Adjudication
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KEYWORDS: |
Adjudication, Housing Grants, Construction and Regeneration Act 1996, JCT 1998, Clause 30.9, Final Certificate, conclusive evidence, Clause 41A, commencement of adjudication, appointment of adjudicator, timetable, jurisdiction, Judge Richard Havery QC. |
The decision of HH Judge Richard Havery QC on 30 June 2005 in Mr Tracy Bennett v FMK Construction Limited [2005] EWHC 1268 (TCC) is of interest because it examines the meaning and effect of Clauses 41A and 30.9 of the standard form JCT 1998. Judge Richard Havery decided when adjudication proceedings commence in the context of the conclusive effect of the Final Certificate.
Bennett engaged FMK to carry out building and refurbishment works at Bennett's property. The contract was in the form of the JCT Standard Form of Building Contract 1998 Edition Private without Quantities. FMK carried out the works, and after they were completed a final certificate was issued on 11 March 2005.
FMK disputed the validity and the correctness of the final certificate. FMK disputed that the certificate properly represented FMK's entitlement to be paid on a cost-plus basis and that the certificate wrongly showed an entitlement on the part of Bennett to deduct or levy liquidated damages against FMK.
On 6 April 2005 FMK served on Bennett a notice of intention to refer the dispute to adjudication. On 13 April 2005 FMK applied to the contractual nominating body for nomination of an adjudicator. That body nominated an adjudicator on 14 April 2005. The referral notice was communicated to the adjudicator by fax on 18 April 2005. The supporting documents were sent to him on the following day.
The adjudicator resigned as adjudicator on 21 April 2005. The following day, 22 April 2005, FMK re-served the notice of intention to refer, and applied for the appointment of an adjudicator. The same adjudicator was re-appointed on 26 April. The adjudicator deemed the original referral notice to have been re-served on 28 April.
The adjudication proceedings were stayed pending determination of the question whether the final certificate was conclusive evidence of its contents.
The proceedings before Judge Havery were applications for declarations as to the construction and effect of terms of a contract. Bennett sought a declarations in order to establish the proposition that the final certificate was conclusive evidence of the matters stated in it. FMK sought declarations that the adjudicator was validly appointed and that the Final Certificate was not conclusive evidence of the matters listed at Clause 30.9.1 of the contract.
[For a review of caselaw on Final Certificate see the Article "Approvals & Satisfaction" generally and the section "Final Certificates as Approval" in particular.]
Clause 30.9.1 of the contract provides, so far as material, that except as provided in clauses 30.9.2 and 30.9.3 (and save in respect of fraud), the Final Certificate shall have effect in any proceedings under or arising out of or in connection with the contract as conclusive evidence of the matters set out in clauses 30.9.1.1 to 30.9.1.4.
The rest of clause 30.9 provides as follows:
30.9.2 If any adjudication, arbitration or other proceedings have been commenced by either party before the Final Certificate has been issued the Final Certificate shall have effect as conclusive evidence as provided in clause 30.9.1 after either
30.9.2.1 such proceedings have been concluded, whereupon the Final Certificate shall be subject to the terms of any decision, award or judgment in or settlement of such proceedings, or
30.9.2.2 a period of 12 months after the issue of the Final Certificate during which neither Party has taken any further step in such proceedings, whereupon the Final Certificate shall be subject to any terms agreed in partial settlement.
whichever shall be earlier.
30.9.3 If any adjudication, arbitration or other proceedings have been commenced by either Party within 28 days after the Final Certificate has been issued, the Final Certificate shall have effect as conclusive evidence as provided in clause 30.9.1 save only in respect of all matters to which those proceedings relate.
30.9.4 Where ... either Party wishes to have a dispute or difference on which an Adjudicator has given his decision on a date which is after the date of issue of the Final Certificate finally determined by arbitration or legal proceedings, either Party may commence arbitration or legal proceedings within 28 days of the date on which the Adjudicator gave his decision.
Clause 41A provides, so far as material, as follows:
41A.2.2 where either Party has given notice of his intention to refer a dispute or difference to adjudication then ... any application of the nominator must be made with the object of securing the appointment of, and the referral of the dispute or difference to, the Adjudicator within 7 days of the date of the notice of intention to refer.
