Harmon CFEM Facades (UK) Ltd v. The Corporate Officer of the House of Commons [2000] EWHC Technology 84 (29th June, 2000)

[ Home ] [ Databases ] [ World Law ] [ Multidatabase Search ] [ Help ] [ Feedback ] [ DONATE ] England and Wales High Court (Technology and Construction Court) Decisions You are here: BAILII >> Databases >> England and Wales High Court (Technology and Construction Court) Decisions >> Harmon CFEM Facades (UK) Ltd v. The Corporate Officer of the House of Commons [2000] EWHC Technology 84 (29th June, 2000) URL: https://www.bailii.org/ew/cases/EWHC/TCC/2000/84.html Cite as: [2000] EWHC Technology 84 [ New search ] [ Help ] Harmon CFEM Facades (UK) Ltd v. The Corporate Officer of the House of Commons [2000] EWHC Technology 84 (29th June, 2000) IN THE HIGH COURT OF JUSTICE TECHNOLOGY AND CONSTRUCTION COURT HIS HONOUR JUDGE HUMPHREY LLOYD Q. C. B E T W E E N: HARMON CFEM FAÇADES (UK) LIMITED (in Creditors' Voluntary Liquidation) Claimant -and- THE CORPORATE OFFICER OF THE HOUSE OF COMMONS Defendant Case No: 1996 ORB 1151 Date of Judgment: 29 June 2000 In an earlier judgment of XX October 1999 (made available on this site and reported eg (1999) 67 Con LR 1) it was held that the claimant Harmon could recover damages from the defendant H of C for its breaches of the Public Works Contracts Regulations as provided by Regulation 31(6)(b)(ii); for breaches of obligations under principles of EU law ; for breach of a term of an implied contract that it should treat Harmon fairly and openly ; and for misfeasance in public office in consequence of the conduct of the Project Sponsor for whom H of C was responsible. Harmon applied for an interim payment pursuant to Rule 25.7 of the Civil Procedure Rules . Harmon had gone into liquidation in 1998. For reasons set out in the judgment it was held that Harmon's liquidation did not preclude an interim payment order and that Harmon was entitled to be paid 221 108 on account of wasted tender costs; 1 848 456 on account of the loss of margin and profit; and 1 307 031 on account of losing the chance of being awarded the contract which was ultimately carried out by another contractor. Cases considered included: Biguzzi v Rank Leisure [1999] 1 WLR 1926 ; Shearson Lehman Brothers v Maclaine Watson [1987] 1 WLR 480; British and Commonwealth Holdings plc v Quadrex Holdings Inc [1989] QB 842; Schott Kem Ltd v Bentley [1991] 1 QB 61; Stringman v McArdle [1994] 1 WLR 1653; Crimpfil Ltd v Barclays Bank Ltd [1995] CLC 385. Richard Fernyhough QC and Michael Bowsher appeared for the claimant instructed by Wragge & Co. Andrew White QC and Robert Clay appeared for the defendant instructed by Berwin Leighton. The following is the text of the judgment approved by the judge subject to editorial corrections. 1. The claimant (Harmon) has applied for an interim payment pursuant to Rule 25.7 of the CPR. The relevant parts of that rule are as follows: "(1) The court may make an order for an interim payment only if - (a) the defendant against whom the order is sought has admitted liability to pay damages or some other sum of money to the claimant; (b) the claimant has obtained judgment against that [sic] defendant for damages to be assessed or for a sum of money (other than costs) to be assessed; (c) except where paragraph (3) applies it is satisfied that if the claim went to trial the claimant would obtain judgment for a substantial amount of money (other than costs) against the defendant from whom he is seeking an order for interim payment ; or (4) The court must not order an interim payment of more than a reasonable proportion of the likely amount of the final judgment." (5) The court must take into account - (a) contributory negligence; (b) any relevant set-off or counterclaim" It was accepted that despite the reference in paragraph (1)(b) to paragraph (1)(a) the two paragraphs were independent conditions. Although the drafting of the Rule is not good I assume also that paragraph (c) is also a further alternative condition to (a) and (b) even though the bridge between it and paragraph (d) is "or" which might suggest that the three preceding paragraphs were cumulative. That reading would not make any sense as it is clear that they each deal with three separate situations: admission of liability finding of liability and prospective finding of liability. The Rule was made in accordance with section 32 of the Supreme Court Act 1981 which states: "(1) As regards proceedings pending in the High Court provision may be made by rules of court in such circumstances as may be prescribed to make an order requiring a party to the proceedings to make an interim payment of such amount as may be specified in the order with provision for the payment to be made to such other party to the proceedings as may be so specified or if the order so provides by paying it into court. (2) Any rules of court which make provision in accordance with subsection (1) may include provision for enabling a party to any proceedings who in pursuance of such an order has made an interim payment to recover the whole or any part of the amount of the payment in such circumstances and from such other party to the proceedings as may be determined in accordance with the rules. (5) In this section "interim payment" in relation to a party to any proceedings means a payment on account of any damages debt or other sum (excluding any costs) which that party may be held liable to pay to or for the benefit of another party to the proceedings if final judgment or order of the court in the proceedings is given or made in favour of that other party." Thus to meet section 32(2) Rule 25.8 provides: "(1) Where a defendant has been ordered to make an interim payment or has in fact made an interim payment (whether voluntarily or under an order) the court may make an order to adjust the interim payment. (2) The court may in particular - (a) order all or part of the interim payment to be repaid; b) vary or discharge the order for the interim payment;" 2. Harmon was unsuccessful in the tenders that it submitted in 1995 for the fenestration package for the New Parliamentary Building (NPB) in Bridge Street Westminster which is also known as Portcullis House. The trade contract was placed with Seele/Alvis Fenestration Ltd (Seele/Alvis). Harmon commenced proceedings against H of C. In 1998 its ultimate holding company Apogee Enterprises Inc. (Apogee) decided to abandon the European market and withdrew financial support from its five European subsidiary companies. Harmon went into creditors' voluntary liquidation on 10 March 1998. As a result of a trial of some 28 principal preliminary issues I decided that the conduct of the defendant (H of C) in the manner it which it dealt with Harmon's tenders rendered it liable under four heads: (1) Harmon could recover damages from H of C for its breaches of the Public Works Contracts Regulations 1991 as provided by Regulation 31(6)(b)(ii); (2) Harmon could similarly recover damages from H of C for breaches of obligations under principles of EU law; (3) Harmon could recover damages from H of C for breach of a term of an implied contract that it should treat Harmon fairly and openly; (4) Harmon could recover damages for misfeasance in public office in consequence of the conduct of Mr Andrew Makepeace the Project Sponsor for whom H of C was responsible. In the judgment that I gave (to which I shall from time to time refer) I decided that under each head the damages would include the costs that Harmon (or its associates) had incurred in submitting all its tenders and its gross margin or profit that it (or its associates) might have recovered had H of C awarded the contract to Harmon on the basis of its tender of November 1995 as H of C ought to have done. However although I found Harmon had been treated not only unlawfully but badly by H of C and that the conduct of Mr Makepeace was dishonest (and his evidence was in material areas not credible) I decided that Harmon was not entitled to aggravated or exemplary damages. Harmon is pursuing an appeal against that decision and against my conclusion that the fact that Harmon ceased to trade in March 1998 and had a provisional liquidator appointed was a factor to be taken into account in assessing Harmon's damages and in assessing any loss of profit to which it may be entitled. H of C has decided not to appeal against any of the many conclusions that I reached and the issues that I decided that were adverse to it. 3. Harmon's application therefore seeks an interim payment on account of tender costs and loss of recovery margin or profit. The application asks for an order that it should be paid in respect of loss of gross margin: 12 300 114.99; alternatively 5 257 728.28; alternatively 5 097 292.35; alternatively approximately 4 500 000; and in respect of wasted tender costs: 435 000; alternatively 158 518.11; and in the alternative to all these "such sums as the court thinks fit". The declaratory order that I made on the trial of the preliminary issues was tantamount to a judgment for damages in respect of H of C's liability for the four causes of action and thus no point arises from the fact that technically Harmon did not have a judgment for the purposes of Rule 25.7(1)(b) although it is accepted that it is so entitled. 4. H of C oppose the application on a number of grounds. First in relation to Harmon's claim for loss of margin H of C maintain that (1) Harmon have failed to establish to the requisite standard that they are likely to recover any sum in relation to lost profits or overheads; (2) Harmon would have gone into liquidation before completing the contract and therefore sustained no loss; (3) By the date of the liquidation Harmon would not have received sufficient money to cover its costs; (4) Even if Harmon would have received sufficient money to recover its costs H of C would have had a substantial set off which would have greatly exceeded any sum that was otherwise due to Harmon and would have wiped out any profits which might otherwise have been earned. Secondly in respect of tender costs on 7 December 1999 H of C had made an offer to pay Harmon 611 020.27 as an interim payment under Rule 25.7 on account of its tender costs (plus interest at 2.5% above base rate from 1 July 1995). However it attached conditions primarily the provision of security of 450 000 in the event that Harmon failed at the trial to establish liability for that sum. Harmon declined the offer. H of C's case on the application was that no new evidence had been presented which justified the award of a sum close to the amount offered by the H of C (an offer which was subject to a justifiable term as to repayment) so no function whatever was served by this application. 