Adjudication
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KEYWORDS: |
Housing Grants Construction and Regeneration Act 1996, adjudication, jurisdiction, objection to jurisdiction, multiple disputes, JCT80, practical completion, benefit, approbation and reprobation, status of adjudicator's decision, Architect, Judge Seymour QC. |
The decision in R Durtnell and Sons Ltd v Kaduna Ltd (2003) by his Honour Judge Richard Seymour QC on 19th March 2003, is of great interest because it expands our understanding of the doctrines of election, and approbation and reprobation in relation to adjudication. The decision of Judge Seymour, at least in respect of the latter doctrine, was obiter dicta but welcome nonetheless. The decision also expands the meaning of the term "dispute". The decision also provides further understanding of the relationship between the role of the Architect administering the contract, and the adjudicator. It is clear that this will be explored in further decisions.
Durtnell was a construction company based in Brasted in Kent, which specialised in the restoration and rebuilding of older properties principally in London and the south-east of England. Kaduna was the freehold owner of the property known as and situated at Laverstock House, Laverstock Park, Whitchurch, Hampshire.
By a contract in writing dated 18th May 1999 and made between Kaduna and Durtnell, Durtnell agreed to undertake various works at the property for the sum of £5,890,244.55, or such other sums that should become payable pursuant to the provisions of the contract. The contract was the standard form of building contract JCT 1980 Private with Quantities with amendments 1 through to 18. The Date for Completion specified in the contract was 11th July 2000.
By letter dated 9th September 2002 Durtnell submitted to the Architect an application for a further extension of time beyond 22nd February 2000, the revised completion date then fixed. Kaduna submitted that under Clause 25.3.1 of the contract the Architect was bound to determine the application within 12 weeks of receipt of the notice by which the application was made. In this instance the application should have been determined by 2nd December 2002. The grounds upon which an extension was sought included the execution of the “Extra Works”. By letter dated 2nd December 2002, the Architect communicated to Durtnell its decision to grant an extension of time for completion of the works to 8th March 2002.
Variations had increased the Contract Sum to £11,000,000. Durtnell's Interim Application No. 40 dated 19th September 2001 was for payment of £2,797,631. One of the elements making up that total was an amount to £412,524 in respect of sub-contractors claims. In fact that was a claim only from one sub-contractor, in respect of alleged delay to mechanical and electrical works for a period of 74 weeks up to 14th December 2001. The claim was set out in the sub-contractor's valuation number 38 in terms that the sub-contractor would be pursuing a prolongation claim and in addition was also compiling a disruption claim.
On 14th November 2002 the Architect issued an interim certificate number 41 in which an amount of £60,434.61 was stated to be due to Durtnell from Kaduna.
By a notice of adjudication dated 14th November 2002, Durtnell sought to refer to adjudication simultaneously a number of different disputes. Those disputes included
In a letter dated 3rd December 2002 to Durtnell, Kaduna gave notice that it intended to withhold the amount of £60,434.61 due under certificate number 41, by reason of Durtnell's failure to complete the work by the adjusted completion date.
The adjudicator decided in a corrected decision dated 24th December 2002 that as a result issued by the Architect that the contract had been delayed by a further 45 weeks from 15th December 2001 to 24th October 2002. The adjudicator decided that in respect of the period of 45 weeks that Durtnell had a reasonable claim for prolongation and that the sum for his loss and expense on the basis of an interim account was £510,435. The adjudicator decided that the sum due to Durtnell in respect of the matters referred to him was £1,228,313.50 and ordered Kaduna to pay Durtnell forthwith.
Kaduna did not pay the entirety of the sum ordered by the adjudicator. On 13th January 2003 Kaduna paid, a sum of £610,883.50. The justification for paying a lesser sum was set out in a letter dated 10th January 2003 on the basis that the adjudicator had exceeded his jurisdiction in relation to that element of his decision which dealt with the award of an extension of time to the date of Practical Completion. Kaduna stated that at the date of the adjudication, no dispute had arisen in relation to the extension of time sought.
