time was also required for suppliers to be issued with drawings before they made their dies (which seems incontestable and which must have been considered by all who in 1995 prepared programmes and forecast dates) and that the dies were not available before October 1996. However if, as I find, the whole programme would have started earlier this fact (which in fairness to H of C I assume to be correct) does not mean that an earlier start might not have been achieved.

35. Seele/Alvis apparently had a negative cash flow. This does not prove that Harmon would have been in the same position but it makes it difficult for it to rely on the experience of Seele/Alvis as useful comparator to show that there would have been retained profit. If anything the treatment of Seele/Alvis shows that it had incurred substantial untoward expenditure as a result of CMIs, defaults by H of C, eg by AFE or others for whom H of C was responsible, and that, as is unfortunately all too common, reimbursement was not prompt, so that any margin that might have been recovered would have been mopped up, at that stage, by cost overruns. (I do not however follow Mr Ashworth in believing that when a contractor does not get paid the amount of a claim in full the shortfall both exists as a tangible loss and has to be borne from margin, even if it had been presented on the basis of "cost.) Furthermore in my experience few contractors count on (still less publicly declare) a profit until completion at the earliest, such are the hazards of contracting. That is not to say that Harmon would not have made a profit (and might indeed have done so in March 1998) but I cannot reach such a conclusion even if I were to take a liberal view of the present evidence. For reasons which I shall come to later the fact that its directors' expected margins did not materialise does not mean that they were not achievable. However for the purposes of the present application I am not satisfied that I can conclude that Harmon had in March 1998 made or retained any profit. It may have done so but I decline to make such a finding. Harmon's second and third bases of claim are therefore not made out.

36. H of C submitted that Harmon would have gone into liquidation on 10 March 1998; Harmon's case was that it would not have done so. The evidence of Mr Deckman set out the principal facts. From March 1997 to June 1999 Mr Deckman was President of Apogee's Building Products and Services Divisions and President of most of the subsidiary companies operating in those fields, including Harmon Ltd and Harmon Contract Inc which is or was the largest shareholder of Harmon Europe SA, which in turn was the parent company of Harmon, the claimant. He was directly responsible to the Chairman of the Board of Directors for Apogee's investments in Harmon Europe and directly advised Apogee's Board about Apogee's funding of Harmon Europe. He is now an Executive Vice-President of Apogee Enterprises Inc and in that or other capacities is responsible for 11 of Apogee's subsidiaries with a total annual turnover of about $385 million. He is an engineer by profession and his approach was business-oriented. His evidence appealed to me as being practical and realistic, even though his first statement did not cover all the ground that it should have done. His second statement was however rather more specific and more helpful.

37. Before looking at parts of Mr Deckman's evidence it may be useful to quote from a document upon which H of C relied, namely the liquidator's history and directors' statement of affairs as at March 1998 in which the following appeared (according to Mr Deckman written by Mr Normand Saucier, a director with good knowledge of the business):

At a Board Meeting on 25 July 1997 Mr Deckman explained that the best course of action was "to rationalise operations in Europe by consolidating manufacturing operations, reducing workforce to "right-size" such operations for expected future business, improve project bidding, estimation, management and scheduling abilities and refocus on the higher margin, more plentiful business opportunities in the United Kingdom." The Board resolved to proceed with the development of a restructuring plan which at a cost of between $11 million to $16 million would curtail activities in Asia and Europe but would not eliminate them. There was a further discussion on this plan at a Board Meeting on 10 October 1997 at which it was minuted that Mr Deckman and Mr Saucier "noted that the strategy contemplated a much downsized and profitable operation". On 9 January 1998 an all-day Board Meeting was held (but not at Apogee's headquarters) at which decisions were taken in the light of extensive discussions that had taken place the previous day. It appears that the independent directors decided that the company had to stop losing money on its overseas curtainwall operations. (The report of Mr Lee fully confirms that Apogee's losses were great and continued until 1999.) The Board also received a report from the Audit Committee on "European audit matters". Mr Deckman said that the financial state of Harmon Europe and its subsidiaries led to its auditors (KPMG) formally to start in January 1998 the "procédure d'alerte" in respect of those companies whereby auditors are obliged under French law first to notify the company if at any time they question the company's ability to continue trading as a going concern and, then, if the company does not heed the warning, to call upon the chairman of the board to convene a board meeting, with the possibility that the Tribunal du Commerce might also be informed either then or thereafter, depending on the company's action or inaction. The auditors told Harmon Europe that they would stop the procedure if (1) Apogee's loans of $20 million were cancelled or made subject to a moratorium; (2) Apogee guaranteed funding until the end of December 1998; (3) a detailed business plan for the UK was produced to show the projects and profits (action which Mr Deckman said would be in accordance with Apogee's policy). Since no business case could be made for supporting the whole European group it was decided to withdraw support. Mr Deckman said that consideration was given to supporting Harmon (the claimant) independently but that course was not pursued. He recommended to Apogee's Board on 16 February 1998 that support should be withdrawn and the Board accepted his recommendation. Accordingly on 25 February 1998 the Board of Harmon, including Mr Deckman, decided to place the company in creditors' voluntary liquidation. This decision was reached without the assent of Mr Paul Sahyoun or Mr Gabriel Sahyoun and after long debate, some of it highly critical. It was recorded that margins of 18% were attainable on future contracts. (I think that this figure is more reliable than Mr Deckman's suggestion of 35%.) There is little doubt that the margins on completed contracts were less or non-existent. There was however no other option open to the directors as no offer was made to provide even short-term funding or to acquire the business. (The directors' decision to wind up Harmon was inevitably approved by a meeting of the shareholders.)