5. In respect of both loss of profit and tender costs H of C's case was that no order should be made because Harmon is in liquidation. Under Rule 25.8 an interim payment may be adjusted for example by requiring the whole or part of the payment to be repaid. If the liquidator of Harmon were to receive a sum from H of C then like any other payment he would be bound either to spend it on the necessary costs of the liquidation (eg to defray the costs of the action or to reimburse those funding it) or to distribute it to creditors. It was not to be expected that he would take a course that might render him personally liable for repayment (see Re Armstrong Whitworth [1947] Ch 675). If therefore he thought that either of these steps might expose him to a claim for recovery of an amount overpaid then the sum would have to be placed in the Insolvency Services Account until after judgment on the quantum trial. Placing money in the ISA attracts substantial ad valorem fees and earns an unattractive rate of interest (which combined produce a derisory effective rate of return) so payment would not help Harmon's creditors or the liquidator. Making an order would not benefit the liquidator. Harmon had declined to provide H of C with some form of guarantee of repayment from a solvent third party. This was not surprising since the liquidator might remain personally liable. Thus no interim payment should be made. Since this part of H of C 's case depends on whether irrecoverability is a bar to an order under Rule 25.7 I shall consider it first. Rule 25.7 6. Both parties referred to decisions on interim payments under RSC Order 29 rule 11 although the Court of Appeal has said in Biguzzi v Rank Leisure [1999] 1 WLR 1926 that case law prior to 26 April 1999 is not binding in the interpretation of the CPR nor should it be persuasive on the exercise of discretion under the CPR. Some of them are nonetheless helpful in identifying or clarifying the factors which might influence the exercise of the power conferred by Rule 25.7. I was referred to well-known decisions such as British and Commonwealth Holdings plc v Quadrex Holdings Inc [1989] QB 842 and Shearson Lehman Brothers v Maclaine Watson [1987] 1 WLR 480 Others (such as Schott Kem Ltd v Bentley [1991] 1 QB 61) were concerned with the equivalent of Rule 25.7(1)(c) and with questions such as the degree of satisfaction required. In that and other cases it was considered that a two-stage process was needed ie to deal first with potential liability which is irrelevant to this application. 7. Rule 25.7 has to be interpreted and the powers granted by it have to be exercised in accordance with the overriding objective as required by Rule 1.2. The overriding objective includes ensuring that parties are on an equal footing. Depriving a party of money which one party has but which is rightfully the other's does not place the latter on an equal footing with the former. Nevertheless it might be equally wrong to order an interim payment to a party who might not be able to repay it if an adjustment were required under Rule 25.8. 8. The case advanced by H of C was essentially based on the potential irrecoverability of any money that might be paid if an interim order was made which required to be adjusted by a repayment. Harmon did not suggest that the liquidator would freeze any money that he received. It was to be assumed that it would be expended to defray the costs of the liquidation (and in particular of the litigation) and to pay creditors. Nor did Harmon really question the proposition that a liquidator would be bound in law to apply the funds in those ways. Harmon suggested that if the liquidator decided to do so he might be liable to H of C as it would become a creditor. It was also submitted that an over-payment would qualify as an expense for the purposes of Rules 4.218 of the Insolvency Rules (see paragraphs (a) and (m)). That may be so but it assumes that there are assets. In my judgment it is not consistent with the overriding objective or with the powers of case management to take a course which is likely to lead to a further claim whose outcome is not certain. Accordingly if irrecoverability were a bar no order would be made for any sum for which there was a realistic prospect of success of recovery. 9. However in my judgment the fact that any sum paid might be irrecoverable is irrelevant except that where the amount or an element of it may be a matter of judgment or discretionary care will be taken not to over-compensate the applicant. First the object of Rule 25.7 is to give the applicant part of what it is or will be entitled to receive. A court does not normally decline to assess damages because of the possibility of an appeal against the amount of the award (as opposed to an appeal on liability). A stay of execution may be granted but even then the defendant will have to persuade the court that there is a good reason why the claimant should not be paid. Secondly Rule 25.7 does not provide for an order to be made on conditions. The absence of any such reference suggests that the court's function is to decide what is or may be due and not to be concerned about what the claimant might do with the award when it is received or its recoverability. Thirdly the Rules provide no link between Rule 25.7 and Rule 25.8. If it had been intended that the possibility of irrecoverability precluded an interim payment order being made or was to affect the exercise of the power then some overt link would have been made. However I have no doubt that conditions could be attached where in an appropriate case it was thought necessary to meet the overriding objective set out in Rule 1.1. Rule 1.2 requires the court to give effect to the overriding objective when it exercises any power or interprets any Rule. Thus if any Rule does not contain adequate provision to achieve the overriding objective it will have to be made to do so by "interpretation". Alternatively if the circumstances require the power (eg that given by Rule 25.7) will have to exercised so as to achieve the overriding objective and if this means attaching conditions then such conditions are authorised by Rule 1.2. 10. That irrecoverability is basically irrelevant is in my judgment not inconsistent with decisions on the former RSC Order 29 rule 11 (if they may be looked at as being helpful as I have set out above.) In particular Neill LJ's restatement in Schott-Kem at pages 71-74 shows that the risk of irrecoverability is as it were built into the test which the Court of Appeal considered desirable for the assessment and determination of a reasonable proportion and that it is not necessary to establish need or prejudice merely that the defendant has money to which the claimant is or will probably be entitled. The following passages are relevant amongst others (but they must of course be put in the context of the complete exposition): "(4) In order for the court to be satisfied that the plaintiff would obtain judgment: "something more than a prima facie case is clearly required but not proof beyond reasonable doubt. The burden is high. But it is a civil burden on the balance of probabilities not a criminal burden (see the Shearson Lehman case [1987] 1 WLR 480 at 489 per Lloyd LJ). Furthermore even where conditional leave to defend is given under Ord 14 the court may nevertheless order an interim payment in an appropriate case. Thus in British and Commonwealth Holdings plc v Quadrex Holdings Inc [1989] QB 842 at 866 Sir Nicolas Browne-Wilkinson V-C put the matter as follows: "in cases where on the evidence then before it the court entertains sufficient doubts as to the genuineness of the defence to give only conditional leave to defend it is possible for a court to be satisfied that the plaintiff will succeed at trial. Although in such a case it does not automatically follow that it is appropriate to make an order for interim payment if in all the circumstances such payment appears sensible and desirable in my judgment it can be ordered." (6) Where a plaintiff makes alternative claims against a defendant eg for rent with an alternative claim for mesne profits or for the price of goods with an alternative claim for damages the court can order an interim payment without reaching a conclusion at that stage as to which of the alternative claims against the defendant will succeed at the trial provided it is satisfied that the plaintiff will recover a substantial sum under one head or the other: see the Shearson Lehman case [1987] 1 WLR 480. Indeed as Nicholls LJ pointed out in the Shearson Lehman case [1987] 1 WLR 480 at 493: "It is apparent from the express terms of r 12 that it is not intended that as a prerequisite to making an interim payment order the court must be satisfied in every case on the precise legal label to be attached to the sum in question. It would seem however that if there is a doubt whether the sum claimed will prove to be recoverable as damages or under some other heading the court should apply a discount when ordering an interim payment to take account of the provision as to a reasonable proportion of the damages in r 11(1). I turn now to the two general submissions made by counsel for the defendants concerning the operation of Pt II of Ord 29. The first submission was that it is for a plaintiff to satisfy the court of his need for an interim payment or that he will suffer prejudice if he does not obtain one and that in the present case Schott Kem had produced no evidence of need or prejudice. I am not satisfied however that there is any restriction implicit in the rules which prevents an interim payment order being made in the absence of evidence of need or prejudice. By the use of the words if it thinks fit both rr 11 and 12 confer a discretion on the court whether to order an interim payment at all. Moreover the amount of the payment is expressed to be of such amount as [the court] thinks just with the additional limitation in the case of damages that the amount is not to exceed a reasonable proportion of the damages which in the opinion of the Court are likely to be recovered by the plaintiff after taking into account the matters specified. For my part I can see no basis for any further limitation on the jurisdiction of the court to order interim payments than those set out in Ord 29 itself. I would therefore reject the argument that it is necessary for Schott Kem to produce evidence of need or prejudice." 11. Harmon also relied on three other cases in the Court of Appeal. In Crimpfil Ltd v Barclays Bank Ltd [1995] CLC 385 judgment on liability was given and an interim payment order was then made in favour of the plaintiff company which was in administration (see page 388C). It does not seem that the Court of Appeal was asked to say that no order whatever should be made since the company had disposed of its plant and premises and closed down its business (see page 388C). The trial judge had been asked to take this factor into account and had done so by approaching the assessment with caution (see page 389F). The earlier case of Stringman v McArdle [1994] 1 WLR 1653 also concerned with an interim payment order following judgment on liability. The plaintiff was an infant and a tetraplegic. The issue was whether the payment should be made to the Court of Protection. It was however accepted that an amount of the proposed payment would be less than the amount to which the plaintiff would ultimately be entitled. Stuart-Smith LJ said (at page 1657H): "In the case of an adult of sound mind the court making an order under RSC Order 29 rule 11 is not concerned in any way with the plaintiff does with his damages. In the case of an infant the money will normally be paid into court and the next friend will apply to the district judge for payment out as \and when the money is required. Where the Court of Protection is concerned it is for that court to decided how and when the money is to be spent." Stringman was considered in Campbell v Mylchreest 23 January 1998 CA unreported. The plaintiff was injured in a car accident. Liability was not disputed. The issue was whether the court should consider the use to which an interim payment would be put as a factor in deciding the amount of a payment. The trial judge had not considered that it might affect the defendant's case on quantum. The Court of Appeal said that he ought to have done so but nevertheless upheld the order. Auld LJ described "the central thrust" of the judgments in Stringman was "that it was not the concern of the defendant or the court what the plaintiff intends to do with the money". 