What remained in issue before the Court was the liability of Kaduna to pay the unpaid balance of the sum which the adjudicator determined in the decision to be payable and the liability of Kaduna to pay the amount of interim certificate 41, namely £60,434.61. Durtnell sought summary judgment for those sums.
Durtnell contended that Kaduna had no answer to the claim for payment of the latter since the adjudicator determined that practical completion of the Works was achieved on 24th October 2002 and that Durtnell was entitled to an extension of time for completion of the Works until that date, which findings were binding upon Kaduna unless and until disturbed by the award of an arbitrator or the decision of a court.
Judge Seymour was faced with a number of difficult issues as follows:
Judge Seymour observed that when reference was made to adjudication under the Scheme, it was clear from the terms of paragraph 8 in Part 1 of Schedule that, absent the consent of all parties, only one dispute may be referred to adjudication at a time. He held that under Clause 41A of the instant contract (JCT 80 with Amendments 1 through 18) any number of disparate disputes could simultaneously be the subject of one notice of adjudication.
It was common ground between the parties that the right to refer matters to adjudication was exercisable at any time, and that a decision of the Architect under JCT80 in relation to an application for an extension of time was not a condition precedent to that right to adjudicate.
Kaduna submitted however that where Durtnell had elected to seek a decision from the Architect, and so long as the Architect did not take longer than the time permitted under a contract to make its decision, until there was a decision there was nothing for Durtnell to dispute. There was therefore no "dispute" as to entitlement to an extension of time or payment of loss and expense which could be referred to adjudication under Clause 41A. Kaduna submitted that the adjudicator had had no jurisdiction to decide that Durtnell was entitled to the extension of time which he awarded.
Judge Seymour held that it could not be said that there was a dispute as to entitlements to extensions of time, or as to valuation a loss and expense consequent upon the grant of extension of time, if at the time the matter had been referred to the Architect for the purposes of the standard form, and
Judge Seymour accepted that it was not, expressly, a condition precedent to any reference to adjudication of a dispute as to entitlement to an extension of time under a contract under JCT 80 that the dispute should first have been referred to the Architect. He held, however, that it nonsensical to suggest that a "dispute" could exist between two parties as to a matter entrusted to a third party for independent decision in advance of the decision being known. Judge Seymour held that for practical purposes, therefore, it was a condition precedent to the reference to adjudication of a "dispute" as to an entitlement to an extension of time and as to anything which was dependent upon such decision, such as a claim for payment of loss and expense in relation to an extension of time claimed but not granted, that person to whom the making of a decision on the relevant issue is entrusted under the contract between the parties should have made his decision, or the time within which should have been made had elapsed without a decision being made.
Judge Seymour held that the adjudicator in fact had no jurisdiction to make the assessments which he purported to make as to the grant of an extension of time for completion of the works to 24th October 2002 or as to loss and expense in respect of any period after 22nd February 2002, the date for completion last fixed by the Architect prior to the notice. The adjudicator's decisions on those aspects of the matters purportedly referred to adjudication by the notice were thus invalid and made in excess of jurisdiction
Kaduna also submitted that on a proper construction of the notice the adjudicator was not asked to decide whether Durtnell was entitled to an extension of time and payment of loss and expense on the ground in which he did in fact so decide, namely that the matters raised in the notice, referred to as "the Extra Works", were variations the carrying out of which caused completion of the works to be delayed. Kaduna submitted that what was being sought in the notice was simply a decision in principle that the matters there mentioned were variations capable of giving rise to an entitlement of extensions of time and payment of loss and expense, and valuation of them simply as items of work. Kaduna submitted that an assessment of whether they did actually cause delay to the completion of the works and, if so, the amount to which Durtnell was entitled by way of payment of loss and expense, was not sought in the Notice.
