Elements (Europe) Limited v FK Building Limited [2023] EHC 726 (TCC)
Facts
This case was an application for summary judgment brough by Elements (Europe) Limited (“Elements”) against FK Building Limited (“FK”). There was also a related Part 8 claim brought by FK.
FK, the main contractor, engaged Elements as their sub-contractor to carry out remedial works on 156 residential apartments in Salford. On or around the same date as the Sub-Contract, the parties entered into a Deed of Variation, which amended various terms of the Sub-Contract, including increasing the scope of works and the Contract Sum to £7.4 million.
Elements sought a summary judgment for £3,950.190.52 plus interest and cost relating to the adjudication between the parties on 17 January 2023. FK were not disputing the enforceability of the award, but argued the payment application (which was the focus of the adjudication) was not valid as it was submitted late.
Elements issued their Payment Application No.16 by email on 21 October 2022 at 10:07pm. The email was sent on behalf of Elements by Mr Walters of Socotec Advisory Ltd. There was no dispute regarding the receipt of this email and its attachment, the email was deemed to have been received between 10:07 and 10:08pm on the same day.
FK argued that due to the time of day the Payment Application was issued, they could not have been reasonably expected to have read the email. FK failed to serve any acknowledgement of receipt.
On 5 December 2022, Elements served a notice of adjudication on FK, referring the dispute to adjudication. FK made five arguments, all of which were rejected by the adjudicator, two of which related to the validity of Elements’ application. The adjudicator decided that FK were to pay Elements 3,950.190.52 plus interest and cost relating to the adjudication between the parties.
On 24 January 2023, FK indicated that they intended to issue Part 8 proceedings, but did not confirm their intention to comply with the adjudicator’s decision.
Issues
The first issue concerns the validity of Elements’ payment application, focusing on specific language used in the contract. FK argued that the application was late, and therefore contractually invalid, and that if Elements were to rely on the absence of a pay-less notice, they must be able to prove that the application was valid. They made reference to “received” in clause 4.6.3.1 of the Sub-contract, incorporating the JCT Standard Building Sub-Contract Conditions SBCSub/C 2016 (“the Contract”), which states “so as to be received not later than 4 days prior to the Interim Valuation Date for the relevant payment“, and commented it is different to wording used in other JCT forms. FK stated this use of language must be deemed to have been intentional, and the clause focuses on actual receipt of a document, rather than delivery.
The Contract stated that an application was to be received not later than 4 days prior to the Interim Valuation Date. FK argue that as this deadline was 25 October 2022, then 4 days prior would be 20 October 2022.
Elements argued that in the Contract, there was no specific language to indicate whether it was 4 clear days or 4 whole days. They relied on a rule in English Law, that a day is treated as an indivisible whole and that fractions of a day are ignored. They referenced the authority from Afovos Shipping Co SA v Pagan [1983], which states once a working day has been identified, the whole of the day counts as a working day. They interpreted this to show that unless stated otherwise, ‘day’ should simply mean ‘day’ and should be distinguished from ‘full’ or ‘clear’. They also added reference to ‘days’ meaning ‘clear days’ in civil procedure practice ‘was inapplicable.
FK contended this, stating that receiving an application at 11:59pm on the deadline day is unworkable and unbusinesslike, especially in relation to the possible consequences of failing to serve a pay-less notice. However, as pointed out by Elements, the sub-contract imposed no restriction on the time of day an application could be sent or received. They also stated site hours were irrelevant, they simply set out the time that the works could be carried out on site. They also contended that if an application is sent by email, which it was in this situation, the application is received when it appears in the recipient’s inbox.
FK’s argument on timing was challenged by Elements. They displayed the payment mechanism was operated by both parties outside of site opening hours, for example FK had previously submitted a pay-less notice at 23:31pm, displaying it was normal for members of the QS team and senior management to work long hours, including evenings and weekends, discrediting one of FK’s arguments.
