Farrelly (M & E) Building Services Ltd v Byrne Bros (Formwork) Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Ramsey |
| Judgment Date | 09 May 2013 |
| Neutral Citation | [2013] EWHC 1186 (TCC) |
| Date | 09 May 2013 |
| Docket Number | Case No: 12-449 |
| Court | Queen's Bench Division (Technology and Construction Court) |
[2013] EWHC 1186 (TCC)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
The Hon Mr Justice Ramsey
Case No: 12-449
Simon Lofthouse QC (instructed by Wright Hassall LLP) for the Claimant
Jonathan Lewis (instructed by Fenwick Elliott LLP) for the Defendant
Introduction
This is an application by the Claimant ("FBS") in which they seek summary judgment against the Defendant ("Byrne") to enforce a decision of an adjudicator. Byrne seeks to defend the proceedings on the basis that the Adjudicator acted in breach of natural justice and that, in any event, FBS's entitlement to be paid should be stayed on the basis of FBS's financial position.
Background
Byrne is the main contractor under a contract with London Underground Limited in respect of the refurbishment of Hammersmith Underground Station. By a subcontract dated 21 March 2011 Byrne subcontracted the mechanical and electrical work and services to FBS ("the Subcontract"). The Subcontract was in the form of a NEC3 agreement with bespoke amendments.
On 10 August 2012 FBS made an application for payment No 50 and, in response, Byrne made its assessment by its sub-contract payment approval form, SCPAF No 45 on 29 August 2012.
In September 2012 Byrne sought to terminate FBS's employment under the Subcontract. Byrne contends that it did so properly whereas FBS disputes the termination and contends that it accepted Byrne's wrongful repudiation of the Subcontract.
On 15 October 2012 FBS gave Notice of Adjudication to Byrne in relation to disputes arising from FBS's application No 50 and Byrne's SCPAF No 45.
On 25 October 2012 Mr Michael Rowlinson of Alway Associates was appointed by agreement of the parties to act as the Adjudicator. The dispute was referred to him on 25 October 2012. Byrne served its Response on 8 November 2012 and FBS served its Reply on 19 November 2012.
On 27 November 2012 the Adjudicator wrote to the parties in the following terms:
"In accordance with the second bullet point of clause W2.14 of the Subcontract I am required to make available to the Parties any information to be taken into account in reaching my Decision. I would assume that this requirement is to prevent the adjudicator from taking what has been described as a 'flight of fancy'.
There is a statement at paragraphs 35 and 36 of the first witness statement from Paul Reeves served by the Responding Party with the Response to the effect that the method of assessing compensation events changed from being prospective to retrospective. Using my own knowledge of the NEC3 contracts (which I suspect is one of the reasons why the Parties agreed to appointment me to act as Adjudicator in this reference) I am aware that clause 63.1 of the Subcontract and the guidance for that clause contained within the Guidance Notes (to the Engineering and Construction Contract which apply equally to the Subcontract) cater for this difference between prospective and retrospective. In particular I would direct you to the last three paragraphs of the guidance note.
Given that I would like both Parties to comment on the provisions of clause 63.1 and its guidance note and that clause W2.14 of the Subcontract gives me the power to decide on a procedure in this circumstance I direct that both Parties shall make a submission to me on the interpretation of clause 63.1 and in particular whether a compensation event should be assessed prospectively or retrospectively and if both apply when should the assessment change from prospective to retrospective."
Both parties responded to that question on 28 November 2012. FBS did so by Wright Hassall's letter dated 28 November 2012 in which it was stated:
"The approach of the NEC 3 Sub-Contract, and clause 63.1 is clear. It is based on prospective forecasts of time and costs. The submission is based mainly on the costs element, given that this is the context of the statement from Mr Reeves to which you refer. His comments are given in the context of the heading of "labour rate of £37.00"."
Byrne's responses were provided by Fenwick Elliott in a submission dated 28 November 2012 in which, in conclusion, it was stated:
17. Clause 63.1 provides a 'switch date' based on the date that an instruction was issued (to provide a quotation) or should have been issued. Before that date the costs should be assessed on the basis of actual Defined Costs incurred. After that date the assessment is of the effect on forecast Defined Cost of work not yet done at that date.