Judge Seymour held that in the light of his conclusions on jurisdiction, it was not strictly necessary to consider whether, upon proper construction of the notice, a claim for an extension of time by reason of the execution of the Extra Works was referred. He decided that it was not. The notice contained no reference to any assessment being sought of the effect upon the completion of the works of the execution of the Extra Works. What was sought, and all that was sought, was, first, a decision in principle of whether the Extra Works amounted to "Relevant Events" for the purposes of the contract, and, second, an assessment of the value of the extra works as work. The decision sought in principle that the Extra Works amounted to "Relevant Events" was a sensible thing to seek at a time when the Architect was considering a further application for an extension of time for completion of the works against a background of its earlier indicated view that the Extra Works were not variations for the purposes of the contract, but remedial works which had been a substantial cause of delay in the completion of the works. A decision from an adjudicator that the Architect was wrong about that would be bound to influence its decision, acting impartially, as to whether Durtnell was entitled to a further extension of time, and, if so, of how long.
Durtnell submitted that it was too late, at the enforcement stage, to take objection to the jurisdiction of an adjudicator. Durtnell submitted that such objection had to be taken at the adjudication stage. Durtnell relied upon the decision of Judge John Toulmin QC in Maymack Environmental Services Ltd v Faraday Building Services Ltd (2000) 75 Con LR 101. In that case Judge Toulmin decided that Faraday had consented to submit to the adjudication and admitted that there was a contract which the 1996 Act and the Scheme applied. The adjudication was conducted on that basis. Accordingly, Judge Toulmin decided, Faraday was estopped by representation and convention from arguing that the Act and the Scheme did not apply and that the adjudicator was not entitled to make an adjudication which would be binding until final determination of the dispute. Even if no contract existed and the referral was not under the 1996 Act, Judge Toulmin decided that the adjudication was made by the parties by agreement on the same terms as the 1996 Act and the Scheme. That agreement between the parties was enforceable on the same basis as if the Act applied.
Durtnell admitted that a number of jurisdictional or objections were taken on behalf of Kaduna in its Response to Durtnell's Referral, but no suggestion was made that the adjudicator did not have jurisdiction to decide that Durtnell was entitled to an extension of time or to payment of loss and expense by reason of the execution of the extra works or that a further sum was payable to Durtnell in respect of the entitlement of the sub-contractor to payment of loss and expense after 14th December 2001.
Kaduna submitted that a party which did not raise any jurisdictional point at the time of the adjudication itself, was not forever after barred from doing so. Kaduna submitted that the fact that there was an issue as to jurisdiction of an adjudicator might, indeed often would, only become apparent once a decision in the adjudication was known. Kaduna submitted that the question of whether a party which did not raise a jurisdiction issue during adjudication itself was thereafter prevented from doing so, was really a matter of waiver, the determining factor being whether a party which had appreciated that a jurisdiction point was open to it had deliberately elected not to take it.
Judge Seymour held that a party to an adjudication does not need to take an objection to the jurisdiction of the adjudicator at the time of adjudication or not at all. The decision of his Honour Judge John Toulmin QC in Maymac Environmental Services Ltd v Faraday Building Services Ltd was not authority for that proposition. The point which arose in that case was very similar to the point which arose in Furness Withy (Australia) Ltd v Metal Distributor's (UK) Ltd [1990] and was essentially whether it was open to a party which had participated in a dispute resolution process which depended upon the Tribunal having any jurisdiction of a dispute at all, to contend at the enforcement stage that the tribunal lacked any jurisdiction. In the latter case, as in the former, the submission to jurisdiction represented by the participation in the Dispute Resolution process was treated as giving rise to an estoppel by convention. Judge Seymour distinguished the question in the two cases from the question what was the extent of jurisdiction of a tribunal which had some jurisdiction on any view.
