Mailbox (Birmingham) Ltd v Galliford Try Construction Ltd [2017] EWHC 67 (TCC)

This was an adjudication enforcement dispute that raised the issue of whether the enforcing party (“Mailbox”) had assigned the benefit of a contract with Galliford Try Construction Ltd (“GTC”) to a third party (“the Security Trustee”) before commencing the adjudication, rendering the notice of adjudication invalid and the adjudicator’s decision a nullity.

The parties also raised the issue of whether the Late Payment of Commercial Debts (Interest) Act 1998 ("the Late Payment Act") applied to an obligation to pay liquidated damages.

Background

On 23 December 2013 the parties entered into a written contract under which GTC agreed to carry out refurbishment works to a mixed use retail and office space (“the Property”) for the sum of £18,976,870.62. The contract incorporated the conditions of the JCT Design and Build Contract (2011 edition) and included further bespoke amendments. The contract provided for the works to be carried out in sections, each section having a possession date, completion date and rate of liquidated damages for any delay to completion.

Most of the works were carried out but on 1 March 2016 Mailbox purported to terminate the contract. The parties were in dispute over responsibility for delay, liability for liquidated damages, the proper valuation of the final account and the lawfulness of the termination by Mailbox, and on 19 August 2016 Mailbox commenced adjudication proceedings against GTC in respect of the dispute over Mailbox’s entitlement to liquidated damages.

The Decision

The adjudicator granted the following relief in his decision dated 6 November 2016:

1. a declaration that Mailbox was entitled to the gross sum of £4,262,553.45 in respect of liquidated damages under the contract;
2. an order that GTC should pay Mailbox the sum of £2,477,152.86;
3. a determination that Mailbox was entitled to interest on the sums awarded in the adjudication pursuant to the Late Payment Act; and
4. an order that Mailbox should pay 25% of the adjudicator's fees and expenses in the sum of £7,394.50 (excluding VAT) and that GTC should pay 75% of the adjudicator's fees and expenses in the sum of £22,183.50 (excluding VAT).

The Issues

GTC’s position was that Mailbox was not entitled to commence the adjudication proceedings in its own name because it had assigned the benefits under the contract to the Security Trustee. GTC therefore sought to resist enforcement on the basis that the adjudicator had no jurisdiction to determine the dispute referred by Mailbox and his decision was a nullity.

Mailbox’s case was that although there may have been a charge in respect of the benefits under the contract in favour of the Security Trustee, there was no assignment and the parties had operated the building contract on the basis that Mailbox was entitled to the benefit of the same. Further, to the extent that there had been any assignment, there was a re-assignment of those benefits to Mailbox on or before the issue of the notice of adjudication.

The TCC therefore had to determine the following issues:

1. whether there was a valid assignment by Mailbox of its rights under the contract to the Security Trustee;
2. if so, whether there was a valid re-assignment by the Security Trustee of the benefits under the contract to Mailbox on or before Mailbox served its notice of adjudication; and
3. whether the court should order GTC to pay interest on any sums to which Mailbox is entitled by way of liquidated damages and, if so, the rate and period for such interest.

Assignment

On 10 May 2011 Mailbox and the Security Trustee executed a term loan facility agreement to extend a loan facility to Mailbox for the purchase of the Property. As a condition precedent to the provision of the facility, Mailbox executed as a deed a debenture in favour of the Security Trustee which included the following provisions on assignment:

“3.3        Assignments

Each Chargor with full title guarantee assigns absolutely by way of security in favour of the Security Trustee, but subject to the right of such Chargor to redeem such assignment upon the full payment or discharge of the Secured Liabilities, its right, title and interest from time to time in each of the following assets:-

3.3.1       the Specific Contracts;

…

3.3.4       all rights under any agreement to which it is a party and which is not mortgaged or charged under Clause 3.1 (Mortgages and Fixed Charges), together with all Related Rights in respect of such Charged property provided that each Chargor is entitled until the occurrence of an Event of Default which is continuing to exercise all rights assigned under this Clause 3.3 (Assignments) (subject to the terms of the Secured Finance Documents) and the Security Trustee will reassign any such rights to the extent necessary to enable such Chargor to do so.…”

The term loan facility was later extended for the purpose of funding the office and retail works, and notice of the assignment was sent to GDC and received on 2 January 2014.

