§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. R. Chichester-Clark.]
§ 8.29 p.m.
§ Mr. W. T. Aitken (Bury St. Edmunds)
I am grateful for this opportunity of raising the case of Mr. Harvey Frost, who is head of a well-known and reputable firm of builders in Bury St. Edmunds. In July, 1951, Mr. Frost entered into a contract for the reconstruction of the West Suffolk Hospital which had been severely damaged by fire in 1949.
In July, 1951, Mr. Frost started his reconstruction work. For many years Mr. Frost's firm had carried out most of the expansion programme of this very well-known and highly efficient hospital, but the task of reconstruction turned out to be a very lengthy and difficult job, partly because of the necessity of doing reconstruction whilst part of the hospital was still in use, but also because as the work proceeded the contractors found that the foundations of the external walls had been badly built by the original builders over 100 years ago. The foundations and the load-bearing cavity walls of the hospital were quite inadequate to support the weight of the new construction.
For this reason, and perhaps because the hospital authorities had rushed ahead a little with the reconstruction, in other words, because the architectural planning had not been properly done, a large number of variation orders had to be issued. But the work was finally completed in the spring of 1955. At that time, after many interim payments had been made, the East Anglian Hospital Board owed Mr. Frost about £17,000. It was quite clear to Mr. Frost and his advisers at that time that there would be considerable delay in obtaining the whole of this final payment from the Hospital Board.
305 To avoid the possibility of having recourse to full-scale arbitration, which is always provided for in this kind of contract but is a lengthy and expensive business especially for a person who loses the arbitration, Mr. Frost invoked part of the clause which compels hospital authorities to bring out a final bill for variation. The reason why he wanted the bill to be made out as quickly as possible was that he realised that the architect employed by the Hospital Board, who was responsible for the final bill, had issued so many variation orders in the course of reconstruction work that it was obvious that the task of preparing the bill would be a very complicated and involved one.
It turned out to be so, because the small architectural staff of the hospital found it a task quite beyond their powers. Two years later, therefore, the final bill had not been completed and the West Suffolk Regional Hospital Board called in an outside firm of quantity surveyors to prepare this bill. Mr. Frost, realising that this was an expensive matter for the Board, offered to settle on a basis which would be very much in line with the original competitive nature of the contract. The Board agreed to his suggestion and Colonel Ackland, an eminent local quantity surveyor, who, I am sorry to say, has since died, was specially appointed by the Board to produce a figure for settlement.
Colonel Ackland produced his report in October, 1957, and in it he proposed that Mr. Frost should be paid, in addition to the amounts already paid to him, a sum of about £9,000. Mr. Frost agreed to accept this settlement, subject to the inclusion of an interest payment on the money which had been so long overdue to him. In fact, this sum of £9.000, plus the accrued interest, was almost exactly what Mr. Frost had estimated to the quantity surveyor as the amount due to him., because it was only at that time that he had seen the final bill for variations.
The Board proposed that Colonel Ackland should make a separate report on making interest payments on sums overdue to Mr. Frost. In this report, Colonel Ackland advised that the interest at the rate he specified should be 306 accepted by the Board as part of the agreed settlement.
It is clear from the correspondence between the Board and Mr. Frost's solicitors that the Board was prepared to include an interest payment. The amount, by this time, had reached £1,900. Under the several limitations of expenditure which are imposed on hospital boards by the Ministry of Health, permission must first be sought to make such payments, particularly one like this, so that the Board, having admitted the liability to pay interest as part of the settlement with Mr. Frost, quite properly sought permission from the Ministry of Health to make the payment.
The Ministry of Health refused its permission and since that time has endeavoured to make a settlement with Mr. Frost. The first offer was of £500 and we had some reason to believe from the information Mr. Frost obtained that it would be prepared to go even higher. After further discussion with the secretary of the Hospital Board, it was clearly evident that the Board felt that it had some obligation to pay this rate of interest. I do not think—and I hope that my hon. Friend will not argue—that there was any responsibility for this delay on the part of Mr. Frost, because if there was, the practice of splitting the difference might have some justification. It seems to me to be quite clear that the mere fact that Colonel Ackland, the unofficial arbitrator, had accepted the fact that there was a case for payment of interest would indicate that Mr. Frost was not responsible in any way for the delays over payment.
