Structure Consulting Ltd v Maroush Food Production Ltd [2017] EWHC 962 (TCC)

Judgment date: 24 January 2017

1. The Court found that it was appropriate to deal with certain factual issues by Part 8 proceedings as the issues were sufficiently defined so that the proceedings could be determined without lengthy pleadings or disclosure. However, the Court directed a “hybrid form” of the Part 8 procedure whereby there was a provision for the parties to be able to call witnesses and challenge them through cross-examination.
2. In relation to the application for summary judgement of the Adjudicator’s award, the Court held that there were no special circumstances that would justify either a stay of the judgment or a stay of execution of the judgment pending determination of the Part 8 matters.

Technology and Construction Court, Mrs Justice O'Farrell

Background

In 2014, Maroush Food Production Ltd (the defendant) engaged Structure Consulting Ltd (the claimant) to carry out phase two of the construction and design of a food production, catering and teaching unit at McNicol Drive, Park Royal in London. Phase two included the superstructure elements, finishes, fitting out, safety installation of specialist catering equipment, services installation and external works.

On 24 December 2014 the parties agreed and signed a letter of intent, which stated:

“Further to our recent negotiations on the above project, we confirm that it is our intention to enter into a formal contract (JCT Design and Build contract 2011) with you as soon as reasonably practicable with a commencement date earliest 19 January, latest 4 February, and a contract period of 40 weeks in a contract sum of £6.3 million excluding VAT.”;

It also went on to state that:

“You will proceed with the preparation of a detailed program of details and samples associated with works including liaison and coordination essential to the program. Pending execution of the contract documents, you will accept this as a letter of intent on the understanding that a contract will be placed with your company. If the project is cancelled at any stage by the client prior to the issue of the contract documents, you will reimbursed your net costs plus overheads and profit on nets costs only which will be agreed by the quantity surveyor. You will not be reimbursed for costs not incurred such as loss of profit et cetera.”

On 1 August 2016, the claimant issued an interim application for payment (Application No. 39) in the sum of £868,982.38. The defendant did not issue a payment notice, but on 10 August 2016, it issued a purported pay less notice indicating a reduced sum due in respect of Application No. 39 of £61,023.77, which it subsequently paid.

On 6 September 2016, the claimant commenced adjudication proceedings in respect of the unpaid balance of Application No. 39 on the basis that the defendant failed to serve a valid payment notice or pay less notice as required by the contract. The defendant contended that it had served a valid pay less notice.

On 13 October 2016, the Adjudicator decided that the pay less notice issued by the defendant did not comply with contractual or statutory requirements and therefore was invalid. The Adjudicator directed the defendant to pay the claimant the sum of £730,280.56 excluding VAT and to pay the Adjudicator’s fees.

Following the Adjudicator’s award, there were two sets of proceedings brought before the Court:

1. The claimant sought summary judgment pursuant to Part 24 of the Civil Procedure Rules to enforce the Adjudicator’s decision; and
2. The defendant issued Part 8 proceedings seeking declaratory relief in respect of:
   1. whether the contract between the parties was simply a letter of intent agreement or if it had incorporated the JCT Design and Build contract conditions; and
   2. whether its pay less notice had been valid.

In the Part 8 proceedings an order was sought effectively reversing the decision of the Adjudicator and ordering that SCL should repay the sums ordered by the Adjudicator to be paid by the defendant to the claimant. The Part 8 proceedings had been listed for directions but was not the subject of the hearing

Issues

The issues before the Court were: (i) whether the dispute was suitable for determination under the Part 8 procedure; and (ii) whether there should be enforcement of the adjudication by the Court or whether it should be stayed pending resolution of the Part 8 proceedings.

The claimant argued that, although there was ultimately no formal written contract between the parties, by February 2015 the parties had agreed all essential terms including the conditions of the JCT Design and Build contract 2011 edition (as amended). Further, the claimant argued in the alternative the contract was concluded in November 2015 when the defendant accepted the claimant’s revised offer letter, which incorporated amendments to the employer’s requirements and contractor’s proposals.

