London & Regional (St George's Court) Ltd v Ministry of Defence & Anor

This Judgment deals with certain preliminary issues which have arisen in these proceedings, which concern the refurbishment of an office building known as St George’s Court, London, WC1 (“the property”). The freehold owners of the property are the Crown Estate Commissioners (“CEC”). CEC leased the building to the Claimant pursuant to an agreement known as the Building Agreement dated 28 March 2001. Part of the Claimant’s obligations under the Building Agreement required them to carry out the refurbishment of the property. Pursuant to a separate agreement, known as the Agreement for Lease (“AFL”) the Claimant sub-let the property to the Defendant, and agreed to carry out the refurbishment works. The works themselves were carried out pursuant to a Building Contract between the Claimant, as Employer, and Shepherd Construction Limited (“Shepherd”).

The disputes between the Claimant and the Defendant arise out of the inter-relationship between the various parties and the various contracts referred to above. The Claimant’s claim is that, pursuant to Clause 4 of the AFL, it procured the carrying out by Shepherd of certain additional works over and above the agreed Works, which were variations required by the Defendant and known as “Tenant’s Variations”. The Claimant seeks declarations to the effect that the three particular claims which they now pursue are the Defendant’s liability under the AFL. The Defendant disputes these claims for a variety of reasons. These include the contention that the Claimant’s agents, Tweeds, did not certify the disputed claims as Tenant’s Variations and that Tweeds’ certification (or the lack of it) is a final and binding determination of their liability for these claims. The Defendant also takes two other points of principle arising out of the Settlement Agreement reached between the Claimant and Shepherd on 17 May 2004. One is concerned with the Claimant’s capacity to pursue the claims at all; the other is based on the assertion that the Claimant has suffered no recoverable loss. Each of these three defences in principle is, if correct, sufficient to defeat the Claimant’s claim in its entirety.

I propose to set out, in Section B below, the relevant terms of the three different contracts to which the Claimant was a party and which lie at the heart of these disputes. At Section C I set out an outline of the relevant events and documents passing between the parties and their agents. At Section D, I identify the relevant terms of the Settlement Agreement between the Claimant and Shepherd, and some of the subsequent correspondence. Thereafter I address the preliminary issues in three groups: the Certificate issues (Section E below); the Capacity issues (Section F below); and the ‘No Loss’ issues (Section G below). A short summary of my conclusions is set out at Section H below.

Clause 5.1 of the Building Agreement provided that CEC would grant a Lease to the Claimant in respect of the property. Clause 1.15 defined the lease as meaning a lease of the property for a term commencing on 22 March 2001 and expiring on 4 January 2126. The initial minimum rent was stated to be £400,000 per year.

Pursuant to Clauses 3 and 4, the Claimant agreed to carry out works at the property. Those works were to be either the Base Scheme, defined in Part 1 of the Second Schedule to the Building Agreement, or the Enhanced Scheme, described in Part 2 of the Second Schedule. The Claimant gave various warranties in respect of that work at Clause 3, including, at Clause 3.2, the warranty that “reasonable skill, care and diligence have been and will be exercised in the preparation of the Building Documents and in connection with all matters relating to the Works.” The Building Documents were defined as those listed in the Third Schedule and included the Employer’s Requirements and the Contractor’s Proposals. These documents formed a crucial part of the Building Contract (see Section B3 below).

For these reasons, Clause 1.34 defined the Works to be carried out by the Claimant pursuant to the Building Agreement as:

“ the works which are to be constructed on the Site in accordance with this Agreement being either the Base Scheme or the Enhanced Scheme and more fully described in the Base Scheme Building Documents or the Enhanced Scheme Building Documents respectively.”

It should also be noted that Clause 1.10 defined ‘the Employer’s Agent’ as Tweeds of Churchill House, 160, New Bond Street, London W1Y 9PA. As we shall see, that was the role which Tweeds performed under the Building Contract between the Claimant and Shepherd. The Claimant was not the Employer under either the Building Agreement (where it was referred to as ‘the Tenant’) or the AFL (where it was referred to as ‘the Landlord’). The Claimant was, however, defined as ‘the Employer’ under the Building Contract.

The AFL was also dated 28 March 2001. Pursuant to this Agreement, the Claimant became the Landlord and the Defendant was the Tenant. The underlease expires on 4 January 2126.

Pursuant to the AFL, the Claimant was obliged to carry out the Landlord’s Works. These were defined at Clause 1.16 as:

“…the works to be carried out by the Landlord by way of major refurbishment of the Property as shown in the Approved Plans.”

The Approved Plans were themselves defined as:

“…the output specification contained within volume 2 of the Employer’s Requirements produced by the Employer’s Agent … together with associated documentation, plans and drawings referred to therein and such term shall include any variations from alternations and additions to and revisions of the Approved Plans made from time to time in accordance with this Agreement.”

The Claimant’s specific obligations in relation to these works were set out in Clause 3 of the AFL:

“3.

The Landlord’s Works

3.1

The Landlord will procure that the Landlord’s Works are carried out and all other requirements of the Approved Plans are met:

(a)

in a proper and workmanlike manner and in accordance with good building practice

(b)

with good quality and suitable materials

(c)

in accordance with Approved Plans and the Requisite Consents

(d)

in compliance with all statutes, statutory orders and regulations made under or deriving validity from them and any requirements and codes of practice of local authorities and competent authorities affecting the Landlord’s Works

(e)

in accordance with the Building Agreement

…

3.9

The Landlord may from time to time make such variations to the Approved Plans as may in the circumstances reasonably be necessary but if the variations would have the effect of reducing the size or the amenities of the Property the Landlord may not do so without the consent of the Tenant (such consent not to be unreasonably withheld) and the Landlord will in any event follow the procedures set out in the Approved Plans which shall prevail in the event of any conflict with the provisions of this sub-clause 3.9.

3.10

Subject to any procedures set out in the Approved Plans the Tenant will be deemed to have approved any variation requiring its consent within ten working days of the date on which the Landlord sends the Tenant an application for consent unless the Tenant notifies the Landlord in writing of any reasonable objection to the variation within that period.

3.11

Without limitation to the requirements of the Approved Plans the Landlord will keep the Tenant informed of:

(a)

the progress of the Landlord’s Works and

(b)

any material problems or delays affecting the Landlord’s Works.”

Clause 4 provided specifically for variations required by the Defendant, and known as Tenant’s Variations. The relevant parts of Clause 4 were in the following terms:

“4.

Tenant’s Variations

4.1

The Tenant may request the Landlord to incorporate Tenant’s Variations in the Landlord’s Works and the Landlord shall not unreasonably withhold its consent to any such request provided that

(a)

any necessary additional Requisite Consent can reasonably be obtained

(b)

the execution of the Landlord’s Works incorporating the Tenant’s Variations would not constitute a breach of any of the matters set out in Clause 3.1(d)

(c)

the Building Contractor and the Professional Team are reasonably able to incorporate such Tenant’s Variations into their design and programmes

(d)

the incorporation of the Tenant’s Variations will not reduce the Net Lettable Area of the Premises nor otherwise conflict with the Landlord’s Obligations in the Building Agreement.

4.2

The Tenant will pay the costs and incidental expenses of the Tenant’s Variations (including without limitation the cost of any delay to the Landlord’s Works and any professional fees for the Landlord or the Superior Landlord giving their consent to the Tenant’s Variations) as they are incurred as to which:

(a)

in respect of the costs of the Tenant’s Variations payment is to be made against the Employer’s Agent’s certificates of the costs and incidental expenses within 30 days of delivery of the certificates to the Tenant and

(b)

in respect of incidental expenses and professional fees payment is to be made within 30 days of written demand

(c)

if payment is not made within 30 days of the delivery of the certificate the Tenant will pay interest on so much of the expenditure as for the time being remains unpaid at the Prescribed Rate calculated from the date on which the payment was due.

4.3

If the incorporation of any Tenant’s Variations into the Landlord’s Works delays the Date of Practical Completion the Landlord shall procure that the Employer’s Agent serves on the Tenant a notice specifying the Date of Notional Practical Completion.

4.4

Clause 3 applies to Tenant’s Variations as incorporated into the Landlord’s Works as it does to the other Landlord’s Works.”

The Employer’s Agent was again defined as Tweeds. Clause 2 of the AFL, was entitled ‘Interpretation’. Each sub-clause in that part of the AFL was said to apply “unless inconsistent with the context”. Clause 2.7 provided that:

“Any certificate issued by the Employer’s Agent shall save in the case of manifest error be final and binding.”

There was an adjudication provision at Clause 15, and no general prohibition on assignment.

The Claimant entered into the building contract with Shepherd on 22 March 2001. The contract included an amended version of the JCT Standard Form of Building Contract, With Contractor’s Design, 1998 Edition. Shepherd’s principal obligation under that contract was set out at Clause 2.1 as follows:

“The Contractor shall upon and subject to the Conditions carry out and complete the Works referred to in the Employer’s Requirements, the Contractor’s Proposals …, the Articles of Agreement, these Conditions and the Appendices in accordance with the aforementioned documents and for that purpose shall complete the design for the Works including the selection of any specifications for any kinds and standards of the materials and goods and workmanship to be used in the construction of the Works so far as not described or stated in the Employer’s Requirements or Contractor’s Proposals. The Contractor shall comply with any Instruction and be bound by any decision of the Employer issued or made under or pursuant to the Conditions and any such instruction or decision shall have effect except to the extent that any such instruction or decision is varied …”

The Articles of Agreement had been amended and, amongst other things, a new Article 12 had been incorporated as follows:

“The Employer [the Claimant] has supplied to the Contractor [Shepherd] a copy of those provisions of the Building Agreement, Agreement for Lease and any agreement entered into by the Employer with any financier which relate to the design or construction of the Works. The Contractor shall assume and perform as part of his obligations hereunder the Employer’s obligations under such provisions and undertakes to the Employer that he has performed and will continue to perform his obligations hereunder so that no act, omission or default of the Contractor shall constitute, cause and contribute to any breach by the Employer of such provisions.”

Article 3 named the Employer’s Agent as Tweeds. Clause 12 permitted the Claimant to issue instructions effecting a Change in the Employer’s Requirements. Such instructions would be issued via the Employer’s Agent.

Clause 30 of the Building Contract set out the detailed mechanism by which interim payments were to be valued and paid. The regime envisaged an application by Shepherd, together with supporting documentation (Clause 30.3.1). Not later than five days after the receipt of the application, the Employer was obliged to give Shepherd a written notice specifying the amount of payment proposed to be made and the basis on which it had been calculated (Clause 30.3.3). Not later than five days before the final date for payment of the amount due, the employer had to give written notice of any sums proposed to be withheld and/or deducted. The final date for payment pursuant to Clause 30.3.6 was 14 days from the date of receipt by the Employer of the application for interim payment. Again, the calculation of the sum due would be certified by Tweeds, the Employer’s Agent.

