Construction Brief: latest decisions March 2020
This update includes a round-up of recent court decisions raising issues relating to contract interpretation, vesting certificates, adjudication issues and payment bonds.
Contract interpretation - incorporating both parties’ terms and conditions
MPB v LGK [23.01.20]
MPB engaged LGK to supply and install structural steelwork on a project in Primrose Hill, London. The parties did not enter into a formal contract, and exchanged a series of emails in which they attached and sought to incorporate their own terms and conditions. Ultimately, MPB’s order stated that it was placed in accordance with its standard terms and conditions, and that they took precedence. However, the order stated it was “based upon” LGK’s quotation, which included LGK’s own terms and conditions.
The parties fell out and a number of adjudications ensued, followed by arbitration proceedings. MPB took issue with jurisdiction as arbitration was only permitted under LGK’s terms and conditions (which MPB contended had not been incorporated). However, the court was satisfied that “based upon” should be given its natural and ordinary meaning, and so LGK’s terms were incorporated. In the event of any inconsistency, MPB’s terms and conditions took precedence due to an express provision to that effect. Furthermore, the court was satisfied that the entitlement to arbitrate in LGK’s terms was not inconsistent with MPB’s terms, which was silent on the point (with litigation being the default dispute resolution route).
MPB’s application to set aside the arbitration award was dismissed.
VVB M&E Group Limited (1) VVB Engineering (UK) Limited (2) v Optilan (UK) Limited [07.01.20]
On 10 September 2015, Value Realisations Limited (VRL) engaged Optilan in relation to the provision of telecommunication services for a portion of the Crossrail project, via a construction contract for the purposes of the Housing Grants, Construction and Regeneration Act 1996 (the Act). The works included the procurement, manufacture, assembly and delivery to site of plant and materials for installation. The terms of the contract made provision for the vesting in VRL of goods and materials before they were delivered to the relevant location ‘with a view to securing payment’ in its next payment application.
Optilan was instructed to secure procurement of various long-lead telecommunication items which it sought to recover across its payment applications 36 – 38. What followed was a fairly convoluted payment process but, ultimately, Optilan issued two vesting certificates in 2018 which allowed for the items to vest in VRL upon receipt of the relevant interim payment. VRL’s payment notices and pay less notices in response calculated a nil net payment being due to Optilan.
VRL entered into administration just over a month from the issue of the certificates. VVB acquired the business and assets of VRL, and made an application for delivery up of the goods. Optilan’s case was that property in the goods had not vested because no actual payment had been received, as envisaged by the vesting certificates.
The court found that the wording of the vesting certificates was ambiguous. It anticipated both unconditional vesting upon a future event (receipt of the next interim payment), and immediate vesting. As such, the court undertook a contractual interpretation exercise in which it is entitled to respond to any ambiguity with the business common sense outcome and to reject any other meanings. This resulted in a finding that the vesting certificates only obliged VRL to include the gross value of the goods to be vested within the certification process, which it had done. It was entitled to offset other sums against the gross value, ultimately resulting in a nil value. The court therefore granted VVB’s application and Ordered that Optilan should make the goods available for collection.
Adjudication and Part 8 proceedings
ISG Construction Limited v English Architectural Glazing Limited [16.12.19]
This case is an interesting example of a valiant but unsuccessful attempt by ISG to effectively appeal an adjudicator’s decision by way of Part 8 declarations.
ISG engaged EAG as its cladding sub-contractor on a project in Lombard Street, London. The project was delayed and ISG claimed circa £3 million in compensation in an adjudication. The adjudicator disagreed with ISG’s case and awarded circa £137,000 to EAG.
ISG paid the award but also commenced Part 8 proceedings with an intent to, in effect, appeal the adjudicator’s decision. ISG asked for declarations that certain parts of the decision were wrong, and also clarification as to the “ambit and effect” of certain decisions. The purpose of this was to allow ISG to decide whether to pursue its claimed losses in further adjudications.
