STRUCTURE CONSULTING LTD v MAROUSH FOOD PRODUCTION LTD
STRUCTURE CONSULTING LTD v MAROUSH FOOD PRODUCTION LTD
The imminent hearing of the employer’s Part 8 proceedings seeking to overturn the adjudicator’s decision should not prevent that decision from being enforced summarily prior to that hearing without any stay of execution
The employer did not issue a payment notice in respect of one of the interim applications for payment but did issue a purported pay less notice indicating a (very) reduced sum due, which it subsequently paid. The JCT conditions (that on the contractor's case were incorporated into the contract) provided for disputes to be referred to adjudication in accordance with the statutory scheme. The contractor commenced adjudication proceedings in respect of the unpaid balance of its application in which it claimed that it was entitled to payment in full by reason of the employer's failure to serve a valid payment or pay less notice. The adjudicator decided that the purported pay less notice was invalid and awarded the unpaid balance. The contractor issued Part 24 proceedings seeking to enforce the adjudicator’s decision summarily. The employer then issued Part 8 proceedings seeking to overturn the decision by declaratory relief as to whether (i) The contract was a simple letter of intent agreement or incorporated the JCT conditions and (ii) It issued a valid pay less notice. The contractor’s application for summary judgment was listed to be heard on the same day as the hearing for directions in the employer’s Part 8 proceedings. It was common ground that there was therefore no substantive ground to challenge the decision on enforcement.
O’Farrell J held that (i) The adjudicator’s decision should be enforced summarily (ii) Directions should be made for the hearing of the employer’s Part 8 proceedings within two months and (ii) There should be no stay of execution of the judgment sum pending the hearing of the employer’s Part 8 proceedings.
The judge stated in relation to the contract formation issue that (i) The only issue was whether the parties had reached agreement on the essential terms necessary for a contract incorporating the JCT conditions (the adjudicator having held that they had reached such agreement) and (ii) No specific issue had been identified on which the court would be required to determine what was said or agreed orally. The issue as to whether the employer had given a valid pay less notice turned on the documents relied on by the employer. There was no good reason for not enforcing the decision taking into account that the contract formation issue was not raised by the employer in the adjudication and only arose following the employer’s issue of its Part 8 proceedings. There were no special circumstances to justify either a stay of execution of the judgment pending determination of the Part 8 matters.
THE FULL TEXT OF THE JUDGMENT OF O’FARRELL J
- The claimant (SCL) in this matter is a building contractor and the defendant (Maroush) is a Lebanese food production company with a chain of restaurants in London. In about 2011 Maroush commenced a project to design and construct a food production and catering and teaching unit at McNicol Drive, Park Royal, London NW10 7AW. Phase one involved the demolition of an old ambulance station, excavation of a full basement and the fabrication of a reinforced concrete frame for the new building. From about December 2014 SCL was engaged by Maroush to carry out phase two of the project comprising completion of the new building including the superstructure elements, finishes, fitting out, safety installation of specialist catering equipment, services installation and external works.
- On 24 December 2014 SCL and Maroush 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 (JTC 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." (Quote unchecked)
- It also went on to state:
"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." ( Quote unchecked )
- SCL's case is that by about February 2015 the parties had agreed all essential terms including the conditions of the JCT Design and Build contract 2011 edition as further amended by the parties. Alternatively SCL contends that the contract was concluded or the contract sum was revised to just over £7 million by November 2015. Maroush's case is that the parties did not reach agreement on all the essential terms. In particular the parties did not agree the employer's requirements, the contractor's proposals or the contract sum analysis. Therefore on Maroush's case the works were carried out by SCL on the basis of the letter of intent agreement that did not incorporate the JCT Design and Build conditions. It is common ground that from about January 2015 until its employment was determined in October 2016, SCL carried out the phase 2 works and interim applications for payments were made, based on monthly valuations in accordance with an agreed payment mechanism, which were assessed and paid for by Maroush.
- On 1 August 2016 SCL issued an interim application for payment (application no 39) in the sum of £868,982.38. Maroush 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 the application of £61,023.77 which it subsequently paid. Clause 9.2 and Article 7 of the JCT conditions (that on SCL's case were incorporated into the contract) provide for disputes between the parties to be referred to adjudication in accordance with the statutory scheme.
