TSG Building Services Plc v South Anglia Housing Ltd [2013] EWHC 1151

This summary was provided by CMS Cameron McKenna LLP.

For more information visit http://www.cms-cmck.com/Construction/Construction-Disputes

summary

Although a dispute comprised three primary strands or issues, it nevertheless constituted one dispute and the Adjudicator therefore had jurisdiction to determine it.  However, on the application of the responding party, the Court granted a declaration that, on a proper interpretation of the contract, the claimant was not entitled to compensation for the non-recovery of overheads and profit which the Adjudicator had awarded in his decision and the Adjudicator was therefore wrong to order it.  But since the Adjudicator had had jurisdiction, his order that the responding party should pay his fees was enforced.

Technology and Construction Court, Mr Justice Akenhead

Background

TSG Building Services Plc (“TSG”) was contracted to provide a gas servicing and associated works programme relating to South Anglia Housing Ltd’s (“South Anglia”) housing stock.  The contract commenced on 1 July 2009 and was based on the ACA Standard Form of Contract for Term Partnering (TPC 2005 amended 2008).  The contract was for an initial period of four years extendable at South Anglia’s sole option for a further one year. Clause 13.3 provided that either party could terminate the contract at any time during the term by giving three months’ notice to the other party.

On 20 July 2010, TSG wrote to South Anglia advising that works carried out by TSG’s predecessor had been poorly executed, that South Anglia was awarding additional installation works to other contractors, that there was interference, that unrealistic requests were being made of TSG and that certificates and payments were not being issued or made promptly.  The letter proposed that as from the second year of the contract pricing should go onto an “Open-book” basis or a realistic rate per property.  South Anglia did not reply and on 5 August 2010 TSG wrote again giving notice of the existence of a dispute.

South Anglia responded on 23 August 2010 suggesting that TSG took the risk when it tendered and denying that there was any breach of contract on its part, but indicating that it was prepared to move to the Open-book approach applicable as from the second year.  By a separate letter on the same date, South Anglia wrote to TSG giving three months’ notice of its intention to terminate the contract pursuant to clause 13.3.

On 12 October 2010, TSG wrote to South Anglia seeking payment in consequence of the termination under four heads: (1) under-recovery of overheads and profit as a result of the termination, (2) under-recovery of contract set-up and termination costs, (3) additional costs of maintenance to properties incurred in year 1 of the contract, and (4) under-recovery of overheads and profit on additional repair work instructed by South Anglia to others, plus interest.

South Anglia responded on 18 October 2010 denying that TSG had any entitlement to payment in consequence of the termination.  Correspondence continued sporadically thereafter but the issues remained unresolved. 

On 15 October 2012, TSG sent South Anglia its “Position Statement” seeking to support the four heads of claim as set out in TSG’s letter of 12 October 2010 and urging a settlement.  TSG received no satisfactory response from South Anglia and on 23 January 2013 served a Notice of Adjudication seeking determination of:

  • the additional costs which TSG has incurred during year 1 as a result of poor maintenance, servicing or installation works undertaken by others (£548,086.73);
  • the revenue TSG has lost as a result of South Anglia awarding contract works to other contractors (£67,235.47); and
  • the costs which have resulted from South Anglia’s termination of the contract (£586,502.68).

After the appointment of the Adjudicator, and service of a Referral Notice on 30 January 2013 by TSG, South Anglia’s solicitors wrote to the Adjudicator on 5 February 2013 raising three jurisdictional points of which only one was pursued in court, namely that the Referral Notice was referring “three distinct disputes” (as per the bullet points above) when the relevant Scheme only permitted a single dispute to be referred to adjudication at any one time.  The Adjudicator considered that he had jurisdiction and proceeded with the adjudication determining that TSG was entitled to the payment of £383,778.91 plus interest in respect of overheads and profit which TSG would have recovered over the remainder of the term of the contract had the contract not been terminated. He also ordered South Anglia to pay his fees.

South Anglia refused to pay the amounts and TSG issued proceedings on 18 March 2013 to enforce the Adjudicator’s decision.  South Anglia issued proceedings on 20 March 2013 seeking declarations under CPR Part 8 to the effect that TSG had no entitlement to compensation in respect of overheads and profit that it would have recovered over the balance of the term of the contract following a termination under clause 13.3.

Issues

The Court was asked to address:

  • Whether the Adjudicator exceeded his jurisdiction by adjudicating on more than one dispute
  • Whether TSG was entitled to compensation for overheads and profit following a termination under clause 13.3.

Decision

The Court held that:

  • Having regard to previous authorities there was only one dispute referred to adjudication, albeit that it comprised three primary issues, and the Adjudicator had jurisdiction to resolve all the issues put before him.  It would have been theoretically possible for a party to pursue the three separate issues as separate claims, giving rise potentially to three disputes referable to adjudication.  However, this was not what TSG did.
  • It was therefore not necessary to reach a decision on TSG’s alternative argument that multiple disputes could in any event be referred to adjudication.  However, absent specific agreement between the parties, authorities are sufficiently well established to suggest that only one dispute can be referred to adjudication, albeit that the courts adopt a sensible and commercial approach in determining the scope of any given dispute.
  • On a proper interpretation of the contract, TSG had no entitlement (whether as damages for breach of contract, or as a sum due under the contract) to receive compensation in respect of overheads and profit which it would have recovered over the balance of the term of the contract following termination under clause 13.3.
  • It followed that the Adjudicator was wrong to order that South Anglia should pay £383,778.91 to TSG in relation to such overheads and profit and interest consequent thereon.

  • However, the Adjudicator did have jurisdiction to decide what he did and it followed that South Anglia must pay the Adjudicator's fee of £12,564 plus VAT.

This summary was provided by CMS Cameron McKenna LLP.

For more information visit http://www.cms-cmck.com/Construction/Construction-Disputes

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