Energy Works (Hull) Ltd v MW High Tech Projects UK Ltd
| Jurisdiction | England & Wales |
| Judge | Mrs Justice O'Farrell |
| Judgment Date | 24 September 2020 |
| Neutral Citation | [2020] EWHC 2537 (TCC) |
| Docket Number | Case No: HT-2019-000259 |
| Court | Queen's Bench Division (Technology and Construction Court) |
| Date | 24 September 2020 |
[2020] EWHC 2537 (TCC)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
TECHNOLOGY AND CONSTRUCTION COURT (QBD)
Rolls Building
London, EC4A 1NL
Mrs Justice O'Farrell DBE
Case No: HT-2019-000259
and
and
Stephen Dennison QC & Mathias Cheung (instructed by Fenwick Elliott LLP) for the Claimant
Vincent Moran QC & William Webb (instructed by Clyde & Co LLP) for the Defendants
Adrian Williamson QC & Paul Bury (instructed by Walker Morris LLP) for the Part 20 Defendant
Hearing dates: 13 th, 14 th July 2020 Additional submissions in writing: 17 th, 21 st, 24 th, 28 th July; 21 st, 22 nd September 2020
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 the hearing of preliminary issues to determine:
i) the legal effect of an assignment by the First Defendant (“MW”) to the Claimant (“EWHL”) of MW's sub-contract with the Part 20 Defendant (“Outotec”);
and
ii) whether MW can pursue its claims for contribution against Outotec as direct claims, in respect of accrued rights under the sub-contract, or based on its liability for “the same damage” pursuant to the Civil Liability (Contribution) Act 1978 (“the 1978 Act”).
The claim arises out of a contract dated 20 November 2015 between EWHL and MW whereby MW was engaged as the main contractor under an EPC Contract to design, procure, construct, commission and test a fluidised bed gasification power plant, capable of processing refuse derived fuel (“RDF”) produced by commercial, industrial and municipal solid waste (“the Main Contract”).
The Second Defendant, MW Group, provided a parent company guarantee in respect of MW's performance of the works.
By a sub-contract dated 20 November 2015 MW engaged Outotec to supply key elements of the gasification plant (“the Sub-Contract”).
On 18 February 2016 Outotec executed a deed of collateral warranty in favour of EWHL as the “Beneficiary” (“the Outotec Warranty”).
On 4 March 2019 EWHL purported to terminate the Main Contract by reason of contractor default, namely, MW's delay in completing its works, including outstanding defects, with the result that delay damages exceeded the contractual cap.
MW disputed EWHL's entitlement to terminate for contractor default on the ground that it was entitled to an extension of time to the date of completion of its works for events including EWHL's failure to supply RDF when required or within specification to allow commissioning to proceed. MW accepted that there was an effective termination by EWHL but asserted that it took effect as a termination for convenience under the Main Contract.
By notices dated 20 June 2019 and 24 June 2019, MW assigned the Sub-Contract to EWHL.
On 26 July 2019 EWHL commenced proceedings against MW, claiming damages now estimated in the sum of £133 million in respect of:
i) the costs of rectifying defects;
ii) delay damages (under the Main Contract or as general damages);
iii) additional costs of completing the works and other losses arising from, or consequent on, termination (under the Main Contract or as damages for repudiatory breach).
MW disputes the claims and has a counterclaim for £46.7 million based on the contractual provisions for payment following a termination for convenience.
MW seeks to pass on any liability it might have in respect of EWHL's claims to Outotec through an Additional Claim in which MW claims:
i) liquidated damages under the Sub-Contract for delays in delivery of the plant;
ii) an indemnity in respect of MW's liability to EWHL for defects in the plant for which Outotec was responsible, including direct remedial costs and consequential delay and termination losses arising under or as a result of breach of the Main Contract.
MW's claim against Outotec is advanced on alternative legal bases:
i) MW's primary case is that the assignment of the Sub-Contract to EWHL only assigned the future right to performance and did not assign any accrued rights under the Sub-Contract. Accordingly, MW is entitled to pursue its claims against Outotec on the basis of those direct accrued contractual rights which existed prior to the assignment.
ii) Alternatively if, as alleged by Outotec and EWHL, the assignment transferred all past and future rights under the Sub-Contract to EWHL, MW submits that properly construed, the assignment also transferred all past and future liabilities and obligations under the Sub-Contract and took effect as a novation.
iii) MW's secondary case is that both Outotec and MW are, or would if sued be, liable to EWHL in respect of the same damage such that MW can claim a contribution from Outotec under the 1978 Act.
