Systems Pipework Ltd v Rotary Building Services Ltd
Jurisdiction | England & Wales |
Judge | Mr Justice Coulson |
Judgment Date | 12 December 2017 |
Neutral Citation | [2017] EWHC 3235 (TCC) |
Docket Number | Case No: HT-2017-000268 |
Court | Queen's Bench Division (Technology and Construction Court) |
Date | 12 December 2017 |
[2017] EWHC 3235 (TCC)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
TECHNOLOGY AND CONSTRUCTION COURT
Royal Courts of Justice
Rolls Building, Fetter Lane, London, EC4A 1NL
The Hon Mr Justice Coulson
Case No: HT-2017-000268
Mr Ben Sareen (instructed by Hugh James) for the Claimant
Ms Lynne McCafferty (instructed by Fenwick Elliott LLP) for the Defendant
Hearing date: 12 December 2017
Judgment Approved
The Hon.
INTRODUCTION
Prior to the Housing Grants (Construction and Regeneration) Act 1996 ("the 1996 Act"), there was a perceived problem in the construction industry that employers and main contractors were failing properly to answer sub-contractors' claims for payment. Because they were not specifically obliged to do so, they often delayed in giving any answer at all and, even when they did, they would offer only vague reasons for non-payment. One of the beneficial effects of the 1996 Act is that paying parties are now required to identify early on what (if anything) they say is due and why. Standard forms of contract now require notices and cross-notices to be supplied within days, and contain provisions adumbrating the draconian consequences of a failure to issue a timely and/or detailed challenge.
But in the usual way, there is a concern that the pendulum has swung too far the other way. These rigorous contractual terms have been extended to cover, not only interim payments (which was the primary aim of the 1996 Act), but the permanent rights and obligations that arise out of dispute resolution procedures and the settlement of the final account. Thus, in Costain Ltd v Tarmac Holdings Ltd [2017] EWHC 319 (TCC), I was recently obliged to find that one party's right to make a claim through adjudication and subsequent arbitration had been lost for all time, because that is what the standard form of contract said. In this case, the court is concerned with a similar situation: on the defendant's case, the claimant lost its right to make its own Final Account claim because it failed to challenge the defendant's assessment/valuation of that Final Account within 14 days.
The parties first argued their respective cases as to the correct interpretation of the contract in an adjudication. The adjudicator decided in favour of the defendant. In these CPR Part 8 proceedings, the claimant seeks to challenge that decision. I deal with the points that now arise in this way. In Section 2, I set out the relevant terms of the contract. In Section 3, I set out a brief chronology. In Section 4 I identify the three issues between the parties and the relevant principles of law. Thereafter, in Sections 5, 6 and 7 I address each of those three issues. There is a short summary of my conclusions in Section 8. I am extremely grateful to both counsel for the excellence of their written and oral submissions.
THE CONTRACT
By a sub-contract dated 18 December 2014, the defendant engaged the claimant sub-contractor to supply and install the steam, condensate, chilled water and cooling water systems at the Davidstow Creamery in Cornwall. The defendant was the main mechanical and electrical contractor at that site.
The sub-contract documentation contained a number of appendices, including the defendant's standard conditions of sub-contract. These are loosely based on terms in standard forms of sub-contract.
The relevant terms of the sub-contract dealing with the claimant's Final Account were as follows:
(a) Clauses 1.3.6 and 1.3.7 provided:
" 1.3.6 "Final Account" means the account submitted by the Sub-Contractor to the Contractor in accordance with Clause 28. 1 or 28.6 and assessed and agreed in accordance with clause 28.7.
1.3.7 "Final Account Statement" means the document submitted by the Contractor to the Sub-Contractor confirming the value agreed in full and final settlement of all payment due relating to the Sub-Contract in accordance with clause 28.7."
(b) Clause 28.5 provided:
" Within 4 weeks of completion of the Sub-Contractor Works in accordance with the Sub-Contract, the Sub-Contractor shall submit to the Contractor its proposed Final Account for the Sub-Contract Price adjusted only in accordance with the terms of the Sub-Contract Order.
The Sub-Contractor shall append to its Final Account copies of all Variation build-ups, whether or not such information has been previously provided, identifying the provision of the Sub-Contract which permits such recovery and referencing and attaching a copy of the relevant instruction and all other pertinent information in support of such to allow the Contractor to make accurate assessment of the Final Account.
