Building contract – Certification mechanism – Settlement agreement – Defendant incurring liability for variation in works required – Whether issuing of certificate condition precedent to liability to pay for additional works – Whether settlement agreement between claimant and subcontractor providing defence to claim for payment – Preliminary issues determined
The claimant acquired the lease of an office building pursuant to a building agreement dated 28 March 2001. Under the agreement, the claimant was obliged to refurbish the property. Pursuant to a separate agreement for lease (AFL), the claimant sublet the property to the defendants and agreed to carry out the refurbishment works. The works were carried out pursuant to a building contract between the claimant, as employer, and SCL. However, disputes arose between the claimant and the defendants concerning the inter-relationship between the various parties and contracts.
The claimant argued that, pursuant to clause 4 of the AFL, it procured the carrying out by SCL of certain additional works over and above the agreed works, which were variations required by the defendants (the tenant’s variations). Consequently, it applied for declarations that the claims being pursued were the defendants’ liability under the AFL. The defendants disputed those claims contending, inter alia, that the claimant’s agent had not certified the disputed claims as tenant’s variations and that the agent’s certification (or the lack of it) was a final and binding determination of their liability. The defendants also challenged the claimant’s capacity to pursue the claims and asserted that it had suffered no recoverable loss.
The court was asked to determine preliminary issues including whether: (i) a certificate from the claimant’s agent, under clause 4.2 of the AFL, was a condition precedent to payment by the defendants; (ii) the terms of the settlement agreement precluded the claimant’s prima facie right to sue under the AFL; and (iii) the relationship between the claimant and SCL, as regulated by the settlement agreement, had meant that the claims were champertous.
Held: The preliminary issues were determined in favour of claimants.
(1) There was no freestanding certification regime in the AFL and the defendants’ obligation was to pay for the tenant’s variations that they had ordered. Clause 4.2 did not suggest that a certificate was a condition precedent to payment. It was axiomatic that, if a certificate was intended to be a condition precedent, the contract should demonstrate that intention by express words or upon reading the document as a whole. A certificate that merited merely a passing reference in the subsidiary provision at clause 4.2(a) was not a condition precedent to payment. If the certificate relied upon was said to be a final certificate, it had to be plain on the face of the certificate itself: Costain Building & Civil Engineering v Scottish Rugby Union plc (1993) 69 BLR 80 and Crown Estate Commissioners v John Mowlem & Co Ltd [1994] 70 BLR 1 considered; Henry Boot Construction Ltd v Alstom Combined Cycles Ltd [2005] EWCA Civ 184; [2005] 1 WLR 3850 applied.
(2) On the true construction of the settlement agreement, the claimant had relinquished its ordinary right to pursue the defendants under the AFL. The agreement merely regulated the relationship between the claimant and SCL. Parties higher up the contractual chain, which had the necessary privity of contract to seek legal redress, would often institute claims against the other contracting party in which they had little or no direct interest. The main contractor would pursue the employer in respect of a claim that related almost entirely, and might be controlled by, a particular subcontractor or supplier, pursuant to the sort of agreement reached here between the claimant and SCL. Provided that such an arrangement was not champertous (one party aiding the other’s lawsuit to share in gains therefrom), and that the party bringing the claim did not derive an unfair benefit or advantage from the arrangement, there was nothing wrong with such a process.
(3) The settlement agreement was not champertous but was a sensible commercial agreement between the main contractor and the subcontractor to allow the subcontractor to pursue the claims, in respect of which it had suffered loss, against the ultimate paymaster. SCL had and retained a legitimate financial interest in the outcome of the proceedings, as the contractors that provided the benefit of the alleged tenant’s variations to the defendants. They were the party that incurred costs in carrying out the works for which they had not been reimbursed. They could not be said to be a previously disinterested third party: Mansell v Robinson [2007] EWHC 101 (QB) applied; Hydrocarbons Great Britain Ltd v Cammell Laird Shipbuilders & Automotive Products Ltd (t/a AP Precision Hydraulics) & Redman Broughton & Black Clawson International (No 2) [1991] 53 BLR 84 distinguished; Giles v Thomson [1994] 1 AC 142 considered.
Paul Darling QC (instructed by Wragge & Co LLP, of Birmingham) appeared for the claimant; Stephanie Barwise QC and Marc Lixenberg (instructed by the Treasury Solicitor) appeared for the defendants.
Eileen O’Grady, barrister
