Multiplex Construction Europe Ltd v Dunne [2017] EWHC 3073 (TCC)

[2017] EWHC 3073 (TCC)

Case No HT-2017-000225

IN THE HIGH COURT OF JUSTICE

BUSINESS AND PROPERTY COURTS

TECHNOLOGY AND CONSTRUCTION COURT (QBD)

Venue Rolls Building,, 7 Rolls Buildings, Fetter Lane

London, EC4A 1NL

Date 30/11/2017

Before

THE HONOURABLE MR JUSTICE FRASER

Between

MULTIPLEX CONSTRUCTION EUROPE LIMITED (formerly BROOKFIELD MULTIPLEX CONSTRUCTION EUROPE LIMITED)Claimant

GORDON ALAN DUNNEDefendant

Mr Paul Buckingham (instructed by Stephenson Harwood LLP) for Claimant

Ms Tina Kyriakides (instructed by Keystone Law) for Defendant

Hearing Hearing date: 17 November 2017

Date draft distributed to parties: 21 November 2017

Judgment Approved

Introduction

[1]This is an application by the Claimant Multiplex Construction Europe Ltd, which at the material time was called Brookfield Multiplex Construction Europe Ltd (“Multiplex”) for summary judgment in the sum of £4 million against the Defendant, Mr Gordon Dunne. It arises out of two written agreements entered into between Multiplex, Mr Dunne personally, and two of Mr Dunne’s companies, namely Dunne Building and Civil Engineering Ltd (“DBCE”) and its parent company, Dunne Group Ltd (“DGL”). The nature and legal effect of those two agreements are disputed, and these points are dealt with below.

[2]Multiplex is a very substantial contractor, and past projects in which Multiplex group companies have been involved include the National Stadium at Wembley, where Rugby League, Association Football and other sports are played, as well being used to hold other public events. It is public knowledge that Multiplex Construction (UK) Ltd was the main contractor to Wembley National Stadium Ltd, as a number of judgments arising out of litigation on that project were handed down, both at first instance and on appeal. Multiplex is involved in a great number of construction projects of different types. The background to the agreements in issue on this application by Multiplex is that DBCE had a number of different sub-contracts with Multiplex. These were for building and civil engineering sub-contract works at a variety of other major construction projects. DBCE encountered financial difficulties, and as is widely known, insolvencies (or events akin to insolvency, such as administration) can cause considerable problems for other parties on construction projects who have contractual relations with parties in financial difficulties. All of the standard forms of construction contract and sub-contract have very detailed terms detailing the consequences of such events. The precise terms upon which DBCE had contracted with Multiplex on the different projects are not relevant to the issues on this application.

[3]The parties decided that Multiplex would advance substantial sums to DBCE to assist it with its cashflow, and to help remedy, if possible, the financial difficulties that DBCE was encountering. This was for entirely understandable commercial reasons on both sides. By advancing these funds, Multiplex hoped to avoid its sub-contractor’s financial position deteriorating yet further; DBCE and those who controlled it hoped that financial disaster could be averted. Put frankly, DBCE needed these funds in order to continue its business without interruption. A mechanism was adopted whereby a substantial sum was to be advanced by Multiplex, namely £3 million, in conjunction with an intended sale and leaseback agreement in respect of DBCE’s assets. However, it then emerged that DBCE did not have sufficient unencumbered assets to meet that valuation. A second agreement was entered into, whereby some assets were sold to Multiplex and leased back to DBCE, and the amount advanced by Multiplex rose by a further £1 million, to a total of £4 million. The nature of the amount also changed in the second agreement, and the sum advanced by Multiplex became a payment on account of sums that would become due to DBCE in the future for its work on the different sub-contracts. It is the contractual arrangements by which this was done that has led to these proceedings. In the event, both DBCE and DGL were placed into administration by Santander UK plc on 19 July 2016, as that bank had a qualifying floating charge. Multiplex seeks recovery from Mr Dunne of the £4 million paid in advance.

[4]In summary, the claim by Multiplex is based upon the proper construction of the agreement(s) being a contract of indemnity such that Multiplex has the right to claim from Mr Dunne personally the sum of £4 million that was advanced. Mr Dunne, who was a party to both agreements in his personal capacity, mounts a number of different defences to the summary judgment application. I will deal with each of those in turn below. The central issue is one of construction, and the correct characterisation in law of the contract between the parties. Multiplex submit that it is a contract of indemnity that gives rise to primary obligations upon Mr Dunne. Mr Dunne submits that it is a contract of guarantee that only contains secondary obligations upon Mr Dunne, with the primary obligations being upon DBCE.

CPR Part 24 and summary judgment

[5]Under CPR Part 24 Rule 24.2:

“The court may give summary judgment against a claimant or a defendant on the whole of a claim or on a particular issue if— (a) it considers that - (i) that claimant has no real prospect of succeeding on the claim or issue; or (ii) that defendant has no real prospect of successfully defending the claim or issue; and (b) there is no other compelling reason why the case or issue should be disposed of at a trial.”

[6]An “issue” will include a point of law, such as the meaning and effect of a document. As Moore-Bick LJ said in ICI Chemicals v TTE Training

[2007] EWCA Civ 725

at paragraph 11:

“…if the respondent’s case is bad in law, he will in truth have no real prospect of succeeding on his claim or successfully defending the claim against him, as the case may be. Similarly, if the applicant’s case is bad in law, the sooner that is determined the better”

[7]It is not only in accordance with the overriding objective, but is undoubtedly in the parties’ interests – indeed, it is obviously in the interests of cost-effective administration of justice – that if defences relied upon by a party have no real prospect of success, the claim can and should be dealt with on an application for summary judgment, rather than at a trial. This avoids the consequential delay and increased costs associated with proceeding to a trial, but also means that court resources are not tied up dealing with a case where the defences will clearly not prevail. However, if there are issues or claims that ought to be tried, a claimant ought not to succeed in obtaining summary judgment, as by its nature such a judgment is reached without a trial of those issues. In this case, the issue (or issues) between the parties is (or are) the meaning and legal effect of the document in question. That is classically suited to resolution on an application for summary judgment, and if the construction contended for by Multiplex is the correct one, then there are no triable issues in this action.