The Sub-Contractor shall be bound by and shall not be permitted to add to or otherwise adjust its proposed Final Account after submission."
(c) Clause 28.6 provided:
" The Contractor shall assess the proper amount due for payment in respect of the Sub-Contractor's Final Account based on the information submitted in accordance with clause 28.5 and shall notify the Sub-Contractor accordingly within 13 weeks of receipt of the Sub-Contractor's proposed Final Account or such longer time as would be reasonable in all the circumstances taking account of the Main Contract conditions.
In the absence of a proposed Final Account submission from the Sub-Contractor in accordance with clause 28.5, the Contractor may value the proper amount due for payment in respect of the Sub-Contractor's Final Account on a fair and reasonable basis and notify the Sub-Contractor accordingly.
In either case, if such notification is not dissented from in writing by the Sub-Contractor within 14 Days, then the notified figure will be deemed to have been agreed and will be binding on the parties."
(d) Clause 28.7 provided:
"No payment shall be due to the Sub-Contractor in respect of the Final Account until it has been agreed and confirmed in accordance with this clause 28.7. Once agreed, the Contractor shall within 14 days submit a Final Account Statement to the Subcontractor to confirm the figure is in full and final settlement of all payment due to the Sub-Contractor arising out of the Sub-Contract. The Sub-Contractor shall then sign and return the Final Account Statement to the Contractor together with its application for the agreed Final Account Figure less Retention.
The amount due in respect of the Final Account shall be the amount stated in the signed and returned Final Account Statement less:
28.7.1 a deduction in respect of Retention at 50% of the percentage rate stated In Appendix 6; and
28.7.2 the sum of the amounts paid in previous Interim payments."
To aid comprehension, I have separated out the relevant parts of these clauses. The original text has them in indigestible blocks of prose.
A BRIEF CHRONOLOGY
The claimant carried out the sub-contract works between December 2014 and the end of May 2016. For administrative convenience, the parties called the works done up to 31 January 2016 the "DC1" Works, and the works carried out after that date were referred to as "DC2" works. This distinction was not reflected in the terms of the sub-contract itself, or in any of the sub-contract documents.
On 17 May 2016, the claimant emailed the defendant a "revised final account for DC1" and asked for "review and comment". On 22 May, the claimant made an interim application in respect of the DC2 Works. That was not paid.
On 2 September 2016, the defendant provided the claimant with a lengthy document. The covering letter described that document as "our final account assessment for the works carried out on the above project by your company". This is said by the defendant to be a notification under clause 28.6, an assertion which the claimant disputes. That debate lies at the heart of the present dispute.
Behind the defendant's covering letter of 2 September there was a lengthy final account assessment. The first page broke the final account assessment down into a number of different headings: the sub-contract order value; variations; daywork instructions; and daywork valuations by the defendant. Each of these compared figures put forward by the two sides. At the bottom of those relevant columns it identified a figure put forward by the claimant of £3,284,424.62 and a figure put forward by the defendant of £2,643,212.58.
During the course of argument, it was the defendant's position that the 2 September document was, in part, an assessment of the claimant's claim of 17 May in respect of the DC1 Works (under the first sentence of clause 28.6), and partly a final account valuation of the DC2 Works (which had never been the subject of a final account claim, and was therefore a valuation under the second sentence of clause 28.6). The document itself contained no such identification or reference.
On 16 September 2016, the claimant commenced an adjudication in respect of its entitlement to payment for the works carried out after 31 January 2016 (i.e. the DC2 works). The adjudication notice identified the dispute as being "over sums payable to [the claimant] in respect of its interim applications for payment numbers 1, 2, 3 and 4 in relation to phase 2 of the works (DC2)". The subsequent referral notice set out the detail of that dispute. That confirmed, at paragraph 2.3, that "DC1 works do not form part of this Referral".
On 14 November 2016 the adjudicator decided that the defendant was liable to the claimant in the sum of £249,217.43. In other words, the challenge in respect of the DC2 Works was successful. That sum was belatedly paid by the defendant and no further issue arises out of that adjudication.
Back on 20 September 2016, the defendant started a second adjudication...
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