Ais Pipework Limited v (Formerly Aig Engineering Services Limited)

The application

The claimant attached a draft order to its application notice in the following terms:

“1.

The sum payable to the claimant by the defendant, before taking into account any set-off and counterclaim raised by the defendant, is £379,429, and the only issue on the claim is the amount of any set off or counterclaim.

2.

The defendant shall make an interim payment to the claimant in the sum of £300,000 … within 14 days of the date of this order.”

In the closing part of his oral submissions Mr Thompson submitted on behalf of the defendant that, so far as the application for summary judgement was concerned, it was not clear precisely what relief the claimant was seeking. In response, Mr Clay submitted (DG/169) that the claimant was, in effect, asking the court for a declaration “… that the prima facie sum payable (absent issues of set-off or counterclaim) is £379K …”. In other words, what the claimant was asking for was a declaration that it was entitled to recover £379K as the cost or price of its work, before issues of set-off and/or counterclaim were considered. That was all in the context of the first issue between the parties, which was the identification of the “starting point”, i.e. the amount which the claimant could establish it was owed as the price of its work, the claimant contending for the sum of £ 379K, and the defendant contending for the sum of £300K, both figures being expressed in round terms. I shall consider this aspect of the applications below.

Background

Some of the key documents and dates are as follows. On 14 November 2014 the claimant quoted the defendant for certain work, following which the defendant issued its first purchase order on 17 December 2014 (page 1/D1/1). Per paragraph 20 of the defence, the commencement date for that work was 12 January 2015, and what the defendant described as “phase 1” works were to be completed by 9 March 2015: see paragraph 21 of the defence. Then, per paragraph 26 of the defence, on or about 11 February 2015 the parties commenced discussions about what the defendant described as “phase 2” works (although it is common ground that the expressions “phase 1” and/or “phase 2” do not appear anywhere in any contractual document between the parties). On 13 July 2015 - and on the claimant’s case after it had completed and/or substantially completed further work - the defendant issued both its second purchase order (for the installation of pipework) and its third purchase order (for the design and load checking relevant to the installation of steam pipework). There is no, or no material, dispute between the parties about the work which the claimant carried out pursuant to the first purchase order, whether as to quality, time or in any other respect.

The claimant raised various invoices for the price of the further work it had carried out. The claimant’s case is that it then left site on 13 August 2015 “… because it had completed all the instructions given to it by the defendant, but at the time it left site two linked issues of allegedly defective work had arisen. One was workmanship to the steam header (at least one flame-cut hole had been done badly), and one was damage to a valve during thermal cycling”: see paragraph 13 of Mr Clay’s skeleton argument. Mr Clay continued in paragraph 14 of those written submissions: “At the beginning of October 2015 the defendant wrote to justify its non-payment of the invoices”. In the event, the parties were unable to come to terms, and proceedings were issued on 17 October 2016.

The rules engaged in the application

CPR rule 24.2, dealing with the grounds for summary judgement, provides:

“The court may give summary judgement against a claimant or defendant on the whole of a claim or on a particular issue if -

it considers that

CPR rule 25.7 (1) (c), dealing with the conditions which are to be satisfied and the matters which are to be taken into account when considering an application for an interim payment, provides:

“(1)

The court may only make an order for an interim payment where any of the following conditions are satisfied –

…

(c)

it is satisfied that, if the claim went to trial, the claimant would obtain judgement for a substantial amount of money (other than costs) against the defendant from whom he is seeking an order for an interim payment …”

Paragraphs (4) and (5) of this rule are also to be noted:

“(4)

The court must not order an interim payment of more than a reasonable proportion of the likely amount of final judgement.

(5)

The court must take into account (a) contributory negligence and (b) any relevant set-off or counterclaim.”

The application for summary judgement

Although there was no corresponding section addressing the test on an application for summary judgement, Mr Clay set out the claimant’s case on summary judgement between paragraphs 19 - 31 of his written submissions in the section headed “The sum payable”. The claimant’s case is that “the defendant should pay for the hours worked”: see the last sentence of paragraph 27 of Mr Clay’s written submissions, and the amount to be paid is to be ascertained by reference to the claimant’s timesheets, rather than as ascertained by the defendant’s quantity surveyors Walker Sime: see paragraphs 26 and 27 of Mr Clay’s written submissions.