12. Of these cases only Crimpfil was concerned with recoverability. It showed that under the RSC a court was entitled to make an order if it were sure that the claimant would recover a certain amount and had assessed a reasonable proportion of it. If paragraph (c) of Rule 25.7 (1) were to read as supplementing paragraph (b) (which I do not think it is) then in my judgment the court's powers would be similarly described. The other cases are not of much assistance. If a parallel were to be drawn between Harmon and a claimant under a disability then the approach of the Court of Appeal in Stringman would only be relevant if there were some dispute about who should handle the amount awarded. I do not consider that either Stringman or Campbell is authority for the proposition that the possibility that the fact that the Court is not concerned with how money is spent means that it should shut its eyes to the possibility of irrecoverability. 13. In my judgment the interest of a defendant such as H of C should be sufficiently protected by Rule 25.7(4). If the court thinks that the claimant is bound to recover a part of the damages to be assessed or to borrow the language of Rule 24.2(a)(ii) "the defendant has no real prospect of successful defending [that part of] the claim" then the reasonable proportion will be 100% or 100% less a nominal discount. Mr White for H of C rightly accepted that if a claimant were entitled to summary judgment for an amount then it would be unnecessary to require a condition or guarantee if that sum was ordered to be paid under Rule 25.7. If the court considers that the claimant will probably recover a part (but might not do so) then some lower proportion will be ordered. If that is equivalent to saying that there is almost certainly no real prospect that that proportion will be recoverable then equally no condition or guarantee of repayment should be applied. However the proportion may also reflect the possibility of irrecoverability. Again I understood Mr White to accept that it would not be wrong to do so and thus to apply discount to reflect that factor. If the court is however unsure about the balance or about part of the claim the total of which it is otherwise able to assess no interim payment will be ordered for it would not be reasonable to do so (even though "nil" is not a proportion). If the court although unsure nevertheless thought there should be a generous payment then a condition to secure repayment might be included in the order. It follows that H of C in offering Harmon 100% of its claim for wasted tender costs rather than a reasonable proportion of it was not wrong in making it subject to a condition guaranteeing partial recoverability (and that Harmon was equally not wrong in refusing it). The applications 14. I shall consider the applications in reverse order in that I shall first examine the claims for the wasted costs of tendering and then the claims for loss of gross margin. The evidence was contained in witness statements and reports; Harmon filed two statements from Mr J. T. Deckman an Executive Vice-President of Apogee a statement from Mr Andrew Smith a partner in the solicitors acting for Harmon. two further (supplemental) reports or statements or reports from Mr E. G. Hay Davison FRICS (who had given evidence at the trial) and a report on issues relating to the liquidation from Mr N. L. Burton FRICS who was a partner in GVA Grimley and adviser to Harmon's liquidator. H of C filed a witness statement from Mr Michael Goldmeier a partner in the solicitors acting for H of C a report from Mr G. N. Ashworth FRICS of Davis Langdon & Everest and a voluminous report from Mr David J. Lee FCA which assembled financial information about Apogee and its operating companies. In addition I was asked to look at some additional documents that had not been exhibited to the statements or reports or which had not been included in the corpus of evidence at the trial (which was obviously also to be taken into account.) 15. Although no applications were made there were well-founded grumbles from H of C about the way in which Harmon's evidence had been presented. I had made orders intended to give Harmon an opportunity of finding out (by being given documents and having meetings) about the course of the work undertaken by Seele/Alvis on the basis that any claim for loss of margin and profit would or might have to take account of events which could have eroded or increased that claim. A meeting did place but Harmon's evidence did not initially at least follow the course which both I and H of C had expected that it would take. There was thus rather more lack of precision than I had thought would occur and H of C submitted that it was placed at a certain disadvantage. On the other hand the notes of the meeting annexed to Mr Ashworth's first report show that Harmon did not obtain answers to all the questions raised. In addition it is fair to record that H of C did not field Mr Baxter of Gardiner & Theobald the project quantity surveyors who gave helpful evidence at the trial. He would have been able to be more authoritative than Mr Ashworth, who necessarily did not have first-hand knowledge. 16. An application of this kind which is made before the trial of the quantum claim, on the basis of limited material and which necessarily must have problematic or speculative aspects will inevitably have rough edges and may warrant a broad approach. H of C emphasised that it had not seen certain documents, eg those relating to the continuation of Harmon's business, just as Harmon had only limited knowledge of the course of Seele/Alvis' contract, although I have little doubt that it has been given all the information upon which H of C rely to show that Seele/Alvis encountered difficulties which would have eroded Harmon's allowances for margin. I shall take full account of H of C's reservations, although they cannot be used as a reason not to make an order if it is clear that something is due and should be paid (using the criteria set out above). They justify a careful examination of Harmon's claims and a conservative assessment of them. 17. H of C similarly made submissions to the effect that Harmon had to produce evidence to dispose of points made by H of C. Some of these were understandable but some were within H of C's power to dispel in a concrete manner, if based on fact, particularly as they could have been anticipated and especially bearing in mind that this application had been made some time ago. Although this application is not the trial on quantum it clearly foreshadows it and in places both parties regard it as in the nature of a rehearsal for it, and certainly rather more than a reading through. In considering H of C's case I am therefore reluctant to accede to it where it could have been substantiated, such as the effect of events encountered by Seele/Alvis that might have affected Harmon's margin. Some of these were listed by Mr Ashworth as reservations to his assessments of margin. For example, I discount ferry strikes. They are part of ordinary risks some of which may eventuate and cause costs or losses to be borne but others of which operate to off-set those in the former category. They would have to be significant to be considered and if significant they would be capable of some quantification. The effects of ferry strikes were not quantified by H of C. Tender Costs 18. Had Harmon been awarded the contract then it would have recovered the costs of tendering from the amounts paid to it under the contract. Accordingly this claim is relevant only if nothing is awarded in respect of loss of gross margin. 19. Harmon's case is set out in its Further and Better Particulars of 30 September 1997 in which it makes the best estimate of its costs at 438,593.10, comprising staff costs of 413 745.24; expenses of 23 896.41 and documents at 951.35. In paragraph 128 of my judgment of October 1999 I said: "On 1 March 1996 LML sent TBV (with copies to Mr Makepeace and G & T) a reasonably detailed assessment of the costs which Harmon could have expended when tendering. It came to 164,000 (inclusive of 15% for overheads). An inquiry of this kind could only have been prompted by a belief that Harmon might have to be compensated." As I have recorded, in December 1999 H of C offered Harmon its full costs of tendering but on conditions, namely that all but 153,518.11 was to be secured by an guarantee in case it had to be repaid. This accounts for the figure of 158,518.11 claimed by Harmon. The conditions were not acceptable to Harmon's liquidator. The sum admitted by H of C (ie the balance for which no security was sought) includes interest from 1 July 1995. 20. Harmon's principal claim was the subject of evidence from Mr Hay Davison and Mr Ashworth, H of C's expert. The records upon which Harmon's claim is based are, as Mr Hay-Davison, acknowledges "incomplete and in some cases, unsatisfactory" since (as he also rightly says): "it was never anticipated by those engaged in the preparation of the tender that their costs and expenses would be subject to detailed scrutiny in a Court of Law". These remarks were prompted by Mr Ashworth's report which concluded that, despite many similar justified reservations about the substantiation of Harmon's case, there was evidence to support 221,108 of Harmon's claim. His assessment was careful and generally conservative (although he made no reduction on account of an apparent duplication in respect of travel costs which accounted for 11.5% on the base salary costs.) Mr Hay Davison was concerned about Mr Ashworth's reductions in the rates for senior managers and directors which he thought were unreasonable. However the time of such personnel is not normally assessed as if it were the subject of a charge-out and there is force in Mr Ashworth's view that Harmon's hourly rate is based on a short working week and takes no account of the occasions when a working week came to 50 hours or more. In my judgment it would not be right to conclude that Harmon is bound to get more than an amount of the order of that assessed by Mr Ashworth. It is clear from Mr Goldmeier's evidence that, making allowances for the quality of Harmon's supporting materials, H of C regards Mr Ashworth's figure as the likely minimum. I therefore consider that, looking at this claim in isolation, Harmon is entitled to an interim payment of a reasonable proportion of 221,109. In my view, since Harmon plainly expended much time and effort in the preparation of its tenders and since I consider that Mr Ashworth's assessment was the least that Harmon could reasonably have expected, no more than a nominal reduction of 5% on account of "a reasonable proportion" should be made, say 11 055 to make 210,054. Loss of Gross Margin 21. The first claim made by Harmon is put at 12,300,114.09. This represents Mr Hay Davison's view of the total amount of gross margin recoverable by Harmon at the end of the project. The calculation is based on Mr. Hay Davison's view of the amount of gross margin in the November 1995 tender with adjustments to take account of some findings made in my judgment, namely for errors in the compilation of the tender; the adequacy of provisional allowances made in the tender against actual or anticipated cost to be incurred; the impact of external influences such as fluctuations and currency rate changes; the effect of post contract variations to the design, supply and installation of the contract works; the effect of post contract adjustments to the contract programme of works and the costs of any consequential delays as well as other matters. 