Birch v Lloyd & Anor, Court of Appeal - Technology and Construction Court, March 08, 2017, [2017] EWHC 914 (TCC)

Resolution Date:March 08, 2017
Issuing Organization:Technology and Construction Court
Actores:Birch v Lloyd & Anor




Case No. C41BS210

Neutral Citation Number: [2017] EWHC 914 (TCC)





Bristol Civil and Family Justice Centre

Date: Wednesday, 8th March 2017



B E T W E E N :

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(a partnership)


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MR. W. EVANS (instructed by Gresham Legal) appeared on behalf of the Claimant.

MS. K. LEE (instructed by Michelmores) appeared on behalf of the First and Second Defendants.

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J U D G M E N T (As Approved by the Judge)JUDGE HAVELOCK-ALLAN:


1 Before the court is an application by the defendants to strike out some, but not all, of the claims against them.

2 The action was commenced in London in November 2015, it was transferred to the Bristol District Registry by Master Kay QC on 1st November last year, following close of pleadings. The defendants then applied for it to be transferred into the Bristol Technology and Construction Court and I made the transfer Order on 8th November 2016.

3 The nature and purpose of the application to strike out will become clearer when I have described the background to the dispute. I shall do so by reference, so far as is possible, to the pleadings, rather than to the evidence filed in respect of the application.

The background to the action

4 The claim arises out of a contract, which I shall refer to as "the Building Contract", entered into between the claimant as contractor and a company called Hillersdon House Limited, or "HHL", as the employer, in or about January 2012, for extensive works to renovate and develop a Grade II listed Victorian mansion called Hillersdon House, near Cullompton in Devon.

5 The Building Contract was on the form of the JCT Standard Building Contract With Quantities, 2011 Edition. It is dated 9th January 2012. However, the contract was not signed on behalf of the claimant until shortly before 22nd March 2012. It was not signed by the first defendant, Mr. Christopher Lloyd, on behalf of HHL until sometime between 22nd August and 13th September 2012. Yet work was commenced on site in November 2011.

6 The claimant was described in the building contract as: "Palmer Birch Building Contractors". The contract administrator was named as "Johnstone Cave Associates''. By a Deed of Variation dated 12th December 2013, the employer was restyled as "Mr. M. Birch and Mr. J. Palmer trading together in partnership as Palmer Birch". Nothing turns on this.

7 Under the Deed of Variation, Gates Construction Consultants Limited replaced Johnston Cave Associates as contract administrator. There is a difference of view between the parties as to what prompted that change, but that does not matter for present purposes.

8 The contract sum was £5,114,714.95. This was significantly below the amount of the claimant's tender in September 2011, which was in a total sum of £6,923.664.93. The tender was to cover works involving repairs and alterations to the main house, a kitchen and swimming pool extension and extensive landscaping and external works.

9 The claimant's case is that a significant amount of the work excluded from the specification at the time of contracting, in order to get the contract price down to a figure near to £5 million, was subsequently added back in by variations of the contract required by the defendants. It is certainly not disputed that there were a large number of additional works.

10 The freehold of Hillersdon House is owned by Selzar Holdings Limited, which I shall refer to as "SHL". SHL is a Cypriot company in which the first defendant, Mr. Michael Lloyd, has a beneficial interest. SHL acquired the freehold of Hillersdon House in June 2010 for £3,200,000.

11 On 20th April 2011, SHL granted a lease of Hillersdon House to HHL for a term of 21 years at a base rent of £10,000 per annum and a turnover rent starting at 10% of gross turnover up to a sum of £200,000 and 15% of gross turnover on the next £100,000 and 20% on gross turnover in excess of £300,000 in any one year.

12 HHL is an English company of which the second defendant, Mr. Christopher Lloyd, is sole shareholder and director. HHL was incorporated in June 2010 for the purpose of acquiring the lease of Hillersdon House and with a view to renovating and developing the property. It was, in effect, a special purpose vehicle or ``SPV''.