- On 6 September 2016 SCL commenced adjudication proceedings in respect of the unpaid balance of its application. Mr Seimat Sudaka was appointed as the adjudicator by the RICS. In the adjudication SCL claimed that it was entitled to payment in full in respect of the sums claimed in application no 39 by reason of Maroush's failure to serve a valid payment notice or pay less notice as required by the contract. In the adjudication Maroush's case was that it had served a valid pay less notice. In his decision dated 13 October 2016 the adjudicator decided that the pay less notice issued by Maroush did not comply with contractual or statutory requirements and therefore was invalid. He directed Maroush to pay SCL the sum of £730,280.56 excluding VAT and to pay the adjudicator's fees in the sum of £11,570.
- There are two sets of proceedings before the court. Firstly there is the claim form issued on 29 November 2016, by which SCL seeks summary judgment pursuant to Part 24 of the Civil Procedure Rules to enforce the adjudication decision dated 13 October 2016 in the sum of £730,280.56 excluding VAT plus interest and costs. The hearing of that application has been listed for today. Secondly, by way of Part 8 proceedings issued on 6 January 2017, Maroush seeks declaratory relief in respect of the following two broad issues, firstly whether the contract between the parties was a simple letter of intent agreement or incorporated the JCT Design and Build 2011 conditions of contract, and secondly whether Maroush issued a valid pay less notice in respect of interim application no 39. In the Part 8 proceedings an order is sought effectively reversing the decision of the adjudicator and ordering that SCL should repay the sums ordered by the adjudicator to be paid by Maroush to SCL. That matter has been listed for directions but not a full hearing today.
- It is common ground that Maroush did not reserve its position on jurisdiction in the adjudication. Therefore is no substantive ground on which the adjudication decision can be challenged on enforcement. However, the issues of contract formation and the validity of the pay less notice can be determined by this court on a final basis under the Part 8 application. Maroush invites the court to stay the enforcement application or to stay enforcement of any judgment in relation to the Part 7 application pending determination of the issues raised in its Part 8 application, which it submits could be resolved by the court following a speedy timetable for service of any further evidence and a short hearing. Alternatively it asks for some additional time to pay any judgment sum. SCL invites the court to enforce the adjudication decision by way of summary judgment without any stay. SCL's position is that the issue of contract formation and to a lesser extent the pay less notice should be determined through the Part 7 proceedings with full disclosure and pleadings, witness statements and the ability to cross-examine witnesses.
- The court has power to use the Part 8 proceedings to make a substantive determination of any dispute arising out of an adjudicator's decision. Authority for that can be found in the case of Walter Lilly & Co Ltd v DMW Developments Ltd  EWHC 3139 (TCC) per Coulson J at paragraphs 6 and 7, and also in the case of Geoffrey Osborne Ltd v Atkins Rail Ltd  EWHC 2425 (TCC) per Edwards-Stuart J at paragraphs 10 to 18. Where there are limited factual issues the court may adopt a hybrid procedure involving an element of fact-finding or determine some but not all of the issues that have arisen by way of a dispute, and the authority for that is Forest Heath District Council v ISG Jackson Ltd  EWHC 322 (TCC) at paragraph 30.
- SCL submits that in this case the matter is not suitable for determination under Part 8 procedure because there are substantial disputes of fact, in particular in relation to the issue of contract formation. Ms White submits that the court will be required to consider the conduct of the parties over a substantial period of time and that, although she 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 and interpretation of those documents is in dispute. She also makes the further point that the pay less notice issue may be affected by the question of the relevant provisions of contract or the statutory scheme that may apply to the timing of such a notice and therefore affect its validity.
- As against that, Mr Stokell makes the point that SCL's case is set out fairly and squarely in the witness statement of Mr Clinton and in the Particulars of Claim in the Part 7 proceedings. SCL's case is that although there is no formal written contract, having agreed all essential terms of the contract by February 2015, the parties thereby concluded a binding contract which was governed by the terms and conditions of the JTT DB 2011 (as amended). 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.
