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

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

		Royal Courts of Justice Strand, London, WC2A 2LL
		8th October 2012

 


Mr Justice Akenhead:

Introduction

1. In these proceedings, Alstom Power Ltd ("Alstom") seeks summary judgement both to enforce an adjudicator's decision and for declarations as to the ownership of certain assets. Issues arise about deemed ownership of equipment and the extent if at all that title actually passes for ever to the main contractor from the sub-contractor. Alstom was engaged by RWE Npower plc ("RWE") as the main contractor to engineer, procure and construct a substantial power plant in Pembrokeshire in Wales. Alstom employed an Italian company SOMI Impianti s.r.l ("SOMI") as sub-contractor to carry out mechanical and piping erection and plant piping and mechanical erection in two packages for the two primary parts of this project.

The Sub-Contract

2. The Sub-Contract was made on 16 April 2010, and the General Conditions of Contract are clearly based, at least in part, on well known standard forms. There are provisions in Clause 54 of those conditions, as partly amended, which require the Sub-Contractor to provide various items of "Subcontractor's Equipment" and materials necessary to complete the work. The term "Subcontractor's Equipment" is defined by Clause 1.1 of the General Conditions of the Subcontract as meaning "all appliances and things of whatsoever nature, other than Temporary Works, required for the execution and completion of the Works excluding Plant, materials or other things intended to form or forming part of the Permanent Works".
3. Clause 54 contains relevant sub-provisions:

"54.1 All Subcontractor's Equipment...and materials shall, when brought on to the Site, be deemed to be exclusively intended for the execution of the Works and the Subcontractor shall not remove the same or any part thereof, except for the purpose of moving it from one part of the Site to another, without the written consent of the Contractor.

54.2 All Subcontractor's Equipment... and materials owned, leased or hired by the Subcontractor or any of its subcontractors, shall, when on the Site, be deemed to be the property of the Contractor.

The vesting of such property in the Contractor shall not prejudice the right of the Subcontractor to the use of Subcontractor's Equipment, Temporary Works and materials nor shall it affect the Subcontractor's responsibility to operate and maintain the same under the provisions of the Subcontract.

54.3 The Contractor shall not at any time be liable, except as provided in Clauses[sic] 20, for loss of or damage to any of the Subcontractor's Equipment, Temporary Works or materials…

54.5 Upon the removal, with the consent of the Contractor under Sub-Clauses [sic] 54.1, of any Subcontractor's Equipment, Temporary Works or materials as have been deemed to have become the property of the Contractor under Sub-Clause 54.2 the property therein shall be deemed to re-vest in the Subcontractor.

54.6 All agreements in respect of hired Subcontractor's Equipment (which agreement shall be deemed not to include an agreement for hire purchase) shall contain a provision such that the Owner or Contractor may in the event of termination of the Subcontractor's employment, higher such Subcontractor's Equipment on the same terms. The Owner or the Contractor shall thereafter be entitled to permit the use thereof by any other contractor employed by him.

54.9 Goods and materials to be supplied pursuant to the Subcontract shall become the property of the Contractor at whichever is the earlier of the following times:

(i) when goods and materials are delivered to Site, or

(ii) when the Subcontractor becomes entitled to payment of the value of the goods and materials.

The Subcontractor shall fully indemnify and keep indemnified the Contractor against any claims, losses or damage arising from any defect in title to or any encumbrance or charge upon any goods and materials supplied pursuant to the Subcontract."

4. Clause 63 deals with termination of the employment of the Sub-Contractor, and there are various grounds for this to occur, including the insolvency or financial inability of the Sub-Contractor to proceed, persistent or flagrant neglect to comply with contractual obligations, suspension of work, committing any default which may seriously affect the proper implementation of the main contract works, and the one mentioned above which relates to liquidated damages exceeding the maximum limit. In those circumstances, the Contractor may, having given four days' written notice, terminate the employment of the Subcontractor, and the termination "shall not release the Subcontractor from any of its obligations or liabilities under the Subcontract, or affect the rights and authorities conferred on the Contractor by the Subcontract, and the Contractor may himself complete the Works or may employ any other contractor to complete the Works. The Contractor or such other contractor may use for such completion so much of the Subcontractor's Equipment, Temporary Works and materials as it or they may think proper".
5. Clauses 63.2 and 63.3 state:

"63.2 If the Contractor takes possession of the Subcontractor's work under Sub-Clause 63.1, the Contractor may either by itself or by another contractor complete that work and the Contractor may without payment of compensation take possession of: (a) such of the Subcontractor's Equipment and Temporary Works and other things on or in the vicinity of the Site as are owned by the Subcontractor; and (b) the Subcontractor Provided Drawings and other documents, information and materials and the like produced by the Subcontractor, which are reasonably required by the Contractor to facilitate completion of the work...

If the Contractor takes possession of Subcontractor's Equipment and Temporary Works and other things, the Contractor shall maintain them and, subject to Sub-Clause 63.3, on completion of the work, the Contractor shall return to the Subcontractor the things taken under this Sub-Clause 63.1 which are surplus and, subject to any other provision of the Subcontract, the Subcontractor Provided Drawings and other documents, information, materials and the like produced by the Subcontractor.

63.3 When the Subcontractor's employment has been terminated under Sub-Clause 63.1, the Contractor shall ascertain the cost incurred by the Contractor in completing the work and shall issue a certificate pursuant to this Sub-Clause 63.3 to the Contractor and the Subcontractor certifying:

(a) the amount of that cost, and setting out the calculations employed to arrive at that cost;

(b) the amount which would otherwise have been paid to the Subcontractor if the work had been completed by the Subcontractor; and

(c) the difference.

If the cost incurred by the Contractor is greater than the amount, which would have been paid to the Subcontractor if the work had been completed by the Subcontractor, the difference shall be a debt due from the Subcontractor to the Contractor. If the Subcontractor is indebted to the Contractor, the Contractor may retain Subcontractor's Equipment and Temporary Works and other things taken under Sub-Clause 63.2 until the debt is satisfied. If after reasonable notice, the Subcontractor fails to pay the debt, the Contractor may sell the Subcontractor's Equipment or Temporary Work or other things and apply the proceeds to the satisfaction of the debt and the costs of sale. Any excess shall be paid to the Subcontractor."

The History

6. It would be repetitive to set out the history, much of the material parts of which have been set out in a judgment given by this Court on the summary judgement application of Alstom on 21 December 2011 (reported at [2011] EWHC 3941 (TCC)). Suffice it to say, SOMI performed poorly in terms of progress, got into financial difficulties, suspended work and unlawfully removed some of the key "TOPs" (turnover package documentation) from the site. The Court granted various injunctions against SOMI requiring them effectively to deliver up the TOPS which they had removed and SOMI in contempt of court ignored those injunctions; SOMI's current solicitors and Counsel were not then retained. Alstom had sought in August 2011 to terminate the employment of SOMI under the provisions of Clause 63. Alstom had and has secured various adjudication decisions against SOMI, the one requiring payment by SOMI being not honoured.
7. In about and after December 2011, steps were taken by way of insolvency proceedings in Italy to have SOMI put into what may be called liquidation ("Concordato Preventivo"), with a Dr Norscia appointed as a "judicial commissioner" in connection therewith in February 2012.
8. Alstom has retained "Sub-Contractor's Equipment" originally brought on to site by SOMI. Although the main works were handed over in about September 2012 by Alstom to RWE, it wishes to keep them at the site for the foreseeable future. In 2012 SOMI attempted forcibly to remove assets from the site and on one occasion the police had to be called to resolve a confrontation.

The Proceedings

9. On 5 July 2012, Alstom issued the current proceedings against SOMI. Essentially what it claims fell into two parts. The first (with which this judgement is not concerned) was a claim to enforce and adjudicator's decision in their favour in the gross sum of £7,860,227.48. The second was to seek a declaration (as set out in Paragraph 32 of the Particulars of Claim) as follows:

"1. All appliances and things of whatsoever nature required for the execution and completion of the subcontract works brought to Pembroke Power Station by the Defendant or its sub-contractors, including

(1) goods and materials, plant and equipment brought to site by the Defendant or its subcontractors;

(2) 'Subcontractor's Equipment' as that phrase is defined in the subcontract;

(3) all such items whether owned, least or hired by the Defendant or by its sub-contractors;

are deemed to be the property of the Claimant.