Outotec disputes MW's entitlement to bring the Additional Claim against it on the following grounds:
i) MW has no claim against Outotec in respect of the quality of its work because the assignment of the Sub-Contract was effective to transfer all benefits, including accrued rights and the right to sue in respect of the same, to EWHL.
ii) MW is not entitled to any contribution under the 1978 Act because MW and Outotec are not liable to EWHL in respect of the same damage for the purpose of the 1978 Act.
EWHL supports Outotec's position on the assignment issue. It is neutral on the contribution issue.
The Main Contract
The Main Contract incorporates the General Conditions of the IChemE Form of Contract for Lump Sum Contracts (“the Red Book”), 5 th Edition, 2013, subject to bespoke amendments.
MW's obligations to perform are set out in clause 3, including the following:
Clause 3.1
“In consideration of payment by the Purchaser, the Contractor shall regularly and diligently carry out and complete the Works in accordance with the Contract and ensure that the Plant as constructed and completed shall comply with the Contract, including (without limitation) meeting any performance specifications set out in the Specification and/or the Schedules and/or the Contractor's Proposals.”
Clause 3.1A
“The Contractor shall be responsible for the design of the whole of the Plant. Any design provided by or on behalf of the Purchaser (whether contained in a Contract Document or provided in a Variation Order or otherwise) shall be verified by the Contractor.”
Clause 3.2
“All work carried out by the Contractor shall be carried out with sound workmanship and materials, safely and in accordance with good engineering practice and legislation and shall be to the reasonable satisfaction of the Project Manager.”
Clause 3.4
“Without derogation from any other provision, and as a separate and independent obligation, the Contractor shall design the Works and every part of the Works:
(a) using all the skill and care reasonably to be expected of duly qualified and experienced designers undertaking the design of works similar in scope, size, complexity and character to the Works or such part of the Works; and
(b) in accordance with Good Industry Practice.”
The time for completion of the works is defined in clause 13.1:
“Subject to Clause 14 (Delays), the Contractor shall complete the construction of the Plant, carry out and complete the Take Over procedures and satisfy the requirements under Clause 33 and Schedule 15 to enable the Project Manager to issue the Take over Certificate on or before the date, or within the period, specified in Schedule 11 (Times of completion) and shall also complete the construction of any Section of the Plant and do any other thing in the performance of the Contract on or before the dates, within the periods, specified in Schedule 11.”
The time for completion set out in Schedule 11 is 871 calendar days from the date of the Main Contract.
Clause 14 sets out the matters entitling MW to extensions of the time for completing the works.
Clause 15.1 provides for Delay Damages in respect of any failure by MW to complete within the time for completion:
“If the Contractor fails to satisfy the requirements under Clause 33 and Schedule 15 in accordance with Schedule 11 (Times of completion) to enable the Project Manager to issue the Take Over Certificate or the Contractor fails to do any other thing in accordance with Schedule 11 (Times of completion), the Contractor shall pay the Purchaser liquidated damages as specified in Schedule 12 (Liquidated damages for delay), but (subject to Sub-clause 15A) shall have no liability to pay such liquidated damages in excess of the Delay Damages Cap.”
Liquidated damages for delay are set out in Schedule 12 at a daily rate of £84,800, subject to an aggregate cap of 15% of the Contract Price.
Clause 44.1 permits EWHL to terminate MW's employment under the Main Contract for Contractor's default, defined as including at (c):
“the Contractor having paid or allowed or becoming liable for a sum or sums in aggregate equal to or greater than the Delay Damages Cap.”
Clause 44.3 provides that on termination under clause 44.1:
“(a) except as the Project Manager may direct or permit, the Contractor shall forthwith leave the Site and shall have no right to re-enter the Site or to undertake any work, including the rectification of any Defect or to remove any Contractor's Equipment, Temporary Works or Materials;
(b) the Purchaser may himself or through others complete the Works…
…
(d) the Contractor shall, if so...
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Taking Over A Part Done Job
...See for example JCT Design & Build Contract 2016 Clause 8.7.2.3 3. Energy Works (Hull) Ltd v MW High Tech Projects UK Ltd and others [2020] EWHC 2537 (TCC) This article is taken from Fenwick Elliott's 2021/2022 Annual Review. To read further articles go to Fenwick Elliott Annual Review The ......
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Taking Over A Part Done Job
...See for example JCT Design & Build Contract 2016 Clause 8.7.2.3 3. Energy Works (Hull) Ltd v MW High Tech Projects UK Ltd and others [2020] EWHC 2537 (TCC) This article is taken from Fenwick Elliott's 2021/2022 Annual Review. To read further articles go to Fenwick Elliott Annual Review The ......
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Legal Terms Explained: Assignment
...Clear words are required to assign only future rights under a contract (Energy Works (Hull) Ltd v MW High Tech Projects UK and others [2020] EWHC 2537 (TCC)). Assignment in a construction context typically refers to a legal or equitable assignment (although assignment can also occur by othe......