Tees ESK & Wear Valleys NHS Foundation Trust v Three Valleys Healthcare Ltd
| Jurisdiction | England & Wales |
| Judge | Mrs Justice O'Farrell |
| Judgment Date | 29 June 2018 |
| Neutral Citation | [2018] EWHC 1659 (TCC) |
| Court | Queen's Bench Division (Technology and Construction Court) |
| Docket Number | Case No: HT-2017-000318 |
| Date | 29 June 2018 |
[2018] EWHC 1659 (TCC)
IN THE HIGH COURT OF JUSTICE
BUSINESS & PROPERTY COURTS
OF ENGLAND AND WALES
TECHNOLOGY AND CONSTRUCTION COURT (QBD)
Royal Courts of Justice
Strand, London, WC2A 2LL
Mrs Justice O'Farrell
Case No: HT-2017-000318
Adrian Williamson QC (instructed by Ward Hadaway Solicitors) for the Claimant
Hannah McCarthy (instructed by Addleshaw Goddard LLP) for the First Defendant
David Sears QC (instructed by CMS Cameron McKenna Nabarro Olswang LLP) for the Second Defendant
Hearing dates: 12 th March 2018
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.
These proceedings concern a PFI project at Roseberry Park Hospital in Middlesbrough. The claimant NHS Foundation Trust (“the Trust”) seeks declarations as to the validity of notices served by the Trust pursuant to a funders direct agreement, with a view to terminating the project agreement, and related relief.
The hospital comprises 12 separate ward blocks constructed around landscaped courtyards. It has 365 inpatient beds, an activity centre, a workshop, day rooms and patient kitchen facilities. There is an administrative block containing offices, consultation rooms and mental health tribunal rooms.
Roseberry Park is a low and medium secure mental health facility which incorporates facilities for the Trust's forensic mental health services. Some of the patients treated and accommodated in the facility have mental disorders or neuro-development disorders and are liable to be detained under the Mental Health Act 1983. Such patients can be offenders or have otherwise come into contact with the criminal justice system.
The hospital also provides care for patients with non-forensic mental health conditions, including children's learning disability short break / respite care, adult mental health inpatient services, secure accommodation, electroconvulsive therapy and older person's mental health inpatient services.
On 12 December 2007 the Trust entered into an agreement with the first defendant special purpose vehicle (“TVHL”), executed and delivered as a deed, for the design and construction of the hospital and provision of operational services (“the Project Agreement”).
On 12 December 2007 the Trust, TVHL and the second defendant (“BOS”) entered into a funders direct agreement, executed and delivered as a deed, in respect of the financing of the project (“the FDA”). The FDA was attached as Schedule 6 to the Project Agreement.
Disputes arose between the Trust and TVHL as to the services provided by TVHL, as Project Co, pursuant to the Project Agreement. In 2016 the Trust obtained adjudication awards in its favour, giving the Trust grounds for terminating the Project Agreement.
The FDA contains provisions that require the Trust to give notice to BOS as a condition precedent to any entitlement to exercise its termination rights under the Project Agreement.
On 1 June 2017 the Trust served on BOS notice under the FDA that there were grounds for terminating the Project Agreement (“the Termination Notice”). The validity of the Termination Notice is not in dispute.
On 29 June 2017 the Trust served on BOS details of amounts allegedly owed by TVHL to the Trust under the Project Agreement and other accrued liabilities or obligations on the part of TVHL (“the Paragraph 3.2.2 Notice”).
The Trust's case is that the notices served under the FDA were valid and entitle it to terminate the Project Agreement. That is disputed by BOS on the grounds that (a) the Paragraph 3.2.2 Notice does not comply with the terms of the FDA and/or it is not sufficiently clear and unambiguous to constitute a valid notice; and (b) there is no evidence of the Trust making proper inquiry as stipulated by the FDA.
TVHL's position is that it should not have been joined to these proceedings because it is a party to the FDA solely to acknowledge and consent to the arrangements set out in the FDA. Its obligations are limited to an agreement not knowingly to do or omit anything that might prevent any party from enforcing its rights under the FDA. Ms McCarthy has attended the hearing on behalf of TVHL and supports the submissions made by BOS but does not advance any separate case on the issues in dispute.
The Project Agreement
Under the Project Agreement, TVHL agreed to finance, carry out the design, construction and commissioning of the new hospital, and provide maintenance and operational services until 22 March 2040.