2. The Defendant (or its successors in title, or agents or other representatives of the Defendant), is not entitled to remove any such items from the site."

10. Alstom issued a summary judgment application also in early July 2012 for both parts of its claims. In relation to the second part, the summary declaratory judgments sought were identical to that set out above save that the words "deemed to be" were omitted.
11. Mr Justice Ramsey on 9 August 2012 gave judgement in favour of the Claimant in the net sum of £5,328,341.80 plus interest in relation to the adjudication enforcement claim but adjourned Alstom's claim in respect of declaratory relief to a hearing to take place on 19 September 2012.
12. It is clear that there are differences between the parties as to what the legal and procedural impact of the Concordato Preventivo is in relation to the property in or title to various items, such as may be encompassed by the expression "Sub-contractors Equipment". It is or appears to be common ground (and it is in any event the case) that I can not resolve those differences on a summary judgement application.
13. It is now, rightly, common ground that this Court does have jurisdiction to decide whether and to what extent Alstom has title to or property rights in "Subcontractor's Equipment". This is largely due to the fact that the Sub-contract is subject to English (and Welsh) law and to the jurisdiction of this Court. It has also, somewhat belatedly, become common ground that the title in "goods and materials" has and had passed from SOMI to Alstom.
14. SOMI's Counsel (who has properly indicated that he and his solicitors act only for the company SOMI and not Dr Noscia) has indicated that it is not expected that Dr Noscia will be seeking to bring in property belonging to SOMI until next year.
15. Essentially, what the arguments have boiled down to is whether actual title to and property ownership of "Subcontractor's Equipment" passed to and remains with Alstom. There seems to be little argument left that such "Subcontractor's Equipment" is currently "deemed to be" the property of Alstom pending the completion of the Warranty Period, which is effectively a defects liability or maintenance period following takeover of the works. Alstom also seek to argue that this Court has already decided the issue about ownership of the Subcontractor's Equipment in the judgement given on 21 December 2011 and that there is therefore a res judicata.

Discussion

16. The case of Cosslett (Contractors) Ltd v Mid-Glamorgan County Council (2007) 85 BLR 1 is an extremely useful case in that it involved the "deemed" ownership of a contractor's plant, goods and materials and the impact of the termination of the contractor's employment. There are additionally some, albeit not exact, similarities in the contractual wording. There are some useful and relevant parts of the judgments of Evans and Millett LJJ:

"These authorities to show that for more than a century building and engineering contracts have contained clauses which provide that the property in goods and materials and in plant which the contractor brings onto the site shall pass or be "deemed" or "considered" to pass to the employer, at least until the works are completed. The underlying reason may well be…that it is in the employer's interests to have the plant, goods and material which are on the site free from all risk that they might be followed and seized by creditors of the contractor. Another factor, which is especially evident in the early cases…was that materials which became part of the building as it was constructed, thereupon become the property of the owner of the building, by operation of law, by virtue of being incorporated…

It was also in the employer's interest, if the contractor should default or for any other reason fail to complete the works, that the same plant, goods and materials should remain on the site and be available for the employer or any other contractor whom he might introduce to complete the works to use for that purpose.

These objects were achieved, so far as the contractual wording was concerned but subject to various legal challenges that were made, by clauses which provided that the property shall pass or be deemed or considered to pass to the employer until such time as the works were complete…

Whether the clause had this effect, however, was always a question of construction in the circumstances of the case…[per Evans LJ pages 12-13]

(1) Does clause 53 (2) transfer legal property in the plant to the Council?

