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
		26/01/2017

Mrs Justice O'Farrell :

Introduction

1. This is an adjudication enforcement application by the claimant against the defendant pursuant to Part 24 of the Civil Procedure Rules to enforce the decision of Mr Peter Curtis dated 6 November 2016 (corrected 9 November 2016), in which he directed the defendant to pay the claimant the sum of £2,477,152.86 plus interest and to pay 75% of his fees and expenses in the sum of £22,183.50.
2. The defendant ("GTC") resists enforcement of the decision on the ground that at the time of commencement of the adjudication the claimant ("Mailbox") had assigned the benefit of the contract between the parties to a third party, Aareal Bank AG, Wiesbaden ("the Security Trustee") and therefore Mailbox had no right to issue the adjudication proceedings.
3. GTC's case is that it has a real prospect of successfully defending the claim and therefore the court should dismiss the application for summary judgment.
4. GTC also disputes Mailbox's entitlement to interest on any sum, if found due, on the ground that, contrary to the adjudication decision, the Late Payment of Commercial Debts (Interest) Act 1998 ("the Late Payment Act") does not apply to obligations to pay liquidated damages. Although no formal Part 8 proceedings have been issued in respect of this issue, the parties have agreed that the court has jurisdiction to determine it as part of these proceedings.

Background

5. Mailbox is a special purpose vehicle company set up in relation to the development of a mixed use retail and office space at 61-63 Wharfside Street, Birmingham ("the Property").
6. On 23 December 2013 the parties entered into a written contract whereby GTC agreed to carry out refurbishment works at the Property for the sum of £18,976,870.62 or such other sum as should become payable under the contract.
7. The contract incorporates the conditions of the JCT Design and Build Contract (2011 edition) as further amended by the parties.
8. The contract provides for the works to be carried out in sections, each section having a possession date, completion date and rate of liquidated damages for any delay to completion.
9. Most of the works were carried out but on 1 March 2016 Mailbox purported to determine GTC's employment under the contract.
10. Disputes arose between the parties as to responsibility for delay, liability for liquidated damages, the proper valuation of the final account and lawfulness of the termination by Mailbox.
11. The contract contains a provision for disputes to be referred to adjudication at Article 7 and clause 9.2. On 19 August 2016 Mailbox commenced adjudication proceedings against GTC in respect of the dispute as to Mailbox's entitlement to liquidated damages.
12. In his adjudication decision dated 6 November 2016 (as amended on 9 November 2016), Mr Curtis, the adjudicator, granted the following relief:

i) a declaration that Mailbox was entitled to the gross sum of £4,262,553.45 in respect of liquidated damages under the contract;

ii) an order that GTC should pay Mailbox the sum of £2,477,152.86;

iii) a determination that Mailbox was entitled to interest on the sums awarded in the adjudication pursuant to the Late Payment Act; and

iv) an order that Mailbox should pay 25% of the adjudicator's fees and expenses in the sum of £7,394.50 (excluding VAT) and that GTC should pay 75% of the adjudicator's fees and expenses in the sum of £22,183.50 (excluding VAT).

13. It is this adjudication decision that Mailbox now seeks to enforce.

Issues

14. GTC's position is that Mailbox was not entitled to commence the adjudication proceedings in its own name because it had assigned its benefits under the contract to the Security Trustee. It is not in dispute that GTC raised the issue of the assignment in April 2016, prior to the adjudication reference, and reserved its rights in participating in the adjudication. GTC's case is that Mr Curtis had no jurisdiction to decide the dispute referred by Mailbox and his decision is a nullity. Alternatively, the court does not have all the material before it, including oral evidence, necessary to reach a conclusion on the assignment issues and therefore summary judgment should not be granted on the grounds that there is a real prospect of successfully defending the claim.
15. Mailbox's case is that, although there may have been a charge in respect of the benefits under the contract in favour of the Security Trustee, there was no assignment and the parties operated the building contract on the basis that Mailbox was entitled to the benefit of the same. In any event, to the extent that there was such assignment, there was a re-assignment of those benefits to Mailbox on or before the issue of the notice of adjudication.
16. The issues that the court is required to determine are:

i) whether there was a valid assignment by Mailbox of its rights under the contract to the Security Trustee;

ii) if so, whether there was a valid re-assignment by the Security Trustee of the benefits under the contract to Mailbox on or before Mailbox served its notice of adjudication;

iii) whether the court should order GTC to pay interest on any sums to which Mailbox is entitled by way of liquidated damages and, if so, the rate and period for such interest.