FK then argued their two contentions were short points and capable of being determined by the Court on a Part 8 application, to be heard at the same time as the summary judgment. It was submitted by FK that the Court could and should have simply construed Clause 4.6.3.1 of the Sub-Contract to determine what was meant and how it would operate in relation to Application 16 of the agreed factual position, of when the application was sent and received. Elements contested this and stated the Part 8 Claim did not fall within the exception set out in Hutton Construction Limited v Wilson Properties (London) Ltd. The judge deemed it more appropriate to rely on A&V Building Solutions as the words in Hutton were not intended to impose a further substantive requirement which must be met for a Part 8 Applicant to be successful.
Judgment
True Construction of Clause 4.6.3.1
The judge accepted Elements’ submission that the term ‘clear days’ is a well-known concept and is different from ‘days’. There is an important distinction between the two. In the Sub-Contract there is no reference to ‘clear’ days, therefore, the Sub-Contract could not be construed to mean ‘clear’ days when that is not the language used.
There is established authority that Courts do not deal with fractions of days, as stated in Lester v Garland. Usually, if an agreement specifies a day for a party to perform their obligations, the party has until the end of that day to perform it. This was recently affirmed in Boxxe v Secretary of State for Justice [2023].
It was decided that unless that Sub-Contract provided otherwise, a payment application is to be made and can be received up until 23:59.59pm on the date, as the Court does not count in fractions of a day.
In applying the same rule, the Sub-Contract was not specific that 4 ‘clear’ days were required and it did not state that an application had to be received before a certain time in the day. FK’s argument on working hours were disregarded and did not have any relevance to the proper construction of ‘days’. In regards to when the email was received, actual receipt of the email took place when their servers received the email.
Reference to a Part 8 Application being appropriate was also denied.
Payment Application Number 16 was held to have been received on 21 October 2022, which was not later than 4 days prior to the Interim Valuation date and was therefore valid.
For further information, please see: https://www.bailii.org/ew/cases/EWHC/TCC/2023/726.pdf
FM Conway Ltd v The Rugby Football Union and others [2023] EWCA Civ 418
Facts
In 2012, the Rugby Football Union (‘RFU’) engaged FM Conway Ltd (‘Conway’) to carry out ductwork installation works at Twickenham stadium under an amended JCT Standard Building Contract without Quantities, 2011 Edition.
The contract obliged the RFU to maintain a joint names’ all risk insurance policy under Insurance Option C. The contract stated that the insurance would cover Conway for physical loss or damage to the works but not if such damage was caused by Conway.
The RFU took out a policy which covered the RFU and Conway and which said “insurers will indemnify the insured against physical loss or damage to the [insured property] … from any cause whatsoever”. However, it did exclude indemnifying for damage caused by defects in either design or workmanship. The insurance also waived any right of the insurer to subrogated rights (i.e. to claim against a third party if it paid out to the insured). Conway understood that the insurance was very comprehensive and did not take out its own insurance cover for damage or loss caused by its works.
The RFU later claimed that the cables in the stadium were damaged as a result of defects in the ductwork. The insurance indemnified the RFU for the defects, the RFU subsequently brought a subrogated claim on behalf of the insurer against Conway.
Conway defended the claim by stipulating it was also insured under the policy to the same degree as the RFU and, therefore, a claim could not be brought against it because it was insured.
The Technology and Construction Court in the High Court held that Conway was only limited to the insurance cover that was allowed under JCT insurance option C and was not extensively covered by the insurance (in contrast to the RFU). Therefore, a subrogated claim could be brought against it.
Conway appealed to the Court of Appeal.
Held
The Court of Appeal upheld the TCC’s judgment.
The Court said, when determining the extent of insurance, the underlying contract between the parties must take precedent (i.e. if RFU gave Conway authority to be treated as having such extensive insurance). The Court also agreed with the TCC that the intention of the parties, before the Contract was entered into, indicated that the parties did not intend to effect an insurance policy which was wider than option C under the JCT (i.e. the intention was not to allow Conway to have such extensive insurance). This included referring to documents and negotiations which had been exchanged before the contract was entered into, this included the Letter of Intent, which referred to Insurance Option C of the JCT (and not a more extensive joint names’ policy).
