Mathias Cheung (instructed as junior counsel) acted successfully on behalf of the Claimant, Energy Works (Hull) Ltd (EWHL), in a preliminary issues hearing in the matter of Energy Works (Hull) Ltd v MW High Tech Projects UK Ltd & Others [2020] EWHC 2537 (TCC).
These ongoing TCC proceedings arise from the design and construction of a fluidised bed gasification power plant in Hull which processes refuse derived fuel to produce steam. There have been a series of legal proceedings relating to this same project, including the recent decision of Engie Fabricom (UK) Ltd v MW High Tech Projects UK Ltd [2020] EWHC 1626 (TCC) which confirmed that the primary activity at the plant is power generation for the purposes of section 105(2)(c) of the Housing Grants, Construction and Regeneration Act 1996 as amended.
The present multi-partite proceedings concern EWHL’s claim against its main contractor, MW, for damages in respect of delay, defect rectification, and the post-termination costs of completing the works. MW in turn seeks to pass on any liability it might have to its sub-contractor, Outotec, through a Part 20 additional claim.
The latest TCC judgment is the culmination of a two-day remote hearing concerning the following two preliminary issues:
- The legal effect of the assignment by MW to EWHL of MW’s sub-contract with Outotec, upon EWHL’s request under clause 44.3(d) of the main contract after the termination of MW’s employment; and
- Whether MW can pursue its claims for contribution against Outotec as direct claims, in respect of accrued rights under the sub-contract, or based on its liability for “the same damage” pursuant to the Civil Liability (Contribution) Act 1978.
EWHL’s involvement in the preliminary issues hearing was confined to the first issue (i.e. the legal effect of the assignment of Outotec’s sub-contract), which has a direct impact on the legal effect of numerous other post-termination assignments of MW’s purchase orders and sub-contracts.
MW contended that the assignment only transferred the right to the future performance of Outotec’s sub-contract but not the accrued rights. Alternatively, MW sought to argue that the assignment transferred both the benefit and the burden of Outotec’s sub-contract and was effectively a novation.
In a detailed judgment, O’Farrell J rejected all of MW’s contentions on the issue of assignment and accepted EWHL and Outotec’s submissions: see paragraphs 56 to 108 of the judgment. In summary, the judge concluded as follows:
- As Lord Browne-Wilkinson observed in Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85, a natural and ordinary reading of the words used in the main contract and sub-contract leads to the conclusion that the agreement to “assign the Sub-Contract” was an agreement to assign all MW’s benefits under the sub-contract i.e. both future rights and accrued rights.
- The parties could have used clear words to indicate that the permitted assignment was limited to future rights but there are no such words. There is also no indication in any of the contemporaneous documents (including the notices of assignment) that the parties had an understanding of the words “assign the Sub-Contract” that was different to the usual meaning of the contractual provisions.
- Although MW contended that it would be implausible or uncommercial to construe the assignment clause as requiring MW to give up its rights and claims against Outotec (e.g. for defects), MW freely assumed the commercial risk in giving up its right under the sub-contract to pass on to Outotec claims for which MW retained responsibility to EWHL under the main contract. It is not for the Court to rewrite the parties’ contractual bargain.
- As for MW’s alternative argument on novation, the use of the words “assign the Sub-Contract”in the main contract, the sub-contract and the parties’ contemporaneous correspondence was a very strong indication that assignment rather than novation was intended by the parties.
- The Court emphasised that novation and assignment are very different legal concepts and it must be assumed that the parties meant what they said in referring to assignment rather than novation. Although there could in theory be advance consent to a novation, the parties here did not reach any agreement on the terms of the intended novation, and it follows that there was no novation of the sub-contract.
- Finally, the principle of conditional benefit did not assist MW, as MW has not identified any obligations that are intrinsically linked to any of the accrued rights under the Sub-Contract to sue Outotec. In any event, as explained by Gloster LJ in Budana v Leeds Teaching Hospitals NHS Trust [2017] WLR 1980, even if the principle applied, it would not amount to a novation.
In relation to the second preliminary issue regarding MW’s contribution claims, O’Farrell J concluded that at least part of any MW liability to EWHL for delay and defects under the main contact is the same damage as any Outotec liability under the sub-contract / deed of warranty, but that MW’s liability to EWHL for losses flowing from termination of the main contract is not the same damage any Outotec liability under the sub-contract / deed of warranty.
The full trial of this matter on liability and quantum will take place in June/July 2021.
Mathias Cheung (instructed as junior counsel by Fenwick Elliott LLP) for the Claimant.
To read the full judgment please click here: Energy Works (Hull) Ltd v MW High Tech Projects UK Ltd & Others [2020] EWHC 2537 (TCC)