22. The second and third bases of claim are in the alternative to the first and are for 5,257 728 or 5,097,292.35. Both calculations have the same hypothesis which is part of H of C's case, viz. that Harmon would have been put into liquidation in early 1998 and at that date (subject to any claims that H of C might then have had) Harmon would have recovered a proportion of its gross margin up to that point. Harmon in effect asks for an interim payment on the basis of such a hypothesis, the precise amount depending in part on the date when Harmon's applications might have been paid. Harmon however contended that H of C's case was incorrect in assuming that Harmon would have still gone into liquidation even though it had been an apparently profitable and prominent contract and that the timing of the Harmon's applications would have followed those of Seele-Alvis. Thus the second claim for 5,257,728 is calculated by Mr. Hay Davison on the basis of the last application for payment by Seele Alvis before the appointment of the liquidator on 10 March 1998, which was made on 4 March 1998 and led to valuation no. 26 on 12 March 1998. The third claim for 5,097,292.35 is calculated as the margin recoverable by reference to application No. 25 which had been made before 10 March 1998 as that application should have been valued and paid by 10 March 1998. 23. The fourth basis of claim is made on the basis that I found in paragraphs 294 and 296 of my judgment that Harmon's November 1995 tender included at least 5.4 million or 4.5 million (or some amount between them) in respect of margin. Harmon's case is that it is entitled to recover at least 4.5 million. 24. The fifth claim for 4,792,393 is based on paragraph 320 of my judgment where I assessed Harmon's chance of being awarded a contract for Option B2 (not A1) at 70 % but accepted Harmon's approach that there was a 50% probability that the whole of Harmon's margin or profit might not be recovered, given the risks and hazards inherent in construction work. Mr Hay Davison therefore took its November 1995 tender and made some adjustments (see above) to arrive at 4,792,373 (35% of 13,692,495). Harmon contended that this figure would be recoverable irrespective of any effect of any liquidation. 25. H of C's principal objections centre on its contention that Harmon would have gone into liquidation in March 1998, even if it had been awarded the contract or that until that contention has been fully investigated it would not be right to make any assessment of damages or interim payment. Harmon maintains that such an investigation was unnecessary but for present purposes I disregard that objection in view of my answer to Issue 27 that the fact that Harmon ceased to trade in March 1998 and had a provisional liquidator appointed was a factor to be taken into account in assessing Harmon's damages and its loss of profit. 26. For the purposes of the present application it is therefore necessary to see whether it is possible on the present evidence to decide with a degree of certainty what would probably have happened had Harmon been awarded the contract on the basis of its tender of November 1995 since part of Harmon's answer to H of C's case is that Harmon would have survived. In considering the period up to March 1998 there appear to be six principal questions the answers to which may also deal with some other issues. 27. First, what would have been the contract sum? On 2 November 1995 Harmon had offered 31,262,164 (fixed price) and 29,562,154 (fluctuating). If Harmon had been given the opportunities which Seele-Alvis had of reducing the programme and of negotiating with novated suppliers Mr Boyle accepted that it would have been able to make reductions in its price. I therefore decided in answer to Issue 8(6A) that there was a real chance that such reductions would have been made by Harmon: about 200,000 for the former and 300,000 for the latter "but larger reductions could have been made". It is difficult to say what further reductions would have occurred since the tender was subject to numerous qualifications, the resolution of which could well have affected the price, either way. In my view for present purposes it would be realistic to assume that there would have been no significant overall change. (This question does not require any deduction to be made on account of overhead costs that would have been incurred such as the cost of insurance as they were included in the contract price.) 28. Secondly, when would Harmon have been able to sign the contract? In paragraphs 127-132 of the judgment I decided that after November 1995 Seele/Alvis took advantage of its position as the favoured tenderer to conduct hard and protracted negotiations and I noted that LML was so concerned about the stance taken by Seele/Alvis that in February 1996 it seriously considered an alternative. Seele/Alvis got letters of intent in April 1996 but the contract was not made until May 1996 (see paragraphs 133-135 of the judgment). Part of Seele/Alvis' change of stance was brought about by H of C's failure to deliver what it had promised to tenderers. Harmon would undoubtedly have taken advantage of that. Mr Fernyhough rightly pointed out that part of the time was occupied with matters relevant only to Seele/Alvis' Option B2 and that any such time should be discounted since Harmon's tender was for Option A1. Furthermore as Harmon was keen to get the contract I do not consider that it would have negotiated as toughly and for as long as Seele/Alvis. In my view Harmon would probably have got a letter of intent and signed a contract some three months earlier. This allows sufficient time for negotiations including any amendment to the trade contract terms with respect to novated suppliers (see paragraph 224 of the judgment). 29. Thirdly, what would have been the probable programme for manufacture and erection? This topic was the subject of post-hearing written submissions. H of C submitted, with reason, that the case advanced by Harmon departed from the assumptions that underlay its assessment of the sums that might have been paid to it, namely that the progress of the work might have been similar to that followed by Seele/Alvis. However H of C questioned those assumptions and had to resort to additional documents to explain how Seele/Alvis' valuations were arrived at. Harmon did much the same in trying to construct the programme that might have been adopted by it, by the use of existing documentation and evidence. It did not rely on anything that was not available to H of C, such as additional witness statements whether of fact or opinion. I shall therefore consider its case although I shall of course bear in mind the limitations to which H of C drew attention. 30. I start where I left off. In paragraphs 229ff of my judgment I considered what Harmon's programme might have been. I said in part: "229. The original invitation to tender provided that the maximum overall duration of the works might be of the order of 172 weeks, since 103 weeks were allocated for off-site activities, and 69 weeks for on-site activities (see exhibit D2). Harmon tendered accordingly, allowing 53 weeks for manufacturing only but with a possible overlap with on-site activities, since the earliest and latest starts for the installation works were earlier than the earliest and latest finishes for the off-site manufacturing operations. On 2 October 1995 LML wrote to both Harmon and Seele/Alvis confirming points arising out of post tender meetings. In each of the letters LML stated: "The joint venture [sic, in the case of Harmon] were also requested to review the following programme information for the off-site activities, noting that all on-site activity durations remain constant but now start 1 November 1997 and the performance test is no longer on the critical path. (a) The assembly/manufacturing period for all windows is 1 October 1996 until 1 November 1997. (b) The sequence for assembly/manufacture of all windows is to be defined by package 4200 contractors. (c) All supply packages will be placed by 1 March 1996 and completed by 1 March 1997, components to suit the manufacturing sequence can be collected from the Suppliers from 1st October 1996". 230. When Harmon submitted its revised price on 12 October 1995, it included in its "total commercial savings" of nearly ,3 million a sum of 504,971 for "programme", to reflect the reduction in the period for window manufacture from 67 weeks to 56 weeks (i.e. between 1 October 1996 and 1 November 1997). 231. In the Seele/Alvis contract 89 weeks were allowed for off-site work from April 1996 to December 1998 with the start of the manufacture of windows commencing at the end of December 1996, and 70 weeks overall allowed for on-site work with an earlier start date of 1 August 1997 (later start 31 October 1997) and earliest finish, mid December 1997, (latest finish mid-March 1999). A further 16 weeks was however specified for a return to site to clean. This period had not previously been identified. 234. In my judgment it is clear by the time the Seele/Alvis contract was concluded, there had been a further significant reduction in the overall period which must have led to some savings in staff or overhead costs which were calculated on the overall duration of the project. It may well be that Mr Boyle's estimates were faulty but I am of the opinion that Harmon might well have been able to have allowed up to 200,000 if they had known of the reduction in the periods (overall and off-site) set out in the Seele/Alvis contract. ... Again H of C in negotiating solely with Seele/Alvis on a sensitive matter such a programming was in breach of its obligation to treat Harmon openly, fairly and equally in not inviting them to state what its portion might be. There is an obvious distinction between revisions to programming pre-contract (where the terms of contract and the incidence of risk and cost are yet to be agreed) and those post-contract (where the contract will define the apportionment of risk). " 31. Accordingly had Harmon been treated openly, fairly and equally (ie if H of C had met its obligations) then it would have been in a position to start off-site work from February 1996 and to have commenced manufacture in October 1996 (as envisaged by its October tender and as required by LML letter of October) with completion in November 1997, ie within 53 weeks (as set out on Harmon's programme at G11/127N). and within LML's requirements. It ought then to have been able to finish work on site in the first part of 1999. I do not accept Harmon's case that manufacturing might have begun in the Spring of 1996 as this makes no allowance for all that had to be done before manufacturing could start, and is contrary to Mr Boyle's evidence. H of C said that Seele/Alvis in fact commenced fabrication in December 1996, ie as contemplated by its contract and within the expected period of seven months (or 34 weeks) from the date of contract. It is thus feasible to assume that Harmon would have taken the same period. If its contract was made in February it is reasonable to conclude that it would have started manufacture about seven months later so October 1996 is a justifiable programme date which Harmon would have used. It also allows sufficient time for discussions with novated suppliers and all other preliminary and mobilisation matters, such as "tooling up". H of C said that time was also required for suppliers to be issued with drawings before they made their dies (which seems incontestable and which must have been considered by all who in 1995 prepared programmes and forecast dates) and that the dies were not available before October 1996. However if, as I find, the whole programme would have started earlier this fact (which in fairness to H of C I assume to be correct) does not mean that an earlier start might not have been achieved. 