ISG Retail Limited v FK Construction Limited

In order to succeed in a Part 8 claim the Claimant must generally first establish that it is unlikely to involve a substantial dispute of fact. The Claimant must necessarily argue that the issues are relatively straightforward and the evidence self-contained. It is not unusual for the Defendant to emphasise potential factual disputes in support of submissions that the proceedings should be dismissed. This case is a rather extreme example of the genre. The Claimant contends that there are two short points to be determined: first, whether a contractual term is a condition precedent, and second, whether it was breached. The Defendant argues that the question of compliance involves the examination of a great deal of factual material. It further relies upon waiver and estoppel and submits that the points are wholly unsuitable for Part 8 determination. It argues that the one day time estimate was inadequate and relies upon 25 authorities. The Claimant’s response is that the Defendant is obfuscating the issues and has deployed “every conceivable argument” in a bid to persuade the Court not to decide the case on a Part 8 basis.

The Claimant was represented by Sean Brannigan KC and Simon Hale and the Defendant by Simon Hargreaves KC and James Frampton. I am grateful for their succinct oral and written submissions.

On 22^nd November 2023 Constable J ordered that this claim should be listed for a one day hearing. I consider that one day was sufficient and a fair allocation of the Court’s resources. The parties were unable to agree a timetable and so it was necessary for the Court to apportion time so that both parties had a fair opportunity to present their cases.

The claim arises from the construction of six new industrial units and associated works at Phase 2 More+, Central Park, Avonmouth, Bristol. The Claimant, ISG Retail Limited (“ISG”), was the main contractor. The Defendant, FK Construction Limited (“FK”), was the roofing and cladding sub-contractor. The sub-contract sum was £3,400,000. The project was referred to by the parties as “Project Barberry”. The work started in late 2021.

These parties are serial litigants. I was told that the disputes between them had produced 12 adjudications, eight sets of High Court proceedings and two appeals to the Court of Appeal.

The present dispute arises from FK’s Application for Payment 21 (“AFP21”) for the period ending 28^th February 2023. The matter was referred to Mr Matthew Molloy for adjudication. By his decision dated 14^th April 2023, he valued the work at £3,736,679.72. One of the issues he decided was that FK was entitled to an extension of time (“EoT”) of 188 days. This arose from delays to units 6 and 7. Mr Molloy also awarded prolongation costs of £198,000.

This Part 8 claim concerns Mr Molloy’s decisions on the EoT and prolongation costs. Put shortly, ISG says that, before FK could be awarded an EoT, they had to comply with clause 9(5) of the sub-contract which required certain particulars as to the delay to be delivered to ISG. ISG says that compliance was a condition precedent and that FK were in breach. FK denies that clause 9(5) was a condition precedent, alternatively says that it complied with the term and, in the further alternative, says that ISG is estopped from relying on the term and/or waived its entitlement to rely on it.

I addressed the proper approach to Part 8 proceedings in Berkeley Homes (South East London) Ltd v. John Sisk and Son Ltd [2023] EWHC 2152 at [8] to [16] and I do not repeat those points here save to note these salient considerations:

With that introduction, I turn to the sub-contract. It was dated 28^th September 2021 and was on ISG’s terms (“the Sub-Contract”). I need not rehearse the terms save for clauses 9 and 20 which are at the heart of the present dispute.

FK generally notified ISG of delays on site by way of Early Warning Notices (“EWNs”). These were standard form documents produced by FK. A total of 106 EWNs were served between September 2021 and April 2022. I set out an example EWN below. (The reference to “demurrage” is agreed to be a reference to delays or potential delay.)

In May 2022 FK lodged an application for an EoT of 183 days. The document set out the first part of clause 9(5) of the Sub-Contract but omitted the proviso. On 7^th September 2022 ISG served its response. This referred to the proviso, but ISG did not then allege that FK had failed to comply with it. Later in September 2022 FK lodged a reply. It made no reference to the proviso.

