Alstom Power Ltd. v Somi Impianti S.R.L. [2011] EWHC 3157 (TCC)

[2011] EWHC 3157 (TCC)Case No. No.HT-11-445
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
Venue 7 Rolls BuildingDate Monday, 21 st November 2011
Before
MR. JUSTICE AKENHEADB E T W E E N:_________
Between
ALSTOM POWER LIMITED ClaimantSOMI IMPIANTI S.r.l.Defendant_________Transcribed by BEVERLEY F. NUNNERY & COOfficial Shorthand Writers and Tape TranscribersQuality House, Quality Court, Chancery Lane, London WC2A 1HPTel: 020 7831 5627 Fax: 020 7831 7737info@beverleynunnery.com_________MR. R. TER HAAR QC and MR. J. MORT (instructed by Hogan Lovells) appeared for Claimant. for THE DEFENDANT did not appear and was not represented.__________J U D G M E N T
[1]The Claimant, Alstom Power Limited ("Alstom"), applies for various injunctions against a subcontractor, SOMI Impianti S.r.l. ("SOMI"). The background is that the Claimant was engaged by RWE npower plc as the main contractor to engineer, procure and construct a substantial power plant in Pembrokeshire in Wales. Alstom employed the Defendant SOMI to carry out mechanical and piping erection and plant piping and mechanical erection in two packages for the two primary parts of this project.[2]The Subcontract is a substantial document and I do not propose to set it out in any detail. The Subcontract was made on 16th April 2010, and the General Conditions of Contract are clearly based, at least in part, on standard forms well known to the court. There are provisions in Clause 54 of those conditions, as partly amended, which require the subcontractor to provide various (as it is called) "Subcontractor's Equipment" and materials necessary to complete the work.[3]Clause 54.1 says that:
"All Subcontractor's Equipment... and materials shall, when brought on to the Site, be deemed to be exclusively intended for the execution of the Works and the Subcontractor shall not remove the same or any part thereof, except for the purpose of moving it from one part of the Site to another, without the written consent of the Contractor"
. The term "Subcontractor's Equipment" is defined by Clause 1.1 of the General Conditions of the Subcontract as meaning "all appliances and things of whatsoever nature, other than Temporary Works, required for the execution and completion of the Works excluding Plant, materials or other things intended to form or forming part of the Permanent Works".[4]Clause 54.2 of the General Conditions deals with the vesting of property and materially it states that: "All Subcontractor's Equipment... and materials owned, leased or hired by the Subcontractor or any of its subcontractors, shall, when on the Site, be deemed to be the property of the Contractor".[5]Clause 54.9 deals with the vesting of goods and materials, to the effect that: "Goods and materials to be supplied pursuant to the Subcontract shall become the property of the Contractor at whichever is the earlier of the following times:(i) when goods and materials are delivered to Site, or(ii) when the Subcontractor becomes entitled to payment of the value of the goods and materials".[6]Clause 54.14 deals with what is to happen when the employment of the Subcontractor ceases for any reason before the completion of the works, and it states that in those circumstances: "the Subcontractor shall deliver to the Contractor any goods and materials the property in which has vested in the Contractor. If it shall fail to do so, the Contractor may enter any premises of the Subcontractor or of any subcontractor and remove such goods and materials and recover the cost of so doing from the Subcontractor".[7]There are provisions in the General Conditions which deal with liquidated damages and one particular provision, Clause 47.2, relates to the Contractor's right to "terminate the employment of the Subcontractor forthwith" when culpable delay has got to such a stage that the maximum liability for liquidated damages has been reached. In this case it is 15% of the Subcontract price.[8]Clause 63 deals with termination of the employment, and there are various grounds for this to occur, including the insolvency or financial inability of the Subcontractor to proceed, persistent or flagrant neglect to comply with contractual obligations, suspension of work, committing any default which may seriously affect the proper implementation of the main contract works, and the one mentioned above which relates to liquidated damages exceeding the maximum limit. In those circumstances, the Contractor may, having given four days' written notice, terminate the employment of the Subcontractor, and the termination "shall not release the Subcontractor from any of its obligations or liabilities under the Subcontract, or affect the rights and authorities conferred on the Contractor by the Subcontract, and the Contractor may himself complete the Works or may employ any other contractor to complete the Works. The Contractor or such other contractor may use for such completion so much of the Subcontractor's Equipment, Temporary Works and materials as it or they may think proper".[9]Clause 63.2 states:
"If the Contractor takes possession of the Subcontractor's work under Sub-Clause 63.1, the Contractor may either by itself or by another contractor complete that work and the Contractor may without payment of compensation take possession of: (a) such of the Subcontractor's Equipment and Temporary Works and other things on or in the vicinity of the Site as are owned by the Subcontractor; and (b) the Subcontractor Provided Drawings and other documents, information and materials and the like produced by the Subcontractor". "