[8]Here, as will be seen, the meaning and legal effect of the provisions in the written instrument are determinative of the application. The parties lodged the following witness evidence. After proceedings were issued on 11 August 2017, Multiplex served the application for summary judgment and a supporting statement dated 24 August 2017, namely the 1st witness statement of Mr Thomas Marke, a solicitor and a Legal Director of Multiplex. That evidence was responded to in two statements on behalf of Mr Dunne. One is the 1st statement of Mr Gareth Hill, who is the Senior Principal at Leslie Keats, a firm of quantity surveyors who reviewed Multiplex’s subcontracts with DBCE for the Administrators who were appointed. This statement was dated 19 October 2017. The other was the 1st statement of Mr Dunne himself, the Managing Director of DGL. This statement was dated 20 October 2017. A 2nd witness statement in response from Mr Marke was served dated 6 November 2017. The application for summary judgment that had been issued in August was set down for a ½ day hearing on Friday 17 November 2017.

[9]However, on 15 November 2017, permission was sought to adduce a 2nd witness statement from Mr Dunne. This statement dealt with the response to the claimed losses Multiplex said it had suffered as a result of the administration of both DGL and DBCE, and the extent of the losses that Multiplex said it had suffered as a result of the insolvency. This evidence sought to respond to matters that Mr Marke had dealt with in his 2nd witness statement. I refused permission to admit Mr Dunne’s 2nd statement. This was for the following reasons.

[10]Firstly, it was responding to evidence from Mr Marke that was simply inadmissible. This case concerns the proper construction of the document, or rather documents, that form the two agreements in question. The case advanced by Multiplex is that it has the benefit of a contract of indemnity with Mr Dunne personally. It either does, or it does not. How much Multiplex may (or may not) have suffered by way of losses on any of its contracts with DBCE, the way in which it calculated the losses claimed by it as a creditor, and whether it is a creditor at all, are nothing to the point. Mr Dunne had raised in his 1st witness statement an argument, namely that he could or should be allowed to set off other sums which he said were, or would be, due to DBCE by Multiplex. In other words he gave evidence about his view concerning the balance of the account between those two parties, Multiplex and DBCE. It is a point of law whether he is, or is not, entitled to do so to defend this application for summary judgment on the contract he entered into. If he is entitled to raise such an argument, very high-level assertions by each party as to what the state of that account is, and in which direction, and whether it exceeds £4 million or not, cannot be resolved on a summary judgment application.

[11]Mr Marke’s evidence in his 2nd statement dealt with costs said to have been incurred by Multiplex on each of the sub-contracts as a result of the administration. These costs arose due to the need to engage replacement contractors, the value of the formwork, and the existence of various performance bonds that were in place in relation to each of the sub-contracts. All of these matters go to the value of the account between Multiplex and DBCE. Mr Marke relied upon this evidence to demonstrate that Multiplex had suffered very significant losses as a result of the administration of the Dunne Group of companies. Mr Dunne sought to challenge those figures, and sought to adduce what was also very high level evidence to demonstrate that the losses claimed were over-stated by Mr Marke. In my judgment, such evidence on both sides is irrelevant to the issues before the court on this application. If Mr Buckingham, counsel for Multiplex, were to succeed on the case that the agreement was a contract of indemnity, then the obligation upon Mr Dunne to make the payment claimed would be a primary one, not dependent upon the state of the account between Multiplex and DBCE. In those circumstances, Multiplex would be entitled to summary judgment. If that case were to fail, then the application for summary judgment would fail, because there would be a triable issue or issues concerning the account between the parties (those parties being Multiplex and DBCE). Mr Dunne’s obligation would be a secondary, and not a primary, one. There are other points taken by Mr Dunne, but so far as his 2nd witness statement is concerned, it goes to the account between Multiplex and DBCE. That issue is not relevant in my judgment, and so evidence going to it is not admissible.

[12]The second reason that I would have disallowed the application, even had I considered the evidence relevant, was that it was made far too late. The 2nd statement of Mr Marke to which it was responding is dated 6 November 2017, and was served very shortly after that. It was almost ten days later that this application was issued. Even if this evidence were admissible (and it is not) it is in my judgment only in the very rarest of circumstances that evidence served the day before a hearing such as this one, ordered to take place almost three months earlier, would be allowed. There was no real explanation given for the delay between 6 and 16 November. Even taking a whole week to respond to Mr Marke’s 2nd statement would have led to the application and witness statement being served on 13 November 2017, which would have been three full days before the hearing itself. In my judgment, on this ground alone the court would have been justified in refusing the application. Parties have to realise that with an approaching application date – particularly one for summary judgment - any late evidence must be collated, presented and served with considerable expedition. However, given my findings on the lack of relevance of the evidence to which this statement sought to respond, lateness of the application need not be considered further.

The agreements in question

[13]By September 2015 DBCE was employed by Multiplex on nine different construction projects. DBCE’s expertise was as the concrete frame sub-contractor. Two agreements were entered into by Multiplex and DBCE in November 2015. These were prepared by Mr Marke. One changed the payment terms on one of the sub-contracts, shortening the payment cycle; the other permitted Multiplex to set off sums due on one project against liabilities on others. This latter one was called the Cross Project Guarantee. However, these changes did not appreciably improve DBCE’s financial situation. The evidence of the parties is that there was an urgent need for a very sizeable cash injection into DBCE in early 2016.

[14]This situation led to the execution of the first relevant agreement, referred to as the Advance Payment Deed and executed on 21 January 2016. The document itself is simply entitled “Deed” but both parties before me referred to it as the Advance Payment Deed which is an accurate general description.

[15]As well as Multiplex and DBCE, defined as the Contractor and the Sub-Contractor respectively, Mr Dunne and the parent company DGL were also parties to the Advance Payment Deed. The parties referred to as “the Guarantor” are defined in this agreement in the following way:

“The Dunne Group Limited (Company No.SC255658), whose registered office is at Inchmuir Road, Whitehill Industrial Estate, Bathgate, West Lothian EH48 2EW and GORDON DUNNE of Inchmuir Road, Whitehill Industrial Estate, Bathgate, West Lothian EH48 2EW (jointly and severally referred to as the “Guarantor”).”

