C Spencer Ltd v MW High Tech Projects UK Ltd
| Jurisdiction | England & Wales |
| Judge | Mrs Justice O'Farrell DBE,Mrs Justice O'Farrell |
| Judgment Date | 02 October 2019 |
| Neutral Citation | [2019] EWHC 2547 (TCC) |
| Docket Number | Case No: HT-2019-000118 |
| Court | Queen's Bench Division (Technology and Construction Court) |
| Date | 02 October 2019 |
[2019] EWHC 2547 (TCC)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
TECHNOLOGY AND CONSTRUCTION COURT (QBD)
The Rolls Building
Fetter Lane, London, WC2A 2LL
Mrs Justice O'Farrell DBE
Case No: HT-2019-000118
Alexander Nissen QC & Matthew Finn (instructed by Gosschalks) for the Claimant
Simon Hargreaves QC & Tom Owen (instructed by Clyde & Co LLP) for the Defendant
Hearing date: 1 st July 2019
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
This is a Part 8 claim by the claimant (“CSL”) against the defendant (“MW”) for £2,683,617.09 plus VAT based on the alleged failure by MW to serve a valid payment notice or pay less notice for the purpose of the Housing Grants, Construction and Regeneration Act 1996, as amended by the Local Democracy, Economic Development and Construction Act 2009 (together referred to as “the Act”) in response to CSL's interim payment application dated 4 February 2019.
The question raised by the dispute is whether, in the case of a contract for the execution of both: (i) construction operations within the ambit of the Act and (ii) non-construction operations falling outside the Act, a valid payment notice for the purpose of section 111 of the Act must identify separately the sum due in respect of any construction operations and the basis on which that sum is calculated.
Background to the dispute
By a contract dated 20 November 2015 MW was engaged as the main contractor by Energy Works (Hull) Ltd to design and construct a power plant, capable of processing refuse derived fuel produced by commercial and industrial waste and municipal solid waste.
By a subcontract dated 20 November 2015 (“the Subcontract”) CSL was engaged by MW to design and construct the civil, structural and architectural works for completion of the facility. The Subcontract price is £35,650,398.
On 2 February 2017 the parties entered into a Deed of Variation and Settlement, the terms of which do not affect the issues raised in these proceedings.
The Subcontract works include construction operations for the purposes of Part II of the Act but also include the assembly of plant and erection of steelwork to provide support or access to plant and machinery, works which fall outside the ambit of the Act.
The Subcontract makes provision for periodic interim payments to be made.
Initially, the parties operated the payment machinery provisions without any regard to the division between milestones or works that fell within or outside the definition of construction operations for the purpose of the Act.
In 2018 a dispute arose between the parties in respect of interim payment application number 31. Neither the application for payment submitted by CSL nor the payment notice issued by MW separated out the sums due in respect of construction operations from the sums due in respect of non-construction operations.
In July 2018 CSL gave notice of an intention to refer the dispute to adjudication. MW raised a jurisdictional challenge in respect of the proposed adjudication. The ground of challenge was that the contractual adjudication provision was limited to disputes in respect of construction operations within the Act; the adjudicator did not have jurisdiction to determine the dispute as framed because it failed to distinguish between the works and associated sums claimed falling within and outside the ambit of the Act.
In the face of such challenge, CSL withdrew its adjudication claim.
On 4 February 2019 CSL issued its application for interim payment number 32 in the sum of £3,353,219.22 plus VAT, of which sum £2,683,617.09 plus VAT was claimed in respect of construction operations and the balance was claimed in respect of other works. The covering letter stated:
“We enclose our interim application for payment No.32 in respect of the period ending 31 st January 2019 in respect of the above Sub-Contract in the sum of £34,611,646.42 (includes 2.5% Retention deducted) excluding VAT.
As you are aware this is a “hybrid contract” where some of the works carried out by CSL are construction operations within the meaning of the Housing Grants, Construction and Regeneration Act 1996 (as amended) (“the Act”) and some of the works are not construction operations within the meaning of the Act. The enclosed application therefore draws a distinction between construction operations that are subject to the Act (entitled “Inc Operations”) and other operations which are not so subject (entitled “Exc Operations”).
