When is there a subcontract?

Published 31 March 2022

In the recent decision in Changing Climates Limited v Warmaway Limited [2021] EWHC 3117 (TCC) the Court found that a construction contract existed between two sub-contractors. The Court held that there was a course of dealings and there was an entitlement to enforcement.

Facts

In 2018, Broadley Limited (“Broadley”), put out to tender various elements of a contract in which it was the main contractor. The Claimant (“CCL”) and the Defendant (“Warmaway”) together with a third party (Dynamic Networks Limited - “Dynamic”) decided to put in a joint bid for the HVAC, plumbing and electrical works respectively.

After discussing with Broadley whether a joint bid would be likely to be attractive, they agreed to submit a bid for the entire M&E works, which included each of the three companies’ quotations for the share of the work they proposed to undertake. When Broadley accepted the bid, it issued an order to Warmaway for the whole of the work.

Whilst it had been the intention of the parties at the outset to form a consortium vehicle to enter into the contract with Broadley, this did not take place. Instead, Broadley issued one order to Warmaway and during the course of the project CCL completed the required standard form payment application template and passed it to Warmaway, to submit to Broadley along with its own payment application and that of Dynamic. There was clear evidence that Broadley had resisted making separate payments to each company individual and instead made a single payment to Warmaway in satisfaction of the payment applications.

Towards the end of the project, Broadley went into liquidation owing money on the project. There was an outstanding invoice from CCL to Warmaway of £223,338.20, plus VAT. Sometime later, CCL referred the dispute resulting from Warmaway’s failure to pay, to adjudication. Warmaway disputed jurisdiction on the grounds that there was no construction contract. The adjudicator gave a non-binding decision that there was a construction contract between the parties, that he had jurisdiction and directed Warmaway to pay the outstanding invoice in full.

Warmaway failed to paid causing CCL made an application for summary judgment to enforce the decision of the adjudicator.

Decision

When the matter came before the Court, there was a clear dispute between the parties as to the contractual relationship. CCL argued that Warmaway had taken the lead upon the tender bid being accepted and entered into a contract with Broadley, then entered into two subcontracts with the other parties. Warmaway sought to argue that each bidder/ member of the joint bid had entered into a contract separately with Broadley.

The Court held that whilst the parties envisaged setting up a joint venture vehicle of some kind this was not followed through. The payment applications that followed, conformed to a traditional process entirely consistent with a contractor and subcontractor relationship between Warmaway and CCL. Whilst Warmaway submitted a payment application to Broadley, which included a breakdown of the various work packages for the three individual companies, there was an application for a single payment on the cover sheet. On this basis, the court found that there was a construction contract between the parties, thereby granting the adjudicator jurisdiction.

Warmaway also sought to raise other grounds of defence based upon Estoppel by Convention and breach of Natural Justice; however, both of these arguments were dismissed due to a lack of evidence.

Based on the above, the Judge held that Warmaway had no defence with a reasonable prospect of success and awarded CCL summary judgement to enforce the award of the adjudicator.

Comment

Although this Judgment is fact sensitive, it presents a warning to contractors who seek to collaborate for the purposes of tendering for works to ensure that there is a clear contract in place. Failure to do could see (as in this case), one party taking responsibility and running the risk of assuming liability to the other members of the consortium in the event of any default by the Employer.