ADJOURNMENT OF SUMMARY JUDGMENT HEARING TO ARGUE NOVATION? NO VAY

In A.T. Stannard Ltd -v- James Tobutt and Thomas Tobutt  [2014] EWHC 3491 (TCC) Mr Justice Akenhead refused an application for the adjournment of a hearing for summary judgment to allow the defendants to, belatedly, argue novation of a contract.

THE ACTION

The application was for summary judgment on an adjudication decision in which the defendants had indicated they would participate but, in fact, took no active part.

THE ARGUMENTS PRIOR TO THE HEARING

Prior to the hearing there was no indication that an issue would arise on novation.

  1. Counsel for each party exchanged skeleton arguments with Mr Gibson-Lee putting in a commendably short skeleton of less than half a page and with Mr Winser setting out more of the background in an understandably somewhat longer skeleton. There was no hint or suggestion in Mr Gibson-Lee’s skeleton that there might be an application to adduce further evidence, let alone an application to adjourn the proceedings.

At the hearing the defendants applied for an adjournment to put in additional evidence that the contract upon which the adjudication was based had been novated to a limited company.

THE JUDGE’S DECISION

  1. It is clear that, following the reasoning of Mr Justice Ramsey in the GPS Marine Contractors case, the Firm, by participating in the adjudication without any reservation, has waived any right to raise as a jurisdictional (or indeed as some sort of threshold) challenge the current argument that by novation all rights and obligations of the Firm have been transferred to the Company. Mr Gibson-Lee did not seek to argue otherwise, if his threshold argument failed.
  2. Even if it in some way it remained open to the Firm to raise the novation issue to prevent enforcement of the adjudicator’s decision, no effective evidential basis has been raised. I say this for the following reasons:

(a) Neither witness statement of the two Tobutt brothers provides any evidence from which one could infer a novation. James Tobutt says simply and only that the Firm traded as a partnership “which in 2010 changed its status to that of a Limited Company”. That does not give rise to an inference that the Firm’s pre-existing obligations and liabilities were transferred to the Company or that it was some sort of novation with Stannard. Indeed, the whole tenor of that statement is a challenge on the merits to Stannard having any entitlement, with arguments being mounted that there was a “pay when paid” agreement (not recognised as enforceable by the HGCRA) and that there were defects in Stannard’s work which justified the non-payment of retention.

(b) Mr Scott’s first witness statement says nothing about any transfer of obligations or liabilities from the Firm to the Company or about any novation. Indeed, he suggests if anything that the “pay when paid” arrangement was made between Stannard and the Tobutt brothers (which, if anything, points to the Firm being involved in such an arrangement).

(c) Mr Scott’s second witness statement dated 14 October 2014 was admitted belatedly; there was no explanation why the Firm had held back this further statement until the date of the hearing which was 17 October 2014. All that this does is to state that the Company was incorporated on 8 February 2010 and that he wrote a letter to regular sub-contractors and suppliers including Stannard on 18 February 2010 which said:

“Please note that with effect from March 1st 2010 JT Tarmac are closing for business to be replaced with JT Tarmac Ltd.

All future dealings and outstanding matters will now be the responsibility of the new company.

If there is information you require please contact the undersigned.”

I do not consider that it is possible to infer from this letter that Stannard, simply by receiving it, in some way inferentially agreed that all its rights to payment against the Firm were from then on to be considered to have been transferred to the Company so that it could never pursue the Firm for any outstanding payments. It is not uncommon for partners of a firm to incorporate their business into a company and it will often be the case that in practice the new company will assume in effect voluntarily the job of paying outstanding debts owed by the partnership. That sort of arrangement, which seems to be exactly the one being notified here, can not without more give rise to a novation, particularly one said to arise by inference.

(d) Mr Gibson-Lee then put before the court several cheques from the Company to Stannard post-February 2010, which he said demonstrated inferentially that Stannard must be taken to have agreed that all its pre-February 2010 contractual rights had been novated from the Firm to the Company. He was unable to say whether these cheques related to work which had been carried out after this time. Accordingly, even these cheques, which were not even referred to in Mr Scott’s second witness statement, do not go to establish an effective or indeed any novation.

(e) Mr Gibson-Lee also attempted to rely upon a letter dated 13 September 2013 from the Company to Stannard which refers to outstanding retention money and a meeting held between them that day. It refers to 7 Thames Water projects with retentions totalling more than was claimed in the current adjudication and enforcement proceedings. He indicated that this document was signed by both parties. This was simply the “pay when paid” arrangement which is said to have been reached. However, apart from the fact that it is unenforceable under the HGCRA, this does not give rise to any inference that there was a novation.

(f) The Firm submitted a Defence supported by a statement of truth apparently signed by someone other than the Tobutt brothers. It effectively repeats what Mr Scott said in his second witness statement about all matters and undertakings relating to the dissolved partnership being transferred to the Company in March 2010. This does not add anything about novation. Indeed, if novation was to be relied upon, a properly pleaded case about novation should and could have been raised. As it stands, the pleading that there was a transfer of liabilities and obligations of the Firm does not provide a defence, because a transfer or assignment of obligations and liabilities can not be made in law, at least without novation.

(g) Finally, Mr Gibson-Lee applied for an adjournment and yet further time to submit yet further evidence to support his client’s case that there had been a novation. I refused this application, not least because there was simply no, let alone any arguably good, explanation as to why any such further evidence had not been filed either in accordance with Mr Justice Edwards-Stuart’s directions order, at the time that the Firm’s initial evidence was filed (well over a month before the summary judgment hearing) or even at the time that Mr Scott’s second witness statement was prepared. The primary purpose of the procedures developed by the TCC for the prompt hearing of summary judgement applications for the enforcement of adjudicators’ decisions was to satisfy the policy of the HGCRA to provide prompt resolution of disputes arising in connection with construction contracts. Mr Gibson-Lee was unable to say what the further evidence would be other than in the most general sense. He was unable to say for instance that there had been any material discussions between Stannard and the Company representatives which would or might throw light on whether there was some sort of novation.

(h) The suggestion that there was or might have been a novation is one which obviously never occurred to the Firm or Mr Scott apparently until a few days (at most) before the hearing of the summary judgment application. If anything, the Firm’s standpoint in the adjudication and indeed in its first series of witness statements was to the effect that there were defences of the Firm to Stannard’s claim for payment of retention. This undermines the extremely belated attempt to argue that there was some novation.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: