Meadowside Building Developments Ltd ((in Liquidation)) v 1218 Hill Street Management Company Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Adam Constable |
| Judgment Date | 10 October 2019 |
| Neutral Citation | [2019] EWHC 2651 (TCC) |
| Court | Queen's Bench Division (Technology and Construction Court) |
| Docket Number | Case No: HT-2019-000240 |
| Date | 10 October 2019 |
[2019] EWHC 2651 (TCC)
Mr Adam Constable QC
Case No: HT-2019-000240
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
Royal Courts of Justice
Rolls Building, London, EC4A 1NL
Helena White (instructed by Blaser Mills LLP) for the Claimant
Arthur Graham-Dixon (instructed by Russell-Cooke Solicitors) for the Defendant
Hearing dates: 25 September 2019
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.
Mr Adam Constable QC
Mr Adam Constable QC:
A. Introduction
This is an application for summary judgment to enforce a decision by an Adjudicator dated 3 April 2018, in the relatively modest sum of £32,629.63 (£26,629.63 plus VAT in respect of the Award and £5,637 plus VAT by way of the Adjudicator's fee and expenses). The party bringing the application is Meadowside Building Developments Ltd (‘Meadowside’), a company in liquidation both at the time of the adjudication and now. At the time of the adjudication, in February 2018, the Defendant, 12–18 Hill Street Management Company Limited (‘HSMC’) did not substantively take part, on the basis that it contended that the Adjudicator lacked jurisdiction and the decision would be unenforceable. The application raises important points of principle which arise out of the Court of Appeal's decision in Bresco Electrical Services Ltd (In Liquidation) v Michael J Lonsdale (Electrical) Ltd; Cannon Corporate Ltd v Primus Build Ltd [2019] EWCA Civ 27.
This Judgment is in the following parts:
A Introduction
B Background Facts
C Bresco: A Discussion
D Bresco: is there an exception to the rule?
E Champerty
F Application of Principles
G Conclusion
B. Background Facts
In light of the reliance by HSMC upon its non-participation in the Adjudication as prejudice, it is necessary to recite the background facts in a little detail.
Meadowside was appointed by HSMC in September 2014 to carry out certain internal and external repair works pursuant to a JCT Minor Works Building Contract 2011 (‘the Contract’). Meadowside carried out the works and practical completion was certified on 20 March 2015. On 25 March 2015, the Contract Administrator under the Contract issued a certificate for payment valuing the Works in the gross sum of £162,531.07.
In July 2015, the Claimant was placed into voluntary winding-up. Michael Sanders and Georgina Eason of MHA MacIntyre Hudson were appointed as liquidators (‘the Liquidators’). Prior to practical completion and the liquidation, various disputes had arisen, including in relation to interim payments, delay, variations and defects.
Under the Contract, liquidation engaged Clauses 6.7.2 to 6.7.4 automatically, by virtue of Clause 6.5.2. Clause 6.7.2 provides that no further sum is due, other than that due under Clause 6.7.4. Clause 6.7.3 states that following the completion of the Works and the making good of defects in them, an account shall be taken within 3 months thereafter set out in a certificate from the Contract Administrator or a statement prepared by the Employer. The statement prepared should identify:
‘.1 the amount of expenses properly incurred by the Employer, including those incurred pursuant to clause 6.7.1 and, where applicable, clause 6.5.2.3, and of any direct loss and/or damage caused to the Employer and for which the Contract is liable, whether arising as a result of the termination or otherwise;
.2 the amount of payments made to the Contractor; and
.3 the total amount which would have been payable for the Works in accordance with this Contract.’
Pursuant to Clause 6.7.3, if the sum of the amounts under clauses 6.7.2.1 and 6.7.3.2 exceed the amount stated under clause 6.7.3.3, the difference shall be a debt payable by the Contractor to the Employer or, if that sum is less, by the Employer to the Contractor.
It was not in dispute that any defects which HSMC regarded as necessary to be remediated following the works had been carried out, and that the time for rendering the account had passed. Mr Fletcher of Russell-Cooke, on behalf of HSMC, states that HSMC had not progressed any claims against Meadowside because doing so would have been pointless in the face of zero recovery.
For several years, HSMC engaged in sporadic correspondence with representatives of the Liquidators, Dennington Construction Consultants. There came a point when, as reported in the Liquidators' Report for the period from 23 July 2017 to 22 July 2018, Dennington considered that it had exhausted its efforts in pursuing HSMC.