Mr Dunne was therefore liable as Guarantor jointly and severally with DGL the parent company. The other relevant terms are as follows. Recital B “(B). This Deed reflects the agreement between the Parties with respect to security for the Contractor in respect of the Advance Payment. The Guarantor has agreed to secure the obligations of the Sub-Contractor and be a party to this Deed.” …. Clause 1.1 “1. INTERPRETATION 1.1. In this Deed, unless the context otherwise requires: 1.1.1. the headings are included for convenience only and shall not affect the interpretation of this Deed” …… Clause 2 “2. ADVANCE PAYMENT 2.1. On receipt of this deed duly executed by the Sub-Contractor and the Guarantor, the Contractor will pay the Advance Payment to the Sub-Contractor. 2.2. The Sub-Contractor and the Guarantor hereby acknowledge and confirm that the Advance Payment constitutes monies towards the purchase by the Contractor of several assets owned by the Sub-Contractor. 2.3. Notwithstanding any other provision of this Deed, the Sub-Contractor and the Guarantor shall immediately take steps to provide further security to the Contractor in respect of the Advance Payment in the form and type as required by the Contractor which shall include but not be limited to selling or charging assets including but not limited to plant and equipment, cranes, slip forms and vehicles to the Contractor or the Contractor’s nominee. The Sub-Contractor and the Guarantor further agree to promptly provide any information that may be sought by the Contractor in relation to such further security or otherwise. 2.4. The Sub-Contractor agrees to repay the Advance Payment to the Contractor immediately on receipt of a written demand from the Contractor. 2.5. The Sub-Contractor and the Guarantor agree to hold harmless and indemnify the Contractor from and against any claim, action, liability, loss, cost, damage or suit arising from or in connection with this Deed. 2.6. The Sub-Contractor and the Guarantor agree not to take any injunctive action against the Contractor in respect of this Deed. 2.7. The Contractor’s rights under this Deed are not subject to any requirements to supply prior notice under this Deed or otherwise and are exercisable at the Contractor’s sole discretion.” …… Clause 3 “3. GUARANTEE 3.1. The Guarantor irrevocably and unconditionally guarantees, warrants and undertakes jointly and severally to the Contractor that should the Sub-Contractor suffer an event of insolvency (including but not limited to administration, administrative receivership, liquidation, ceasing or threatening to ceasing carrying on its business in the normal course or otherwise) or otherwise not be able to pay back the Advance Payment to the Contractor immediately upon receipt of a written demand from the Contractor, the Guarantor shall immediately be liable to the Contractor for the payment of the Advance Payment and shall indemnify and hold harmless the Contractor against any loss, damage, demands, charges, payments, liability, proceedings, claims, costs and expenses suffered or incurred by the Contractor arising therefrom or in connection therewith. 3.1. The obligations of the Guarantor under this deed shall be in addition to and shall be independent of any other security which the Contractor may at any time hold in respect of the Sub-Contractor’s obligations under this deed may be enforced against the Guarantor without first having recourse to any such security. 3.2. The obligations of the Guarantor under this deed shall be in addition to and shall not be in substitution for any rights or remedies that the Contractor may have against the Sub-Contractor under this deed or at law. 3.3. The liability of the Guarantor under this deed shall in no way be discharged, lessened or affected by: (i). an event of insolvency….. 3.4. The Guarantor waives any right to require the Contractor to pursue any remedy which it may have against the Sub-Contractor before proceeding against the Guarantor under this Deed.” ….. Clause 8 “8.0. AT THE POINT IN TIME AS AGREED BY BOTH PARTIES THAT THE SUB-CONTRACTOR REPAYS THIS ADVANCE PAYMENT, THEN THIS DEED WILL BECOME NULL AND VOID”.

[16]Clause 8 was drafted in block capitals as I have quoted it above, but this was written in handwriting rather than typed. Nothing turns on that. Also, as can be seen there were two clauses both numbered 3.1. I shall refer to them as 3.1A and 3.1B respectively to differentiate between them.

[17]The effect therefore of the Advance Payment Deed was that Multiplex advanced DBCE £3 million, which was described as “monies towards the purchase by [Multiplex] of several assets owned by” DBCE in clause 2.2. This was done in the context of DBCE being in the financial difficulties to which I have already referred, which is part of the factual matrix in which the agreement falls to be construed. £3 million is a reasonably substantial amount of money, and the involvement in the contract of the other two parties, DGL (the parent company) and Mr Dunne, was to provide an alternative route to recovery by Multiplex of that sum, defined in Recital (A) as the “Advance Payment”. By “alternative”, I mean in circumstances where the party receiving the funds, namely DBCE, did not or could not repay that money back to Multiplex itself.

[18]Before turning to the characterisation of that alternative route to recovery by Multiplex of the Advance Payment, and whether it is to be construed as a contract of indemnity or not, it is necessary to consider and identify the next agreement which changed some of the terms of the Advance Payment Deed. This agreement was executed on 4 February 2016, and had as parties the same four parties as the Advance Payment Deed, together with another company from the Multiplex group, namely Brookfield Multiplex Plant & Equipment Europe Ltd, which was defined as “the Company”. The other Multiplex company, the Claimant, was still defined as “the Contractor”. The agreement is headed “Sale, Hire-Purchase and Buy-Back Agreement” and I shall refer to it as “the SHP Agreement”.

[19]Its relevant terms are as follows: Clause 4 “4. Customer’s obligation to buy-back the Goods. 4.1. The Contractor, the Customer and the Surety hereby agree that the figure of £3,000,000 referred to in Recital A of the Advance Payment Deed is amended to £4,000,000 to take into account the additional £1,000,000 payment on account paid by the Contractor to the Customer on or about the date of this Agreement. The Parties hereby agree that the Advance Payment represents monies on account paid in advance to the Customer DBCE in respect of the Sub-Contracts and that the Advance Payment Deed (as amended by this clause4.1 ) and Gross Project Guarantee both remain in full force and effect. Without prejudice to the other rights of the Contractor under the Advance Payment Deed or the Cross Project Guarantee, the Customer and the Surety acknowledge and agree that the Contractor may at any time: (i). have recourse to claim, deduct, set off or withhold against the whole of the Advance Payment or Retention (or any part thereof) under and across any or all of the Sub-Contracts: or (ii). exercise rights of set off or to impose contra charges (including but not limited to the right to deduct, claim, set off or withhold against monies otherwise due to the Sub-Contractor under a Sub-Contract in respect of any other Sub-Contract) under and across any or all of the Sub-Contracts. 4.2. The Customer will purchase the Goods by paying to the Company the sum of £1,000,000 (“Re-Purchase Price”) within 14 days of receipt of a written demand for such payment from the Company. In the alternative the Contractor may at any time in its sole discretion set off the Re-Purchase Price against monies otherwise due from the Contractor to the Customer under any of the Sub-Contracts. 4.3. If at any time the Customer or Surety is in breach of this Agreement or the Goods have not been bought back from the Company in accordance with clause

