QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
Strand, London, WC2A 2LL |
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B e f o r e :
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JOHN SISK & SON LIMITED |
Claimant |
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- and - |
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CARMEL BUILDING SERVICES LIMITED (IN ADMINISTRATION) |
Defendant |
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Lord Marks Q.C. (instructed by C.J. Hough & Company Limited) for the Defendant
Hearing date: 23rd March 2016
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Crown Copyright ©
The Hon. Mrs Justice Carr DBE :
Introduction
a) The burden of proof in relation to Carmel's claim under Clause 7.7.4 of the JCT Conditions incorporated into the Sub-Contract ("Clause 7.7.4") ("Issue 1");
b) Whether or not Sisk's primary claim to set-off under Clause 7.7.4 was a global claim and thus irrecoverable ("Issue 2");
c) The rate of interest to be applied to sums awarded to Carmel ("Issue 3").
The relevant background
a) The Sub-Contractor Order;
b) The Sub-Contract Particulars published by Sisk (SFQS 12 Rev 06) ("the Sisk Particulars");
c) The Conditions of Sub-Contract published by Sisk (SFQS 13 Rev 10) ("the Sisk Conditions");
d) Minutes of Pre-order Meeting of 15th August 2008 (SFQS 15 Rev 13), together with Sub-Contractor's Pre-Order Trade Checklist;
e) Sub-Contractor Enquiry Sheet 28th February 2008;
f) Sisk enquiry to tender letter of 28th February 2008 and subsequent tender addendums;
g) The ascertainment of the Sub-Contract sum, being a breakdown of the Sub-Contract sum and a materials documents;
h) Carmel's quantified Schedule of Rates of 3rd September 2008 and Carmel's tender of 11th April 2008;
i) Health and Safety code of practice SFSA (12 Rev 06);
j) Target Programme IMH/TP/01.
"...In the event of any divergence between the Sub-Contractor Order and the documents expressly referred to therein…the Standard Sub-Contract Conditions and the terms and conditions of the Principal Contract, then the Sub-Contractor Order Documents shall prevail over the Standard Sub-Contract Conditions and the Standard Conditions of Sub-Contract shall prevail over the terms and conditions of the Principal Contract."
"If the Sub-Contractor is insolvent, the Contractor may at any time by notice to the Sub-Contractor terminate the Sub-Contractor's employment under this Sub-Contract."
"7.7.3 The provisions of clause 7.7.4 shall thereupon apply and the other provisions of this Sub-Contract which require any further payment or any release of Retention to the Sub-Contractor shall cease to apply. ("Clause 7.7.3")
7.7.4 Upon completion of the Sub-Contract Works and the making good of defects of the kind referred to in clause 2.22 or earlier termination of the Contractor's employment, however arising, the Sub-Contractor may apply to the Contractor and the Contractor shall pay to the Sub-Contractor the value of any work executed or goods and materials supplied by the Sub-Contractor to the extent not included in previous payments. Without prejudice to his other rights, the Contractor may deduct therefrom the amount of any direct loss and/or damage caused to the Contractor as a result of the termination and any other amounts payable to the Contractor under this Sub-Contract. To the extent that the amounts due to the Contractor exceed the amounts due to the Sub-Contractor the balance shall be recoverable from the Sub-Contractor as a debt."
"5.4 The Arbitrator is not bound by the strict rules of evidence and shall determine the admissibility, relevance or weight of any material sought to be tendered on any matters of fact or opinion by any party."
This of course reflects section 34(2)(f) of the Act.
The Award
Issue 1
"L Burden of Proof
1. Before considering the issues, I remind myself of the incidence of the burden of proof, and the practical consequences of that burden in relation to the issues in dispute
2. The Party which bears that burden is required to prove its claim to the ordinary civil standard, namely balance of probabilities.