So far as that question was concerned Judge Seymour held that, if it was contended that the tribunal exceeded the jurisdiction conferred upon it, and the answer sought to be given was that it was too late so to contend, the issue was one of waiver. . Judge Seymour held that a party was not disabled from relying upon a point that an adjudicator had decided something not referred to him or not in dispute at the time of the notice of referral unless, with knowledge of the availability of the point, he had elected not to raise it. One risk in the process of adjudication was that an adjudicator, many of whom were not legally qualified, would misunderstand the scope of the matters referred or exactly what it was that he or she was being asked to decide. Judge Seymour held it would be bizarre in the extreme if a party to an adjudication who proceeded upon the basis that his understanding of what had been referred and upon which issues decisions were required was correct should either be required to put forward formulaic, and probably, so far as the adjudicator was concerned, the rather offensive "health warnings" to the effect that he only consented to the process in so far as the adjudicator decided matters properly referred to him or her, or stuck with the consequences of the adjudicator "going on a frolic of his own" with no opportunity of complaint at the enforcement stage. Judge Seymour held that in the present case the courses which the adjudicator took which he had found were not justified and in excess of his jurisdiction were not such as Kaduna either did a should have appreciated. Judge Seymour held that the failure to raise the questions of jurisdiction raised before the Court any earlier in this case were not to be treated as a waiver of the right to do so in the enforcement proceedings.
Durtnell submitted that by paying part of the sum which the adjudicator had determined was due from Kaduna, whilst objection to other parts of the decision, Kaduna was seeking both to approbate and to reprobate the decision, which Durtnell submitted was not permissible. Durtnell relied on a previous decision by a Judge Seymour in Shimuzu Europe Limited v Automajor Ltd [2002] BLR 113. In that previous case Judge Seymour had decided that it was not open to a party to an adjudication simultaneously to approbate and reprobate a decision of the adjudicator. If good grounds existed on which a decision may be subject to objection, either the whole of the relevant decision must be accepted or the whole of it must be contested. In that previous case Judge Seymour had decided that the situation where two separate questions had been referred to the adjudicator had to be distinguished from two other cases. First the case in which in order to answer the question it was necessary to consider a number of elements of claim. Second the case in which in order to reach a conclusion as to what extension of time was appropriate a number of grounds of possible entitlement to extension of time needed to be considered. In each of these two cases the results of the valuation of the various elements would be a single cash sum or a single period of extension of time. The option available to a party who otherwise has good grounds for objecting to a decision that a particular sum was payable was to accept it in its entirety or not at all. In that previous case Judge Seymour decided that a party did not have the option of declining to accept the decision in its entirety, but to accept the reasoning which led to particular items being included in the overall total. It was similar with an evaluation of a period of extension time - the overall period of extension must be accepted or none.
Kaduna submitted that in Judge Seymour's previous decision in Shimuzu Europe Limited v Automajor Ltd, Judge Seymour's attention had not been drawn to the decision of the House of Lords in Lissenden v CAV Bosch Limited [1940] or to the later decision of the Court of Appeal in Banque des Marchands de Moscou v Kindersley [1951]. Kaduna invited Judge Seymour to reconsider the comments which he had made in Shimuzu Europe Limited v Automajor Ltd in the light of what was said in those two cases:
Kaduna submitted that it had not derived any benefit from the adjudicator's decision. Kaduna submitted that it was not enough that by the decision the liability of Kaduna had been fixed on an interim basis at the total of £1,228,313.50 and that Kaduna had sought to rely upon the findings of the adjudicator as limiting its liability in respect of those elements of the decision that it did accept to £610,833.56. Kaduna submitted that it had not received the benefit by the determination of the adjudicator that practical completion had taken place, which entitled it to take up occupation of the property. Kaduna submitted that it was a question of intention whether the doctrine of approbation and reprobation applied, and the letter dated 10th January 2003 by which Kaduna accepted the decision as to the findings that elements totalling £610,883.50 were payable had made it clear that Kaduna was not thereby evincing an intention to accept the decision. Kaduna submitted that in any event what was referred to the adjudicator by the notice was more than one dispute and the doctrine of approbation and reprobation did not apply when a party accepted a resolution by adjudication of one of the disputes referred but not another.