4.2 on or before 30 November 2018 the Customer shall immediately and automatically lose its right to buy back the Goods from the Company pursuant to the terms of this Agreement and the Company shall have no further obligation to hire the Goods to the Customer and may freely deal with the Goods as it sees fit. 4.4. Upon the requirements of clause 4.2 above being satisfied in full and the Company either receiving the Re-Purchase Price in full and cleared funds or in the alternative the Re-Purchase Price being set off in full by the Contractor against monies otherwise due from the Contractor to the Customer under any of the Sub-Contracts, title to the relevant Goods shall pass to the Customer on the terms set out in clauses 4.5 and 8.6 below, but until such time the relevant Goods shall remain the sole property of the Company and the Customer shall be a mere bailee of the relevant Goods.” …… “4.6. The Customer shall indemnify the Company and keep the Company fully indemnified on demand against all claims, loss, damages, costs, liabilities, charges and expenses incurred or sustained by the Company or any member of the Brookfield Multiplex Group directly or indirectly by reason of any failure by the Customer to observe the terms of this clause 4 and/or under or in connection with any sale of Goods to the Customer. This clause 4.6 is intended to survive the termination of this Agreement.”

[20]It is common ground that this second agreement has the following effect upon the terms of the Advance Payment Deed: 1. It increased the amount of the Advance Payment, a defined term in the Advance Payment Deed, from £3 million to £4 million. This reflected the extra £1 million paid to DBCE as a result of the SHP Agreement. 2. The Advance Payment no longer represented or consisted of payments made in advance to DBCE for the purchase of assets. Clause 4.1 made it clear that after execution of the SHP Agreement, “the Advance Payment represents monies on account paid in advance to [DBCE] in respect of the Sub-Contracts and that the Advance Payment Deed (as amended by this clause 4.1) and Cross Project Guarantee both remain in full force and effect”.

[21]Ms Kyriakides submitted on behalf of Mr Dunne that as DBCE became entitled to further payments for works done under the various sub-contracts, the amount due and owing to Multiplex by way of the Advance Payment would reduce by the same amount(s). I do not accept those submissions. Clause 4.1(i) and 4.1(ii) of the SHP Agreement do give the party defined as the Contractor, namely the Multiplex company that is the Claimant, very wide-ranging rights by way of deductions, set offs, withholding of sums or contra charges. These rights expressly apply both to the Advance Payment, and also to retention. Retention is a term of art widely used in construction contracts whereby a small percentage of sums that would otherwise be payable on an interim basis to a contractor, for the value of executed works, are deducted from the interim payments in fact to be made. These deductions, or retention monies, are retained or held by the employer (or by the contractor, if the retention is made against sums otherwise payable from a contractor to a sub-contractor) until a later date, usually the end of the Defects Liability Period. Depending upon the form of contract and its particular terms, the holder of the retention may be a trustee of those funds, which are held for the contractor as the beneficiary of that trust. Once the defined date or stage in the contract occurs, retention monies are paid to the party from whose interim payments they have been deducted.

[22]Multiplex having rights to deduct, set off or withhold against retention monies does make commercial sense, because once the relevant date fell due under any of the sub-contracts for payment of retention to DBCE, whenever that might be, DBCE would otherwise become entitled to be paid those retention funds. The wording of the provision in Clause 4.1(i) of the SHP Agreementis not the most straightforward, and indeed the phrase “against the whole of the Advance Payment or Retention (or any part thereof) under and across any or all of the Sub-Contracts” is positively clumsy. This is because the Advance Payment refers to money already paid to DBCE that Multiplex would wish to reclaim; retention is money not yet paid to DBCE against which Multiplex would wish to deduct, set off or withhold other sums. The notion of deducting or withholding against monies already paid, or those not yet paid, to DBCE probably needs slightly different wording for each in order to be entirely grammatical. However, I am satisfied that Clause 4.1(i) would entitle Multiplex, at its election, not to pay sums otherwise contractually due to DBCE if it so wished, bearing in mind the considerable Advance Payment already made. In other words, if DBCE earned £1 million (say) on other projects, Multiplex would have the right not to pay that £1 million to DBCE. It would however not be obliged to exercise that right. That is clear from the wording “may ….. at any time”.

[23]However, there is nothing in the SHP Agreement in my judgment that leads to some sort of an automatic accounting process whereby the Advance Payment itself fell in value, to take account of any further interim sums to which DBCE became contractually entitled under any of the sub-contracts, absent any notification or exercise of Multiplex of its right to do so. This automatic process is the point for which Mr Kyriakides was originally contending. I suspect she argued for this for forensic reasons, as if that is how the provisions were to be construed, there would be a triable issue on how much DBCE had become entitled to be paid for works on the other sub-contracts after execution of the agreement. However, there would be no commercial purpose in such an arrangement in these circumstances. Indeed, there would be no commercial purpose in such an arrangement in any event. DBCE was in severe financial distress. The usual payment cycle on sub-contracts is either four-weekly, or every 28 or 30 days. If the Advance Payment was needed by DBCE for immediate cashflow, but the consequence of Multiplex providing this sum was that DBCE would not be paid any further sums at all under any of the sub-contracts until that £4 million had been recovered by Multiplex, then the cashflow advantages of the Advance Payment would be available to DBCE for only a few weeks, or perhaps two (or maybe three at the most) interim payment cycles. Further cashflow to DBCE by way of interim payments on other sub-contracts would have instantly dried up until the £4 million was clawed back by Multiplex. There would be no point in such an arrangement, and Ms Kyriakides could point to no express term in either the Advance Payment Deed or the SHP Agreement that pointed to such an outcome. She correctly drew my attention to clauses 4.1(i) and 4.1(ii) to demonstrate that Multiplex had the right to make set offs, but that is in my judgment rather different to a process that would automatically affect or reduce the Advance Payment itself. As Mr Buckingham pointed out, that was a defined term in the Advance Payment Deed.

