QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
Strand, London, WC2A 2LL
B e f o r e :
| (1) M HART CONSTRUCTION LIMITED
(2) P K MAINTENANCE LIMITED
|- and -
|IDEAL RESPONSE GROUP LIMITED
Mr Clifford Darton and Mr Tom Kirk (instructed by Watkins Ryder LLP) for the Defendant
Hearing date: 1 November 2017
Crown Copyright ©
"Mr Ibrahim agreed at this point that Ideal, Mr Hart and PKM would work on the snagging and defects works, as previously discussed, including that Ideal, Mr Hart and PKM would split any profit equally, once each party's costs directly associated with the works had been accounted for."
(i) Under the Retrofit Contract, MHCL submitted invoices on account of its profit share being invoice 2589 for £750,000 dated 7 June 2016 and invoice 2822 for £1,000,000 dated 15 June 2017. A pay less notice dated 21 June 2017 was issued by Ideal in respect of this second invoice.
(ii) Under the Defects Contract, MHCL submitted invoices on account of profit, being invoice 2592 for £150,000 dated 13 June 2016 and invoice 2823 for £300k dated 15 June 2017. A pay less notice dated 21 June 2017 was also issued by Ideal in respect of this second invoice.
(iii) Under the Defects Contract, PKM submitted invoices on account of profit, being invoice 083 for £150k dated 20 April 2016 and invoice 094 for £300,000 dated 15 June 2017. PKM also issued two invoices for costs: invoice 092 in the sum of £6,400 dated 5 September 2016 and invoice 093 in the sum of £20,220 dated 5 September 2016. A pay less notice dated 21 June 2017 was issued in respect of these invoices.
The Hart Retrofit adjudication
"When the Contract was entered into Mr Hart traded as M Hart Construction. On 15 January 2013 Mr Hart incorporated Hart Construction (the Referring Party in this adjudication). Mr Hart did not use Hart Construction initially. However, on 26 January 2015 Mr Hart had a conversation with Mr Ibrahim and told him that he had established Hart Construction and that he was going to use Hart Construction, rather than trading himself. Hart Construction then started to carry out the works under the Contract."
(i) the terms on an e-mail sent on 2 June 2015 from Lyn Leaver (as administrator for MHCL) to Di Ward at Ideal.
(ii) The fact that MHCL issued invoices from 9 February 2015.
(iii) A list of invoices sent by Mrs Leaver to Ms Ward including MHCL invoices which Ms Ward agreed and allocated payments to.
(iv) The fact that Mr Ibrahim was aware that Mr Hart was operating through MHCL and still sent works "to Mr Hart".
The Hart Defects adjudication
"On 5 September 2013, Mr Hart telephoned Mr Ibrahim and stated that Mr Leaver was willing to assist with and manage the defects and snagging works, on the basis as set out above. Mr Ibrahim agreed at this point that Ideal, Hart Construction and PKM Maintenance would work on the snagging and defects works, as previously discussed, including that Ideal, Hart Construction and PK Maintenance would split any profit equally, once each company's costs directly associated with the works had been taken into account.
This agreement is the contract … which is the subject matter of this adjudication."
The PKM Defects adjudication
Ideal's jurisdictional challenge
Outcome of the adjudications
(i) In the Hart Retrofit adjudication, the adjudicator decided that £750,000 was due to MHCL on invoice 2589 but not any other amounts claimed.
(ii) In the Hart Defects adjudication, the adjudicator ordered payment of £150,000 on invoice 2592 and £300,000 on invoice 2823.
(iii) In the PKM Defects adjudication, the adjudicator ordered payment of £150,000 plus VAT on invoice 083 and payment of the sums claimed in invoices 092 and 093 plus VAT.
The alleged novation
"Novation takes place where the two contracting parties agree that a third, who also agrees, shall stand in the relation of either of them to the other. There is a new contract and it is therefore essential that the consent of all parties shall be obtained: in this necessity for consent lies the most important difference between novation and assignment.
Most of the reported cases in English law have arisen either out of the amalgamation of companies or changes in partnership firms, the question being whether as a matter of fact the party contracting with the company or the firm accepted the new company or the new firm as his debtor in the place of the old company or the old firm. That acceptance may be inferred from acts and conduct, but ordinarily it is not to be inferred from conduct without some distinct request. …
The effect of a novation is not to assign or transfer a right or liability, but rather to extinguish the original contract and replace it by another. …"
(i) Firstly, in each of the adjudications, Mr Ibrahim made a statement dated 31 July 2017. Referring to the Referral Notice, he said that it was alleged that he had met Mr Hart on 26 January and that in the course of that meeting he was advised that Mr Hart would be utilizing M Hart Construction Ltd. as opposed to trading as a sole trader. He continued "This is the first time I have heard this allegation. I have absolutely no recollection of such a conversation and categorially deny that it took place". He commented that if he had been doing this he would have notified people in writing and he observed that there had been no change in VAT number as he might have expected.
