Energy Works (Hull) Limited v MW High Tech Projects UK Limited [2020] EWHC 2537 (TCC)

Rights of a Main Contractor Against a Sub-contractor after Assignment of the Sub-contract to the Purchaser

Case Summary

The claim arose out of a contract between Energy Works (Hull) Limited (“EWHL”) and MW High Tech Projects UK Limited (“MW”) whereby MW was engaged as the main contractor under an EPC Contract. MW engaged Outotec (USA) Inc (“Outotec”) as a sub-contractor. Outotec executed a deed of collateral warranty in favour of EWHL.

Mrs Justice O’Farrell handed down judgment on two preliminary issues:

  • the legal effect of an assignment by MW to EWHL of MW’s sub-contract with Outotec; and
  • whether MW can pursue its claims for contribution against Outotec as direct claims, in respect of accrued rights under the sub-contract, or based on its liability for “the same damage” pursuant to the Civil Liability (Contribution) Act 1978 (“the 1978 Act”).
In respect of the assignment of the sub-contract, the court held that MW did not retain the benefit of rights under the sub-contract and hence it would not be able to pursue a direct claim against Outotec under the sub-contract. The assignment was not a novation, which MW had suggested to the court, because both the benefit and burden had not been transferred.

In respect of the claims for contribution, the court held that for two of the claims the damage was “the same damage” pursuant to the 1978 Act, but not so for the other claim which must fail because Outotec owed no obligation to EWHL under the sub-contract or warranty for that particular head of loss.

The Judgment can be accessed here.

Advice for Drafting Assignment Clauses

The usual meaning of "assignment" is that when invoked, the benefit but not the burden of the contract is transferred. This includes future and accrued rights. If parties intend to separate future and accrued rights for the purpose of the assignment then it is advisable to clearly set out this intention in both the main contract and the sub-contract. This may include limiting which rights can be assigned. Mrs Justice O'Farrell eluded to this possibility at paragraph 69 of the judgment.

Advice before Pursuing a Contribution Claim

Section 1(1) of the 1978 Act provides as follows:

“Subject to the following provisions of this section, any person liable in respect of any damage suffered by another person may recover contribution from any other person liable in respect of the same damage (whether jointly with him or otherwise).”

When determining whether section 1(1) is satisfied, the court requires liability of the defendant to be established. At paragraph 144 of the judgment Mrs Justice O'Farrell stated that:

"A “but for” analysis is not sufficient to establish a claim."

Once liability has been established then provided the liability is shared for at least some of the same damage, the claim will not fail if one party is solely responsible for part of the damage.

Authored by Michael Dickin