My object in raising this matter in the House is not entirely for the purpose of trying to get another £900 or so for my constituent. There is an important question of principle involved, a question of principle about which Mr. Frost feels very keenly. I know that his federation, the National Federation of Building Trades Employers, also feels strongly about it. I am bound to say, on the facts as I understand them, that I am very much in agreement with Mr. Frost and that Federation.
First, there were long delays in payment which were not the fault of, or caused in any way by, the contractors. These delays can have a serious effect 307 on any contractor, and indeed on many other forms of business. Their working capital position was affected, a position which was intensified by the recent credit restrictions imposed by Her Majesty's Government. In fact, the Treasury, the Ministry or the Board have imposed an unnecessary hardship on the contractors and, also, are clearly making a profit at their expense. It is not the fault of Mr. Frost or the firm which the Hospital Board engaged that this situation has arisen. It is entirely the responsibility of the Ministry of Health.
I am sure that if any other business had delayed payments to a firm of contractors for such a length of time they would certainly have been placed in the courts, and under the Law Reform Act of 1935 any court or an arbitrator can include an allowance for interest in judgment. I do not consider that it is either fair or reasonable for the Minister of Health to repudiate an obligation—and there is a very good case for saying that there is an obligation—of the Hospital Board.
This was an overall settlement which could have been agreed between Mr. Frost and the Board. I find it a little surprising, as the contract was with the Board and not with the Ministry, that it does not seem to have been realised by the Ministry that this settlement was arrived at partly, and probably mainly, because of Mr. Frost's desire to assist the Hospital Board. Certainly, if Colonel Ackland had been an official arbitrator in this business he would have been entitled to award interest as part of the overall settlement—at least, as far as I have been able to understand the correspondence. If that had been the case, the Ministry could not have challenged the decision, as it has done.
I hope that the Minister will make a much more thorough investigation of this case than appears to have been done. Mr. Frost has offered on more than one occasion to attend on the Minister's representatives. I am convinced that if they were willing to see him and discuss the whole thing with him he could probably disabuse them of some of the ideas which they seem to have formed. I hope that my right hon. Friend will look into this matter very carefully, indeed. If he does, he may well save his Department and the Board a good deal of trouble, further 308 delay and expense, because I think that he will end by finding that he will have to accept the view of the distinguished expert who made the on-the-spot investigation which appeared to be acceptable to the Board.
§ 8.42 p.m.
§ The Parliamentary Secretary to the Ministry of Health (Mr. Richard Thompson)
I am obliged to my hon. Friend the Member for Bury St. Edmunds (Mr. Aitken) for raising this matter since, apart from its obvious constituency interest, it involves certain matters of principle to which I want to refer. My hon. Friend has stated the history of this affair quite clearly, so I do not propose to go over that ground again at any length.
Of the 10 tenders received for the repair of the West Suffolk Hospital, Mr. Harvey Frost's, at £88,794, was the lowest and was accepted. It is true that at that time the completion of the contract was stated to be 50 weeks, although in the event it took three and half times as long. However, I imply no criticism of the contractor, because I fully accept my hon. Friend's account of this matter, which showed that many difficulties arose during the course of the work—additional work was involved and there was the reinforcement of piers, renewal of defective timber, eradication of dry rot, and matters of that kind.
In the end, the East Anglian Hospital Board paid the contractor £138,937 13s. 10d., which was much more than the original contract, about 60 per cent. more, but, even so, less than the contractor claimed. Two years' negotiations ensued between the Board and Mr. Frost to try to achieve a settlement of the additional amount which he was claiming. At one time, he proposed that the settlement should be on a cost-plus basis and not on the original contract terms. The Board was right to turn that down because, after all, the contract had been awarded originally on competitive tendering and the Board could not ignore that.