3. Applying that principle to the issues in dispute in this Arbitration means, in practical terms, as follows:-
…
- In relation to the valuation of the Claimant's work at termination, in respect of which the Claimant contends for one figure and the Respondent contends for a lesser figure, the legal burden falls on the Claimant to prove the value of any work which it carried out but for which it has yet to be paid, and for which it is therefore entitled to payment in accordance with the "first limb" of Clause 7. 7.4
- However, since, three weeks prior to termination, the Respondent produced a valuation of the Claimant's work which was significantly higher than the valuation for which it now contends, the evidential burden falls on the Respondent to show, as it has endeavoured to do, why that earlier valuation was erroneously high
- In relation to the sums which the Respondent says it is entitled, in accordance with the "second limb" of Clause 7.7.4 to deduct from any balance due under the "first limb" and/or recover from the Claimant, the burden falls on the Respondent to prove that the Claimant is responsible, in terms of both liability and quantum for each such sum…"
"What was the value of work etc completed by the Claimant at the date of termination for which it has yet to receive payment?..."
"N11 In my judgment, the best available starting point for evidence of the value of the Claimant's work at termination is Valuation No. 8, which had been agreed between the Parties some three weeks previously…
N14 Valuation No 8 was in the "agreed" gross sum of £2,688.728.66.
N15 I acknowledge the accuracy of the Respondent's observation that whilst an interim valuation is, as prescribed by Clause 15.18, merely a payment on account, the valuation required by Clause 7.7.4 is a final valuation
N16 However, I do not accept that it is a logical concomitant of Clause 15.18 that interim payments are necessarily inaccurate
N17 The protection afforded by designating a payment as being "on account" is, in my judgment, more likely to deal with the situation when work which has been valued and included in one valuation is subsequently found to be non-compliant, or when the value of what was thought to have been a variation has been included, only for that variation to have subsequently been found not to be a variation
N18 It seems to me most likely that, as the Claimant suggests, Mr Bonye and Mr Melges were the people who operated "at the coal face", there were the people in the best position to determine the correct value of the Claimant's work, and that they did so
N19 I find myself un-persuaded by any of the Respondent's evidence, including, in particular, that of Mr. Collins, that, in effect, Mr. Melges' valuation of the work as at 29 May 2009 was a significant overstatement…
N32 That, therefore, brings me to the conclusion that the proper gross-valuation of the Claimant's work at 29 May 2009 was, as Paragraph 24 above, £2,533,449.90.
N33 The final step to resolve this issue is to determine the additional value that was generated in the three week period between Valuation No 8 and the termination on 19 June 2009…
N40 The position, therefore, in summary is as follows:-
- The corrected value of Valuation No 8 is £2,533.449.90 which I consider should be the minimum terminal valuation
- The Claimant's terminal valuation is £3,465.010.19
- The Respondent's terminal valuation is £2,016.928.03
- Mr Simper's terminal valuation is £2,673,434.40
- Mr Simper's opinion is that it is "logical to conclude" that the value of the termination account should exceed Valuation No 8 by at least £500,000 but says (despite having seen the Respondent's contemporaneous upstream valuation) that there is no evidence for him to increase his valuation
- Mr Jewell's terminal valuation is £2,091.967.29
N41 Having given the matter considerable careful thought, I have decided that the gross terminal valuation should be the figure resulting from Mr Simper's detailed analysis i.e. £2,673.434.40."
Issue 2
a) Sisk's primary claim, under Appendix 4 to its Re-amended Defence and Counterclaim, which claimed the sum of £1,344,477.96, being the whole of the losses which Sisk said had been caused to it by the termination and which were recoverable under the said clause;
b) Sisk's secondary claim, under Appendix 3 to its Re-amended Defence and Counterclaim, which claimed the sum of £1,145,506.93, being the itemised costs which Sisk said had been caused to it by the termination and which were recoverable under this clause.
"Issue No 3. Correct method of determining set off pursuant to 'second limb' of Clause 7.7.4.
…
N58 The Respondent has pleaded its claim for set-off under the 'second limb' of Clause 7.7.4 by using two alternative methods of calculation and the point in issue here is which them should be considered.