This depends on the terms of the contract and is a pure question of construction: see Re Fox [1948] Ch 407,419. The authorities show that it may turn on fine distinctions. Where the contract provides that plant and materials brought on to the site "shall be and become" the property of the employer the words are given literal effect and the contract is treated as passing legal title to the employer: Reeves v Barlow (1884) 12 QBD 436,442; Bennett & White (Calgary) Ltd v Municipal District of Sugar City [1951] AC 786. Where, however, as in the present case the contract provides only that the plant and materials "shall be deemed" or "shall be considered" to be the property of the employer, the words are regarded as ambiguous. In such a case other provisions of the contract may be taken into account in order to decide whether the contract has the effect of passing the legal property in the plant and materials to the employer or whether, as the prima facie meaning of the words suggest, it does not have this effect but merely entitles the employer to act as if the property in the plant and materials had passed: Brown v Bateman (1867) LR 2 CP 272; Re Winter (1878) 8 Ch D 225; Milnes v The Mayor of Huddersfield (1883) 12 QBD 443,449; Keen v Keen [1902] 1 KB 555.

Not all the cases are consistent…Of course the contract must be construed as a whole, but given that it is susceptible of two possible meanings the actual words of the clause relied on to pass the title must be of great importance.

In the present case there are several indicia that the legal ownership of plant and materials brought onto the site does not pass to the Council. Such plant and materials are described throughout as "plant and materials which have been deemed to become the property" of the Council, a circumlocution which might well have been dispensed with if they had become the actual property of the Council. The Company is prohibited by clause 53 (6) from removing plant or materials from the site without the consent of the engineer (a similar clause was said in Keen v Keen to be unnecessary if the plant and materials belonged to the Council). Finally clause 53 (9) exempts the Council from liability for loss of or injury to plant or materials brought into the side (a provision which was said in Keen v Keen to be inconsistent with the property having passed to the Council).

I do not find this last consideration persuasive in view of the fact that the contract in the present case, unlike that in Keen v Keen, contains a revesting provision (clause 53 (7)). For its part the Council relies on the provisions of clause 53 (6) by which the Company is granted permission to use the plant to complete the work in clause 53(7) by which the plant and materials revest in the Company on completion of the works or previous removal from the site. The Council submits that neither provision would be necessary unless legal title had passed to the Council under clause 53 (2). In my judgment there is no substance in this point. The Company would need permission to make use of the plant whether legal ownership had actually passed to the Council or had only been deemed to pass to it; while clause 53 (7) is carefully drawn to provide for a deemed revesting, and merely "undeems" that which is previously deemed…" [per Millett LJ pages 15-17)

17. I draw from this case the following principles, applicable in this case:

(a) A primary way (but not the only way) of property in or title to plant, equipment, materials or goods being transferred in a construction context is by way of contract.

(b) In such cases, the question of whether such property or title has been transferred is one of construction or interpretation of the contract between the parties whereby the plant, equipment, materials or goods are provided, supplied or delivered by one party to or for the benefit of the other.

(c) Where there is clear wording in effect that ownership is or is intended permanently to be passed, that will be the result.

(d) Where the expression used is that plant, equipment, materials or goods are "deemed" to become the property of one party to the contract, one needs to look at other terms which cast light on the purpose, extent and duration of this requirement to see whether or not it was mutually intended that ownership is or is intended permanently to be passed.

18. It is now conceded by SOMI, rightly, that the effect of Clause 54(9) is that ownership in goods and materials to be and actually supplied by SOMI "pursuant to the Subcontract" has passed to Alstom. This was a proper concession to make because the wording of that sub-clause is itself clear ("Goods and materials to be supplied pursuant to the Subcontract shall become the property of [Alstom]") and the remainder of the sub-clause explains, so to speak, why commercially that is to be the case, namely the property passes either upon delivery to the site (effectively for use in the Works) or at the moment when payment for them becomes due (or when in effect Alstom might be considered to have bought them).
19. One then needs to consider the wording of Clause 54.2 by which all "Subcontractors Equipment…and materials owned, leased or hired by the Subcontractor or any of its subcontractors, shall, when on the Site, be deemed to be the property of the Contractor." I have formed a very clear view that permanent ownership of Subcontractor's Equipment was not intended to be passed by this or any other provision. My reasons are as follows:

(a) Obviously if one compares the wording of' Clause 54.2 and Clause 54.9, there is the very marked difference in which one clause talks about something being "deemed to be" the property of the Contractor whilst the other is about something "becoming" the property of the Contractor. The draftsmen must be taken to have appreciated that there was or the very least there might sensibly be considered to be a relevant difference between the two types of expression. If Alstom was right, the "deeming" provision was an unnecessary "circumlocution", to borrow Millett LJ's expression in the Cosslett case.

