It often feels like it is feast or famine when it comes to cases to write about on this blog. We appear to be in a stage of famine at the moment, and I’m not exactly sure why. Certainly it isn’t because parties have stopped adjudicating (because, if your recent experience is anything like mine, you will know that they haven’t) or because paying parties have started paying up (because I’m sure that leopard hasn’t changed its spots either). The current drought therefore leads me to cover a case that is very short (only 18 paragraphs) and dates from February: Structure Consulting Ltd v Maroush Food Production Ltd.
Structure Consulting Ltd v Maroush Food Production Ltd
As the judgment explains, Structure Consulting Ltd (SCL) is a building contractor and Maroush Food Production Ltd 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 in Park Royal, London. 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. Phase two involved completion of the new building including the superstructure elements, finishes, fitting out, safety installation of specialist catering equipment, services installation and external works.
Maroush engaged SCL to carry out phase two and the parties signed a letter of intent on 24 December 2014 that 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.”
It also went on to state:
“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.”
From about January 2015 until its employment was determined in October 2016, SCL carried out the phase two works and interim applications for payment were made, based on an agreed monthly payment schedule, which Maroush assessed and paid for.
In August 2016, SCL issued interim application for payment number 39 (IA 39) for just under £870,000. Maroush did not issue a payment notice but, on 10 August 2016, it issued a pay less notice indicating a sum due of just over £61,000 (which it subsequently paid).
The balance of IA 39 remained unpaid and so SCL referred the dispute to adjudication. It argued that Maroush had failed to serve a valid payment notice or pay less notice. The adjudicator agreed that the pay less notice was invalid and ordered Maroush to pay some £730,000 to SCL.
- Did the parties’ contract incorporate the JCT Design and Build, 2011 Edition (DB 2011) or was it based on the letter of intent?
- Did Maroush issue a valid pay less notice against IA 39?
At the hearing before O’Farrell J
Interestingly (and somewhat unusually) Maroush did not reserve its position on jurisdiction. Given that there were no alleged breaches of the rules of natural justice, it meant there was no substantive ground for Maroush to challenge the adjudicator’s decision. Instead, it relied on its Part 8 application and sought to have the enforcement proceedings stayed, pending the outcome of that application. Clearly SCL resisted this, arguing that the Part 8 process was unsuitable, given that there was a substantial dispute of fact:
- SCL’s position was that by about February 2015, the parties had agreed all essential terms including the conditions of the JCT DB 2011. Alternatively, it contended that the contract was concluded or the contract sum was revised to just over £7 million by November 2015.
- In contrast, Maroush argued that the parties did not reach agreement on all the essential terms. In particular, they did not agree the employer’s requirements, the contractor’s proposals or the contract sum analysis. Therefore, work was carried out on the basis of the letter of intent. The parties’ agreement did not incorporate the JCT DB 2011.
O’Farrell J considered that the contract and pay less issues could be dealt with in the Part 8 proceedings as both would turn upon the construction of documents. She suggested adopting a “hybrid form of procedure” whereby there would be “provision made for the parties to be able to call the witnesses and challenge them through cross-examination”, but not “lengthy pleadings or disclosure”. Directions were given, leading to a trial in March. In doing so, she relied on judgments such as Walter Lilly & Co Ltd v DMW Developments Ltd and Geoffrey Osborne Ltd v Atkins Rail Ltd.
O’Farrell J was not prepared to postpone enforcement of the adjudicator’s decision pending the outcome of that Part 8 hearing. However, she was prepared to give Maroush more time than normal to pay (the first £300,000 was due within 14 days and the balance within 28 days).
What struck me about this judgment?
Although only short in paragraph length, this is an interesting judgment because O’Farrell J enforced the adjudicator’s decision without dealing with the Part 8 claim. In doing so, she seems to have followed a similar line to that taken by Coulson J in Hutton Construction Ltd v Wilson Properties (London) Ltd, albeit this judgment was handed down some weeks before Hutton.
In my view, this is further evidence of the TCC’s intention to prevent Part 8 applications from defeating those adjudicators’ decisions that have been made within jurisdiction and without breaching the rules of natural justice. O’Farrell J may have been able to deal with the Part 8 claim concerning the pay less notice at the summary judgment hearing, but evidently decided not to. She also refused to grant a stay pending the hearing of the Part 8 proceedings, which further demonstrates the TCC’s support for adjudication.
One final thought. As O’Farrell J gave Maroush more time to pay part of the judgment sum, I wonder whether Maroush attempted to rely on Galliford Try Building Ltd v Estura Ltd and the “manifest injustice” point?