- Maroush's case is that there was simply the letter of intent agreement which was signed by both parties and no subsequent binding agreement. Mr Stokell's arguments are that this is a relatively short and straightforward and simple matter that the court can and should deal with by way of Part 8 procedure. The issue on the pay less notice is one that can be dealt with by way of construction of the relevant documents.
- The issues between the parties are sufficiently defined so as to enable the court to determine that this matter can be dealt with by way of a Part 8 procedure but with some room for there to be a fact finding in relation to specific disputes that might arise on the evidence, i.e. the hybrid form of procedure. It is common ground that there was an agreement between the parties based on the letter of intent. It is 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. No one before the court today has identified any specific issue on which the court would be required to determine what was said or agreed orally. Although I accept that internal discussions may well be of some peripheral relevance to the issue to be determined, inevitably in these cases it primarily will turn upon a construction of the documents. Therefore it can be determined without lengthy pleadings or disclosure. The pay less notice issue is one that turns on the construction of the relevant email and attachments that are relied upon by Maroush, against the relevant findings on the contract. So it seems to me that this is one of those cases where there should be a Part 8 procedure, i.e. there is no need for pleadings and it can be dealt with speedily, but there should be provision made for the parties to be able to call the witnesses and challenge them through cross-examination.
14 With that in mind I propose to make the following directions. I will hear from the parties subsequently in relation to timetable. I propose to order that SCL should serve any evidence in response to the Part 8 application by 15 February of this year plus at the same time any request for specific documents. Maroush shall serve any evidence in reply plus the documents that have been requested by 22 February 2017. There will then be a hearing of the matter listed for 20 March 2017 with an estimate of two days. The hearing bundle should be lodged with the court by 13 March, and any skeleton arguments should be served by 15 March. I will come back to the parties on the precise dates.
15 Having dealt with that, I now come on to deal with the issue of whether there should be enforcement of the adjudication decision today or whether it should be stayed pending resolution of the Part 8 proceedings. Maroush's case is that there should be a stay of any judgment against it on the grounds that the Part 8 claim should be heard with the enforcement application; alternatively, given that the Part 8 claim can be heard very shortly and the sum in dispute is substantial, that it would be just for the court to stay any enforcement until that matter has been determined.
- CPR 83.7 empowers the court to grant a stay of execution of a judgment for payment of money if it is satisfied that there are special circumstances which render it inexpedient to enforce the judgment or the applicant is unable for any reason to pay the money. In this case there is no issue as to either party's ability to either pay or repay the judgment sum. Although the court has a discretion to order a general stay pending determination of the Part 8 issue, the general rule is that the court should take a robust approach to the enforcement of adjudication decisions, as set out by Chadwick LJ in Carillion Construction Limited v Devonport Royal Dockyard Ltd  EWCA Civ 1358, in particular at paragraphs 85 to 87.
- In this particular case there is no good reason for SCL to be kept out of the fruits of the adjudication. I take into account that this is not a case where the issue of contract formation was raised as a matter in the adjudication. It is something that has arisen very recently following the issue of the Part 8 proceedings at the beginning of January. 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. Therefore there will be judgment on the enforcement proceedings in the sum of £730,280.56 less the sum that appears to have been paid of £61,023.77, leaving a balance of £669,256.79 to which will apply judgment rate interest.
- There is also an application on the part of Maroush for additional time to pay. The usual time for payment of any judgment sum would be 14 days, but the court has received a witness statement from Mr Nameh Khalil, who is the financial controller of Maroush Food Production Ltd, asking for 28 days rather than 14 days to pay so as to avoid disruption to the business's cash flow. I take on board the points made by Ms White that this is a matter where the adjudication decision was dated at October 2016 and therefore there has already been a substantial passage of time. However, I do consider that the additional time that is being sought is not so unreasonable and that there is some evidence that Maroush would be placed in financial difficulty if called upon to pay the sum within 14 days whereas it will be able to pay it within 28 days. What I am proposing to do is to order Maroush to pay the first £300,000 within 14 days and then to pay the balance within 28 days. It seems to me that that ensures that the adjudication decision is enforced speedily without causing undue prejudice and unfairness to Maroush.