Yuanda (UK) Ltd v WW Gear Construction Ltd

JurisdictionEngland & Wales
JudgeMr Justice Edwards-Stuart
Judgment Date13 April 2010
Neutral Citation[2010] EWHC 720 (TCC)
Docket NumberCase No: HT-10–56
CourtQueen's Bench Division (Technology and Construction Court)
Date13 April 2010

[2010] EWHC 720 (TCC)

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

TECHNOLOGY AND CONSTRUCTION COURT

Before: The Hon Mr Justice Edwards-Stuart

Case No: HT-10–56

Between
Yuanda (UK) Co Ltd
Claimant
and
WW Gear Construction Ltd
Defendant

Alexander Hickey (instructed by Fenwick Elliott Ltd) for the Claimant

Gideon Scott Holland (instructed by C J Hough &Co) for the Defendant

Hearing dates: 18/03/2010

Mr Justice Edwards-Stuart

Mr Justice Edwards-Stuart:

Introduction

1

In this claim brought under Part 8 of the CPR the Claimant, Yuanda (UK) Co Ltd (“Yuanda”), seeks various declarations to the effect that certain clauses in the contract between itself and the Defendant, WW Gear Construction Ltd (“Gear”), are void or invalid for various reasons and, in particular, that the adjudication provisions in the contract should be replaced by the adjudication provisions in the Scheme for Construction Contracts.

2

In addition, Yuanda contends that the provision for a rate of interest of 0.5% above base on late payment of debts is void by reason of the Late Payment of Commercial Debts (Interest) Act 1998, and that section 3(1) of the Unfair Contract Terms Act 1997 applies to this contract because it dealt on Gear's written standard terms of business.

3

The project concerns the construction of a very substantial luxury hotel in the old GLC building by Westminster Bridge. The contract between Yuanda and Gear was for the provision of glazed curtain walling to the building and it formed part of a number of similar trade contracts for the construction of the hotel. It seems that there were some 30 odd trade contractors.

The relevant facts

4

Evidence on behalf of Gear, which is a company incorporated in the Republic of Cyprus, was provided in the form of two witness statements from a Mr Simon Haider. He is a Surveyor employed by a company called GC Project Management Ltd, which acted as project manager for Gear on this project. His evidence shows that Gear prepared a standard package of contract documents that were to be issued to each trade contractor. The package was based on the JCT Trade Contract with a substantial number of amendments which were set out in a separate Schedule of Amendments.

5

Mr Haider's evidence was that Gear's solicitors prepared these documents so that he could use them as the starting point in his negotiations with the various trade contractors. He said that in virtually every case the negotiations resulted in changes to the prepared set of amendments. In the case of Yuanda, the contract documentation was sent out by Mr Haider under cover of a letter dated 27 February 2007, Yuanda having submitted its revised quotation at the end of June 2006. Although Mr Haider asked for the signed contract documents to be returned by 7 March 2007, this did not happen. Instead, there was a meeting between Yuanda and Mr Haider on 22 March 2007 at which the parties went through the proposed contract documentation and discussed various changes.

6

A list of 32 items was produced following the meeting of 22 March 2007 which were annotated as being agreed, under review or as not being capable of agreement by Gear. Some were of no consequence or simply reflected figures already agreed, such as the price, which had to be inserted in the relevant part of the contractual documentation. Others involved concessions by Gear following the discussions at the meeting. Three of these deserve mention. Item 3 involved the removal of the requirement to take out professional indemnity insurance on the grounds that Yuanda already had its own insurance in place. Item 11 concerned what was described as “the L&E grace period”: the trade contractor could not claim loss and expense for delay unless the period of delay was at least 4 months. At the meeting this period was reduced from 4 months to 2 months in Yuanda's favour.

7

Item 15 concerned delay to the date of commencement of the works. The contract documentation prepared by Gear's solicitors provided that the date of commencement could be deferred by up to 6 months at the employer's option without giving the trade contractor any remedy. Yuanda negotiated this period down to one of 3 months.

8

I suspect that none of these concessions was of huge commercial importance, but neither were they insignificant. Similar concessions may or may not have been negotiated with other trade contractors.