Assignment

17. On 10 May 2011 Mailbox, the Security Trustee and others executed a term loan facility agreement under which the Security Trustee and others agreed to make available to Mailbox a loan facility for the purpose of purchasing the Property. The conditions precedent to the provision of the loan facility included an executed debenture by Mailbox in favour of the Security Trustee.
18. On 10 May 2011 Mailbox and Arch (Holdco) Limited, as Chargors, executed as a deed a debenture in favour of the Security Trustee in respect of the above facility agreement. The relevant provisions of the debenture include:

"2.1 Secured Liabilities

Each Chargor covenants that it will on demand of the Security Trustee pay and discharge any or all of the Secured Liabilities when due.

…

"3.3 Assignments

As continuing security for payment and discharge of the Secured Liabilities, each Chargor with full title guarantee assigns absolutely by way of security in favour of the Security Trustee, but subject to the right of such Chargor to redeem such assignment upon the full payment or discharge of the Secured Liabilities, its right, title and interest from time to time in each of the following assets:-

3.3.1 the Specific Contracts;

…

3.3.4 all rights under any agreement to which it is a party and which is not mortgaged or charged under Clause 3.1 (Mortgages and Fixed Charges), together with all Related Rights in respect of such Charged property provided that each Chargor is entitled until the occurrence of an Event of Default which is continuing to exercise all rights assigned under this Clause 3.3 (Assignments) (subject to the terms of the Secured Finance Documents) and the Security Trustee will reassign any such rights to the extent necessary to enable such Chargor to do so.

…

"5.1 Notices of Assignment

The Chargors shall deliver to the Security Trustee (or procure delivery of) Notices of Assignment duly executed by, or on behalf of, the applicable Chargors:

…

5.1.4 in respect of any other asset which is the subject of an assignment pursuant to Clause 3.3 (Assignments), promptly upon the request of the Security Trustee from time to time,

and in each case shall use all reasonable endeavours to procure that each notice is acknowledged by the party to whom such Notice of Assignment is addressed and that such acknowledgement is returned to the Security Trustee."

19. "Notice of Assignment" is defined in clause 1.1 as:

"a notice of assignment in substantially the form set out in Schedule 7 (Form of Notice of Assignment of Insurance), Schedule 8 (Form of Notice of Assignment of Assigned Accounts), Schedule 9 (Form of Notice of Assignment of Specific Contract) or in such form as may be specified by the Security Trustee."

20. "Specific Contracts" are defined in clause 1.1 as:

"the Lease Documents, the Managing Agent appointment contract, the Hedging Agreement and any agreement specified in Schedule 5 to any Deed of Accession by which a Chargor becomes a party to this Deed."

21. On 19 December 2013 the term loan facility was extended for the purpose of funding the office and retail works at the Property and the facility agreement was amended and restated. The "Effective Date" of the amended and restated agreement is defined in clause 1.1 as:

"… the date on which the [Security Trustee] notifies [Mailbox] that it has received all of the documents and other evidence listed in Schedule 1 (Conditions precedent) in form and substance satisfactory to it."

22. The documents listed in Schedule 1 include:

"1.5 A certificate of an authorised signatory of the borrower or other relevant obligor certifying that each copy document relating to it specified in this Schedule 1 is correct, complete and in full force and effect and has not been amended or superseded as at a date no earlier than the date of this Agreement.

…

"2.4 the assignment by way of charge of the Building Contract."