For completeness, I should also refer to one final contract, namely the Memorandum of Understanding, agreed between the CEC and the Defendant, and again dated 28 March 2001. This was rather a curious document, not least because Mr Waterhouse of Babtie, the Defendant’s principal consultant, told me that he had never seen it, even though it described Babtie as the Project Manager. Amongst its terms was Clause 2.6.2, which suggested that the costs of variations to the works would be paid by the Defendant to CEC for onward transmission to the Claimant, a curious provision that did not appear to have been explained, pre-contract, to the Claimant. This arrangement was not provided for in any of the numerous contracts dated 28 March 2001.

By way of background to the contractual arrangements set out above, the parties have agreed the following matters:

“2.

The Crown Estates Commissioners (“CEC”) and Defence Estates (“DE”)/ Ministry of Defence (“MOD”) recognised at the outset (i.e. before the Defendant and the Claimant entered into the AFL, and the Claimant engaged Shepherd Construction Ltd (“SCL”) to carry out construction works at the development pursuant to the Building Contract dated 22 March 2001 (“Building Contract”)) the possibility of disputes arising in respect of the evaluation of the time and costs consequences of any Tenant’s Variations.

3.

At one stage there was talk of putting in place an internal change control procedure to be operated between CEC and DE/MOD for the agreement, authorisation and recording of changes. This proposed procedure (which was not implemented) involved the use of a two-page document entitled “change control sheet” in order to:

(a)

describe the change, its cost and programme effects;

(b)

authorise the incorporation of the change into the works contract; and

(c)

confirm and acknowledge the issues of the works contract variation instruction.

4.

CEC appointed Drivers Jonas as Surveyors pursuant to the Building Agreement dated 28 March 2001 (“Building Agreement”). Drivers Jonas provided contractual, technical and financial advice to CEC in relation to the project including the cost of the physical building works.

5.

DE is responsible for the management of MOD property. It acted on behalf of the MOD in relation to the procurement of the building works including the cost of the same.

6.

The MOD was neither a party to the Building Agreement nor the Building Contract and had no part in their administration.”

At the end of February 2002, once the Works were well under way, Tweeds produced a document entitled ‘Synopsis of Current Position’. This document recorded that:

“Shepherd has prepared a claim for an extension of time associated with the introduction of additional room uses, not specified in the Output Specification, which we have forwarded for comment to Drives Jonas and Babtie. In advance of their comments we have undertaken our own review of the file and conclude that an extension of time may be appropriate in the order of 4 weeks.”

It is an agreed fact that:

“7.

On or around 25 March 2002 Kerry Hutchings requested from David Manning of Tweeds details of what (at that time) Tweeds considered to be Tenant’s Variations. Mr Hutchings requested details of the cost of the Tenant’s Variations so that the MOD could carry out an assessment of those costs.”

The email from Mr Hutchings of 25 March 2002 expressly asked for:

“…as much of Shepherd’s submission as possible to assist us in our assessment of your contractor’s calculations and assumptions in arriving at what they believe are variation costs due from the MOD.”

The parties have agreed that:

“8.

On 8 April 2002 Babtie, DE and Tweeds met to discuss a changes schedule put forward by Shepherd. Babtie identified what it considered were further Tenant’s Variations which had not been previously identified and were still to be valued.”

On 14 May 2002, Babtie wrote to Mr Hutchings about Tweeds’ proposed extension of time to Shepherd. Babtie concluded that the extension of time was due and that the proposed award was not unreasonable. The letter went on to say:

“4.

Although Tweeds are not specific about the changes there is no doubt that the introduction of the DESO specialist areas and DMT training rooms were not declared to the developer and contractor until the issue of the stage 1 space data sheets …

5.

The issue of the space data sheets coincided with a flurry of activity by all parties concerned, as the agreements and contracts between the various parties were being finalised, signed and exchanged.

6.

The specialist areas are outside the scope of works defined in the Output Specification and a variation to the contract …

7.

We previously indicated verbally that we were of the opinion that a strong case could be made for an extension of time because of the introduction of the specialist areas …”

The parties have agreed that:

“9.

At a meeting on 23 May 2002 between the Claimant, Tweeds, Kerry Hutchings of DE and David Waterhouse of Babtie, Tweeds produced a document entitled “Schedule of Outstanding Financial Issues with the MOD”. The said document was later renamed “Schedule of Tenant Enhancements for MOD”.

10.

The document was to act as a register of MOD changes for agreement as changes and agreement of the value of the same.”

This is the Schedule which, in a much later version, is said by the Defendant in these proceedings to constitute a certificate, issued by Tweeds, which cannot now be opened up or challenged.

The Schedule was the subject of detailed input by Mr Hutchings (see his emails of 24 May 2002 and 28 May 2002). In the latter email he said that he knew further discussions would be needed as to “how this is all funded” but the heads of terms he had indicated were those which the Defendant was “likely to agree to”. The email attached an updated version (Issue 2) of the Schedule dated 28 May. It concluded with these words:

“This is an informal analysis which I have discussed with relevant parties but is not intended to be the definitive answer on this matter but should prevent you wasting time making suggestions which we could not accept.”

It is worth noting at this point that Mr Hutchings was writing in these terms to Tweeds; the people who, so he told me in evidence, he believed had the right to determine all matters relating to Tenant’s Variations, regardless of what he or anyone else representing the Defendant said. The proactive, indeed rather aggressive, terms that he used in his emails (“prevent you wasting time making suggestions which we could not accept”) are, in my judgment, wholly inconsistent with any understanding on his part that everyone, including the Defendant, was finally bound by whatever Tweeds decided.

Babtie engaged John Smith Projects (“JSP”) to advise and comment on the valuation of the Tenant’s Variations (see also Agreed Fact 11). On 29 August 2002 David Waterhouse sent JSP Issue 3 of the Schedule dated 8 August 2002. He noted that the Schedule had been compiled by Tweeds and went on:

“Some of the figures are their estimates, some are Shepherd Construction’s. Two items, 5 and 12, are agreed figures … As stated this is part of a larger agreement to be drawn up between MOD and L&R and we are looking for an independent assessment that the agreed figures represent a fair and reasonable commercial agreement.”

Again, it is difficult to see how or why the Defendant could have been justified in incurring the costs of another consultant if, in fact, they considered that they were stuck with the Tweeds’ valuation, whether it represented a fair and reasonable figure or not.

Issue 5 of the Schedule was dated 4 September 2002. The following day, on 5 September, the Claimant wrote to Mr Hutchings of the Defendant attaching that version of the Schedule and confirming their understanding that this latest version of the Schedule had been agreed:

“…in terms of work content only, with yourself or with your advisers. With the exception of Items 1, 2, 5 and 12, all costs are budget in nature and require formal agreement with your advisers. It is in our joint interests that this exercise is completed speedily and I intend that we should work jointly to achieve a ‘sign-off’ date of 25^th September.”

On 18 September 2002, Mr Hutchings emailed Tweeds saying that their QS (JSP) was reviewing Tweeds’ cost estimates, verifying them and advising Babtie/MOD on value for money/validity (if appropriate). The email went on to say that the QS was not authorised to agree invoices on the MOD’s behalf. He required Tweeds to relate their costs to the items on the Schedule because the QS “will possibly [be] splitting costs between departments”. Again, I find it difficult to accept Mr Hutchings’ evidence now that all of this activity was, at least in one sense, pointless, because the Defendant was stuck with and bound by Tweeds’ valuations, whether they represented value for money or not.

On 25 September 2002, Mr Manning at Tweeds emailed Mr Waterhouse and Mr Hutchings in relation to the Schedule and said:

“In terms of variations already instructed, or otherwise acknowledged between us, these have been summarised in budgetary terms and included on the attached Schedule of MOD costs, serial 5, attached. The financial aspect of this schedule is subject to agreement with your QS. The inclusion of all items has either been agreed with yourself or DE and any items of dispute have been deleted or noted as a Developer issue in previous discussions. To this end it is my opinion that the schedule constitutes a list of agreed variations for which the Developer will be entitled to seek reimbursement, in full, when agreed.

Clause 4.2 of the Agreement states that “the Tenant will pay the cost … of the Tenant’s Variation as they are incurred … against the employer’s agent’s certificates …” To date we have incurred £384,411 in our latest Interim Certificates on account of amounts included in the costs schedule and L&R will raise an invoice this week for reimbursement purposes. We are happy to provide a copy of our valuation build up and certificate to prove expenditure or alternatively to agreed amounts with your appointed QS. Please advise your preference.”

Mr Hutchings was quick to reply on the same day, to say that the Schedule was not a list of agreed items. He reiterated that JSP would be commenting to the Defendant on the costs of individual variations.

On 4^th October, the Claimant sent its first invoice in respect of Tenant’s Variations. It was sent to CEC, who, although they had no contractual role under the AFL, obviously regarded themselves as the ultimate paymasters. The interim sum claimed was £444,474 plus VAT, although the covering letter made clear that the current version of the Schedule was in a much larger sum. The invoice referred to ‘Certificate No 1’. Mr Waterhouse of Babtie confirmed in his evidence that it was his understanding that this invoice, issued by the Claimant and not Tweeds, was a certificate under Clause 4.2 of the AFL. Nothing was paid to the Claimant.

Issue 6 of the Schedule was dated 11 December 2002. The following day, the Claimant sent a second invoice to CEC, in the gross sum of £1,133,239, including the sum invoiced in October but not paid. Again, the covering letter pointed out that this was less than the sum in the latest Issue of the Schedule, and said that the remaining balance would be recovered by the issue of “our final invoice in the New Year”. Confusingly, the invoice was also called ‘Certificate No 1”. Once again, no part of it was paid by the Defendant to the Claimant.

At this time, a new urgency was injected into the discussions as a result of Mr Hutchings’ imminent departure from the MOD. Mr Waterhouse’s email of 13 December 2002 refers to Mr Hutchings’ desire to accelerate the financial settlement process and went on:

“In order to do this he is willing, where full details are not available, to accept a professional opinion that Tweeds evaluation of a variation is commercially reasonable and that MOD are not being ripped off. (The background to this is that the agreement MOD have with CEC and L&R states that Tweeds are to value variations and MOD are to pay that valuation.)”

On 22 December 2002 Mr Hutchings emailed Mr Waterhouse to say that they were “very close to drawing a line under variations”. A new version of the Schedule was referred to in an email from Tweeds of 23 December 2002.

The matters were not resolved before Mr Hutchings’ departure. On 22 January, Mr Waterhouse expressed his unhappiness with the latest version of the Schedule because it was apparently being incorporated into the proposed lease. He said:

“I am not happy about constantly having to check revised drafts of what is an incomplete and non-comprehensive document. Is accuracy a requirement even? … Equally I am unhappy about the format in which the “Schedule of Tenant Enhancements for MOD” is now presented. The original purpose of this document was to act as a register of MOD potential changes for agreement as changes and then agreement of the financial consequences. Entries were made as items arose. Some items which would have been changes were rescinded and some which the developer originally thought were changes were subsequently accepted as being contracted works or design developments. Rather than deleting these items they remain on the schedule with an appropriate comment in the right hand column. This latest format has deleted the right hand column and comments. Hence there are items on the schedule that have not been incorporated into the works but the schedule leads you to believe that they have, eg items 4, 5, 9, 14, 20, 26. Also some of the items are still in dispute as to whether they are changes or not.”

In his reply Mr Prior, a solicitor working on the draft lease, said that the schedules:

“…are intended to be indicative only … Their purpose is to assist the rent review process at the appropriate times in helping to show what should be assumed for the hypothetical lease and would should be disregarded but the main reference will be the output specification itself.”

The discussions continued into 2003. There is a manuscript note dated 14 February 2003 prepared by the Defendant which stated:

“2.

The sums invoiced represent a limit of liability. The final sums will be agreed as fair and reasonable by DE’s sponsored quantity surveyor.

3.

The interim sums invoiced should now be paid to the Crown Estates Commissioners on the basis that payments will not be made to contractors until the final value of the works have been agreed. Any overpayment should be paid to MOD.”

As was apparent during the oral evidence, it is difficult to read this as recording anything other than the Defendant’s desire to ensure that it was getting value for money from the Works generally and the Tenant’s Variations in particular. Again, I consider it to be inconsistent with the proposition now advanced by the Defendant, namely that Tweeds could make a final and binding determination of the Defendant’s liability, regardless of the reasonableness (or otherwise) of the figures themselves.

On 24 February 2003, Mr Waterhouse sent Mr Jenkins (another person at the Defendant concerned with financial control), Issue 8 of the Schedule. He said:

“2.

As explained the original purpose of this document was to act as a register of MOD potential changes for agreement as bona fides changes and then agreement of the financial consequences. Entries were made as items arose. Some items, which would have been changes, were rescinded and some that the developer originally thought were changes were subsequently accepted as being contracted works or design development. Rather than deleting these items they remain on the Schedule with an appropriate comment in the status column …

5.

Issue 7A of the Schedule was supposed to find the full extent of the possible MOD variations and after discussion and agreement the narrative given in column 2 of the Schedule was appended to the lease agreement. …

6.

It is part of our remit, upon receipt of substantiation from the Developer’s agent [Tweeds] to make comment on his final valuation of the MOD enhancement. This process is ongoing as we have not yet received all substantiation.”

On 24 March 2003, JSP sent Tweeds their updated comments on Issue 8 of the Schedule, emphasising that a number of their comments against individual items simply stated “information required”.

On 4 April 2003, Tweeds wrote to Drivers Jonas, CEC’s surveyors, to say that Shepherd’s applications for loss and expense (allegedly due as a result of delays caused by the Tenant’s Variations) contained insufficient information to enable them to progress the various matters at that time. Such claims therefore remained outstanding. Four days later, on 8 April, Babtie wrote to the Defendant to say that they had been assured by Tweeds that, should Shepherd produce convincing substantiation, Tweeds would demonstrate this to CEC and MOD prior to making any award. Babtie reiterated their opinion that Shepherd had not thus far demonstrated that there was any substance to their claims.

On 26 June 2003, Tweeds wrote to Drivers Jonas attaching a practical completion certificate dated 6 June 2003. They went on to say that they were in the process of compiling all costs for Tenant’s Variations for agreement with Babtie and seeking in the meantime an agreement to an interim release of £750,000 pending final agreement between quantity surveyors.

At about this time it appears that the Schedule went into Issue 9. As to all of the Issues of the Schedule, numbered 1-9, the parties are agreed that:

“12.

The Defendant did not consider or treat Issues 1 to 9 of the Schedule:

(a)

As certificates issued by Tweeds under Clause 4.2(a) of the AFL; or

(b)

As final and binding under Clause 2.7 of the AFL.

13.

The Defendant did not make payments against any of Issues 1 to 9 of the Schedule within 30 days of each Schedule being delivered to it or at all.”

As to payment, it appears that the £750,000 was paid on account in about July 2003 (see also Agreed Fact 14), but only after the Claimant had sent a further invoice dated 1^st July, in similar terms as the previous invoices. No reasons for the lengthy delay in payment have been provided. On any view, payment was not made in accordance with the timescale envisaged by Clause 4.2 of the AFL.

On 14 October 2003, Tweeds issued what they called in their email of the same date to Mr Waterhouse “the latest Schedule that has been agreed between John Smith Projects and Shepherds in respect of the MOD tenant’s enhancements”. This version of the Schedule was Issue 10, the document on which the Defendant now relies as Tweeds’ final and binding certificate under Clause 4.2 of the AFL (see Agreed Fact 15). Tweeds’ email of 14 October went on to say:

“The Developer has demonstrated a remarkable relaxation to the Tenant in seeking the agreement of your cost advisers to a Schedule that was largely accepted by DE under the guidance of Kerry Hutchings but I trust that we can all agree that it has been to the MOD’s benefit, thus far.

As you are aware the Lease allows for the developer to recover from the tenant the cost of any variation works undertaken at its request. The pre-condition to recovery of the developer’s costs is the confirmation from Tweeds that the costs have been certified in an interim payment to our Contractor. Please be advised that these costs were actually included in certificate number 22 dated 9 July 2003 and we now intend to raise an invoice to the Crown to recover the balance of monies owing.

The total value of costs to date is £1,249,858, inclusive of fees totalling £73,898, of which £750,000 has been invoiced, leaving a balance due of £499,858, excluding VAT. It is our intention to cease further discussions with your cost advisors on the minor issues remaining to be agreed with them and to seek recovery of these monies as provided for within the Lease.”

The following day, the 15 October 2003, the Claimant prepared an invoice to the CEC in the sums referred to in the Tweeds’ email, in the total amount of £587,333.15 including VAT. The invoice was said to be ‘Certificate 3 – Final Account’. That invoice was sent under cover of a letter dated 16 October 2003 which referred “at long last” to the invoice for “the balance due” to the Claimant “for the final works that have now been agreed with the MOD”. The letter also enclosed the email from David Manning of Tweeds to David Waterhouse of Babtie (paragraph 41 above), together with back-up information. The original email was apparently not received by Mr Waterhouse because it was re-sent by Mr Manning on 24 October 2003.

Issue 10 of the Schedule is not radically different from its predecessors. It contains a number of references such as “audit trail”; “schedule to be checked”; “build up received and forwarded to MOD (John Smith Projects)”; “was this carried out?”; “to be justified”; and other similar entries which, on its face, demonstrated that it was indeed “the latest” version of a rolling document, rather than the final version of such a document.

On or around 5 November 2003 (within 30 days) the Claimant received payment for the balance due in accordance with this “latest version” of the Schedule (see Agreed Fact 16). However that did not apparently bring about an end to the discussions. For example, on 11 November 2003, JSP emailed Babtie to reiterate their main concern that the Schedule contained a number of indications of budget figures with no build-up/back-up. The email refers to the ongoing discussions with David Manning of Tweeds. It enclosed a Schedule which identified those items where information was still required.

There are some later documents to which I should make express reference. The first is the email from Tweeds to the Claimant’s solicitors dated 9 January 2004. This deals in some detail with the space planning changes, the first (and, I am told, the largest) of the Variations pursued by the Claimant in these proceedings. The space planning changes was Item 1 of the Schedule, because a sum was allowed for it, albeit at a figure which was far less than was sought by Shepherd. Mr Manning reiterated his opinion that Item 1 of the Schedule:

“…represents the only valid claim of the contract. It is unique in that it has been acknowledged by the Crown to be a valid concern, and we are entitled, under the contract, to review our earlier opinion concerning time award based on any better particulars that Shepherd may produce.”

In addition, he described certain other claims, which are also pursued in these proceedings, as “merely padding, included to respect the opinions of site-based personnel”.

On 17 May 2004, the Claimant reached a settlement with Shepherd. The written agreement was principally concerned with what it described as the ‘MOD Claims’ which had not been settled. Those claims were defined as:

“The claims (or potential claims) against the MOD briefly described in the Schedule to this Agreement.”

The Schedule described four claims, including the three claims pursued by the Claimant against the Defendant in these proceedings. The first item in the Schedule was the space planning claim.

The relevant terms of the Settlement Agreement were as follows:

“1.

Definitions and Interpretation:

MOD Claims	means the claims (or potential claims) against the MOD briefly described in the Schedule to this Agreement …
Sums due from the Contractor	means any and all sums due from and/or payable by the Contractor to the Employer pursuant to the Building Contract and Supplemental Agreement;
Sums due from the Employer	means any and all sums due from and/or payable by the Employer to the Contractor pursuant to the Building Contract and Supplemental Agreement, apart from sums due and/or payable in respect of the MOD Claims …

2.

Settlement of Sums Due (apart from the MOD claims).

2.1

Within 14 days of the date of this Agreement the Employer shall pay to the Contractor without any deduction or set-off the sum of one million, two hundred and eighty six thousand one hundred and seventeen pounds (£1,286,117) plus VAT in full and final settlement of:

2.1.1

Sums due from the Employer; and

2.1.2

Sums due from the Contractor.

3.

Current Status of the MOD Claims

3.1

The Employer warrants and undertakes to the Contractor that save for the exchanges of correspondence and conversations specifically identified and referred to in the Employer’s Agent’s facsimile letter to the Employer’s solicitors dated 9^th January 2004 (copy attached) it has not historically said or done anything and will not in the future say or do anything which might compromise, prejudice or adversely affect the pursuit, prosecution and/or enforcement of the MOD Claims against the MOD. The Employer warrants to the Contractor that as far as the Employer is aware it has not by act or omission done anything to prejudice the validity or enforceability of the MOD Claims under the Agreement for Lease and, save in relation to claims or cross-claims arising due to defects in the Works, the MOD have no claims or cross-claims against the Employer under or in connection with the Agreement for Lease which might be raised against the MOD Claims by way set-off or counterclaim.

4.

Pursuit of the MOD Claims

4.1

Henceforth the Contractor shall be entitled to pursue, prosecute and if necessary enforce the MOD claims against the MOD in lieu of the Employer. The Contractor shall be entitled to use the Employer’s name in pursuing, prosecuting and enforcing the MOD Claims against the MOD under the Agreement for Lease and in any ensuing adjudication, arbitration and/or litigation.

4.2

The Contractor shall have full and unfettered control and full and unfettered discretion as to the pursuit and conduct of the MOD Claims against the MOD and any ensuing adjudication arbitration and/or litigation. The Contractor shall also have full and unfettered discretion as to any compromise or settlement reached with the MOD and/or the enforcement of any award or judgment made against the MOD in any adjudication arbitration or litigation relating to the MOD claims.

4.3

The Employer shall provide or procure (at its own cost and/or expense) whatever information and/or assistance the Contractor may reasonably require in and about the pursuit of the MOD claims against the MOD …

4.4

The Employer will, if necessary, join with the Contractor in any adjudication, arbitration or litigation which the Contractor deems necessary or appropriate to the pursuit, prosecution and/or enforcement of the MOD claims against the MOD.

4.5

The Contractor shall indemnify the Employer in respect of any costs and disbursements which might be awarded against the Employer in any adjudication, arbitration and/or litigation commenced by the Contractor against the MOD in the name of the Employer.”

