J Murphy & Sons Ltd v Beckton Energy Ltd
| Jurisdiction | England & Wales |
| Judge | The Hon. Mrs Justice Carr DBE |
| Judgment Date | 18 March 2016 |
| Neutral Citation | [2016] EWHC 607 (TCC) |
| Docket Number | Case No: HT-2016-000060 |
| Court | Queen's Bench Division (Technology and Construction Court) |
| Date | 18 March 2016 |
[2016] EWHC 607 (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. Mrs Justice Carr DBE
Case No: HT-2016-000060
Mr Stephen Dennison Q.C., Mr Christopher Lewis, Miss Felicity Dynes (instructed by Fenwick Elliott LLP) for the Claimant
Mr Justin Mort Q.C. (instructed by Norton Rose Fulbright LLP) for the Defendant
Hearing date: 16th March 2016
Introduction
This a claim brought under Part 8 of the Civil Procedure Rules by the Claimant contractor ("Murphy") against the Defendant employer ("Beckton") for declaratory relief. The proceedings relate to a threatened call on an "on-demand" performance bond ("the Bond") by Beckton. Pursuant to a written contract between the parties dated 14 th March 2013 ("the Contract"), on 25 th February 2016 Beckton gave Murphy 23 days' written notice of its intention to make a demand under the Bond in respect of its claim for liquidated damages in the sum of £8,274,000 which Beckton contends are due to it from Murphy. The notice thus expires on 19 th March 2016. Murphy issued its claim on 9 th March 2016, and the matter has proceeded on an expedited basis as a matter of urgency. Save where otherwise expressly stated, all references below to Sub-Clauses are references to clauses in the conditions of the Contract.
Murphy seeks a declaration that, until there has been an agreement or determination by the Engineer appointed under the Contract in accordance with Sub-Clause 3.5 of the amount (if any) which Beckton is entitled to be paid by Murphy in respect of liquidated damages, Murphy is not obliged to pay any liquidated damages to Beckton. Murphy contends that such an agreement or determination is a pre-requisite for any entitlement on the part of Beckton to claim liquidated damages.
The Engineer appointed under the Contract is Mr Christopher Turner of Capita Symonds ("the Engineer"). There has been no agreement or determination by him in respect of liquidated damages (under Sub-Clauses 2.5 and 3.5), although Beckton has requested such a determination in the light of these proceedings. The first question raised for my determination is one of pure contractual construction of two clauses in the Contract in particular, namely Sub-Clauses 8.7 and 2.5.
Beckton disputes that its entitlement is subject to or in any way dependent on the process in Sub-Clauses 2.5 and 3.5 of the Contract.
Murphy also seeks injunctive relief against Beckton preventing it from making a demand on the Bond in respect of its claim for liquidated damages until there has been agreement or determination by the Engineer and further notice pursuant to Sub-Clause 4.2.5 of the Contract. This raises the second question for my determination (if Murphy succeeds on the first question), namely whether or not a call on the Bond by Beckton would be fraudulent (assuming that Murphy were to succeed in its claim for declaratory relief). Consequent upon the outcome of that decision would be the question of whether or not the granting of injunctive relief would in any event be appropriate.
Murphy says that a call on the Bond gives rise to a risk of damage to its commercial reputation, standing and creditworthiness, and would be something that might well need to be disclosed in future tenders. Against that, Beckton says that it will suffer dire consequences if it is not able to make a call on the Bond, by 23 rd March 2016 at the very latest. The works the subject of the Contract are 409 days late. The project has been funded on the basis that all relevant parties provided, upfront, the funding required to take it through to the point of Taking-Over. Through a facilities agreement lenders committed a term loan facility of up to some £53million and a VAT facility of up to £2million. Beckton's shareholders committed a total of some £17million through a combination of loan notes and new ordinary share capital. Notwithstanding that the Taking-Over Date (as defined in the Contract) has not yet occurred, the first repayment to lenders was due on 30 th September 2015, which Beckton has paid, and is due every six months thereafter. Beckton refrained from enforcing its entitlement to recover liquidated damages, whilst nonetheless meeting project costs including finance costs, to assist completion. However, and despite going to great lengths to maintain liquidity without the benefit of delay damages, Beckton has now exhausted all possible sources of committed funding and needs payment of delay damages. The net position for Beckton as at 31 st March 2016 will be an indebtedness of some £1.4million and rising. Beckton is also required to file its audited financial statements for the year ending 30 th June 2015 by the (already extended) date of 30 th April 201Without payment under the Bond, Beckton does not believe that its auditors will be able to give an unqualified opinion as to its solvency, which would have grave consequences for Beckton, being a default event under the facilities agreement and damaging to Beckton's credit status. Beckton points to the fact that Murphy's consolidated balance sheet as at 31 st December 2014 recorded cash assets of over £74million.
