Alstom Power Ltd v Somi Impianti SRL

This judgment addresses two matters, the first being an application for summary judgement by the Claimant and the second the possible application of sanctions for contempt of court. I have had regard to and do not here set out the Claim Form, the Particulars of Claim, the previous Court Orders in these proceedings, the Claimant’s applications, the extensive evidence filed by the Claimant (six affidavit or witness statements from Christian Charles, two from Thierry Papadopoulos, one from Hugh De Rose and one statement from Mr Larsen and a number of declarations from Claudio and Donato Zaccagnini). The statements and affidavits were accompanied by extensive contemporaneous documentation including the contract and correspondence between the parties as well, particularly, that leading up to the termination of the contractual relationship. Apart from attending through Counsel at the first hearing on 10 November 2011, the Defendant has not engaged with the Claimant or the Court and has not either further attended or co-operated since that time apart from the provision to the Court of the various "declarations". It is absolutely clear and established that the Defendant has been served with all requisite documentation including the applications, the evidence and the orders made by the Court. It has filed no evidence challenging the basic facts and evidence put forward by the Claimant.

The Claimant, Alstom Power Limited ("Alstom") in these proceedings seeks injunctions against a subcontractor, SOMI Impianti S.r.l. ("SOMI"). The background is that Alstom was engaged by RWE npower plc (“RWE”) as the main contractor to engineer, procure and construct a substantial power plant in Pembrokeshire in Wales. Alstom employed SOMI to carry out mechanical and piping erection and plant piping and mechanical erection in two packages for the two primary parts of this project.

The Sub-Contract, whereby Alstom engaged SOMI is a substantial document and I will not set it out in any detail. The Sub-Contract was made on 16 April 2010, and the General Conditions of Contract are clearly based, at least in part, on well known standard forms. There are provisions in Clause 54 of those conditions, as partly amended, which require the Sub-Contractor to provide various items of "Subcontractor's Equipment" and materials necessary to complete the work.

Clause 54.1 says that:

Clause 54.2 of the General Conditions deals with the vesting of property and materially states that:

There are provisions in the General Conditions which deal with liquidated damages and one particular provision, Clause 47.2, relates to the Contractor's right to "terminate the employment of the Subcontractor forthwith" when culpable delay has got to such a stage that the maximum liability for liquidated damages has been reached. In this case it is 15% of the Subcontract price.

Clause 63 deals with termination of the employment of the Sub-Contractor, and there are various grounds for this to occur, including the insolvency or financial inability of the Sub-Contractor to proceed, persistent or flagrant neglect to comply with contractual obligations, suspension of work, committing any default which may seriously affect the proper implementation of the main contract works, and the one mentioned above which relates to liquidated damages exceeding the maximum limit. In those circumstances, the Contractor may, having given four days' written notice, terminate the employment of the Subcontractor, and the termination "shall not release the Subcontractor from any of its obligations or liabilities under the Subcontract, or affect the rights and authorities conferred on the Contractor by the Subcontract, and the Contractor may himself complete the Works or may employ any other contractor to complete the Works. The Contractor or such other contractor may use for such completion so much of the Subcontractor's Equipment, Temporary Works and materials as it or they may think proper".

Clause 63.2 states:

From the evidence put before the court, it is clear that Alstom sought to terminate the employment of SOMI, and that occurred in August 2011. Again from the uncontested evidence, SOMI was insolvent or at least financially unable to proceed with the Sub-Contract; in that context evidence has been produced which is, and remains, unchallenged that a substantial number of suppliers and subcontractors were not paid by SOMI, and indeed there was unchallenged evidence that certain of these sub-sub-contractors or suppliers had to be paid direct by Alstom.

There is again some evidence before the court, which has not been challenged, of apparently deliberate failure to comply with health and safety obligations, in particular in July and early August 2011, and this primarily had to do with the way in which SOMI and its scaffolding sub-sub-contractor dealt with scaffolding in the summer of this year. There is evidence before the court that SOMI suspended work, and no evidence has been put before the court which indicates that it was anything other than unjustified.

