Adjudication
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KEYWORDS: |
Housing Grants Construction and Regeneration Act 1996, adjudication, Section 109, the Scheme, adjudication, jurisdiction, JCT 1998 Design and Construct, Clauses 30, Court of Appeal. |
The decision of the Court of Appeal in C & B Scene Concept Design Ltd v Isobars Limited (2002) on 31st January 2002, demonstrates the approach of the Court of Appeal to issues of jurisdiction. As expected it followed the approach taken by the Court of Appeal in Bouygues (UK) Ltd v Dahl Jensen (UK) Ltd [2000]. One interesting part of the decision was the question of the adjudicator's jurisdiction to determine the entitlement in relation to a claim which required him to decide whether work was part of the contract works or executed outside the contract. The Court of Appeal took a simple straightforward approach. The parties were agreed on the matters referred to the adjudicator, this issue was one properly referred to him and therefore within his jurisdiction. The Court of Appeal appear to have taken the view that the adjudicator took his jurisdiction from the agreement as to the dispute referred, and not simply the Contract.
The Contract consisted of the JCT standard form of building contract with Contractors Design, 1988 edition. Clause 30.1 required the parties to elect which of alternatives "A "or "B "they would adopt. The two alternatives were set out in Appendix 2. Alternative "A "provided for interim payment be made in accordance with predetermined stages in the work. Alternative "B "provided for interim payment to be made according to the elapse of predetermined periods of time. The parties did not make an election, and did not complete alternative "A "and delete alternative "B ", nor did they delete alternative "A "and complete alternative "B ". Accordingly, in the absence of contractual provisions as to how much should be paid by interim payments and when that payment should be made, the provisions of Section 109 of the Housing Grants Construction and Regeneration Act 1996 came into play so as to imply the relevant provisions of the Scheme.
The Contract was for work done to Unit 2 Leisure Wood, Southampton, involving the design, construction and fitting-out of a cafe-bar. Isobars was the employer under the contract. C & B sent to Isobars three applications for interim payments in January 2000, Nos 4, 5 and 6. By letter dated 29th January 2001, Isobars disputed the applications for payment and stated that it was unaware of any variations to the Works. It was common ground that the letter was not served in time to satisfy the requirements of Clause 30.3.3 of the JCT form, nor within the time specified in paragraphs 9 and 10 of the Scheme.
C & B commenced an adjudication in relation to its entitlement to payment of the three interim applications for payment Nos 4, 5 and 6. The adjudicator made his decision on 4th April 2001. C & B stated in the Notice of Referral that, in the absence of alternative "A "and "B ", the Contract was supplemented by the provisions of the Scheme, which provided that the Contractor was entitled to be paid by the employer on "the making of a claim". C & B contended that the Contract by Clause 30.3.3 required the employer to give notice within five days signifying the amount of payment proposed to be made by the employer and a method of calculation of the amount, and under Clause 30.3.4 the employer was required to specify any amount proposed to be withheld or deducted from the amount due, the ground or grounds of such withholding or deduction and the amount of withholding or deduction attributable for each ground. C & B submitted that no such notice had been served and it was entitled to payment pursuant to Clause 30.3.5.
In its Response, Isobars responded in such a way that it showed there was agreement between the parties as to the dispute which was referred to the adjudicator. Isobars disputed its liability to pay on the grounds that a sum of £69,000 was not due under original contract, the variations were not authorised, and also raised allegations of poor workmanship.
The adjudicator decided that in some JCT Forms the term "amounts due" arguably allowed an employer to abate amounts otherwise due on the basis of defective works or works not carried out, without even having to issue a withholding notice. He decided however, that that was not the case in the contract between the parties which incorporated the JCT with Contractors Design 1998 edition. He decided that it was clear from the party submissions that the employer had not given written notice pursuant to Clauses 30.3.3 and 30.3.4, in respect of any of the applications for interim payments made by the Contractor. He decided therefore, Clauses 30.3.3, 30.3.4 and 30.3.5 taken together imposed an absolute imperative obligation on the employer to pay the Contractor the amount stated in the application for interim payment, in the absence of a written notice as specified. He decided that those written notices had not been given by the employer and thus the employer should pay to the Contractor the amount stated an application numbers 4, 5 and 6 for interim payment. He decided that C & B was entitled to be paid £115,996.33 plus VAT and interest which together amounted to £140,855.34, the sum for which summary judgment was sought.
In enforcement proceedings before Mr Recorder Moxon-Browne QC (C & B Scene Concept Design Ltd v Isobars Limited [2001]) Isobars argued that since the parties had failed to elect alternatives "A "and "B", the whole of clause 30, and not only the provisions as to how and when interim payment would be made, fell away. Isobars submitted that accordingly the express provisions in Clause 30.3.3 and 30.3.4 as to the requirement of the employer to give notice, and clause 30.3.5 as to the effect a failure to give notice, fell by the wayside. Isobars submitted that instead the provisions of the Scheme not only as to how the amount of the interim payments was calculated and the time when they were due but also the provisions as a notice, and the effect a failure to give notice, were implied into the Contract. Isobars submitted that both under the Act (Sections 110 and 111) and under the Scheme, failure to give the notice within the stipulated time did not preclude the employer from contending on an adjudication that the sums claimed were not "due under the contract". Isobars submitted that by failing to appreciate that the Contract provisions of Clause 30 had been superseded by other provisions of the Scheme, the adjudicator addressed himself to the wrong question and in so doing he exceeded his jurisdiction.