N59 The first method of calculation produces a claim which, after due consideration by Mr Jewell and adjustment to reflect my decision in respect of Issue No 2, is, as I note at Paragraph 57 above, in the sum of £1,344.477.46.
N60 For convenience, I will subsequently refer to this claim as the 'total costs claim'.
N61 The second alternative, details of which are set out at Appendix 3 to the Respondent's re-amended Statement of Defence and Counterclaim and to which I will subsequently refer as the "itemised claim", is for £1,145.506.93.
N62 Before considering the two alternatives, I remind myself that my objective here is to determine which of them is the appropriate means of ascertaining, in the words of Clause 7.7.4:-
'the amount of any direct loss and/or damage caused to the Contractor as a result of the termination and any other amounts payable to the Contractor under this Sub-Contract'
N63 The Claimant submits that the Respondent has pleaded its case for set off on a global basis whereas the judgment in Walter Lilley & Co. Ltd v Mackay (2012) 143 Con LR 79 precludes it from so doing.
N64 The Respondent argues first that its claim is not a global claim, and second, even if it were, it is not precluded from pleading it on that basis.
N65 So far as the Respondent's first point in issue is concerned, I accept that its total costs claim is not a global claim if for no other reason than, as it correctly notes, each part of its post-administration costs claim is purportedly attributed to a single event, namely the termination of the Sub-contract as a consequence of the administration.
N66 So far as the Respondent's second point is concerned, I accept that the judgment in Walter Lilley cannot be said to preclude the pursuit of a claim on a global basis.
N67 What can, however, be taken from the judgment is the principle that the burden which befalls a party endeavouring to prove a global, or, for that matter, a total costs claim is greater than the burden it would bear in having to prove the same claim on an itemised basis.
N68 That is because in order to succeed with a total costs claim, a party must be able to demonstrate not only that every element of the actual cost said to have been incurred is valid and has been properly incurred, but also the financial validity of the hypothetical comparative cost.
N69 In this case, I consider, on the basis of, for example, the oral evidence of Mr White, that sufficient doubt has been established by the Claimant as to the accuracy of the 'total costs' alleged to have been incurred by the Respondent to justify the rejection of the claim advanced on that basis.
N70 Accordingly, I have decided that the appropriate way to deal with the Respondent's claim for set off is by consideration of its itemised claim…".
Issue 3
"Sub-issue No 8 .1. Interest Rate
N238 The Claimant submits that in the absence of any contractual remedy for late payment, it is entitled to compensation and interest pursuant to terms implied by the Late Payment of Commercial Debts (Interest) Act 1998 ("Late Payment Act") and the Regulations made there-under.
N239 The Respondent says that there is an adequate contractual remedy for late payment, that remedy being set out in Clause 4.10.5, and so the terms of the Late Payment Act are not implied.
N240 If I find that the Claimant is correct, it will have an entitlement to a fixed sum compensation payment and simple interest (calculated in the manner detailed below) at 8½% per annum.
N241 If I find that the Respondent is correct, then the Claimant will be entitled to simple interest (calculated in the manner detailed below) at 5½% per annum and will have no entitlement to any fixed sum as compensation
N242 Clause 15.9, which takes precedence over the JCT conditions, provides an "optional" regime for the payment of interest which the Parties agree is not an "adequate remedy" as defined by the Late Payment Act, and so must be declared void.
N243 Where they part company is in relation to the consequence of Clause 15.9 being declared void.
N244 The Claimant argues that if the clause is declared void, then there is no express contractual provision for interest, and so the Late Payment Act operates as the default.
N245 The Respondent argues that if the clause is declared void, then there is no divergence between it and Clause 4.10.5 and it simply falls away.
N246 I believe the Respondent's analysis is flawed and so prefer that of the Claimant.
N247 The flaw arises as a result of timing.
N248 Clause 15.9 cannot be declared to be void until after it has become a term of the Sub-contract.
