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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> C Spencer Ltd v M W High Tech Projects UK Limited [2020] EWCA Civ 331 (06 March 2020) URL: https://www.bailii.org/ew/cases/EWCA/Civ/2020/331.html Cite as: [2020] 1 CLC 401, [2020] WLR 3426, [2020] WLR(D) 139, [2020] BLR 364, [2020] EWCA Civ 331, 189 Con LR 1, [2020] 1 WLR 3426 |
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ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
TECHNOLOGY AND CONSTRUCTION COURT (QBD)
MRS JUSTICE O'FARRELL DBE
Strand, London, WC2A 2LL |
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B e f o r e :
LORD JUSTICE COULSON
and
LORD JUSTICE BAKER
____________________
C SPENCER LIMITED |
Appellant |
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- and - |
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M W HIGH TECH PROJECTS UK LIMITED |
Respondent |
____________________
Simon Hargreaves QC and Tom Owen (instructed by Clyde & Co LLP) for the Respondent
Hearing date: 22nd January 2020
____________________
Crown Copyright ©
LORD JUSTICE COULSON:
1. INTRODUCTION
2. THE FACTUAL BACKGROUND
"25. Thus, the contractual regime for interim payments under the Subcontract is as follows. CSL is entitled to make an application for an interim or instalment payment on a monthly basis upon completion of each milestone. Each application submitted by CSL must set out CSL's assessment of the amount due in respect of completed milestones and any other amounts to which CSL considers itself to be entitled, together with the basis of calculation of the sum claimed and supporting documentation, less sums previously certified. Each instalment payment becomes due sixteen days after the date of CSL's application ("the Payment Due Date"). The contract manager issues a certificate sixteen days after the application, setting out his response to the application, including the basis on which the certified sum has been calculated. MW is obliged to pay the sum due nineteen days after the Payment Due Date ("the Final Date for Payment"). If MW intends to pay less than the sum due, it must issue a pay less notice no later than one day before the Final Date for Payment. Subject to any pay less notice, the sum due is (a) the amount certified for payment in the contract manager's certificate or, in the absence of such certificate, (b) the amount assessed by CSL as due in its application."
I adopt that summary, which was not disputed by either party on appeal.
3. THE LAW
3.1 The Act
"(5) Where an agreement relates to construction operations and other matters, this Part applies to it only so far as it relates to construction operations."
"105 Meaning of "construction operations".
(1) In this Part "construction operations" means, subject as follows, operations of any of the following descriptions -
(a) construction, alteration, repair, maintenance, extension, demolition or dismantling of buildings, or structures forming, or to form, part of the land (whether permanent or not);
(b) construction, alteration, repair, maintenance, extension, demolition or dismantling of any works forming, or to form, part of the land, including (without prejudice to the foregoing) walls, roadworks, power-lines, [electronic communications apparatus], aircraft runways, docks and harbours, railways, inland waterways, pipe-lines, reservoirs, water-mains, wells, sewers, industrial plant and installations for purposes of land drainage, coast protection or defence;
(c) installation in any building or structure of fittings forming part of the land, including (without prejudice to the foregoing) systems of heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection, or security or communications systems;
(d) external or internal cleaning of buildings and structures, so far as carried out in the course of their construction, alteration, repair, extension or restoration;
(e) operations which form an integral part of, or are preparatory to, or are for rendering complete, such operations as are previously described in this subsection, including site clearance, earth-moving, excavation, tunnelling and boring, laying of foundations, erection, maintenance or dismantling of scaffolding, site restoration, landscaping and the provision of roadways and other access works;
(f) painting or decorating the internal or external surfaces of any building or structure.