32. Fourthly, would Harmon have been able to achieve that programme? Of some consequence is H of C's case that Arup Facades Engineering (AFE) failed to produce working drawings in time for Seele/Alvis and used Microstation instead of Autocad, contrary to what tenderers had been led to believe and that in August 1996 the defaults of a supplier, Swissmetal Dornach, led to an extension of the 89 week off-site period to 98 weeks. Some of these matters appear to be the subject of valuations by the Construction Manager (eg ,100,000 for upgrade of drawings to AutoCAD by CMI 40/483) and have apparently been the subject of claims by Seele/Alvis although they are not obviously identifiable as such in the lists of claims considered by Mr Hay Davison and Mr Ashworth. Perhaps they have been lost in the evaluation of CMIs. Perhaps Seele/Alvis had their own difficulties. H of C also submitted that Seele/Alvis was let down by novated suppliers and was delayed by 10-12 weeks; that London Underground's Jubilee Line Extension continued to delay the project and led to an extension of the overall off-site period and to payment to Seele/Alvis of 740,000 on account of its claim for 1,643,887; and that there were delays and variations during the manufacturing period some of which led to claims by Seele/Alvis. The notes of the meeting of 14 January 2000 annexed to Mr Ashworth's report throw little light on the effect of any of these factors. It was recorded that Seele/Alvis had performed in accordance with the agreed programme and were scheduled to complete on time. Mr Roy Davis of Schal, the Construction Manager, said that "there was no delay (other than that caused by JLE) and the project was ahead of programme". I therefore conclude that, with the exception of the delay in commencement, none of the matters relied on by H of C actually delayed progress in accordance with the agreed programme so there is no reason to suppose that Harmon would have been delayed once work had started. However I shall assume that its start would have been delayed and that manufacture would not have started until December 1996, ie when Seele/Alvis began, and, adopting Mr Hay Davison's third report, that Harmon would have made a comparable claim and received about 687,000 in part payment of which 10% would have been for profit, following the project team's treatment of Seele/Alvis. 33. Fifthly, what might Harmon have been paid by 10 March 1998? This is relevant in establishing what Harmon's financial position might have been in early 1998. It is also part of Harmon's case that it would have retained profit from the payments that it received prior to the liquidation. The valuations made for Seele/Alvis have been used. They may be regarded as convenient yardsticks. Mr Ashworth has accepted for present purposes Mr Hay Davison's ratio of 0.9280442 since Harmon's contract price was lower (and was for a different scheme). It is therefore not very different and indeed Mr Ashworth's preferred ratio is closer to unity. The delayed start and other adjustments should have resulted in additions which would have brought Harmon's figure very close to Seele/Alvis' price, had the contract been properly and fairly administered. Valuation 24 in response to an application of 11 December 1997 was made on 14 January 1998 for 10,795,907 gross,10,600,796 net. On the assumption that valuations and payments would have been made on the same dates, Harmon would have received payment around 2 February. (Payment cycles were about 35 days.) The applications for valuation 25 were made on 30 January and 6 February. The valuation was dated 11 February and it is assumed that it would not have been paid before 12 March: 13,980,745 gross, 13,668,738 net. Valuation 26 was however made on 12 March:15,581,946 gross, 15,500,357 net. There are substantial differences between the valuations which were apparently due to a relaxation of the requirement that only completed panels could be valued. H of C contend that the relevant valuation is no 24 as valuation was not paid before the liquidation. The effect is that Harmon do not get credit for nearly 3 million. I find this point artificial and unrealistic. It appears to take advantage of delay in giving effect to a proposal for a relaxation which had been discussed since in the middle of 1997. It is also based on a rate of progress which is slower than that which in my view Harmon would have achieved. In my view it would be fairer and more realistic to assume that some 13.7 million (ie Valuation 25) would have been received by Harmon by 12 March 1998. In addition Mr Burton in Appendix 6 to his report shows that the valuation and payment regime under the Seele/Alvis trade contract was not followed in practice so I cannot be satisfied that there would have been a similar departure had Harmon been awarded the trade contract. At this point I should say that I do not accept Harmon's calculation of the element that might be referable to currency gains in valuations assumed to have been made around this time which appear to assume that the total valuation would have represented expenditure in FF bought forward which is a questionable assumption. It also takes no account of the effect of advance payments which would have been about 4 million. 34. Sixthly, how much might then have been retained by Harmon as profit? I have no doubt that the points made by Mr Ashworth are telling. Harmon would have received an advance payment but how that might have applied is at present anybody's guess. Harmon would have incurred substantial costs in setting up and carrying out the contract. It is impossible to say how they would have been treated. Who would have paid for the factory at Pinon to be upgraded and how would that cost have been found? How would it have been recovered by payments under the contract? Would the costs have been less than revenue? These questions are not answered. H of C plausibly suggested that Appendix L to Mr Hay Davison's fourth statement showed that Harmon could have needed at least 2.6 million for setting-up costs alone. Mr Ashworth fairly pointed that "front end loading" might cover such costs but there is no evidence of its existence. There was evidence of substantial reductions being made at tender stage in Harmon's prices which raises the question of how Harmon would have achieved the positive cash flow postulated by Mr Hay Davison's analysis and by its case, but which requires additional evidence to sustain it. For example some evidence is needed to show that Harmon's estimates for provisional amounts or amounts which were reduced by management during the tendering period (and about which the estimators were not consulted) would not have been seriously vitiated. Similarly, like Mr Ashworth, I found unrealistic and implausible Mr Hay Davison's projection (endorsed by Mr Burton) that Harmon would have recovered the proportion that profit and overheads bore to cost on the assumptions that such on-costs and profit would have been spread evenly over the rates (itself a not unreasonable working assumption) and that, as the work proceeded, Harmon's costs would have been met in full from revenue based on such rates. Mr Burton is no doubt right to say that margin is "booked" in this way, but I am not concerned with how profit or margin might be treated in management or year-end accounts, but with whether at a given point it is possible to say with some degree of certainty that Harmon had received an amount which was both greater than its actual expenditure and liabilities so that it was, as it were, proof against claims against Harmon or losses incurred by Harmon, and that it truly represents profit which would be used to benefit its shareholders, eg by defraying debt. 35. Seele/Alvis apparently had a negative cash flow. This does not prove that Harmon would have been in the same position but it makes it difficult for it to rely on the experience of Seele/Alvis as useful comparator to show that there would have been retained profit. If anything the treatment of Seele/Alvis shows that it had incurred substantial untoward expenditure as a result of CMIs, defaults by H of C, eg by AFE or others for whom H of C was responsible, and that, as is unfortunately all too common, reimbursement was not prompt, so that any margin that might have been recovered would have been mopped up, at that stage, by cost overruns. (I do not however follow Mr Ashworth in believing that when a contractor does not get paid the amount of a claim in full the shortfall both exists as a tangible loss and has to be borne from margin, even if it had been presented on the basis of "cost.) Furthermore in my experience few contractors count on (still less publicly declare) a profit until completion at the earliest, such are the hazards of contracting. That is not to say that Harmon would not have made a profit (and might indeed have done so in March 1998) but I cannot reach such a conclusion even if I were to take a liberal view of the present evidence. For reasons which I shall come to later the fact that its directors' expected margins did not materialise does not mean that they were not achievable. However for the purposes of the present application I am not satisfied that I can conclude that Harmon had in March 1998 made or retained any profit. It may have done so but I decline to make such a finding. Harmon's second and third bases of claim are therefore not made out. The Liquidation 36. H of C submitted that Harmon would have gone into liquidation on 10 March 1998; Harmon's case was that it would not have done so. The evidence of Mr Deckman set out the principal facts. From March 1997 to June 1999 Mr Deckman was President of Apogee's Building Products and Services Divisions and President of most of the subsidiary companies operating in those fields, including Harmon Ltd and Harmon Contract Inc which is or was the largest shareholder of Harmon Europe SA, which in turn was the parent company of Harmon, the claimant. He was directly responsible to the Chairman of the Board of Directors for Apogee's investments in Harmon Europe and directly advised Apogee's Board about Apogee's funding of Harmon Europe. He is now an Executive Vice-President of Apogee Enterprises Inc and in that or other capacities is responsible for 11 of Apogee's subsidiaries with a total annual turnover of about $385 million. He is an engineer by profession and his approach was business-oriented. His evidence appealed to me as being practical and realistic, even though his first statement did not cover all the ground that it should have done. His second statement was however rather more specific and more helpful. 