The claimant submitted that the adjudication decision should be enforced by way of summary judgment and that the issue of the contract formation and the validity of the pay less notice should be determined through Part 7 proceedings as these matters were not suitable for determination under Part 8 procedure. Specifically, the claimant contended that the court would be required to consider the conduct of the parties over a substantial period of time and that, although the claimant recognised that the test as to formation of the contract is an objective one, nonetheless it will be necessary to consider discussions between the parties during the relevant period of time that are relevant to the issue. In any event it would be necessary for the court to consider a large number of documents as to which the meaning andinterpretation of those documents is in dispute

The defendant submitted that the parties did not reach agreement on all the essential terms and that there was simply the letter of intent agreement which was signed by both parties. As such, there was no subsequent binding agreement. Specifically, the defendant submitted that the parties did not agree the defendant’s requirements, the claimant’s proposals or the contract sum analysis. Therefore on the defendant’s case the works were carried out by the claimant on the basis of the letter of intent agreement that did not incorporate the JCT Design and Build contract conditions.

Furthermore, the defendant submitted that the enforcement of any judgment made should be stayed pending the determination of the issues raised in its Part 8 proceedings. The defendant contended that the claimant’s case is set out fairly and squarely in a witness statement and in the Particulars of Claim in the Part 7 proceedings and as such it would be relatively a short and straightforward matter that the court could deal with by way of Part 8 procedure. It contended that those issues could be resolved by the court following a speedy timetable for service of any further evidence and a short hearing. Alternatively, the defendant sought additional time to pay any judgment sum due to cash flow issues.

Decision

• The Court found that the issues between the parties were sufficiently defined so as to enable it to be determined by way of a Part 8 procedure. It was common ground that there was an agreement between the parties based on the letter of intent. It was also common ground that the parties have effectively carried out the works, payments have been made against applications for payment and the parties operated a payment mechanism until SCL’s employment was terminated. The only issue is whether the parties reached agreement on what was considered to be the essential terms necessary to make a binding contract that incorporated the JCT terms and conditions. Consequently the issues of contract formation and the validity of the pay less notice could be determined by the Court on a final basis. The Court noted [para 9] that it has the power to use the Part 8 proceedings to make a substantive determination of any dispute arising out of an adjudicator’s decision, citing the authorities of Walter Lilly & Co Ltd v DMW Developments Ltd [2008] EWHC 3139 (TCC) and Geoffrey Osborne Ltd v Atkins Rail Ltd [2009] EWHC 2425 (TCC) in support.
• The Court also commented [para 13] that there must be “some room for there to be a fact finding in relation to specific disputes that might arise on the evidence” which necessitated a “hybrid form of procedure” whereby there was a provision for the parties to be able to call witnesses and challenge them through cross-examination. The Court cited [para 9] Forest Heath District Council v ISG Jackson Ltd [2010] EWHC 322 (TCC) in support.

• When considering whether there should be enforcement of the adjudication at the hearing or whether it should be stayed (under CPR 83.7) pending resolution of the Part 8 proceedings the Court noted [para 16] that the general rule is that the Court "should take a robust approach to the enforcement of adjudication decisions" as set out in Carillion Construction Limited v Devonport Royal Dockyard Ltd [2005] EWCA Civ 1358. As such, the Court held that [para 17] there “is no good reason for [the claimant] to be kept out of the fruits of the adjudication” and that "there are no special circumstances that would justify either a stay of the judgment or a stay of execution of the judgment pending determination of the Part 8 matters”.
• Accordingly the Court declined to grant a stay of execution and made judgment on the enforcement proceedings and ordered that the claimant was entitled to the sum of £669,256.79 excluding VAT plus judgment rate interest, that figure being the sum of £730,280.56 less the sum of £61,023.77 already paid by the defendant to the claimant.

The full judgment can be found on Westlaw (subscription required).

Subject Criteria: Part 8, payment, pay less, formation, letter of intent, stay of enforcement.