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
		28th June 2013

 


Mr Justice Akenhead:

Introduction

1. These proceedings are for the enforcement of an adjudicator's decision where the parties gave the adjudicator jurisdiction to decide who the relevant parties to the relevant sub-contract were and there is some confusion and possible tactical position taking in relation to whether the right party was determined by the adjudicator. Issues arise as to whether there should be a stay of execution given that the successful party who the adjudicator decided was the relevant sub-contractor is and always was a dormant company.

The Factual Background

2. Buckingham Group Contracting Ltd ("Buckingham") was a main contractor engaged in 2011 to construct a new studio for the well known television "soap", Coronation Street, at Trafford Wharf Road, Salford. In early October 2011, Westshield Ltd ("WL") was asked by Buckingham to quote for the supply and installation of drainage works for this project and it provided a quotation on 21 October 2011. As is common, there was a "Pre-order meeting" on 7 November 2011 attended by representatives of Buckingham and WL, minutes of which described WL as the "Sub-Contractor" and referring to the quotation. It identified a start date for the contract of 12 December 2011 and that valuations were to be carried out monthly.
3. For reasons which are not obvious, the unsigned form of sub-contract headed "Conditions of Sub-Contract" dated 20 October 2011 identified Buckingham as the main contractor and Westshield Civil Engineering Ltd ("Civil Engineering"), a dormant company, as the sub-contractor; this is not a subsidiary as such of WL albeit that it is owned by one or more of the same shareholders. The Appendix to this written form identifies the quotation from WL and the signed minutes of the Pre-order meeting as being incorporated documents and the WL Quality Assurance plan as material. Clause 9 materially said as follows:

"9(1) The period within which payment shall become due after the period end ('the payment due date'), the final date for payment and the relevant period under the provisions of this Sub-Contract shall be as detailed in Part IV of the Appendix, or as otherwise provided by this Agreement.

9(2) Payment may be withheld or prejudiced [sic] if any of the Sub-Contractor's obligations be unfulfilled or outstanding, subject to a Notice to Pay Less be issued by the Contractor to the Sub-Contractor no later than one day ('the prescribed period') prior to the final date for payment.

9(3) Within 60 days, unless stated elsewhere, of completion of the Sub-Contract Works, the Sub-contractor shall provide a detailed Final Statement of the value of works executed, which shall include all matters or things arising out of or in connection with the Sub-Contract or the execution of the Sub-Contract Works. The period within which payment of any sum due arising from submission of the Final Statement and the final date for payment under the provisions of this Sub-Contract shall be as detailed in Part IV of the Appendix, or as otherwise provided by this Agreement."

Part IV in relation to the final payment stated that: "Payment shall become due within 60 days of the end of the relevant period and the Final Date for payment shall be 30 days later."

4. There was a relatively standard adjudication clause, incorporating the ICE Adjudication Procedure but Clause 14(6) was in these terms:

"The decision of the Adjudicator shall be binding on the parties and they shall comply with it until the dispute is finally determined either by agreement, by legal proceedings or by arbitration. Should either party be dissatisfied with the decision of the adjudicator that party may within 28 days of the Adjudicator's decision refer the dispute to either legal proceedings or arbitration in accordance with clause 15 of this Sub-Contract. If no such proceedings are commenced within the said 28 days then the Adjudicator's Decision shall be final and binding on the parties."

It is common ground that the parties contractually opted for litigation and not arbitration.

5. The Sub-Contract Works were started in December 2011 and seven applications for payment were submitted to Buckingham between January and July 2012. It seems to be common ground that the work was completed in July. On 17 July 2012, WL or Civil Engineering submitted its final application which identified a gross value of £549,954.73. On 13 August 2012 Buckingham issued its own assessment of this final application which identified its view that the gross sum due was much less, £363,766.81. A dispute arose thereafter as to the proper valuation of the final account between the parties.