Subcontractor Provided Drawings" are also defined in Clause 1.1 as meaning "all drawings, calculations and technical information of a like nature provided or to be provided by the Subcontractor".[10]From the evidence put before the court, it is clear that the Claimant sought to terminate the employment of the Defendant, and that occurred in August of this year. Evidence has been put before the court, which I am not going to reiterate, which suggests, on a prima facie basis, that the Defendant Subcontractor was insolvent or financially unable to proceed with the Subcontract; in that context the evidence has been produced which is, and remains, unchallenged that a substantial number of suppliers and subcontractors were not paid by the Defendant, and indeed there was evidence that certain of these sub-Subcontractors or suppliers had to be paid direct by the Claimant.[11]There is again some evidence before the court, which has not been challenged, of apparently deliberate failure to comply with health and safety obligations, in particular in July and early August 2011, and this primarily had to do with the way in which the Defendant and its scaffolding sub-Subcontractor dealt with scaffolding in the summer of this year. There is evidence before the court that the Defendant suspended work, and no evidence has been put before the court which indicates that it was anything other than unjustified.[12]It does appear on the evidence that there were substantial delays which the Claimant puts at the door of the Defendant. It is not for the Court at this stage to say that the whole of the Claimant’s claim for culpable delay will succeed, but there is evidence that substantial delays occurred and indeed there is a decision of an adjudicator in which he confirms effectively that substantial liquidated damages are due to the Claimant.[13]A termination procedure was apparently finalised on 15th August 2011, by a letter sent by the Claimant to the Defendant. The project in question, by August 2011, was not very far off completion, it being anticipated by then that overall the main works, including commissioning and other work necessary to enable the works to be handed over to RWE, were expected to be completed by about April 2012. One of the requirements, as in most power station projects, is the handing over in the run-up period to final handover of substantial items of documentation. In this case a large number of what are called turnover packages (generally referred to as “TOPs”) were required to be provided, these being documents which fall into a number of categories; in respect of each of the units forming part of the works, they provide a substantial amount of information which essentially verifies proper design, manufacture and fabrication, together with other critical information which must be provided as part of the turnover or handover of the elements of the equipment in question.[14]As a matter of fact, on the evidence before the court, and it must be emphasised that I am not making any final findings of fact but just on the evidence before the court, it appears that the Defendant, prior to termination, had brought on to site these TOP documents for all the various units, or most of the various units, and they were retained on site. As the second witness statement of the Claimant’s Mr. Papadopoulos indicates, they were retained for convenience at the Defendant's site offices. It appears that, as the relationship began to deteriorate, Alstom was able to secure probably the majority of the TOPs. They stopped on one occasion, so the evidence reveals, SOMI representatives trying to remove a number of the TOPs. When they finally had access into the Subcontractor’s offices they discovered that the TOPs which they were able to retain had already been boxed up as if they were to be removed. So the evidence suggests that a substantial number, probably about a quarter or so, of the TOPs had been removed by SOMI, and indeed at the last hearing Mr. Selby, counsel retained by the Defendant, on instructions indicated clearly that the documents had been taken back to Italy by the Defendant.[15]The position as it stands is that, on the evidence before the court, the Defendant has removed TOPs from the site and taken them out of the jurisdiction to Italy. Those are listed in a schedule, Schedule 1 to the Particulars of Claim. It has not been disputed or challenged that those documents have been taken.[16]I indicated earlier that there had been one adjudication but, as these proceedings have been initiated and indeed as I speak, a further adjudication has been launched, on this occasion by the Claimant, seeking substantial relief. Mr. Andrew Bartlett QC has been appointed adjudicator and there is to be a hearing before him on Wednesday, 23rd November this week.[17]The matter came before the Court initially following an application for an interim injunction by Alstom, and the return date for that was listed on 10th November 2011. It is clear that that application and indeed the procedural order that I made was sent to and received by the Defendant. It is clear that initially it instructed Mr. Jonathan Selby, a reasonably experienced specialist counsel, to act for it. It is also clear that SOMI had instructed Messrs. Withers, well-known solicitors, to act for them in relation to the adjudication. Withers had also acted for SOMI in dealing with correspondence in September 2011, possibly just going into October as well, in relation to the complaints being made by Alstom about the removal of the documents. It is clear that SOMI have not instructed Withers in relation to these injunction proceedings, but it is clear on the evidence that Withers are still acting for them on the current adjudication. Indeed, I am told in one of the recent witness statements that Messrs. Withers served witness statements on behalf of two of the key directors of SOMI in the adjudication very, very recently.[18]The matter came before me on 10th November, both parties being represented, although Mr. Selby was on his own, so to speak. He did not have a solicitor with him, and his clients were not in the room, although he was able to have telephone contact. The Court had received by email a document dated 9 November 2011 from SOMI, with an address in Italy, saying this:
"We have received at our offices on Tuesday 8 November 2011 a bundle of documents referring to an injunction which Alstom Power Limited has applied for against our company, SOMI Impianti. We were aware through our solicitors, Withers LLP, that Alstom Power had issued injunction proceedings"
. They went on to say that the reason they were finding it difficult to respond was that they were concentrating all their efforts on the adjudication, and perhaps in rather dramatic language the author - and it is not absolutely clear who it is - said this:
"The outcome of the adjudication will mean SOMI either lives or dies, so it is extremely important and hence the reason for focusing our resources in the way we did"
. The author goes on to say that "It is SOMI's view that Alstom wrongfully terminated the contract and is not, therefore, entitled to the documents requested". There was a request, in effect, that the issue of termination and the responsibility for it should be determined before any order is made as to the return of the documents. They suggested that Alstom was behaving in an unfair and tactical way by timing the injunction proceedings at a point of maximum disadvantage to SOMI. There is a suggestion that Alstom may not be "good for its money" - that is a quote - in relation to an undertaking in damages. They indicated that they were instructing Mr. Selby, under direct access rules, to appear.[19]At that hearing, Mr. Ter Haar QC and Mr. Mort appeared for the Claimant and prepared a helpful skeleton argument, which I am not going to reiterate other than in the most general terms. They put their case very strongly for an interim injunction. They refer to Cyanamid. They say that there is a strong case that the termination was lawful, that the property in the TOPs was, or remained, with Alstom and that SOMI had no right to remove the documents in any event. They say in support of their argument, following Cyanamid, that there was, at the very least, a serious issue to be tried. Mr. Selby conceded, and it seems to me quite properly, that there was at the very least a serious question to be tried. I agree. I do not see that it can begin to be argued otherwise. I say that of course without forming any view ultimately as to the merits of the case. Arguments about delay and safety breaches and the like are often vexed and there are often explanations put forward ultimately at a trial or in arbitration as to whose fault these matters really were. But there is no evidence before the Court that suggests anything other than that there is a serious question to be tried. I would go further than that and, given the absence of any evidence from the Defendant, that the court can have at this stage, based on the evidence put before it and taking into account the absence of evidence from the Defendant, a high degree of assurance that the party seeking the injunction will be successful. That view could well have been tempered if there had been any evidence form the Defendant.[20]Mr. Selby sought to make several points which have been now addressed in the second witness statement primarily of Mr. Papadopoulos. For instance, Mr. Selby sought to argue that there was no good reason why Alstom could not have brought these injunction proceedings weeks ago, either in September or early October. But Mr. Papadopoulos has provided various explanations for that, which I will not reiterate, but it seems to me that those are, on their face, not unconvincing, and therefore I do not see that there is anything much on the evidence put before me to support Mr. Selby's point.[21]Of course today the Defendant is unrepresented. It announced that it was not going to instruct Mr. Selby, at least in relation to these proceedings. Whether Mr. Selby is still retained in the adjudication I know not.[22]During the hearing on 10 November, Mr. Selby eventually accepted that he needed an adjournment, in particular so that his clients could put in some evidence, and so in broad terms I was happy to agree to that and indeed Mr. Ter Haar QC, on instructions, decided he would not oppose that. But that was on terms that an undertaking be provided to the court that the TOP documents, which were sought, should be brought back into the jurisdiction and put into the custody of Withers in London pending this hearing. So it was that the order was made on 10th November to that effect. I specifically asked Mr. Selby who it was that he was taking his instructions from. He asked for a short adjournment and telephoned his client, I recall it was Mr. Donato Zaccagnini, a director. He told me that his client was willing to give that undertaking. The undertaking - and it was an undertaking to the court - in terms was "to deliver all those items listed in the attached Schedule 1 that are within its custody, possession or control (wherever in the world the items be presently situated) to the custody of Withers LLP at their City address by 4 pm on 16 November 2011, and to keep them there until further order". Secondly, there was an undertaking "not to cause or permit any damage of any kind occurring to any such materials or to lose, sell or otherwise dispose of the same until further order". The order went on to adjourn this application to today's date and called upon the Defendant to serve any evidence by 2.00 p.m. on Wednesday last week, 16 November, with the Claimant to serve any evidence in reply on 18 November 2011.[23]Thus it was that the matter was adjourned, and the evidence before me points clearly to that undertaking not having been complied with. Messrs. Withers have confirmed that no such documents have been lodged with them by that time, and prima facie there appears to be a breach of the undertaking. I say "prima facie" because there may be factors of which this Court is currently unaware which may justify or excuse in some way non-compliance with the undertaking, but certainly there appears to be non-compliance.[24]Thus it is that we come to today. There has been put before me, as I said, a second witness statement of Mr. Papadopoulos, which primarily deals with the points which Mr. Selby was making and I have no reason to doubt the points raised by Mr. Papadopoulos in that second witness statement. As I say, these are not final findings of fact but, based on this court's experience and my personal experience with a number of power station projects, it does not appear that what he is saying is anything other than might reasonably be expected to be occurring on a project such as this. So the Court is in a position therefore to be wholly satisfied that there is a serious issue to be tried.