Adjudication
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KEYWORDS: |
Housing Grants Construction and Regeneration Act 1996, Section 107, writing, evidenced in writing, repudiation, compromise, joint contractor, several liability, accord and satisfaction, at any time, limitation defence, abuse of process, Judge Richard Havery. |
Connex South Eastern Ltd v MJ Building Services Group plc [2004] TCC decided by Judge Richard Havery QC on 25 June 2004 is of interest because it deals with a number of issues in relation to the right of adjudication. These include the requirement for writing, the effect of acceptance of repudiation, the effect of a compromise agreement on joint contractors and whether it is an abuse of process to commence adjudication a long time after repudiation.
In 2000 Connex South Eastern Limited ("SE") held a franchise for the operation of train services on railways in Kent. A sister company Connex South Central Limited ("SC") held a similar franchise for railways in Sussex. The same management team ran both those companies referred to generically as Connex.
In February 2000 a firm Condes, acting on behalf of SE and SC, issued the specification and conditions of contract for the design and installation of security closed circuit television ("CCTV") for 50 Connex stations throughout the South East and South Central regions. The project was identified as Phase 9 with 20 stations in SE and 30 in the SC franchise areas. The employer was identified as Connex South (Central/Eastern) Limited. No company of that name existed.
MJ, who were building contractors experienced in installation of CCTV systems, submitted its tender proposal on 31st July 2000. A meeting was held on 24 August 2000 and in August 2000 MJ produced a rolling programme of the works divided into the eight separate phases.
On 15th September 2000 a further meeting was held attended by representatives of Condes and MJ. The minutes stated that the purpose of the meeting was to provide a general overview of the project to take it forward post haste. They also stated that Connex had given Condes a verbal instruction that the project was to be carried out immediately. The minutes also recorded that a representative of Condes stated that due to the splitting up of the contract to S/C and S/E the phases would be reallocated and that a revised schedule of stations would be issued without delay.
No written order was issued by Connex, and no contract between Connex and MJ was signed.
On 20 September 2000 Condes wrote to MJ stating that by a direct instruction from Connex, all CCTV works were suspended until further notice. On 23rd September MJ replied stating that they had already committed considerable resources to the project and the extensive delays would result in loss of allocated labour, disruption to programme and additional contract cost for non-productive time.
Condes wrote to MJ on 18th October 2000 stating MJ could proceed with the works but on the condition that no claims would be made against Connex for an extension of time. MJ replied on 20th October confirming that subject to agreeing an outgoing programme of works MJ were prepared to set aside their grounds for compensation.
A meeting was held on 20 November 2000 to discuss the programme in which MJ was instructed to proceed with Phase 9.
In August 2001 Govis Limited acquired SC and decided not to proceed with the project in its initial form. At about that time Condes ceased to act for SE, but continued to act for SC.
On 4 December 2001, SE notified MJ that no further installations under phase 9 were to be commenced until further notice. Installations at four named stations were to be completed and commissioned. On 6th December 2001 MJ replied that the work on the four stations in question, plus two others, was now complete. The relevant final account was enclosed for certification and payment. All those six stations were in the SE franchise area.
On 14th December 2001, a meeting was held between representatives of Condes and of MJ on the subject of SE CCTV installations phase 9. At that meeting, MJ stated that the works on all six stations had been started, and work on the last two mentioned would be completed according to programme. This differed from statements made on 6 December 2001. Condes advised MJ that SE considered that there was no contract. Condes also stated that it would not action certification for two reasons; the works were not complete, and Condes did not have an order to manage the works for SE and that MJ should deal directly with SE.
Correspondence ensued between MJ and CE in which MJ claimed the sum of £199,326.28 from CE for materials procured for the phase 9 CCTV rolling programme installation works. The correspondence culminated in a letter from MJ dated 29th November 2002 to CE, stating that CE had repudiated the contract and that MJ had accepted their repudiation.
Meanwhile meetings were held between SC and MJ to restructure the project. Agreement was reached between MJ and SC. On 11th February 2002 Condes wrote to MJ listing the works instructed, and formalising the mutual agreement that the works represent the full extent of phase 9 contract. The list of stations shows that of the original 30 stations in the SC franchise area, 24 had been omitted and 13 stations were added. The total price of the works was shown as £937,847, but the break down made no mention of any works omitted. They show the price of total instructed works to date as £911,847.00 and the value of works to be instructed as £26,000.00.
MJ carried out all of the revised works and were paid in full by SC.