(2) The following operations are not construction operations within the meaning of this Part -
(a) drilling for, or extraction of, oil or natural gas;
(b) extraction (whether by underground or surface working) of minerals; tunnelling or boring, or construction of underground works, for this purpose;
(c) assembly, installation or demolition of plant or machinery, or erection or demolition of steelwork for the purposes of supporting or providing access to plant or machinery, on a site where the primary activity is -
(i) nuclear processing, power generation, or water or effluent treatment, or(ii) the production, transmission, processing or bulk storage (other than warehousing) of chemicals, pharmaceuticals, oil, gas, steel or food and drink;
(d) manufacture or delivery to site of -
(i) building or engineering components or equipment,(ii) materials, plant or machinery, or(iii) components for systems of heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection, or for security or communications systems, except under a contract which also provides for their installation;
(e) The making, installation and repair of artistic works, being sculptures, murals and other works which are wholly artistic in nature.
(3) The Secretary of State may by order add to, amend or repeal any of the provisions of subsection (1) or (2) as to the operations and work to be treated as construction operations for the purposes of this Part.
(4) No such order shall be made unless a draft of it has been laid before and approved by a resolution of each House of Parliament."
"110A Payment notices: contractual requirements
(1) A construction contract shall, in relation to every payment provided for by the contract -
(a) require the payer or a specified person to give a notice complying with subsection (2) to the payee not later than five days after the payment due date, or
(b) require the payee to give a notice complying with subsection (3) to the payer or a specified person not later than five days after the payment due date.
(2) A notice complies with this subsection if it specifies -
(a) in a case where the notice is given by the payer -
(i) the sum that the payer considers to be or to have been due at the payment due date in respect of the payment, and(ii) the basis on which that sum is calculated;
(b) in a case where the notice is given by a specified person -
(i) the sum that the payer or the specified person considers to be or to have been due at the payment due date in respect of the payment, and
(ii) the basis on which that sum is calculated.
(3) A notice complies with this subsection if it specifies -
(a) the sum that the payee considers to be or to have been due at the payment due date in respect of the payment, and
(b) the basis on which that sum is calculated.
(4) For the purposes of this section, it is immaterial that the sum referred to in subsection (2)(a) or (b) or (3)(a) may be zero.
(5) If or to the extent that a contract does not comply with subsection (1), the relevant provisions of the Scheme for Construction Contracts apply.
(6) In this and the following sections, in relation to any payment provided for by a construction contract -
"payee" means the person to whom the payment is due;
"payer" means the person from whom the payment is due;
"payment due date" means the date provided for by the contract as the date on which the payment is due;
"specified person" means a person specified in or determined in accordance with the provisions of the contract."
"111 Requirement to pay notified sum.
(1) Subject as follows, where a payment is provided for by a construction contract, the payer must pay the notified sum (to the extent not already paid) on or before the final date for payment.
(2) For the purposes of this section, the "notified sum" in relation to any payment provided for by a construction contract means -
(a) in a case where a notice complying with section 110A(2) has been given pursuant to and in accordance with a requirement of the contract, the amount specified in that notice;
(b) in a case where a notice complying with section 110A(3) has been given pursuant to and in accordance with a requirement of the contract, the amount specified in that notice;
(c) in a case where a notice complying with section 110A(3) has been given pursuant to and in accordance with section 110B(2), the amount specified in that notice.
"(3) The payer or a specified person may in accordance with this section give to the payee a notice of the payer's intention to pay less than the notified sum."
(4) A notice under subsection (3) must specify -
(a) the sum that the payer considers to be due on the date the notice is served, and
(b) the basis on which that sum is calculated.
It is immaterial for the purposes of this subsection that the sum referred to in paragraph (a) or (b) may be zero.
(5) A notice under subsection (3) -
(a) must be given not later than the prescribed period before the final date for payment, and
(b) in a case referred to in subsection (2)(b) or (c), may not be given before the notice by reference to which the notified sum is determined.
(6) Where a notice is given under subsection (3), subsection (1) applies only in respect of the sum specified pursuant to subsection (4)(a).
(7) In subsection (5), "prescribed period" means -
(a) such period as the parties may agree, or
(b) in the absence of such agreement, the period provided by the Scheme for Construction Contracts.