Lord Justice Coulson also iterated that the start of any investigation into the authority and intention of the parties in respect of joint names insurance will be with the contract.
As a result, the Court held that the Conway and RFU had agreed that Conway would be insured to the extent allowed under Insurance Option C only, and not to the extent of the policy taken out by RFU.
FK Construction Ltd v ISG Retail Ltd
A sub-contractor sought summary judgement to enforce an adjudication decision against a contractor. The contractor resisted enforcement, claiming a valid set-off arising from another adjudication decision and three additional decisions. The court granted partial application for summary judgement.
Background
ISG Retail Ltd (‘ISG’) engaged FK Construction Ltd (‘FK’) on a bespoke ISG sub-contract in relation to roofing and cladding works on ‘Project Barberry’ for the contract sum of £3,400,000. Disputes had arisen between the parties on both projects and there had been seven adjudications. In accordance with the sub-contract, FK issued its application For Payment 16 on 27 September 2022 in the amount of £1,691,679.94. ISG failed to issue a Payment Notice but issued a pay less notice on 28 October 2022 and no payment was made.
Under the terms of the sub-contract, FK issued an adjudication in relation to its payment application 16. The adjudicator determined that the application for payment 16 was valid, ISG did not issue a payment notice and the ISGs payless notice was out of time thus invalid (the Wood decision). ISG was directed to pay FK £1,691,679.94 plus VAT and interest within 7 days of the date of his decision. He also directed ISG to pay his fees in the sum of £8,120 plus VAT. Yet again, ISG did not comply with these orders, so, FK applied for a summary judgement to enforce the adjudicator’s decision, which ordered ISG to pay FK the sum of £1.6million plus the Adjudicator’s fees.
ISG did not comply and FK applied to enforce the adjudicator’s decision.
The Wood Decision is not the only adjudication decision concerning these parties arising in respect of Project Barberry. Three other adjudication decisions were referred to in the con-text of the hearing and may be summarised as follows:
a. The Shawyer Decision of 17 November 2022: this concerned FK’s Application for Payment 14 for the period July 2022 and thus preceded the Wood Decision. The Shawyer Decision determined that the payment application in question was valid, and that a PLN served by ISG was invalid and that ISG must pay to FK the sum of £1,489,651.32 plus VAT together with interest. ISG had not paid this sum. ISG subsequently issued Part Proceedings, alleging breach of natural justice and contending that AFP 14 did not constitute a valid payee’s notice or default payment notice because it was not a notification given ‘in accordance with the contract’ as required by section 110B of the 1996 Housing Grants, Construction and Regeneration Act 1996 (the ‘Bar-berry Part 8 Proceedings’).
b. The Ribbands Decision of 7 March 2023: this concerned FK’s Application for Payment 13 for the period June 2022. The Ribbands Decision determined that ISG had failed to issue either a valid PN or a valid PLN in respect of Application for Payment 13 and accordingly that ISG must pay £1,558,641.17 plus VAT together with interest. However, this decision was made subject to the operative parts of the Shawyer and Wood Decisions not being complied with and “if not paid, subsequently declared unenforceable by the English Courts”. It is common ground that the Ribbands Decision is therefore conditional upon the outcome of the Barberry Part 8 Proceedings.
c. The Molloy Decision of 14 April 2023: this decision only became available very shortly before the hearing and after preparation of the skeleton arguments. It concerned a re-quest by ISG for a gross valuation of the Sub-Contract as at 28 February 2023. The Molloy Decision determined a gross valuation of £3,736,679.72 and split the costs of the adjudication between the parties, with ISG to pay 60% and FK to pay 40%. Taken at face value, and given that ISG has already paid £2,829,941.55 in respect of the Sub-Contract works, this would suggest that FK’s further entitlement from ISG is £906,738.20. The timing of the Molloy Decision led to both parties making new submissions at the hearing which had not been entirely foreshadowed in their skeleton arguments.
