Introduction

In the case of Victory House General Partner Limited v RGB P&C Limited [2008] EWHC 102 (TCC), the court was asked to consider a claim regarding the validity of an adjudicator’s decision.

Summary

  • When bringing any claim, the claimant must carefully consider the appropriate procedure for bringing the claim. The procedure in Part 8 of the Civil Procedure Rules is not appropriate for use where there are disputed matters of fact.
  • When varying a contract, the parties must carefully consider, and account for, all of the ramifications of the proposed changes.
  • If an employer disagrees with the amount of a valid application for payment under a building contract, they must issue a pay-less notice in accordance with the contract.

The Facts 

  • The claim concerned a building contract between Victory House General Partner Limited (“VH“) as employer and RGB P&C Limited (“RGB“) as contractor for the conversion of an office building into a hotel at Victory House, Leicester Square, London.
  • The project suffered delays and the parties eventually had a disagreement over RGB’s entitlement to payment. In order to facilitate the continuation of the development, the parties entered into a short memorandum of understanding (“MOU”).
  • At the date of the MOU, £8,183,875 had been paid to RGB against an initial contract sum of £6,670,000 and RGB was forecasting a final account under the building contract of approximately £9.8 million. RGB was seeking further funds to pay for materials and sub-contractors. VH were hesitant to make further payments until “the transformer is installed and operational so that meaningful progress can be made to completion”. This was stated explicitly in the MOU.
  • Under the MOU, the parties agreed a short term compromise as to fees. It was agreed that three instalments of £200,000 would be made; the first immediately and the further two on later dates when further milestones were met.
  • Subsequently, two of the three instalments were paid by VH and the transformer was also installed and operational (albeit at a later date than the MOU had envisaged). Later, RGB made an application under the payment mechanism under the building contract for a sum of approximately £680,000, which VH refused to pay on the basis that the building contract had been superseded by the MOU on the matter of payment.
  • RGB then referred the matter to an adjudicator, who determined that the building contract merely suspended the obligation on VH to make interim payments under the contract until such time as the transformer was installed and operational. Thus, with the transformer installed, the building contract’s payment mechanism was back in operation and RGB’s application was deemed valid.
  • As VH had failed to raise either a valid payment notice or a valid pay-less notice, the adjudicator determined that the circa £680,000 sum was payable to RGB in accordance with their valid application.
  • VH brought a claim under Part 8 of the Civil Procedure Rules seeking a declaration that the decision was invalid for breach of natural justice. The Deputy Judge would not consider the claim on the basis that Part 8 was not the correct procedure.
  • RGB brought a successful additional claim for summary judgement for payment of the outstanding valuation.

 The correct procedure for bringing claims

  • The Part 8 procedure utilised by VH is an alternative procedure for bringing claims to the more common procedure in Part 7. Part 8 has the benefit of being a more streamlined procedure but this is because it is intended for use in claims that do not have a substantial dispute of fact. As such, it tends to be deployed in relation to less adversarial disputes.
  • The view of the Deputy Judge was that this was the wrong choice for this particular claim. The parties were disputing the facts of the matter, particularly concerning the nature of the MOU, and this rendered Part 8 unsuitable. The result was that the Deputy Judge would not consider the claim and invited the parties to make submissions on directions under the Part 7 procedure in due course. This in turn, delayed the claim by VH who, in the meantime were required to pay the contested sum as determined under the summary judgement.
  • In this case, where the majority of the facts were common ground, there was perhaps a temptation to bring the claim under the simpler, streamlined procedure under Part 8 but this was to disregard that key facts were disputed. The result was to delay VH’s claim and simultaneously be subject to a summary judgement enforcing the adjudicator’s original decision. As such, claimants in similar circumstances should carefully consider and choose the appropriate procedure for bringing their claim.

Taking care when varying a contract 

  • The dispute between VH and RGB hung on their disputed interpretation of the MOU and whether it was intended to supersede or entirely replace the payment provisions in the building contract.
  • By entering into the MOU, the parties were acknowledging the issue around payment and sought a practical, short term solution to progress the works; an approach many prudent developers would consider. However, the arrangements appear to have unravelled where the parties failed to fully flesh out their long term plans.
  • This case can be seen as a reminder that parties to a contract should carefully consider all the ramifications of the changes that they are implementing and to document those accordingly.

Pay-less notices

Finally, this case serves as another reminder that having received a valid application for payment in accordance with a building contract, if the employer intends to pay less they must submit a valid pay-less notice in accordance with the terms. Otherwise, the application will be enforceable.