(8) Subsection (9) applies where in respect of a payment -
(a) a notice complying with section 110A(2) has been given pursuant to and in accordance with a requirement of the contract (and no notice under subsection (3) is given), or
(b) a notice under subsection (3) is given in accordance with this section,
but on the matter being referred to adjudication the adjudicator decides that more than the sum specified in the notice should be paid.
(9) In a case where this subsection applies, the decision of the adjudicator referred to in subsection (8) shall be construed as requiring payment of the additional amount not later than -
(a) seven days from the date of the decision, or
(b) the date which apart from the notice would have been the final date for payment,
whichever is the later.
(10) Subsection (1) does not apply in relation to a payment provided for by a construction contract where -
(a) the contract provides that, if the payee becomes insolvent the payer need not pay any sum due in respect of the payment, and
(b) the payee has become insolvent after the prescribed period referred to in subsection (5)(a).
(11) Subsections (2) to (5) of section 113 apply for the purposes of subsection (10) of this section as they apply for the purposes of that section."
3.2 The Authorities
"64. It also follows that the right to refer disputes to adjudication under section 108, the entitlement to stage payments under section 109, the provisions as to dates of payment under section 110, the provisions as to notice of intention to withhold payment under section 111, the right to suspend performance for non payment under Section 112 and the prohibition of conditional payment provisions under section 113 will only apply to the Subcontract in this case, insofar as the Subcontract relates to construction operations…
91. It is clear that the legislation could have dealt with agreements which related both to construction operations and to "other maters" being operations which were not construction operations, in a number of ways. It would have been possible to treat them either as being agreements for construction operations or as not being agreements for construction operations. It would also have been possible for that question to depend on the relative values of the construction operations and of the "other matters". It is clear that Parliament decided that, just because an agreement related, in part, to operations which were not construction operations, this did not prevent the implied terms under section 114(4) of the Act from applying to the construction operations. It follows that a party can refer a dispute arising under the agreement, insofar as it relates to construction operations, to adjudication under a procedure complying with section 108 of the Act. In this case the contract contained no provision for adjudication and it is common ground that any adjudication would have to be carried out in accordance with the Scheme for Construction Contracts. ("the Scheme")."
"105. Where a party refers a dispute to an adjudicator who only has jurisdiction in respect of part of that dispute, I do not consider that there is anything, in principle, which prevents the adjudicator from making a decision as to that part of the dispute which is within his or her jurisdiction. In other words, the fact that part of the dispute relates to matters over which an adjudicator has no jurisdiction does not prevent the adjudicator from exercising the jurisdiction that he or she has.
106. In summary therefore I do not see that there is any objection in the way in which the Notice of Adjudication or the Notice of Referral were drafted which means that, to the extent that the dispute was within the Adjudicator's jurisdiction, she could give a valid decision…
116. It is clear that if the dispute referred to adjudication in this case had been limited to the part for which the Adjudicator had jurisdiction there would have been a valid adjudication and a valid decision. Where there is an overall dispute as to payment, delay or disruption arising in part from construction operations and in part from other excluded operations then the adjudication provisions cannot be applied to only part of that overall dispute. If that overall dispute can be divided so that part of the overall dispute relates only to construction operations then that part can be referred to adjudication."