In paragraph 11 of his written submissions Mr Thompson identified the principles which he submitted were engaged in an application for summary judgement, including the following:

“(a)

the court must consider whether the defendant has a ‘realistic’ rather than a ‘fanciful’ prospect of success i.e. a defence that is more than merely arguable;

the court must not conduct a “mini trial”;

In paragraph 17 Mr Thompson further submitted that the application for summary judgement was bound to fail because:

“(a)

To succeed on its application under part 24, the claimant must establish that there is “no other compelling reason why the case or issue should be disposed of at trial …”

(b)

It is clear that a respondent to an application for summary judgement is entitled to rely on a set-off or counterclaim as a reason why the claim should be dealt with at trial: Addax Bank BSC v . Wellesley Partners LLP [2010] EWHC 1904; (see paragraph 24.2.6 of the notes in the White Book)

(c)

the claimant’s application seeks to prevent the defendant from relying upon its set-off and counterclaim … this is an … attempt to circumvent the requirement at CPR 24.2 (b) …”

(d)

the claimant’s application ignores the fact that the defendant is entitled to rely on its claims for defects in order to abate the sum that would otherwise be due to it as part of the defence …”

In my judgement, a defendant is not entitled to resist an application for summary judgement merely because it raises a set-off or counterclaim. The court must still enquire into the nature of such a set-off or counterclaim, and consider whether the defendant has established that it has a reasonable prospect of successfully defending the claim or issue.

The first issue to consider is “the starting point”. The claimant contends that the value of its work was £379K, while the defendant accepts or advances a figure of £300K (each figure being expressed in a round figure). In his oral submissions Mr Clay accepted (DG/143) that it will be for the trial judge to decide how many hours the claimant in fact worked. In my judgement that is indeed the position, and it has to follow that – for the purposes of this application – the starting point is the defendant’s figure of £300K. The amount of hours the claimant worked, and thus whether the claimant is entitled to recover a sum in excess of £300K as the price or value of its work, are matters which will have to be resolved at trial.

Against that figure, the defendant advances the following matters, either in defence by way of set-off, or as a counterclaim:

damages in respect of items of allegedly defective work in the collective amount of £301,436.29, which claims it advances by way of set-off, so as to diminish the value of the work done by the claimant; and

damages in respect of items of delay, in the collective amount of £162,388.68, which it advances as a counterclaim.

The defendant’s defects claim comprises five elements: see items 11 to 15 in the table at paragraph 57 of the defence (and also as set out in the table at paragraph 32 of Mr Clay’s written submissions). They are:

replacement of sootblower pipework and two damaged superheaters: £174,022.33;

defects in steam header: £75,053.16;

necessary retesting works: £2,702.40;

cost of additional steam blowing: £34,920; and

damage to valve caused by a bleed in the system: £14,738.40.

In his closing oral submissions Mr Clay accepted (DG/165) that there was a triable issue as regards item (2); in my judgement it is likely that would also encompass the relatively modest sum claimed as item (3). Mr Clay further submitted that the claimant disputed the whole basis of the sum sought by the defendant in respect of item (4); it follows that there is plainly a triable issued in respect of this item. Mr Clay also accepted that the court could not decide the issue of what sum, if any, was recoverable by the defendant as damages in respect of item (5). The consequence of all of those matters is that the claimant does not dispute that the defendant has raised matters by way of set-off in respect of items (2) – (5) to a value (expressed in round terms) of £125K.

The focus is thus on the remaining substantial item (1), which concerns the replacement of sootblower pipework, and damage to two superheaters, in the total alleged sum of £175K (again expressed in round terms). Whether the claimant was in breach of contract or negligent as regards either its design work or its installation work involves an analysis of whether certain lengths of pipework should have been laid to a fall. The defendant points to the drawing at page 1/C/16 (DG/167), which it submits included the requirement for a fall, and advances the case that a party in the position of the defendant should have had the skill or expertise to know or appreciate that such a fall was required, and thus the claimant should have designed its pipework to a fall: see paragraphs 50(b) and 51 of the defence.

The claimant submits that the drawings upon which the defendant relies were merely indicative in nature and/or did not stipulate and/or provide for the provision of any fall; and that any design obligation it had did not require it to design any of the pipework it was contracted to supply to the alleged or any fall.