41A.3 If the Adjudicator dies or becomes ill or in unavailable for some other cause and is thus unable to adjudicate on a dispute or difference referred to him, then either the Parties may agree upon an individual to replace the Adjudicator or either Party may apply to the nominator for the nomination of an adjudicator to adjudicate that dispute or difference; ...
41A.4.1 When ... a Party requires a dispute or difference to be referred to adjudication then that Party shall give notice to the other Party of his intention to refer the dispute or difference, briefly identified in the notice, to adjudication. If an Adjudicator is agreed or appointed within 7 days of the notice then the Party giving the notice shall refer the dispute or difference to the Adjudicator ('the referral') within 7 days of the notice. If an adjudicator is not agreed or appointed within 7 days of the notice the referral shall be made immediately on such agreement or appointment. The said Party shall include with that referral particulars of the dispute or difference together with a summary of the contentions on which he relies, a statement of the relief or remedy which is sought and any material he wishes the Adjudicator to consider ...
41A.5.6 Any failure by either Party ... to comply ... with any provision in requirement under clause 41A shall not invalidate the decision of the Adjudicator.
Section 108(2) of the Housing Grants, Construction and Regeneration Act 1996 ("the Act") provides:
"The contract shall -
(a) enable a party to give notice at any time of his intention to refer a dispute to adjudication;
(b) provide a timetable with the object of securing the appointment of the adjudicator and referral of the dispute to him within 7 days of such notice."
Bennett submitted that Clause 41A.2.2 of the contract was designed to give effect to Section 108(2)(b) of the Act.
Judge Havery decided that Clause 41A.2.2 did not provide a timetable for securing the appointment of the adjudicator. He also observed that nor, indeed, did the Scheme for Construction Contracts contained in Part 1 of the schedule to 1998 S.I. No 649.
Bennett's first argument was that Clause 41A.2.2 of the contract had not been complied with. The application to the nominator was not made until the afternoon of the seventh day after the service of the notice of intention to refer the dispute to adjudication. It was argued that it was highly improbable that that would have led to a nomination on the same day, as the solicitor making the application must have known. Thus the application could not have been made with the object of securing the appointment of the adjudicator within 7 days of the date of the notice of intention to refer. It was not relevant, Bennettt submitted, that the delay had been occasioned by reason of a family bereavement of the fee earner with conduct of the matter.
When Bennett's point was raised before the adjudicator, he considered that he would be acting improperly in placing Bennett in the position of defending an adjudication that was probably fatally flawed. In consequence, he resigned as adjudicator as of 21 April 2005.
It had not been argued, nor in Judge Havery's view could it be sensibly argued, that the state of mind of the person applying for the nomination had to be determined in order to decide whether Clause 41A.2.2 has been complied with. Judge Havery observed that Bennett's submission was that no-one applying on the last day, or at any rate the afternoon of the last day, could possibly have the necessary objective. Bennett's submission implied that there must be a time limit of about 6 days, or 6.5 days at the most.
Judge Havery held that Clause 41A.2.2 did not impose a particular time limit of less than 7 days for making the application.
FMK submitted that the provision in Clause 41A.2.2 was merely directory. FMK submitted that it could not have been intended to be mandatory given the impossibility of determining the object in mind of the person applying to the nominator. Moreover, any adjudication which proceeded to a decision was validated by Clause 41A.5.6 notwithstanding any failure to comply with any provision or requirement under Clause 41A. FMK submitted that Clause 41A.2.2 must be directory in all cases.
Judge Havery accepted FMK's submission and rejected Bennett's first argument.
Bennett's second argument was that the final certificate was conclusive evidence of its contents in all respects set out in clause 30.9.1 of the contract because the stayed adjudication proceedings were not commenced within 28 days of the issue of the certificate on 11th March.
When the same adjudicator was re-appointed on 26 April, Bennett took the second point and accordingly the adjudication proceedings were stayed.
The first question that I must consider in this connection is whether the issue on 6 April 2005 of the first notice of intention to refer the matter to adjudication was sufficient to comply with clause 30.9.3 of the contract so as to prevent the final certificate from being conclusive evidence of the matters to which the earlier (and indeed the later) adjudication proceedings relate.
Bennett submitted that the first notice of intention was of no effect for the purposes of Clause 30.9.3 since the adjudication proceedings that flowed from it had been abandoned without a decision. Whilst clause 30.9 did not expressly contemplate such a situation, it envisaged that the proceedings would be pursued to a decision, which would then take effect in lieu of the final certificate, unless the parties compromised their dispute. (If the parties compromised their dispute, the provisions of clause 30.9, and the terms and effect of the final certificate, would become irrelevant).