23. On 19 December 2013 the directors of Mailbox signed a certificate in accordance with the requirements of paragraph 1.5 of Schedule 1.
24. On 23 December 2013 the parties executed the contract.
25. Under cover of a letter dated 30 December 2013, Pinsent Masons LLP, acting for the Security Trustee, sent a notice of assignment to GTC, received by GTC on 2 January 2014, stating:

"I enclose a notice of assignment, in accordance with which Mailbox (Birmingham) Limited assigned its interests in a building contract entered into between it and Galliford Try Construction Limited to Aareal Bank AG, Wiesbaden, our client.

Please can you acknowledge the notice of assignment by signing and returning the copy notice of assignment either direct to Aareal Bank AG, Wiesbaden in accordance with the instruction on the notice or to me. Your acknowledgement is not required to make the assignment valid, but we would appreciate you returning the acknowledgement to note that you are aware of the arrangements.

Please contact me or Mailbox (Birmingham) Limited if you have any questions…"

26. The enclosed notice was in the form of Schedule 9 to the Debenture i.e. the form of notice of a Specific Contract. The notice was dated 19 December 2013 and was addressed to GTC:

"We give you notice that we have assigned and charged to Aareal Bank AG, Wiesbaden ("Security Trustee") pursuant to a deed entered into by us in favour of the Security Trustee dated 10 May 2011 all our right, title and interest in and to a building contract dated on or around the date of this notice made between (1) Mailbox (Birmingham) Limited and (2) Galliford Try Construction Limited (the "Contract") including all moneys which may be payable in respect of the Contract.

With effect from your receipt of this notice:-

(1) Following the Security Trustee's notification to you that the Enforcement Date has occurred all payments by you to us under or arising from the Contract should be made to the Security Trustee or to its order as it may specify in writing from time to time;

(2) All remedies provided for in the Contract or available at law or in equity are exercisable by the Security Trustee;

(3) All rights to compel performance of the Contract are exercisable by the Security Trustee although the Company shall remain liable to perform all the obligations assumed by it under the contract;

(4) All rights, interests and benefits whatsoever accruing to or for the benefit of ourselves arising from the Contract belong to the Security Trustee and no changes may be made to the terms of the Contract nor may the Contract be terminated without the Security Trustee's consent …

These instructions may not be revoked, nor may the terms of the Contract be amended, varied or waived without the prior written consent of the Security Trustee…"

27. Section 136(1) of the Law of Property Act 1925 provides:

"Any absolute assignment by writing under the hand of the assignor (not purporting to be by way of charge only) of any debt or other legal thing in action, of which express notice in writing has been given to the debtor, trustee or other person from whom the assignor would have been entitled to claim such debt or thing in action, is effectual in law (subject to equities having priority over the right of the assignee) to pass and transfer from the date of such notice –

(a) the legal right to such debt or thing in action;

(b) all legal and other remedies for the same; and

(c) the power to give a good discharge for the same without the concurrence of the assignor…"

28. In this case, Section 136(1) would apply so as to effect a legal assignment of Mailbox's rights under the contract if the following conditions (summarised in Chitty on Contracts (32^nd Ed.) Vol.1 Para.19-008) were satisfied, namely:

i) the assignment must be absolute and not purport to be by way of charge only;

ii) it must be in writing under the hand of the assignor; and

iii) express notice in writing thereof must be given to the debtor or trustee.

29. On behalf of GTC, Mr Stansfield QC submits that by 2 January 2014 the above requirements were satisfied in relation to the assignment by Mailbox to the Security Trustee of the benefit of the contract:

i) It is a matter of construction of the whole document as to whether an assignment is absolute or by way of charge: Hughes v Pump House Hotel [1902] 2 KB 190 per Mathew LJ at p.193. An absolute assignment was made by the debenture.

ii) The debenture was in writing and under the hand of Mailbox.

iii) Express notice of the assignment was given by the notice dated 19 December 2013 received by GTC on 2 January 2014.

