Hackney Empire Ltd v Aviva Insurance Uk Ltd (Formerly Trading as Norwich Union Insurance Ltd)
| Jurisdiction | England & Wales |
| Judge | Mr Justice Edwards-Stuart,MR JUSTICE EDWARDS-STUART |
| Judgment Date | 21 September 2011 |
| Neutral Citation | [2011] EWHC 2378 (TCC) |
| Docket Number | Case No: HT-10–360 |
| Court | Queen's Bench Division (Technology and Construction Court) |
| Date | 21 September 2011 |
[2011] EWHC 2378 (TCC)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Edwards-Stuart
Case No: HT-10–360
Mr David Thomas QC (instructed by CMS Cameron McKenna LLP) and Mr Rupert Choat for the Claimant
Mr Richard Wilmot-Smith QC and Miss Alexandra Bodnar (instructed by HBJ Gateley Wareing LLP) for the Defendant
Hearing dates: 4 th–6 th July 2011
Introduction
This is a claim under a bond. The claimant, Hackney Empire Ltd ("HEL"), owns the Hackney Empire Theatre in east London. In 2001 HEL decided to carry out extensive works of refurbishment to the theatre, a building of considerable architectural interest with many period features. The contractor was Sunley Turriff Construction Ltd ("STC"). Unfortunately, the contractor fell into considerable delay and was unable to complete the work. On 2 July 2003 STC went into administration.
During the course of the work STC made numerous claims, all but one or two of which were never properly substantiated. In December 2002, in an attempt to ensure that the works were completed as soon as possible, HEL agreed to advance STC £1 million in three instalments as a payment on account in respect of STC's claims. The first instalment of £500,000 was paid in December 2002, the second instalment of £250,000 was paid in February 2003 and the final instalment was never paid.
Following the signature of a letter of intent in May 2001 STC took possession of the site and commenced work at the end of that month. On 6 August 2001 the defendant, Aviva Insurance UK Ltd ("Aviva"), together with STC, executed a bond in favour of HEL in the sum of £1,106,852. The bond secured the due performance of STC's obligations under the building contract for the refurbishment works.
In fact, the building contract referred to in the bond was not entered into until some seven months later, 5 March 2002, but it is common ground that it is STC's obligations under that contract that form the subject matter of the bond.
The principal issue in the case is whether Aviva is liable under the bond and, if so, whether that liability extends to STC's failure to repay the £750,000 that was advanced on account of its claims that were never, in the end, substantiated. In addition to the advance of the £750,000, HEL also agreed to pay for certain off site materials for which it was not contractually bound to pay under the terms of the building contract.
Aviva contends that the payment of the £750,000 and/or the payments in respect of off-site materials were the result of agreements between HEL and STC made with reference to the building contract but without the knowledge of Aviva in circumstances that were prejudicial to Aviva. The result, says Aviva, is that its liability under the bond was discharged. If it is wrong about this, its secondary case is that it cannot be liable for the default in respect of the £750,000 because that was not an obligation that came within the scope of its guarantee: in fact, it submits that its only liability would be in respect of HEL's accrued right to liquidated damages in the sum of £205,000.
HEL contends that Aviva is liable under the bond because the arrangements by which HEL agreed to pay the £750,000 and for the off-site materials were variations to the building contract or acts of forbearance that were permitted under the terms of what is often called an "indulgence clause" in the bond.
At this hearing I am concerned only with issues of liability. It is hoped that once the issues of liability have been determined the parties will be able to agree the remaining issues of quantum (if any).
The background
Events up to 16 December 2002
On 24 April 2001 HEL sent STC a letter of intent in relation to the carrying out of the refurbishments and works "pending execution of a formal contract". The letter provided that the Contract Sum was to be agreed but was not to exceed "approximately £11,100,000" and authorised expenditure up to £500,000. The letter of intent was countersigned by STC and returned.
On or shortly before 31 May 2001 STC took possession of the site and commenced work. On 6 August 2001 STC and Aviva (then called Norwich Union Insurance Ltd) executed the bond in the sum of £1,106,852 in favour of HEL.