Murphy's claims, whilst related, are at the same time separate and discrete. The claim for declaratory relief is made by reference to Beckton's right to recover delay damages; the claim for injunctive relief turns on Beckton's right to call on the Bond.
The scope and nature of the issues for my potential determination became clear (and narrower) as the hearing proceeded. They can now be distilled as follows :
a) Whether or not Beckton is entitled to recover payment of liquidated damages from Murphy under Sub-Clause 8.7 without agreement or determination by the Engineer of Beckton's entitlement to liquidated damages under Sub-Clauses 2.5 and 3.5 ("Issue 1");
b) Whether or not, if Murphy succeeds on Issue 1, a call by Beckton on the Bond would be fraudulent ("Issue 2");
c) If so, whether or not injunctive relief should be granted as sought by Murphy ("Issue 3").
By the close of the hearing, and at my suggestion, the parties were agreed that a determination of Issue 3 would or might be premature and that an appropriate way forward would be for me to deliver first my decision on Issues 1 and 2. In the event that Murphy's claims on Issues 1 and 2 were to fail, I would proceed to dismiss the claim for injunctive relief. In the event that Murphy were to succeed, then the parties could consider their respective positions on the question of injunctive relief accordingly.
Evidence has been served as follows :
a) For Murphy : a short statement of Mr John Murphy, Murphy's company secretary and in-house solicitor, dated 9 th March 2016;
b) For Beckton : two statements of Mr Philip Reinheimer-Jones, a director of Beckton, dated 15 th March 2016, the first a lengthy and detailed one.
The Contract
The Contract was dated 14 th March 2013 and related to the design, procurement, construction, start-up, testing and commissioning of a Combined Heat and Intelligent Power Plant at Beckton, East London ("the Plant"). It was based on FIDIC Conditions of Contract for Plant and Design Build for Electrical and Mechanical Plant and for Building and Engineering Works designed by the Contractor First Edition 1999 ("the FIDIC Yellow Book"). Pursuant to the Contract Murphy obtained the Bond with Zurich Insurance Public Limited Company (Bond Number 63650/0413/1177).
There were two principal elements to the Plant : a Generating Set which generates electricity fuelled by bioliquid, and Turbo Expanders which generate electricity through the expansion of high pressure gas in the pressure reduction stream of a National Grid gas distribution network. Heat from the Generating Set is used to pre-heat the gas prior to the reduction in its pressure. The intention is that all electricity be from renewable energy sources.
Sub-Clause 2.5 of the Contract provided as follows :
" 2.5 Employer's Claims
If the Employer considers himself to be entitled to any payment under any Clause of these Conditions or otherwise in connection with the Contract, and/or to any extension of the Defects Notification Period, the Employer or the Engineer shall give notice and particulars to the Contractor. However, notice is not required for payments due under Sub-Clause 4.19 [Electricity, Water and Gas], or for other services requested by the Contractor.
The notice shall be given as soon as practicable after the Employer became aware of the event or circumstances giving rise to the claim. A notice relating to any extension of the Defects Notification Period shall be given before the expiry of such period.
The particulars shall specify the Clause or other basis of the claim, and shall include substantiation of the amount and/or extension to which the Employer considers himself to be entitled in connection with the Contract. The Engineer shall then proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine i) the amount (if any) which the Employer is entitled to be paid by the Contractor and/or ii) the extension (if any) of the Defects Notification Period in accordance with Sub-Clause 11.3 [Extension of Defects Notification Period].
This amount may be included as a deduction in the Contract Price and Payment Certificates. The Employer shall be entitled to set off against or make any deduction from an amount certified in a Payment Certificate, or to otherwise claim...
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