37. Before looking at parts of Mr Deckman's evidence it may be useful to quote from a document upon which H of C relied, namely the liquidator's history and directors' statement of affairs as at March 1998 in which the following appeared (according to Mr Deckman written by Mr Normand Saucier, a director with good knowledge of the business): "During this period [1995-1997] the company made losses on almost every contract due to a combination of poor bidding practices, project management, financial control and the fact that the management of the company was based in France with no dedicated UK management teams. In addition, the company began to suffer from poor relationships with its clients. At a board meeting in June 1997 the directors voted to replace the managing director Gabriel Sahyoun with Normand Saucier. The company then put in place a senior management team in the UK. The new managing director concentrated on improving the company's reputation with its clients and the management team, which now included quantity surveyors, commenced the improvement of the company's bid process for new work. A new finance team was also put in place in France to assist the UK operation. The company also attempted to recruit a sales manager in the UK. " At a Board Meeting on 25 July 1997 Mr Deckman explained that the best course of action was "to rationalise operations in Europe by consolidating manufacturing operations, reducing workforce to "right-size" such operations for expected future business, improve project bidding, estimation, management and scheduling abilities and refocus on the higher margin, more plentiful business opportunities in the United Kingdom." The Board resolved to proceed with the development of a restructuring plan which at a cost of between $11 million to $16 million would curtail activities in Asia and Europe but would not eliminate them. There was a further discussion on this plan at a Board Meeting on 10 October 1997 at which it was minuted that Mr Deckman and Mr Saucier "noted that the strategy contemplated a much downsized and profitable operation". On 9 January 1998 an all-day Board Meeting was held (but not at Apogee's headquarters) at which decisions were taken in the light of extensive discussions that had taken place the previous day. It appears that the independent directors decided that the company had to stop losing money on its overseas curtainwall operations. (The report of Mr Lee fully confirms that Apogee's losses were great and continued until 1999.) The Board also received a report from the Audit Committee on "European audit matters". Mr Deckman said that the financial state of Harmon Europe and its subsidiaries led to its auditors (KPMG) formally to start in January 1998 the "procédure d'alerte" in respect of those companies whereby auditors are obliged under French law first to notify the company if at any time they question the company's ability to continue trading as a going concern and, then, if the company does not heed the warning, to call upon the chairman of the board to convene a board meeting, with the possibility that the Tribunal du Commerce might also be informed either then or thereafter, depending on the company's action or inaction. The auditors told Harmon Europe that they would stop the procedure if (1) Apogee's loans of $20 million were cancelled or made subject to a moratorium; (2) Apogee guaranteed funding until the end of December 1998; (3) a detailed business plan for the UK was produced to show the projects and profits (action which Mr Deckman said would be in accordance with Apogee's policy). Since no business case could be made for supporting the whole European group it was decided to withdraw support. Mr Deckman said that consideration was given to supporting Harmon (the claimant) independently but that course was not pursued. He recommended to Apogee's Board on 16 February 1998 that support should be withdrawn and the Board accepted his recommendation. Accordingly on 25 February 1998 the Board of Harmon, including Mr Deckman, decided to place the company in creditors' voluntary liquidation. This decision was reached without the assent of Mr Paul Sahyoun or Mr Gabriel Sahyoun and after long debate, some of it highly critical. It was recorded that margins of 18% were attainable on future contracts. (I think that this figure is more reliable than Mr Deckman's suggestion of 35%.) There is little doubt that the margins on completed contracts were less or non-existent. There was however no other option open to the directors as no offer was made to provide even short-term funding or to acquire the business. (The directors' decision to wind up Harmon was inevitably approved by a meeting of the shareholders.) 38. The minutes of that meeting show something of the financial position of Harmon. It was not good. It was only able to trade with the support of Apogee. It owed 8.6 million to Harmon Europe. Its management accounts for November 1997 showed a 4.8 million deficit, excluding 4 million due to it from SmithKline Beecham. As a result of Harmon's challenge to the award of the fenestration contract to Seele/Alvis, Laing Morrison-Knudsen (in which LML had an interest) had ceased to consider Harmon's claims on its contract for SmithKline Beecham's research project at Harlow so its final account had not been agreed, even though the project had been completed in 1996. The contract sum had been about 6.6 million. Similar difficulties were being experienced by Harmon in getting recognition by Laings of its claims for acceleration and for payment on its contract for Scottish Widows' Insurance Co in Edinburgh. The contract sum was about 7.9 million of which 6.9 million had been paid by early February but no allowance had been made for claims about 1.5 million and Laings had deducted substantial amounts on account of its own charges and other set-offs. (The minutes of the February 1998 reported it to be loss-making.) Mr Deckman's attempts to resolve the position by contacting Mr Aikenhead of Laings were unproductive. Both these contracts had been made before Harmon tendered for the NPB. Harmon had comparable problems on another contract for Daiwa House in Wood Street, London, where the management contractor was joint venture one of whose members was Laings. This contract was reported as profitable. Ultimately it was preserved by transfer to Rinaldi Structural (which acquired Harmon Sitraco SA - see below.) Thus Laings were involved in Harmon's three main contracts. Mr Deckman made no bones about Laings' treatment of Harmon which he described as getting "progressively worse throughout 1997". According to him Harmon had been black-balled in the UK. (I return to this topic later.) Mr Deckman said that the reference in the liquidator's history and directors' statement of affairs to Harmon suffering from "poor relationships with its clients" was a reference to Laings. Laings' animosity towards Harmon apparently eased on its liquidation since Mr Burton said that Mr Zelly (who was named as Construction Manager in the NPB trade contract) was constructive in finding a practical and commercial solution towards the completion of the Daiwa contract. Mr Burton therefore thought that LML would have acted in the same way had Harmon gone into liquidation during the course of carrying out the NPB contract. 39. I find it very difficult to conclude that if Harmon had been awarded the contract it would nonetheless have gone into liquidation. First, the NPB contract would apparently have been profitable (as was that for Daiwa House), even though it would have fallen within the era when, according to Mr Saucier, Harmon's business was not well managed. Nevertheless there were exceptions, such as Daiwa House. Whatever reservations I have about reaching a conclusion that Harmon would have pocketed a substantial sum as retained profit by March 1998, I do not consider that H of C has shown that the margin for risk and profit of between 4.5 and 5.4 million (which I have found to exist) would have been eroded significantly had Harmon completed the contract. I later set out the figure which I believe should be used, but at this stage it is worth emphasising that Harmon would have gained from the movement of /FF exchange rate from FF 8: (upon which the tender had been based) towards FF10:1 and which in my view would ultimately have produced an additional profit of at least 1.5 million (using H of C's figures). 40. Secondly, Harmon would not have been suffering from the effect of being black-balled by Laings. In my judgment I found that Mr Boyle had had conversations in July 1996 with Mr Tony Aikenhead, the Joint Managing Director of LML, and with Mr Ron Kerr, an Associate Director of LML in which he had been told that starting these proceedings "would do irreparable damage to Harmon going as far as to say that Harmon would never work in the UK again. I asked Ron why Laing was so concerned especially in light of the fact that they are not a defendant in the suit. Ron responded by saying that it was their Client. Ron called back at approximately 11:30 a.m. CET. Ron reiterated statements from this morning. Ron told me that our Variation Account on SmithKline Beecham will be adversely affected by our actions and to quote him "all bets are off." Ron suggested that SmithKline Beecham will now be resolved legally and could as a result thereof take 2 years to resolve. I told Ron that I understood from both him and Tony Aikenhead that the two projects were separate and not linked in any form or fashion. Ron said that the two projects are not directly linked but, indirectly they are. Indicated that it will also impact what we are doing on Daiwa and Scottish Widows. Ron related the British Government to the Mafia and said they have their own rules. I asked him why even have a judicial system to which he responded the need exists but it does not apply to the Government. Ron told me it was obvious that Harmon did not understand the way the Good Old Boys in the UK worked." On the evidence before me it is clear that the threats made to Mr Boyle by LML in July 1996 were not empty ones. Harmon should have been a viable company but after it sought to question the way it which it was treated by H of C (and by implication by LML) its cash flow on three contracts where a Laing company was involved was seriously retarded. Mr Deckman said in both his statements that the UK business could have been turned round by the end of 1998 and that he was prepared to support it at least until the end of the project for the NPB. If that were the case, even when as a result of the decision to bring these proceedings it had not secured its expected return from a number of its principal contracts, then I consider that, if those adverse features had been absent, the company's prospects should have been secure. It should be recalled, first, that the 1997 review of Apogee's operations had emphasised the "more plentiful business opportunities in the United Kingdom" which would make it worthwhile continuing. Secondly, the facts that Apogee has been released from bonds worth 7 million and has not had to make payment under any of the remaining bonds that it had given for contracts in the United Kingdom (ie about 1.5 million) suggest strongly to me that, although the contracts may not have been profitable Harmon's liquidation did not lead to a net deficiency on any of its principal contracts. 