London & Regional (St George's Court) Ltd v Ministry of Defence & Anor

A contractual reference to an employer’s agent’s certificates does not, without clear language and an adequate contractual mechanism, create a freestanding certification regime determining liability and quantum. Nor does it ordinarily make certification a condition precedent to payment. A document is a certificate only if its form, substance and intent show that it is the expression of a certifying process.

A settlement between parties in a contractual chain does not remove substantive rights against a non-party unless it clearly does so. A legitimate arrangement allowing the party with the financial interest to control proceedings is not necessarily name-borrowing, champerty or an abuse of process.

The claimant had agreed to refurbish a property for the defendant under an agreement for lease. The works were carried out under a separate building contract between the claimant and Shepherd Construction. The claimant sought declarations that three disputed items were tenant’s variations for which the defendant was liable.

The defendant relied on three preliminary defences: that an issue of a schedule prepared by the employer’s agent was a final and binding certificate; that a settlement between the claimant and Shepherd deprived the claimant of capacity to sue or rendered the proceedings champertous or abusive; and that the settlement meant the claimant had suffered no recoverable loss.

The court determined the proper construction of the certification provisions, the effect of the parties’ conduct and settlement agreement, and whether the claims remained maintainable.

1. Certification. Clause 4.2 of the agreement for lease did not establish a freestanding certification regime. The reference to certificates concerned certificates issued under the building contract, which evidenced costs incurred in paying the contractor. The certificates were not binding as to whether work was a tenant’s variation or as to its amount, and were not a condition precedent to payment.
2. Clause 2.7 did not give the certificates the wide and potentially conclusive effect alleged by the defendant. It was qualified by the contractual context. Clear words would have been required before certification could exclude review by the court or an arbitrator.
3. Issue 10 of the schedule was not a certificate. It was a further issue of a rolling document, containing unanswered questions and no indication that it was final. Applying the approach in Token Construction Co Ltd v Charlton Estates Ltd, it failed in form, substance and intent to express a certifying process.
4. The parties’ conduct alternatively established a common assumption that no freestanding final certification regime existed, so the defendant would have been estopped from relying on the contrary construction.
5. The settlement agreement preserved the claimant’s substantive rights against the defendant. Shepherd could control the litigation as the claimant’s agent, but the arrangement was not conventional name-borrowing and did not require the defendant’s consent. Shepherd had a legitimate financial interest, so the arrangement was not champertous and did not abuse the court’s process.
6. The settlement expressly excluded the MOD claims from the release. The claimant therefore retained liability to Shepherd in respect of those claims and had suffered, or could suffer, recoverable loss. All three defences in principle failed.

First-instance decision determining preliminary issues. No earlier decision was stated in the judgment.