30. On behalf of Mailbox, Mr Thomas QC submits that there was no effective assignment by Mailbox of its rights under the contract:

i) As at the date of the debenture, 10 May 2011, the contract did not exist. It was not referred to in clause 3.3 of the debenture and, in any event, it is not possible to make a statutory assignment of future rights: Chitty Para.19-033.

ii) No other document has been identified that could give rise to a statutory assignment of the rights under the contract.

iii) There was no equitable assignment of the rights under the contract. Although an agreement or promise for valuable consideration to assign an expected future right could operate in equity to transfer that right as soon as it came into existence provided it was sufficiently identifiable under the agreement, the debenture does not contain an agreement or promise to assign any future contract.

iv) Any equitable assignment of the rights under the contract was effective by way of charge only: Bexhill UK Limited v Razzaq [2012] EWCA (Civ) 1376 per Aikens LJ at Para.34.

31. The operative words of clause 3.3 of the debenture are:

"each Chargor … assigns absolutely … in favour of the Security Trustee … its right, title and interest from time to time in each of the following assets: … all rights under any agreement to which it is a party and which is not mortgaged or charged under Clause 3.1 …"

32. The first question is whether rights under the contract between the parties were capable of being the subject of an assignment (absolute or by way of charge) under clause 3.3.
33. The contract does not fall within the definition of the "Specific Contracts" defined in clause 1.1 for the purpose of clause 3.3.1 but it does fall within the definition of "any agreement to which [Mailbox] is a party" for the purpose of clause 3.3.4. Therefore, as a matter of construction, rights under the contract were capable of being assets the subject of an assignment under clause 3.3.
34. At the date of execution of the debenture, the contract was not in existence and constituted a "future chose in action". Accordingly, at that time, the rights under the contract could not be the subject of an immediate assignment. However, they could be the subject of an agreement to assign. The words "each Chargor … assigns" used in clause 3.3 indicate an intention to effect an immediate assignment but they must be read together with the object of the assignment, namely "right, title and interest from time to time in each of the following assets", which indicates that future rights are included. As these could only be the subject of an agreement to assign, the parties must have intended that clause 3.3 should operate both as an effective assignment of existing rights and an agreement to assign future rights.
35. The second question is what was the nature of any assignment under clause 3.3. Whether a particular instrument creates an absolute assignment or an assignment by way of charge only is a question of construction of the debenture taken as a whole: Bexhill v Razzaq (above) per Aikens LJ at Para.45.
36. On its face, any assignment under clause 3.3 is stated to be absolute, rather than by way of charge. The express use of the words: "assigns absolutely … its right, title and interest" in respect of the assets indicates that it is intended to operate as an absolute assignment or transfer of rights.
37. The requirement in clause 5.1 for Mailbox to give notice of an assignment under clause 3.3, and the content of the forms of notice, are more consistent with an absolute assignment rather than a charge. In particular, the form of notice of assignment at Schedule 9 provides that all remedies under a relevant contract, and all rights, interests and benefits accruing to Mailbox under a relevant contract, belong to the Security Trustee. That is the language of an absolute assignment, rather than a conditional charge.
38. The proviso in clause 3.3 entitling Mailbox to exercise all rights assigned does not make the assignment conditional as the premise on which permission is given by the Security Trustee is that the rights have been assigned. There is also specific reference to the possibility of re-assigning such rights to enable Mailbox to exercise the same. Clause 3.3 refers to the right of Mailbox to redeem such assignment on full payment or discharge of the liabilities but an equitable right to such redemption does not preclude an absolute assignment: Hughes v Pump House Hotel (above) per Cozens-Hardy LJ p.196.
39. Consistent with the above interpretation of the express words, the parties have drawn a distinction between security provided by way of mortgage and fixed charge under clause 3.1, security provided by floating charge under clause 3.2 and security provided by way of assignment under clause 3.3. Construing clause 3.3 in the context of clause 3 and the debenture as a whole, the intention of the parties was to create an absolute assignment of the identified rights, rather than a charge as provided for under the other parts of clause 3.
40. The third question is whether rights under the contract between the parties in fact were the subject of an assignment under clause 3.3 and, if so, the nature of the assignment.
41. It is common ground that an agreement or promise for valuable consideration to assign an expected future right could operate in equity to transfer that right as soon as it came into existence provided it was sufficiently identifiable under the agreement. The Security Trustee's agreement to provide the funding facility amounted to valuable consideration for the agreement to assign. Once the contract was executed by the parties, it was sufficiently identifiable as an agreement falling within clause 3.3.4 of the debenture. Therefore, on 23 December 2013, Mailbox's rights under the contract were the subject of an equitable assignment to the Security Trustee.
42. On 30 December 2013 the Security Trustee sent to GTC the notice of assignment, signed by Mailbox. The notice was in the form of the proforma notice at schedule 9 to the debenture. It stated in terms that Mailbox had assigned and charged to the Security Trustee all its right, title and interest in the contract. This notice is very strong evidence that Mailbox and the Security Trustee intended to effect an absolute assignment of Mailbox's rights under the contract. The notice of assignment was received by GTC on 2 January 2014.
43. As at 2 January 2014, the requirements for a legal assignment under section 136 of the Law of Property Act 1925 were satisfied: (i) the assignment under the debenture was absolute; (ii) the assignment was in writing under the hand of Mailbox; and (iii) express notice of the assignment was given in writing to GTC. As a result, there was a legal assignment by Mailbox of its rights under the contract to the Security Trustee.