N249 Thus, before Clause 15.9 had been declared void, it had been incorporated into the Sub-contract in place of Clause 4.10.5, which was thereby deleted.
N250 Clause 15.9 was then declared void.
N251 However, since Clause 4.10.5 no longer stood as part of the Sub-contract, it could not (without the Parties' agreement) be reinstated and relied upon as if it had not been deleted; there was simply nothing to reinstate.
N252 Thus, I find, as the Claimant correctly submits, that once Clause 15.9 was declared void, there was no contractual remedy for late payment and the provisions of the Late Payment Act were thereupon implied."
The approach on appeal
"3. Nature of the review
As to the remaining question, namely the nature of the review undertaken on questions of law, there is no doubt. Once satisfied that the decision is one in respect of which there is power to intervene, the Court will simply measure the decision against the facts, and if its own judgment differs from that of the arbitrator, the latter will yield. There is no question of exercising a discretion. The Court decides whether the arbitrator was right or wrong, and gives judgment accordingly, although weight is attached to the findings of arbitrators experienced in the trade in question."
"7. APPEAL ON A QUESTION OF LAW
Introduction…It has been said there are three principles relevant to the overall approach. First, as a matter of general approach, the courts strive to uphold arbitration awards. Secondly, the approach is to read an arbitration award in a reasonable and commercial way, expecting, as is usually the case, that there will be no substantial fault that can be found with it. Thirdly, not only will the court not be astute to look for defects, but in cases of uncertainty it will so far as possible construe the award in such a way as to make it valid rather than invalid."
"15. … there are four principles which a court needs to keep carefully in mind.
First as a matter of general approach, the courts strive to uphold awards. This means that, when looking at an award, it has to be read in a reasonable and commercial way, rather than with a view to picking holes, or finding inconsistencies or faults, in a tribunal's reasoning…This is particularly so when the tribunal comprises market men, since one is entitled to expect from traded arbitrators the accuracy of wording, of cogency of expression, which is required of a judge… .
Secondly, where a tribunal's experience assists it in determining a question of law, such as the interpretation of contractual documents, the court will accord some defence to the tribunal's decision on that question. It will reverse the decision only if satisfied that, despite the benefit of that experience, the tribunal has still come to the wrong answer… .
Thirdly, it is for the tribunal to make the findings of fact in relation to any dispute and any question of law arising from an Award must be decided on the basis of a full and unqualified acceptance of the findings of fact of the arbitrators : see The "Baleares" [1993] 1 Lloyd's Rep 215 at 228 which makes clear that this is so regardless of whether the court thinks a finding of fact was right or wrong.
Fourthly, when a tribunal has reached a conclusion of mixed fact and law, the court cannot interfere with that conclusion just because it would not have reached the same conclusion itself. It can interfere only when convinced that no reasonable person, applying the correct legal test, could have reached the conclusion which the tribunal did: or, to put it another way, it has to be shown that the tribunal's conclusion was necessarily inconsistent with the application of the right test: The "Sylvia" [2010] 2 Lloyd's Rep 81 at [54]-[55]. The same extremely circumscribed power of intervention applies when it is complained that a tribunal has incorrectly applied the law to the facts. It is only if the correct application of the law leads inevitably to one answer, and the tribunal has given another, that the court can interfere. Once a court has concluded that a tribunal which correctly understood the law could have arrived at the same answer as the one reached by the arbitrator, the fact that the individual judge himself would have come to a different conclusion is no ground for disturbing the Award: The Chrysalis [1983] 1 Lloyd's Rep 503 at 507."
"The arbitrators are masters of the facts. On an appeal the court must decide any question of law arising from the award based on a full and unqualified acceptance of the findings of fact of the arbitrators. It is irrelevant whether the court considers those findings of fact to be right or wrong. It also does not matter how obvious a mistake by the arbitrators on issues of fact might be or what the scale of the financial consequences of the mistake of fact might be."