As my hon. Friend said, in August, 1956, Mr. Frost gave formal notice of arbitration, and subsequently the parties agreed to submit the matter to the late Colonel Ackland, and to ask him to act, as an adviser to both sides, a kind of unofficial arbitrator. Colonel Ackland 309 considered the revised contractor's claim for £20,213 and concluded that a sum of £9,224 should be paid extra-contractually, in full settlement.
§ Mr. Aitken
The difference between the £20,000 and the £9,000 arose because Mr. Frost saw the final bill of variation some time after he had made his original claim for £23,000, so that he could not know what the costs were until he saw the final bill of variation. That is why he accepted the difference between £23,000 and £9,000.
§ Mr. Thompson
I am obliged to my hon. Friend. Whatever may be the reason for the difference, it is certain that a sum of £9,224 was Colonel Ackland's proposal for full settlement.
I have refreshed my recollection of this matter by looking at copies of the original documents, and I want to say that at this stage in Colonel Ackland's original report no mention of interest was made. This is of great importance, because the dispute revolves round the interest charged; that is the gravamen of my hon. Friend's remarks. Mr. Frost contended that Colonel Ackland's report should have contained an award of interest on any sum agreed as payable. He did not at that time accept all Colonel Ackland's conclusions, or the sum of £9,224 as an adequate award; he maintained throughout that any sum due to him should carry interest, and my hon. Friend has made an eloquent and effective plea for admitting the claim.
I wish it were as simple as that. I had better say what is the Government view and the usual procedure in this kind of case. Where a Government Department, through its own fault or the fault of another Government Department, fails to make payment on a due date, or unreasonably withholds payment, that Department is authorised by the Treasury to pay interest as from three months after the creditor has established his claim. The amount of interest is determined by negotiation and in practice does not normally exceed the current Bank Rate. This procedure must equally apply to regional hospital boards acting on behalf of the Ministry of Health.
The criterion of payment is unjustifiable delay by the Government or their agents. I do not think that one can claim—as I have seen suggested in some 310 of the correspondence in this matter—that the Government have been sitting on the money and deriving benefit from it and using it. Next to no profit accrues to the Government because in these matters the Government themselves have to borrow in order to settle the claim.
The failure to reach agreement up to the time of Colonel Ackland's award was not in my view due solely to the actions of the Hospital Board or of Government Departments, although I recognise and accept that some delay was due to staff shortage at the Board. The board obviously has an unmistakable duty not to pay out large sums of public money without the most detailed inquiry, and it must limit the payments it makes to what is strictly due. Colonel Ackland's award amounted to roughly half the claim—which to my mind suggests that the Board's cautious approach was justified. In saying that. I want to make it clear that I am not necessarily imputing any blame to either party to this dispute, because in my view—and I realise that I differ from my hon. Friend here—the responsibility for delay both in the building work and in the determination and settling of the account cannot be said to be any one person's fault alone, or be laid at the door of one person or Department.
The suggestion has been made that the payment of interest should inevitably and automatically follow from Colonel Ackland's expressed view as an unofficial arbitrator on this matter. Surely what matters is what Colonel Ackland did award, not what he might have awarded.
Although, strictly speaking, Colonel Ackland was an adviser, he was called in to try to secure agreement without recourse to official arbitration. I ought, perhaps, to say a word on the legal aspects of this matter, as I am advised. A distinction is drawn in law between interest in respect of any period between the time when the liability rose and the date of the arbitrator's award, and interest in respect of any period after the arbitrator's award. As regards interest for the earlier period, the Court of Appeal has held that an arbitrator has the same powers as are given to a Court by Section 3 of the Law Reform (Miscellaneous Provisions) Act, 1934, and may include interest at such rate as he thinks fit on the whole or any part of the debt 311 or damages for the whole, or any part of the period between the date when the cause of action arose and the date of the judgment.