Clause 5 of the Settlement Agreement dealt with the proceeds from the MOD claims. The Claimant was entitled to the first £200,000 of any proceeds recovered by Shepherd from the MOD; thereafter Shepherd were entitled to all the proceeds of the MOD claims. Shepherd still had a full and unfettered right to compromise those claims, even at a figure less than £200,000. Clause 6 provided that receipt of proceeds from the MOD claims “will be in full and final settlement of any and all sums which might otherwise be due and/or payable by the employer to the contractor in respect of the MOD claims under the Building Contract …” Clause 6.2 excluded from the Settlement Agreement any claims in respect of defects or other faults in the work.

On 20 December 2005, the Claimant wrote to the Defendant to confirm that Shepherd had the full authority of the Claimant to pursue and prosecute the Claimant’s claims under the AFL. It asked the Defendant to deal with those claims “with Shepherd acting in our name and on our behalf”. In their substantive response of 20 January 2006, the Defendant expressed surprise and disappointment at this turn of events and said that they could see no basis for Shepherd acting in place of the Claimant against the Defendant because “there is no contractual relationship between Shepherd and MOD, only between L&R Ltd and MOD”. This response made a number of references to Tweeds, and their rejection in the past of some of the claims, but did not suggest that Tweeds had ever produced (or were entitled to produce) a final and binding determination of these issues. A similar letter was also sent out by the Defendant on 25 January.

On 6 March the Claimant referred to Shepherd’s intention to force them to adjudicate against the Defendant over the disputed Tenant’s Variations. The Claimant referred to the Settlement Agreement between themselves and Shepherd and asked the Defendant not to under-estimate Shepherd’s determination to pursue the claims. In their response of 16 March, the Defendant commented again on the absence of a contractual link between themselves and Shepherd and went on to say that “we would expect [the Claimant] to test rigorously by all necessary legal process any claim put to it by its contractor”. Again there was no reference to any final and binding determination by Tweeds. Although the correspondence continued, and the Defendant wrote again on 28 June, there was never any such reference by the Defendant.

It is unnecessary, for the purposes of this Judgment, to record this continuing chain of correspondence in any detail. I note that, on 7 November 2006, the Treasury Solicitor wrote to the Claimant’s solicitors making a variety of points about the contractual relationships and questions of agency. Again, although there is a reference to the certifiers in that letter, there was no suggestion that Tweeds had the right or power to issue binding certificates in relation to the Tenant’s Variations, much less an assertion that Issue 10 of the Schedule was such a certificate.

It is the Defendant’s case that the provision by Tweeds of Issue 10 of the Schedule, referred to in paragraphs 41-43 above, constituted a certificate under Clause 4.2 of the AFL and that, because such certificate did not contain a manifest error, it was final and binding pursuant to Clause 2.7 of the AFL. Issue 10 of the Schedule did not include any allowance for the three heads of claim now said by the Claimant in the Particulars of Claim to be Tenant’s Variations. Thus, it is the Defendant’s case that those three claims were rejected by Tweeds and cannot now be re-opened by the Claimant. The Claimant, on the other hand, contends that there was no independent certification system under the AFL and/or that a certificate was not a condition precedent to payment. In addition, the Claimant maintains that the parties operated on a common assumption that certificates were not required. In any event, the Claimant submits that, in form, substance and intent, Issue 10 was not a certificate under the AFL. If it was, the Claimant alleges that the parties’ failure to operate any certification procedure during the currency of the AFL means that the Defendant is now estopped from seeking to rely on Issue 10 of the Schedule.

The Certificate Issues have been formulated by the Parties as follows:

“1.

What is the proper construction of Clauses 2.7 and/or 4.2 of the AFL including:

(a)

what is the nature of a certificate referred to in Clause 4.2 and 2.7?

(b)

are certificates within the meaning of Clause 2.7 and/or 4.2 of the AFL binding as to the fact and amount of a Tenant’s Variation?

(c)

is a certificate a condition precedent to the Defendant’s Obligation to make payment to the Claimant under Clause 4.2 of the AFL?

2.

If a certificate was a condition precedent to the Defendant’s Obligation to pay under Clause 4.2 of the AFL then whether the parties (by their failure to operate the certification procedure in Clause 4.2 AFL) operated on a common assumption that certificates were not required and/or waived the requirement.

3.

Whether Issue 10 of the document known as “Schedule of Tenant’s Enhancements” issued on 14 October 2003 (“the Schedule”) by Tweeds was a certificate within the meaning of Clause 2.7 and/or Clause 4.2 of the AFL?”

I propose to deal firstly with the contractual regime under the AFL (Section E2 below) and the parties’ operation, or otherwise, of that procedure (Section E3 below). Thereafter I deal with the disputes arising out of Issue 10 of the Schedule, and, in particular, the question of whether or not it was a certificate at all (Section E4 below).

It is also worth noting at the outset what the Defendant does not allege. At first blush, it seemed to me surprising that the Defendant was not relying on the correspondence of October 2003 (paragraphs 41-44 above) in support of a case that the Claimant’s claims against them had been the subject of a full and final settlement agreement between the parties. Certainly the Claimant’s letter of 16 October (paragraph 42 above) might seem to suggest that payment of the invoice would constitute settlement of the claim for Tenant’s Variations. However, when I put that point to Miss Barwise QC at the outset of the hearing, she explained that it was not an argument that she could maintain, in view of the fact that the relevant correspondence, as she puts it, “just peters out”, without such an agreement being clearly reached or recorded. On a closer study of the documents, I consider that she was right to accept that such an argument could not succeed, because there was an absence of finality - a failure to tie up the loose ends. But it is not unimportant to bear in mind that the Defendant must advance its rather more convoluted argument in relation to Issue 10 of the Schedule because the straightforward submission, that a full and final settlement had been directly achieved between the parties, would fail on the facts and on the face of the documents.

For present purposes, the essence of the AFL was clear. The Defendant was entitled to ask for variations to the Landlord’s Works. If the requested variations met the criteria set out in Clause 4.1 of the AFL, then the Claimant was obliged to have them carried out. In return, the Defendant was bound to pay for those variations in accordance with the obligation to pay set out in the substantive part of Clause 4.2. In neither Clause 4.1 nor the substantive part of Clause 4.2 is there any reference to certificates or a certification regime.

The only reference to certificates comes in Clause 4.2(a). That is one of the three subsidiary sub-clauses within Clause 4.2. It appears to be concerned with when and how the costs of the Tenant’s Variations might be paid. Clause 4.2(a) contrasts with Clause 4.2(b), which is said to be concerned with “incidental expenses and professional fees”, and where there is no mention of any certificate being required for the purposes of payment. It should also be noted that none of these terms (namely “costs”, “incidental expenses”, and “professional fees”) were defined within the AFL.

I am unable to construe these provisions of the AFL as giving rise to an agreed certification regime, pursuant to which a certificate from Tweeds was a condition precedent to payment by the Defendant, and where the issue (or the non-issue) of such a certificate was a final and binding determination of both liability and quantum as between the Claimant and the Defendant. There are a number of reasons for that conclusion.

First, no such certification regime is set out in Clause 4.2. Under most standard forms of construction and engineering contracts, certification regimes are commonplace. The contract will spell out the particular issue that the certifier is required to decide; what information is to be provided to the certifier to allow him to reach that decision, and when it must be provided; and the circumstances in which the certifier will then decide, on the basis of the information provided by both sides, the answer to the issue before him. The certificate is the final step in a process designed to ensure fairness, with the mechanism spelled out carefully in the contract itself. Moreover, where the certificate is anything other than an interim or provisional statement of the position – if it is intended to be final, and oust the jurisdiction of the courts or an arbitrator to review it – then that must be made plain in the clearest possible terms.

There is no such mechanism here. For example, there is nothing to indicate what precisely it is that the certifier is to decide, or by when; nothing to say what information had to be provided to the certifier; nothing even to allow the Defendant to provide any information at all to the Employer’s Agent, to set out its position for the Agent’s consideration. There is nothing in the AFL to indicate what the Employer’s Agent will do with any information that it receives and the time scale for determination of any decision that it is required to make. There is simply insufficient provision within Clause 4.2 to lead me to conclude that it was intended to provide for a freestanding certification mechanism.

Secondly, on the face of Clause 4.2, the certificate was only relevant in relation to the payment of “costs”. As I have already pointed out, the payment of “incidental expenses and professional fees” did not require any sort of certificate. There is also confusion because the expression “incidental expenses” appears in both clause 4.2(a) and 4.2(b). I consider that it is contrary to common sense to construe the AFL as meaning that a certificate was a condition precedent to payment of an item of cost (whatever that was) but not an item of expenses or professional fees. Given that these terms are not defined, that would simply be a recipe for confusion, uncertainty and argument.

Thirdly, there is nothing in Clause 4.2 which suggests that a certificate was a condition precedent to payment and that, without such a certificate, the Claimant could carry out expensive Tenant’s Variations but not be entitled to be paid for them. It is axiomatic that, if a certificate is intended to be a condition precedent to payment, the contract must demonstrate such an intention by express words, or upon reading the document as a whole: see, for example, Costain Building and Civil Engineering v Scottish Rugby Union [1993] 69 BLR 80 and Henry Boot Construction Ltd v Alston Combined Cycles Ltd [2005] 1 WLR 3850. I reject the suggestion that, on the true construction of this contract, a certificate that merits merely a passing reference in the subsidiary provision at Clause 4.2(a) was a condition precedent to payment. Similarly, it must be clear that, if the certificate relied on is said to be a final certificate, this is plain from the face of the certificate itself: see, for example, Crown Estates Commissioners v John Mowlem & Co Ltd [1994] 70 BLR 1. Again there is nothing here to suggest that the certificate referred to in Clause 4.2(a) was intended to be final.

On this point, Ms Barwise QC referred to the provision at Clause 2.7 of the AFL, which provided that, save in the case of manifest error, an Employer’s Agent’s certificate was to be “final and binding”. But, as noted in paragraph 12 above, such a general provision was expressly qualified by the words “unless inconsistent with the context”. Thus, if there was a certificate under Clause 4.2(a), it would not necessarily be final and binding: it would depend upon the context. Accordingly, it does not seem to me that Clause 2.7 did not necessarily have the wide, and potentially draconian, effect that Ms Barwise QC urged upon me.

If I am right, and Clause 4.2 did not envisage a separate or freestanding certification regime, then how should the Court construe the reference to certificates at Clause 4.2(a)? Again, I consider that the answer to that is relatively straightforward. It seems to me that Clause 4.2 is largely concerned with the timing of the payments by the Defendant to the Claimant in respect of Tenant’s Variations. The substantive part of Clause 4.2 is concerned with payment of costs, incidental expenses and professional fees “as they are incurred”. The clause then goes on to say “as to which …” and then sets out the sub-clauses (a) – (c). I consider that those introductory words to the three sub-clauses are concerned with timing: the words make plain that they are giving details of when, for the purposes of payment under the AFL, the costs, expenses and fees “are incurred”, and when thereafter they should be paid. They are provisions concerned with the timing of payment, as opposed to liability for payment, much less a freestanding certification regime as to liability and quantum.