The Adjudication

6. Buckingham commenced an adjudication against Civil Engineering by a Notice of Adjudication dated 5 December 2012. The relief claimed by Buckingham was for a declaration that the sum due to Civil Engineering was £363,766.81 plus VAT "or such other sum as the Adjudicator shall otherwise declare is due" to Civil Engineering. Somewhat elliptically, it also claimed for repayment if the Adjudicator decided that the gross sum due was less than this figure; it does not appear that prior to this Buckingham had been suggesting that its own assessment represented an over allowance. Mr Philip Doherty was appointed as the adjudicator. The Referral Notice which followed from Buckingham on 12 December 2012 claimed that the re-assessed gross value was in fact £295,284.17 and claimed a repayment of the balance.
7. Civil Engineering put in its detailed Response on 28 December 2012 which ran to 126 pages. The first threshold point made was that there had been an error by Buckingham in writing in the name of Civil Engineering into the Sub-Contract Order, given that Civil Engineering was dormant and that most of the preceding exchanges were with WL, stating at Paragraph 2.06:

"Faced with this position Buckingham may well wish to withdraw from this adjudication and re-commence with [WL] or alternatively, and the most sensible solution, would be to substitute and read [WL] for the Responding Party in lieu of [Civil Engineering]".

The Response went on to assert that the true overall value of the Sub-Contract Works was £641,048.17.

8. Buckingham replied on 4 January 2013 asserting unequivocally that the Sub-Contract was between it and Civil Engineering, averting to the fact that WL had been placed into a creditor's voluntary arrangement on 7 December 2010 and into receivership on 9 May 2011. It challenged the gross value put forward by Civil Engineering. Civil Engineering put in a "Rejoinder" which confirmed that its position was that the Sub-Contract was between Buckingham and WL. Buckingham submitted a "Surrejoinder" on 11 January 2013.
9. It is common ground that the adjudicator was by agreement given jurisdiction to determine the issue as to who the proper Sub-Contractor was. The adjudicator produced his decision on 16 January 2013 which comprises 14 pages of prose as well as a schedule which analyses the account. With regard to the issue relating to the identity of the Sub-Contractor, he said as follows (referring to Civil Engineering as "WCEL"):

"1…It is clear from the Minutes of Pre-Order Meeting that the Parties were always aware that WCEL were trading as [WL], the Tender was from [WL] and incorporated into the Contract, correspondence was from/to [WL] and payments made to [WL] who received them on behalf of WCEL…

24a There was some disagreement about the correct identity of the Responding Party and the Referring Party was very firm in that the Contract had been placed with [Civil Engineering] and any references to [WL] are erroneous. I must agree with the Referring Party as the Contract Agreement is clear and unambiguous…

10. He then analysed the state of the account and decided as follows:

"MY DECISION

25. I Declare that the sum due to the Responding Party under the Contract is £505,474.66 (plus Applicable VAT).

26. I Decide that as the sum due being greater than £363,766.81 (plus applicable VAT) it is not for the Responding Party to make payment and as no overpayment has been made there is no interest payable by the Responding Party to the Referring Party.

27. I Decide that each party pays half the fees and expenses of the Adjudicator and accordingly I attach invoices each Party in equal sums of £16,632…

PAYMENT DUE

82. In relation to the contractual payment terms I find that money are due to WCEL but do not have jurisdiction, in this Adjudication, to order payment. I do FIND an amount due from [Buckingham] to WCEL £505,474.66 plus VAT [£513,172.24 - £7,697.58 being 1.5% retention] from which previous payment should be deducted.

INTEREST ON LATE PAYMENT

83. There is no overpayment to WCEL, on the contrary there is an underpayment and interest is due on such sum in accordance with the Sub-Contract or Statute.,,

WHEN IS PAYMENT TO BE MADE

89. I FIND that payment is to be made by [Buckingham] to WCEL but as correctly stated in the Reply to the Response that direction is beyond my jurisdiction in this Adjudication - I can and have the jurisdiction to declare the sums due between the parties but the Notice of Adjudication does not give me the jurisdiction to make any award of sums to [Civil Engineering]. Neither was my jurisdiction enlarged during the currency of this Adjudication."

