Straw Realisations (No 1) Ltd v Shaftsbury House (Developments) Ltd
| Jurisdiction | England & Wales |
| Judge | The Honourable Mr Justice Edwards-Stuart |
| Judgment Date | 20 October 2010 |
| Neutral Citation | [2010] EWHC 2597 (TCC) |
| Docket Number | Case No: HT-10-143 |
| Court | Queen's Bench Division (Technology and Construction Court) |
| Date | 20 October 2010 |
[2010] EWHC 2597 (TCC)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
Before: The Honourable Mr Justice Edwards-stuart
Case No: HT-10-143
Mr Marc Rowlands (instructed by Fenwick Elliott) for the Claimant
Mr Peter Fraser QC & Ms Serena Cheng (instructed by Haldanes) for the Defendant
Hearing dates: 29 July 2010
The Honourable Mr Justice Edwards-Stuart:
Introduction
This is a judgment on an application to enforce, by way of summary judgment, two adjudication decisions made in favour of the Claimant. They are:
(1) The Decision of Mr Wilkey dated 31 July 2009, in the sum of £31,964.30; and
(2) The Decision of Mr Smalley dated 13 October 2009, in the sum of £491,902.86.
The disputes that were referred to adjudication arise out of a building contract between the Claimant and the Defendant by which the Defendant engaged the Claimant to construct a new mixed residential and retail development in Islington, London. The contract price was about £8,500,000. Practical Completion was achieved on 9 April 2009.
However, on 13 August 2009 an Administration Order was made by the court putting the Claimant into administration. Before this happened Mr Wilkey had made his decision in the first adjudication which required payment to the Claimant of the sum found due by 10 August 2009, and Mr Smalley had been appointed adjudicator in the second adjudication on a further referral by the Claimant. Thus when the Claimant went into administration the adjudication before Mr Smalley was still on foot.
Clause 8 of the contract provided for the insolvency of the contractor. Put briefly, it provided that if the contractor became insolvent (which included being put into administration), any provisions of the contract which required any further payment or any release of retention would cease to apply. The central issue raised by the application is to resolve what was described by Mr Marc Rowlands, who appeared for the Claimant, as the “tension between (on the one hand) an extant adjudication decision (Mr Wilkey's) and an ongoing adjudication (Mr Smalley's); and (on the other) the operation of a contractual provision that no further payments are due under the Contract”. Related to, and possibly determinative of, this question is whether or not either decision became final and binding because the Defendant did not give an effective notice under clause 9 of the contract within 3 months of the decision, in the absence of which the contract provides that an adjudicator's decision is final and binding.
Matters are further complicated by the fact that the Administrators purported to assign the contract to another company. It is now accepted that this assignment was unlawful in that it was in breach of a term of the contract that prohibited assignment of the contract by the contractor, and so this application is made by the Administrators of the Claimant. At the outset of the hearing I asked for and was given an undertaking through Mr Rowlands that the Administrators would accept liability for any adverse order of costs in the event that the application was unsuccessful.
The principal argument for the Defendant, who was represented by Mr Peter Fraser QC and Miss Serena Cheng, was that the effect of the administration was to suspend automatically any entitlement to further payment under the contract and to substitute a right to payment only of any net balance due to the contractor (or to the employer) after all claims and cross claims had been taken into account. In effect, the Defendant's case is that the general provisions applicable to situations of liquidation or bankruptcy prevail over the statutory policy in relation to the enforcement of adjudicator's decisions.
The application also raises issues as to whether Mr Smalley had jurisdiction to continue the referral before him in the light of the Administration Order and, if he did, whether his decision was reached in breach of the rules of natural justice so that it should not be enforced. Even if the Defendant is unsuccessful on all these points, Mr Fraser submits that if the Claimant is entitled to summary judgment, the court should order a stay of execution.
With this brief introduction I now turn to the relevant provisions of the contract.
The contract
The Claimant, who was formerly known as Haymills (Contractors) Limited, was a building contractor. The Defendant is a property developer.