On 5 March 2002 HEL and STC entered into the building contract. It incorporated the JCT Standard Form of Building Contract 1998 edition Private with Quantities form with various amendments.
The building work fell broadly into three areas:
(1) the refurbishment of the historic auditorium and foyer, which was known as "Matcham" (after the architect who designed the building);
(2) works to the stage and backstage buildings—involving alterations, extension and new building—this was known as "Stage and Backstage"; and
(3) work to construct a new building in an adjacent public house, which belonged to HEL, to provide front of house space, access and service spaces—this was known as "Pepys".
The Completion Date under the building contract was 2 September 2002. There was a provision for liquidated and ascertained damages ("LADs") at a rate of £5,000 a week. HEL intended to re-open the theatre in the autumn of 2002, and had a major production booked for the end of that year.
By December 2001, some 6 months into the contract, STC was reporting a delay of 5 weeks. By early February 2002, this had doubled to 10 weeks. By the beginning of May 2002 STC was predicting completion at the end of January 2003.
The situation in relation to the claims being made by STC was discussed at a Project Committee Meeting held on 10 July 2002. Under the heading "Claims", it was noted that the architects had received 29 claims and had been notified of delays totalling 105 weeks. Mr Ronalds, the architect, made the following recommendations to the committee:
(1) HEL should engage construction contract specialists to provide strategic advice to the Board and the project team (this advice was subsequently repeated in his letter to HEL dated 15 July 2002).
(2) The architect's team should be expanded to include an architect or surveyor to deal with STC's claims.
(3) The architect's appointment should be extended to ensure that current team activities could continue through the extended construction period.
(4) The services of the Clerk of Works/Resident Architect should be extended through to completion.
The possibility of STC referring a dispute to adjudication was discussed at the meeting, and the draft minutes record that HEL was advised (by Mr Neil Barbour of Arup, the Project Manager) that an analysis of referrals to adjudication had shown that claimants were successful in approximately 70% of adjudications and unsuccessful in 15%, the remaining 15% being settled before the hearing.
At a meeting held on 18 July 2002 at the chambers of Stephen Solley QC, who was a member of HEL's board, between representatives of the senior management of STC and members of HEL's board, together with Mr Ronalds and Mr Thomsett, there was a frank exchange of views by both sides. Mr Wolfe, STC's Managing Director, said that there were substantial matters in dispute with a value amounting to about £750,000, together with a further £500,000 in respect of work which STC said had been undervalued. It was noted at the meeting that arrangements for the payment of off-site materials were close to resolution and were subject to proper insurances and bonds being put in place.
In July 2002 STC submitted a 20 page document described as "Further and Better Particulars of Delays" in relation to piling and underpinning works to the Pepys building. STC claimed that these additional or varied works had caused 10 weeks delay, and the document included a one page Delay Analysis Programme showing how the events impacted on STC's programme for the works.
On 26 July 2002 the architect wrote to STC chasing particulars of 18 claims that had been submitted by STC. On 30 July 2002 STC submitted an "on account" submission, which was said to be in respect of disruption encountered up to and including 31 July 2002. The sum claimed was £548,718.
In August 2002 the Quantity Surveyors, in Progress Report No 13, reported that STC had made unsupported claims totalling about £1.3 million, including the £548,718 referred to above. At a site meeting on 5 September 2002 STC's estimate of the completion date was put back to 14 April 2003. Shortly afterwards the architect granted an extension of time extending the Completion Date to 23 September 2002. That was the third of four extensions of time that were granted to STC.
There were, of course, conflicting views as to the responsibility for the delays. The architect, Mr Ronalds, who gave evidence before me, thought that STC was incompetent and under-resourced and it is clear that the professional team took the view that STC was responsible for the lion's share of the delay. However, STC contended the contrary and continued to submit numerous claims for extensions of time and associated loss and expense. With one or two exceptions, these claims were never substantiated and STC did not provide the particulars in support of its claims that were required under the terms of the building contract. One of STC's particular complaints was that the project was meant to be fully designed, yet in the course of carrying out the works they received over 1,000...
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