Re-Assignment

44. On or before 19 August 2016 the Security Trustee re-assigned all rights and benefits under the contract to Mailbox. The operative provisions of the deed are:

"1. ASSIGNMENT

The Security Trustee assigns absolutely with immediate effect all its rights and benefits (if any) under or in connection with the Building Contract to Mailbox, including such rights and benefits as currently subsist or may subsist in the future.

"2. NOTICE OF ASSIGNMENT

The Security Trustee shall serve notice on the Contractor of the assignment of all the rights and benefits (if any) under or in connection with the Building Contract from the Security Trustee to Mailbox."

45. The deed of assignment is dated 19 August 2016 but in Nabarro's letter dated 13 December 2016 to CMS, it stated that the deed was in fact executed by the Security Trustee on or before 17 August 2016. On execution of the deed by the Security Trustee, it was effective as a re-assignment in equity of the rights and benefits under the contract to Mailbox.
46. Notice of the re-assignment was not given to GTC until Nabarro's letter dated 26 August 2016, sent by email. The letter is addressed to the adjudicator but it is common ground that it was sent on the same date to GTC. Once GTC received notice of the re-assignment, it was effective as a legal assignment under section 136(1) of the Law of Property Act 1925.

Adjudication

47. The notice of adjudication was served on GTC under cover of a letter dated 19 August 2016, sent by hand and email. If the deed of re-assignment was executed on 17 August 2016, all rights under the contract were re-assigned to Mailbox before it commenced the adjudication proceedings. If the deed of re-assignment was executed on 19 August 2016, all rights under the contract were re-assigned to Mailbox on the same day that it commenced the adjudication proceedings.
48. The contract and the scheme for adjudication specify dates by which and periods within which actions are required to be done but do not attach any significance to the time by which any particular action is required to be done. On that basis, even if the deed of re-assignment was not executed until 19 August 2016, the re-assignment was effective on the same date that the adjudication proceedings were commenced.
49. It follows that on the date that the adjudication proceedings were commenced, all rights and benefits under the contract were (or had been) re-assigned in equity to Mailbox.
50. Where there has been an assignment that takes effect in equity, the general rule is that it is the equitable assignee who has the right to sue because the equitable assignee is beneficially entitled to the thing in action: Bexhill v Razzaq (above) per Aikens LJ at Para.58. Although it is open to the court to require an assignor under an equitable assignment to be joined to any proceedings to enforce the assigned rights, this is a procedural requirement so as to bind the assignor and protect the debtor from a second claim. Where, as in this case, there is no dispute between assignor and assignee as to the effect of the assignment, and therefore no risk of a further claim in respect of the assigned rights, it is not necessary for the assignor to be joined.
51. In conclusion, on or by 19 August 2016 Mailbox had beneficial ownership of all rights and benefits under the contract and was entitled to start adjudication proceedings against GTC. Therefore, the adjudicator had jurisdiction to determine the dispute referred and his decision is valid.