In the course of the project, SOMI produced and brought onto the site a substantial amount of critical documentation. These documents are referred to as turnover packages ("TOPs”). These comprise documents such as erection completion certificates, piping and instrumentation diagrams, as built and pipes support drawings, welding records, radiographic and ultrasonic testing films and reports and hardness and magnetic and penetrant testing results. The TOPs are a critical part of the hand over arrangements so that without them it is at the very least unlikely that the equipment or units to which they relate will be accepted. Put another way, Alstom can not complete its main contract works without such documentation. In respect of each of the units forming part of the overall works, the TOPs provide a substantial amount of information which essentially verifies proper design, manufacture and fabrication, together with other critical information which must be provided as part of the turnover or handover of the elements of the equipment in question.

It does appear on the evidence that there were substantial delays which Alstom puts at the door of SOMI. There have now been two decisions of separate adjudicators which have found that SOMI is liable culpably for substantial parts of that delay. In the first decision made on 3 October 2011, the adjudicator decided that there was at least £3,095,963 worth of liquidated damages due to Alstom by reason of culpable delay on the part of SOMI. In the second decision dated 30 November 2011, the very experienced adjudicator (Mr Andrew Bartlett QC) considered SOMI’s claim for extension of time which, he decided, failed (see Paragraph 54). He found that by reason of the application of the liquidated damages cap in the Sub-Contract, Alstom was entitled to liquidated damages in the sum of £4,585,994. Allowing for various other credits and debits due, he found that SOMI owed to Alstom a total sum of £7,830,102 including VAT and interest. Both these decisions are binding upon the parties unless and until they are reviewed and revised by the Court. There has been no request or application on the part of SOMI or indeed Alstom for such a review or revision.

A termination procedure was apparently finalised on 15 August 2011, by way of a letter sent by Alstom to SOMI. The project in question, by August 2011, was not very far off completion, it being anticipated by then that overall the main works, including commissioning and other work necessary to enable the works to be handed over to RWE, were expected to be completed by about April 2012. It appears that the Defendant, prior to termination, had brought on to site these TOP documents for all the various units, or most of the various units, and they were retained on site. As the second witness statement of the Claimant's Mr. Papadopoulos indicates, they were retained for convenience at the Defendant's site offices. It appears that, as the relationship began to deteriorate, Alstom was able to secure probably the majority of the TOPs. They stopped on one occasion, so the evidence reveals, SOMI representatives trying to remove from the site a number of the TOPs. When they finally had access into the Sub-Contractor's offices they discovered that the TOPs which they were able to retain had already been boxed up as if they were to be removed. So the evidence suggests that a substantial number, probably about a quarter or so, of the TOPs had been removed by SOMI, and indeed at the last hearing Mr. Selby, counsel retained by SOMI, on instructions indicated clearly that the documents had been taken back to Italy by SOMI. SOMI’s directors’ declarations provided to the Court suggest that not all the documents which Alstom suggest were taken, although they expressly concede that a number of them were taken back to Italy.

Given the absence of any evidence and any real co-operation from SOMI, and given that Alstom’s case is supported by not only the unchallenged evidence of witnesses of fact but also by contemporaneous documentation, I am satisfied on a balance of probabilities that SOMI has taken away from the site and also out of the English jurisdiction back to Italy the documents as listed and described in Schedule 1 to the Particulars of Claim relating to Units 11, 21, 31, 41, 51 and 90. I also find that in the light of the clauses of the contract set out above SOMI had no contractual right to remove such documents either from the site or from the jurisdiction; the property and title in such documents remained with Alstom. The definition of “Subcontractor’s Equipment" is clearly wide enough to cover TOPs: the definition talks about it meaning all "things of whatsoever nature…required for the execution and completion of the Works, excluding…things intended to form or forming part of the Permanent Works.” The TOPs clearly are such things and they are required for completion of the Works because the Works will not be considered complete until such documentation has been provided; they are obviously not part of the Permanent Works as such. It follows therefore that property and title in the TOPs remained with Alstom as soon as SOMI brought them on to the site (Clause 54.2). In my judgement, TOPs also fall into the category of being "goods and materials" within the meaning of Clauses 54.9 and 54.14; they are one of the deliverable things which SOMI had to provide under the Sub-Contract. The suggestions made by SOMI of criminal or otherwise illegal behaviour on the part of Alstom are simply not established on the facts or the evidence.

