Ballast Plc V. Laurieston Properties Limited (in Liq)+laurieston Homes (stonelaw) Limited+laurieston Homes (howwood) Limited+awg Residential Limited
| Jurisdiction | Scotland |
| Judge | Lady Paton |
| Neutral Citation | [2005] CSOH 16 |
| Court | Court of Session |
| Docket Number | A483/02 |
| Published date | 25 January 2005 |
| Date | 25 January 2005 |
| Year | 2005 |
| OUTER HOUSE, COURT OF SESSION [2005] CSOH 16 | |
| A483/02
| OPINION OF LADY PATON in the cause BALLAST PLC Pursuers; against (First) LAURIESTON PROPERTIES LIMITED (in liquidation), (Second) LAURIESTON HOMES (STONELAW) LIMITED, (Third) LAURIESTON HOMES (HOWWOOD) LIMITED and (Fourth) AWG RESIDENTIAL LIMITED Defenders: ________________ |
Pursuers: W.J. Wolffe, Advocate; Masons
First Defenders: No appearance
Second, Third and Fourth Defenders: Currie, Q.C., S.C. Smith, Advocate; Dundas &
Wilson, C.S.
25 January 2005
[1]In this action, a construction company Ballast plc ("Ballast") seeks payment of certain sums arising from a building management contract with Laurieston Properties Limited ("LPL"). Ballast sues not only LPL, but also two joint venture companies and a company AWG Residential Limited, formerly known as Morrison Homes Limited ("Morrison Homes"). Ballast claims that the latter three companies guaranteed payment of those sums.
[2]A proof before answer took place on 22-25, 29-30 June and 1 July 2004. LPL was in liquidation, and was not represented. On behalf of Ballast, by then in administration, evidence was led from a former surveying and managing director, Norman Burn (60) and a former project surveyor, Ian Teaz (35). On behalf of the two joint venture companies and Morrison Homes, evidence was led from the former general manager of Morrison Homes, Jonathan Law (34), and a former construction surveyor, Douglas Taylor (52). A joint minute number 34 of process was also relied upon.
[3]By the date of the proof, Mr Burn was a self-employed chartered quantity surveyor. He had a contract with the administrator of Ballast in terms of which he was to assist with the resolution of a number of former Ballast jobs. He was paid an hourly rate, and was in addition entitled to a percentage of any award made by the court in the present litigation. Mr Teaz was working as a quantity surveyor with a construction company; Mr Law was managing director of Prudential Residential Finance; and Mr Taylor was a contracts manager with a construction company. The latter three witnesses had no financial interest in the outcome of the litigation.
Outline of events
Property development: joint venture companies
[4]In about 1999 David Lang, a director of LPL, identified two sites as suitable for residential development. One was Stonelaw High School, Rutherglen. The school was to be converted into flats, with additional flats in surrounding ground. The other was Howwood in Renfrewshire, where new houses were to be built.
[5]LPL was a company with £100 issued share capital and few assets (6/466). LPL therefore required funding for both developments.
[6]Morrison Residential Investments Limited ("MRIL") was a wholly-owned subsidiary of Morrison Homes. MRIL offered funding facilities to developers who had land but insufficient funds. MRIL's practice was to set up a joint venture company, 50 per cent owned by the developer, and 50 per cent owned by MRIL. An agreement was entered into by the joint venture company, the developer, and MRIL. In terms of the agreement, the developer provided the land and carried out the development, having entered into a fixed price design and build contract with the joint venture company. MRIL (often using Morrison Homes' staff and facilities) arranged funding, and provided advice.
[7]A predicted cash-flow model formed part of the agreement. There was provision for draw-downs from a facility in the form of a bank account newly-opened for the joint venture company. Each draw-down required two authorising signatures, one from the developer, and one from MRIL. The amount of draw-down depended upon certification by quantity surveyors employed by the bank. The quantity surveyors inspected the works, then certified the value of the proportion of work done in terms of the design and build contract. After some time, additional income would be generated from sales of newly-built houses. On completion of the development, the bank would be repaid, and both the developer and MRIL would have made a profit.
[8]Mr Lang of LPL approached MRIL, who agreed to provide funding. Two joint venture companies were set up: Lauriston Homes (Stonelaw) Limited ("the Stonelaw joint venture company"); and Lauriston Homes (Howwood) Limited ("the Howwood joint venture company"). MRIL owned 50 per cent of each company, with LPL owning the remaining 50 per cent. Formal agreements dated March 2000 were entered into by each joint venture company, LPL, and MRIL (7/3 and 7/4). The agreements contained cash-flow projections based on assumptions that certain plots would be sold at certain dates.