9

Two of the amendments to the standard form prepared by Gear's solicitors, which were not discussed or altered as a result of the meeting on 22 March 2007, are the subject of these proceedings. Although they were not altered in the case of Yuanda, it is Mr Haider's evidence that some other trade contractors did raise one or other of these points—amongst others—during pre-contract negotiations and succeeded in either removing the amendment altogether or negotiating a more favourable alternative.

10

The first relevant amendment was to clause 4.11.2 of the JCT standard form. The standard wording provided that interest on late payments by the employer would be paid at the rate of 5% over Base Rate. In the Schedule of Amendments this was changed to 0.5%. Two trade contractors objected to this and managed to negotiate more favourable rates, to 2% and (the original) 5%, respectively.

11

The other relevant amendment concerned the adjudication provisions of the contract. The relevant clauses of the JCT standard form were deleted and a new clause was to be substituted as follows:

“Clause 9A The adjudication procedure will be the TeCSA Adjudication Rules (amended to require nomination by the RICS and joining of the members of the professional team in a multi-party dispute situation).

Notwithstanding the provisions of the above procedure and regardless of the eventual decision in the adjudication or in any subsequent litigation the Trade Contractor agrees that should he make a reference to Adjudication under the terms of this contract then he will be fully responsible for meeting and paying both his own and the Employer's legal and professional costs in relation to the Adjudication.”

12

At least one trade contractor, if not several, managed to negotiate the removal of this amendment so that the original provisions for adjudication in the standard form wording were reinstated.

13

The person who negotiated this contract on behalf of Yuanda was Mr Francis Lee. In his witness statement he says that he has worked in the curtain walling industry for 25 years. It seems that he was not aware at the time of negotiating the contract of the amendments relating to either adjudication or interest on late payments. He says that during the course of the works significant differences between Yuanda and Gear became apparent which have potentially adverse financial consequences for Yuanda. For these reasons in June 2009 he engaged a Mr Simon Cheesman, as Commercial Director, to sort out these problems for Yuanda. When Mr Cheesman looked at the contract he spotted clause 9A and immediately appreciated its implications. He also noticed the low rate of interest that had been inserted in clause 4.11.2. He drew both of these to Mr Lee's attention in July 2009. Mr Lee says that he is sure that neither of these topics was raised at any time during the negotiations with Gear.

14

Yuanda is the English subsidiary of a substantial Chinese group and was incorporated in 2002 with a view to establishing a viable business in the UK. This was by far its largest contract. Mr Lee has explained in his witness statement that most of the other directors of Yuanda at the time were Chinese and did not speak or read English. Accordingly, he experienced some difficulties and delays in explaining to his colleagues the effects of the various provisions of the contract. He says that this problem must have been obvious to Gear, and so Gear ought, he says, to have emphasised “any serious or important issues in the clearest terms”.

15

What is clear is that, although Mr Lee was provided with the draft contract documentation at the end of February 2007 and attended a meeting on 22 March 2007 to discuss the terms of the contract, either he did not notice the provisions relating to adjudication and interest on late payments or he did notice them, but cannot now recall doing so because he was probably not particularly concerned about them.

16

One significant feature of the work that was to be carried out by Yuanda was that most of the components of the curtain walling were, as expressly specified in Yuanda's quotation, to be made in China and, sometimes, specifically by Pilkington (Shanghai China) Ltd. It was therefore contemplated by the parties that these components would be shipped from China to England prior to incorporation in the works.

The issues

17

The issues that arise on this hearing are as follows:

(1) When entering into the Trade Contract did Yuanda deal on Gear's written standard terms of business?

(2) If so, is this an international supply contract within the meaning of section 26 of UCTA 1977?

(3) If this is not such a contract, is clause 9A unreasonable within the meaning of UCTA 1977? (This includes the question whether the terms were sufficiently drawn to Yuanda's attention).

(4) Is the first part of clause 9A, or any part of it, void for uncertainty?

(5) Does clause 9A comply with the requirements of section 108 of the Housing Grants, Construction and Regeneration Act 1996 ( HGCRA), either wholly or in part?

(6) If clause 9A does not comply, with what should it be replaced?

(7) Does clause 4.11.2 provide a substantial remedy for late payment within the meaning of the Late Payment of Commercial Debts (Interest) Act 1998 or should the statutory rate be substituted for it?

18

For the purposes of these issues I am asked to assume that Yuanda entered into sub-contracts with...

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