The court refused to grant such declarations. The court considered that such declarations required consideration of a combination of law and fact, which was inappropriate in Part 8 proceedings. In relation to the “ambit and effect” of the adjudicator’s decision, the court considered that it should only be concerned with the question that was referred and decided. It would be wrong to undertake too detailed and too fine an analysis of the reasons given by the adjudicator for his decision, in light of the pressure of time under which adjudicators operate.
Adjudication, insolvency and undisputed debts
Gosvenor London Limited v Aygun Aluminium UK Limited [06.12.19]
In our February 2019 Construction Brief, we reported on the granting of a stay of execution in favour of Aygun, where there was a real risk that Gosvenor would dissipate any sums paid in satisfaction of an adjudication award before the hearing of Aygun’s substantive challenge could take place.
In the present case, Gosvenor issued an application on 6 August 2019 in which it sought to lift the stay as a result of its poor financial position. However, on 29 November 2019, Gosvenor was placed into liquidation. On the day of the hearing, Gosvenor’s representative chose to pursue only a partial lifting of the stay in respect of an undisputed portion of the debt totalling £20,000.
The judge considered that there was an open question which the court may wish to revisit, as to whether previous decisions in Bresco and Bouygues (where a party is in liquidation (i) that summary judgment should be refused where there are cross-claims between the parties and (ii) that an adjudicator’s decision in favour of the party in liquidation should not be enforced) applied insofar as any debt was undisputed.
However, he did not accept that the debt in the present case was undisputed given that Aygun had a cross claim available to it, as well as an unsatisfied costs order of approximately £30,000. As such, the application was dismissed.
Related item: Construction and Engineering Brief - February 2019
Payment bonds and payments into court
Multiplex Construction Europe Limited v R&F One (UK) Limited [05.12.19]
R&F engaged Multiplex to construct a large building development in Vauxhall. The contract required that R&F was to provide a bond of £15 million, to be approved by Multiplex. Failure to do so entitled Multiplex to suspend the works.
R&F failed to provide the bond, and the parties eventually reached a settlement which allowed Multiplex to suspend works if R&F did not provide the bond by 30 August 2019. The settlement was effected by way of Tomlin Order in the proceedings, so that the terms of the settlement could be enforced without the need to issue separate proceedings.
R&F did not provide the bond by the required date and a number of applications and orders followed in which Multiplex was entitled to suspend, and R&F was required to pay £15 million into court.
Ultimately, R&F failed to provide the bond at all, but subsequently sought to argue that Multiplex was not entitled to suspend as R&F had paid the required amount into court. The court did not accept R&F’s argument – the payment into Court did not constitute security as envisaged in the contract or settlement, and did not provide the same level of cash flow protection that a bond did. For instance, Multiplex would not be able to request immediate payment from the court, it would first have to make an application. As such, the court found that Multiplex was entitled to suspend its works.
Stay of adjudication enforcement and balance sheet insolvency
Granada Architectural Glazing Limited v RGB P&C Limited [19.11.19]
On or about 17 September 2018, Granada was engaged by RGB in relation to the construction of a hotel at Heathrow. Disputes arose and, on 26 June 2019, an adjudicator made an award of £85,089 in favour of Granada for wrongful termination.
RGB did not comply with the award, and issued proceedings on 3 October 2019 seeking a declaration that it had validly terminated the contract, and damages of just over £161,000. On 19 October 2019, Granada issued proceedings to enforce the adjudicator’s award. RGB issued an application for a stay of execution of the adjudication award on the basis that if its own claim was successful, Granada’s financial position meant it was unlikely to be able to repay the funds RGB had paid to it (pursuant to the Wimbledon v Vago principles).
The court found that while there was a reasonable likelihood that Granada would be unable to repay, it was not “more likely than not”. Granada was continually financially supported by its parent company and there was no reason to suggest that would change. Furthermore, Granada had always been dependent upon its parent company, and its balance-sheet insolvent position was materially similar to when the contract was made. The application for a stay was refused.
The court was also not minded to grant RGB’s application for the sum to instead be paid into court, as it considered that it undermined the cash flow considerations the adjudication scheme is designed to address.