[25]The next question to consider is the adequacy of damages and any cross-undertaking in damages, and the balance of convenience. It seems absolutely clear that the primary reason why SOMI is holding on to these documents is as a bargaining chip in negotiations. It is clear that there have been discussions; I infer that most of them appear to be on a "without prejudice" basis and I am not aware, obviously, of any of the detail of what has been discussed. One can readily see why these documents are important to Alstom. They are needed to secure overall completion of the work and handover by the anticipated date in April 2012. It is clear, and it has been accepted, that for a significant number of the documents which have been taken away they could be recreated or new documentation provided, but there are a number of documents which cannot be readily recreated and it will certainly have and in any event has already cost Alstom a substantial amount of loss.[26]It was suggested by Mr. Selby on 10 November that it was important to the Defendant, in relation to what is known as ASME accreditation, that his clients hold on to the documents. But Mr. Papadopoulos has given evidence about that, and I see no reason to doubt what he says. I cannot readily see how even the ASME accreditation requires a subcontractor whose subcontract has been terminated to hold on to the documents in circumstances such as that. But, again, I am not deciding that point finally.[27]It is clear on the evidence put before the Court that damages are not an adequate remedy. There is strong evidence before the Court that the Defendant is unable to pay its suppliers and its Subcontractors and its debtors in general as the debts fall due, and in that sense it could be said that the Defendant is insolvent. It is unclear whether the Defendant's bankers or financial supporters are continuing to support it, but it seems the support is insufficient anyway to enable it to pay its suppliers and Subcontractors. In those circumstances, damages would not be an adequate remedy because the Defendant would be unable to meet a monetary judgment. Certainly it would seem to be the case that, if the Defendant is not insolvent now, there is a substantial risk that it will be in due course. If it fails in these proceedings and has not handed over the documents, then there will be a substantial additional cost. There will also be, if it fails on liability overall, the increased costs of completing the works. If it is not technically insolvent yet, it will be even more financially incapable of paying after a trial.[28]As I have indicated, the evidence to this Court suggests that some of the TOP materials which were removed cannot readily be reproduced at any cost. If of course the Claimant is right in terms of liability, then it will incur additional costs in reproducing the Schedule 1 material, and if the solvency position is as bad as the evidence suggests, then there will be simply a substantial enhancement of the amount of damages that will be otherwise awarded, and still will not be paid in any event.[29]There is some evidence that SOMI has established a company with a very similar name, in fact with an almost identical name except for several full stops. That might well also give rise to concern.[30]All these factors also fall to be considered on the balance of convenience. I have no doubt at all that, weighing all these things up, the injunction should be granted. I do not weigh in the balance at this stage the fact that there has been non-compliance with the undertaking. It is a fact that the undertaking has not been complied with in that the documents have not been provided but unless and until the Defendant is given an opportunity to explain itself in that regard, I would not want to draw any inferences from that as such. So it seems to me that an injunction in the form which has been discussed is appropriate.[31]There is a question of substituted service, which has been raised in relation to the order. It seems to me be a wholly appropriate case for substituted service in this case and the draft order that has been put before the Court and discussed with Counsel seems to provide three sensible ways of providing for that: the first is by fax to the most recent fax number which has been put forward by SOMI as its fax number as recently as a few days ago; by various emails in particular to Mr. Donato Zaccagnini and Mr. C. Zaccagnini, who are father and son executive directors, and by service at the London office of Withers. All of these, and in particular the latter, the service at Withers' office, mean that one can be very confident, if they are retained in relation to the adjudication and they have recently served witness statements from the two Zaccagnini directors, that this order will be communicated very promptly to them.[32]It seems to me that, subject to the minor timing adjustments which I have made to that order, the order as drafted can legitimately be made. I make it clear that I have asked that the order also contains permission to either party to apply to vary the order. If there are real difficulties in, in particular, the Defendant complying, it can always come to the Court on very short notice to seek to vary the order. The primary order is the return of the TOP materials. They have had since 10 November to identify where the documents are and to take appropriate steps to have them returned, and if they have taken any steps in compliance with the first order it should not be technically or logistically impossible to comply with the order that the documents be lodged again at the City offices this time of the Claimant's solicitors. Again, if there is a logistic problem, the Defendant can always return to court to seek a variation of the order. So the order will be granted as discussed. _________