Suppliers battle to recover materials provided to collapsed modular firm

Subcontractors on Caledonian Modular’s 279-room aparthotel in Canary Wharf are desperately trying to recoup materials they claim they supplied to the failed firm, but were never paid for.

A number of firms told Construction News they were locked in a process to recover goods sent to the offsite construction specialist before it entered administration.

Caledonian Modular announced in March 2021 that it had secured a contract for the 21-storey One Charter Street building, backed by Canary Wharf Group and designed by architects HTA.

However, Caledonian, which was producing serviced apartments for the hotel at its Newark factory, collapsed into administration in March.

A report by administrators at Alvarez & Marsal in April set out the details of £11.2m owed to unsecured trade creditors  and warned there was unlikely to be any cash to pay these invoices.

But some firms believe their best way to cut their losses from their dealings with Caledonian is to get hold of products they believe they remain entitled to.

One source working on the Canary Wharf project claimed to have visited Caledonian’s Newark factory since administrators were called in and was left “gobsmacked” by the amount of unused material.

“We had been supplying it for eight to nine months, yet hardly any of it seemed to have been moved,” they said. “I have asked for material back from 10 unpaid invoices.”

The source said they had a ‘retention of title’ clause in their contract (see box), which meant no goods were owned by Caledonian until they were paid for in full. However, attempts to prove ownership of specific items had proved complex, they added, as some shipments had been paid for, and discussions were ongoing.

“If we are unsuccessful then I will consider contacting a lawyer,” they added.

Another source told CN they had been in lengthy correspondence with the administrators over items related to the Canary Wharf hotel, which they believed they were entitled to reclaim.

“We are being asked for proof of title, but we have a supply-and-fit contract, so any material relating to it is clearly ours,” they claimed. “We won’t see any of the money we are owed, so the only hope we have is to get appointed to finish off our works. The materials are only used on that job.”

A third source told CN they were aware of various claims for material recovery being ongoing.

Construction Solutions firm JRL bought the assets, records and goodwill of Caledonian Modular from administrators for £6.25m in early April.

A spokesperson for Alvarez & Marsal this week told CN that its involvement with Caledonian had ended and it did not wish to comment on outstanding claims for cash or materials.

Canary Wharf Group and JRL have both been contacted for comment.

Who owns material when a contractor collapses?

Trowers & Hamlins associate Edward Henley says in an article on the law firm’s website that “most supply contracts contain a ‘retention of title’ clause, which provides that title in the goods does not pass to the contractor until payment has been made to the supplier”.

The explainer, published in late 2020, adds: “The position without such a clause is that title passes on delivery.”

It goes on to clarify the situation further.

“If the goods have been incorporated into the works, the ‘retention of title’ clause will be largely ineffective and the supplier will rank only as an unsecured creditor in the contractor’s insolvency.

“However, things get tricky where the goods are sitting on site and have not been incorporated into the works. In these circumstances the ‘retention of title’ clause may offer some legal assistance to the supplier.”

With the offsite manufacture of elements of construction projects increasing, some suppliers believe the definition of when certain materials are considered to be incorporated into works could be trickier to pin down.

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