Enforcement

52. I have considered whether GTC should be given an opportunity to defend the claim in a full hearing, following disclosure and witness statements. However, in my judgment the court has before it the documents necessary to determine the issues in dispute and there is no real prospect of defending the claim.

Interest

53. In the adjudication decision, the adjudicator determined that Mailbox was entitled to interest on the sum awarded by way of liquidated damages pursuant to the Late Payment Act.
54. Section 1(1) of the Late Payment Act provides:

"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."

55. Section 3(1) of the Late Payment Act provides:

"A debt created by virtue of an obligation under a contract to which this Act applies to pay the whole or any part of the contract price is a "qualifying debt" for the purposes of this Act …"

56. It is common ground between the parties that Mailbox's entitlement to liquidated damages is not a qualifying debt for the purposes of the Late Payment Act. Therefore, the adjudicator did not have jurisdiction to decide that Mailbox was entitled to interest under the provisions in the Act.
57. Section 35A of the Senior Courts Act 1981 empowers the court in proceedings for the recovery of a debt or damages to award simple interest, at such rate as the court thinks fit or as rules of court may provide, on all or any part of the debt or damages in respect of which judgment is given, for all or any part of the period between the date when the cause of action arose and the date of judgment.
58. On an adjudication enforcement application, the relevant cause of action is the failure to pay the sum awarded by the adjudicator: Aspect Contracts (Asbestos) Limited v Higgins Construction plc [2015] UKSC 38 per Lord Mance at Para.14; Ringway Infrastructure Services limited v Vauxhall Motors Limited [2007] EWHC 2507 per Akenhead J at Paras.14-16.
59. Mailbox invites the court to award interest on the adjudication award on one of the following alternative bases:

i) at the rate of 8% above the Bank of England base rate i.e. the rate set out in the Late Payment Act so as to penalise GTC for its default in failing to comply with the adjudicator's decision: Fenice Investments Inc v Jerram Falkus Construction Limited [2009] EWHC 3272 per Coulson J at Para.49;

ii) at the contractual rate of 5% above the Bank of England base rate, applicable to the late payment of sums by the employer to the contractor under the contract;

iii) at the usual commercial court rate of 2% above the Bank of England base rate.

60. GTC's position is that any interest should be awarded at the usual commercial court rate of 2% above the Bank of England base rate.
61. In my judgment, it was not unreasonable for GTC to challenge the jurisdiction of the adjudicator based on the issues of assignment and re-assignment given the paucity of documentary evidence initially available. This is not a case in which it would be appropriate for the court to penalise the losing party. As accepted by Mailbox, the contractual rate is not expressly applicable to any sums due to the employer. There is no basis for applying that rate in the absence of the parties' agreement. The appropriate rate of interest is the usual commercial court rate of 2% above the Bank of England base rate.
62. Helpfully, the parties have agreed the interest calculation on each of the alternatives.
63. I am grateful to counsel for their clear and concise submissions and for their additional submissions on interest.

Conclusion

64. For the reasons that I have given, Mr Curtis had jurisdiction to determine the dispute referred by the claimant and his decision was valid.
65. It follows that the claimant is entitled to have the adjudicator's decision enforced. Summary judgment should be entered for the claimant in the sum of £2,477,152.86, together with interest at the rate of 2.25% in the sum of £10,383.68 to 12 January 2017 (and thereafter at a daily rate of £152.70), £22,183.50 in respect of the adjudicator's fees and expenses, plus costs, which I will deal with following consideration of any further submissions from the parties.