Case Law Updates – March 2024

Lidl Great Britain Ltd v Closed Circuit Cooling Ltd (t/a 3CL) [2023] EWHC 2243 (TCC)

Facts:

• Lidl Great Britain Ltd (Lidl) and Closed Circuit Cooling Ltd (CCC) entered into a contract.
• Under the contract, CCC could apply for payment periodically throughout.
• One of the payments included Application for Payment no. 19 (AFP19).

1. The first issue was that Lidl contested AFP19, as they believed it failed to comply with the contract, surrounding the requirements of supporting photographs, how it was served, evidence of insurance, and details of the periodic payments.
2. The second issue, surrounded Lidl issuing a payment notice (Pay 7), valuing the works at zero. CCC argued Pay 7 was not valid as a payment notice, but rather an invalid pay-less notice, on the basis that it described itself as being a pay-less notice.
3. Accordingly, the third issue was Lidl had claimed that a valid VAT invoice from CCC would be required under the Contract, and therefore was a condition of the final payment date. CCC claimed this conflicted with the Housing Grants, Construction, and Regeneration Act 1996 (HGCRA), as the final date for payment could not be conditional upon Lidl receiving a valid VAT invoice.

• In April 2023, CCC served a Notice to Adjudicate, stating that Pay 7 was in-fact an invalid pay-less notice, and not a notice of payment, due to its contents and contractual requirements.
• In the Adjudicator’s decision, CCC was awarded the full amount claimed in AFP19, as the format of AFP19 was the same for the previous AFP18, which Lidl had not challenged.
• Lidl issued a Part 8 claim, refusing to pay.
• CCC issued a Part 7 claim with the Court, to enforce the Adjudicator’s decision and seek payment of the unpaid monies. It also applied for Summary Judgment.

Decision:

• The Court ruled in favour of CCC on the following basis:
• Regarding the argument that AFP19 did not comply with the contract, the Court pointed to the fact that CCC applied the same format in their previous application for payment (AFP18), which was unchallenged. Therefore, if AFP18 was accepted, and AFP19 was in the same format, AFP19 could not be challenged on its format.
• Furthermore, Lidl alleged there was a breach of Natural Justice, arguing the Adjudicator had considered issues which were not raised by either party, namely a claim for Liquidated Damages.
• As the Pay 7 notice included a deduction for Liquidated Damages, and CCC clearly mentioned the Liquidated Damages in their Referral, the Court found that the Adjudicator was therefore entitled to discuss it.
• Alongside this, Lidl did not present a strong point in arguing that the Adjudicator should have offered the parties an opportunity to discuss the element of Liquidated Damages. Therefore, the Court decided that the Adjudicator was permitted to say Pay 7 was both a payment notice and a pay-less notice.
• Regarding the third issue, s.110(1)(b) of the HGCRA states that every construction contract must provide a final date for payment. The Court expressed that the parties could only agree the length of time, between the due date and the final payment. The Court could not allow each party to agree terms beyond that limit, so dismissed Lidl’s argument.

On the facts of this case and what was presented, the Court upheld the Adjudicator’s decision, clarifying HGCRA requirements for payment in construction contracts.

RJT Consulting Engineers Ltd v D M Engineering (Northern Ireland) Ltd [2002] EWCA Civ 270

As part of s.107 of the Housing Grants, Construction and Regeneration Act 1996 (HGCRA), parties have the right to refer disputes to adjudication for quick decisions, if the construction contract is in writing.

Facts:

• Holiday Inn (Holiday) retained RJT Consulting Engineers Ltd (RJT) to provide design for mechanical and electrical works as part of the refurbishment plan for a hotel.
• The Main Contractor was David Patton (Ballymena) Ltd. (Ballymena).
• Ballymena entered into a subcontract with DM Engineering (Northern Ireland) Ltd. (DM).
• DM as Sub-Contractor, entered into a consultancy contract with RJT, where RJT agreed to complete parts of the design of the works.
• DM claimed that RJT failed to design the works properly, did not achieve a professional standard of work, and failed ensure the works were compliant with the budget, amongst other issues.
• As a result of negligent design, DM claimed £858,000.00 for losses and expenses. They sought to refer the dispute to Adjudication.

Issues:

• RJT challenged the right to refer the dispute to adjudication, as the agreement to complete part of the design was not in writing and had been orally agreed between the parties.
• DM turned to the Technology and Construction Court (TCC).
• The Court dismissed the case, as the agreement made between the parties was not an agreement in writing in accordance with s.107 of the HGCRA. However, the Court did allow the parties to appeal its decision.

Decision:

• The Court of Appeal held that under s.107 of the HGCRA, the Court could determine if an agreement was in existence, based on the support of any written evidence.
• Under s.107(5) of the HGCRA, “an exchange of written submissions in adjudication proceedings, or in arbitral or legal proceedings in which the existence of an agreement otherwise than in writing is alleged by one party against another party and not denied by the other party in his response constitutes as between those parties an agreement in writing to the effect alleged”.
• The dissenting opinion of one judge in the Court of Appeal was “The actual material between the parties by way of written substance is here comparatively great… for example, a fee note from RJT to DM on a number of invoices setting out the nature of the work, the names of the clients and the identity of the place of work. There are minutes taken during meetings between the experts… There is also clear reference in the correspondence around the issue of the arbitration to the parties and the nature of the work.”
• However, the majority had agreed that the evidence was not sufficient to establish that there was an agreement in writing for the purposes of s.107 of the HGCRA. Accordingly, the matter could not be referred to adjudication.

