Midland Expressway Ltd v Carillion Construction Ltd, Alfred McAlpine Construction Ltd, Balfour Beatty Group Limited, AMEC Capital Projects Ltd and John E Price. 2
A provision in a PFI subcontract which provides that the subcontractor shall not take any steps to enforce it’s entitlement to payment in respect of a price adjustment (e.g. a variation) until such time as the equivalent issues are determined under the Project Agreement between the Authority/Employer and the Project Company, will not bar the subcontractor from commencing an adjudication against the Project Company for those sums before that time. Further, where a PFI subcontract purports to limit the subcontractor’s entitlement to a price adjustment to the Project Company’s entitlement under its agreement with the Authority/Employer, then this would amount to a “pay when paid” clause contrary to s 113 of the Act.
Mr Justice Jackson
Technology and Construction Court
24 November 2005
This case concerns an application under Part 8 of the Civil Procedure Rules for declarations and injunctions brought by Midland Expressway Ltd (‘MEL’) to prevent its subcontractors Carillion Construction, Alfred McAlpine Construction, Balfour Beatty and AMEC Capital Projects (collectively referred to as ‘CAMBBA’) from pursuing a reference to adjudication under their subcontract with MEL. (The last defendant, Mr John Price, was the adjudicator appointed pursuant to CAMBBA’s referral).
The project was a PFI project whereby the Secretary of State for Transport (‘the Department’) entered into an agreement with MEL for the design, construction and operation of the Birmingham M6 toll road (the ‘Project Agreement’). MEL entered into a subcontract with CAMBBA for the design and construction of the toll road. The works commenced in 2000 and were completed in 2003.
The subject of the alleged dispute was the value of a variation requested by the Department, and undertaken by CAMBBA, relating to the construction of the ‘tie-ins’ with the main M6 motorway at either end of the toll road. The Department disagreed with CAMBBA’s valuation of that variation and CAMBBA commenced an adjudication against MEL for sums in the region of £10million. While the Project Agreement gave the Department the option to become a party to any adjudication between MEL and CAMBBA, it decided not to do so in this case, preferring to await the result of the adjudication between MEL and CAMBBA. In its reference to adjudication, CAMBBA requested interim payment of the sum they claimed due, saying that MEL’s pursuit of its entitlement under the Project Agreement should not hold up payment to CAMBBA. Mr Justice Jackson considered the following issues:
1. Was there a construction dispute between CAMBBA and MEL?
Clause 1.1 of the contract between MEL and CAMBBA (the ‘D&C Contract’) provided that “A construction dispute means a difference or dispute of whatever nature between [MEL] and [CAMBBA] arising out of or in connection with this contract”. MEL submitted that the valuation of the Department’s variation was to be determined exclusively under the Project Agreement; the dispute was therefore between the Department on one hand and MEL plus CAMBBA on the other where MEL was really no more than a conduit through which the claim from CAMBBA passed to the Department. Mr Justice Jackson disagreed; it was clear on the facts that CAMBBA was making a disputed claim against MEL qua Employer – that disputed claim falls squarely within the definition of “construction dispute”.
Further, Mr Justice Jackson held that there was a dispute between CAMBBA and MEL for the purposes of s108 of the Act; CAMBBA’s claim against MEL for an interim payment was disputed and it arose under the D&C Contract.
2. Was CAMBBA prevented from pursuing their adjudication claim at that present time?
MEL asserted that CAMMBA was prevented from commencing an adjudication at that time as the contractual process for determining sums due to CAMBBA had not yet run its course.
Clause 7.1.3 of the D&C Contract limited CAMBBA’s entitlement to payment or recovery in respect of a price adjustment (such as a variation) to such time as ‘(a) an agreement has been made between the Secretary of State and MEL or a determination has otherwise been made under or in connection with the [Project Agreement] establishing that [MEL] is entitled to Equivalent Project Relief in respect of such Price Adjustment…; and (b) [MEL] has received the Price Adjustment Funds or has certified that it has funds available to it for the purposes of payment of such Price Adjustment.’
This was agreed to at best be a defence to adjudication as opposed to a bar. However clause 7.4 of the D&C Contract stated: ‘pending the determination, agreement or resolution of any Equivalent Project Relief under the [Project Agreement], [CAMBBA] shall take no steps to enforce any right, benefit or relief under this Contract to the extent that such right, benefit or relief relates to the same circumstances as those to which the Project Relevant Event to which that Equivalent Project Relief relates’.
Mr Justice Jackson held that there were two possibilities: first that clause 7.4 should be construed narrowly and in a manner compatible with the Act and second that the clause is contrary to the Act and thus the Scheme for Construction Contracts (which would give CAMBBA a right to go to adjudication at any time) is substituted in the place of the contractual adjudication provisions. He held that, in either case (and he did not decide which was correct) clause 7 of the D&C contract did not bar CAMBBA from pursuing its claim by adjudication.
3. Was CAMBBA entitled to pursue their claim for interim payment against MEL before the DRP was operated under the Project Agreement?
MEL relied on clause 39.6.2 of the D&C Contract which provides: ‘subject only to clause 7 (Contractor’s Rights) and notwithstanding any other provisions of this Contract, [CAMBBA]’s rights to any Price Adjustment under or in connection with clause 39 (Changes) in respect of a Secretary of State’s Change shall in no event exceed the amounts, if any, to which [MEL] is entitled to be paid by the Department in respect of a corresponding change pursuant to Clauses 8.1.3.1 and 8.1.3.3 of the [Project Agreement].’
Mr Justice Jackson held that the practical consequence of this clause was that CAMBBA would not be paid for variations requested by the Department unless and until MEL had received a corresponding sum from the Department, even where CAMBBA has or could show, under the D&C contract dispute resolution procedures, that it was entitled to payment or extra payment. In Mr Justice Jackson’s view, this was what S.113 of the Act was designed to legislate against. He went on to say that the use in that clause of the words ‘to which [MEL] is entitled to be paid’ did not save the clause: words used as a device to get around S.113 will not assist. He went on to say that if that analysis were incorrect then clause 39.6.2 would, when read together with clause 7.1.3 would in any case be a ‘pay when paid’ provision in all circumstances other than where MEL had certified that it had funds available to pay CAMBBA.
4. Was MEL entitled to the relief it sought?
MEL relied upon a provision in the D&C Contract dispute resolution procedure that provided that CAMBBA was not entitled to take any steps to enforce its rights under the D&C Contract in any way that might prejudice or be inconsistent with the operation of the provisions governing an adjudication brought by either party under the Project Agreement, to which CAMBBA might be joined. Mr Justice Jackson considered this to be directly contrary to s 108 of the Act and accordingly did not and could not prevent CAMBBA from pursuing their claim in adjudication at any time.
For an analysis of this case from a PFI perspective please click here.
For full judgment, please click here