On 27 September 2017, Meadowside's Liquidators appointed Pythagoras Capital Limited (‘Pythagoras’) to take over the pursuit of the debt, and their letter of appointment instructs Pythagoras to ‘ act as [the Liquidator's] agents and take all steps to ascertain and recover amounts due to [Meadowside]’. Although a letter of appointment, it did not contain any terms as to the basis of remuneration or other terms. It is assumed, therefore, that some other commercial agreement must sit alongside the letter of appointment.
As explained by Mr McMahon, the managing director of Pythagoras, in his witness statement on behalf of Meadowside, Pythagoras is a company which acts on behalf of various administrators and liquidators in relation to construction contracts. Indeed, Pythagoras acted as agents for the liquidators in Bresco. Mr McMahon, an insolvency lawyer by background, explains in summary that when appointed as agent Pythagoras reviews what might be owed by considering the company records and, amongst other things, seeks to ascertain what sums are owed under outstanding final accounts. If Pythagoras establishes that monies are owed to the insolvent company, it takes steps to recover those sums on behalf of the company, and generally does so by funding the pursuit on behalf of the insolvent company because the insolvent companies are usually unable to do so. The availability of adjudication process is part of Pythagoras' business model. Mr McMahon states:
“ Clearly the Adjudication procedure is incredibly useful in this regard. The issue of Adjudication proceedings often leads to an amicable settlement (during the Adjudication or after a decision is delivered)). It is also helpful because Pythagoras Capital can use its in-house legal and engineering/building expertise to run the Adjudication (Pythagoras is not a law firm, but Adjudication proceedings are not a reserved legal activity).
If Pythagoras Capital makes a recovery for the insolvent company then it will keep a pre-agreed percentage”.
Pythagoras has not disclosed what percentage recovery its agency agreement gives rise to, although the Defendant has sought this information. This is said to be relevant to arguments raised by HSMC in relation to champerty.
On 30 January 2018, Pythagoras first wrote to HSMC, identifying itself as agent for the liquidator and providing its letter of instruction. In its letter it identified the Contract Administrator's certificates for payment and continued:
“ The Contract Administrator has said that you (rather than the Contract Administrator) have raised various counterclaims. We would like to understand whether those counterclaims have any merit, and consequently, request that you send us … copies of all documents on which you rely in asserting that sums should be deducted from those owed by you to the Company and/or that the Company is indebted to you.
…
For the avoidance of doubt, we make this request pursuant to Section 236 of the Insolvency Act 1986. As you will no doubt be aware you have an obligation to comply with the liquidator's reasonable requests for information and documentation relating to the Company's affairs”.
On 15 February 2018, Pythagoras wrote indicating various issues that, if not agreed, would lead Pythagoras to assume that a dispute had arisen.
A Notice of Adjudication was issued on 29 February 2018 (incorrectly dated but no issue arises in relation to this). Declarations were sought relating to whether the two certificates for payment were the true and correct valuations of the Works, and whether Meadowside was entitled to be paid at least £171,585.49 for works completed under the Contract, or, if not, what sum Meadowside was so entitled to be paid.
After the appointment of the Adjudicator, and in response to a request from the Adjudicator, Pythagoras wrote (copied to HSMC) undertaking to discharge any liability on behalf of Meadowside in respect of fees, in respect of which it accepted that Meadowside and HSMC had joint and several responsibility.
By letter dated 6 March 2018, Russell-Cooke responded, copied to the liquidators, raising questions about the capacity in which Pythagoras was acting and its interest, concerns about the propriety of the preceding letter citing section 236 of the Insolvency Act 1986, and referring to the decisions in Bouygues (UK) Limited v Dahl Jensen (UK) Limited [2000] EWCA Civ 507; [2000] BLR 522 and Enterprise Managed Services Ltd v McFadden Utilities Ltd [2009] EWHC 3222 (TCC) which provided ‘ clear and longstanding authority about the incompatibility of adjudication in the context of liquidation’. HSMC reserved the right to seek appropriate declaratory relief from the Technology and Construction Court in respect of, without limitation, the enforceability of any adjudication commenced by Meadowside. Pythagoras was asked to have the Liquidator provide details of the solicitors instructed to accept service of Court proceedings. No proceedings for declaratory or injunctive relief were commenced.
In the exchange which followed,...
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