41. Thirdly, by that stage, although the valuation of the work was around half the contract price the actual cost of completion would not have been very great. When set against the parent company guarantee most companies would have tried to find a way out of the crisis. (Under the trade contract Apogee would have given a bond.) The major problem would have been to secure the continued existence of Sitraco upon which company Harmon was completely dependent. (The panels were to be fabricated or finished at the factory of Harmon Sitraco SA at Pinon, 02320 Anizly le Chateau, France.) However Mr Deckman and Mr Lee exhibited Sitraco's accounts which showed that in the financial years ending February 1996 and 1997 although its operations had been running at a modest loss the French companies as a group had made small operating profits in 1995 and 1996 before making a loss of FF 162 million in 1997 (on a much reduced turnover as compared with the previous years). (The impact on Apogee of 1997 was assessed by Mr Lee to be about $35 million.) A report from KPMG dated 7 April 1997 however suggested that Harmon Europe made a net loss of FF 52.6 million in the year ending 28 February 1997 attributable to "acute competition for contracts, pressure on margins (2% in 1997 compared to 9% in 1996 and 19% in 1995), negative margins due to high costs on specific contracts such as Pompidou Hospital (FF 6 million), curtainwall for the E31 boat (FF 10.4 million), Astra (F33 million), MGEN (FF 2.6 million), Hinxton (FF 4.5 million), Manchester (FF 3 million) and deferred margins on certain projects due to client delay such as Daiwa and Scottish Widows." I note that the bulk of the losses were not incurred by Harmon, although later KPMG say that the net loss in the year ending February 1997 of FF 52.6 was mainly produced by Harmon, even the amount was FF 7.3. KPMG also reported that the group's increase in turnover of 15% was due to Harmon's contracts in this country. I do not pay much attention to the figures for work in progress as they were not only out of date in February 1998 but they require elaboration. If Sitraco had had the benefit of the NPB work (whether at FF 17.5 million or a higher figure) it would have doubled its annual turnover and its financial position ought to have been much better. Even after March 1998 Sitraco was not put into liquidation but administration and funded by Apogee until a buyer was found for it. I consider that Mr Deckman's opinion is very probably correct. If Sitraco had still been trading Harmon would have been able to complete the NPB (and other important projects) and thus Apogee would have supported it. Alternatively Harmon's business would have been acquired by some one else, as happened to enable the contract for Daiwa House to be completed. I regard this event as particularly telling. The NPB contract would have been even more important than that for Daiwa House. As the latter was saved then I am sure that completion of the NPB contract would also have been secured. It also shows that Harmon was at least in part commercially viable. H of C suggested that Harmon's case could only be sustained if Rinaldi had been asked to affirm that it would have come to the rescue of the NPB contract. There are numerous loose ends which in due course may have to be tied down but I do not consider that such evidence is essential to determine the present application as sufficient is available to arrive at a reasonably informed opinion about Harmon's position. 42. H of C correctly said that if Harmon had gone into voluntary liquidation or if an administration order had been made (if a receiver or administrative receiver had been appointed) then under clause 17.2 of the trade contact its employment would have automatically determined. Under clause 18 the consequences included that no further payments would be made until the works had been completed by others and (I summarise) that the amount of any losses caused to H of C had been ascertained and any set-off had been satisfied. I do not consider that those responsible for Harmon would have run such a risk. First, not only was the contract profitable but it would have been necessary to complete it in order to realise that profit. The fabrication would have been far advanced and Mr Deckman's evidence satisfies me that, as I have already noted, Sitraco would have been able to finish its part. The costs of completing the contract need not have been large (for example, I accepted in paragraph 285 of my judgment that Harmon's estimate of FF 2,500,000 for the costs of erection was reasonable and within the amount likely to be paid to a sub-contractor in London.) Completion of the work would be very important to the reputation of Harmon even if the business were to be disposed of so I would expect that funding would have been found. I therefore accept Mr Deckman's view that Apogee would have supported Harmon until completion of the trade contract either because it would have fitted well with Apogee's construction business or to enable it to be disposed of. Apogee had an additional interest as it was liable under the parent guarantee for any loss to H of C that could not be recovered from payments due to Harmon or from Harmon. The project has been very much in the public eye both literally and figuratively so the risk of further delay would in my view have led to the usual steps taken by an employer if it were necessary to assist a contractor in financial difficulties but which was otherwise capable of finishing the work, eg a sympathetic attitude to valuations and possibly further advance payments. 43. Even if there had been a determination of Harmon's employment (probably as a result of the need to appoint an administrator) clause 17 provides for it to be reinstated. Mr Burton provides good reasons (which I accept) why the NPB contract would have been combined with the Daiwa contract (and another contract) and completed by a third party by novation with H of C. In the circumstances that is a course which I consider would have been adopted. Sitraco would have continued as supplier. It is however fair to point out that such a course would probably not have been followed if H of C had other means of being assured of the supply of the remaining pieces of the fenestration. At present I cannot see that H of C would have secured such source in time and on terms that would have made the preferred option. Clause 19.6 might have enabled H of C to obtain the novation to it of Harmon's supply and sub-contracts (eg for erection), although in practice novation is not always easy to achieve where, for example, the supplier or sub-contractor is unpaid. However even if this course were not followed and H of C had to find another trade contractor I do not consider that there would in fact have been any significant delay to the overall completion of the project since erection was not to start until October 1998 so there was plenty of time to make alternative arrangements. 44. Mr Fernyhough suggested that, even if Harmon had been put into liquidation, it was likely that there could not have been any counterclaim by H of C. Despite the very plausible assessment made by Mr Burton I do not consider that I can make such a finding. Even if some arrangement had been made to enable the trade contract to be reinstated or otherwise continued it does not follow that there might not have been a claim on Harmon which would have meant that Harmon had no retained profit as at March 1998. If I cannot make a finding about the extent to which at that date Harmon might had an amount by way of notionally distributable profit I cannot say that it would been unaffected by any claim that H of C might have had. In addition there are too many imponderables and variations on the basic scenarios which I have been asked to consider to be able to say that H of C could not have had a claim so that any claim for retained profit would not have been wiped out. It is not necessary for H of C to construct possible quantified series of claims as it is for Harmon to establish a case under Rule 25.7. On the other hand the absence of a quantified hypothetical claim means that H of C would have had to accept that any assessment might have been in Harmon's favour, for example in determining the damages or the reasonable proportion which was to be the subject of an interim payment. However these points are not now relevant since I have come to the conclusion that Harmon would not have gone into liquidation. I need not therefore consider further H of C's case on its possible set-offs or counterclaims. 45. I return to the first basis of claim. I do not accept and I shall not pursue Mr Hay Davison's recalculation of the gross margin in the tender. Mr Hay Davison started with a figure of 11,724,653 to arrive at 13,692,495 which he then adjusted and so came to 12,003,115 (see Appendix G to his third report). He included contribution towards overheads the loss of which Harmon is entitled to recover (see, for example, paragraph 336 of the judgment) but it requires considerable work to isolate the overhead expenditure which would have only been incurred if the contract had been awarded and which therefore has to be deducted. In paragraph 314 of the judgment I indicated what was needed. Mr Fernyhough accepted that this would have to be proved. It has not in my view yet been done or done satisfactorily. Furthermore the figure which I had deducted for general overheads was of the order of 3,321,375 (see paragraph 293 of the judgment). I decided that the true figure should be 5,446,431 for the reasons set out in the judgment and summarised in paragraph 294. In addition Harmon's application notice does not claim loss of contribution to overhead which is not the same as loss of gross margin (although it might be included in it depending on the definitions used) and needs to be specifically identified. Moreover Mr Hay Davison's calculation varies some of the deductions that I made, notably that for 1.25 million commission to Mr Laithwaite's shadowy concern, OMC. I do not consider that I should attempt to base a decision on this calculation of Mr Hay Davison, although his analysis remains of value for other purposes. I prefer to start with either of the figures that I arrived at, ie those which were used in the fourth basis of claim. On a conservative basis I shall use the lower - 4.5 million. It allows fully for all the reductions identified in my earlier judgment (with room for more). It may well be that a higher figure should be used as the base. 46. How much of that approximate figure would have survived at the end of the contract? Harmon tendered on the basis that its prices were based on an exchange rate of 1 ? FF 8. It was not the subject of discussion during the tender negotiations when LML sought to reduce the prices put forward by the tenderers, nor