Schedule 14 of the Project Agreement stipulates the level of services required. The performance monitoring system in Schedule 14 provides for service failure points to be awarded in respect of any performance or availability failures on the part of the service provider.
Clause 44.1 of the Project Agreement states:
“For the purposes of this Agreement, Project Co Events of Default means any of the following events or circumstances:
…
Service Failure Points
(i) Project Co being awarded a total of 8593 or more Service Failure Points in any 6 month rolling period…”
Clause 44.3 of the Project Agreement states:
“On the occurrence of a Project Co Event of Default, or within a reasonable time after the Trust becomes aware of the same, and while the same is subsisting, the Trust may:
…
(c) In the case of any Project Co Event of Default referred to in clause 44.1(i) (Service Failure Points), if Project Co is awarded 4297 or more further (Service Failure Points) in the following 3 month period, terminate this Agreement in its entirety by notice in writing having immediate effect.”
The FDA
Paragraph 3 of the FDA provides that the Trust's entitlement to terminate the Project Agreement is subject to service of the required notices on BOS (as Agent for the Senior Funders).
Paragraph 3.1 of the FDA states:
“Subject only to paragraph 3.2, the Trust may serve notice terminating the Project Agreement at any time if it is entitled to do so under the terms of the Project Agreement.”
Paragraph 3.2 of the FDA states:
“the Trust shall not terminate or serve notice terminating the Project Agreement in respect of a Project Co Event of Default without giving to [BOS]:
3.2.1 at least the Required Period of prior written notice (a “Termination Notice”) stating:
(a) that a Project Co Event of Default has occurred and the proposed Termination Date; and
(b) the grounds for termination in reasonable detail, and
3.2.2 not later than the date falling 20 Business Days after the date of a Termination Notice a notice containing details of any amount owed by Project Co to the Trust, and any other liabilities or obligations of Project Co of which the Trust is aware (having made proper enquiry) which are:
(a) accrued and outstanding at the time of the Termination Notice; and/or
(b) which will fall due on or prior to the end of the Required Period, under the Project Agreement.”
The “Required Period” is defined in the FDA as:
“… the period starting on the date of a Termination Notice and …
(b) following the Payment Commencement Date, ending 60 Business Days later.”
Paragraph 6.1 of the FDA entitles BOS to give the Trust a Step-In Notice, enabling the representatives of the funders under the FDA to assume jointly with TVHL the rights of Project Co under the Project Agreement:
“6.1 Subject to paragraph 6.2 … the Agent may give the Trust a Step-In Notice at any time:
6.1.1 during which a Project Co Event of Default … is subsisting (whether or not a Termination Notice has been served); or
6.1.2 during the Required Period.
6.2 The Agent shall give the Trust not less than 5 Business Days prior notice of:
6.2.1 its intention to issue a Step-In Notice; and
6.2.2 the identity of the proposed Appointed Representative.
6.3 On the issue of the Step-In Notice, the Appointed Representative shall assume jointly with Project Co the rights of Project Co under the Trust Project Documents and thereafter, until the end of the Step-In Period the Trust shall deal with the Appointed Representative and not Project Co.”
Paragraph 7.1 of the FDA states:
“Notwithstanding paragraph 3, the Trust may terminate the Project Agreement if:
7.1.1 any amount referred to in paragraph 3.2.2(a) above has not been paid to the Trust on or before the Step-In Date [date on which the Step-In Notice is served]; or
7.1.2 any amount referred to in paragraph 3.2.2(b) has not been paid on or before the last day of the Required Period;
7.1.3 amounts, of which the Trust was not aware (having made proper enquiry) at the time of the Termination Notice, subsequently become payable and are not discharged on or before the date falling 20 Business Days after the date on which the liability of Project Co for these amounts is notified to the Agent or if later the Step-In Date …”
Service Failure Points
A dispute arose between the Trust and TVHL as to TVHL's failure to have in place Authorising Engineers and Authorised Persons to ensure compliance with its health and safety obligations. That dispute was referred to adjudication. On 17 May 2016 Stephen Furst QC, the adjudicator, issued his decision, awarding the Trust 56,144 Service Failure Points and Deductions in the sum of £143,236.48 (“the First Adjudication Award”).
A further dispute arose between the Trust and TVHL as to TVHL's classification of tasks by the helpdesk. That dispute was referred to adjudication. On 20 May 2016 Vincent Moran QC, the adjudicator, issued his decision on liability in favour of the Trust. On 9 August 2016 the parties entered into a settlement...
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