Adjudication
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KEYWORDS: |
Housing Grants Construction and Regeneration Act 1996, jurisdiction, evidence in writing, exchange of correspondence, writing, Section 107, dispute, Sheriff of Lothian and Borders. |
The issue in Branlow Limited v Dem-Master Demolition Limited [2004] was the familiar one of whether the contract was in writing as required by the 1996 Act. The case is interesting because it lists the relevant caselaw and touches on the distinction between a variation to the contract and a variation to the scope of the work. There are also interesting arguments by Dem-Master. The judgment otherwise is unremarkable.
Dem-Master had challenged the jurisdiction of the adjudicator who he had taken the preliminary view that he had jurisdiction. The Adjudicator had taken advice from solicitors and disclosed that advice to the parties. That advice confirmed the adjudicator's preliminary view. The adjudicator concluded that he had jurisdiction and proceeded to decide the dispute. Branlow commenced the action before the Sheriff for payment of the sum of £55,540.75 with interest and expenses which was the balance due under the adjudication.
It was common ground that there was a contract between the parties which was evidenced by a letter dated 1 August 2002 and the response dated 2 August 2002. Those two documents contained and imported the contractual obligations and rights. The issue was whether or not those two letters could be regarded as a construction contract for the purposes of the Act. It was agreed that a decision on this matter would decide the case.
The cases referred to by both parties were:
There were three inter-related arguments based on:
The distinction between each of the arguments is not easy to make.
Dem-Master submitted that both parties to a construction contract wanted certainty and submitted that there was no such certainty in this case. Dem-Master suggested that the two letters of 1st and 2nd August had summarised prior verbal discussions. The intention was to enter into something more formal than the faxed correspondence of 1st and 2nd August but the speed of the required work meant that nothing more happened contractually. Dem-Master submitted that if those letters were the extent to which the contractual obligations were reduced to writing then that was not a contract in writing because there was a complete absence of the specification of the works which had obviously been discussed. That in turn meant that the contract was not adjudicable.
Dem-Master argued that paragraph 13 of the Referral made reference to verbal discussion and to a 15 page fax which itself was obviously referred to during the verbal discussions. None of it appeared in the two documents dated 1st and 2nd August 2002. Dem-Master submitted it would have been easy for Branlow to state the obligations more clearly. They could have referred to the 15 page fax, but they did not. Effectively therefore this was a verbal contract only partially reduced to writing.
Dem-Master submitted that Branlow had assumed an extremely high degree of risk and they did not, in the exchange of correspondence, seek to limit their obligations to a defined work scope. The Adjudicator was required thereafter to interpret the contract and it was submitted that it was not for the process of Adjudication to determine basic contractual obligations where those had never been reduced to writing.
Branlow submitted that the admission by Dem-Master over the makeup of the contract was critical and, at the same time, fatal to its position. Branlow submitted that Carter was very similar to the instant case in that parties were agreed that there was a contract but disputed the terms thereof. Branlow conceded that Carter really addressed Section 108 of the Act rather than Section 107 however the approach of the Court in Carter was endorsed in relation to Section 107 in RJT.
Branlow submitted that the main issue was whether or not the Adjudicator had threshold jurisdiction rather than whether or not he had exceeded the jurisdiction. Branlow referred to The Construction Centre Group in which the Court set out that an Adjudicator's decision was binding and enforceable, providing it was within his jurisdiction. Branlow disputed what Dem-Master said about certainty. Branlow submitted that if the threshold was overcome then the Adjudicator could determine if a clause could be incorporated. That was inconsistent with the concept of certainty advanced by Dem-Master. The threshold was defined by Section 107(2). If there was agreement in writing established by an exchange of communications in writing then the threshold had been satisfied. Certainty could not be the over-riding criteria on the way the building contracts operated because many such contracts had inconsistent or vague terms which did not mean that there was not a contract in writing.