Issue 1: burden of proof in relation to Carmel's claim
a) The burden of proof lay on Carmel to establish what was due to it under Clause 7.7.4;
b) Sisk did not have any burden of proof, whether to show that its earlier valuation was erroneously high, or at all;
c) Valuation No.8 was not the best available, or any, starting point for the exercise which the Arbitrator was obliged to carry out. The best available, and only starting point for the exercise, which the arbitrator was obliged to carry out, was such account as Carmel were able to render in accordance with Clause 7.7.4;
d) There is no, or no helpful, distinction to be drawn between legal and evidential burdens in this case.
Issue 2: global or total costs
"484. One needs to be careful in using the expressions "global" or "total" cost claims. These are not terms of art or statutorily defined terms. Some of the cases…were concerned with linking actual delay and the alleged causes of delay. Simply because a contractor claims all the costs on a construction project which it has not yet been paid does not necessarily mean that the claim is a global or a total cost claim, although it may be. What is commonly referred to as a global claim is a contractor's claim which identifies numerous potential or actual causes of delay and/or disruption, a total cost on the job, a net payment from the employer and a claim for the balance between costs and payment which is attributed without more and by inference to the causes of delay and disruption relied on…"
"486. Drawing together all the relevant threads together, it can properly be concluded as follows in relation to "global" or "total" cost claims:
(a) Ultimately, claims by contractors for delay or disruption related loss and expense must be proved as a matter of fact. Thus, the Contractor has to demonstrate on a balance of probabilities that, first, events occurred which entitle it to loss and expense, secondly, that those events caused delay and/or disruption and thirdly that such delay or disruption caused it to incur loss and/or expense (or loss and damage as the case may be). I do not accept that, as a matter of principle, it has to be shown by a claimant contractor that it is impossible to plead and prove cause and effect in the normal way or that such impossibility is not the fault of the party seeking to advance the global claim. One needs to see of course what the contractual clause relied upon says to see if there are contractual restrictions on global cost or loss claims. Absent and subject to such restrictions, the claimant contractor simply has to prove its case on a balance of probabilities…
(c)It is open to contractors to prove these three elements with whatever evidence will satisfy the tribunal and the requisite standard of proof. There is no set way for contractors to prove these three elements. For instance, such a claim may be supported or even established by admission evidence or by detailed factual evidence which precisely links reimbursable events with individual days or weeks of delay or with individual instances of disruption and which then demonstrates with precision to the nearest penny what that delay or disruption actually cost.
(d) There is nothing in principle "wrong" with a "total" or "global" cost claim. However, there are added evidential difficulties (in many but not necessarily all cases) which a claimant contractor has to overcome. It will generally have to establish (on a balance of probabilities) that the loss which it has incurred (namely the difference between what it has cost the contractor and what it has been paid) would not have been incurred in any event. Thus, it will need to demonstrate that its accepted tender was sufficiently well priced that it would have made some net return. It will need to demonstrate in effect that there are no other matters which actually occurred (other than those relied upon in its pleaded case and which it has proved are likely to have caused the loss)…
(e) The fact that one or a series of events or factors (un-pleaded or which are the risk or fault of the claimant contractor) caused or contributed (or cannot be proved not to have caused or contributed) to the total or global loss does not necessarily mean that the claimant contractor can recover nothing. It depends on what the impact of those events or factors is…
(f) Obviously, there is no need for the Court to go down the global or total cost route if the actual cost attributable to individual loss causing events can be readily or practicably determined. I do not consider that Vinelott J was saying in the Merton case (at page 102 last paragraph) that a contractor should be debarred from pursuing what he called a "rolled up award" if it could otherwise seek to prove its loss in another way. It may be that the tribunal will be more sceptical about the global cost claim if the direct linkage approach is readily available but is not deployed. That does not mean that the global cost claim should be rejected out of hand."
a) Sisk's claim was not a global claim but a total costs claim;
b) In relation to a total costs claim, there was a principle that the burden upon a party seeking to prove such a claim was greater than the burden it would bear in having to prove the same claim on an itemised basis;
c) For such a claim, this burden required a party to demonstrate not only that every element of the actual cost said to have been incurred is valid and has been properly incurred but also the financial validity of the hypothetical comparative cost.