By a notice dated 15^th March 2023, ISG referred to adjudication the proper gross valuation of FK’s works as at AFP21. At paragraph 7.4.3 of the Referral Notice dated 17^th March 2023, ISG took the points that FK had failed to comply with clause 9(5), that this was a condition precedent, and that ISG had not waived the requirement. This appears to be the first time that non-compliance with clause 9(5) was raised. In its Response, FK argued (with supporting evidence) that it had issued EWNs which met the contractual notice requirements. FK argued further that in any event ISG had waived its entitlement to rely on clause 9(5), and/or was estopped from doing so. This was put on the basis that, prior to commencing the adjudication, ISG had not raised the failure to issue compliant notices and that in September 2022 it had instead responded substantively to the extension of time claim. ISG served a Reply in the adjudication which rejected the waiver and estoppel arguments.

As I have indicated, Mr Molloy issued his decision on 14^th April 2023 (“the Molloy Decision”). He decided that clause 9(5) was a condition precedent but that - on the facts - FK had complied with it. He decided that “having given timely notice of the events relied upon, and where delays were continuing, FK was entitled to wait until the effect of the delay events had finished to provide its analysis of the effects on a retrospective basis.” It was therefore not necessary for him to go on to decide the issues of waiver and estoppel. As set out above, he awarded an extension of time of 188 days and prolongation costs of £198,000.

ISG later issued proceedings seeking to enforce the Molloy Decision. However, there were also two other adjudications between the parties and these were the subject of Part 8 proceedings before Mr Adrian Williamson KC sitting as a Deputy High Court Judge: see [2023] EWHC 1718 and [2023] EWHC 2012. I need not go into the detail of these proceedings save to note that: (a) they are the subject of pending appeals which are due to be heard by the Court of Appeal on 3^rd and 4^th July 2024; and (b) as a result of them, the enforcement of the Molloy Decision fell away. It is unclear whether, depending upon the outcome of the appeals, either party will seek enforcement of the Molloy Decision or a final determination of the dispute under Part 7.

These proceedings were issued on 21^st September 2023. In short Particulars of Claim ISG seeks the following five declarations:

In its Acknowledgement of Service dated 10^th October 2023 FK took the point that there are substantial disputes of fact between the parties and the proceedings are not suitable for the Part 8 procedure.

In support of its position in these proceedings, ISG relies upon witness statements from Gurbinder Singh Grewal, solicitor, dated 21^st September 2023 and 24^th October 2023. FK relies upon witness statements dated 10^th October 2023 from its Managing Director, Paul Bentley, and its solicitor, Paul O’Kane. I have been supplied with a bundle of material which includes the witness and expert evidence adduced in the adjudication.

For ISG, Mr Brannigan submitted first that clause 9(5) was self-evidently a condition precedent. He relied on Obrascon Huarte Lain SA v Her Majesty’s Attorney General for Gibraltar [2014] EWHC 1028 at [311] – [313] in support of his construction. He then argued that clause 9(5) was not complied with. He submitted that this could be established relatively straightforwardly by scrutinising the relevant EWNs and comparing them with the requirements of the clause. Although 106 EWNs were served, ISG’s primary case as set out in the Particulars of Claim was that only 21 EWNs (scheduled to the pleading) needed to be considered because these were the ones which were relevant to delays to units 6 and 7 which in turn were the foundation for the EoT. However, at the hearing Mr Brannigan accepted that the 73 EWNs analysed by Mr Molloy should be considered. He submitted that it made no difference how many were considered since it was plain from inspecting the documents that only one EWN complied with clause 9(5).

For FK, Mr Hargreaves submitted first that it was wrong in principle for ISG to bring Part 8 proceedings in relation to one aspect of the Molloy Decision when the entire dispute had not been brought for final determination. He described this as a “category error”. He argued that it risked being an abuse of process.

As to whether clause 9(5) was a condition precedent, he submitted that the 14 day time limit was “directory” as opposed to mandatory. He relied on Diab v. Regent Insurance Co Ltd [2007] 1 WLR 797 at [14]-[17] in support.He explained that breach of the time limit would amount to a breach of contract which sounded in damages, but not to breach of a condition precedent.

On the question of compliance he submitted that FK complied with the clause. He argued that compliance was achieved not necessarily by way of the EWNs but sometimes by correspondence and/or discussion on site. This was a question of fact which could not be determined in these proceedings. He further emphasised that the effect of the EWNs had to be construed in light of the context and circumstances known to the recipient at the time, and that this again was a question of fact.

He next argued that, upon the assumption that there was non-compliance, ISG were estopped from relying on this and/or had waived their entitlement to rely upon it.

I elaborate on these arguments further below.