It will be noted that the inclusion of interest is wholly discretionary as to whether there should be any, or at what rate, or on what amount or for what period. It cannot be argued that a person in Colonel Ackland's position, in so far as he was acting as an arbitrator, would necessarily allow full interest without consideration of all the circumstances and the actions of both parties.
The position as regards the period subsequent to the award is quite different. Section 20 of the Arbitration Act, 1950 states thatA sum directed to be paid by an award shall, unless the award otherwise directs, carry interest as from the date of the award and at the same rate as a judgment debt.We should certainly think it unusual for an arbitrator to direct that an award should not carry interest after it was made, and in subsequent offers to Mr. Frost to settle his claim, a sum in respect of such interest has been included.
What was Colonel Ackland's view on this all-important matter of interest? It is not quite so simple as has been suggested. Unhappily, as my hon. Friend said, he is now dead so we can only judge from his written comments which have been equally available to both parties. The original award recommended payment of £9,224 in full settlement, and made no mention of interest. That was in October, 1957. In a letter of 4th October, 1957, Mr. Frost claimed entitlement to interest at whatever sum was finally agreed as payable from the date when it would have become payable under the contract. After a meeting of the interested parties, Colonel Ackland reconsidered the question of interest and, in a further letter to the Board, stated that if payment of interest were acceptable and he suggested that it would be appropriate in this case, £1,883 14s. 3d. subject to some minor adjustment, should be added to the account.
This was not Colonel Ackland's last word. On 5th December, 1957, he wrote to the Board to the effect that there might be some force in the argument that, as the matter had been the subject of negotiation, the interest might be divided between the parties. He suggested that dates 312 should be agreed with the contractor as to when negotiations on the claim took place.
§ Mr. Aitken
May I ask whether the implication is that Mr. Frost was responsible for part of the delay in the payment? Is that the implication which my hon. Friend assumes from Colonel Ackland's last letter?
§ Mr. Thompson
The assumption I make from the letter, and from my reading of the quite voluminous papers in this case, is that it is not possible to apportion the whole of the blame for the delays which occurred in this matter to the actions of the Ministry of Health or the Hospital Board. My reading of it is that at the end of the day he came to the conclusion that there had been delays on both sides, but he did not specify the precise proportion.
Colonel Ackland's final view on the matter agrees with the view of the Government in such cases where precise responsibility for delay is indeterminable. Nor could we say to what extent the delay was inevitable or unjustifiable. In such circumstances it seems practically impossible to assess an identifiable rate of interest on an identifiable amount for an identifiable period. I should think that the negotiations ought to be started with the contractor for some payment reflecting, so far as possible, a proportion of responsibility for unjustifiable delay attributable to the Department or its agents. That is what we are trying to do, and I hope that after the useful discussion we have had this evening we may come to some agreement on this matter.
On the view that something was due to Mr. Frost in connection with delays in payment for which we and the Board take some responsibility, £500 was offered in settlement in July, 1958. When this proved unacceptable the Board was empowered—this was after my hon. Friend's letter to me—to negotiate further up to a limit of £1,000, which is slightly more than half the total claim. We then thought that Mr. Frost might be prepared to negotiate and I regretted it when the offer was turned down and the claim was restated that interest should be payable in full from the date of the completion of the work.
313 I must repeat—perhaps I differ here from my hon. Friend—that this principle is not acceptable, and the only settlement that I could agree to would be one reached by negotiation based on some proportion of the sum claimed. I understand the difficulties in reaching such an agreement and I hope I have made clear that there is no thought in my mind of denying all responsibility or apportioning blame in this matter. I hope that the discussions we have had this evening will open the way for Mr. Frost to accept the offer the Board has been authorised to make.
314 I can say at once that if it would be helpful in this matter for officers of my Department to see Mr. Frost and have a further talk about this, I will gladly see that such a meeting is arranged soon. If such a meeting takes place with a fruitful result, I think my hon. Friend may feel that his initiative in raising this matter with all its important implications, has certainly not been wasted.
§ Question put and agreed to
§ Adjourned accordingly at one minute to Nine o'clock.