a) The primary claim was not a global, or total costs, claim at all. There is no distinction between these terms, as the Arbitrator seemed to think. This was a claim for all the costs and losses incurred by Sisk due to a single event, namely the termination. Walter Lilly had no application. The Arbitrator correctly found, at one point in the award, that this was not a global claim but then purported to apply the global claim principles to the claim;
b) Alternatively, insofar as the claim was a global, or total costs, claim, the principles set forth in Walter Lilly did not impose a greater burden of proof upon Sisk in seeking to prove the actual costs incurred than any other claim would impose;
c) Walter Lilly did not require a party to demonstrate not only that every element of the actual cost said to have been incurred is valid and has been properly incurred but also the financial validity of the hypothetical comparative cost.
Issue 3: interest rate
The Debts Act
"1(1) It is an implied term in a contract to which this Act applies that any qualifying debt created by the contract carries simple interest subject to and in accordance with this Part…
8(1) Any contract terms are void to the extent that they purport to exclude the right to statutory interest in relation to the debt, unless there is a substantial contractual remedy for late payment of the debt.
(2) Where the parties agree a contractual remedy for late payment of the debt that is a substantial remedy, statutory interest is not carried by the debt (unless they agree otherwise).
(3) The parties may not agree to vary the right to statutory interest in relation to the debt unless either the right to statutory interest as varied or the overall remedy for late payment of the debt is a substantial remedy.
(4) Any contract terms are void to the extent that they purport to—
(a) confer a contractual right to interest that is not a substantial remedy for late payment of the debt, or
(b) vary the right to statutory interest so as to provide for a right to statutory interest that is not a substantial remedy for late payment of the debt, unless the overall remedy for late payment of the debt is a substantial remedy.
(5) Subject to this section, the parties are free to agree contract terms which deal with the consequences of late payment of the debt. …
9(1) A remedy for the late payment of the debt shall be regarded as a substantial remedy unless—
(a) the remedy is insufficient either for the purpose of compensating the supplier for late payment or for deterring late payment; and
(b) it would not be fair or reasonable to allow the remedy to be relied on to oust or (as the case may be) to vary the right to statutory interest that would otherwise apply in relation to the debt.
(2) In determining whether a remedy is not a substantial remedy, regard shall be had to all the relevant circumstances at the time the terms in question are agreed.
(3) In determining whether subsection (1)(b) applies, regard shall be had (without prejudice to the generality of subsection (2)) to the following matters—
(a) the benefits of commercial certainty;
(b) the strength of the bargaining positions of the parties relative to each other;
(c) whether the term was imposed by one party to the detriment of the other (whether by the use of standard terms or otherwise); and
(d) whether the supplier received an inducement to agree to the term."
Relevant provisions in the Sub-Contract
"a) Clause 15.9 of the Sisk Conditions provided:
"If Sisk fails to pay in full any sum properly due hereunder by the final date for payment, Sisk may (but shall not be obliged to) pay interest thereon from the final date for payment until payment of such sum is made." ("Clause 15.9");
Clause 4.9 of the JCT Conditions provided :
Issue of interim payments
4.9.1 The first interim payment shall be due on the date for issue of the Interim Certificate under the Main Contract immediately following the commencement of the Sub-Contract works. If no date for the issue of Interim Certificates under the Main Contract is stated in the Main Contract Particulars, the first payment shall in any event be due not later than one month after the date of commencement of the Sub-Contract Works on site.
4.9.2 Interim payments shall thereafter be due on the same date in each month as that on which the first payment became due, or on the nearest Business Day in that month, up to and including the month following the date of practical completion of the Sub-Contract works as a whole. Thereafter, as and when further amounts are ascertained as due and payable interim payments shall be due on the same date in each month or the nearest Business Day in that month.