In addition to Project Barberry, FK and ISG are also engaged on another project, referred to as Project Triathlon, which relates to works for a new logistics and distribution facility in Es-sex. ISG has been employed on Project Triathlon by DHL Real Estate (UK) Limited and has itself engaged FK on similar sub-contract terms to those used on Project Barberry. However, Project Triathlon is taking place in a different location from Project Barberry, involves different works and a different ultimate employer.
Three adjudication decisions in respect of Project Triathlon (together “the Triathlon Decisions”) were referred to by the parties at the hearing:
a. The Aeberli Decision of 20 March 2023, pursuant to which it was decided that ISG was entitled to terminate FK’s employment under the Triathlon Sub-Contract (which it did by notice on 7 October 2022) and that ISG was entitled to be indemnified by FK in the sum of £763,428.28. FK says that it intends to challenge the Aeberli Decision on jurisdictional grounds by way of Part 8 proceedings but it has not yet issued any such proceedings.
b. The Ribbands (Triathlon) Decision of 30 March 2023 which decided (amongst other things) that ISG was entitled to the sum of £105,011.53 payable by FK to ISG by 12 April 2023. FK accepts that this decision is enforceable but has not yet paid the sum due.
c. The Jensen Decision of 5 April 2023 which decided that FK was entitled to a payment of £801,819.13 from ISG by 12 April 2023. ISG has not yet made any payment pursuant to this decision. No jurisdictional challenges were made to the adjudicator and none has been intimated subsequently.
Arguments
ISG resisted enforcement of the Wood decision on the basis that it had a valid set-off arising from a combination of another set of decisions made by adjudication
The sub-contractor argued that there was no real prospect of successfully resisting enforcement: the Wood decision was valid and binding and there was no other compelling reason for the matter to be disposed of at trial. The contractor argued that the “smash and grab” nature of the adjudication had a duplicative effect of the other adjudication Decisions.
Issues
After setting out the well-known principles applicable to adjudication enforcement, Joanna Smith J summarised the various authorities addressing the ability to set off against an adjudicator’s decision. She noted that whilst the general position is that where parties to a construction contract engage in successive adjudications, at the end of each adjudication, absent special circumstances, the losing party must comply with the adjudicator’s decision and can-not withhold payment on the ground of his anticipated recovery in a future adjudication, there are limited exceptions.
The relevant exception in this case was where a party sought to set off one adjudicator’s decision against another. The parties had been busy in various disputes and there were six other adjudication decisions before the Court – three relating to the same project as the Wood Decision (known as Barberry) and three related to a different project under a different contract (known as Triathlon). As to those decisions relating to project Barberry, ISG’s case focused on one decision, namely that of Mr Matthew Molloy of 14 April 2023 (the “Molloy Decision”) reached only days before the hearing and against which FK had maintained jurisdictional challenges. The Molloy Decision concerned a request by ISG for a gross valuation of the works as at 28 February 2023.
Joanna Smith J set out the steps set out by Akenhead J at paragraph [40] of HS Works Ltd v Enterprise Managed Services Ltd [2009] EWHC 729 (TCC). Applying the guidance from HS Works to the Molloy Decision, the court decided that ISG was not permitted to resist enforcement of the Wood Decision:
a) First, ISG failed at the first hurdle because the court was not able – on enforcement proceedings relating to the Wood Decision – to determine the validity of the Molloy Decision.
b) Secondly, the court considered that it was not able to give effect to a decision which was not yet enforceable.
c) Thirdly, ISG had not issued separate proceedings in relation to the Molloy Decision.
d) Fourthly, the Court rejected the suggestion that it had any discretion to permit a set off or withholding. The facts of the case were not within the territory of the exception envisaged in HS Works.
Held
The application made by FK was accepted in part. An application for summary judgment might successfully be resisted where there were two valid and enforceable adjudication decisions involving the same parties, and the effect of those decisions was to make sums payable by each party to the other.
It was decided that the court had no discretion to permit a set-off. Even if it did, it would not exercise it in favour of the contractor, there being nothing in the Wood decision that predicated the potential for a set-off. To do so would risk undermining the purpose of the scheme of adjudication, which aimed to provide for the expeditious treatment of disputes on an interim basis to secure cash flow pending final resolution of any issues between the parties.