On 24th February 2004, MJ served a Notice of Adjudication for its claim for payment from SC and/or SE of damages in respect of the contract for the execution of installation works at 50 stations in the Connex South Eastern and Connex South Central franchise areas, know as phase 9 works. MJ stated that the dispute arose following the refusal/failure by SE and SC to make payment on request by MJ and as recorded in correspondence.
An adjudicator was appointed who stayed the adjudication by consent pending the outcome of the applications to Judge Havery.
There were two applications seeking similar relief against MJ, one made by SE and one by SC. Judge Havery directed that they should be heard together. The application by SC was settled.
SE sought declarations that:
The issues therefore were the following four questions:
Judge Havery's was referred to RTJ Consulting Engineers v D M Engineering (Northern Ireland) Limited [2002] 1 WLR 2344 CA. SE submitted as per Ward and Robert Walker LJ that the complete agreement or alternatively at least all the material terms must be in writing in order to fulfil the requirements of section 107. It was common ground that it was manifestly not the intention of Parliament to exclude from the jurisdiction of an adjudicator an agreement solely because it contained implied terms. Judge Havery accepted the proposition referring to it as being reasonable.
Judge Havery held that it was irrelevant that there was no written acceptance of MJ's tender. He observed that it was not suggested that there was an oral acceptance containing terms. He found that there was a brief reference in the minutes of the meeting held on 15th September 2000 to the effect that Connex had given an instruction that the project was to be carried out immediately. He held that it was an irresistible conclusion that the instruction constituted an acceptance of MJ's tender. Judge Havery held that since the minutes were written with the authority of the parties, they constituted evidence, falling within section 107(4) of the Act, of the acceptance.
Judge Havery concluded that the contract was in writing within the meaning of section 107 of the Act.
Judge Havery observed that it is well established that an arbitration clause survived the discharge of a contract by repudiation: Heyman v Darwins Limited [1942] AC 356. Judge Havery held that the reasoning in that case was equally applicable to an adjudication provision.
SE submitted that there was an important difference between arbitration and adjudication, that adjudication was intended to provide a quick enforceable interim decision under the rubric of "pay now argue later". SE relied on the remarks of Ward, Robert Walker and Auld LJ to that effect in RTJ Consulting Engineers Ltd v DM Engineering Ltd [2002] 1 WLR 2344. SE submitted that adjudication was intended to relieve cash flow problems arising during the course of a contract, and that situation did not apply in the instant case or in others where repudiation had been accepted.
Judge Havery rejected SE's submission, commenting that it was well established that adjudication could take place after the works under a contract have been completed, and referred to his comments under the issue of "Abuse of Process".
MJ submitted that there was one contract. SE submitted that there were two contracts but was prepared to make submissions on the basis that there was one contract. Judge Havery was satisfied that the original contract was a single contract involving SE, SC and MJ.
SE argued that if the original contractual relationship was made by a single agreement between SE, SC and MJ, then SE and SC were joint contractors and by the agreement of 11th February 2002, an accord was reached that the original performance was superseded by a completely different performance. The new performance promised by MJ constituted satisfaction. MJ thereby released SC from its original obligations. SE argued that since SE and SC were joint contractors, that release was effective to release SE also from its obligations.
Judge Havery referred to Chitty, 29th Edition, paragraph 17-005. Judge Havery considered that there was a presumption that a promise made by two or more persons was joint so that express words were necessary to make it joint and several.
MJ referred to a course of previous conduct in relation to phases before phase 9, where the material terms of the relevant documents were the same and each certificate for payment named only the franchisee whose station was the subject of the relevant work. MJ submitted that the implied obligations of SE and SC to give MJ access to the sites and permit MJ to carry out works there, could be performed in the case of each station only by the franchisee in whose are the station was situated.
Judge Havery held that if MJ's argument was correct it did not preclude the possibility of joint liability, rather it pointed to the proposition that each of SE and SC contracted only in relation to the stations in its own franchise area which would imply several liability.
Judge Havery found that there were no express words making the liability of SE and SC joint and several, let alone several. He found that there was only one form of draft agreement in the contract documents, the employer was named as a single company Connex South (Central/Eastern) Limited, albeit by a misnomer, SE and SC shared the management of their relevant business and both companies were at the time in the same ownership. He found there was nothing in the agreement to suggest that each company contracted only in relation to the stations in its own franchise area.
Judge Havery held that SE and SC contracted jointly.
It was common ground that the original contract could not be varied except by agreement of all parties. Only SC and MJ were party to the agreement of 11th February 2002.