4.9.3 The final date for payment of interim payments shall be 21 days after the date on which they become due." ("Clause 4.9");
Clause 4.10.5 of the JCT Conditions provided :
Interim payments – amounts due
4.10.1 Subject to any agreement between the Sub-Contractor and the Contractor as to stage payments, the amount of each interim payment shall be the Contractor's Gross Valuation as referred to in clause 4.13 less :
.1 any amount which may be deducted and retained as Retention by the Contractor in respect of the Sub- Contract Works in accordance with clause 4.15; and
.2 the total amount previously due as interim payments under this Sub-Contract.
.2 Not later than 5 days on which an interim payment becomes due the Contractor shall give a written notice to the Sub-Contractor which shall specify the amount of the payment which is proposed to be made in respect of the Sub-Contract Works, to what the amount of the payment relates and the basis on which that amount was calculated.
.3 Not later than 5 days before the final date for payment of an interim payment the Contractor may give a written notice to the Sub-Contractor which shall specify any amount proposed to be withheld and/or deducted from the amount notified under clause 4.10.2, the ground or grounds for such withholding and/or deduction and the amount of withholding and/or deduction attributable to each ground.
.4 Subject to any notice given under clause 4.10.3, the Contractor shall no later than the final date for payment pay the amount specified in his notice given under clause 4.10.2 or, in the absence of a notice under clause 4.10.2, the amount calculated in accordance with clause 4.10.1.
...
5 If the Contractor fails properly to pay the amount, or any part of it, due to the Sub-Contractor under these Conditions by the final date for its payment, the Contractor shall pay to the Sub-Contractor in addition to the amount not properly paid simple interest thereon at the Interest Rate for the period until such payment is made. Payment of such interest shall be treated as a debt due to the Sub-Contractor by the Contractor…" ("Clause 4.10.5");
Clause 4.12 of the JCT Conditions provided :
Final Payment
4.12.1 The amount of the Final Payment to the Sub-Contractor shall be the Final Sub-Contract Sum, which shall be calculated by the Contractor in accordance with which of clause 4.3 or 4.4 applies, less only the total amount previously due as interim payments under this Sub-Contract…
4.12.4 If the Contractor fails properly to pay the amount, or any part of it, by the final date for its payment the Contractor shall pay in addition to the amount no properly paid simple interest thereon at the Interest Rate for the period until such payment is made. Payment of such interest shall be treated as a debt due to the Sub-Contractor by the Contractor. The acceptance of any payment of interest under this clause 4.12.14 shall not in any circumstances be construed as a waiver by the Sub-Contractor to his right to proper payment of the amount due."
a) "Conditions" was defined as "the clauses set out in sections 1 to 8 of these Conditions, together with and including the Schedules hereto, as modified by any Schedule of Modifications included in the Numbered Documents";
b) the phrase "Interest Rate" was defined as "a rate 5% per annum above the official dealing rate of the Bank of England current at the date that a payment due under this Sub-Contract becomes overdue".
"In the Sub-Contract Agreement and these Conditions, unless the context otherwise requires:
.1 the headings are included for convenience only and shall not affect the interpretation of this Sub-Contract…"
The arguments and analysis
a) Clause 15.9 does not cease to exist as a result of section 8 of the Debts Act. The effect of section 8 of the Debts Act is only to remove the offending words "(but shall not be obliged to)", since it is only those words that "purport to exclude the right to statutory interest in relation to the debt". The result, albeit admittedly an odd one, is that there is a permissive contractual provision alongside a compulsory one, which thus takes effect. That cannot bring to life the inconsistent Clause 4.10.5;
b) In any event, Clause 4.10.5 only applies to interim payments due from Sisk to Carmel in accordance with the provisions of Clause 4.10. It has no application to debts due to Carmel under Clause 7.7.4. Thus Clause 4.10.5 does not provide a substantial contractual remedy for late payment.
