Citation: [2023] EWHC 2885 (TCC)
Abstract
This case relates to an energy-from-waste plant in Hull. Previous litigation took place in relation to the same plant and between the same parties in 2021. The defendants (‘D’) applied to strike out or for summary judgment in respect of the claimant’s (‘C’) claim on the basis of abuse of process due to the previous litigation, and/or that a purported re-assignment of the benefit of the subcontract was ineffective due to lack of consent. The court held that there was no abuse of process such that the claimant’s claim in misrepresentation could proceed, however the contractual claim was struck out because the purported assignment was ineffective.
Background
In 2015, MW, an English company in the energy-from-waste sector, entered into a main contract with Energy Works Hull Limited (EWH) for the construction of a new waste-to-energy plant in Hull (the ‘Hull Project’) for around £154m. MW entered into an amended IChemE Yellow Book subcontract with Outotec, a US company, to supply a plant for use as part of the main contract works (‘the Subcontract’). Metso, Outotec’s Finnish parent company, provided three guarantees in respect of Outotec’s liabilities arising from the project (‘the guarantees’). EWH terminated the main contract on 4 March 2019 for Contractor Default. Under the terms of the main contract, EWH was entitled to call for MW to assign the Subcontract to itself in such circumstances. MW complied with EWH’s request and assigned the Subcontract to MW.
Procedural history
O’Farrell’s judgment
The effect of the assignment of the Subcontract was determined by O’Farrell J in a preliminary issues judgment dated 24 September 2020. She concluded that the assignment did not transfer the benefit and burden so as to take effect as a novation. As such, MW was unable to pursue claims under the Subcontract that properly belonged to EWH. However, the Judge found that “at least part of any MW liability to EWH for delay and defects was the same damage as any Outotec liability”. MW therefore continued its claim for both by way of a contribution claim.
Pepperall J’s judgment – Part I
The matter was tried before Pepperall J in 2021. The judgment handed down in two parts. Part I on 20 December 2022, focussing on the termination issue between EWH and MW, on which the former succeeded. The Judge held that MW was entitled to rely on the defence of abatement in reduction of its liability under the Subcontract for milestone payments claimed by Outotec. On 16 December 2022, MW and EWH settled all claims between them and their respective parent companies for £75m. The settlement also purported to re-assign all benefits arising under the Subcontract to MW.
Pepperall J’s judgment – Part II
Part II was handed down on 12 May 2023, and considered the remaining defects, Outotec’s variation claims and MW’s right to abatement. The plea of abatement failed for lack of evidence as to the diminution in value of the subcontract plant. Overall, Outotec was entitled to judgment for £9.3m plus £2.2m interest.
Outstanding appeal
There is an outstanding appeal to the Court of Appeal against one of the issues in the prior proceedings, i.e., whether or not cl 37 of the Subcontract contains a condition precedent to MW’s right to make certain claims.
Instant proceedings
The present proceedings were issued on 21 December 2022. The claim consisted of two parts: a misrepresentation claim and a breach of contract claim. The former is a claim for damages based in deceit, negligence, and/or under s2(1) of the Misrepresentation Act 1967. The misrepresentation claim is for around £170m and includes all the costs which MW allegedly incurred on the Hull Project, including the settlement sum due to EWH, along with other items up to £17.3m. The breach of contract claim is for £122m plus $5.2m, £12.4m for “defect rectification costs”, liquidated damages claims and claims for delay and disruption, legal costs up to £14.1m, and the settlement sum due to EWH.
Parallel proceedings
There are parallel proceedings between MW and Outotec, in the TCC and in arbitration, in respect of a similar projects, brought for alleged breach of contract and misrepresentation.
Judgment
MW’s claim for breach of contract
The Judge summarily dismissed the breach of contract claims against Outotec on the basis that the re-assignment of the Subcontract, being made without consent, was ineffective as between MW and Outotec. Clause 9.1 of the Subcontract, when read with the definition of the Contractor inserted, is clear in its effect, i.e., that EWH, as a ‘permitted assign’, had no right to re-assign to MW without the previous consent of Outotec: [47].
The Judge also held that the conditional benefit principle applied to cl 9, such that the restriction on assignment applied as much to assignees of MW or Outotec as it does to MW or Outotec themselves. This principle was explained by Gloster LJ in Budana v Leeds Teaching Hospitals NHS Trust [2017] EWCA Civ 1980 at [26]:
“…where a right under a contract was conditional upon, or qualified by, performance of some obligation in return for which the right has been granted, an assignee of the benefit of such right will only be entitled to exercise the right subject to performance of the burden.”
The Judge also held that, just because the default rule in the absence of express restriction is that a party may assign without consent does not mean this is the default position where there has already been a permitted assignment with consent. If, as here, the contract requires B’s consent before it can be assigned by A, the natural inference is that the parties have an objective common intention that the assignee’s identity is sufficiently important to require prior consent. Absent circumstances which show a different common intention, it makes no sense to dispense with the need for consent to any re-assignment: [48].