The question as to whether clause 9(5) is a condition precedent is one of pure construction and so in principle it should be capable of determination on a Part 8 basis. Nonetheless, the question as to whether all four limbs of clause 9(5) were conditions precedent, and the relationship with clauses 9(2) and 20, were barely addressed at the hearing. Mr Hargreaves submitted that FK had a separate entitlement to an EoT under clause 9(2) when the delay was caused by late access, and that the claim for prolongation costs derived from clause 20.

The declarations sought by ISG do not expressly address clauses 9(2) or 20. Nor do they address the prolongation costs awarded by Mr Molloy. ISG argued that if the Court made declaration (4) which overturned the EoT, then the claim for prolongation costs would necessarily fall away but, in the alternative, ISG sought permission to amend to plead an additional declaration. I consider this to be an unsatisfactory approach since there is a lack of clarity as to precisely what the Court is being asked to decide.

If the issues of construction were the only issues before the Court then, notwithstanding my misgivings, I would be prepared to decide them now. However, as appears below, there are other impediments to the determination of these proceedings under Part 8, and so I decline to decide the construction points.

It is in any event preferable that the parties’ contentions on the four limbs of clause 9(5), clause 9(2) and clause 20 should all be pleaded out. In that way the Court can approach the issues of construction with the parties’ positions having been clearly articulated.

In Sleaford Building Services v. Isoplus Piping Systems Ltd [2023] EWHC 969, a Part 8 case, Mr Alexander Nissen KC sitting as Deputy Judge of the High Court noted at [58] that “a submission that allegations of breach of conditions precedent would not give rise to substantial disputes of fact is one to be approached with caution.” I agree.

ISG says that it is plain from a cursory examination of the EWNs that they did not comply with one or more limbs of clause 9(5). In particular, only one EWN (No 105) gave any indication of the impact on practical completion. It is fair to say that FK’s case on compliance has developed over time. FK submitted that the question of compliance gives rise to substantial issues of fact for a number of reasons. The points were put in various different ways but – boiled down – there were two main contentions.

First, it was argued that there is evidence that notification of delays was not always given by way of EWNs. Mr Bentley says [32]:

On the question of notification being given by other means, FK also refer to ISG’s response to FK’s application for an EoT which says:

I accept therefore that there is evidence that notification was not or may not always have been given by EWNs. The extent to which notification was given otherwise than by way of EWNs is disputed on the facts and will need to be investigated.

The second main point made by FK was that “in the light of the relevant factual context and the state of ISG’s own knowledge, the reasonable recipient, circumstanced as ISG was, would have understood the EWNs and/or other forms of notification of delay events as complying with clause 9(5), or would have understood the situation as not requiring any notices.” FK relied on this respect on Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 at 767G-768C per Lord Steyn. In my judgment the knowledge of ISG and the context in which the EWNs were received are likely to go to waiver and estoppel which I address below, but I accept that they may also be relevant to compliance.

Overall therefore it is clear that (as is to be expected) there was regular and routine engagement on site between the parties as to the progress of the works. I consider that the question of breach is not suitable for Part 8 determination because it is likely to give rise to substantial disputes of fact as to whether and, if so, how notification was given other than by way of EWNs. Furthermore, I consider that the parties’ cases on breach need to be pleaded out.

In ING Bank NV v. Ros Roca SA [2011] EWCA Civ 353 Stanley Burton noted [77]:

In CLS Civil Engineering Limited v. WJG Evans and Sons [2024] EWHC 1194, I was able to decide Part 8 proceedings which involved allegations of estoppel. That was in circumstances where the alleged estoppels were clearly articulated, the factual background was largely non-contentious, and it could be seen that that the estoppels stood no real prospect of success. By contrast, in Sleaford the Deputy Judge held at [63] that arguments of waiver based on site practice were unsuitable for Part 8 determination.

I did not find FK’s articulation of its case on waiver and estoppel to be altogether satisfactory. I pressed Mr Hargreaves to formulate the legal propositions for which he contended and to map them across to the facts of this case. In the end the principles contended for and their application were not entirely clear.

