Mascareignes Sterling Co Ltd v Chang Cheng Esquares Co Ltd (Mauritius) [2016] UKPC 21

Background

Lord Hodge has given the leading judgment of the Privy Council dismissing an employer’s appeal against an arbitral award relating to the valuation of the final account under a building contract. The court upheld, in favour of the contractor, the manner in which variations had been valued under a lump sum JCT contract.

The building contract was based on the JCT Standard Form of Contract with Contractor's Designed Portion Supplement (1980 edition). It was a lump sum contract that was administered by the employer's (MSC) quantity surveyor (AJP). MSC completely redesigned the building during the construction period, which resulted in a large number of variations to the contractor’s (CCE) works. On the facts, it was clear that:

  • The parties had agreed priced bills of quantities and also rates for works not defined in the bills.
  • When preparing interim valuations, AJP measured the works carried out by CCE using the rates in the bills.
  • For the final account, AJP sought to operate clause 30.6 of the contract, which set out the rules for adjusting the contract price. However, as the scope of work had substantially changed since the contract was dated, AJP measured the items of work actually carried out by CCE.

Decision

The Privy Council concluded that under clause 13.5 of the contract (equivalent to clause 5.6 of the JCT Standard Building Contract, 2011 Edition) additional or substituted work carried out within a lump sum contract may be measured and valued by using the rates/prices set out in the contract bills if three conditions are met:

  • the work must be of a similar character to the work set out in the bills
  • the work must be executed in similar conditions to those of the work in the bills
  • the work must not significantly change the quantity of the work set out in the bills

If either or both of the second and third conditions are not fulfilled, the valuation can be based on the rates and prices in the bills, but a fair allowance must be made for differences in conditions or quantity. If the work is not of a similar character to the work set out in the bills, the valuer must use fair rates and prices.

The Privy Council held that although the arbitrator was wrong to construe the contract as a measure and value contract, rather than a lump sum contract, this had no bearing on his decision as to the amount of the final account and he did not make an error of law in accepting AJP's approach to valuing CCE's work on a measurement basis.

Comment

While this case is fact specific, the case confirms the courts' willingness to look at a breakdown of the contract price when valuing variations. In particular, as in this case, when a lump sum contract price is made up of elements set out in a fully priced bills of quantities, which form part of the contract and also from which the price of additional or substituted work can be identified.

Volkerlaser Ltd v Nottingham City Council [2016] EWHC 1501 (TCC)

Background

In Volkerlaser Ltd v Nottingham City Council [2016] EWHC 1501 (TCC), Edwards-Stuart J refused to grant summary judgment on the contractor's claim for sums due under an interim application.

When an employer fails to make payment or serve a pay less notice against a contractor's interim application for payment, it is usual for the contractor to refer that dispute to adjudication. However, it is uncommon for the contractor to start court proceedings and apply for summary judgment on the sums said to be due to it on an interim basis. That is precisely what the contractor, Volkerlaser Ltd (Volkerlaser), did in this case.

Facts

Volkerlaser were engaged by Nottingham City Council (Nottingham CC) to supply and install external solid wall insulation and loft insulation at various council estates in Nottingham under an amended contract which was based on the Association of Consultant Architects' (ACA) Standard Form of Contract for Term Partnering 2005 (“the Contract”) (a term partnering contract designed to be used on multiple projects for a set time period).

Volkerlaser submitted that it was entitled to summary judgment for the sum £1,968,460.46. An application for payment of this amount was made by Volkerlaser, whereby no subsequent payment or pay less notice was submitted by Nottingham CC.

Although this case was decided on its facts, the court had to consider the wording of the parties' Contract. In particular, the court looked at the Contract's bespoke payment terms (in clause 7), the provisions related to variations (or changes) (in clauses 8.3 and 8.4) and whether, when read together, clauses 7.3 and 8.3 complied with the Housing Grants, Construction and Regeneration Act 1996 (Construction Act 1996).

Decision

The court held that the summary judgment application failed because the contractor had not made a valid application (it was not made at the end of a month during which the contractor either commenced or completed a "Task" – as defined under the Contract). The courts held that the contractor had also failed to issue a valid VAT invoice, as required to trigger the final date for payment. Interestingly, the court noted that the wording "at the end of each calendar month" in relation to when interim applications should be made did not mean on the last working day of each month, but "within three or four working days".

Comment

Interestingly, the judgment doesn’t give us any clues as to why Volkerlaser took the summary judgment route. In light of this and the decision reached, it is questionable whether it is a sound tactical move to claim summary judgment on an unpaid interim application, without first considering other means of resolution such as adjudication. Not only did the courts, in this case, refuse the application and give Nottingham CC permission to defend the contractor's claim, the approach may result in a claimant needing to issue legal proceedings for not only summary judgment (which may likely fail given the higher burden of proof), but also for any subsequent legal proceedings if its initial summary judgment claim has failed.

Lulu Construction Ltd v Mulalley & Co Ltd [2016] EWHC 1852 (TCC)

Background

In Lulu Construction Ltd v Mulalley & Co Ltd [2016] EWHC 1852 (TCC), Mr Jonathan Acton-Davis QC enforced an adjudicator's decision finding that he had jurisdiction to award costs claimed under the Late Payment of Commercial Debts (Interest) Act 1998 (“the Late Payment Act 1998”).

Facts

The claimant (Lulu) applied for summary judgment against the defendant (Mulalley) in relation to a contractual claim for payment of an outstanding balance of an adjudicator’s award. The dispute had in fact been referred by Mulalley, as the paying party, in order to determine the value of Lulu’s claim under a subcontract. Mulalley agreed to pay a portion of the sums due under the adjudicator’s award, although disputed that it was due to pay the outstanding balance of “debt recovery costs” of £47,666, claimed under the Late Payment Act 1998.

Mullaley claimed that the adjudicator had no jurisdiction, as the claim in respect of debt recovery costs was not specifically referred to in the initial notice of adjudication. Rather, it was mentioned for the first time in the rejoinder.

Decision

Here the "debt recovery costs" were held to be connected with and ancillary to the referred dispute, and were considered to be a part of it. It was held that it did not matter that the costs were not referred to in the notice of adjudication, but were included for the first time in a rejoinder. This was because, unusually, the adjudication had been initially referred by Mulalley, the paying party.

Comment

Many unpaid construction parties have been keenly awaiting a court decision on whether they can claim their adjudication costs under the Late Payment Act 1998. Under The Housing Grants, Construction and Regeneration Act 1996 (“the Construction Act 1996”), party costs cannot be recovered in the absence of an express agreement (which there will rarely be in practice). The Late Payment Act 1998, however, allows for simple interest and the recovery of reasonable costs in connection with the recovery of a debt to be paid. It is arguable that being able to claim such costs, effectively ‘through the back door’, may be contrary to Parliament's intentions under the Construction Act 1996. However, that is unlikely to stop unpaid construction parties from trying to do so from now on.