Bennett submitted that the provisions of clause 30.9.4 were relevant: where adjudication proceedings were commenced within time, then in effect the 28 day timetable was put back to the date of the adjudicator's decision in those proceedings.
Bennett submitted that the "matters to which those proceedings relate" in clause 30.9.3 could not be determined by reference only to a notice of intention to refer a dispute to adjudication, since the scope of the dispute must be determined also by reference to the referral notice. Bennett relied on paragraph 34 of the judgment of His Honour Judge Anthony Thornton EC in Fastrack Contractors v Morrison [2000] B.L.R. 168, 179.
It followed from FMK's case, submitted Bennett, that a party seeking to take issue with a final certificate need do no more than serve, within 28 days, a notice of intention to refer a disputed matter to adjudication. The party would need to do nothing further. It would be at liberty to bring subsequent proceedings at such time as it considered convenient. Such a conclusion would render clause 30.9.4 pointless.
Judge Havery accepted Bennett's argument but only to the extent that if the referring party abandoned adjudication proceedings by simply not pursuing them, then the salvo in clause 30.9.3 ceased to apply. He observed however, that was not the position in the instant case.
There were submissions made on the effect of Clause 41A.3 of the contract. The question was whether, by resigning, the adjudicator was "unavailable from some other cause". Judge Havery considered it was not necessary to answer the question, but that his answer would be that unavailability by reason of resignation subject to further appointment was such conditional unavailability as to be circumstances falling within clause 41A.3.
Judge Havery found that apart from the issue of a new notice of intention to refer the matter to adjudication, which was not required by Clause 41A.3 where that clause applied, the procedure envisaged in that clause was in fact adopted. The new notice of intention was in the same terms as the old; and it was the same dispute or difference that was referred to the adjudicator. Judge Havery held that where the Clause 41A.3 procedure did apply and had been adopted, the salvo in Clause 30.9.3 continued to apply.
Judge Havery held that the words "those proceedings" in clause 30.9.3 must be interpreted accordingly. That was the obvious intention of the language, taken as a whole. There was no reason why the position should be different where the adjudicator's unavailability and his inability to adjudicate on the dispute or difference could be cured by a further referral to the same adjudicator. There was no reason why the re-appointment of the same adjudicator should negative the application of the salvo to clause 30.9.3 whereas the appointment of a new adjudicator when the previous adjudicator was ill should not.
Judge Havery held that the word "those proceedings" in relation to adjudication in the salvo to Clause 30.9.3 was wide enough to include, and did include, new adjudication proceedings brought by a referring party in relation to the same dispute or difference as was the subject of earlier adjudication proceedings brought by the same party which had been rendered abortive through no action or omission of the referring party. If the issue of the new notice of intention was not necessary, the new notice could be treated as surplusage.
Bennett submitted that it was the referral notice that completed the commencement of proceedings. If that were right, then clause 30.9.3 would not be applicable to the first reference, let alone the second reference.
Bennett referred to a passage in Keating on Building Contracts, seventh edition, paragraph 18-430 at page 791 to the effect that proceedings are commenced in adjudication by a written notice to refer to adjudication. Bennett submitted that the passage was wrong.
Judge Havery rejected that submission. Judge Havery held that for the purposes of clause 30.9.3, which provides a short time period with a strict time limit, failure to comply with which leads to serious consequences analogous to the consequences of limitation provisions, "commencement" referred to service of the notice of intention.
Delay in the appointment of an adjudicator could lead to failure on the part of an applicant to serve a referral notice within 28 days after the issue of the final certificate through no fault on his part. It would take clear works to that effect to lead to such a conclusion.
Clause 30.9.3 referred also to the commencement of arbitration proceedings. For the purposes of limitation, arbitration proceedings before a sole arbitrator are commenced by giving of a notice to concur in the appointment of an arbitrator: see Mustill and Boyd The Law and Practice of Commercial Arbitration in England, second edition, pg 169. Judge Havery held that it was contemplated by clause 30.9.3 that an arbitration could be commenced before the appointment of the arbitrator; and the same, mutatis mutandis, applied in relation to the appointment of an adjudicator.
Judge Havery declared :