Branlow referred to Carillion. Branlow submitted that the concession by Dem-Master on the existence of the contract and its make-up, meant that there was a contract which the Adjudicator could construe. A second set of questions as to the terms of the contract which might be incorporated or construed could not deprive the Adjudicator of his jurisdiction. Ballast was also supportive of this proposition. Branlow submitted that Ballast was an extraordinary case which had caused much debate in construction circles. The Adjudicator in Ballast decided that any part of the contract which fell out with the JCT standard form of building contract meant he had no jurisdiction to look at it. The Inner House held that the Adjudicator did have to value the claim and, as he failed to do so, he had not exhausted his jurisdiction. Branlow submitted that in Ballast the jurisdiction of the Adjudicator was fixed by referral notices, provided the Adjudicator had jurisdiction under a construction contract in writing. If so, then there was a matter for him to construe and rule upon. Branlow submitted that this analysis was on all fours with the instant case.
Dem-Master submitted that the contract was a lump sum contract for a sum of £115,000. Dem-Master submitted that Branlow were claiming that the work scope had changed, that they had been prolonged on site and that they had therefore incurred costs. Dem-Master submitted that the Adjudication was really about the extent of the additional costs because the letters of 1st and 2nd August were silent on variations. The contract did not visualise the requirement for variations and variations were a necessity in building contracts. Dem-Master stated that was why the standard forms so usefully spelled out such matters and how to cost them. Dem-Master submitted that it would not be unrealistic to say that the variations could be treated as separate contracts. If Branlow carried out work outside the original obligations, they should have been treated as separate contracts.
Dem-Master submitted that even if they were wrong about that, it was necessary to look at what gave rise to the variations. Dem-Master referred to the Referral which was used to characterise variations but was only the receipt of a fax of a sketch from the Structural Engineers. There was no attempt to price the variations and no agreement in regard thereto. The Adjudicator was therefore left guessing what to do.
Dem-Master submitted that the two essential components to constructions contracts were firstly what the contractor would do and secondly how much he would get for the work. Branlow were well aware soon after they entered the contract, that it was badly worded from their end or else they envisaged problems because of the wording. Dem-Master regarded it as telling that Branlow soon attempted to correct the situation. The Adjudicator held that it was too late for them to do so because the contract had been formed.
Dem-Master referred to the Adjudicator's decision which went on about correspondence dated 23rd and 24th July which it did not elevate to the status of contract documents. Dem-Master submitted that as there was no express variation in the contract, then the variations themselves, unless there is written agreement to them, could not be adjudicated upon. Section 107 of the Act stated the requirements for agreement and nothing showed that there was agreement to the variations of work scope or costs. The Adjudicator took a view on when a variation was not a variation and how much a referring party should get for it. It was not good enough to ask the Adjudicator to take a view on fundamental aspects of the contract.
Branlow submitted that it was critical to distinguish between variations to a contract already formed and variations to the work scope of a contract. Branlow referred to Carillion and submitted that the same distinction applied that there were variations to the works in the instant case but not the contract itself. If there was a contract in writing, then following all the cases, and especially Ballast, the Adjudicator did have jurisdiction and it was for him to go on to decide if the claims were validly accepted under the contract. The Adjudicator was required to consider each head of claim and decide if it was validly asserted under the contract. He then had the power and indeed the duty to do so under his jurisdiction. The Adjudicator duly made his decision as he was required to do. Branlow submitted that even if the Adjudicator had been wrong, that was not a matter for the Court, unless the Adjudicator's error in law had taken him outwith his jurisdiction.
Branlow submitted that in Carillion the adjudicator had asked the right question which was essentially to give the valuation of the sum due. If there was a contract in writing the Adjudicator had jurisdiction under Section 107. The scope of the jurisdiction was fixed by the Referral and the Adjudication notices. Essentially the question was what the value of the sum due was. To answer that the Adjudicator had to consider each claim and decide if it was validly asserted under the contract. He did that. None of that deprived the Adjudicator of his jurisdiction or his decision of its binding and enforceable status. Indeed quite the opposite was the case.
