Lancashire Schools SPC Phase 2 Ltd (formerly Catalyst Education (Lancashire) Phase 2 Ltd) v Lendlease Construction (Europe) Ltd (formerly Bovis Lend Lease Ltd)

Hearing date: 21 November 2023

APPROVED JUDGMENT

This judgment was handed down by the court remotely by circulation to the parties' representatives by email and released to The National Archives. The date and time for hand-down is deemed to be 12 January 2024 at 10.30am.

Introduction

By an application dated 27 July 2023, the Fourth Defendant (“the Authority”) applies for an order against the Claimant (“Project Co”) pursuant to CPR 11(1)(b) and CPR 11(6)(b), to set aside service of the Claim Form against it; alternatively for an order striking out the claim pursuant to CPR 3.4(2)(a). In essence, the Authority contends that the Court should exercise its discretion by declining jurisdiction to entertain the claim (or by striking it out) which, it says, has been brought in breach of a contractual requirement that all disputes must first be determined by adjudication.

I say at the outset that I am grateful to counsel and their instructing solicitors for the helpful way in which this application was prepared and presented, both in writing and orally.

The contractual structure

The Authority is a children's services authority with duties and powers to provide primary and secondary education under the Education Acts. As part of the Building Schools for the Future programme, the Authority engaged Project Co to deliver the Project, namely the provision of serviced accommodation at a School known as Sir John Thursby & Ridgewood including the carrying out of Works and the provision of Services thereto. The engagement was in the form of a conventional PFI Project Agreement dated 14 December 2007. Project Co's name has changed in the meantime but nothing turns on that.

The Project Agreement is the “Phase 2 Project Agreement”. Other Project Agreements were entered into with the Authority in respect of different Phases. In particular, there is a Phase 1 Project Agreement, a Phase 2A Project Agreement and a Phase 3 Project Agreement. Each of these related to other educational premises and were agreed using a different corporate vehicle than Project Co, though nothing material turns on that. For present purposes it is appropriate to assume that the interests of the each of the project co's, including Project Co, are aligned.

As is conventional with a PFI structure of this type, there is a downstream Building Contract between Project Co and a contractor relating to the Works element of the Project Agreement; and a Facilities Management contract between Project Co and a maintenance contractor relating to the Services element of the Project. It is obvious that these contracts, both of which are dated 13 December 2007, are interlinked with the rights and obligations arising under the Project Agreement. I am told, but have not seen, that there are equivalent Building Contracts and Facilities Management contracts in respect of the Project Agreements on the other phases.

In respect of Phase 2 (and, perhaps, other phases), there is also an interface agreement between Project Co, the Building Contractor and the FM Contractor. However, this agreement was not adduced in evidence and neither party sought to rely on its existence, still less its terms.

Parties

I have already introduced the Fourth Defendant and the Claimant as, respectively, the Authority and Project Co.

For reasons I will explain in due course, the Building Contractor (“Lendlease”) in respect of Phase 2 is the First Defendant in these proceedings. The Second Defendant is the parent company of the Building Contractor. The FM Contractor in respect of Phase 2 (“Equans”) is the Third Defendant in these proceedings.

Neither Lendlease nor Equans was party to, or appeared at the hearing of, the application before the Court.

The litigation history

Before turning to the application itself, it is necessary to explain the litigation history in a little further detail. These proceedings are concerned exclusively with Phase 2. However, there are parallel proceedings in play in respect of Phase 1 involving Lendlease. It seems likely that, in due course, they will also involve Equans. As I have said, the bespoke identity of the SPV comprising project co is different but its interests are likely to be equivalent to that of Project Co. The intention is to join the Authority into those Phase 1 proceedings. Further, I am told that the intention of the various project co's is to seek consolidation of those two proceedings, with the potential for such proceedings as may be issued in respect of other phases to be added also.

The Phase 1 litigation was commenced first. It concerns schools known as Burnley Campus, Pendle Vale Campus and Shuttleworth College. Particulars of Claim were issued by the relevant project co on 14 April 2021. Lendlease and its parent company are the defendants. It is unnecessary to spell out the detail of the allegations save to identify broadly that the defect types complained of by project co were acoustic defects, wall tie defects, fire defects, miscellaneous defects, energy defects and render defects. A Defence and a Reply have subsequently been served. The Phase 1 proceedings were stayed on a number of occasions to allow mediation and other discussions to take place. The last stay ended on 30 June 2023.

In respect of the Phase 2 litigation, Project Co is the Claimant. The Claim Form was actually issued in August 2021. It named only Lendlease and its parent company as defendants but, before it was served, the Claim Form was amended so as to include claims against Equans and the Authority as, respectively, the Third and Fourth Defendants. The amended Claim Form is dated 30 June 2023.Paragraph 9 of the amended Claim Form states:

“The position which has been taken by the Fourth Defendant conflicts with the position taken by the First Defendant and/or the Third Defendant. The position under the Phase 2 Project Agreement should properly be resolved in a manner consistent with the resolution of the position under the Phase 2 Building Contract and/or the Phase 2 FM Agreement, with the Fourth Defendant being bound by the relevant findings of the Court.”

Between 2021 and 2023 the Phase 2 proceedings had also been stayed on several occasions. The last stay ended on 30 June 2023.

The proceedings concern alleged defects at the School with which Phase 2 is concerned. Again, it is unnecessary to spell out the detail of the allegations save to identify broadly that they include defects of the same or similar type to those in the Phase 1 litigation, namely acoustic defects, wall tie defects, fire defects, architectural, civil and structural defects, M&E defects, energy defects and render defects. The skeleton argument provided by Project Co for this application provided a summary description of these defects with which, for the purposes of this application, the Authority was content to agree. Project Co seeks damages for breach of the Building Contract and/or other relief against Lendlease, as First Defendant, arising from the alleged defects which are further particularised in extensive schedules. Sums are also claimed against the Second Defendant pursuant to a parent company guarantee.

Alternatively, Project Co also claims damages and other relief against Equans for breaches of the FM Agreement. In essence, since Lendlease had contended in pre-action correspondence that many of the alleged defects related to or were the result of maintenance issues, Project Co claims damages for breach of the FM Agreement on that basis 1.

No Defences have yet been served by Lendlease, its parent or Equans. On 16 October 2023, this Court ordered by consent that, in light of the present application, the date for service of the respective Defences shall be 28 days after judgment on this application is handed down. Provision was made for Defences to be served by Lendlease, its parent and Equans if the hearing of this application was not effective on its scheduled date. By that provision, the Court and the parties clearly recognised that there is a limit to how long the further period allowed for those Defences should be.

Section I of the Particulars of Claim sets out Project Co's claim against the Authority.Paragraphs 244 to 250 recite correspondence in which it says (amongst other things) that the Authority called for the alleged defects to be rectified and indicated its intention to seek retrospective applications of Deductions pursuant to the payment provisions. It pleads that notice of entitlement to withhold Service Performance Deductions was also given by the Authority.

Paragraph 251 concludes that the position of the Authority in so claiming conflicts with the position taken by Lendlease and/or Equans and that:

“The position under the Phase 2 Project Agreement should properly be resolved in a manner consistent with the resolution of the position under the Phase 2 Building Contract and/or the Phase 2 FM Agreement, with the Authority being bound by the relevant...