(ii) His next statement was made on 15 August 2017 and in this he said that he had now realised that he was in the US on business on 26 January 2015. He produced copies of his passport and e-ticket as evidence, showing that he did not return to the UK until the morning of 27 January 2015.
(iii) Mr Hart responded in a statement dated 16 August 2017. Mr Hart's evidence was that the conversation had taken place by phone (and not in a meeting) and that he and Mr Ibrahim spoke regularly on their mobile phones. He remembered the conversation because they had discussed travel arrangements to a relative's funeral a couple of days later. He went on: "During our conversation we also discussed certain work projects including our work for Lend Lease (we had a meeting with Lend Lease the following day on 27 January 2015). It was during this part of the conversation that I told Mr Ibrahim that I had established Hart Construction and that I was going to use Hart Construction, rather than trading myself."
(iv) Mr Ibrahim responded in a statement dated 17 August 2017. He said that because of the time difference and his habit of turning his phone off when abroad to avoid data charges, he was certain that he had not received any call from Mr Hart on 26 January 2015. He also questioned why Mr Hart would phone him on a non-urgent matter in the United States in circumstances where he was to see Mr Hart the following day in any event.
(i) From 9 February 2015, invoices for works undertaken were from MHCL rather than Mr Hart trading as M Hart Construction.
(ii) Lyn Leaver (the administrator for Hart Construction) sent Di Ward (Ideal's purchase ledger manager) an e-mail on 2 June 2015 which stated that "I cannot send a full SAGE statement as we have now changed to a Limited Company and have credited back the old invoices."
(iii) On 8 June 2015 Lyn Leaver sent Ms Ward a list of invoices which included Hart Construction Ltd. invoices and invoices sent on behalf of Mr Hart trading as M Hart construction. Later on 8 June 2015, Ms Ward replied agreeing the list of invoices and allocated payments against invoices from Hart Construction and invoices sent on behalf of Mr Hart trading as M Hart Construction.
(iv) After Mr Ibrahim was aware that Mr Hart was operating through Hart Construction, Ideal still sent works to Mr Hart.
(v) Mr Leaver of PK Maintenance is married to Mrs Leaver and was therefore fully aware of the change from M Hart trading as M Hart Construction to M Hart Construction Ltd. On account of continuing to work under the Contract, PKM also consented to the novation.
(vi) Ideal confirmed in its pay less notice sent to MHCL that there was an application dated the 15th June 2017 which was a reference to invoices from MHCL. Ideal did not question why the invoice was from Hart Construction Ltd. and purported to serve a pay less notice.
Invoices and the e-mails between Di Ward and Lyn Leaver
"I am helping out in Purchase Ledger at the moment and in need of your help.
I know you have in the past given Sharon a lot of information but if I could ask you to send me an up to date statement ASAP it would be very much appreciated.
I don't think there is any cause for concern. I just need to ensure we have all your invoices and that all payments are allocated correctly."
"I cannot send a full SAGE statement as we have no changed to a Limited Company and have credited back the old invoices.
Please find a sheet attached which itemised all invoices and payments together with the three latest invoices sent to Javid."
The invoices attached were numbered 2399, 2400 and 2401 which were in the name of MHCL.
"I have been through the account …. and I came up with the same figure outstanding ….. after the little glitch.
I have attached a spreadsheet. What I intend to do is allocate everything apart from the invoices shown on the attached. ….
Going forward once inv. 2315 has been paid in full, we will make payments of whole invoices only, where possible. Making it easier to allocate."
Mr Ibrahim's knowledge
The pay less notice
Conclusion on the First Claimant's claims
(i) the adjudications were not brought under the alleged novated contract because the Notices of Intention to Refer each relied on specific contracts that did not exist.
(ii) The Scheme expressly or impliedly requires the identification of the contract under which the dispute arises and under which the adjudicator is appointed.
(iii) The adjudicators each acted under 2 contracts because they derived their jurisdiction from the contracts relied upon in the Notices of Intention to Refer but made their decisions on the basis of a novated contract.
"that, it was necessary for the Court to be satisfied to the requisite standard for awarding summary judgment that, if a contract existed, it was the contract alleged by Mr Purton. The submission was that if the Court was not so satisfied then Mr Purton should not be permitted to rely upon a contract that was not pleaded in these proceedings and, furthermore, the adjudicator would have had no jurisdiction to decide the issue referred to him. …. The high point of [counsel's] submission was that if any element of the contract alleged by Mr Purton was not established to the summary judgment standard of certainty, then judgment should be denied."
Those elements included the date of the contract, the specific scope of works and the contract sum.
"The first of these alternatives can be addressed shortly. The jurisdiction to refer is dependent upon the existence of a construction contract and a dispute arising under it. It is not dependent upon identifying each and every term with complete accuracy so that the process of referral becomes a formalistic obstacle course akin to 18th century forms of action where one slip may put a party literally out of court." [at 23]
The PKM defects adjudication