[24]My analysis of the way that the set off provisions in clause 4.1 of the SHP Agreement operates matches that of clause 4.2. This clause states that DBCE, “the Customer”, will purchase the goods by paying to the Company (the Multiplex entity purchasing those goods in the first place) the sum of £1 million, the “Re-purchase Price” within 14 days of receipt of a written demand from the Company. In other words, at some point in the future, to be determined by Multiplex, the sale transaction could be unwound, with DBCE buying back the goods for the same price as Multiplex paid for them, namely £1 million. The fact that the clause continues with “In the alternative the Contractor may at any time in its sole discretion set off the Re-Purchase Price against monies otherwise due from the Contractor to the Customer under any of the Sub-Contracts” means that it is entirely at the discretion of Multiplex how and when it might seek to recover the £1 million. It could “at any time” decide to set off that sum of £1 million against sums that would otherwise be due to DBCE under the Sub-Contracts. This provision was subject to a long-stop date of November 2018 after which the right by DBCE to repurchase would be lost. That was a period of 32 months after the date of the SHP Agreement of 4 February 2016. This was obviously intended as a medium or long-term arrangement.

[25]A conscious and specific exercise of the rights granted to the two Multiplex companies was required. There is no automatic change or reduction in the sum of £1 million, as and when further sums were to become due to DBCE under the different sub-contracts. In my judgment, there was to be no automatic change or reduction of the Advance Payment of £3 million (which then became £4 million) either. The Advance Payment, after the execution of the SHP Agreement, became £4 million and remained £4 million. This construction of the terms also matches the wording of Clause 8 of the Advance Payment Deed. That refers to a point at which the Advance Payment was “repaid” by DBCE. This is consistent with my analysis of the lack of an automatic reduction in the amount of the Advance Payment for further work done.

The proper construction of the Advance Payment Deed (as amended by the SHP Agreement)

[26]Mr Kyriakides relies upon a passage in Chitty on Contracts (Sweet & Maxwell, 32nd ed. 2017) at 45-082 that states as follows in respect of contracts of suretyship: “Despite some contradictory dicta in the cases, the general approach seems to be that contracts of this kind must be strictly construed in favour of the surety and that no liability is to be imposed on him which is not clearly and distinctly covered by the contract….The reasons for this strict construction are that, in general, the surety receives no benefit from the contract which is, so far as he is concerned, gratuitous; and secondly, that in most cases these days the contract is drafted by the creditor and, in accordance with the contra proferentem maxim, is accordingly to be construed in favour of the surety in cases of doubt. It may be that where these reasons are inapplicable, the court would not construe the contract so strictly”.

[27]There are two difficulties with the two reasons provided by the learned editors of Chitty as justification for the strict construction said to be required. The first is that, as Mr Buckingham pointed out, in this case Mr Dunne, the owner of the Dunne Group of companies, could hardly be said to entering into a gratuitous contract. He had a very sizeable commercial interest in keeping DBCE, and indeed the whole Group, afloat. Indeed, in many if not all of these type of cases, by which I mean situations where a parent or ultimate owner of a legal entity provides some financial comfort to a subsidiary or route of recourse in a commercial context, it will usually be to obtain some kind of commercial benefit in the broadest sense. The other difficulty is with the second reason, and is that there are now only skeletal, if any, remains of the contra proferentem maxim, or rule of construction, in commercial cases.

[28]This rule has far less application in modern times than it did before. The rule requires any ambiguity – for example in an exemption clause -- to be resolved against the party who put the clause forward and seeks to rely upon it. The first difficult aspect of the rule is to determine which party is in fact the proferens. As Lord Neuberger MR said in K/S Victoria Street v House of Fraser (Stores Management) Ltd

[2011] EWCA Civ 904

;

[2012] Ch 497

at [68]:

"…Quite apart from raising abstruse issues as to who is the proferens (and, in particular, whether the issue turns on the precise facts of the case or hypothetical analysis), "rules" of interpretation such as contra proferentem are rarely decisive as to the meaning of any provisions of a commercial contract. The words used, commercial sense, and the documentary and factual context, are, and should be, normally enough to determine the meaning of a contractual provision."

[29]In Persimmon Homes Ltd and others v Ove Arup Partners Ltd and others

[2017] EWCA Civ 373

, a case concerned with exclusion of liability concerning asbestos in an appointment of consulting engineers for a project to regenerate the docks at Barry in South Wales, Jackson LJ gave the judgment of the court. This dismissed an appeal by the consortium against the first-instance finding of Stuart-Smith J, on preliminary issues, that liability of Ove Arup was excluded. Jackson LJ stated the following concerning the contra proferentem rule at [52]:

“The contra proferentem rule requires any ambiguity in an exemption clause to be resolved against the party who put the clause forward and relies upon it. In relation to commercial contracts, negotiated between parties of equal bargaining power, that rule now has a very limited role. Lord Neuberger MR summarised the position succinctly in K/S Victoria Street v House of Fraser (Stores Management) Ltd[2011] EWCA Civ 904; [2012] Ch 497 at [68] [he then quoted from the passage above in paragraph 28 of this judgment and continued]. The judgment of Moore-Bick LJ in Transocean Drilling UK Ltd v Providence Resources PLC[2016] EWCA Civ 372; [2016] 2 Lloyd's LR 51 at [20] to [21] is to similar effect.”

[30]There are in any event better ways of resolving problems of construction, not least construing the actual words used. The dicta in K/S Victoria Street v House of Fraser pre-dated the decision in Arnold v Britton

[2015] UKSC 36

, in which Lord Neuberger said at [17]:

“First, the reliance placed in some cases on commercial common sense and surrounding circumstances (eg in Chartbrook, paras 16-26) should not be invoked to undervalue the importance of the language of the provision which is to be construed. The exercise of interpreting a provision involves identifying what the parties meant through the eyes of a reasonable reader, and, save perhaps in a very unusual case, that meaning is most obviously to be gleaned from the language of the provision. Unlike commercial common sense and the surrounding circumstances, the parties have control over the language they use in a contract. And, again save perhaps in a very unusual case, the parties must have been specifically focussing on the issue covered by the provision when agreeing the wording of that provision.”