11. Civil Engineering sought payment of the net sum due consequential upon this decision and, no payment being forthcoming, it instituted a second adjudication serving a Notice of Adjudication dated 27 March 2013 on Buckingham; this effectively sought payment. Mr Brian Eggleston was appointed adjudicator. Somewhat surprisingly however, Buckingham sought to persuade Mr Eggleston that the decision was not enforceable because Civil Engineering was not the correct party to the Sub-Contract; this was completely contrary to the stance which it had taken in the adjudication. Mr Eggleston declined jurisdiction. It is clear from the internal e-mail set out below Buckingham was engaged on a relatively tactical manoeuvre.
12. An interesting e-mail dated 18 January was disclosed, somewhat surprisingly, by Buckingham. It was written by Buckingham's solicitors to their client and contained a review of the adjudicator's decision. References are made to a Mr Hale, a representative of Civil Engineering and WL. Material parts are as follows:

"…As a result of Mr Hale's conduct, we now have a Decision that values sums in favour of WCEL, but even on WCEL's own case, the sums are in fact valued in favour of WL…

The position is as follows:

…If WCEL commences further proceedings to obtain an order for payment of the sums due we have the option of contesting the new adjudicator's decision on the basis that their own evidence states that they are not a party;

If WCEL seeks to enforce the Adjudicator's Decision in the Courts, there is nothing to enforce in the Decision (because there is no order for payment), such a threat is a hollow one…

There seems to be uncertainty as to whether WCEL is trading. If not, they will have great difficulty taking any further action at all…

Next steps and recommended strategy

As you will appreciate, strategically WL/WCEL have got very few options and [Buckingham] is now in an excellent position, as we planned at the outset of this matter…

For WL/WCEL to have any success on contested proceedings, they will not get much change out of £30,000-£35,000 in legal costs. They need to appreciate this…"

The Manchester Proceedings

13. Unbeknownst to WL and Civil Engineering, on 13 February 2013 Buckingham issued (but did not before the hearing in this Court serve) proceedings against Civil Engineering and WL as First and Second Defendants in the TCC in Manchester. There were no Particulars of Claim but the "Brief details of claim" on the Claim Form were as follows:

"The Claimant and the First and/or Second Defendant entered into a contract for inter alia alia, civil engineering works. The claim is for recovery of overpayment(s) made by the Claimant to the First and/or alternatively Second Defendant, together with interest thereon.

The Claimant claims:

(1) damages for breach of contract from the First Defendant and/or alternatively Second Defendant;

(2) payment of a debt and/or debts under the contract;

(3) declaratory relief;

(4) equitable relief;

(5) interest thereon…and/or…and/or costs

(6) such further or other relief as the Court thinks fit."

14. Under the Civil Procedural Rules, service does not have to be effected for four months thereafter. As at the date of the hearing before this Court, the Claim had not been served on either Civil Engineering or WL.

These Proceedings

15. For reasons best known to themselves, Civil Engineering and WL issued Part 7 (as opposed to Part 8) proceedings seeking enforcement of the decision. Declarations were also sought that Civil Engineering and Buckingham were bound by the decision, that WL, Civil Engineering and Buckingham were bound by the decision of the adjudicator as to the proper identity of the Sub-Contractor and that Civil Engineering was entitled to be paid the difference between the gross sum found to be due and the sums previously paid, namely the balance of £147,164.66 plus VAT. Additionally an order for payment of that sum was sought.
16. There was confusion as to whether these were properly constituted Part 8 proceedings or whether they should be dealt with as Part 7 proceedings with a summary judgement application. In the light of there being no material issues of fact on what I have to address, these procedural issues are immaterial. Directions were given to bring this matter on within a short period of time and the parties were, broadly, able to comply with the directions leading up to the hearing. Two witness statements were submitted from Mr Kite on behalf of Civil Engineering and WL with his clients doing a comparable volte-face and hinting that on reflection the Sub-Contract was or may well have been with Civil Engineering and two witness statements put in by Mr Hyland on behalf of Buckingham. C still reserved its position on this at the hearing . .
17. A number of issues have emerged through those statements and the skeleton arguments of Counsel:

(a) Given the impact of Clause 14(6) of the Sub-Contract, have "proceedings" been "commenced" by Buckingham such as to prevent the adjudicator's decision becoming final and binding? WL and Civil Engineering argue that they have not been commenced because they have not been served or, alternatively, that the Details of Claim are insufficient to be considered as a reference to the Court of the same dispute as was resolved by the adjudicator.