Dem-Master submitted that RJT was a very important case for the adjudication process. RJT contained major ramifications for the entire process, and many experts in the construction industry felt that the case had in fact gone too far. However Dem-Master accepted that RJT had subsequently been approved and that there was an in-depth analysis of Section 107 provided. The crux of decision by Lord Justice Ward was where he stated
"once jurisdiction to refer the matter to arbitration was established the Judge held, and in my judgment rightly helf, that it was proper within that adjudication to decide whether or not a particular term had been incorporated into the contract."
Dem-master submitted that the expression "jurisdictional threshold" meant that only once there was contractual certainty could an adjudication be applied for to decide a dispute. Dem-Master accepted that not every detail needed to be in writing but that the essentials did. The issue was whether or not the jurisdictional threshold had been met and Dem-Master submitted that it had not.
Dem-Master relied on the decision in RJT of Judge Bowsher QC:
"Disputes as to the terms, expressed and implied, of oral construction agreements are surprisingly common and are not readily susceptible of resolution by a summary procedure such as Adjudication. It was not surprising that Parliament should have intended that such disputes should not be determined by Adjudicator's under the Act."
Dem-Master submitted that was the instant situation. RJT set out that what was required was a complete agreement and not a partial one. Lord Justice Auld took a slightly different tack, but nonetheless stated that what was important was the terms of the agreement material to the issue or issues giving rise to the reference should be clearly recorded in writing, not that every term, however trivial or unrelated to those issues, should be expressly recorded or incorporated by reference.
Dem-Master submitted that the implications of RJT were that contractual certainty was what was required for the jurisdictional threshold to be reached. What was missing from this contract was so fundamental as to be fatal to any reference to adjudication. Dem-Master submitted that Ballast had no particular relevance. In contrast Debeck took the principles a step on from RJT. Judge Kirkham in Debeck outlined what was or was not referred to in the fax in that case. Whilst the fax there may have mentioned money it did not mention work scope which was a similar position to the current case.
Dem-Master then referred to Carillion where Judge Bowsher QC dismissed the application and stated
"Section 107(3) of the Act does not provide for adjudication in relation to an alleged fundamental variation of a construction contract that has been made orally and without writing"
Dem-Master submitted that even if the Sheriff did not agree that there was not a construction contract in writing, then he should consider the evidence which existed to support the variations that Branlow sought payment for. The test was a high one, Dem-Master submitted that the parties had failed to reach agreement on the varied works.
Dem-Master submitted that if Branlow said that a 15 page fax predated the contract and the Adjudicator held it defined the work scope, it did not stand up to logical analysis if the assumption was that the contract was only formed by two documents, the letters of 1st and 2nd August 2002.
Dem-Master submitted that it was difficult to think of a contract more uncertain than the instant case for the Adjudicator to interpret. There was no doubt at all that the contract did not incorporate all the discussions. As such the original contract was not properly evidenced in writing. There was no other way of interpreting the correspondence in the letters of 1st and 2nd August. They were fundamentally lacking in detail. Branlow tried but failed to resolve the difficulties. In reality it was not the original contract seeking payment - these were questions of variations which provided even less certainty.
Dem-Master conceded that Ballast on the face of it, was highly persuasive but did not involve an in depth analysis of Section 107. RJT and Debeck were more involved with interpreting that Section and there was insufficient certainty in this case for the Adjudicator to have held that he had jurisdiction. As far as Carillion was concerned Dem-Master submitted that even where the Adjudicator got it wrong, that may not necessarily have invalidated his decision because he had the right to get it wrong. That however was quite different from the situation where he should not have determined it at all.
The Sheriff held that the submissions of Branlow were well founded. The letters of 1 and 2 August comprised a contract in writing and were subject to Section 107 of the Act. In terms of Section 107, the Adjudicator did have jurisdiction and, in terms of that jurisdiction, he did determine this dispute. The Sherriff held that the position was clearly set out in the various cases to which the Sheriff referred and in particular in the case of Ballast. From the outset, the Adjudicator had jurisdiction. The Sheriff therefore granted decree de plano.