Doosan Enpure Ltd v Interserve Construction Ltd

Under a joint venture agreement reflecting an NEC target-cost contract, interim reimbursement of a party’s properly identified Works Part Costs is not subject to an interim pain/gain-sharing adjustment unless the agreement clearly provides for one. Pain and gain are ordinarily calculated through the contractual mechanism at completion. Adjustments to a party’s Works Part Target Cost may be agreed during the works so that they can be reflected in the final reckoning, but they do not themselves authorise deductions from interim payments. Where the agreement provides a specific procedure for suspending or reducing interim payments because of anticipated overruns or delay damages, that procedure must be followed. A separate indemnity clause does not create an unprovided accounting or set-off mechanism against payments from a joint venture account.

Doosan Enpure Ltd and Interserve Construction Ltd entered into a joint venture agreement to carry out upgrade works under an NEC3 target contract. Payments received from the employer were paid into a joint venture account and allocated between the parties according to their respective Works Part Costs.

Interserve refused to authorise further payments, relying on anticipated cost overruns, delay damages, adjustments to target costs and an indemnity. Doosan sought summary judgment and declarations concerning the proper construction of the payment provisions, including whether interim payments could be suspended without unanimous agreement of the JV Committee.

1. Summary judgment. The dispute turned on short points of contractual construction. Further evidence or a Defence would not materially assist in resolving those issues. The application was therefore suitable for summary judgment.
2. Clause 8.6. On its natural reading, the operative provision required each party to receive interim payments reimbursing the Works Part Costs shown in its Interim Cost Statement. The reference to Schedule 4 did not make interim reimbursement subject to deductions for internal changes, delay damages or other alleged adjustments.
3. Pain/gain mechanism. Schedule 4, read with the NEC3 contract, provided for comparison of costs and target costs and allocation of the resulting pain or gain at the end of the project. Although Works Part Target Costs could be adjusted as the works proceeded, those adjustments affected the eventual final reckoning. They did not authorise interim deductions or impose a ceiling on interim payments.
4. Suspension and indemnity. Clauses 8.8 and 8.9 supplied the agreed mechanism for requesting suspension or reduction of payments because of an anticipated overrun or delay damages. Clause 18 concerned liabilities between the parties and did not create an accounting or set-off against sums payable from the JV Account.
5. It was common ground that suspension required unanimous agreement of the JV Committee. The court granted declarations that Interserve was in breach by refusing to authorise payment and that Doosan was entitled to the release of £5,312,359.71 from the JV Account. Doosan did not pursue its claim for interest.

First instance decision. No appellate history was stated in the judgment.