From this case, it is important to understand that for clarity, all agreements should be in writing. However, in the absence of a written contract, the material terms of the agreement should be clearly recorded in writing.

FES Ltd v HFD Construction Group Ltd [2024] ScotCS CSOH_20

Facts:

The parties entered into a contract dated 25 and 28 February 2020 under which FES LTD (FES) would carry out fit-out works at an office building in Glasgow. The contract took the form of the Standard Building Contract with Quantities for use in Scotland (SBC/Q/Scot) (2016 Edition) as amended.

During the course of the works, FES encountered several delays relating to the Covid-19 Pandemic, and a dispute arose as to FES’ entitlement to an extension of time and claim for loss and expense under the contract.

In October 2022 the matter was referred to Adjudication, and one of the issues identified by the Adjudicator was whether the giving of a notice under Clause 4.21 was a Condition Precedent (“CP”) for recovering loss and expense. The Adjudicator determined that it was, and FES had not given the required notice so had no entitlement to loss and expense under the contract.

FES challenged this decision in Court, seeking a declaration that the Adjudicator’s decision on this issue was wrong in law so no longer binding, and the notice requirements under Clause 4.21 were not a CP to any entitlement to loss and expense.

Decision:

Lord Richardson referred to the case of Mitsui Construction Co Ltd v AG of Hong Kong [1986] 33 BLR 14, in which Lord Bridge noted that when it comes to drafting: “[…] the poorer the quality of the drafting, the less willing the Court should be to be driven by semantic niceties to attribute to parties an improbable and unbusinesslike intention […]”.

Clause 4.20 was unamended and the Judge found that “On its face, the language used in clause 4.20.1 is clear and straight-forward. It indicates that that the contractor’s entitlement to reimbursement is ‘subject to … compliance with clause 4.21’.” It is therefore difficult to construe this wording in other way than creating a CP.

Lord Richardson rejected FES argument that the clause failed to set out the consequences of non-compliance, holding that “the wording of the clause makes it clear that, without such compliance, the contractor is not entitled to reimbursement” and as such, FES’ claim was rejected.

WOL (London) LLP v Croydon Investments Limited & Ors [2024] EWHC 251 (TCC)

Facts:

The First Defendant, Croydon Investments Limited (CIL) is an investment company who engaged the Second Defendant (“RGB”) via a building contract dated 22 December 2015 (“the contract”) to carry out the conversion of an office complex into 82 residential apartments (“the property”) for the sum of £7,120,564.82.

CIL later engaged the Third Defendant (“Stoma”) as its Building Regulations Approved Inspector.

The Employer’s Agent certified practical completion (“PC”) of the conversion works on 5 December 2016, aside from remaining items contained within a snagging list.

On 16 January 2017, the Claimant, WOL (London) LLP (“WOL”) purchased the Property from CIL for the sum of £22,958,621 via a Sale and Purchase Agreement (“SPA”). It later discovered substantial defects in the Property, including problems with the external cladding, water supply, ventilation and fire compartmentation.

WOL brought these proceedings against:

1. CIL for breach of the SPA;
2. RGB, under its collateral warranty, for breach of the Contract; and breaches of Section 1 of the Defective Premises Act 1972; and
3. Stroma, under its collateral warranty, for breach of its Appointment.

CIL brought an application for Summary Judgment, arguing that WOL’s claim did not identify reasonable grounds for bringing the claim, did not set out a reasonable case for causation, and there was no real prospect of WOL succeeding on its Amended Particulars of Claim.

Decision

Judge ter Haar KC dismissed the application for Summary Judgment, finding that WOL’s case against CIL was “tolerably clear” from the nature of the arguments set out, and that it had a reasonable prospect of success in its interpretation of the SPA.

The Judge pointed to the case of Arnold v Britton [2015] UKSC 26; [2015] AC 1610 at paragraphs 17-22 in which Lord Neuberger set out 5 key points for the Court to consider when interpreting a contract:

1. Reliance on commercial common sense should not be used to undervalue the importance of the wording used within the contract and the Court should identify what the parties meant through the eyes of a reasonable reader;
2. When the wording of a contract is particularly unclear this does not justify the Court constructing its own wording or departing from its natural meaning;
3. Commercial common sense should not be invoked retrospectively, even if the contractual arrangement worked out badly for one of the parties it does not justify departing from the natural language. Commercial common sense is only relevant to how matters would/could have been perceived by the parties as at the date the contract was made;
4. Whilst commercial common sense is an important factor to take into account in interpreting a contract, the Court should avoid rejecting the natural meaning of a provision as correct simply because it seems imprudent for one of the parties to agree to the terms. It is a case of identifying what the parties agreed, not what the Court thinks they should have agreed;
5. Parties can only take into account facts or circumstances which existed at the time the contract was made and which were reasonably available to both parties. It cannot be right to take into account circumstances known to only one of the parties.

Despite setting aside the Summary Judgment application, the Court did find that WOL had failed to sufficiently set out its case on causation against CIL in its Pleadings. As such, WOL was ordered to reamend its Pleadings, clearly setting out its case.

This case is a reminder of the importance of clear and comprehensive drafting within the Pleadings.