In my judgement, these are not matters appropriate to be decided at the hearing of an application for summary judgement. Instead, they are matters to be determined at trial. In the course of his oral submissions Mr Clay referred me to various paragraphs in a report dated 27 March 2017 prepared by Keith Simpson, who is a chartered mechanical and electrical engineer, on behalf of the defendant. That report is at pages 3/H/1–25. In my judgement, unless the points are plain and obvious, detailed analysis of such an expert report is not appropriate at the hearing of an interim application for summary judgement. In his oral submissions, Mr Thompson characterised Mr Clay’s submissions in this respect as the type of forensic points more appropriate to be made to an expert witness at trial, or in the course of either opening or closing submissions at trial. In my judgement there was a deal of force in that submission.

There are other points to be considered in the context of the application for summary judgement. The first point is the fact that there is a real dispute between the parties as to the proper construction of the contractual position which obtained as between them, so far as the additional work which the claimant carried out. The claimant’s case is that the additional work which it did was covered (albeit after the event) by the defendant’s second and third purchase orders. In contrast, the defendant’s case is that the second and third purchase orders operated as variations to the contractual regime which had already been established pursuant to the first purchase order: see paragraph 30 of the defence.

The second point concerns the contractual regime for making applications for payment pursuant to the second and third purchase orders (the terms of which are identical for these purposes). In the box headed “Description of goods” (page 1/D1/6) is the sentence “All invoices for dayworks to be accompanied by signed weekly timesheets.” It is to be noted that the purchase order did not stipulate by whom the weekly timesheets were to be signed. At the hearing it was accepted by both Mr Clay and Mr Thomson that it was more probable that they would be signed by the applying party i.e. by the claimant, but that remains a matter of fact more appropriate to be determined at trial. In the box headed “Terms of payment” is the sentence “All payments to be made 35 days from the end of the month in which the approved invoice and any supporting documentation is received.” It is to be noted that the purchase order did not stipulate who was to approve the invoice. At the hearing it was also accepted by counsel that it was more probable that invoices would be approved by the paying party i.e. by the defendant, but that also remains a matter of fact, more appropriate to be determined at trial. However, on the basis or footing that it was for the claimant to ensure that invoices were accompanied by weekly timesheets which it had signed, it is accepted by the claimant that – at the time – it only presented invoices i.e. invoices which were not accompanied by weekly timesheets, whether signed or not. There is no explanation in the evidence in the application of how or why it was that the claimant did not follow the contractual machinery for making such applications for payment. This is a point which largely goes to the analysis of “the starting point” in the application for summary judgement.

The third point goes to causation. As already noted, a key part of the defendant’s case on breach is that the claimant failed to design its pipework to a fall. However, as regards causation of loss and damage, the claimant queries how or why it was necessary for all 7 sootblower pipelines to be replaced (as alleged in paragraph 52 of the defence), rather than the one or two pipelines in which the claimant understands defects in its work were subsequently identified. Unless the matters in issue are plain and obvious, the appropriate forum for determining such an issue is at trial, rather than at an interlocutory application for summary judgement. In my judgement, the matters in issue in this regard are not plain and obvious, and it would be necessary for the court to embark on a “mini trial” to resolve such matters at this stage, even on the footing that it would be possible to do so, which I doubt.

In light of all the matters set out above, which indicate that there are real issues in the case as to (a) the form of the contract, and thus the proper identification and/or construction of contractual terms; (b) issues relating to breach; and (c) issues relating to causation, and thus quantification of loss and damage, in my judgement the defendant has established that it has a ‘realistic’ rather than a ‘fanciful’ prospect of successfully defending the claim. Further, when looked at collectively (and arguably individually) in my judgement determination of those issues amounts to a compelling reason why the case should be disposed of at trial. Accordingly, the claimant does not succeed in its application for summary judgement.

The application for an interim payment

There was some debate in the course of oral submissions whether the test under CPR rule 25.7 (1) was higher than that under rule 24.2. It was common ground that the leading authority on this issue is the decision of the Court of Appeal in Test Claimants in F11 Litigation v Inland Revenue Commissioners (No 2) [2012] EWCA Civ 57; [2012] 1 WLR 2375. In his judgement, with which the two other members of the court agreed, Aikens LJ held:

“36.

That leads to the next and more important question: of what does the claimant have to satisfy the court? To which the answer is: that if the claim went to trial, the claimant would obtain judgement for a substantial amount of money from the defendant. Considering the wording without reference to any authority, it seems to me that the first thing the judge considering the interim payment application under paragraph (c) has to do is to put himself in the hypothetical position of being the trial judge, and then pose the question: would I be satisfied (to the civil standard) on the material before me that this claimant would obtain judgement for a substantial amount of money from the defendant?.