Section 136(1) of the Law of Property Act 1925 would apply so as to effect a statutory assignment only if the following conditions were satisfied:

1. the assignment must be absolute and not purport to be by way of charge only;
2. it must be in writing under the hand of the assignor; and
3. express notice in writing thereof must be given to the debtor or trustee.

In relation to the first point, Mailbox submitted that the assignment could not have been made when the debenture was executed in May 2011 because the building contract was not yet in existence and it is impossible to make a statutory assignment of future rights. Disposing of this point, O’Farrell DBE J considered that the rights were not subject to an immediate assignment but could be the subject of an agreement to assign:

“The words "each Chargor … assigns" used in clause 3.3 indicate an intention to effect an immediate assignment but they must be read together with the object of the assignment, namely "right, title and interest from time to time in each of the following assets", which indicates that future rights are included. As these could only be the subject of an agreement to assign, the parties must have intended that clause 3.3 should operate both as an effective assignment of existing rights and an agreement to assign future rights.”

The second issue was whether the instrument had created an absolute assignment or merely a charge in favour of the Security Trustee, a question to be determined on the construction of the debenture taken as a whole. O’Farrell DBE J found that the debenture had created an absolute assignment rather than a charge based on the express wording of clause 3, read against the context of the debenture as a whole.

A further question to be determined was whether the rights under the contract between the parties had in fact been made the subject of an assignment under the debenture. It was common ground between the parties that an agreement to assign an expected future right could operate in equity to transfer that right as soon as it came into existence, provided it was sufficiently identifiable under the agreement. O’Farrell DBE J considered that the contract became sufficiently identifiable as an agreement falling within clause 3.3.4 of the debenture as soon as it was executed by the parties, and so at that point the rights under the contract were subject to an immediate equitable assignment to the Security Trustee.

The final requirement under section 136 of the Law of Property Act 1925 was satisfied once the notice of assignment had been received by GTC on 2 January 2014. Accordingly, O’Farrell DBE J determined that a legal assignment by Mailbox of its rights under the building contract had been made to the Security Trustee at that date.

Re-Assignment

The notice of adjudication would only be valid if the re-assignment of rights had taken place prior to its issue by Mailbox. The following dates were significant to the re-assignment:

• By deed of assignment dated 19 August 2016, the Security Trustee re-assigned all rights and benefits under the contract to Mailbox;

• Under cover of a letter dated 19 August 2016, Mailbox served a notice of adjudication on GTC; and

• Notice of the re-assignment was sent by email to the adjudicator and to GTC on 26 August 2016.

Accordingly, there were two potential issues affecting the validity of the notice – first, notice of the re-assignment had not been given to GDC until 7 days after the notice of adjudication and so the re-assignment could not have taken effect under statute until then; and second, the notice of adjudication had been issued on the same day as (and possibly prior to) the re-assignment.

In relation to the first issue, O’Farrel DBE J determined that an equitable re-assignment had occurred on 19 August 2016, and because it is the equitable assignee who has the right to sue, this was sufficient to entitle Mailbox to commence adjudication proceedings.

In relation to the second issue, because both the Scheme and the building contract specified dates by which each action was required to be done but not times, it was sufficient for O’Farrell DBE J that the notice had been served on the same day that the re-assignment had occurred, without having to determine whether the re-assignment had actually been effected prior to the notice of adjudication being served. 

On this basis, O’Farrell DBE J determined that Mailbox had been entitled to start adjudication proceedings against GTC on 19 August and the adjudicator therefore had jurisdiction, his decision was valid, and Mailbox was entitled to have his decision enforced.

The Late Payment Act

It was common ground between the parties that Mailbox's entitlement to liquidated damages was not a qualifying debt for the purposes of the Late Payment Act. Therefore, the adjudicator did not have jurisdiction to decide that Mailbox was entitled to interest under the provisions in the Act, and O’Farrell DBE J instead awarded interest on the unpaid sum at the usual commercial court rate of 2% above the Bank of England base rate.