(b) Has there been approbation/reprobation by Buckingham with regard to its shifting stance as to who the party was with whom it sub-contracted?

(c) Even if the decision is to be considered as binding until final resolution of the dispute, should there be a stay of execution by reason of the fact that Civil Engineering is dormant and has no assets to speak of?

There were some other issues such as whether or not the sum identified as due was payable in the light of two "Pay Less" notices served after the publication of the adjudicator's decision but these were not pursued.

Discussion

18. I will consider first the issue relating to Clause 14(6), the material part of which states:

"…Should either party be dissatisfied with the decision of the adjudicator that party may within 28 days of the Adjudicator's decision refer the dispute to either legal proceedings or arbitration in accordance with clause 15 of this Sub-Contract. If no such proceedings are commenced within the said 28 days then the Adjudicator's Decision shall be final and binding on the parties."

In this case, litigation was the chosen final dispute resolution forum and therefore the issue revolves around when court proceedings can be considered to be commenced. More narrowly, the argument is between whether or not simply the issue of court proceedings amounts to commencement and whether there must be service before they can be considered to have been commenced.

19. There can be no doubt that Part 7 of the Civil Procedural Rules is applicable here. Part 7.2 is absolutely clear:

"(1) Proceedings are started when the court issues a claim form at the request of the claimant.

(2) A claim form is issued on the date entered on the form by the court."

There is no absolute requirement that Particulars of Claim must be embodied within the Claim form. Part 7.4(1) gives the Claimant the option of either incorporating them within the Claim form or serving them with the Claim form.

20. These Rules distinguish between the issue of proceedings and the service of proceedings. CPR Part 7.5 lays down that for claim forms to be served within the jurisdiction there must be service "before 12.00 midnight on the calendar day four months after the date of issue of the claim form." There are other provisions (Part 7.6 and Part 7.7) which allow a claimant to apply for an order extending the service period and for the defendant to secure that the claimant serves an issued claim form.
21. In my judgment, there can be no doubt therefore that proceedings in England and Wales are started (or synonymously "commenced") when those proceedings are issued by the Court; the issue is at least usually signified by the impressing of the court stamp with a date on and usually follows the payment of the requisite fee.
22. What is therefore left by way of argument on behalf of the Claimants is that there must be a commercial or purposive interpretation of Clause 14(6) which reads the word "commenced" as meaning "served". I do not consider that this argument is viable for the following reasons:

(a) The word "commenced" is a relatively simple English word.

(b) The law applicable to this Sub-Contract is that of England and Wales and the parties must either have known or be taken to have known that it is the issue of proceedings within this jurisdiction which heralds the commencement of the proceedings.

(c) Adjudication generally and under this Sub-Contract is a process primarily designed to provide a decision which is temporarily binding after a relatively summary procedure but which can be reversed in the tribunal selected by the parties for final dispute resolution. To take away the right of a party to take the dispute to that final tribunal requires clear wording. Although the parties here do provide for that right to be taken away, it is subject to a step being taken, commencement of proceedings within a time limit, which will have the effect of preventing the decision from becoming finally binding. In my view, one would need absolutely clear and express wording to the effect that the "commencement" of proceedings meant "service".

(d) It is argued that it is somehow unfair or non-commercial that the losing party to an adjudication can in some way "conceal" the fact that it has effectively prevented the decision becoming final and binding by issuing appropriate proceedings but not serving them for up to 4 months. It is neither unfair nor non-commercial. The winning party can go immediately to court to have the decision enforced and the TCC generally will bring the enforcement proceedings to a hearing within 3-4 weeks of the issue of the proceedings; that party therefore can secure the commercial benefit of a decision in its favour. The winning party must at least contractually be aware that in this country the other party may have issued but not yet served proceedings effectively challenging the adjudicator's decision and that therefore the decision may not have become finally binding. If the proceedings are not served on it within four months plus 28 days, it may turn out that the decision had become finally binding. In any event, a defendant can seek to secure the service of the Claim well before the 4 months are up.