It is necessary also to consider the termination. The evidence clearly establishes and, I find, that proper grounds existed in fact pursuant to Clause 63 of the Sub-Contract Conditions which justified the termination by Alstom of the employment of SOMI. It is clear that SOMI was unable financially to proceed with the Sub-Contract as it was unable to pay its subcontractors and suppliers. It had suspended work without justification on a number of occasions in the weeks before the termination. It had become liable for liquidated damages which in the justifiable opinion of Alstom was likely to exceed the liquidated damages defined in Clause 47.1. There is substantial corroboration for these factual findings to be found in the evidence put before the Court from the contemporaneous documentation as well as the witness statements. There is also support from the two adjudicator’s decisions particularly in relation to their findings that substantial liquidated damages were due to Alstom from SOMI for culpable delay on the part of SOMI and indeed that as a matter of fact SOMI was liable for liquidated damages which exceed the contractually defined cap. There is some added corroboration in relation to the financial difficulties in that SOMI (Mr Claudio Zaccagnini) wrote to the court on the 20 December 2011 indicating that SOMI was starting insolvency proceedings in Italy.

It follows from the above that SOMI has no and had no right to remove the TOPs documents from the site, let alone this country. Furthermore, SOMI was in further breach of contract in refusing to return the documents which it had taken, following a request from Alstom’s solicitors dated 22 September 2011.

It is clear that this is an appropriate case for injunctions. The TOP documentation has no value to SOMI save as a commercial bargaining chip by which it hopes to secure some financial advantage. Even the value as a bargaining chip is reducing exponentially in time because Alstom will be forced, without such documentation, increasingly to procure the documentation using its own resources and initiative. Damages would not be an adequate remedy because SOMI is clearly in financial difficulties and would, I suspect, be unable to honour any award of damages and because Alstom would otherwise have to incur a seven figure sum (in GB pounds) to overcome the difficulty caused by not having the missing documentation and that sum will also probably be irrecoverable.

The clearest case for contempt has been made out. That contempt falls into two categories, the first being for breach of an undertaking given to the court by Counsel on behalf of SOMI on 10 November 2011 and the second for breach of an injunction made against the Defendant on 21 November 2011. In relation to the undertaking, Counsel appeared on behalf of SOMI and obtained instructions from Mr Donato Zaccagnini, an executive director who, it was confirmed by Counsel, had authority to give the undertaking. That undertaking was to deliver by 4 pm on 16 November 2011 all the TOP documents listed in the attached Schedule 1 to the custody of its own London solicitors and not to cause or permit any damage of any kind occurring to any such documents or to lose, sell or otherwise dispose of the same until further order. That undertaking was not complied with and no documents were delivered to SOMI’s London solicitors.

On 21 November 2011, the Court ordered that SOMI return such of the TOPs identified in the attached schedule as were in its possession or control to Alstom’s London solicitors at their offices by 5 pm on 23 November 2011, that it be restrained from causing or permitting any damage of any kind occurring to such documents or from losing, selling or otherwise disposing thereof and that by 5 pm on 23 November 2011 it should serve an affidavit setting out in effect where the documents were and in whose possession or control they were. SOMI did not return the documents as required or at all and, whilst there is no evidence that the documents have been damaged, lost, sold or otherwise disposed of, SOMI has not provided any affidavit identifying at what address or addresses such documents are held. Mr Claudio Zaccagini did send to the Court a “declaration” signed by him, but not in affidavit form, which gave some explanation why SOMI has behaved as it did and explained that the documents would be kept by him in his exclusive "possession in a safe way". He pointedly did not identify where the documents were.