Sir Murray Stewart-Smith giving the leading judgment with which the other Lords agreed, held that for the purposes of the judgment he was content, without deciding, to assume that the adjudicator was wrong. In other words he assumed that the adjudicator ought a matter of law to have held that Clause 30.3.3 - 6 were not part of the Contract and that under the Scheme the failure to serve a timeous notice did not prevent Isobars relying on the matters of the defence which it wished to advance, on the basis that all C & B was entitled to be paid was what was "due under the contract". It is clear, however, that this was only an assumption and not a point decided by the Court of Appeal. Indeed, it is clear that the words "If or to the extent" at Section 110(3) of the Act would be highly relevant to determining the issue.
Sir Murray Stewart-Smith held that the real question was whether this assumed error on the part of the adjudicator went to his jurisdiction, or was merely an erroneous decision of law on a matter within his jurisdiction. If it was the former the Recorder would be right to hold that summary judgment should not be entered. If it was the latter, then the proper course, subject to any question of stay of execution, was that C & B was entitled to summary judgment.
Sir Murray Stewart-Smith held that the whole purpose of Section 108 of the Act, was that it provided a swift and effective means of resolution of disputes which was binding during the currency the Contract and until final determination by litigation or arbitration - Section 108 (3). The provisions of Section 109 - 111 were designed to enable the Contractor to obtain payment of interim payments. Any dispute could be quickly resolved by the adjudicator and enforced through the Courts. If the adjudicator was wrong, the matter could be corrected in subsequent litigation or arbitration.
Sir Murray Stewart-Smith referred to the judgment in Northern Developments (Cumbria) Ltd v J & J Nicholls, in which his Honour Judge Bowsher QC cited with approval the formulation of principle stated by his Honour Judge Thornton QC in Sherwood v Casson.
Sir Murray Stewart-Smith agreed with that formulation. He added that the provisional nature of adjudication which though enforceable at the time could be reopened on the final determination.
Sir Murray Stewart-Smith stated that errors of procedure, fact or law were not sufficient to prevent enforcement of an adjudicators decision by summary judgment. He referred to the case of Bouygues (UK) Ltd v Dahl Jensen (UK) Ltd [2000] BLR 522 as a striking example of this. Sir Murray Stewart - Smith stated that the adjudicator in that case had made an obvious and fundamental error, accepted by both sides to be so, which resulted in the balance being owed to the Contractor, whereas in truth it had been overpaid. The Court of Appeal in that case held that the adjudicator had not exceeded his jurisdiction, he had merely given a wrong answer to the question which was referred to them. Sir Murray Stewart-Smith observed that were it not for the special circumstances that the claimant in that case was in liquidation, so that there could be no final determination between the parties, summary judgment without a stay of execution would have been ordered.
Sir Murray Stuart-Smith observed that in the course of his judgment Buxton L.J. approved the test formulated by Knox J in Nikko Hotels (UK) Ltd v MEPC plc [1991] and that if the adjudicator answered the right question in the wrong way, his decision would be binding. If he had answered the wrong question his decision would be a nullity.
Sir Murray Stewart-Smith held that the adjudicator's jurisdiction was determined by and derived from the dispute that was referred to him. If he determined matters over and beyond the dispute, he had no jurisdiction. Sir Murray Stuart-Smith observed that the scope of the dispute was agreed, namely as to the employer's obligation to make payment and the contractor's entitlement to receive payment following receipt by the employer of the contractor's applications for interim payment Nos 4, 5 and 6. Sir Murray Stewart-Smith observed that in order to determine the dispute the adjudicator had to resolve as a matter of law whether clauses 30.3.3 - 6 applied or not, and if they did, what was the effect a failure to serve a timeous notice by the employer. Sir Murray Stuart-Smith held that that even if the adjudicator was wrong on both these points that did not affect his jurisdiction.
Sir Murray Stuart-Smith stated that it was important that the enforcement of an adjudicators decision by summary judgment should not be prevented by arguments that the adjudicator had made errors of law in reaching his decision, unless the adjudicator had purported to decide matters there were not referred to him. He must decide as a matter of construction of the Referral, and therefore as a matter of law, what the dispute was that he had to decide. Sir Murray Stewart-Smith held that if he erroneously decided that the dispute referred to him was wider than it was, then, in so far as he exceeded his jurisdiction, his decision could not be enforced. Sir Murray Stewart-Smith held that in the present case there was entire agreement as to the scope of the dispute, and the adjudicator's decision, albeit he may have made errors of law as to the relevant contractual provisions, were still binding and enforceable until the matter was corrected in the final determination.
Sir Murray Stewart-Smith held that he did not agree with the Recorder's decision in relation to Application No. 6 for £1,500 that this did not arise under the Contract and therefore the adjudicator exceeded the jurisdiction in this respect as well. Sir Murray Stewart-Smith held that the entitlement to payment under Application No. 6 was a dispute specifically referred to the adjudicator which he decided. He may have made an error of law in holding that C & B was entitled to payment under the Contract. Sir Murray Stewart-Smith held that the adjudicator did not exceed his jurisdiction, he decided the question that was referred to him.
It was held therefore that the appeal should be allowed.
Isobars also submitted that if it was wrong in its main contention, there should nevertheless be a stay of execution pending determination of cross claims and final determination of the dispute. It was suggested that C & B were in financial difficulty and this was a ground for stay. Sir Murray Stewart-Smith held that there was no material before the Court to enable it to depart from the usual rule that the Claimant seeking to enforce an adjudicator's award was entitled to summary judgment.