HT-2023-000006 - [2024] EWHC 1510 (TCC)

The amount claimed is £34,193.41.

In considering this claim there are two different limbs. The first relates to loss of profits on the remaining contract works. The second relates to loss of profits or potential profits.

J&BH’s pleaded position is as follows in paragraphs 65 and 66 of the Defence (Footnote: ⁶⁷):

As to paragraph 65.1, I have held above that J&BH was in breach of the sub-contract. Having heard Mr Paduraru, I accept his evidence that he intended his letter of 15 March to be a seven day notice, and he was hoping and expecting to get a response from J&BH. I accept his evidence that he took the exclusion from IAuditor as being the final indication that J&BH did not wish A & V to continue with the works.

As to paragraph 65.5, I accept that if A & V was not ready and willing and able to continue the sub-contract works, this claim could not succeed. Whether A & V was so ready willing and able is fiercely contested by J&BH.

I consider first the claim for lost profits on the outstanding sub-contract works. On my findings above, the value of the outstanding sub-contract works was £40,643.75 (£447,800 less £407,156.25).

I fully accept the evidence of Mr Geale that by March 2021 A & V’s finances were not in a happy state.

The exact state of A & V’s finances is not easy to determine because there are some uncertainties contained in its accounts. These are set out by Mr Geale in his first report. Thus, a table in paragraph 5.4 of his first report (Footnote: ⁶⁸) compares draft accounts for 2022 with the comparator in the draft 2023 accounts, which show a difference in the first of a profit of £119,478 and in the second a loss of £105,846. In a table in paragraph 5.6 (Footnote: ⁶⁹), a similar exercise of comparison is carried out: there is an entry under creditors falling due within one year of “(254,908)” in the draft 2022 accounts which become £8,396 in the draft 2023 accounts. There is no obvious explanation for these changes. In the entry for creditors falling due after more than one year, the figure is the same in both accounts: “(141,259)”. These negative figures are extremely important since they have the effect of reducing the creditors figure, producing a positive balance sheet in the draft 2022 accounts, which without those two entries would show a significant balance sheet deficit. As I have said, there is nothing before me to explain this unusual accounting treatment of the credits provision.

Thus it is difficult to be sure what the actual financial position of A & V was. However, it is clear that it was unsatisfactory.

Firstly, A & V had substantial loans from its banker, NatWest. There was some questioning of Mr Paduraru as to the propriety of the method by which some of the loans were obtained, but all I need to determine and record is that as at 31 January 2022 A & V was indebted to NatWest in the sum of £170,673 (Footnote: ⁷⁰).

Secondly, A & V owed HMRC £143,344 by 31 January 2021 (Footnote: ⁷¹).

Thirdly, the manner in which the company was being run was financially unsatisfactory, in that not insignificant sums were being paid out for purposes seemingly unrelated to A & V’s business – Mr Geale identifies £35,000 of such payments (Footnote: ⁷²).

Thus, the company was not in a healthy position. However, crucially, a loan of £100,000 taken out in May 2021 placed A & V’s bank account in a positive cash position (Footnote: ⁷³).

It is a matter of fact that A & V had managed to survive long enough to take out that loan, and indeed is still not in liquidation.

I have no doubt that if A & V had been given the opportunity to complete the sub-contract works it could and would have done so.

In making that assessment, I should note one of the curiosities of the case – as I have said, on my findings the amount of outstanding work was to a value of £40,643.75. The sub-contract sum (once Tower 3 was added in) was £447,800, to be executed over a 12 month period. In fact, as I have found, work to a value of £460,356.25 had been done by 19 March 2021. After taking away the ten week suspension period, this had been done on 43 weeks (the 52 week contract period, less 10 weeks for the suspension, plus one week after the end of the sub-contract period on 12 March 2021). Thus, A & V had managed to do work to an average value of £10,705 per week. On that basis, if A & V had unimpeded access to working areas, it should have been able to complete the outstanding works within 4 weeks.

Thus, the question on the first limb of this claim is whether A & V could have survived and paid its work force for about 4 weeks: I have no doubt that it could and would have done.

Of course, that evaluation is based upon my assessment of the value of the work done. However, on J&BH’s own Certification, the figures are also revealing as to A & V’s productivity. Taking Certificate 12, this values the works as at 20 January 2021, which is after approximately 44 weeks of the sub-contract, of which 10 weeks were the period of suspension. In that 34 week period, on J&BH’s valuation A & V had carried out work to a value of £384,115, a weekly value on average of £11,297.

It was J&BH’s case that there was outstanding work to a value of £109,117. On that basis if A & V maintained its rate of progress up to 20 January 2021, it would take about 10 weeks to complete the works.

Again, looking at the cashflow position, that was manageable, and in my judgment would have been achieved, by A & V if it had continued the works to completion.

For the above reasons, I hold that, had J&BH not repudiated the sub-contract, A & V could and would have completed the original sub-contract works.

A & V claims a figure for overheads and profit of 15%. Mr Geale came to a figure on the basis of the accounting records he saw of 17%. In my view a figure of 15% seems a reasonable assessment.

Accordingly, on the first limb of this claim I hold that A & V is entitled to recover 15% of £40,643.75, namely £6096.56.

The second limb of this claim is more difficult factually and legally.

The background to this part of the claim is that in the Blizzard adjudication, J&BH put forward a claim for the costs to complete in the sum of £405,353.

It is hard to see how that claim could have been put forward if more than a moment had been taken by J&BH to consider it: on J&BH’s case the sub-contract value of the works outstanding was £109,117. To claim that costs closing on 4 times the amount outstanding had been incurred should have given J&BH pause for thought.

By the time that J&BH put forward its evidence in the Smith adjudication, J&BH had re-thought its position. A witness statement from Mr Hill was submitted saying that the correct figure was £177,396.89 (Footnote: ⁷⁴).

The explanation for this change of position was (Footnote: ⁷⁵):

Thus, Mr Hill’s explanation for the £228,000 difference between the two figures was that there were post-termination variations to that value.

Faced with that explanation, A & V has put forward a claim contending that if A & V had stayed on Site, it would have been instructed to carry out variations to a value of £228,000 upon which it would have earned overheads and profit at a rate of 15%.

In the Defence at paragraph 66.2 J&BH now contends (Footnote: ⁷⁶):

I find it very surprising that in the Smith adjudication as in the Blizzard adjudication material was placed before the adjudicator which was liable to be misunderstood (in the Blizzard adjudication, the £405,353 figure: in the Smith adjudication where it was said that the £405,353 figure was overstated entirely because of variations).

The position is surprising in another respect: I have already pointed out that the time to complete the sub-contract works based on A & V’s past performance would be between 4 and 10 weeks. However, before A & V left Site, J&BH was suggesting that there were 5 months of work left to do, and on the evidence before me it took over 6 months for J&BH to complete its contract works. This suggests that the scope of J&BH’s works changed significantly.

Unsatisfactory as this is, with consequences as to the reliability of J&BH’s assessment of the cost incurred by it to complete A & V’s sub-contract work, it leaves it difficult for me to conclude that there were changes after 19 March 2021 in what would have been A & V’s scope of works amounting to a value of £228,000 – nor can I assess on any reliable basis what any lesser valuation of such works might have been.

Even were that not so, I accept J&BH’s submission that there is a fundamental legal problem with this claim. In paragraph 287.1 of Mr Frampton’s written Opening Submissions he submitted:

I accept this submission.

The consequence is that A & V succeeds on the first but not the second limb of this claim, in respect of which I award £6,096.56.