So what are the certificates referred to? I am in no doubt that they are the certificates issued under the Building Contract. Tweeds were obliged to issue interim certificates under the Building Contract between the Claimant and Shepherd. Those certificates might, from time to time, include elements of cost referable to the Tenant’s Variations. Where they did, then the Defendant was liable to reimburse the Claimant for such costs within 30 days of the delivery of the certificates. That is a perfectly sensible and workable solution.

Moreover, that interpretation also explains why ‘costs’ are dealt with separately from ‘incidental expenses’ and ‘professional fees’ in Clause 4.2 of the AFL. The certificates issued under the Building Contract relate to the costs incurred by the Claimant in paying Shepherd to carry out the Tenant’s Variations. But those certificates would not include the professional fees of Tweeds and others referable to the Tenant’s Variations, nor would it include those expenses that may have been incurred by the Claimant itself. That is why Clause 4.2 differentiates between the costs, which would be the subject of Tweeds’ certificates under the Building Contract, and the professional fees and incidental expenses, which would not. For all those reasons, therefore, I conclude that, as a matter of construction of Clause 4.2, there was no freestanding certification regime and the reference there to the certificates was a reference to the certificates issued by the Employer’s Agent Tweeds, under the Building Contract.

The court should always be wary of endeavouring to test its preferred construction of a contract clause or clauses by way of hypothetical examples, because it is often possible to demonstrate the validity of almost any construction of a clause by means of a far-fetched or unlikely hypothesis. However, during the course of argument, I did put to Ms Barwise QC an example of what I considered to be the unworkability of the Defendant’s construction, and which seemed to me to be anything but far-fetched. On her construction, Tweeds might have concluded that a large Tenant’s Variation, said by Shepherd to be worth £1 million, was not in fact a variation at all, and instead arose as part of ordinary design development which, under this form of contract, would arguably be Shepherd’s responsibility. Thus Tweeds might certify nothing for it under the Building Contract (or under the AFL if, contrary to my primary view, there was a separate certification regime). In such circumstances, Shepherd might then have pursued the Claimant in adjudication or arbitration under the Building Contract. What if the adjudicator or arbitrator then concluded that Shepherd was right and that the Claimant was obliged to pay Shepherd £1 million for these additional works? As Ms Barwise QC confirmed, on the Defendant’s construction of the contract, that £1 million, although referable to Tenant’s Variations which the Defendant requested and in respect of which the Defendant has had the benefit, would remain the liability of the Claimant and could not be passed on to the Defendant, because Tweeds had (wrongly) certified that it was not a Tenant’s Variation.

In my judgment, such a result offends against common sense. I should only be prepared to adopt a construction of the AFL that would lead to such an outcome if the words used by the parties were clearly intended to have that result. For the reasons that I have given, I am entirely satisfied that they do not and that, on the contrary, there was no freestanding certification regime and that the Defendant’s obligation was to pay for the Tenant’s Variations which they ordered. In the light of this conclusion, it is strictly unnecessary to go on to consider the other arguments that were raised in relation to the Certificate Issues. However, in deference to the parties’ careful submission, and for completeness, I deal below with those alternative arguments.

Of course, the mere fact that the parties have conducted themselves in a way that is consistent with one party’s construction of the contract, and inconsistent with the other party’s construction, does not necessarily mean that the former’s construction is right and the latter’s construction is wrong. On one view, post-contract conduct is irrelevant. That said, it is, I think, of some significance in the present case that the parties conducted themselves entirely in accordance with the Claimant’s construction of the AFL, and never at any time operated on the basis that the Tweeds’ certificates were final, binding and determinative of their rights.

I have already said that, as a matter of construction, there was nothing in the AFL which gave the Defendant any right to make representations to either the Claimant or Tweeds in respect of Tenant’s Variations. That omission was plain and apparent from the outset. Thus the parties had to come up with an extra-contractual mechanism for endeavouring, very sensibly, to reach agreement as to the nature and scope of any Tenant’s Variations. That is why, as set out in Section C above, there were detailed discussions and exchanges of view between the Claimant, the Defendant, the Defendant’s professional advisers (Babtie), their quantity surveyors (JSP) and Tweeds, as to the nature and extent of the Tenant’s Variations. In the absence of any contractual mechanism to arrive at a valuation, the parties sought to achieve the same result by discussion and agreement. This was entirely sensible, although it should be remembered that, as was said in Tweeds’ email of 14 October (paragraph 41 above) the Claimant was remarkably indulgent in allowing the process of agreement to take place at all, let alone to take place over such a lengthy period.

The parties did not conduct themselves on the basis that, in some way, there was a freestanding certification process under Clause 4.2 and/or that Tweeds somehow had the ultimate say in whether or not an item was a Tenant’s Variation or not. The correspondence from Mr Hutchings and Mr Waterhouse repeatedly made plain the Defendant’s position that it would accept some items but not others, and that it expected to reach some form of agreement with Tweeds. As I have already said, it is impossible to read that correspondence as being written on the basis that, in truth, Tweeds had the power to make a final and binding determination of such matters. That is not what the correspondence says because, I find, that is not what either Mr Hutchings or Mr Waterhouse believed to be the position at the time.

Furthermore, there was complete confusion as to what the certificates were or might be under Clause 4.2. Mr Waterhouse thought that the invoices issued by the Claimant were the certificates, but it was difficult to see how that could be the case given that they did not emanate from Tweeds. In any event, as noted above, the first three such invoices/certificates were ignored by the Defendant, in clear breach of Clause 4.2. Tweeds themselves appeared to have reached the same conclusion as me: that the certificates under Clause 4.2 were either the interim certificates issued under the Building Contract (see Tweeds’ email of 25 September 2002, set out at paragraph 29 above); or a confirmation from Tweeds that the costs were certified in an interim certificate payable to the contractor under the Building Contract (see the Tweeds email of 14 October 2003, set out at paragraph 41 above). But the one thing that all these different views had in common was that they did not envisage a separate freestanding certificate from Tweeds, issued under the AFL, relating to the Tenant’s Variations, which was final and binding on both parties.

Accordingly, I find that there was a common assumption between the parties that there was no freestanding certification regime under the AFL which produced certificates that were final and binding on both parties. The parties acted on that common assumption. Thus, even if I had reached a different conclusion on the question of construction, I would have found that the Defendant is now estopped from suggesting otherwise.

There have been a number of cases concerned with whether a particular document was or was not a certificate. In Token Construction Co Ltd v Charlton Estates Ltd [1973] 1 BLR 48, the Court of Appeal was concerned with whether or not an architect had certified that the works ought to have been completed by a certain date. The letter in question talked about extensions of time and the like but it had been held by Lawson J not to comprise a certificate under the contract. Edmund Davies LJ said:

“That clause required him to ‘certify’ in writing. While no set form of certificate is provided, unlike that under Clause 21(a) and (b), it must clearly appear that the document relied upon is the physical expression of a certifying process. One should, therefore, have some regard to the factors of ‘form’, ‘substance’ and ‘intent’ of which Mr Justice Devlin spoke in the admittedly different circumstances of Minster Trust Ltd v Traps Tractors Ltd [1954] 1 WLR 963. Or, to adopt a passage in Hudson (10^th Edition, page 479), the document should be ‘the expression in a definite form of the exercise of the … opinion … of the … architect … in relation to some matter provided for by the terms of the contract’. And, as Mr Garland accepted, it must be free from ambiguity.”

The Court of Appeal concluded that the letter did not amount to a certificate because the letter did not purport to certify that the works ought reasonably to have been completed by a certain date, either in form or substance or intent.

It is clear that the Court, when considering whether or not a particular document is, or is not, a certificate, or a particular kind of certificate, can have regard to the surrounding circumstances. Thus, in London Borough of Merton v Lowe [1981] 18 BLR 130, the debate was whether or not the certificate was a final certificate. There was nothing on the face of the certificate itself to say that it was a final certificate. However the covering letter expressly referred to the enclosure as a final certificate. It was held that, in all the circumstances, that is what it was.

In B R Cantrell v Wright & Fuller Ltd [2003] BLR 412, HHJ Thornton QC was also dealing with a dispute about whether or not a particular document was a final certificate. He also concluded that, for a document to be a final certificate, it must be one in form, substance and intent. If on its face it was clear and unambiguous, there would be no need to consider extraneous contemporaneous material. If, on the other hand, it was ambiguous, regard could be had to covering letters or contemporaneous documentation produced as part of the certifying process, but only if that additional documentation was properly to be regarded as being issued as part of the certificate. In that case he held that the documentation, on which reliance had been placed to explain the certificate, was not part of the certification process. Therefore he concluded that it was not permissible for the arbitrator to have regard to the contents of that material in construing the document alleged to be the certificate.

The parties are agreed that the first nine Issues of the Schedule were not certificates under Clause 4.2 of the AFL and were not regarded by the parties as such. What then was different about Issue 10 of the Schedule? What was it that made Issue 10 a Certificate (and, on the Defendant’s case, a final certificate at that) when its predecessors were no such thing?

In my judgment, there was nothing whatsoever that was different about Issue 10 and nothing that distinguishes it from any of its predecessors. It did not say that it was a certificate. It was patently not in final form because, as noted in paragraph 43 above, there were so many unanswered questions remaining outstanding on the face of the Schedule itself. There was nothing on the face of the Schedule which indicated that Issue 10 was anything other than a further issue of a rolling document.

For these reasons, I am in no doubt that Issue 10 was not a certificate in form, or substance or intent. It wholly fails to meet the relevant test set out in Token.

The Defendant maintains that Issue 10 of the Schedule must be read in connection with Tweeds’ email of 14 October 2003 and that, when they are read together, it makes plain that it was intended to be a Final Certificate. The words particularly relied on are:

“It is our intention to cease further discussions with your cost advisors on the minor issues to be agreed with them and to seek recovery of these monies as provided for within the Lease.”

I reject the suggestion that these words turn Issue 10 of the Schedule into a Final Certificate. First, I do not believe that the email was part of the certification process in the sense envisaged by HHJ Thornton in BR Cantrell. Moreover, it seems to me that, in the email, Mr Manning was merely stating that, in relation to the minor items only, the long drawn out discussions between Tweeds and the Defendant (which had been an indulgence on the part of the Claimant and in respect of which the Defendant had had no entitlement whatsoever) ought now to come to an end. He made no such statement in relation to anything other than the minor items, nor did he say that Issue 10 was a final determination in place of those ‘further discussions’. Furthermore, given that the whole discussion process was something that fell outside the contract, Tweeds were entitled to bring it to an end at any time. For these reasons, therefore, I reject the submission that these words turned Issue 10 of the Schedule into a final certificate.

There was a further issue between the parties to the effect that if, contrary to the views expressed above, Issue 10 of the Schedule was a certificate under Clause 4.2 of the AFL, the Defendant was estopped from relying upon it as such. It is unnecessary for me to deal with this aspect of the case, given my firm view that Issue 10 of the Schedule was not a certificate at all, much less a final and binding certificate, the content of which neither party was entitled to challenge.