[9]In implement of the agreements, each joint venture company acquired the relevant land. Each joint venture company entered into a fixed price design and build contract with LPL (7/1; 7/2). A funding bank was identified for each joint venture company, namely Lloyds TSB for the Stonelaw joint venture company, and the Bank of Scotland for the Howwood joint venture company. Each joint venture company granted two standard securities over the relevant land: one in favour of the funding bank, and one in favour of MRIL as security for its profit from the development.
[10]MRIL's interests in the developments were looked after by Jonathan Law, the general manager of Morrison Homes. Although his employment contract was with Morrison Homes, one of his duties was overseeing development projects in which MRIL was a joint venture partner. Morrison Homes' staff had a significant involvement with the joint ventures. They carried out the corporate creation and subsequent administration of the joint venture companies (6/426). They arranged and administered a bank facility for each joint venture company, including preparing the draw-down requests (6/305; 6/306; 6/326; 6/333; 6/382; 6/391; 7/40). They arranged collateral assurance and insurance (6/312; 6/340). Mr Law of Morrison Homes (or his subordinate Douglas Taylor) attended meetings relating to the joint venture projects. Much of the correspondence relating to the projects was copied to Mr Law. Mr Law's word carried considerable weight. When he made what might formally be described as suggestions (relating, for example, to the re-sequencing of construction work or to the content of missives of sale), his suggestions were often adopted. Mr Law accepted in evidence that as general manager of Morrison Homes, with responsibility for the joint venture projects in which Morrison Homes' subsidiary MRIL was involved, he had an interest in seeing that the Stonelaw and Howwood projects did not fail.
LPL's building management contracts with Ballast
[11]In order to carry out the development of the two sites, LPL entered into building management contracts dated 31 May 2000 with Ballast (6/453; 6/454; 6/455). Ballast was to provide services as management contractor, employing sub-contractors, and organising the works. The management contract was not a fixed price contract, but was based on "best price and profits". There was thus no ceiling figure, but rather an open-ended liability dependent upon work done. The provisional dates for completion were 3 June 2001 in respect of Stonelaw, and 11 May 2001 in respect of Howwood.
[12]In terms of Clause 4.3.1 of the building management contract, LPL was obliged to pay Ballast the amount certified each month as due to Ballast in terms of an architect's interim certificate. Ballast would make an application for payment; the quantity surveyor employed by LPL would assess the work done and advise architects employed by LPL; the architects would then issue an interim certificate. LPL was obliged to pay Ballast the sum contained in the interim certificate within 14 days. Failing payment, simple interest at a rate 5 per cent over bank base rate accrued.
[13]A notable feature of the LPL/Ballast building management contract was the fact that Ballast was not contractually bound to comply with the projected sequence of work in the joint venture agreement cash-flow model which formed the basis of the fixed price design and build contract between LPL and the joint venture companies. Ballast was not shown the joint venture agreements or the design and build contracts. Ballast was under no obligation to produce completed flats or houses for sale at dates predicted in the cash-flow projections underlying the fixed price design and build contracts.
[14]There was therefore potential for disparities in both the timing of construction and the sums which LPL could obtain from the joint venture companies compared with the sums which LPL had to pay Ballast.
Initial progress on both sites
[15]Work began on both sites. Initially, the contracts for each site (i.e. the LPL/Ballast building management contracts and the LPL/joint venture design and build contracts) ran reasonably well in tandem.
[16]In terms of the LPL/joint venture company design and build contract, quantity surveyors employed by the bank (the Mackenzie Partnership) regularly valued the work done. They measured the proportion of work completed and certified a sum due to LPL. On signature of the necessary draw-down application form by the two joint venture company signatories (one from LPL, David Lang, and one from MRIL, usually Jonathan Law) the bank released the draw-down amount to the joint venture company, who then paid LPL (and/or any payee nominated by LPL: see for example 7/57).
[17]In parallel, in terms of the LPL/Ballast building management contract, Ballast made regular monthly applications for payment. The quantity surveyor employed by LPL (Peter Imrie) valued the work done. He reported to the architects employed by LPL (McIntyre & Associates). The architects then issued an interim certificate. LPL made payments to Ballast of the sums certified as due in the interim certificates.
[18]Meantime Jonathan Law, as general manager of Morrison Homes, supervised the progress of both developments with a view to...
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