[31]In the Supreme Court in Wood v Capita Insurance Services Ltd

[2017] 2 WLR 1095

at [8] to [15] their Lordships recently reaffirmed these well-known principles.

[32]Although Persimmon Homes is dealing with the applicability of the rule to exemption clauses, in my judgment the judicial statement by Jackson LJ “that rule now has a very limited role” is of applicability to the rule in a contract of suretyship, at least where these are entered into in a commercial context between parties of equal bargaining power. Mr Dunne, for reasons best known to himself, chose not to take any legal advice at all on these important contractual arrangements, even though on one view he was potentially guaranteeing personally to repay a very sizeable sum of £3 million, rising to £4 million, on the occurrence of an event which was plainly contemplated, namely the insolvency of DBCE. I do not accept this was because there was no time to take such advice (a point obliquely suggested by Mr Dunne in his evidence). Legal advice can be obtained at very short notice, and in a commercial context often is. It cannot be seriously suggested there was no time to do so. The lack of legal advice on Mr Dunne’s part does not change my conclusion on the nature of the parties’ legal relationship. In my judgment these were commercial parties of equal bargaining power. The fact that DBCE was in financial difficulties does not change that, in my judgment.

[33]I do not therefore consider that the contra proferentem rule has much, if any, application in this case. That remains my view notwithstanding that in this case, there is no difficulty in identifying the proferens, as Mr Marke drafted the agreement himself, although not including the handwritten clause 8.0 which was added. In any event, application of the rule would only arise if there were any ambiguity.

[34]I consider that the starting point is the words actually chosen, and what they mean. As Lord Neuberger stated, the “meaning is most obviously to be gleaned from the language of the provision”. The task is to ascertain the objective meaning of the language in which the parties have chosen to express their agreement.

[35]The two relevant operative provisions are clauses 3.1A and 3.1B in the Advance Payment Deed. The heading is “GUARANTEE” but the terminology is not determinative. Nor is the use of the verb “to guarantee”. The choice of any particular word is not determinative of the nature of the obligation, a point which is well-known and was recently re-stated by Sir Jeremy Cooke sitting as a Judge of the High Court in Bitumen Invest AS v Richmond Mercantile Ltd FZC

[2016] EWHC 2957 (Comm)

at [20]:

“The particular label that the parties apply to the document is not determinative, nor very significant if the wording points in the opposite direction.”

[36]In any event the headings are for convenience only as set out in clause 1.1.1 and do not affect interpretation. The two clauses state as I have quoted above, but in particular clause 3.1A can be considered as being in five grammatical clauses or parts as follows, demonstrated by line breaks:

“3.1B The Guarantor irrevocably and unconditionally guarantees, warrants and undertakes jointly and severally to the Contractor that should the Sub-Contractor suffer an event of insolvency (including but not limited to administration, administrative receivership, liquidation, ceasing or threatening to ceasing carrying on its business in the normal course or otherwise) or otherwise not be able to pay back the Advance Payment to the Contractor immediately upon receipt of a written demand from the Contractor, the Guarantor shall immediately be liable to the Contractor for the payment of the Advance Payment and shall indemnify and hold harmless the Contractor against any loss, damage, demands, charges, payments, liability, proceedings, claims, costs and expenses suffered or incurred by the Contractor arising therefrom or in connection therewith.”

(emphasis added)

[37]Ms Kyriakides urges me to interpret and construe this clause by putting the fifth part beginning “and shall indemnify and hold harmless…..” to one side and considering it as separate from the first four parts. In case that is right – and I have doubts as to whether it is – I intend to construe the first four parts, determine the answer, and then decide whether considering all five parts together makes any difference. Obviously the fifth part contains the terms “indemnify and hold harmless” which is the language of an indemnity.

[38]In my judgment there is an obvious typographical error in that there is a missing word “which” in respect of enforcement of other security in clause 31.B. I do not consider that the inclusion of that word changes the meaning:

“3.1B The obligations of the Guarantor under this deed shall be in addition to and shall be independent of any other security which the Contractor may at any time hold in respect of the Sub-Contractor’s obligations under this deed [which] may be enforced against the Guarantor without first having recourse to any such security.”

Analysis and decision

[39]The general rule as set out in Chitty on Contracts (supra) at 45-087 is that “on being sued by the creditor for payment of the debt guaranteed, a surety may avail himself of any right to set off or counterclaim which the principal debtor possesses against the creditor. However, parties to a contract of suretyship may contract out of the general rule either expressly or impliedly, the contract requiring to be interpreted in its factual matrix.”

[40]In Vossloh Aktiengesellschaft v Alpha Trains (UK) Ltd

[2010] EWHC 2443 (Ch)

Sir William Blackburne sitting as a Judge of the High Court stated, having considered the law in this area and then-recent cases such as that of the Court of Appeal in Marubeni Hong Kong v Government of Mongolia

[2005] EWCA Civ 395

[2005] 2 Lloyd’s Rep 255

, stated the following at [34]:

“The result of the foregoing brief survey is that, with the parties free to agree whatever terms they choose, there is in this field of law a spectrum of contractual possibilities ranging from the classic contract of guarantee, properly so called, at the one end, where the liability of the guarantor is exclusively secondary and will be discharged if, for example, there is any material variation to the underlying contract between principal and creditor, to the performance or demand bond (or demand guarantee) at the other end, where liability in the giver of the bond may be triggered by mere demand and without proof of default by the principal (and indeed where it may be apparent that the principal is not in default). There may be little to distinguish (and it may not matter) whether the obligation undertaken is in the nature of a guarantee (strictly so called) or an indemnity. Where it does matter, the question is whether the liability to be enforced is secondary (or ancillary) to that of the principal (however qualified that liability may be), in which case the obligation is in the nature of a guarantee, or primary, in which case it will be in the nature of an indemnity and, if the latter, may be enforceable merely on demand (as with a performance or demand bond) or conditional on proof of default by the principal or on satisfaction of some other event or requirement. Where on the spectrum a particular case falls may call for a nice judgment on the part of the court faced with the task of construing the instrument in question.”