13 The defendants say that the refurbishment project was with a view "... to creating and running a high-end venue for hunting, shooting and fishing parties and wedding receptions". That aim was at least consistent with the terms of the lease in which the Permitted Use, as defined in clause 2.1.18, was for:

"corporate hospitality, conferences and educational purposes together with the ancillary provision of food and drink and overnight accommodation, use of the Open Land for shooting and grazing and, subject to the landlord's consent, any other use which is specified within an Approved Business Plan."

14 An approved business plan was defined in clause 2.11 of the lease as any business plan for the commercial use of the premises approved by the landlord in writing.

15 Two Business Plans feature in this case. It is not clear to me whether either was ever an Approved Business Plan. I infer that the first of them entitled, "Business Plan 2010 to 2015" may have been approved by SHL. I shall refer to that plan as the "original Business Plan". It appears to have been drawn up before the acquisition of Hillersdon House was complete. It envisaged the property being developed in three phases, Phase 1 being the 45 acre deer park, Phase 2 being the restoration of the mansion and its immediate outbuildings with a view to obtaining income from (1) keeping horses at livery, (2) hosting events outside and (3) residential educational courses (albeit on a small scale since the mansion would only have five lettable bedrooms once refurbished), and Phase 3 being the development of a sculpture park, outside music event venue, farm shop and pheasant shoot.

16 The total potential income on completion of all three phases was estimated in the original Business Plan as being £301,000 per annum, yielding an annual profit of £59,000. There will be more anon of the original business plan and of the revised Business Plan exhibited to Mr. Christopher Lloyd's witness statement later in this judgment.

17 The Building Contract between the claimant and HHL contained in Section 4, the usual standard provisions for staged interim payments. The due date of the first monthly interim payment was stated to be 9th December 2011. It was provided in clause 4.10 that within 5 days of each due date, the contract administrator was to issue an Interim Certificate stating the sum due, based on an Interim Valuation by the quantity surveyor if appropriate.

18 The quantity surveyor named in the Building Contract was the office of Savills (L&P) Ltd in Wimborne in Dorset. The individual who was the quantity surveyor under the Building Contract in 2014 and 2015 was a Mr. James Paradise. Whether he was an employee of Savills or a substitute for Savills, I am not sure.

19 Clause 4.12 of the Building Contract contained provision for the employer to respond to an Interim Certificate with a Pay Less Notice if it intended to pay a sum less than that in the Interim Certificate. A Pay Less Notice had to be served no later than 5 days before the final date for payment of the certified sum. The final date for payment of the certified sum was itself to be fourteen days from the date on which the Interim Certificate was issued. The contractor was entitled, by clause 4.14 of the Building Contract, to give notice suspending his performance of the contract if the amount of an Interim Certificate was not paid. The suspension would take effect 7 days after the notice, if payment was still not forthcoming.

20 Interim Certificate No. 1 was issued on 12th December 2011. Thereafter, 33 Interim Certificates were issued by the contract administrator and paid by HHL. Whether they were all paid by the due date is immaterial for present purposes. The total amount paid, namely, the gross sum certified less retention, was £6,712,078.17. The difference between the amount paid and the contract sum is largely if not wholly attributable to additional works. The claimant's case is that additional works to a value of £2,315,063.13 were invoiced, although that figure is not admitted. The contract also overran the completion date, which was 31st July 2013. The defendants say that some of the additional cost was due to this factor.

21 Interim Certificate No. 33 was issued on 24th October 2014. It was the last Interim Certificate which HHL paid. Interim Certificate No. 34 was issued on 1st December 2014 in the sum of £202,964.92. The final date for payment of Interim Certificate No. 34 was 15th December 2014. No sum was paid. Interim Certificate No. 35 was issued on 6th January 2015 in the sum of £241,333.65. The due date for payment was the 20th January 2015. Nothing was paid in respect of that Interim Certificate either. This was not wholly unexpected because, on 5th January 2015, Mr. Michael Lloyd had met with Mr. Nelson Birch and had told him that HHL had run out of money.

22 Meanwhile, during December 2014, a Certificate of Partial Possession of Hillersdon House had been issued by the contract administrator, Mr...

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