23. The next argument deployed by Mr Moran QC for the Claimants was that the "Brief details of claim" endorsed on the Claim form by Buckingham were insufficient "to refer the dispute to…legal proceedings" within the meaning of Clause 14(6) and, thus, he argues that the proceedings commenced are not those contemplated by the sub-clause.
24. CPR Part 16.2 specifies that the claim form must:

"(a) contain a concise statement of the nature of the claim;

(b) specify the remedy which the claimant seeks;

(c) where the claimant is making a claim from money, contain a statement of value in accordance with rule 16.3…"

25. The "Brief details of claim" on Buckingham's Claim form are set out above and they are concise. I am satisfied that these, albeit brief, details are sufficient to refer the underlying dispute to the Court, which was the parties' chosen tribunal for the final resolution of disputes. CPR Part 16.2 is not particularly prescriptive. The reference to the contract being between Buckingham on the one hand and Civil Engineering "and/or" WL identifies the dispute about the identity of the Sub-Contractor. There is a concise statement of the nature of the claim which is the recovery of overpayments, damages for breach and payment of debt. Other more general relief ("declaratory" and "equitable") is claimed and there is a "catch all" ("such further or other relief as the Court thinks fit"). There is a statement of value identified where the Claimant indicates that it "expects to recover more than £25,000" which satisfies rule 16.3.
26. Accordingly, the adjudicator's decision has not become final and binding because Buckingham commenced proceedings essentially referring the dispute addressed by the adjudicator through court procedures for final resolution.
27. Turning to the issue of approbation and reprobation, this is essentially an immaterial issue. There is no doubt that Buckingham has taken a tactical approach albeit I can not find that the tactics started when Buckingham addressed the adjudication proceedings to Civil Engineering, knowing that in reality the Sub-Contract was with WL. Since the adjudication was started however, it is believed that it has been able to take advantage of the confusion as to who the Sub-Contractor was; that is clear from its solicitor's e-mail which seems to join in with its client in congratulating themselves on creating the confusion. The tactics however are not all on one side because the Claimants even through Counsel have become somewhat coy as to whether WL or Civil Engineering is in reality or in law the Sub-Contractor. Apart from the tactics, it seems to be an almost pointless issue.
28. The doctrine of approbation and reprobation is relied upon here to say that it is not open to Buckingham to challenge the adjudicator's finding that Civil Engineering is to be taken as the correct identity of the Sub-Contractor. One does not need this doctrine because it is common ground that the parties gave to the adjudicator permission and thus jurisdiction to decide the issue, which he did, finding that it was Civil Engineering. It is therefore not open to Buckingham in these enforcement proceedings to argue that WL was in reality the Sub-Contractor because it has been well established in adjudication cases from many years now that an adjudicator's decision on an issue which he or she had jurisdiction to address is enforceable, even if it is wrong as a matter of fact or law. In effect, Buckingham is not permitted in these enforcement proceedings even to try to approbate or even reprobate. It remains to be seen however whether in the Manchester proceedings Buckingham may be met by some such defence but I do not have to decide that in these proceedings in London.
29. The final issue relates to whether or not there should be a stay of execution. Miss Cheng on behalf of Buckingham has, clearly and wholly properly, accepted that the decision of the adjudicator is binding upon Buckingham "pro tem" as between it and Civil Engineering is. She also accepted in oral argument, again correctly in my judgment that, although the decision did not as such order payment of the net outstanding sum to Civil Engineering, it has become due inter alia because Clause 14(6) requires the parties to comply with the decision until the dispute was finally determined or, put another way, to treat it as binding until that later stage. This also reflects Clause 1.7 of the ICE Rules incorporated into the Sub-Contract which requires the parties to "implement the Adjudicator's decision without delay" and that payment "shall be made in accordance with the payment provisions of the Contract (in the next stage payment which becomes due after the date of issue of the Adjudicator's decision)". Assuming that the adjudicator's decision must be accepted at least temporarily as correctly stating that there is a net outstanding sum due to Civil Engineering, payment provisions in Clause 9 are such that the money must be considered as having become due for payment.