Until now, this is not a distinction which either party has previously made in respect of the payment process. However, following the abortive adjudication of last year, we now consider it to be appropriate given the acknowledgement of both parties that this is a hybrid contract.
Accordingly, we look forward to receiving your assessment of the sum due in respect of:
a) The sum applied for in respect of construction operations that are subject to the Act;
b) The sum applied for in respect of other operations which are not so subject.
Please forward your certification for payment to the undersigned …”
The enclosed application for payment included a breakdown of the amount claimed as due under the Subcontract, each item allocated to or divided between construction operations and/or non-construction operations.
By letter dated 19 February 2019 MW served its payment notice number 35, stating:
“We refer to the Civils, Structural and Architectural Subcontract between you and us dated 20 th November 2015 and your application for payment dated 4 th February 2019 for the sum of £3,353,219.22 excluding VAT.
We hereby give you notice of the sum that we consider to be, or to have been due at the payment due date in respect of the above application being a Certificate that the Subcontractor owes the Contract £6,818,521.70 excluding VAT. [T]he basis on which that sum is calculated, is set out in the attached spreadsheet [CSL Application 32 M+W Assessment 35xlsx].”
The attached spreadsheet contained a breakdown of the measured work and variations, indicating a negative sum due to CSL. The sums were not allocated to or divided between construction operations and non-construction operations. MW did not respond to the substance of CSL's position regarding the appropriate allocation of the works between construction and non-construction operations.
By letter dated 14 March 2019 Gosschalks, solicitors acting for CSL, claimed the sum of £2,683,617.09 plus VAT as the notified sum due in the absence of any valid payment notice or pay less notice.
By letter dated 19 March 2019 Clyde & Co LLP, solicitors acting for MW, disputed the alleged debt, arguing that the failure of MW to specify the sums due in respect of construction and non-construction operations did not invalidate its payment notice.
The Claim
On 5 April 2019 CSL commenced these Part 8 proceedings, seeking payment of £2,683,617.09 plus VAT and/or damages in the same sum together with interest.
CSL's case is:
i) On a proper construction of the Act and clause 38.4 of the Subcontract, any certificate of payment issued by the Contract Manager must identify the sum assessed as due at the payment due date in respect of those works that comprise construction operations and the basis on which that sum is calculated.
ii) The certificate of payment was not a valid notice of payment for the purpose of section 110A(2) of the Act because it failed to identify that part of the amount assessed as due in respect of construction operations and the basis of that calculation. It simply assessed the overall sum due in respect of both construction and non-construction works.
iii) In the absence of a valid payment notice or any pay less notice, pursuant to section 111 of the Act, the “notified sum” to which CSL became entitled was the amount assessed as due in its application for payment.
MW disputes the claim and submits that Part 8 is inappropriate for determination of this matter. MW's case is:
i) The payment provisions in the Subcontract are compliant with the requirements of the Act. Payment notice 35 complies with the requirements of section 110A of the Act. The parties decided that all operations would be subject to the same payment regime. They were entitled to do so and it did not make an otherwise compliant scheme thereby non-compliant.
ii) If CSL's argument is correct, which is disputed, CSL must prove that all sums claimed in these proceedings are sums for construction operations.
iii) The Subcontract is a milestones contract and it is not possible to distinguish between included and excluded operations.
iv) CSL is estopped by convention from contending that the parties' agreement requires that applications for payment and payment notices distinguish between included and excluded operations.
v) MW is entitled to rely on the payment notice as notice of its cross-claims.
vi) MW is entitled to rely on the payment notice as a pay less notice.
vii) MW is entitled to raise a set-off in the sum of £6,818,521.70.
The issues for determination by the Court can be summarised as follows:
i) on a proper construction of the Subcontract and the Act, whether MW issued a valid payment notice in response to CSL's application no.32;
ii) whether CSL is estopped from relying on its construction argument;
iii) if MW failed to issue a valid payment notice, whether CSL is entitled to rely on its payment application as “the notified sum” for the purposes of the Act;
iv) whether MW is entitled to rely on its negative valuation as a pay less notice, cross-claim...
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