As to Preliminary Issue 1, I conclude that the certificate referred to in the subsidiary clauses of Clause 4.2 of the AFL was a reference to the certificates under the Building Contract. They were not binding as to the fact and/or amount of a Tenant’s Variation and they were not a condition precedent to the Defendant’s obligation to pay for the Tenant’s Variations.

As to Preliminary Issue 2, if I am wrong about the absence of a certification regime under Clause 4.2, then I am in no doubt that the parties operated on a common assumption that certificates were not required and/or waived that requirement.

As to Preliminary Issue 3, for the reasons set at paragraphs 74-81 above, I am in no doubt that Issue 10 of the Schedule was not a certificate within the meaning of Clauses 2.7 and/or 4.2 of the AFL.

Before turning to deal with the Capacity and the ‘No Loss’ issues, I should make one overarching observation. In pursuing these defences, the Defendant accepts that it is wholly reliant upon the terms of the Settlement Agreement between the Claimant and Shepherd. Thus the Defendant, who was not a party to the Settlement Agreement, is seeking to rely on its terms as giving rise to a number of defences to the claims now made against it. Moreover, despite the clear intention within the Settlement Agreement to preserve and maintain what are there called ‘the MOD claims’, and which are the very claims that are brought in these proceedings, the Defendant argues that, as a consequence of the drafting, they have not been preserved and have in fact been irretrievably lost. I am bound to say that this is an unpromising and unattractive stance. It is a result which, as per Nicholls LJ in Hydrocarbons v Cammell Laird & Ors [1991] 53 BLR 84, I consider that the Court should strive to avoid.

Furthermore, the settlement between the Claimant and Shepherd, pursuant to which, on its face, all but the MOD claims were compromised, was a sensible commercial resolution of the disputes between the parties, and is precisely the sort of agreement which this Court should encourage parties to reach. The construction industry in the UK depends upon clear contractual chains between employer, developer, main contractor, principal sub-contractors, and specialist sub-contractors and suppliers, and this Court should be very wary of finding that an agreement up the line provides those further down the contractual chain with what might be called a ‘windfall’ defence. In the present case, it would therefore be most unfortunate if a construction of the Settlement Agreement led to the disappearance of the MOD

The Capacity Issues are as follows:

“4.

Whether the present proceedings are brought by the Claimant pursuant to the name-borrowing arrangement contained in Clause 4 of the Settlement Agreement between the Claimant and Shepherd dated 17 May 2004.

5.

Whether the Claimant is entitled to pursue proceedings on the basis of name-borrowing, or the alleged agency, or whether proceedings brought on either basis are illegitimate due to:

(a)

the Defendant not having been informed/not having consented to such procedure;

(b)

such procedure being contrary to the express/implied terms of the AFL;

(c)

the Settlement Agreement being unlawful either on the grounds that it is champertous/akin to an unlawful Contingency fee arrangement;

(d)

in all the circumstances, the present proceedings are an abuse of process.” (Footnote: ²)

The Claimant brings this claim pursuant to the express terms of the AFL. In essence, the Claimant maintains that the Defendant is liable to pay for the Tenant’s Variations set out in the Particulars of Claim. Had there been no Settlement Agreement, there can be no doubt that the Claimant would have had the capacity to bring these proceedings pursuant to the AFL: indeed, that was expressly accepted during argument by Ms Barwise QC. The question then becomes whether the terms of the Settlement Agreement make any difference to the Claimant’s prima facie right to sue under the AFL.

On behalf of the Defendant, Ms Barwise QC submitted that the Claimant had given up its ordinary rights to pursue the Defendant under the AFL, principally because of the first sentence of Clause 4.1 of the Settlement Agreement, and in particular the words “in lieu of the Employer”. She also said that the wide control given to Shepherd in Clauses 4.2 and the following only served to support the conclusion that the Claimant had given up its rights to pursue the Defendant.

On behalf of the Claimant, Mr Darling QC maintains that the Settlement Agreement simply regulates the relationship between the Claimant and Shepherd and thereby regulates Shepherd’s involvement in this litigation. He says that, although the claim is brought by the Claimant, Shepherd have the right, pursuant to the Settlement Agreement, to give instructions to the Claimant’s solicitors and to control the litigation on behalf of the Claimant. Thus, he says, the words “in lieu of the Employer” mean that the Claimant cannot now disassociate itself from Shepherd and purport to run these proceedings without the involvement, and indeed the control, of Shepherd. For such purposes, Shepherd act as the Claimant’s agent. But at the same time, he says, it is nonsense to suggest that the Claimant now no longer has a right to pursue, prosecute and if necessary enforce the MOD claims pursuant to the AFL, with Shepherd controlling that pursuit.

I consider that Mr Darling QC’s construction of the Settlement Agreement (and clauses 4.1 and 4.2 in particular) is to be preferred. I consider that the words “in lieu of the Employer” are designed to convey the agreement that it will be Shepherd (as the Claimant’s agent) and not the Claimant itself, who will be controlling the litigation with the Defendant. It strains the language far beyond the words used to suggest that they were designed to convey that the Claimant was giving up the entirety of its substantive and legal rights against the Defendant; indeed, it seems to me that such a construction would be contrary to the whole purpose of the Settlement Agreement, which was expressly designed to preserve the MOD claims. Furthermore, the second sentence in clause 4.1 of the Settlement Agreement makes plain that the Claimant still retains the right to pursue/ prosecute/enforce those claims against the Defendant.

Moreover, the construction postulated by Mr Darling QC leads to an unremarkable, and desirable, result. It will often be the case that those up the contractual chain, who have the necessary privity of contract to seek legal redress, will institute claims against the other contracting party in which they have little or no direct interest. Those claims will often be controlled or run by the party that does have an interest in the outcome. Thus the main contractor will pursue the employer in respect of a claim which relates almost entirely to a particular sub-contractor or supplier and which might well be controlled by that sub-contractor, pursuant to the sort of agreement reached here between the Claimant and Shepherd by way of the Settlement Agreement.

Provided that such an arrangement is not champertous, and provided that the party bringing the claim does not derive some sort of unfair benefit or advantage from the arrangement with its sub-contractor or its sub-supplier, then I am bound to say that I can see nothing at all wrong with such a process. Take the facts of the present case. Once the claims were intimated, the Defendant was very quick to say that, since it had no privity of contract with Shepherd, the only claims that could be brought against it were by the Claimant. That was obviously right. The Claimant now brings a claim where the majority of the losses have actually been incurred by Shepherd, in respect of which, if the disputed items are variations, the Claimant would be liable to Shepherd under the Building Contract. In order, therefore, to regulate the Claimant’s relationship with Shepherd, the parties entered into a Settlement Agreement which gives Shepherd, who has the most to lose if the litigation goes awry, control of these proceedings.

On the face of it, I can see nothing whatever wrong with such an arrangement. It is not name-borrowing in the conventional sense: it is an action brought by the one party who can pursue the Defendant, and whose relationship with the party with the most to gain (and the most to lose) is regulated by a separate arrangement to which the Defendant is (quite rightly) not a party. It does not give rise to any unjust enrichment on the part of the Claimant. Furthermore, in my judgment, there is nothing in either the AFL or the Settlement Agreement which runs counter to these conclusions.

Accordingly, as a matter of construction of the Settlement Agreement, I reject the submission that the Claimant somehow gave away its rights against the Defendant by signing the Settlement Agreement with Shepherd. For the reasons I have given, I consider that it would require clear words for one party (A), irrevocably to give away its right to pursue another party (B), particularly where (B) is not a party to the Settlement Agreement. Such words cannot be found here. These conclusions make it unnecessary for me to spend too much time dealing with the various legal principles that were invoked on both sides relating to the Claimant’s capacity. However, in deference to the detailed submissions that were made, I ought to deal at least briefly with each of those topics.

The Defendant’s starting point was that there was a general rule that a party to a contract must only bring its own claims, and that the three exceptions to this general rule, namely subrogation, assignment, and name-borrowing, did not apply in the present case. No authority was cited for this general proposition. It obviously begs the question of what a party’s claim under a contract might involve. As I have already said, in the present case, it seems to me that the Claimant’s claim in the present case will be largely made up of the losses incurred by Shepherd in carrying out the Tenant’s Variations, for which the Claimant is liable to reimburse Shepherd under the Building Contract. But since (subject to the No Loss arguments) the amounts recovered by the Claimant will be payable to Shepherd (save for the first £200,000), that liability to Shepherd, incurred as a result of Tenant’s Variations under the AFL, will be met.

It is unnecessary for me to deal with subrogation and assignment because it is accepted that this is not a subrogated claim and it is also accepted that there has been no assignment in the present case. However, assignment is relevant on one issue. One of the cornerstones of the submissions advanced by Ms Barwise QC on the Capacity issue was that it was somehow illegitimate and unfair for the Claimant to advance these claims, against the Defendant when they originate with Shepherd and were claims in which (so it was said) the Claimant had little or no faith. Leaving aside the issue of fact as to whether, in truth, the Claimant did believe in the validity of these claims, it is I think wrong in principle for the Defendant to submit that it had an entitlement that the Claimant would ‘filter out’ or edit Shepherd’s claims, and only pass on those in which they had faith themselves. There is nothing in the AFL which provides for such a process. In addition, I consider that it is an unrealistic expectation for a building owner to believe that the developer will only pass on the best of the contractor’s claims, with the developer taking the consequential risk that those claims not passed on might subsequently turn out to be legitimate. In any event, it was always open to the Claimant to assign its rights and obligations under the AFL to Shepherd, or to assign to Shepherd the right to bring the MOD claims only against the Defendant. Thus I accept the submissions made by Mr Darling QC that, because an assignment could have taken place which would have meant that Shepherd’s unfiltered claims would have had to have been answered by the Defendant, the Defendant had no entitlement under the AFL to receive only “filtered” claims.

Although I heard a good deal of argument about name-borrowing, and was referred to a number of authorities, I am doubtful as to whether they are relevant in the present case. On behalf of the Claimant, Mr Darling QC accepts that this is not a conventional name-borrowing case. I consider that he is right to make that concession. In all of the authorities, such as NRHA v Derek Crouch [1984] 1 QB 644, and Belgravia Property Company Limited v S & R (London Ltd) [2001] BLR 424, the name-borrowing arrangements that were the subject of dispute were entirely contractual. In those cases, the employer had agreed to a situation whereby, in certain circumstances, the sub-contractor would borrow the main (or managing) contractor’s name and bring proceedings against the employer. It is for that reason that, for example, Browne- Wilkinson LJ in Crouch said at page 665 that:

“Since the health authority knew the terms of the sub-contract and directed Crouch to enter into it, the health authority cannot be heard to object to Crown arbitrating in Crouch’s name pursuant to the provisions of the sub-contract.”