"14. Since the scheme provisions are only applied to "construction operations" (as defined) and the consequences of obtaining an award which includes matters that are not construction operations is that the award cannot be enforced (see the decision of Ramsey J in Cleveland Bridge) it must be for the claimant who seeks to enforce an award to satisfy the court that all matters that are included in the award were within the jurisdiction of the adjudicator. In this case, it means that the court must be satisfied that all of the steelwork erection included by Severfield in its referral to the adjudicator was properly regarded as "construction operations"…
17. It seems to me that the question I have to answer is: Can the court be satisfied that the defendant has no reasonable prospect of showing that some of the steelwork for which Severfield has claimed falls within section 105(2)(c) leaving aside, of course, matters which could be regarded as de minimis. I can deal with this relatively shortly because, in the end, the relevant evidence is within a very narrow compass. I have already referred to paragraphs 7.4 to 7.6 of Mr De Silva's report at bundle 1, tab 9, 13. Mr Bogg replies to this at bundle 2, tab 11, page 12 at paragraphs 51 to 53 where he says:
"...there is considerable doubt, and it is not clear that, the steelwork to which Mr De Silva refers is actually part of Severfield's Works."…
26. I fully accept that there may be cases (of which this may be one) where that approach may mean that unmeritorious, technical defences may be made which will deprive people of the cash flow which is the life blood of the construction industry; however, that is not, I am afraid, a sufficient reason for me to bend what I think are the applicable principles. It follows that leave to defend will be given…
"21. Beyond the passage to which I have referred in the judgment of Ramsey J in Cleveland Bridge (paragraph 19 above), there is no other authority which addresses the question of what payment provisions apply to a hybrid contract. At one point, it was apparent that Mr Hickey was itching to submit that the provisions in the 1996 Act ought to be incorporated wholesale, even in a hybrid contract, to apply to all the works. But it seems to me that, first, that submission would have run counter to s.104(5), which expressly provides that the provisions in the Act apply "only so far as" they relate to construction operations; and secondly, ignores the fact that the parties have expressly agreed a different payment regime (paragraph 6 above). In my view, the court must uphold that different regime in respect of all claims to payment in respect of works which are excluded by the 1996 Act.
22. This means that, under a hybrid contract such as this, there are two very different payment regimes. That is what Ramsey J indicated in Cleveland Bridge. Although I find that uncommercial, unsatisfactory and a recipe for confusion, it is the inevitable result of Parliament's desire to exclude what would otherwise have been obvious construction operations from the ambit of the 1996 Act."
"33 That interpretation is reinforced by a consideration of the next statutory requirement, that in order to be payment notice, the notice has to set out the basis on which the sum claimed has been calculated. Because the notice of December 2014 and the accompanying spreadsheet did not begin to address the complexities of what were and were not construction operations, interim payment claim 15 was for everything. There was therefore no explanation in the payment notice of the calculation of £1.4 million as being the minimum due in respect of construction operations within the 1996 Act. So it was not a payment notice in respect of the claim for £1.4 million for construction operations, because the basis for the calculation of that figure, let alone the figure itself, is nowhere explained or set out in interim payment application 15.
34. Thirdly, I have concluded that, in so far as it is now said that the notice of December 2014 is a payment notice for £1.4 million in respect of construction operations, such a claim is not at all clear or unambiguous from a perusal of either the notice or the accompanying spreadsheet. How could it be, when the claimant was claiming for everything, regardless of whether or not the works were construction operations within the Act? Because this was a hybrid contract, it was imperative that the claimant spell out the fact that, regardless of the position in relation to excluded operations, this was a payment notice (with all that that entailed) in respect of the claim for construction operations."
4. THE JUDGMENT OF O'FARRELL J
"56. In my judgment where, as here, a hybrid contract contains a payment scheme that complies with, or mirrors, the relevant provisions of the Act for both construction and non-construction operations, a payment notice that does not separately state the sums due in respect of the construction operations is capable of constituting a valid notice for the purposes of sections 110A and 111 of the Act for the following reasons.
57. Firstly, the express words of sections 111 and 110A do not stipulate separate identification of the sums due in respect of construction operations. Section 111 simply identifies the "notified sum" by reference to a valid payment notice in section 110A. Section 110A(2) contains two requirements for a valid payment notice, namely, the sum considered due at the payment due date and the basis on which that sum is calculated. To comply with section 110A(2), the sum considered due must include, but is not expressly limited to, such sum in respect of construction operations. That may be satisfied by stating the overall sum considered due in response to the relevant application.
58.Secondly, although the statutory provisions apply only to the construction operations under a contract, as explained above, it is open to the parties to agree a payment scheme that sits alongside the statutory provisions, such that it complies with the statutory provisions in respect of construction operations and mirrors those provisions in respect of other operations. In such circumstances, it is possible for a payment notice to satisfy both the statutory requirements (in respect of construction operations) and the contractual requirements (in respect of non-construction operations). Such a payment notice could be valid under the contract and under the Act.