(b) It is not coincidental that "materials" feature in both sub-clauses. There would be no need for them to feature in both unless the purposes of the two clauses were different. Clause 54.9 is dealing with the transfer of ownership and chattels. Clause 54.2 is addressing something else, which is what these various items, including Subcontractor's Equipment, are to be considered as "when on the Site". The property is deemed to be the Contractor's whilst it is on the site but not before or after.

(c) If the effect of Clause 54.2 was intended to transfer ownership of Sub-Contractor's Equipment, there is no obvious, verbal or commercial, reason why it would be necessary to "deem" ownership to be transferred to the Contractor.

(d) One needs to consider what was the practical and commercial purpose of there being Subcontractor's Equipment at the site. The reason appears from the definition which is "all appliances and things…required for the execution and completion of the Works". This covers things such as cranes and scaffolding which are required for instance to enable the Works to be done but which are not, at least generally, intended to be physically incorporated permanently in the Works. Cranes and scaffolding will in fact often be in the way and not required once the Works are fully completed. There is therefore a very good reason why such Equipment is to be "deemed to be the property of the Contractor" which is to secure their continued presence on the site until they are no longer required or until the Works are completed. There is no good commercial reason why the sub-contractor would want to transfer ownership on a permanent basis of such Equipment. There is no suggestion that there is anything elsewhere in the Sub-contract documentation which suggests any need for such Equipment to be needed permanently for the fully completed Works.

(e) One would need very clear wording to establish that ownership of such Equipment which has no need to be incorporated permanently in the completed Works was intended permanently to be passed to the Contractor. Such clear wording is not present.

(f) Clause 54.5 suggests that there will come a time when Subcontractor's Equipment will revert to the Sub-contractor, albeit with the consent of the Contractor. One might say that this "consent" is not qualified by words such as the "consent not unreasonably to be withheld". On the other hand, it would be odd commercially if the revesting of property was dependent simply upon the whim of the Contractor. If the Contractor had no obligation to but could simply gratuitously return ownership, there is little or no need for Clause 54.5 at all.

(g) Importance was attached by Counsel for Alstom to the further words in Clause 54.2 referring to the "vesting of such property in the Contractor" as suggesting that property was by the preceding "deeming" words to be to be considered as having been "vested" in Alstom. It is most unlikely that the "tail" of this sub-clause is "wagging the dog" in terms of dictating what the earlier words meant. The word "vesting" here much more obviously means the deemed property arrangement envisaged by the preceding words. It would be different if the words had been to the effect that "by this provision property shall be vested in the Contractor".

(h) As in the Cosslett case, there would be no need for the requirement in Clause 54.1 that Subcontractor's Equipment should not be removed without consent if in reality it had been intended that ownership should be permanently transferred from SOMI to Alstom because if that had happened there would be no entitlement to remove it at all.

20. That said, it is clear that these provisions were to provide important contractual rights to Alstom and it is no longer suggested, and rightly so, that Alstom is currently in breach of contract for retaining on the site the Subcontractor's Equipment. There is nothing in Clause 54 which suggests when such Equipment has to be given back to SOMI. I can not determine whether as a matter of Italian insolvency, administration, bankruptcy or liquidation law or practice the time has come when such Equipment reverts to SOMI. Clause 63.2 makes it clear that the Contractor can take possession of such Equipment "on or in the vicinity of the Site… which are reasonably required by the Contractor to facilitate completion of the work", albeit that the same provision requires the Contractor to return the same. Thus, the Clause 63.2 rights only apply to the extent that such Equipment is actually reasonably required to facilitate completion; these rights do not apply if the Equipment is not so required. Clause 63.3 enables the Contractor to sell such Equipment and apply the proceeds to satisfy any debt which has arisen in effect under the determination provisions generally but more particularly under Clause 63.3. In this latter regard, it was accepted in argument that as a matter of fact the Clause 63.3 payment after termination may well not have accrued yet to Alstom. Whether or not the effect of Italian law and practice is such as to prevent the exercise of this right is a matter which I can not and should not decide on a summary application.
21. It is argued that it is not open to this Court to decide that ownership in Subcontractor's Equipment has not passed permanently to Alstom, because it is said that the Court has already decided this issue in December 2011. I do not accept that argument for the following reasons:

(a) I will not set out the terms of that judgment and reference can be made to the report of that decision.