Ms Barwise QC relies on that observation, and similar passages in the other judgments, to argue that the Defendant’s consent to any name-borrowing arrangement was required in the present case and that, because such consent was not sought and/or given, any claim brought here on a name-borrowing basis must be illegitimate. I consider that that submission overlooks the fact that the reported cases are concerned with a name-borrowing arrangement agreed at the outset and enshrined in the contract. In the present case, there was no such agreement. Thus the claim here cannot be brought on a name-borrowing basis of the sort described in the authorities. Indeed, as I have already said, Mr Darling QC does not submit otherwise.

It appeared that the Defendant was arguing that the arrangement between the Claimant and Shepherd, enshrined in the Settlement Agreement, was such that it required the Defendant’s consent and that, without such consent, the claims could not be brought by the Claimant pursuant to the terms of that Agreement. I do not accept that such consent was required. It seems to me that Mr Darling QC was right to say that these claims remain the claims of the Claimant, and that the fact that they are being controlled by Shepherd, for the reasons noted above, does not invalidate the claims being made or give rise to any question as to the Claimant’s capacity to bring the claims under the AFL. But it is the next issue that then becomes the most important: does the relationship between the Claimant and Shepherd, regulated as it is by the Settlement Agreement, mean that the claims in these proceedings are champertous?

A person is guilty of maintenance if he supports litigation in which he has no legitimate interest without just cause or excuse: see Hill v Archbold [1968] 1 QB 686 and Trendtex Trading Corp v Credit Suisse [1980] 1 QB 629. Champerty has been described as “an aggravated form of maintenance” and occurs when the person maintaining another stipulates for a share of the proceeds of the action: see Giles v Thompson [1994] 1 AC 142. What these principles seek to avoid is ‘the wanton and officious intermeddling’ with the disputes of others in which the inter-meddler has no interest whatsoever and where the assistance that he renders to the other party is without justification or excuse. In commercial cases, the courts have recognised that a sufficient interest does not have to be proprietary in character; in Trendtex, Oliver LJ concluded that maintenance would be justified “wherever the maintainer has a genuine pre-existing financial interest in maintaining the solvency of the person whose action he maintains”.

Many of the relevant authorities in this area of the law have been helpfully summarised by Underhill J in Mansell v Robinson [2007] EWHC 101 (QB). He concluded that:

On behalf of the Defendant, Ms Barwise QC maintains that the Settlement Agreement has all the hallmarks of champerty. She contends that Shepherd is an officious inter-meddler who has complete control of the litigation. She also points to the fact that they are sharing the proceeds of any successful claims against the defendant. Separately, she suggests that the Settlement Agreement at least infers that the claims are not genuine.

Ms Barwise QC also submits that the warranty provided at Clause 3.1 of the Settlement Agreement, to the effect that not only has the Claimant done nothing to prejudice the claims but that, in the future, the Claimant will not do anything to prejudice such claims, means that the Claimant’s own witnesses will be obliged to give a less than frank account of the claims when giving evidence. She therefore says that that demonstrates that the proceedings have a tendency to corrupt public justice.

In response, Mr Darling QC points out that the assertion of champerty only arose for the first time in the Defendant’s opening submissions for the purposes of this hearing and that, if the Settlement Agreement was truly so offensive, it might have been expected that this would have occurred to the Defendant rather sooner. He submits that there can be no suggestion that Shepherd have no commercial interest in these claims or that they could get any sort of windfall in consequence of these proceedings. He submits that Shepherd will simply recover those sums to which they are entitled for carrying out the Tenant’s Variations. He says that as a result of Shepherd’s interest, they cannot be described as a “previously disinterested third party” of the kind described in Giles v Thompson.

As to the warranty point, Mr Darling QC submits that clause 3.1 is a normal co-operation clause designed to ensure that the Claimant provides reasonable assistance to the bringing of the claims. He disputes that the clause could be extended in the way advanced by the Defendant, or that it could be utilised to stop somebody giving honest or truthful evidence. However, he says that if the provision was regarded as champertous then it could be severed from the rest of the settlement agreement, in accordance with the principles of severance identified by Underhill J in Mansell.

My first conclusion is that Shepherd have had, and retain, an entirely legitimate financial interest in the outcome of these proceedings. They are not a ‘previously disinterested third party’. They were the contractor’s who provided the benefit of the alleged Tenant’s Variations to the Defendant; they were the party who incurred costs in carrying out those works for which, on their own case, they have not been reimbursed. I therefore accept Mr Darling QC’s submission that the position of Shepherd (the alleged inter-meddler in the present case) is as far removed from maintenance and champerty as it is possible to get.

At paragraph 57 of her written submissions, Ms Barwise QC contends that, by reason of the Settlement Agreement, “Shepherd now no longer has a ‘legitimate interest’ in the claims which it compromised with [the Claimant] on the basis that it received no money for them”. This appears to suggest that, as a result of the Settlement Agreement, Shepherd have no continuing interest in the outcome of what the Settlement Agreement calls “the MOD claims”. I reject that submission. It is plain that Shepherd settled all their claims against the Claimant, with the exception of the MOD claims, which have been expressly preserved by the clear terms of the Settlement Agreement. Thus, to the extent that the arguments as to maintenance and champerty advanced by the Defendant are predicated on the assumption that Shepherd has suffered no loss in respect of the Tenant’s Variations, I consider that such an assumption is contrary to the underlying purpose and clear terms of the Settlement Agreement. I reject such a submission.

Secondly, and on a related matter, I am in no doubt that the Settlement Agreement does not generally have the tendency to corrupt public justice. On the contrary, it is simply designed to ensure that the party who has, on its own case, done the work and suffered the loss, can attempt to obtain reimbursement for the costs that it has incurred from the party who has had the benefit of those works. To that extent, I am bound to say that I consider it fanciful to suggest that this is a case where champerty and maintenance could even be said to arise. We are a long way from the sort of situation summarised by Romer J in Rees v De Bernardy [1896] 2 Ch 427.

I do accept Ms Barwise QC’s submission that Clause 3.1 might, on its face, give rise to a concern that the Claimant’s witnesses might feel a tension between the warranty and their obligation to tell the truth to the Court. However, it is, I think, necessary to be realistic about this. First, this may well be a case in which no representative of the Claimant company gives evidence at all, since it will be Shepherd who will be providing all the factual evidence relating to the claims for Tenant’s Variations and describing how they arose. Next, although Clause 3.1 is worded rather loosely, it might be thought to be a harsh conclusion that such a warranty could affect the actual giving of evidence under oath. It seems to me that, on its proper construction, it would not. I therefore understand why this particular point was taken but I consider, on its true construction, that there would ultimately be no difficulty with it, and it would not affect the reliability of any evidence called by or from the Claimant. I find that the warranty does not have any of the hallmarks of corruption. Moreover, if I had formed the view that Clause 3.1 did create a potential threat to the public administration of justice, then it would have been perfectly possible for me to sever Clause 3.1 from the rest of the Settlement Agreement. I do not accept the suggestion that severance of clause 3.1 would not be possible because it was somehow integral to the Agreement as a whole; on the contrary, it seems to me that what matters most for the purposes of the Settlement Agreement between the Claimant and Shepherd are clauses 4, 5 and 6.

For these reasons, I reject the suggestion that the Settlement Agreement has any hallmarks of champerty. On the contrary, I consider that it is the sort of sensible commercial agreement reached between what is, in effect, the main contractor and the sub-contractor, so as to allow the sub-contractor to pursue the claims which it knows about, and in respect of which it has suffered the loss, against the ultimate paymaster. It is not champertous.

In view of the conclusions so far expressed in this Judgment, it is unnecessary for me to deal in any detail with the wide range of other points made on behalf of the Defendant. I should, however, say something about the Defendant’s argument that the proceedings were an abuse of process because the claims pursued were speculative and would therefore bring the administration of justice into disrepute. Reliance was placed on the decision of the House of Lords in Johnson v Gore Wood [2002] 2 AC 1 in support of the submission that it would be unconscionable to allow such claims to continue. In addition, it was suggested, by reference to Abraham v Thompson, that it was an abuse of the process to allow the Claimant to bring a claim in which it did not believe. The same point was put another way by reference to the Courts and Legal Services Act 1990, with the suggestion that, by analogy, the claim is unlawful because the third party, Shepherd, will maintain the action and recover sums from it in a way that is analogous to a contingency fee.

The principal point that underlined all these additional submissions was the submission by Ms Barwise QC that, on the face of the Settlement Agreement, it was plain that the Claimant did not believe in these claims and that therefore the action was speculative. In particular, she relied upon the letters attached to the Settlement Agreement, which included the letter from Tweeds of 9 January 2004 (paragraph 41 above) which suggested that at least some of the claims now being made were “padding”.

In my judgment, it is an unfair reading of the Settlement Agreement to suggest that the Claimant, as distinct from Tweeds, considered the claims now being made to be speculative or likely to fail. The correspondence is attached to the Settlement Agreement to demonstrate what representations had been made by the Claimant and/or their agents, Tweeds, to the Defendant in respect of the merits of these claims. The correspondence is designed to show that the Claimant had not said or done anything which would be fatal to the MOD claims which Shepherd intended to pursue. There is nothing in that correspondence, and certainly nothing in the Settlement Agreement itself, which could be construed as saying that the Claimant thought that the claims would fail. The mere fact that Tweeds took the view that some of the claims were unlikely to succeed seems to me to be nothing to the point. Moreover, that same letter from Tweeds makes clear that what I am told is the biggest head of claim, namely the space planning claim, is a valid claim in principle, a point completely contrary to the Defendant’s submission.

Furthermore, even if the Settlement Agreement could be construed as demonstrating that the Claimant had little faith in these claims, such a construction would be very far from a conclusion that the claims were an abuse of the process. The cases relied on, such as Hunter v Chief Constable of the West Midlands [1982] AC 529, are extreme cases where an abuse was plain and clear. On any view, this is a commercial situation far removed from that line of authority. Some of these heads of claim might be regarded as stronger than others, but that is hardly unusual, and does not make the claims ‘speculative’ in the sense in which that word is used in the authorities. I therefore reject the suggestion that the pursuit of these commercial claims is or could be an abuse of process.

As to the contingency fee point, it is plain that the Courts and Legal Services Act 1990 does not apply to the facts of this case: see the judgment of Lord Phillips in Factortame at page 1125. In any event, all the cases about contingency fees are concerned with fees, that is to say costs. They are not concerned with the substance of the claims themselves (damages, debts, monies due etc). Accordingly, it seems to me that is another reason why the Courts and Legal Services Act is irrelevant to the claims now being brought by the Claimant and certainly cannot lead to a conclusion that such claims are invalid or illegitimate.

As to Issue 4, the present proceedings are brought by the Claimant pursuant to the relationship between the Claimant and Shepherd set out in the Settlement Agreement. That is a legitimate arrangement which is not name-borrowing in the conventional sense of that term. Shepherd is entitled to act as the agent of the Claimant in controlling the litigation.

As to Issue 5, the proceedings are not illegitimate because the Defendant was not a party to the Settlement Agreement and had not been informed or consented to it. The Settlement Agreement is not contrary to the AFL and it is not champertous or akin to an unlawful contingency fee arrangement. The proceedings are not an abuse of the process of the Court.