38.

…. The court has to be so satisfied on a balance of probabilities. The only difference between the exercise on the application for an interim payment and the actual trial is that the judge considering the application is looking at what would happen if there were to be a trial on the material he has before him, whereas a trial judge will have heard all the evidence … then will have decided what facts have been proved, and so whether the claimant has in fact succeeded. In the latter case, as Lord Hoffman makes plain in In re B (Children) … if a judge has to decide whether of fact happened, either it did or it did not: the law operates a “binary system”, and there is no room for a finding that it might have happened. In my view the same is true in the case of an application under CPR rule 25.7 (1) (c). The court must be satisfied (to the standard of a balance of probabilities) that the claimant would in fact succeed on his claim, and he would in fact obtain a substantial amount of money. It is not enough if the court were to be satisfied (to the standard of a balance of probabilities) that it was “likely” that the claimant would obtain judgement, or that it was “likely” that he would obtain a substantial amount of money.”

From that passage it is clear that the key distinction to be drawn in such an application is that between the position where a claimant establishes that it is likely that it would obtain judgement for a substantial amount of money (in which case the application fails), and the position where a claimant establishes that it would in fact obtain judgement for a substantial amount of money (in which case the application succeeds); my underlining in both instances. I shall bear that guidance in mind in considering the various matters raised in the application for an interim payment.

Much of the relevant material has already been considered in the context of the application for summary judgement. As regards “the starting point” Mr Clay accepted that it would be for the trial judge to decide how many hours the claimant in fact worked. The claimant’s actual timesheets are at various pages in file 2 between pages 6/159 and 6/453: see paragraph 26 of Mr Clay’s written submissions. Mr Thomson submitted that in many respects, the time sheets are lacking in material or relevant detail. At this interim stage it is only appropriate for the court to carry out a summary or cursory consideration of those timesheets. The claimant’s case is simply that it is entitled to be paid the price of the hours apparently recorded in those timesheets: see paragraph 27 of Mr Clay’s written submissions. However, at trial it will be open to the defendant to challenge those timesheets. In order to determine those matters, the court may well direct that certain timesheets are to stand as samples, and that evidence will be received in relation to such sample timesheets. However, those are matters for trial. I do not find, on the material presently before the court, that the claimant “would in fact” recover £379K as the price of its work, and thus – as with the application for summary judgement – I shall take the admitted sum of £300K as “the starting point”.

As regards the defendant’s claim to set-off its claim for damages in respect of its defects claim, as already noted this amounts to £301K in round terms. I have already considered this aspect of the defendant’s case in paragraphs 15 to 19 above, in the context of the application for summary judgement. While there may be force in Mr Clay’s submission that the defendant will have to establish its case on causation, so as to show how or why it was necessary to replace all seven sootblower pipelines (rather than one or two) in order to remedy any damage caused by any defective work on the part of the claimant, at this stage I am not satisfied that the claimant establishes on the basis of the material presently before the court that it “would in fact” succeed in defeating the defendant’s counterclaim for £175K in respect of replacement costs for the seven sootblower pipelines.

That remains the position, notwithstanding the many points Mr Clay makes, both in his written and oral submissions, in relation to the defendant’s counterclaim in respect of alleged delay costs. Mr Clay points to the fact that none of the identified contractual documents contains any express term as to time, let alone any provision identifying a monetary liability for breach of such a term, whether by way of a liability to pay LADs or otherwise. Mr Thompson acknowledges the force of that point, but submits that the defendant’s case is that there was nevertheless an oral agreement as to the time for completion of the additional work which the claimant carried out: see paragraph 31 of the defence, and whether or not such an agreement was made is a matter that will have to be determined at trial. I accept that submission.

The conclusion is that, on the material presently before the court, I am not satisfied that the claimant would in fact obtain judgement for a substantial amount of money, and accordingly the application for an interim payment fails.

Whether to order a payment into court

The claimant submits in essence that it is improbable that the defendant’s delay claim will succeed. However, even if I were to accept that submission, it remains the position that the defendant’s defects claim is alleged to amount to £301K, which slightly exceeds the starting point of £300K in respect of the claimant’s claim. In those circumstances, in my judgement it would not be appropriate for the court to make an order on the hearing of the application for summary judgement that the defendant is to pay a sum of money into court.

Conclusion