On about 6 February 2007 the Defendant entered into a construction contract with the Claimant under which the Claimant was to carry out works to construct “a new mixed residential and retail development comprising seven levels from basement to fifth floor at 29 Highbury Corner and at 37-49 Holloway Road, Islington, London”. The contract was based on the JCT Standard Form of Building Contract with Quantities 2005, but incorporated various bespoke amendments. The Contract Sum was £8,568,242 and the contract provided for sectional completion in two sections. The Date for Possession of Section 1 was 26 February 2007 and Date for Completion was 25 May 2008. For Section 2, the Date for Possession was the same, but the Date for Completion was 15 August 2008. There was provision for liquidated damages for delay at the rate of £15,000 per week in relation to Section 1, and £20,500 per week in respect of Section 2.
The contract provided for adjudication, to which the Scheme for Construction Contracts was to apply, as amended by the contract. Paragraph 23 of the Scheme, as amended, provided that:
“(1) in his decision, the adjudicator may, if he thinks fit, order any of the parties to comply peremptorily with his decision or any part of it.
(2)
(a) the decision of the adjudicator shall be final as well as binding unless within three months of the giving of the adjudicator's decision any party to the dispute serves on the other party or parties notice in writing of its intention to refer the dispute or difference for final determination by legal proceedings.
(b) unless the parties to the dispute otherwise agree in writing, any legal proceedings of which written notice has been given in accordance with paragraph 23(2)(a) may not proceed until after Practical Completion or alleged Practical Completion of the Works or determination or alleged determination of the Contractor's employment under this Contract or abandonment of the Works under the Contract in each case.”
Clauses 8.5 and 8.7 of the contract provided for the Insolvency of Contractor. For the purposes of the contract a party was deemed to be insolvent if, amongst other things, “he has appointed to him an administrator or administrative receiver” (clause 8.1.4). Clause 8.5 was in the following terms:
“.1 If the contractor is Insolvent, the Employer may at any time by notice to the Contractor terminate the Contractor's employment under this Contract.
.2 The Contractor shall immediately inform the Employer in writing if he makes any proposal, gives notice of any meeting or becomes the subject of any proceedings or appointment relating to any of the matters referred to in clause 8.1.
.3 As from the date the Contractor becomes Insolvent, whether or not the Employer has given such notice of termination:
.1 the provisions of clauses 8.7.4, 8.7.5 and 8.8 shall apply as if such notice had been given and the other provisions of this Contract which require any further payment or any release of Retention shall cease to apply;
.2 the Contractor's obligations under clauses 2.1 and 2.2 to carry out and complete the Works and the design of the Contractor's Designed Portion shall be suspended; and
.3 the Employer may take reasonable measures to ensure that the site, the Works and Site Materials are adequately protected and that such Site Materials are retained on site; the Contractor shall allow and shall not hinder or delay the taking of these measures.”
Clause 8.7, which was headed “Consequences of termination under clauses 8.4 to 8.6” provided, so far as is material, as follows:
“If the Contractor's employment is terminated under clause 8.4, 8. 5 or 8.6:
.1 the Employer may employ and pay other persons to carry out and complete the Works …
…
.4 within a reasonable time after the completion of the Works and the making good of defects (or of Instructions otherwise, as referred to in clause 2.38), an account of the following shall be set out in a certificate issued by the Architect/Contract Administrator or a statement prepared by the Employer:
.1 the amount of expenses properly incurred by the Employer, including those incurred pursuant to clause 8.7.1 and, where applicable, clause 8.5.3.3, and of any direct loss and/or damage caused to the Employer and for which the Contractor 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;
.5 If the sum of the amounts stated under clauses 8.7.4.1 and 8.7.4.2 exceeds the amount stated under clause 8.7.4.3, 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.”
The facts
The Claimant commenced the Works on about 26 February 2007. By September 2008 a dispute had arisen between the parties concerning the classification of material to be disposed of by the Claimant off site. It was contended by the Claimant that certain materials had been re-classified from “inactive” to “active”, with the result that the cost of disposing this material were substantially...
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