18. However, the switch date moves each time a subsequent instruction is given to revise a quotation. In the instant case the 'switch date' for each compensation event moved to a date when the vast majority of works had been completed. Accordingly, the compensation events are to be assessed based on the actual Defined Costs incurred by FBS or 'retrospectively'."
In commenting on clause 63.1, Byrne referred to clauses 62.3 to 62.5 at paragraph 10 of the submission. In addition Byrne attached to the submission a commentary on Clause 63.1 from Keating on NEC3 which referred, amongst other provisions, to the four situations in which the Project Manager assesses a compensation event, which are set out in Clause 64.1. That commentary stated "Leaving aside the quotation being out of time, failure to submit a program or alterations thereto, or the latest programme not being accepted, the most general ground on which the Project Manager can make his own assessment is if he decides that the Contractor has not assessed the compensation event correctly in a quotation and he does not instruct a revised quotation."
Byrne served a Rejoinder, FBS served a Surrejoinder and Byrne served a Rebutter. Finally on 4 December 2012 FBS responded to Byrne's Rebutter. Under the Adjudication provisions the Adjudicator had power to award costs, as well as his fees, as between the parties. In a letter dated 28 November 2012 the Adjudicator recorded a procedure agreed by the parties for dealing with costs. That procedure was that he should issue a draft decision on the "substantial" issue on 6 December 2012, the parties should then made submissions and the adjudicator would make his decision on 18 December 2012. It was agreed that the draft decision would not be subject to any change save for the application of the "slip rule".
After issuing the draft decision Fenwick Elliot wrote on 14 December 2012 raising four matters which they indicated they were raising under the slip rule. On 17 December 2012 Wright Hassall wrote objecting to the matters raised, saying that with the exception of one small item the submission by Byrne was an attempt to make a further submission on the merits of the Adjudicator's decision "dressed up as a slip rule application." The Adjudicator agreed with FBS and made a small adjustment for the one item which came within the slip rule. The Adjudicator then issued his decision on 18 December 2012.
Following the termination of the Subcontract, Byrne prepared it assessment of the final payment due under Clause 93 of the Subcontract. On 17 December 2012 Byrne certified that a final payment was due from FBS to Byrne in the amount of £2,328,756.09.
Also on 17 December 2012 Wright Hassall had written to Fenwick Elliott seeking confirmation that payment of the sums due to FBS under the imminent Adjudicator's Decision would be made on or by 19 December 2012.
The day after the Adjudicator's decision was published Fenwick Elliott wrote on 19 December 2012 to Wright Hassall saying as follows:
"Before we can take instructions upon the question of whether [Byrne] will make any payment in respect of this decision, please provide a copy of FBS' latest management accounts and a breakdown of the Debtors figure included within them. Please also provide a breakdown of the debtors figure included within the latest published accounts for year ending September 2011. Once we have these we expect to be able to respond to you substantively within one working day.
We make this request because unless FBS' financial position has significantly improved since September 2011 then it appears, on the basis of the latest published accounts, that FBS are insolvent."
That letter concluded with the following paragraph:
"This Letter is written notwithstanding and without prejudice to a Natural Justice objection [Byrne] may make to the enforceability of the adjudicator's decision, in respect of which we are currently taking our client's instructions."
Payment was not made by Byrne of the sum awarded to FBS in the Adjudicator's decision and on 28 December 2012 FBS commenced these proceedings against Byrne seeking payment of the sum £561,194.92 plus interest as set out in Particulars of Claim. The usual applications were enclosed and on the same day directions were given leading to an early hearing. The application was supported by the first witness statement from Stuart Thwaites. In response Byrne served a statement by Mr Toby Randle accompanied by a Witness Statement of Steven Fellows, Managing Director of UK Electrical Installations Limited ("UK Electrical") who were engaged as electrical subcontractors by FBS at the Hammersmith Underground Station project.
On 23 January 2013 FBS served the second witness statement of Stuart Thwaites, a statement from John Farrelly, a Director of FBS and from Bill Price, Contracts Manager of FBS.
At pages 467 to 481 of the exhibit to Mr Randall's witness statement was a letter from Forensic Department of KPMG LLP dealing with the financial position of FBS. One of the exhibits to Mr Thwaites' second witness statement was an expert report by Mr Victor Young...
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