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

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT

		St Dunstan's House 133- 137 Fetter Lane London EC4A 1HD
		19th March 2010

Mr Justice Coulson :

1. The background to this dispute is set out in my judgment in the related Part 8 proceedings at [2010] EWHC 139 (TCC). The present issue raises a point about the valuation process following determination under the GC/Works/1 Form of Contract.
2. On 8th April 2009, the Defendant employer ("CBC") purported to determine this contract pursuant to Condition 56 (1) (i.e. Determination for Cause). In these proceedings, the contractor ("Banner") say that CBC were wrong to attempt to determine under that provision and that, as a result, the determination should be deemed to be a determination at will under Condition 56 (8).
3. If the determination was for cause, the financial consequences are ascertained pursuant to Conditions 57 (2) and 57 (3). These conditions require the calculation of the value of the works at determination and the costs of completion of the works, and the deduction from that aggregate sum of what is called "the second amount", which is made up of the advances previously paid to the contractor at the time of determination. Any remaining balance is payable by the contractor to the employer.
4. Banner say that, because this was a deemed determination at will, the financial consequences of the determination are to be calculated in accordance with Condition 58 (5). This is, as one would expect, much more favourable to Banner because it takes no account of the post-determination costs of completion. Instead, Condition 58 (5) provides as follows:

'If the total of the following sums (hereafter called "the third amount") exceeds the second amount determined in accordance with Condition 57 (2) (Consequences of Determination by Employer), the Employer shall be liable to pay the Contractor the amount of the excess. If the second amount exceeds the third amount, the Contractor shall be liable to pay the Employer the amount of the excess. The individual sums are –

(a) the value of all the work carried out in accordance with the Contract up to the date of determination;

(b) the value of any work carried out or other things done in accordance with any direction given under Condition 56 (3) (Determination by Employer);

(c) the value (ascertained on the basis of fair and reasonable prices) of all Things for incorporation brought onto the Site, or in the course of preparation or manufacture off the Site which the Employer elects to keep;

(d) any reasonable sum expended by the contractor because of the determination of the Contract in respect of –

(i) the uncompleted part of any subcontract and other contracts (including those for the hire of plant, services and insurance); and

(ii) any unavoidable contract of employment entered into in connection with the Contract; and

(e) the Contractor's other unavoidable losses or expense directly due to the determination, including without limitation loss of profit on the Contract.'

5. By this application, CBC seek summary judgment against Banner on the ground that the quantum of Banner's pleaded claim is misconceived in principle and has no realistic prospect of success, because it is not in accordance with Condition 58 (5). In particular, it is said that Banner have failed to plead any case at all as to "the value of all the work carried out in accordance with the contract up to the date of determination" pursuant to Condition 58(5)(a), and are instead trying to rely on the advance payments certified and made, which, say CBC, are or should be part of the calculation of the second amount, not the third amount.
6. Banner's case as to quantum has been through a number of iterations and finds its most up-to-date statement in the answer to the Request for Further Information served on 26th February 2010. There the pleaded figure for the value of the work carried out by Banner up to the date of determination (8th April 2009), is said to be £13,003,284.55. The principal element of that figure is £12,927,146, which is said to be the "total gross value of works as at 23rd March 2009, as certified by the project manager, which includes retention due to Banner." To that is added the sum of £76,138.55, being the value of works carried out after 23rd March 2009, together with an allowance for overhead and profits.
7. On its face, therefore, this pleading equates the certified interim advances certified and paid to Banner, with the value of the works as at 23rd March. That, submits Mr Clay, is a wholly illegitimate equation. He notes that the parties agreed that Condition 48 (Alternative A) would apply, which meant that the advances which were paid were in accordance with a stage payment chart agreed at the outset of the project, although subject to subsequent adjustments. Those stage payments were not based on any valuation of the work actually done by Banner during the relevant period. Alternative C, which did equate the interim sums paid to a valuation of the work actually carried out, was not the basis for interim payment to which these parties agreed.
8. It seems to me that Mr Clay is unarguably right to say that, in principle, the calculation of the third amount must be by reference to "the value of all the work carried out in accordance with the contract", and not by reference to sums which had been certified as advance payments. Those advance payments may or may not bear any relationship to the value of the works actually carried out during the relevant period. I agree with him that, pursuant to Conditions 57 and 58, the sums paid to date are relevant to the calculation of the second amount, and not the third amount.
9. Banner's principal argument in response can be summarised by reference to the helpful skeleton argument produced by Mr Sears QC, which says this:

'28. The revised valuation of the works as at the date of determination, and the presentation of the claim, is the product of an analysis [in relation to which, as Mr Mallins makes clear, privilege is not waived by or on behalf of the Claimant] carried out by the Claimant's independent QS expert, Mr Stuart Whittle, who is a partner in the well known firm of Gardiner & Theobald.