(emphasis added)

[41]I respectfully agree with those views and would add that this passage is a classic statement of the nature of the obligations that arise under a contract of indemnity. A performance bond is simply a sub-species of a contract of indemnity. The essential point is that if the Advanced Payment Deed is a contract of indemnity, Mr Dunne (who was jointly and severally liable together with DGL, the parent company) would have a primary obligation to pay to Multiplex the Advance Payment if one of two events were to occur. The first of those events was an event of, or akin to, insolvency, which it can be seen was defined in a very broad way in the Deed, including the classic types of events such as administration, administrative receivership, and liquidation, but also “ceasing or threatening to ceasing carrying on its business in the normal course”. This again has a typographical error – it should be “ceasing or threatening to cease carrying on” – but regardless of that, the only question or issue in terms of construction is whether this clause contains what Mr Buckingham referred to as a “trigger” which crystalizes the obligation to repay. There is no question of DBCE being “in default” if this trigger is considered. Strictly speaking, DBCE would not be in default of obligations by suffering an event of insolvency. The event of insolvency would be the “satisfaction of some other event or requirement” referred to by Sir William Blackburne.

[42]It is at this point that the commercial context, and the words themselves, make it clear what the nature of the obligation is. Mr Dunne “irrevocably and unconditionally guarantees, warrants and undertakes jointly and severally to” Multiplex that should such an event of insolvency occur, he would “immediately be liable to the Contractor for the payment of the Advance Payment”. In my judgment, the use of the word “immediately” is very important, if not crucial. It simply would not be possible to repay the Advance Payment “immediately” if any sort of accounting had to be done with DBCE; not only that, it would be contrary to the commercial purpose were Mr Dunne’s liability to Multiplex to be a secondary one, with the primary obligation being upon DBCE. DBCE would, so far as this trigger is concerned and by definition, have become insolvent. There would be no point in having a primary obligation upon DBCE to repay £3 million (or £4 million), triggered by DBCE becoming insolvent. DBCE would never be in a position to make such a payment, and to impose such an obligation resting upon an insolvent company triggered in that way would be wholly otiose. There would be no point in the parties agreeing that Multiplex would advance £3 million to a company, with the agreement for immediate repayment in the event of insolvency primarily being upon the insolvent company, triggered by the insolvency itself. The commercial purpose of this provision in my judgment is the parties agreed that Multiplex, providing substantial cash flow assistance, was given the assurance that this sum would be repaid immediately (by Mr Dunne and the parent company on a joint and several liability basis) if DBCE, to whom that sum was advanced, were to become insolvent.

[43]The second trigger is not quite so straightforward, as that requires first an inability on the part of DBCE immediately to repay upon receipt of a written demand. This trigger therefore requires DBCE to have failed to comply with its primary obligation to repay, and then after that has occurred, an obligation arising on the part of Mr Dunne. However, even if that obligation were to be satisfied simply by evidence of the making of a demand, and a failure to repay by DBCE, as stated in the clause, this does not much matter to this application for summary judgment. This is because this is not the trigger upon which Mr Buckingham relies. There is no reason that both triggers have to be construed the same way – one could be a primary obligation upon Mr Dunne, and the other a secondary obligation upon him in relation to a different trigger. Secondly, given that it is the first one, the event of insolvency, upon which Mr Buckingham relies, the obligation that needs to be construed is the one that arises upon that trigger or event occurring. Such an event has doubtless occurred. There is no question of a default by DBCE in any respect so far as that trigger is concerned. The use of the word “or” before the phrase “otherwise not be able to pay back the Advance Payment” makes it clear, in my judgment, that the nature of the obligation that arises upon operation of each trigger can be considered independently of the other. For what it is worth, Multiplex has made such a demand for repayment but that demand has not been complied with (for obvious reasons). However, that is not in my judgment relevant to the first trigger, the part upon which Mr Buckingham relies.

[44]In my judgment therefore, even considering the first four parts in the manner contended for by Ms Kyriakides, the obligation upon Mr Dunne to repay the Advance Payment to Multiplex in the event of insolvency on the part of DBCE is a primary obligation upon him, and this is a contract of indemnity. Turning then to consider the fifth part, in my judgment that simply reinforces that conclusion. The word “indemnify” is used. The fifth part could arguably mean that the indemnity obligation is wider than repaying the Advance Payment, but that point was not argued and I make no findings in respect of it. The fifth part or clause is consistent with what I have found the commercial purpose of the instrument to be. I do not consider that there is any ambiguity in the words chosen, and consideration of whether to rely upon or apply the contra proferentem rule does not arise.

[45]Indeed, the difficulty Ms Kyriakides had in advancing her argument successfully is demonstrated by her careful answer to a question I posed to both counsel, namely what each of them submitted the commercial purpose of the Advance Payment Deed to be. Mr Buckingham submitted that it was to ensure Multiplex could look to someone else (either Mr Dunne or the parent company) for repayment of the Advance Payment in the event of insolvency of DBCE. Ms Kyriakides’ submission was that it was to provide cashflow to DBCE pending monies owed under the sub-contracts, and with the intention that the Advance Payment would be repaid with the set offs under the sub-contracts. That entirely avoids addressing the insolvency scenario, which clause 3.1A is plainly designed to deal with, including as it is does the express and very wide definition of insolvency. In my judgment, Mr Buckingham’s submission is to be preferred and is correct.

[46]Once that point of construction has been resolved, the other component parts of Mr Dunne’s defence to the application of summary judgment have their answer within the terms of the Advance Payment Deed itself.

[47]In Ms Kyriakides’ skeleton argument, these are summarised in paragraph 4. They are the submissions that the agreement is what is termed a normal guarantee, whereby Mr Dunne is not a primary obligor; that Mr Dunne can rely upon set offs and counterclaims of DBCE, which are said to exceed £4 million; that as at the date of the administration, the value of DBCE’s outstanding applications for payment and work done exceeded the amount of the Advance Payment; and that there were other compelling reasons for a trial, such as the operation of the Insolvency Rules 2016 generally and Rule 14.25 in particular – which was the old rule 4.90.

[48]The first defence I can deal with shortly. In my judgment, Mr Dunne is a primary obligor for the reasons I have identified above.