Judge Seymour stated that the doctrine of approbation and reprobation was applicable to decisions of adjudicators. In simple terms, a party to an adjudication could not pick and choose which parts of a decision upon a dispute he would accept and which not. The decision upon a particular dispute must either be accepted in whole or not at all, assuming that the latter option is otherwise available. Judge Seymour accepted that for the doctrine to apply it was necessary for a party, with knowledge that it was open to him to object to the decision, to take the benefit of part of it. However, Judge Seymour did not accept that what constituted a "benefit" for this purpose depended simply upon whether the party had obtained a net cash sum or in entitlement to payment. Judge Seymour stated that it was a "benefit" to a party, for the purposes of the doctrine, that its liability to another party in respect of any particular matter was crystallized on an interim basis of a particular amount, even though that was an amount which he was called upon to pay. Thus the party who contended that his obligation towards another party was limited to payment of a particular sum by reason of the decision of an adjudicator had both claimed and derived a "benefit" from a decision. Judge Seymour considered that it was probably also correct that a party who was, in consequence of the decision of an adjudicator, entitled to take possession of the building and did so, had claimed and derived a "benefit" from that decision.
However, Judge Seymour held that on the facts of the instant case the doctrine of approbation and reprobation had no application. He held that although Kaduna had both claimed and derived benefits from the decisions of the adjudicator, and some matters in dispute, by seeking to limit its liability on an interim basis to the sums determined by the adjudicator, those decisions related to different disputes from those in respect of which Kaduna had sought to challenge the jurisdiction of the adjudicator.
Kaduna submitted that the adjudicator had no jurisdiction to find that Durtnell was due a sum of £146,326.50 in respect of delay to the part of the works undertaken by the sub-contractor in respect of any date later than the 14th December, 2001. Kaduna submitted that the sub-contractor had made no claim in relation to such period of delay and no claim on behalf of the sub-contractor had been included within interim application No. 40 in respect of any delay after 14th December 2001. Kaduna submitted therefore, that at the date of the notice no dispute concerning any entitlement of the sub-contractor to payment in respect of delay to its works after 14th December 2001. Moreover Kaduna submitted on proper construction of the notice the adjudicator was not asked to make a determination as to what sum was due to a sub-contractor in respect of any delay to its works after 14th December 2001.
Judge Seymour held that the adjudicator had no jurisdiction to make any assessment of an amount of loss and expense suffered by the sub-contractor in respect of any period after 14th December, 2001. The sub-contractor had made no claim in respect of that period, although he had indicated that it was likely to, and there could not possibly be a dispute about the claim which had not even been made.
Kaduna submitted that it was not bound to pay the claim in respect of interim certificate 41 because they were entitled to set-off accrued liquidated and ascertained damages against the sum in the interim certificate 41 on the basis of the extension of time granted by the Architect. The relevant withholding notice was the letter dated 3rd December 2002.
Judge Seymour observed that one of the matters which was referred to the adjudicator for his decision by the notice was whether practical completion of the works had been achieved, and if so, when. He decided that it had, on 24th October, 2002. Judge Seymour held that he did in fact have jurisdiction to decide those matters. If the entitlement of Kaduna to set off against his liability to pay interim certificate 41 depended simply upon whether practical completion had taken place, Judge Seymour stated that he would have held that it was not open to Kaduna to go behind the determination, which was plainly recorded in a decision, not withstanding that the relevant section of the decision was on its face concerned only with sums payable to Durtnell. Judge Seymour held that the decision had to be considered as a whole in order to ascertain what was actually decided, and the question whether practical completion had taken place was one about which Kaduna and Durtnell where in dispute and was a matter set out in the notice. However, the critical issue was not whether practical completion had taken place, but when and whether Durtnell was liable under the contract to pay liquidated damages because practical completion had not been achieved earlier. Upon the second, and crucial question the adjudicator had no jurisdiction to decide. Judge Seymour held therefore that the decision provided no obstacle to Kaduna relying upon its letter dated 3rd December 2002 in answer to the claim for payment of interim certificate 41.
Accordingly Judge Seymour held that the surviving claims of Durtnell in the action failed.