The Preliminary Issue which arises is as follows:

“Whether the effect of the Settlement Agreement is that no further sum is due from the Claimant to Shepherd with the result that the Claimant has incurred no cost or expense as defined by Clause 4.2 of the AFL and therefore has no entitlement to claim against the Defendant under that Clause.”

As Mr Darling QC pointed out towards the close of his oral submissions, this issue arises because the Defendant is seeking to rely on the terms of the Settlement Agreement to argue that the Claimant has suffered no recoverable loss, and that is to be contrasted with Defendant’s stance under the Capacity Issues, pursuant to which it maintains that the Settlement Agreement was illegitimate (and therefore presumably void) because it was champertous. There is therefore an element of truth in the suggestion that, by raising these points, the Defendant is seeking both to reprobate and approbate the Settlement Agreement (to which it was not in any event a party). I must inevitably view such a course with a certain degree of scepticism.

The Defendant’s case on this issue was based fairly and squarely on the decision of the Court of Appeal in Hydrocarbons Great Britain v Cammell Laird & Ors [1991] 53 BLR 84. The case was concerned with an accommodation vessel for use in the Morecombe Bay gas field. The main contractor was Cammell Laird. They sub-contracted the design and supply of the jacking units to APPH, who in turn sub-contracted the design manufacture and supply of hydraulic cylinders for use in the jacking units to Redman Broughton. Redman Broughton in turn sub-contracted the manufacture and supply of steel clevises, which formed part of the hydraulic cylinders, to Black-Clawson. In addition, Redman Broughton arranged for Lloyds’ Register of Shipping to witness the testing of the clevises. Problems occurred with the clevises and claims were made down the contractual chain. Hydrocarbons settled with Cammell Laird in May 1989. On 29 November 1990, APPH and Redman Broughton settled their differences, with Redman Broughton admitting liability to APPH in these terms:

“… in the event that APPH are held liable to [Cammell Laird] in the action to indemnify APPH against Cammell Laird’s claim against APPH … The amount of Redman Broughton’s liability to APPH shall be limited to the amount of that sum of money to which Redman Broughton are or may become entitled under or by virtue of any order or judgment made or entered or any term of any settlement agreement made in the action in Redman Broughton’s name against any other fourth party …”

On 23 January 1991 Cammell Laird’s claim against APPH was settled for £5 million.

In proceedings brought in this Court, HHJ Forbes QC (as he then was) ruled that, by reason of the terms of the agreement between APPH and Redman Broughton, Redman Broughton were only entitled to recover nominal damages from Black-Clawson and/or Lloyds in respect of its liability to APPH, and were not entitled to either an indemnity or a contribution in respect of such liability. This decision was, however, overturned by the Court of Appeal. They held that, on the proper construction of the agreement between APPH and Redman Broughton, Redman Broughton had admitted its liability to indemnify APPH if the latter were held liable to Cammell Laird. APPH was liable to Cammell Laird for £5 million and the amount of Redman Broughton’s loss was therefore £5 million, subject to any challenge to the reasonableness of that settlement. It was therefore found that the Settlement Agreement was not circular. Each of the three members of the Court of Appeal reached that decision for slightly different reasons but there is no doubt that Nicholls LJ based his approach on the importance of Redman Broughton’s admission of liability and the existence of the £5 million to act as a limitation of that liability.

Accordingly, Ms Barwise QC makes a number of submissions based generally on the decision in Hydrocarbons, and on the reasoning of Nicholls LJ in particular, which she described as ‘introducing the fiction’ of the sequence noted in the preceding paragraph. She submits that the Claimant gave away its rights to pursue what the Settlement Agreement calls the MOD claims and that, in the absence of either an admission of liability by the Claimant, or any upper limit of that liability, no claim can now be made for substantial damages against the Defendant. She also submits that, because, on her construction, the Defendant’s liability under the AFL was a liability to indemnify by reference to certificates, there is now no way in which a certificate could be provided because the claims under the Building Contract have all been settled.

In my judgment, there is a threshold point which means that the ‘No Loss’ argument advanced by Ms Barwise QC cannot succeed. In Hydrocarbons, there was effectively a full release of “Redman Broughton’s”; Query” to apply liability to apply so that, but for the terms of the Settlement Agreement, no further claims could be permitted. But under the Settlement Agreement in the present case, the situation is different. True it is that the payment of the £1,286,117 was in full and final settlement of all sums due from the Employer, but that agreement - that release - was subject to a clear and express exception. The exception was in respect of those sums due in relation to the MOD claims, those same claims which are now pursued in these proceedings.

Thus, when the £1,286,117 was paid by the Claimant to Shepherd, the Claimant was released from its other liabilities to Shepherd, but was expressly not released from its liability in relation to the MOD claims. Clause 3 of the Settlement Agreement makes plain that there was no release in respect of the MOD claims; it says that in the clearest possible terms. Neither is there any release in consequence of Clause 5 of the Settlement Agreement, which deals with the proceeds from the claim and the payment of the first £200,000. It is Clause 6 which provides for final release and states that the Claimant is only released in respect of the MOD claims once there has been receipt of the proceeds of those claims. Accordingly, I conclude that it is wrong to suggest that the Claimant’s liability to Shepherd under the Building Contract in relation to the MOD claims has been released by the Settlement Agreement. It plainly has not. Accordingly, that liability remains to be satisfied.

For that reason, it seems to me that the principles in Hydrocarbons simply do not arise. That was a case in which the settlement agreement mattered because, subject to that agreement, there had been a release. Here the Settlement Agreement made plain that the relevant claims remained the responsibility of the Claimant under the Building Contract. The Claimant is only released when these proceedings have been concluded. Thus the arguments based upon the application of Hydrocarbons do not arise in this case and the ‘No Loss’ point fails.

In one sense, this conclusion is entirely in accordance with the much shorter judgment of Russell LJ in Hydrocarbons. He said this:

“The purpose and object of the agreement dated 29 November 1990 was to ensure that those who were at fault and could afford to pay damages in respect of their fault to those with whom they were in a contractual relationship should pay damages. Conversely Redman Broughton, who were prepared to admit fault but who could not pay damages out of their own pocket, were released from their liability to pay damages save to the extent of their recovery from others who could afford to pay.

The fundamental question that has to be decided is whether the agreement can be so construed as to give effect to the intention of the parties without doing violence to the language of the agreement. In my judgment, that question can be answered in the affirmative. Clause 1(a) could have been more happily drafted to achieve its purpose. However, I do not accept that it means, as Mr Rokison submitted, that Redman Broughton’s liability to APPH was expressed to be the amount that Redman Broughton were entitled to recover from the fourth parties and that such a construction led inevitably to the circular argument which found favour with the judge.”

I consider that that conclusion is precisely apposite to the present case. The purpose and object of the Settlement Agreement between the Claimant and Shepherd was to settle all of the claims under the Building Contract, with the exception of the MOD claims which were going to be pursued by litigation controlled by Shepherd. That was, as I have set out above, a sensible and commercially appropriate method by which the Claimant and Shepherd settled their differences. Can the Settlement Agreement be construed to give effect to that intention without doing violence to the language of the agreement? The answer, in my judgment, is Yes, for the reasons which I have given. The MOD claims survive and are not the subject of a release. That then deals with the ‘No Loss’ Issue.

For completeness, I should also say that Ms Barwise QC’s submissions were also predicated on the assumption that the Defendant’s obligation was to indemnify the Claimant under Clause 4.2 once they had received a certificate, but not otherwise. For the reasons set out in relation to the certificate issues above, I reject that construction of Clause 4.2. Accordingly, it seems to me that Mr Darling QC is right to say that the Defendant’s liability to the Claimant (if any) can and will be quantified in these proceedings.

Further and in any event, given that the MOD claims under the Building Contract are not the subject of a release, then it must mean that a further certificate could, if appropriate, be provided. For the reasons that I have set out above, I do not consider that such a certificate is either necessary or required but it is important to note that, in relation to the MOD claims at any rate, the Building Contract remains in force. Thus, if I was wrong and a certificate was required, it could still be provided.

Finally, I reject the submission made on behalf of the Defendant that, in some ways, the Settlement Agreement not only represents a failure on the part of the Claimant to mitigate a loss but, in some way, magnifies that loss. It seems to me that such a submission is unfounded. The Defendant was, and remains, liable for the cost of any Tenants’ Variations requested under clause 4.1 of the AFL, but not otherwise. I do not consider that the Settlement Agreement has magnified, or modified in any way, that basic liability.

As to Issue 6, I conclude that the effect of the Settlement Agreement is not that no further sum is due from the Claimant to Shepherd. The MOD claims remain in play under the Building Contract. The Claimant will incur a liability to pay Shepherd to the extent that such a liability is established in these proceedings. The Claimant therefore has an entitlement to bring this claim against the Defendant under the AFL.

For the reasons set out above, I consider that each of the three defences in principle maintained by the Defendant to this claim must fail. I note that my construction of Clause 4.2 is in accordance with how that clause was operated by the Claimant and the Defendant, and that my decisions on the Capacity and ‘No Loss’ issues give effect to the sensible commercial purpose behind the Settlement Agreement. It creates no prejudice or detriment to the Defendant in any way at all.

In respect of these latter issues, and my conclusion that the drafting of the Settlement Agreement does not prevent the Claimant from asserting and pursuing a claim in these proceedings, I also derive comfort from the decision of the Court of Appeal in Offer-Hoar v Larkstore Limited [2006] EWCA Civ 1079; [2006] 1 WLR 2926. In that case, at paragraph 83 of his judgment, Rix LJ said;

“Underlining all these cases can be heard the drumbeat of a constant theme, which could possibly be described as ubi Ius ibi remedium, the maximum that where there is a right there is a remedy: but it could also be said the courts are anxious to see, if possible, that where a real loss has been caused by a real breach of contract, then there should if at all possible be a real remedy which directs recovery from the defendant towards the party which has suffered the loss”

Issue 7 agreed between the parties is in the following terms:

“7.

Whether the Claimant is not entitled to the declaration sought by it at the prayer of the Particulars of Claim on the grounds that such declarations:

(a)

are hypothetical and/or of no utility by reason of the issues at paragraphs 1-7 above and/or

(b)

would not settle the dispute between the parties, since were the declarations sought by the Claimant granted, the Claimant would invite Tweeds to issue a further certificate.”

The answer to Issue 7(a) is in the negative: the declarations are not hypothetical and/or of no utility for the reasons noted above. As to Issue 7(b) it was agreed by Counsel that it was unnecessary for the Court to answer this issue directly. For the reasons that I have given, it seems to me that if, following a trial, the declarations sought by the Claimant were granted, the parties would then be able to resolve their differences. On that basis, it seems unlikely that any further certificates would be required. However, for the reasons which I have given, I believe that, if such certificates were still necessary, they can be provided under the Building Contract because, in relation to the MOD claims, the Building Contract remains in force.

That deals with the Preliminary Issues. I should take this opportunity to thank both leading counsel for their full and helpful submissions.