59. Thirdly, as a matter of principle, there is no difficulty in implementing section 111 where the same provisions apply to both construction and non-construction operations. I agree with CSL that, where separate payment machinery applied, as in the case of Severfield, it would be necessary to distinguish construction operations from non-construction operations in respect of each application notice and payment notice. Otherwise, it would not be possible to identify the notified sum which became payable pursuant to section 111. There might also be cases where one party sought to enforce section 111 in isolation from any contractual entitlement to a payment. In such cases, it would be necessary for the party seeking to rely on section 111 to identify the notified sum to which the section applied so that the default provision in section 111 could be implemented. However, such difficulty would not arise where the same provisions applied to both construction and non-construction operations, whether by way of statutory requirement or contractual obligation. As a matter of principle, validity of the payment notice in respect of both the construction and non-construction operations would be determined against the same parameters. In such cases, it would be possible to identify the sum payable by way of each interim payment, applying section 111 (in respect of the claims for construction operations) together with the provisions replicated in the Subcontract (in respect of the claims for non-construction operations).
60. Fourthly, the above approach does not undermine the purpose of the statutory payment provisions. It could be described as a pragmatic solution to the illogical and uncommercial impact of section 104(5) of the Act. If parties agree a payment scheme that complies with, or mirrors, the statutory scheme in respect of both construction and non-construction operations, the cash flow benefits conferred by the Act are simply extended to cover those additional works.
61. In this case it is necessary for CSL to distinguish between the sums claimed for construction operations and sums claimed for other works because it seeks to limit its claim to the notified sum payable pursuant to section 111 of the Act. However, it is open to MW to defend that claim by relying on a payment notice, setting out the basis on which no sum is due in respect of any construction or non-construction operations.
62. Of course, it is necessary to construe each payment notice against the relevant contractual and statutory background to determine its validity. A payment notice must be sufficiently clear and unambiguous in form, substance and intent so that the parties have proper notice of the sum assessed as due and the basis of calculation. It is possible that a paying party who declined to apportion or allocate the sums due or deducted as between construction and non-construction operations might struggle to rely on its notice for the purpose of the Act if a deficiency in the notice undermined the validity of its global assessment. No such issue has been identified in this case.
63.MW's payment notice 35 set out the sum which the contract manager considered due at the relevant date and the basis on which it was calculated. I am satisfied that on a proper construction of the Subcontract and the Act, MW issued a valid payment notice in response to CSL's application no.32.
64.The issue of a valid payment notice by MW is sufficient to defeat CSL's claim for monetary relief in these proceedings and dispose of the Part 8 claim..."
5. THE CENTRAL ISSUE ON THE APPEAL
6. ANALYSIS
6.1 The Starting Point: The Sub-Contract Terms
6.2 Compliance with the Act
6.3 'Reading In'
6.4 Extension of the Statutory Provisions to Non-Construction Operations
6.5 The Comparison with the Adjudication Provision
6.6 The Application of the Authorities
6.7 The Purpose of the Act
6.8 Practical Considerations
6.9 Other Matters
7. THE STATUS OF SECTION 111
8. CONCLUSION
LORD JUSTICE BAKER:
SENIOR PRESIDENT OF TRIBUNALS:
Note 1 During the debate on Report in the House of Lords on 22 April 1996, Hansard, 22 April 1996, column 907. [Back] Note 2 For the reasons set out in Section 7 below, it is unnecessary for the disposition of this appeal to decide whether s.111 provides a statutory right regardless of the terms of the sub-contract. [Back] Note 3 Although it is unnecessary to set them all out in detail, I agree with Mr Hargreaves’s lengthy list of concerns about the practical effect of the change which CSL wanted: the requirement to allocate would be time-consuming and expensive; it would apply to both main contracts and sub-contracts; it would not streamline the industry; and it might have a significantly deleterious effect on the presentation of contractual claims, including claims for delay. [Back]