ISG submitted that a useful summary of the well-known requirements for an estoppel by convention is found in The Law of Waiver, Variation and Estoppel (3^rd Ed 2012 Wilken & Ghaly) at paragraph 10.01. This was cited with approval by Carr J (as she then was) in Jawaby Property Investment Limited v Interiors Group Ltd[2016] EWHC 557 (TCC), at [44]:

ISG further referred to Westbrook Resources Ltd v Globe Metallurgical Inc [2009] EWCA Civ 310 at [12]:

I accept and adopt those propositions when considering the allegations of waiver and estoppel in this case.

As I have indicated, in the adjudication FK relied upon waiver and estoppel in the context of ISG responding substantively to FK’s EoT claim without raising the issue of notice under clause 9(5) and FK then going on to incur the costs of a reply. In these proceedings, FK’s arguments were rather more elaborate. It was argued that there were four acts or series of acts or conduct which were examples of “waivers or estoppels arising or arguably arising on the facts”;

During his oral submissions Mr Hargreaves handed up various documents which he said showed ISG engaging with FK on the EWNs but without taking the clause 9(5) point. Mr Brannigan responded that the documents related to FK’s claims for disruption, not delay, and post-dated the relevant events. At the end of his submissions, Mr Hargreaves formulated FK’s case thus:

ISG says that FK has failed to seek any relief in these proceedings in relation to its case on waiver or estoppel. That is true, but in my judgment FK are entitled to raise these matters by way of defence and in support of its argument that the proceedings are not suitable for determination under Part 8.

On the substance of FK’s arguments, ISG says that there was no unequivocal representation by ISG, and/or reliance by FK. ISG denies that there was a shared convention and/or that FK suffered a detriment or that ISG obtained a benefit sufficient to make it unconscionable for ISG to rely on its contractual rights.

Standing back and cutting through all this, it is clear that: (a) FK provided repeated early warnings of delay; (b) ISG engaged with those early warnings; (c) ISG made no complaint that the warnings were inadequate or non-compliant; (d) FK thereafter continued to issue EWNs in the same format; (e) FK arguably relied on ISG’s stance in doing so; and (f) FK subsequently expended costs on its EoT claim. I can see that ISG may well have arguments as to whether they made any representation by word or conduct, and/or, if so, whether it was unequivocal, and/or whether it would be unconscionable for ISG to rely on its contractual rights. But in my judgment FK has an arguable case of waiver and/or estoppel which has a real prospect of success. It is clear to me that the arguments on waiver and estoppel are likely to involve substantial disputes of fact and that they need to be properly pleaded out. Stanley Burton LJ’s dictum in ING Bank is applicable here. It is not satisfactory and it is not fair to either side for the Court to be asked to decide multiple formulations of estoppel and waiver on the basis of a disputed factual background and without the parties’ cases being pleaded out.

The point argued by Mr Hargreaves that taking a single part of the adjudication for final determination by way of Part 8 proceedings was a “category error” does not strictly arise for determination. But since it is a point of pure law and it was fully argued, I will state my brief conclusion. I see no reason why one part of an adjudicator’s decision should not be the subject of final determination under Part 8 if the issue is otherwise suitable for Part 8 determination (ie it is unlikely to involve a substantial dispute of fact). This is particularly so if the balance of the adjudicator’s decision is uncontentious (which may be the position in the present case); otherwise the parties would be required to litigate matters which are not in dispute. I note that this was essentially the conclusion reached by Edwards-Stuart J in Geoffrey Osbourne Ltd v Atkins Rail Ltd [2009] EWHC 2425 at [18] and I respectfully agree with him.

I conclude therefore that these proceedings are not suitable for Part 8 determination and I decline to make any declarations. I reach this conclusion because I consider there are likely to be substantial disputes of fact (a) as to whether FK was in breach of clause 9(5), and (b) as to whether ISG has waived its entitlement to rely upon any breach, and/or is estopped from so relying. I decline to make any declaration as to whether clause 9(5) is a condition precedent. There is little purpose in deciding the construction points without also deciding the issues of breach and waiver/ estoppel at the same time. In any event it would be preferable for the construction issues to be pleaded out.

The Court has a discretion under CPR 8.1(4) to order a claim to continue under Part 7. I invite the parties to consider how this claim should proceed, and to agree an Order addressing consequential matters and directions if appropriate within 14 days of hand-down. If agreement cannot be reached, then short written submissions should be exchanged and lodged within the same timescale. I will then decide any disputed matters on the papers or list the matter for a hearing if the parties request it.