SG South v King's Head, Cirencester
| Jurisdiction | England & Wales |
| Judge | Mr Justice Akenhead |
| Judgment Date | 29 October 2009 |
| Neutral Citation | [2009] EWHC 2645 (TCC) |
| Court | Queen's Bench Division (Technology and Construction Court) |
| Docket Number | Case No: HT-09–367 |
| Date | 29 October 2009 |
[2009] EWHC 2645 (TCC)
The Honourable Mr Justice Akenhead
Case No: HT-09–367
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
Thomas Lazur (instructed by Bpe Solicitors) for the Claimant
John Virgo (instructed by Fletcher & Co) for the Defendants
Hearing date: 21 October 2009
Mr Justice Akenhead:
Introduction
By this claim, the Claimant, SG South Ltd, seeks to enforce two adjudicators' decisions made against the Defendants pursuant to a construction contract. Neither decision is challenged on jurisdictional or natural justice grounds. The Defendants however seek to avoid or defer enforcement on the grounds that the final account process will, they argue, be complete soon and that that process will establish that there is a net balance due to them. Alternatively, they seek a stay of execution on the grounds that the Claimant is, or is nearly, insolvent. Issues are also raised by the Defendants as to how the Court should proceed if it is satisfied that there are arguable or credible issues of fraud on behalf of the Claimant.
The background
The Claimant was incorporated in 2007 and began trading in about May 2007; it is a building contractor. Its owner, Mr South, had previously been in the building business and had come to the notice of the Defendants or those advising them. The Defendants are, perhaps amongst other things, commercial developers who owned a site in Cirencester, Gloucestershire.
There is no issue that the Defendants employed of the Claimant in connection with the construction, conversion, restoration, refurbishments and fit out of the King's Head and Corn Hall sites; the work involved the creation of a retail shopping arcade and hotel. The contract, which was formally entered into in late 2007, was an amended JCT Standard Form of Management Contract 1998 Edition. This involved payment on a Prime Cost basis, which in broad terms involves the payments to the contractor of costs reasonably and properly incurred in connection with the works together with a management fee; the Contract Cost Plan indicated an expenditure of £4,276, 848. The contractual Date the Completion was 23 December 2008, subject to any entitlement to extension of time. The payment regime was by way of the certificates issued monthly by the Contract Administrator (appointed by the Defendants). Clause 4.3.1 provided 14 days as the final date for payment of any amount so certified; Clause 4.3.3 required the Employer within five days after the issue of any Interim Certificate to give written notice to the Contractor specifying the amount proposed to be paid in respect of the certified amount; Clause 4.3.4 require the Employer no later than five days before the final date for payment on any Certificate to give written notice with particularisation of any amounts proposed to be withheld or deducted. Finally, Clause 4.3.5 required the Employer pay the sum certified if no such notices had been given.
Each party was entitled to refer disputes to adjudication (Article 8). Clause 9A set out procedures to be followed. Clause 9 A .7 stated:
“.1 The decision of the Adjudicator shall be binding on the Parties until the dispute or difference is finally determined by arbitration…
.2 Parties shall, without prejudice to their own rights under the Contract, comply with the decisions of the Adjudicator; and the Employer and the Management Contractor shall ensure that the decisions of the Adjudicator are given effect.
.3 if either Party does not comply with the decision of the Adjudicator the other Party shall be entitled to take legal proceedings to secure such compliance pending a final determination of the referred dispute or difference…”
The parties agreed upon arbitration as the forum for final dispute resolution.
It seems that, at an early stage, given the fact that the Claimant had only recently been incorporated and had little or no trading record, some accommodation was reached between the parties whereby Works Contractors engaged to carry out various works on the project were paid and indeed employed direct by the Defendants.
A number of serious disputes between the parties have arisen at least in 2009 and possibly before. That led to a purported determination of the Claimant's employment under the Management Contract in May 2009. I am told by Counsel for the Defendants that the works are being completed by others and that they are nearing completion.