30. So far as the stay of execution is concerned, there have been a number of cases which identify what the practice is such as Wimbledon Construction Co 2000 Ltd v Derek Vago [2005] BLR 374, Mead General Building Ltd v Dartmoor Properties Ltd [2009] BLR 225 and Pilon Ltd v Breyer Group Ltd [2010] BLR 452. I do not intend to repeat material parts of the judgments in those cases. It is obviously material not only that Civil Engineering is a dormant company (and indeed has been since incorporation) but that it was also a dormant company as at the time that the Sub-Contract was entered into.
31. In any event, WL has agreed to guarantee any of Civil Engineering's liabilities arising out of such proceedings so that, if it is ultimately determined that the Sub-Contractor was, after all, WL, WL will guarantee in effect the return by Civil Engineering of any net overpayment by Buckingham in relation to any sums ordered to be paid following this judgment. I have no real doubt that, by one legal route or another, the payment to Civil Engineering will and should be treated as if it was a payment to WL assuming that in fact and in law WL was the Sub-Contractor.
32. In reality, there are two or possibly three grounds relied upon by Buckingham. The first is that the cause of action by which Buckingham could recover from Civil Engineering any sums ordered to be paid by this judgment is "not straightforward". Although I strongly suspect it is straightforward and that Civil Engineering would not in all probability have any leg to stand on, in any event the proffered guarantee from WL obviates and removes or at least substantially reduces the risk.
33. The second and third grounds relate to the financial position of Civil Engineering and WL with Civil Engineering having no assets to speak of and being a dormant company and WL having been subject to a Creditors Voluntary Arrangement for 2½ years. Whether or not the Sub-Contract was with WL or Civil Engineering, Buckingham must be taken to have known that they were dealing with companies which at least had some financial question marks hanging over them at the time at which it entered into the Sub-Contract. As Mr Justice Coulson has said in the Wimbledon Construction case, a stay will not usually been granted if "the claimant's financial position is the same or similar to its financial position at the time that the relevant contract was made". Part of the logic of this, commercially, is that, if a party such as Buckingham chooses to contract with a company which is in the same or similar financial difficulties at the time of the contract as it is at the time of a later judgment against that company, that is part of the background to the commercial transaction and should not be used generally as grounds to prevent payment or enforcement of a judgement against it. The same considerations apply both to WL and to Civil Engineering, although there is clear evidence (Mr Kite's second witness statement) which suggests if anything that WL is emerging from its CVA having paid its first 30 presumably monthly payments on time and in full pursuant to its obligations under the CVA; put another way, it may well be better off now than it was before the Sub-Contract was entered into.
34. Another, less significant but still material, factor is the tactical approach adopted by Buckingham in going to adjudication in the first place and thereafter seeking to confuse matters. It expressly knew when it started the adjudication that Civil Engineering was dormant and it must have known of the risk that Civil Engineering would assert that there was substantially more due to it than had been paid by Buckingham. The solicitors' e-mail indicates a plan to contest the proceedings and in effect to try to secure some settlement bringing into account the costs which might otherwise have to be incurred in relation to these proceedings. It is not a very attractive approach to contest the proceedings and seek a stay of execution arising out of factors of which it is and was for all practical purposes always aware and which it has to some extent engineered, at least in relation to who the Sub-Contractor was.
35. For these reasons, I do not consider that it is or can be appropriate for there to be a stay of execution.

Decision

36. There will be judgment in favour of Civil Engineering in the sum of £147,164.66, by way of enforcement of the adjudicator's decision; VAT will be payable only if Civil Engineering is registered for VAT. I will hear the parties on interest and costs (although I will accept written submissions on those matters to avoid the need for attendance at the handing down of this judgment). There will be no declaration that Buckingham, WL or Civil Engineering and are bound finally by the decision of the adjudicator. There will be no stay of execution.