Judge Havery again referred to Chitty, paragraph 17-017, which stated that the discharge of one joint debtor by accord and satisfaction discharged all, in accordance with the general principle that joint liability creates only one obligation. Judge Havery held that the same was true if one joint and several debtor was so discharged (although he observed that was illogical). Judge Havery stated that Chitty went on to say that a covenant not to sue one joint or joint and several debtor did not discharge the others. The courts generally construed a release as a covenant not to sue if it contained an indication of intention that the other debtors were not to be discharged. If the agreement appeared from its words to be a release and there were no words reserving rights against the other debtors, nor anything in the circumstances to rebut prima facie meaning of words used, the agreement would release all the debtors. Judge Havery held that the courts lean in favour of other debtors not being discharged by construing the agreement as a covenant not to sue or as a release, but subject to an implied reservation of rights against other debtors. He held that in that context the word "debtor" included one liable in damages.
Judge Havery held that the agreement of 11th February 2002 was intended to release SC from its obligations in relation to the 24 stations removed from the earlier agreement. The agreement was also intended to release SC from its liability, if any, in relation to the stations in the franchise area of SE. He held that there was nothing in the agreement to suggest that SE should not be discharged. There was nothing in the circumstances to rebut the prima facie meaning of the words used.
Judge Havery held that SE were released jointly with SC from the obligations from which SC was released by the agreement of 11th February 2002. Judge Havery considered the extent of those obligations.
The negotiations between MJ and SC leading to that agreement appeared to have been settlement negotiations. There was no evidence whether there was an existing claim or potential claim on the part of MJ against SC for expenditure wasted on work done or supply of materials to stations which were subsequently withdrawn from the list, or for the price of works done on such stations. The agreement made no mention of any such claim. Judge Havery concluded on the evidence (which he referred to as unsatisfactory) that neither SC nor SE were released by the agreement of 11th February 2002 from any such claim.
Judge Havery held that SC and SE were released from their obligations to afford access in the future to the stations withdrawn from the list of stations in the SC franchise area and from all stations in the SE franchise area. Thus a claim for loss of profits expected to be earned in relation to those stations had been released.
SE submitted that it was an abuse of process for MJ to start adjudication proceedings so long after MJ purported on 29th November 2002 to accept repudiation of the contract on the part of SE. SE accepted that under section 108(2)(a) of the Act a party was entitled to give notice of his intention to refer a dispute to adjudication "at any time". SE submitted that the right arose only during the currency of the contract and the words "at any time" had to be construed accordingly, and that the phrase must be subject to a limitation defence. SE submitted that Parliament did not mean that a notice could be given a hundred years after a dispute had arisen; that would be reductio ad absurdum. SE relied on a speech by Lord Browne-Wilkinson in Pepper v Hart [1993] in relation to the use of Parliamentary material in aid of construing legislation where the literal meaning was obscure or led to an absurdity.
Judge Havery held that "at any time" do not fall within Lord Browne-Wilkinson's statement. He held that whilst no limitation period was laid down for instituting an adjudication, a limitation defence must be taken into account by the adjudicator. If he failed to do so, then any payment made pursuant to his award would give rise to a claim for restitution.
Judge Havery then examined Hansard. He observed that Earl Ferrers, the relevant minister at the material time, stated in the House of Lords that the Housing Grants, Construction and Regeneration Bill had two purposes:
(Hansard, 20 February 1996, 978 col. 2).
Earl Ferrers also stated
"Put simply, in arbitration one waits until the end of the contract. One has a full-blown argument about it, perhaps in the courts with barristers and heaven knows what. It may take a year or two years to get to the end of it. Adjudication is an attempt to resolve the matter forthwith."
(Hansard 1 April 1996 cols. 16 and 17)
An amendment was proposed to add after the word "at any time" the words "within the period prescribed in the contract". That amendment was rejected. Lord Lucas, then acting for the Minister, said
"As long as there is a possibility of a dispute arising under a contract, the right to seek adjudication will remain."
(Hansard 23rd July 1996, col. 1344)
Judge Havery observed that the references to Hansard, even if admissible, were not helpful to SE.
SE submitted that it could be an abuse of process to make the same claim in two separate proceedings but Judge Havery agreed with Dyson.J in Herschel Engineering ltd v Breen Property Limited [2000] BLR 272 who saw no reason not to give the words "at any time" their plain and natural meaning so as to allow court and adjudication proceedings to run concurrently.
Judge Havery answered "Yes" to Questions (1), (2) and (3) and "No" to Question (4). The answer to (3) relating to release by the letter of agreement dated 11 February 2002, was only to the extent indicated in his judgment.
Judge Havery declined to make the declarations sought.