I have no doubt in finding SOMI is in the clearest breach of its undertaking to the Court set out in the Court’s Order of 10 November 2011 and of the injunction made against it on 21 November 2011. It is as clear as can be that the breaches had been committed deliberately and in the knowledge that the undertaking and Order respectively were to be consciously flouted. I can only assume that Mr Zaccagnini gave the undertaking, knowing that SOMI was not going to comply with it. The declaration referred to above also demonstrates a deliberate course of conduct.

The contempts having been established, it is now necessary for the Court to consider what the appropriate sanction is. The Court regards any breach of undertakings given to the Court and of injunctions made by the Court as serious and even more serious are the deliberate breaches. It is therefore necessary to consider what the appropriate sanction should be. SOMI being a company can not be given a custodial sentence and it is therefore necessary to consider a fine. Whilst there is evidence of financial difficulties and the liquidation process is currently apparently underway in Italy, the Court does not have any real detail about the financial position of SOMI. In the same way as in criminal proceedings in this country when a fine is being considered, the Court should consider the financial position of the contemnor. It would probably be inappropriate to pitch the level of the fine so high that there is no prospect of the fine being paid. It is also not unreasonable to take into account the fact that the higher the fine is the less Alstom will probably recover in any liquidation, given that these proceedings had been at the behest of Alstom.

I have considered whether it would be appropriate in effect to suspend in part the fine so that if SOMI complies with the injunction to be granted as a result of this judgement within a reasonable period of time part of the fine would not be payable. This is thought to be possibly controversial in that the legal provisions about contempt do not expressly permit such a course of action, albeit that a custodial sentence for contempt expressly can be suspended. I have decided to impose a fine but I wish to make it clear that the Court will consider an application on the part of SOMI to reduce the fine, but only in circumstances in which SOMI complies with the injunctions promptly.

In my judgement, and to reflect the deliberate nature of the contempts, I impose a fine of GB£40,000 on SOMI, £20,000 of which relates to the breach of the undertaking and £20,000 for breach of the injunction. This total amount is not excessive in the context of the value of the Sub-Contract works which ran to many millions of pounds but it does reflect the general evidence which exists about the financial difficulties faced by SOMI.

So far as the costs of the summary judgment application are concerned, Alstom’s solicitors have presented a relatively modest schedule of costs which totals £11,323.50. I have no hesitation in assessing costs at that level and ordering SOMI to pay those costs.

In addition, Alstom has very substantially succeeded in these proceedings and, no real defence having been offered, SOMI will be required to pay Alstom’s costs of the proceedings. This will be on an indemnity basis because there appears to have been no conceivable defence and indeed none has been proffered. The total bill excluding the summary judgment application costs is just over £197,000 exclusive of VAT. Some £79,000 relates to disbursements which on their face appeared to be reasonable. Whilst ultimately, subject to the stay of proceedings, these would fall to be subject to assessment by a costs judge, this is an appropriate case to order an interim payment of costs on account. Given the costs are to be on an indemnity basis, in my view there should be an interim payment on account totalling £175,000; this is not in addition to but includes the £80,000 interim payment on account of costs which I ordered earlier.

There will be summary judgment for the above reasons and injunctions will be granted as set out in the Order drawn up by the Court. There will be a fine of £40,000 for the contempts of court by SOMI. SOMI will pay the assessed costs of the summary judgment application and a total additional sum for the costs of the proceedings by way of interim payment on account of £175,000. In so far as matters have not been dealt with by this judgment, these other matters are reserved. I make it clear that any question of damages claimed or to be claimed by Alstom for the breaches of contract identified in the Particulars of Claim or for sums due as a consequence of the determination remain to be resolved by the Court as necessary.