was it necessary for me to decide at the trial whether some allowance should be made in arriving at Harmon's gross margin for the possibility that this rate would change (apart from an issue about the amount to be allowed for currency hedge - FF 1,000,000 = 125,000 - and leaving aside the fact that some of the alternatives put forward by Harmon, if pursued, might have led to discussion about currency rates). I understood H of C to accept Mr Boyle's evidence in cross-examination that Harmon "qualified [its tender] on the basis of currency at the date of award, that it had to be at a fixed rate, and then we would buy futures going forward to protect the contract". This is consistent with Apogee's policy as set out in its financial statements quoted by Mr Ashworth, and I accept that evidence. Mr Boyle later said in re-examination that if Harmon had been awarded the contract its gross margin would have increased since the rate was now FF 10 to 1. Thus Mr Hay Davison considered that Harmon would have gained an additional 2,382,971 had it seen the contract through to completion, assuming of course that it had bought futures to cover the FF element of the price which he took as some 13 million. Mr Ashworth disagreed with Mr Hay Davison's estimate for a number of reasons. Mr Ashworth reasonably disagreed with the assumption that the rate would have been FF10 = 1 throughout and took a weighted average of FF 9.39 = 1 and applied it to the payments made to Seele/Alvis. This produced a figure of 1,450,072 which I consider is more realistic and which I shall therefore use. (Mr Hay Davison also took no account of payments in sterling.) Seele/Alvis would also have been affected by changes in exchange rates but no adjustment of its prices was sought or made in the negotiations leading up to the signing of its trade contract in 1996, perhaps because Mr Makepeace thought that there was nothing to discuss. 47. Both Mr Ashworth and Mr Hay Davison assumed that there would be a net reduction in margin of 140,358 on account of specified suppliers (deduct provisional sums representing margin of 475,250; add back 334,892 = 140,358.) Mr Hay Davison took the figure for variations from the Cost Report provided to Harmon and worked on the assumption that there would have been variations of about 4,130,174. Mr Hay Davison thought that the element for margin should be 1,773,141 whereas Mr Ashworth thought that the figure should be related to the margin to be derived from either Mr Boyle's estimate (17.89%) or Mr Hay Davison's (20.73%). However he pointed out both have been affected by the currency adjustment. I consider that it would be safer to use the norm of 15% to which I referred in paragraph 294 of the judgment as we are here dealing with the element for profit on variations the valuation of which necessarily comprehends whether or not a risk has occurred. Accordingly I would allow 619,526 (15% of 4,130,174). Both Mr Hay Davison and Mr Ashworth took the view that Seele/Alvis was not likely to recover its actual costs in respect of most of claims and that the net shortfall would have to set against margin ( 1.5 million in case of Mr Hay Davison and just over 3 million in the case of Mr Ashworth). It is not possible for me to decide each item that either considered. I am however not willing to accept Mr Ashworth's figure since, as I have said, that appears to assume that when Seele/Alvis made a claim it warranted that it had incurred the costs claimed. Mr Hay Davison commented that Seele/Alvis is not backward in coming forward with claims for additional money. I have no means of telling whether that is right but I do not consider that I should assess Harmon's margin by reference to claims that costs have been supposedly incurred by another contractor who adopted a tough stance in pre-contract negotiations and who is not likely to have understated its costs. I think that it would be fair to take Mr Hay Davison's figure of 1.5 million. 48. Summarised, the likely recoverable margin would be therefore be (taking the lower of the two figures that I used): Item Margin 1. Base 4,500,000 2. Provisional Sums (140,358) 3. Variations 619,526 4. Claims (1,500,000) 5. Currency 1,450,072 6. Total 4,929,240 49. In view of the further work that has to be done that sum cannot be treated as the amount of the likely amount of the final judgment for the purposes of Rule 25.7(4). However I have already made allowance for the possibility of resulting movement in using the bottom end of the bracket of my two base figures. I have also excluded factors which should increase the margin. Harmon may well be able to achieve a higher figure even if the heights envisaged by Mr Hay Davison are not reached. In my judgment in these circumstances I do not consider that the adjustments would be more than 25% of 4,929,240 so the amount of the final judgment should not be less than 3,696,930. 50. In my judgment I decided in answer to Issue 26(b) and (c) that Harmon could recover loss of gross margin earned by other companies in the same group. My conclusions include the continuation of Sitraco. It is not possible to determine the amount referable to a company that might have fallen by the wayside in 1998. In any event it would be necessary to establish that the amount of such margin was insufficient to offset any costs of overcoming that company's failure. This point is typical of those that should be borne in mind in deciding a reasonable proportion. 51. Accordingly, on Harmon's first basis of claim I conclude that had Harmon been awarded the contract it would not have gone into liquidation and would have made a profit of about 3.7 million, on the assumption that the pattern of the performance of that contract followed much the same course as has Seele/Alvis. The findings that lead to this conclusion are equally applicable to the fourth basis of claim in so far as it starts with 5.4 million. The exercises carried out by both parties satisfy me that it is possible even at this stage to arrive at a tenable estimate of the likely outcome. I find myself in a position directly comparable to that described by Sir Nicolas Browne-Wilkinson V-C in British and Commonwealth Holdings plc v Quadrex Holdings Inc [1989] QB 842 at page 866. The fact that the matters raised by H of C would entitle it to conditional leave to defend does not mean that I am not sure that Harmon will ultimately recover a substantial amount. The figure of 3.7 million represents quite a high realised margin and is of course open to the comment that it is no more than an guesstimate. A number of the ancillary assumptions need to be examined further and working out a notional final account and establishing Harmon's actual costs may demonstrate that Harmon might have made losses that must be set against the margin or it may show that Harmon would have done better than its original estimates and would have enhanced its margin. The fact that this work has yet to be done does not in my view prevent me from arriving at an informed judgment. 52. I am firmly of the view that Harmon has a realistic prospect of success or is bound to recover one-third of this amount, ie 1,232,310 - which would represent a more realistic realised margin related to those anticipated at the time of Harmon's demise for contracts then current but which is less than the amount of the currency adjustment. It thus might signify that the contract would otherwise have been loss-making. Since Harmon prices were not markedly out of line with those of its competitors I doubt very much if they were all intent on buying the fenestration contract for the NPB. In addition to an interim payment of 100% of 1232,310 it would thus also be right to award a reasonable proportion of the balance of 2,464,620. Here however I bear particularly in mind the possibility of irrecoverability, as well as the possibility that my findings may not be right in whole or in part, and the need to investigate many matters, such as loss of contribution to overhead. I therefore consider that Harmon should be paid only 25% of the balance, namely 616,155. On the first and fourth bases of claim Harmon is therefore entitled to an interim payment of 1,848,466. Since this figure represents the amount which I believe to be sensible to award and which I am reasonably certain will prove not to be recoverable I shall not make payment subject to an condition or guarantee of repayment. 53. There will be no order on the second and third bases of claim for the reasons that I have given. 54. The fifth basis of claim is for "loss of a chance" of not getting the contract for Option B2 and realising a profit on it. I accept Harmon's submission that this claim crystallised before the liquidation and is not affected by it and thus, contrary to Mr White's suggestion, it does not need not be further discounted on that ground nor do the ramifications of Harmon's financial position, and the possibility that it might go into liquidation, need to be taken into account. The risk of liquidation or any financial failure, although extreme, is one of the hazards of contracting to which Mr Fernyhough referred and which I accepted in deciding that in assessing the damages for the lost "chance" (albeit not dependent on the action of a third party) there should be a reduction for such hazards. Financial failure may be brought about by factors beyond the immediate control of the company involved, eg by the collapse of a third party or by economic circumstances, eg a crash. It has therefore already been discounted in the 50% factor that I applied in paragraph 320 of the judgment in the partial evaluation of the 70% chance that Harmon had of being awarded the contract, ie a quantification of what is truly a question of probability: see the judgment of Stuart-Smith LJ in Allied Maples v Simmons & Simmons [1995] 1 WLR 1602 at page 1614D quoted in paragraph 319 of my judgment. However, even where the damages to be assessed are for such a loss, a determination of its amount has to take account of events that have occurred by the date of trial and which would not fall within the risks of contracting. Currency movement plainly does, as does the possibility of not being able to recover the full cost of variations and events which give rise to claims. In addition, unlike the other bases of claim, this basis presupposes a contract for Option B2, so the experience of Seele/Alvis is not relevant (unless perhaps the events encountered by it were particularly untoward). Accordingly the base to which the 35% applies will be 4,500,000 (since I do not agree with Mr Hay Davison's figure of 13,692,495) less the net adjustment on provisional sums ( 140,658) plus the profit in recognised variations ( 619,526) = 4,979,168. Harmon is therefore entitled to 35% of 4,979,168 = 1,742,708. Since the percentage reduction of 50% already takes account of some of the factors which affected my decisions on the first and fourth bases a reasonable proportion would be 75% (as suggested at one stage by Mr Fernyhough), ie 1,307,031. 55. There will therefore be an order that H of C make an interim payment to Harmon of 1,848,456. The other amounts to which Harmon is entitled are alternative and do not require an order. © 2000 Crown Copyright BAILII: Copyright Policy | Disclaimers | Privacy Policy | Feedback | Donate to BAILII URL: https://www.bailii.org/ew/cases/EWHC/TCC/2000/84.html