40. Secondly, Harmon would not have been suffering from the effect of being black-balled by Laings. In my judgment I found that Mr Boyle had had conversations in July 1996 with Mr Tony Aikenhead, the Joint Managing Director of LML, and with Mr Ron Kerr, an Associate Director of LML in which he had been told that starting these proceedings

On the evidence before me it is clear that the threats made to Mr Boyle by LML in July 1996 were not empty ones. Harmon should have been a viable company but after it sought to question the way it which it was treated by H of C (and by implication by LML) its cash flow on three contracts where a Laing company was involved was seriously retarded. Mr Deckman said in both his statements that the UK business could have been turned round by the end of 1998 and that he was prepared to support it at least until the end of the project for the NPB. If that were the case, even when as a result of the decision to bring these proceedings it had not secured its expected return from a number of its principal contracts, then I consider that, if those adverse features had been absent, the company's prospects should have been secure. It should be recalled, first, that the 1997 review of Apogee's operations had emphasised the "more plentiful business opportunities in the United Kingdom" which would make it worthwhile continuing. Secondly, the facts that Apogee has been released from bonds worth 7 million and has not had to make payment under any of the remaining bonds that it had given for contracts in the United Kingdom (ie about 1.5 million) suggest strongly to me that, although the contracts may not have been profitable Harmon's liquidation did not lead to a net deficiency on any of its principal contracts.

41. Thirdly, by that stage, although the valuation of the work was around half the contract price the actual cost of completion would not have been very great. When set against the parent company guarantee most companies would have tried to find a way out of the crisis. (Under the trade contract Apogee would have given a bond.) The major problem would have been to secure the continued existence of Sitraco upon which company Harmon was completely dependent. (The panels were to be fabricated or finished at the factory of Harmon Sitraco SA at Pinon, 02320 Anizly le Chateau, France.) However Mr Deckman and Mr Lee exhibited Sitraco's accounts which showed that in the financial years ending February 1996 and 1997 although its operations had been running at a modest loss the French companies as a group had made small operating profits in 1995 and 1996 before making a loss of FF 162 million in 1997 (on a much reduced turnover as compared with the previous years). (The impact on Apogee of 1997 was assessed by Mr Lee to be about $35 million.) A report from KPMG dated 7 April 1997 however suggested that Harmon Europe made a net loss of FF 52.6 million in the year ending 28 February 1997 attributable to

I note that the bulk of the losses were not incurred by Harmon, although later KPMG say that the net loss in the year ending February 1997 of FF 52.6 was mainly produced by Harmon, even the amount was FF 7.3. KPMG also reported that the group's increase in turnover of 15% was due to Harmon's contracts in this country. I do not pay much attention to the figures for work in progress as they were not only out of date in February 1998 but they require elaboration. If Sitraco had had the benefit of the NPB work (whether at FF 17.5 million or a higher figure) it would have doubled its annual turnover and its financial position ought to have been much better. Even after March 1998 Sitraco was not put into liquidation but administration and funded by Apogee until a buyer was found for it. I consider that Mr Deckman's opinion is very probably correct. If Sitraco had still been trading Harmon would have been able to complete the NPB (and other important projects) and thus Apogee would have supported it. Alternatively Harmon's business would have been acquired by some one else, as happened to enable the contract for Daiwa House to be completed. I regard this event as particularly telling. The NPB contract would have been even more important than that for Daiwa House. As the latter was saved then I am sure that completion of the NPB contract would also have been secured. It also shows that Harmon was at least in part commercially viable. H of C suggested that Harmon's case could only be sustained if Rinaldi had been asked to affirm that it would have come to the rescue of the NPB contract. There are numerous loose ends which in due course may have to be tied down but I do not consider that such evidence is essential to determine the present application as sufficient is available to arrive at a reasonably informed opinion about Harmon's position.