The two adjudications
On 30 April 2009, the Claimant issued a Notice of Adjudication in relation to the alleged non-payment of Interim Certificate No 8 which had been issued on 5 September 2008. This led to the First Adjudication in which a Mr Rudd was the adjudicator. The major arguments related to the extent to which the Claimant had in fact been paid the certified sum. The First Adjudicator issued his decision on 25 June 2009. In essence, he found that the whole net sum certified had in fact been paid by one route or another. He found that, of the gross sum certified £1,298,953, £641,939.12 had been paid direct to Works Contractors and £859,443.60 had been paid to the Claimant. There was therefore a negative balance of £202,429.72. However, he did decide that some interest was due to the Claimant in effect because some of the payments were made late; £2112.67 was due for this from the Defendants and payable within seven days. However so far as his fees were concerned, he ordered that the Claimant should pay the sum of £6695.15. The Defendants did not pay what they had been directed to pay within seven days or at all. The Claimant seems to have paid about half of the First Adjudicators' fees and has more recently paid the balance.
The Second Adjudication was initiated by the Claimant's Notice of Adjudication dated 22 July 2009 and related to the non-payment of Interim Certificate No 14 issued on 20 March 2009. The final date for payment was 3 April 2009 and no Clause 4.3. 4 or 4.3.5 notices were served in time or at all by the Defendants. The Second Adjudicator was Mr Simpson. Following the service of the Referral Notice by the Claimant on 29 July 2009, the Defendants served their Response on 5 August 2009. In its Summary of Conclusions at Paragraph 4a, the Defendants asserted as follows:
“The Employer has recently become aware of widespread fraud instigated and orchestrated by South, the Referring Party, which draws into question if it is possible for the adjudication to continue mindful of The Proceeds of Crime Act”
At Paragraphs 59 to 86, in a chapter headed “Fraud”, the Defendants complained that the Claimant had illegally removed and disposed of steel, fixtures, fittings and equipment from the existing buildings and removed some stone quoins from a barn; and said that it had routinely altered plant hire invoices, “this deception… [is] evaluated to be £87,098”. The Defendants in Paragraph 74 indicated that they could not circulate documents about the fraud by reason of the operation, they argued, of the provisions of the Proceeds of Crime Act but they might afford access to the Adjudicator to read the file if he so required.
The Claimant responded to this Response on 7 August 2009 in some detail but broadly to the effect that it was not guilty of fraud and that it was the Defendants and their directors who were trying to deceive the Second Adjudicator.
The Second Adjudicator issued his decision on 19 August 2009. He summarised the Claimant's claim as relating to outstanding payment on Interim Certificate No 14: £968,400.64 gross certified less £831,789.70 paid, leaving £136,610.94 for payment. It was the Claimant's case that payment was due and that, in the absence of notices under Clauses 4.3.4 and 4.3.5, the net sum certified was payable. The Second Adjudicator at Paragraphs 23 to 34 set out the Defendants' position. He referred to their assertion that they had recently “become aware of widespread fraud instigated and orchestrated by” the Claimants, referring to “a. Charging for things not in the Contract. b. Inflating Works Contractors claims. c. Altering records. d. Disposing of goods belonging to [the Defendants]”. Other defences are referred to such as an assertion that more had been paid than the Claimant accepted and various abatements summarised in Paragraph 33 as follows:
“a. Steel disposal
b. FFE disposal
c. Tables and chairs disposal
d. Stone quoins missing
e. Plant overcharging
f. Accommodation charges
g. Security officer/Plant maintenance
h. Dilapidations
i. Clearance of debris
j. Replacement warranties”
The Second Adjudicator set out his views and the decision at Paragraphs 35 to 56. As to the fraud allegations, he said at Paragraph 35:
“Having considered the matter I advised the parties during the course of the reference that I considered that [sic] issue of alleged fraud to be beyond my jurisdiction and a matter for the police and the courts. No authority was offered by [the Defendants] to demonstrate otherwise. The allegations of fraud do not prevent me from deciding the commercial dispute referred to me under the Contract however it will be for the courts to decide whether or not to enforce my decision if fraud is proven before the court.”
He found that, on the basis of the First Adjudicator's decision, the sum to be considered as paid was £859,443.70, which thus reduced the Claimant' entitlement. In simple terms, he considered that in the absence of Clause 4.3. 4 or 4.3.5 notices “the amount certified is in fact due” (Paragraph 44) and at Paragraph 50 he said:
“I decide that in the absence of payment and withholding notices required by the Contract it is not open to [the Defendants] to resist payment of...
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