Case notes... from Ann Wright

Direct approach

CHG was developing a hotel in Bournemouth during 2003/04. Sydenhams undertook some of the construction work, including the timber frame, the windows and the internal joinery.

The main contractor, Rybarn Ltd, went into administration in November 2004, before Sydenhams had been fully paid and as a result, Sydenhams was owed nearly £137,000. Normally, it would have to write off the loss, but as it had been in direct negotiations and had signed agreements with CHG, it believed it was entitled to payment. CHG countered that Sydenhams was only a sub-contractor and as Rybarn had already been paid, CHG did not see it had a responsibility to pay again.

In early 2002 CHG’s Mr Pink had approached Sydenham’s Mr Orchard to quote for the design, supply and erection of the timber frame. Although Mr Pink said it was ‘common knowledge’ that Sydenhams would eventually be a sub-contractor, he signed Sydenhams’ initial order for manufacture (OFM) in December 2002. In October 2003, Mr Pink signed a ‘final revision’ and another OFM.

CHG and Rybarn did not sign the main contract until January 12, 2004. Although it was agreed that some of Sydenhams payments should have been made through Rybarn, its first payment was late and it had then issued a post-dated cheque.

Sydenhams left site until the matter was resolved and in April 2004 it was agreed that CHG would pay Sydenhams direct.

Therefore, the court held Sydenhams was entitled to £128,386 plus interest, less £35,000 for CHG’s cross-claim for defects.

Moral: Specialist contractors do not always lose.

Case: Sydenhams (Timber Engineering) Ltd. v CHG Holdings Ltd. (TCC May 3, 2007)

Eextra time at wembley

Honeywell was employed at Wembley Stadium to design, supply and install nine of the electronic services for the new venue, including the security CCTV system and the building management control system.

The sub-contract value was £13.4m and Honeywell had 60 weeks to complete from April 5, 2004. Under clause 11, Honeywell had the right to an extension of time in certain circumstances, but only on the condition that it had sent all necessary notices and supporting documents to Multiplex as soon as it was able.

The structural work was in delay even when Honeywell’s sub-contract was agreed and there were further delays. After issuing several sub-contract programmes to Honeywell under clause 4.2, Multiplex defaulted to issuing only three-monthly and three-weekly look-ahead programmes in the later stages of construction.

After a number of disputes, Multiplex and Wembley National Football Stadium negotiated a confidential settlement agreement in October 2006. Honeywell contended that the comprehensive programmes entitled it to prolongation costs between October 1, 2005 and March 31, 2006 and won an adjudication on this basis.

In a subsequent adjudication, the adjudicator held that time was ‘at large’: there was no specific completion date because there was no contractual mechanism to extend the date for completion for programmes issued under clause 4.2. Multiplex sought a court declaration that time was not ‘at large’.

Honeywell’s main alternative argument centred around it being unable to comply with the notice requirement as Multiplex had not issued all the programmes properly. Therefore, any mechanism for extending the time had broken down.

In addition, Honeywell thought that as Multiplex had prevented it from working to the comprehensive programmes, Multiplex was barred from claiming it had had to complete by any specific date and time was ‘at large’.

The judge disagreed with Honeywell, holding that the clause 11 mechanism was intact and Honeywell was only obliged to support its notices as far as it was able, and the cases on which it relied did not apply in English law.

Moral: The clock still ticks even in extension time.

Case: Multiplex Constructions (UK) Ltd v Honeywell Control Systems Ltd. (TCC. March 6, 2007)

The big freeze

Although the Berners Hotel is in Berners Street, London W1, its owner and operator, Berners (BVI) Ltd, is based in the British Virgin Islands.

Berners’ only asset is the hotel, but the Bank of Scotland has a charge of £37.7m on that.

JJW, the second respondent, is a Guernsey-based company and, apart from holding shares in various UK companies, has no other UK assets.

On May 16, 2006 Berners issued a letter of intent for Chorus to refurbish the hotel for £1.75m plus VAT. The first four valuations, which were certified in the total sum of £484,428.50, were paid on time. However, Berners did not pay valuations from May to July totalling more than £1m and Chorus went to adjudication in August 2006.

In September the adjudicator decided Berners should pay Chorus a sum plus VAT and interest. Berners was to pay Chorus by bank transfer by October 18. The bank transfer was not made. Berners blamed administrative problems and instead issued a cheque in Paris, France, on October 19. This was couriered to Chorus on October 24. But when Chorus presented the cheque, Berners’ bank returned it unpaid.

Chorus immediately sought an injunction freezing Berners’ assets, which was granted on October 26, 2006.

This court case concerned an application to extend that injunction. The court found that as Chorus had a favourable adjudication decision followed by a written agreement and a returned cheque, Chorus had a good arguable case that it was entitled to the money.

Furthermore, as Berners’ only asset was the excess in value of a partly refurbished hotel over the £37.7m bank charge, it was clearly having funding difficulties and its conduct was sufficient to infer an intention to avoid payment.

As a result the freezing injunction would continue. The only concession to Berners was a reduction from the £2m Chorus wanted to freeze to £1.4m.

Moral: Go for an injunction if you think assets may emigrate.

Case: Chorus v Berners (BVI) Ltd and JJW Ltd. (TCC November 2006)