42. H of C correctly said that if Harmon had gone into voluntary liquidation or if an administration order had been made (if a receiver or administrative receiver had been appointed) then under clause 17.2 of the trade contact its employment would have automatically determined. Under clause 18 the consequences included that no further payments would be made until the works had been completed by others and (I summarise) that the amount of any losses caused to H of C had been ascertained and any set-off had been satisfied. I do not consider that those responsible for Harmon would have run such a risk. First, not only was the contract profitable but it would have been necessary to complete it in order to realise that profit. The fabrication would have been far advanced and Mr Deckman's evidence satisfies me that, as I have already noted, Sitraco would have been able to finish its part. The costs of completing the contract need not have been large (for example, I accepted in paragraph 285 of my judgment that Harmon's estimate of FF 2,500,000 for the costs of erection was reasonable and within the amount likely to be paid to a sub-contractor in London.) Completion of the work would be very important to the reputation of Harmon even if the business were to be disposed of so I would expect that funding would have been found. I therefore accept Mr Deckman's view that Apogee would have supported Harmon until completion of the trade contract either because it would have fitted well with Apogee's construction business or to enable it to be disposed of. Apogee had an additional interest as it was liable under the parent guarantee for any loss to H of C that could not be recovered from payments due to Harmon or from Harmon. The project has been very much in the public eye both literally and figuratively so the risk of further delay would in my view have led to the usual steps taken by an employer if it were necessary to assist a contractor in financial difficulties but which was otherwise capable of finishing the work, eg a sympathetic attitude to valuations and possibly further advance payments.

43. Even if there had been a determination of Harmon's employment (probably as a result of the need to appoint an administrator) clause 17 provides for it to be reinstated. Mr Burton provides good reasons (which I accept) why the NPB contract would have been combined with the Daiwa contract (and another contract) and completed by a third party by novation with H of C. In the circumstances that is a course which I consider would have been adopted. Sitraco would have continued as supplier. It is however fair to point out that such a course would probably not have been followed if H of C had other means of being assured of the supply of the remaining pieces of the fenestration. At present I cannot see that H of C would have secured such source in time and on terms that would have made the preferred option. Clause 19.6 might have enabled H of C to obtain the novation to it of Harmon's supply and sub-contracts (eg for erection), although in practice novation is not always easy to achieve where, for example, the supplier or sub-contractor is unpaid. However even if this course were not followed and H of C had to find another trade contractor I do not consider that there would in fact have been any significant delay to the overall completion of the project since erection was not to start until October 1998 so there was plenty of time to make alternative arrangements.

44. Mr Fernyhough suggested that, even if Harmon had been put into liquidation, it was likely that there could not have been any counterclaim by H of C. Despite the very plausible assessment made by Mr Burton I do not consider that I can make such a finding. Even if some arrangement had been made to enable the trade contract to be reinstated or otherwise continued it does not follow that there might not have been a claim on Harmon which would have meant that Harmon had no retained profit as at March 1998. If I cannot make a finding about the extent to which at that date Harmon might had an amount by way of notionally distributable profit I cannot say that it would been unaffected by any claim that H of C might have had. In addition there are too many imponderables and variations on the basic scenarios which I have been asked to consider to be able to say that H of C could not have had a claim so that any claim for retained profit would not have been wiped out. It is not necessary for H of C to construct possible quantified series of claims as it is for Harmon to establish a case under Rule 25.7. On the other hand the absence of a quantified hypothetical claim means that H of C would have had to accept that any assessment might have been in Harmon's favour, for example in determining the damages or the reasonable proportion which was to be the subject of an interim payment. However these points are not now relevant since I have come to the conclusion that Harmon would not have gone into liquidation. I need not therefore consider further H of C's case on its possible set-offs or counterclaims.

48. Summarised, the likely recoverable margin would be therefore be (taking the lower of the two figures that I used):

50. In my judgment I decided in answer to Issue 26(b) and (c) that Harmon could recover loss of gross margin earned by other companies in the same group. My conclusions include the continuation of Sitraco. It is not possible to determine the amount referable to a company that might have fallen by the wayside in 1998. In any event it would be necessary to establish that the amount of such margin was insufficient to offset any costs of overcoming that company's failure. This point is typical of those that should be borne in mind in deciding a reasonable proportion.

53. There will be no order on the second and third bases of claim for the reasons that I have given.