| Date | 16 April 2008 |
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| Judgment | London & Regional (St George's Court) Ltd v Ministry of Defence [2008] EWHC 526 (TCC) |
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| The Issue | Whether, under a name-borrowing or agency arrangement, a party is prevented from pursuing losses incurred from the party considered to be liable for these losses. |
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| Implication | Legal action relying on name-borrowing or agency arrangements will be permitted by the courts where (a) the underlying agreement between the pursuing parties is clear as to its objectives and (b) it does not put the Defendant at a disadvantage. |
print| The construction industry is bedevilled by long chains of contractual relationships. Rights and obligations can, with careful drafting of contracts, be passed up and down the chain. Nevertheless, it is not uncommon for a party who has incurred losses not being able to pursue the party liable for these losses because of a lack of a contractual relationship between them. Mechanisms, such as collateral warranties, assignment (assignation in Scotland), subrogation, name-borrowing and more recently Third Party Rights introduced by legislation, have been used to address this particular problem. Name-borrowing is a process whereby party A “borrows” party B’s name by agreement in order to use B’s right in contract to pursue party C for losses incurred. Name-borrowing provisions are normally incorporated into the underlying contractual documents. Nevertheless arrangements akin to name-borrowing can be established in the currency of a contract as and when there is a need to do so. This case arises from the inter-relationship between various parties in connection with the refurbishment of an office building known as St George’s Court in London. The Claimant in this action, London & Regional (“L&R”), entered into a lease with the landlord, Crown Estates Commissioners (“CEC”). L&R, in turn, entered into a sublease with the Ministry of Defence (“MoD”) who were to be the ultimate occupants of the building. Under the terms of the lease with CEC, L&R was obliged to carry out refurbishment works on the property. These refurbishment works included “Tenant Variations” which were specific items of work required by MoD. Under the terms of the sublease, MoD agreed to pay L&R for the cost of undertaking these “Tenant Variations”. L&R entered into a building contract with Shepherd Construction Limited (“Shepherd”) to undertake all of the refurbishment works. Shepherd carried out a number of “Tenant Variations” on behalf of MoD yet, contrary to the terms of the sublease, they (MoD) refused to pay L&R for the cost of these works. On completion of the refurbishment works, L&R entered into a Settlement Agreement with Shepherd whereby the parties agreed the value of the work undertaken, with the exception of “the MoD claims”. The terms of the Settlement Agreement provided for Shepherd to “pursue, prosecute and if necessary enforce the MoD claims against the MoD in lieu of the Employer” and, in doing so, they were entitled to “use the Employer’s name in any ensuing adjudication, arbitration and/or litigation”. In the subsequent litigation heard in the Technology and Construction Court, MoD raised certain preliminary issues which required Mr Justice Coulson’s consideration. These issues concerned various defences offered by MoD in relation to the status of the Settlement Agreement. Foremost, MoD argued that L&R’s agents, Tweeds, had undertaken a certification process which did not include for the value of “the MoD claims”. Consequently, MoD contended that they were entitled to believe that these claims had been rejected by Tweeds and that the subsequent certification was a final and binding determination of their liability to make payment to L&R. The judge rejected this defence. He found that the sublease terms between L&R and MoD did not provide for a certification regime and that there was therefore no basis on which to find that the value of work carried out by Shepherd and assessed by Tweeds was final and binding. MoD also contended that L&R was not entitled to pursue legal proceedings against them using the basis of name-borrowing or alleged agency because (a) MoD had not consented to such a procedure (b) the Settlement Agreement was champertous and (c) was an abuse of process. Collectively, these defences challenged the capacity of L&R to pursue MoD in litigation. These arguments did not find favour with Justice Coulson. He agreed with L&R that whilst Shepherd was the Claimant’s agent in these legal proceedings, that did not mean that L&R no longer had “a right to pursue, prosecute and if necessary enforce the MoD claims”, with Shepherd controlling that pursuit. The judge reasoned that had there been no Settlement Agreement, there is no doubt that L&R would have retained the capacity to bring these proceedings against MoD. Indeed, the judge found that the whole purpose of the Settlement Agreement was to preserve the ability to pursue “the MoD claims”. In regard to champerty, Justice Coulson was of the view that Shepherd had an entirely legitimate financial interest in the outcome of the court proceedings. They were not a “previously disinterested third party”; a status necessary to establish a champertous arrangement. As for the argument by MoD that the proceedings were an abuse of process, the judge considered that the claims being pursued were not speculative and therefore did not bring the administration of justice into disrepute. It was, in his view, irrelevant and not unusual that some heads of claim were stronger than others. Lastly, MoD contended that because the Settlement Agreement provided that no further sums were due from L&R to Shepherd, L&R had suffered no cost or expense under the sublease and therefore had no entitlement to claim for losses that it had not incurred. The judge again rejected these arguments. He found that it was clear from the terms of the Settlement Agreement that L&R was not released from its liability to Shepherd in respect of “the MoD claims”. The object of the Settlement Agreement was to settle all of the claims arising under the Building Contract, with the exception of the MoD claims which were to be pursued by litigation controlled by Shepherd. According to the judge, this was a sensible and commercially appropriate method by which L&R and Shepherd had settled their differences. In summary, Justice Coulson rejected all three defences in principle as advanced by MoD. He concluded that the Settlement Agreement created no prejudice or detriment to MoD in any way at all.
CJ-0815
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