The Judge rejected MW’s submission that even if consent was required, it was deemed to have been given given due to Outotec having initially entered into the subcontract with MW. He held “it is impossible to see the act of entering into the subcontract containing this clause as amounting to an advance consent to re-assignment back to the original assignee”: [50].
MW’s claim under the PCG for Outotec’s breaches of the Subcontract
The Judge held that, on the proper interpretation of cll 2 and 3.1 of the PCG, it was not possible for MW to advance a claim against Metso under the PCG, in respect of Outotec’s breaches of the Subcontract, in circumstances where the assignment of the Subcontract meant that MW had no direct right to claim agaist Outotec : [64]. Metso was entitled to rely on the same defence as Outotec, i.e., lack of consent to the re-assignment.
MW’s claim under the PCG for Outotec’s misrepresentations
Cl 2.1 of the PCG provided:
“The Guarantor hereby guarantees the due and proper performance by the Subcontractor of the Subcontractor’s duties and obligations arising under or in connection with the Subcontract…”
The question was whether the claim for misrepresentation could be said to be a failure by Outotec to perform, duly or properly, its duties or obligations arising “in connection with the subcontract”. The Judge held that the parties to the PCG must have contemplated that tort claims could fall within the scope of claims arising out of or in connection with the subcontract, including fraudulent misrepresentation claims.
This meant that MW would be entitled to pursue a claim against Metso under the PCG in respect of Outotec’s misrepresentations, even if the underlying claim against Outotec had been struck out as an abuse (considered below), unless there was a separate basis for striking out the claim as against Metso, specifically, as an abuse of process.
Abuse of process
The Judge rejected the Defendants’ abuse of process arguments. The misrepresentation claims against Outotec and Metso should not be struck out. As for the breach of contract claims, had they not been summarily dismissed on account of the invalid reassignment of the Subcontract, it would not have been an abuse to have pursued them.
In Johnson v Gore Wood & Co [2002] 2 AC 1, the HL emphasised the importance of finality in litigation. Lord Bingham established that abuse could be found if a claim or defence should have been raised in earlier proceedings. The focus is on whether a party is misusing or abusing the court process, and the burden of proof lies with the alleging party. In Aldi Stores Limited v WSP Group plc & Ors [2007] EWCA Civ 1260, Thomas LJ referred to Dexter v Vlieland-Boddy, which summarises the principles from Johnson v Gore-Wood. These include: (i) that a later action is more likely to be abusive against the same party (B) than a new party (C), and (ii) the court should adopt a broad, merits-based approach, considering whether the conduct is oppressive or an abuse of process.
In Aldi itself, the claimant’s strategy of seeking to conclude a separate claim against an insurer before considering bringing a claim against the consultants was not an abuse of process. and had been sensibly open to them. The consultants had been notified of the strategy and had not taken any steps to compel the claimant to join them in pain of being forbidden from doing so in the future. This shows that in addition to finality of litigation, there is public interest in allowing parties the freedom to choose when to sue, especially in a complex commercial matter: Aldi at [24]. The desired approach is to “raise the issue with the court” to allow it to “take such action as is appropriate”: Aldi at [29]-[31].
The Judge embarked on a detailed analysis of discussions between MW and Outotec from 2011 – 2016 regarding parallel proceedings between the parties. The Court noted there was little overlap between the previous and current proceedings. In MW’s submission, it did not have the resources or inclination to bring the misrepresentation claim in the prior proceedings. The court criticised the lack of evidence supporting this and held that MW could have pleaded the claim by late 2019.
The Court discussed hypothetical scenarios, including the possibility of combining the misrepresentation claim with the previous proceedings. The Judge held at [130] that while MW’s failure to comply with the Aldi guidelines weighs against it:
“…I must acknowledge that there is room for reasonable doubt as to whether or not [particular case management steps would have been taken had Aldi notice been given] and, thus, this cannot be said to be a clear-cut case which points very strongly to the current claim being struck out as an abuse of process.”
The Judge ultimately rejected Metso’s abuse of process argument as, inter alia, it was not a party to the previous proceedings. Regarding Outotec, the Judge held that MW’s failure to comply with the Aldi guidelines did not not justify striking out the claim. The Court considered factors including the prejudice to Outotec, the relevance of the continuation of the claim against Metso (which was contingent on the findings as to the scope of the guarantee), and Outotec’s need to defend claims related to other projects. Thus, the claim against Outotec was not struck out for abuse.
Permission to appeal
Both parties have, since, applied to the Court of Appeal for permission to appeal against the Judgment.
Representation
Robert-Jan Temmink KC from Quadrant Chambers and Matthew Finn (instructed by HFW London EC2) acted for the Claimant. Adrian Williamson KC, Paul Bury and John Steel (instructed by Walker Morris) acted for the Defendants.