[49]The second and third can be taken together. Clause 3.3 states that the liability of Mr Dunne under the Advance Payment Deed “shall in no way be discharged, lessened or affected by: …..(vii) any other act, event, omission or circumstances which but for this provision might operate to discharge, lessen or otherwise affect the liability of” Mr Dunne. Mr Dunne’s liability, as I have found it, is to pay to Multiplex the amount of the Advance Payment. This is a defined term in Recital A, and is “an advance payment of £3,000,000 ….. (‘Advance Payment’)”, which was then increased to £4 million by the SHP Agreement. There is simply no mechanism within the Advance Payment Deed for the amount to be changed and reduced in the way contended for by Ms Kyriakides. The obligation in clause 3.1A is that Mr Dunne “immediately be liable to [Multiplex] for the payment of the Advance Payment”. There is no provision by which Mr Dunne can rely upon set offs, counterclaims or other sums to which DBCE might be or become entitled, whether for work done or otherwise. I reject both of these grounds of defence. Also, for completeness, it is clear to me that the value of any bonds that may have been held in respect of individual sub-contracts are not relevant either, whether they have been called upon or not. This is because clause 3.1B states that “the obligations of the Guarantor under this deed shall be in addition to and shall be independent of any other security which the Contractor may at any time hold…”. That in my judgment is a complete answer to any such argument. The parties expressly agreed that such matters would not be taken into account so far as the Advance Payment is concerned.

[50]Finally, I turn to the provisions of the Insolvency Rules. Essentially, and this arises out of the way that the Insolvency Rules and the law of insolvency operates, if a company becomes subject to these rules (which occurs in different ways, but for present purposes would arise where the administrator intends to make a distribution to creditors and has given notice of that) then both claims and cross-claims merge and are extinguished, and there is in their place but a single debt due in one direction (whichever direction that might be, dependent upon the facts). This has been made clear beyond doubt, and Stein v Blake

[1995] BCC 543

is the most convenient authority for the operation of the rule. In legal terms, only one debt remains. Ms Kyriakides relies upon this, and the fact that in Bouygues (UK) Ltd v Dahl Jensen UK Ltd

[2000] BLR 522

the Court of Appeal held that the operation of that rule was sufficient to defeat an application for summary judgment.

[51]I do not accept the submission that the Insolvency Rules and their operation are sufficient to constitute a reason not to give summary judgment in this case. Firstly, whatever the state of the account between DBCE and Multiplex, that is nothing to the point concerning Mr Dunne’s obligation, as I have found it to be, concerning payment to Multiplex of the Advance Payment. This is a primary obligation upon him personally, which crystallised upon the insolvency of DBCE. It is precisely because of the points that Ms Kyriakides correctly identifies as the process that occurs when an insolvency takes place, that Mr Dunne and the parent company DGL became involved in these contractual arrangements with Multiplex in the first place. Those are the circumstances in which the commercial purpose of the Advance Payment Deed falls to be considered. A creditor of an insolvent company is without doubt in the position identified by Ms Kyriakides. But Multiplex entered into the Advance Payment Deed in order to avoid that happening, at least so far as the Advance Payment was concerned, and is not a creditor of the insolvent company or companies (DGL also went into administration) for the Advance Payment, because this is claimed from Mr Dunne in these proceedings. In my judgment, the Advance Payment Deed was specifically drafted to avoid Multiplex having to look to an insolvent company for immediate repayment of the Advance Payment. Mr Dunne does not stand in the shoes of DBCE so far as the Advance Payment is concerned. He stands as a surety for that Advance Payment, which is an entirely different position. Multiplex paid this to DBCE, ahead of any contractual entitlement DBCE had to those funds (absent the execution of the Deed itself) and to assist with the cashflow problems. It must be remembered what the commercial purpose of this payment was when it was made (or agreed to be made in the Advance Payment Deed). It was made to help keep DBCE afloat.

[52]The second reason that I reject those submissions is that in Bouygues (UK) Ltd v Dahl Jensen UK Ltd

[2000] BLR 522

the relevant extract is at [35]. This is the passage in the judgment where Chadwick LJ stated “In circumstances such as the present, where there are latent claims and cross-claims between parties, one of which is in liquidation, it seems to me that there is a compelling reason to refuse summary judgment on a claim arising out of an adjudication which is, necessarily, provisional” (emphasis added). This case does not concern an adjudication, which is very different. Adjudication has a unique “pay now, argue later” approach which includes decisions that are of so-called “interim finality”. These do not determine parties’ rights with finality, and will be enforced by the court whether they are right or wrong or (as in that case) have arithmetical errors on the face of the decision. The instant case is a world away from that, and in my judgment that dicta does not assist Mr Dunne.

[53]Further, summary judgment was in fact given in that case in any event. At first-instance, Dyson J (as he then was) granted summary judgment. On appeal, that was not disturbed, as is clear from both [20] and [21] where Buxton LJ stated that he would dismiss the appeal. He also agreed with Chadwick LJ’s judgment which he had seen in draft. At [36] Chadwick LJ also dismissed the appeal and said that he did “not think it right to set aside an order made by the judge in the exercise of his discretion”. He too dismissed the appeal. Peter Gibson LJ agreed with both. What was in fact done on appeal in that case was that the Court of Appeal imposed a stay of execution and “the effect of the summary judgment is substantially negated by the stay of execution”.

[54]None of the principles of the Insolvency Rules, nor the rule in Stein v Blake, apply here at all on this summary judgment application against Mr Dunne. This is because it is DBCE that is the insolvent party. That is the specific relevant trigger in the clause to which I have referred as clause 3.1A, the first of those numbered 3.1. This case is not at all about the account between DBCE and Multiplex, as I have construed the Advance Payment Deed. It concerns the Advance Payment in the sum that it became, namely £4 million; the operation of the trigger when an administrator was appointed over DBCE; and the nature of the liability upon Mr Dunne personally in respect of paying the identified sum of £4 million to Multiplex, consequent upon that event. None of that, in my judgment, depends upon the state of the account between DBCE and Multiplex.

Conclusion

[55]It follows from the analysis above that Mr Dunne is liable as the primary obligor (jointly and severally with DGL) to make the payment of £4 million to Multiplex. Regardless of whether he has sufficient resources to do so – and there is something of a quibble on the evidence before me about that – Multiplex is entitled to summary judgment against him for that sum, together with interest. I shall hear the parties on costs and any other consequential matters.