(b) The judgment which materially related to an application for summary judgment should be considered in the light of the proceedings and the application made on 12 December 2011. The Particulars of Claim identified that there was a valid termination of the contractual employment of SOMI on the basis of material breach of contract. However, the focus in relation to the injunctions was the entitlement which Alstom said that it had to the TOPs which were identified as "materials" and which were set out in a detailed Schedule 1.

(c) The judgment of 21 December 2011, which was given ex tempore, in three paragraphs (14-16) made certain findings which included that the TOPs were Subcontractor's Equipment and it followed therefore that "the property and title in the TOPs remained with Alstom as soon as SOMI brought them on to the site (Clause 54.2)". They were also "materials" within the meaning of Clauses 54.9 and 54.14. There was an effective finding in Paragraph 15, picking up findings of material breach of contract on the part of SOMI earlier in the judgment, that the termination procedure finalised in mid-August 2011 was on the basis that "proper grounds existed in fact pursuant to Clause 63…which justified the termination by Alstom of the employment of SOMI". Paragraph 16 concluded following from these findings that SOMI had no right to remove the TOPs.

(d) There was no argument (unsurprisingly because SOMI did not attend the hearing) about the permanent or temporary nature of ownership set out in the deeming provision in Clause 54.2. It would not have mattered to the outcome in any event because there were other routes not least of which was that under Clause 54.9.

(c) I can not see therefore that the thing (res) being decided (judicata), in relation to the transfer of property was anything other than whether or not title in the TOPs permanently passed from SOMI to Alstom. It was not being decided that ownership of any other Subcontractor's Equipment was being permanently transferred to Alstom.

22. In conclusion, in my judgment, Alstom clearly has and had contractual rights over goods, materials and Subcontractor's Equipment (also having ownership of the goods and materials under and pursuant to Clause 54.9). Thus, SOMI had no rights to remove the same in the circumstances envisaged by Clauses 54.1, 54.2 and 54.9. Given that there has and has been found to be a valid termination under Clause 63, Alstom has possessory rights over the Subcontractor's Equipment until the work can be said to have been "completed"; that can not yet be said to have occurred pending the completion of the Warranty Period. Alstom has rights to sell such Equipment under Clause 63 if and when the procedure set out in Clause 63.3 has been implemented. However, as such, ultimate ownership of such Equipment did not in property terms permanently transfer to Alstom. As indicated above, it is not appropriate for me to decide summarily whether the Concordato Preventivo procedure and Italian Law act so as to prevent or limit Alstom's contractual rights in any material way and, if so, when.
23. There remains an issue between the parties as to whether any declaration(s) should be granted. It is accepted that the Court has a discretion in this regard. In my discretion, I do consider that it is important that appropriate declarations are granted so that there is no or at least less room for doubt as to what the parties' rights are. I bear in mind the evidence that SOMI has this year attempted to come to site physically to remove some such Equipment and that it is desirable that the position is clear to ensure that no such incidents occur again. I am also conscious that SOMI was in contempt of court and has only very recently attempted to purge its contempt. As I understand the position, it has not paid the fine imposed upon it and I am not therefore satisfied that it has purged its contempt. Also, it was only recently that SOMI accepted that ownership in the goods and materials provided by it in relation to this project had passed to Alstom.

Decision

24. Declarations are to be made in respect of the subject matter of this judgment, in the terms of the judgement. I will leave the parties' legal representatives to agree the terms and any issues relating to costs. To the extent that they can not do so, there should be a further short hearing finally to resolve those matters.