29. Mr Whittle is satisfied that a valuation of the claim in the manner presented in the Response is a proper and valid valuation of the claim in accordance with Condition 58 (4) and (5). Indeed, he has expressed the opinion that it is the best way in which to value the claim.

30. Mr Whittle does not consider that the complaint that the Claimant "treats a stage payment certificate as if it were a valuation" has any validity. He regards it as entirely appropriate to rely upon the certificate dated 23rd March 2009 as a valuation of the works as at the date stated.'

10. As a matter of principle, I accept that it is possible that the valuation of the works properly carried out as at 23rd March 2009 will match precisely the aggregate of the sums paid by way of stage payments as at that date. Under a contract such as this one, where (subject to the point in the next paragraph) the advances were not calculated by reference to value, that must be an unlikely result, but I could not say that it was fanciful or unrealistic. In those circumstances, it seems to me that it would not be appropriate for me to give summary judgment on behalf of CBC in relation to the quantum of Banner's claim.
11. That conclusion is supported, at least to an extent, by the contemporaneous evidence, which demonstrates that Turner & Townsend, the project quantity surveyors, were producing documents at the time of the last advance payment which called that process "a valuation". I also note that, on the detailed breakdown which they produced, whilst there is a clear reference to the stage payments under Alternative A (which did not of course require valuation), the same document also referred to an assessment of "95% of the value of the work executed on the site". These documents are, therefore, slightly muddled as to precisely what (certainly by this stage of this troubled contract) Turner & Townsend thought they were actually doing.
12. However, this evidence cannot be taken too far, because I accept Mr Clay's submission that, in the witness statement of Mr Clark (on behalf of Banner) which exhibits that valuation, it appears relatively clear that it was not Banner's view that a detailed interim valuation process was in train. Certainly, beyond the documents to which I have already referred, there is no evidence of such a process in the present case.
13. Although I have concluded that Banner's pleaded case is not one that should be shut out by way of summary judgment, there are two important points that I need to go on to consider. One is the nature of the further work which Banner will need to do, as a matter of extreme urgency, to set out the case properly, and the other is to make plain what seems to me to be the relatively narrow basis of the Banner case on valuation.
14. First, as to the further work that is necessary, it seems to me that it is not satisfactory for Banner simply to plead a one line assertion as to the value of the work done as at 23rd March 2009. I appreciate that the use of the certificated advances is essentially designed as a short-cut, and is an attempt on Banner's part to avoid having to go back to square one and value the works from the outset, all the way up to 23rd March. But even a short-cut which may be arguable still needs to be set out in such a way that the other side (and their expert) will be able to understand the case to which they must respond.
15. In essence, Banner are equating value with the sums paid, and a properly particularised case making out that equation will need to be provided within a very short space of time. I will hear the parties as to that period, but I have in mind a period not in excess of two weeks. I also have in mind making that a final order, in view of the delays that have already occurred in the provision of Banner's pleaded case.
16. Secondly, there is the limit on the scope of Banner's claim. Although the case will be advanced on the basis that a proper equation between value and the sums paid can be made, how will that work out in practice? The Turner & Townsend witnesses may have to give evidence in order to make plain whether or not, certainly by 23rd March, the sums being certified were based on a valuation of the works actually carried out. If they were, then clearly Banner's case becomes considerably easier.
17. If, however, the sums certified by way of advance payment were not based on valuations of the work actually carried out, and the sums being paid were simply taken from a stage payment chart agreed at the outset, then it seems to me that the argument will then focus on whether or not, in this case and on these facts, the equation between valuation and the sums paid is an appropriate one. That may or may not involve a detailed assessment of the sums paid and the value of the works. Put another way, what is a short-cut for Banner by way of presentation of their claim seems to me, at least potentially, to give rise to an equal short-cut available to CBC in defence of that claim. For example, if CBC can take a number of examples to demonstrate that there is no equation between payments and valuation, then that may be sufficient to defeat the entirety of this part of Banner's claim.
18. Accordingly, in my judgment, the short-cut proposed by Banner is one which is theoretically permissible, but it still requires further pleading and it may, once the evidence is prepared, carry with it other difficulties. But that, at least, is for another day.