a) Carmel seeks to argue that Clause 4.10.5 does not amount to a substantial remedy because interest is payable "only if the Contractor fails properly to pay the amount or any part of it due to the Sub-Contractor under these Conditions by the final date for payment" in which case "the Contractor will pay to the Sub-Contractor in addition to the amount not properly paid simple interest thereon at the Interest Rate for the period until such payment is made." This is said to be an inadequate substantial remedy for late payment under Clause 7.7.4 because Clause 7.7.4 is concerned with balancing what is owed to the contractor for work executed and goods and materials supplied prior to the termination against losses sustained by the contractor arising out of the termination. For such a "netting off" procedure to yield adequate interest to the sub-contractor, interest would have to be added to payments due to the sub-contractor over the whole of the period for which money was outstanding, while the direct loss and damage sustained by the contractor arising from termination would have interest added to it only for the period after the loss was sustained. Where the period for which payment to the subcontractor is long and that following the contractor's loss attributable to termination short, the interest that ought to be payable to the sub-contractor should be far greater than interest that is merely calculated on the balance. This was a point raised, so far as I am aware, for the first time in Carmel's skeleton argument;
b) Carmel seeks to argue that, by reason of Clause 7.7.3 of the JCT Conditions, upon termination of Sisk's employment under Clause 7.5, Clause 4.10.5 ceased to apply. As set out above, Clause 7.7.3 provided :
".3 The provisions of clause 7.7.4 shall thereupon apply and the other provisions of this Sub-Contract which require any further payment or any release of Retention to the Sub-Contractor shall cease to apply."
Clause 4.10.5 was a provision of the Sub-Contract other than Clause 7.7.4 which required further payment. It thus ceased to apply on termination. The only relevant payment provision was then Clause 7.7.4. This was a point was not canvassed until mid-way through the hearing. It necessitated the filing of supplemental written submissions.
a) That Carmel should not be allowed to raise this new issue now. The court discourages attempts to salvage awards on the basis of arguments not put before the arbitrator in question : see MRI Trading at paragraphs 38 to 39. Although permission to appeal was not required in this case, the Court should nevertheless be reluctant to admit new arguments to be advanced (particularly when raised for the first time in oral submission). Reliance is placed on the decision of Moore-Bick J (as he then was) in Icon Navigation Corp v Sinochem International Petroleum (Bahamas) Co Ltd [2003] 1 All ER (Comm) 405 (at pages 411 and 412):
"Section 69(7) of the Act forms part of the statutory code providing for appeals on questions of law and as such it sets out the remedies available to the court following the hearing of an appeal. No doubt the court has a measure of discretion when it comes to deciding what order is most appropriate to give effect to its decision. For example, following a successful appeal the court might decide to vary the award itself or remit it to the tribunal for reconsideration. However, s.69(7) must be read in the context of s.69 as a whole. The intention of the legislation is that the powers of the court under this subsection should be exercised in a manner that will best give effect to its conclusions on the issues of law that arise on the appeal, including any issues of law raised by the defendant under para 12.3(3) of the practice direction seeking to uphold the award. It does not, in my view, give the court a wider discretion or allow it to take into account matters outside the scope of the appeal itself. Thus if the court's decision on questions of law means that the award cannot be upheld, I do not think that it has a discretion under this subsection to affirm the award on extraneous grounds such as an irregularity in the conduct of the proceedings."
b) That Clause 7.7.3 does not in any event have the effect contended for by Carmel. Clause 7.7 addresses the consequences of termination under Clauses 7.4 to 7.6 (where the sub-contractor is in default, insolvent or corrupt). Thus it makes sense that in those circumstances the provisions of Clause 7.7.4 are to apply and other provisions requiring further payment shall cease to apply. It is directed at preventing the sub-contractor from pursuing applications for further interim payment unless and until the sub-contract works were complete and a final reckoning possible. Clause 4.10.5 is not concerned with such a payment, but rather with a failure on the part of the contractor to pay what is due;
c) That if it does, it is void because of the Debts Act. On Carmel's construction it would exclude the statutory implied term and be void under section 8(1) of the Act.
Conclusion