.Adjudication
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KEYWORDS: |
Adjudication, Housing Grants, Construction and Regeneration Act 1996, letter of intent, contract payment mechanism, residential occupier, termination, unfair contract terms, Judge Peter Coulson QC. |
The judgment of HH Judge Coulson QC on 27 May 2005 in Allen Wilson Shopfitters v Mr Anthony Buckingham [2005] EWHC 1165 (TCC) is unremarkable, but does summarise the decided cases on challenges on the basis of the Unfair Terms in Consumer Contracts Regulations 1999. There is also an interesting analysis on the possible consequences on the contractual machinery for payment, of an appointed contracts administrator being sacked and not replaced.
During 2004 and January 2005, AWS carried out extensive building work at Buckingham's property at Clob Copse House in Bucklers Hard, Beaulieu ("the property") The value of the work actually carried out was over £500,000.
Although Buckingham had engaged a firm of quantity surveyors to manage the refurbishment works at the property and to act as the contract administrators, he terminated their engagement on 3 January 2005 so there was no longer someone to carry out the role of supervising officer.
AWS submitted Valuation 12 to Buckingham in the total sum of £80,729.14. On 25 January 2005 Buckingham paid all but £17,757.14. On 24 January 2005 AWS submitted Valuation 13 in the total sum of £32,644.21, of which nothing was paid by Buckingham. Accordingly, on AWS's case, by the beginning of February 2005, the total sum of £50,401.35 in respect of Valuations 12 and 13 was outstanding. Other than the payment on 25 January, there was no detailed response from Buckingham in respect of either Valuation 12 or Valuation 13.
On 1 February 2005, AWS suspended its work at the property, due, it said, to non-payment.
On 8 March 2005, AWS issued a Notice of Adjudication and identified dispute "under your contract with us .. because of your continued failure to make payment in accordance with the terms of the contract". The Referral Notice limited the claim to the unpaid sum of £50,401.35.
On 30 March 2005 Buckingham's solicitors served the Response which took four points challenging the Adjudicator's jurisdiction, namely that:
- There was no written contract in respect of the works which were the subject of the adjudication;
- Any contract had been terminated and was therefore irrelevant and could not give the Adjudicator jurisdiction;
- The works concerned the refurbishment of a dwellinghouse and were therefore excluded from the adjudication provisions out in the Housing Grants, Construction and Regeneration Act 1996 ("the 1996 Act");
- Any agreement to adjudicate was contrary to the Unfair Terms in the Consumer Contracts Regulations 1999.
The Response was expressly limited to these jurisdictional challenges and stated, in terms, that it contained no defence on the merits or the detail of AWS's claims within Valuations 12 and 13.
On 20 April 2005, the Adjudicator published his decision, in which he summarily rejected the four points taken by Buckingham as to his lack of jurisdiction and awarded AWS £50,401.35, together with interest and certain other fees.
On 6 May 2005 AWS applied to Judge Coulson QC to enforce the adjudicator's decision.
In the proceedings before Judge Coulson, Buckingham denied that AWS was entitled to the sums awarded by the Adjudicator, although there remained no breakdown of Buckingham's version of AWS's account as set out in Valuations 12 and 13. There was no withholding notice or similar document and there was no pleaded or written counterclaim for defects, incomplete work or delay.
Judge Coulson first examined whether or not there was a contract between the parties, by examining two letters of intent.
On 21 July 2004 Buckingham sent out the first letter of intent. This was signed and returned by AWS. As is all too common in the construction industry, no formal contract documents were ever prepared and certainly none were ever executed.
After examination of the terms of the first letter of intent, Judge Coulson held that there was a Contract, evidenced in writing, pursuant to which:
The JCT 1998 Edition incorporated a detailed set of adjudication provisions at Clause 41A. Article 5 of that edition of the JCT Contract was in clear terms:
"If any dispute or difference arises under this Contract, either party may refer it to adjudication in accordance with Clause 41A."
The JCT Edition also allowed the architect or supervising officer to instruct variations and additional works on behalf of Buckingham. Clauses 4 and 13 of the 1998 Edition contained detailed provisions dealing with such instructions and variations in standard terms; importantly, these Clause permitted the architect or supervising officer to instruct the contractor to perform additional work outside the original contract work scope.
Accordingly, Judge Coulson held that any dispute between the parties arising under, or in connection with the Works performed pursuant to the Contract set out in the first letter of intent would be referable to adjudication pursuant to the express terms.
A second letter of intent was issued on 8 November 2004 designed to sweep up all the Works to be carried out at the property in one lump package, and it introduced the bulk of the schedule 4 works which had not been expressly included in the first letter of intent. By that stage, at least some of that work had already been instructed as additional work under Clauses 4 and 13, and had been carried out by AWS.
The second letter of intent endeavoured to set out a proposed agreement in which all of the proposed Works could be carried out and completed for £650,250, including VAT.
AWS did not sign this second letter of intent. This was apparently a deliberate decision on its part and not mere inadvertence.
Judge Coulson held that because the second letter of intent was deliberately never signed or returned by AWS, it had no contractual significance - the only contractual document was the first letter of intent, dated 21 July 2004.
In the adjudication, Buckingham's principal point was that, in the absence of an agreement as per the second letter of intent, there was no express agreement to adjudicate any disputes arising out of Valuations 12 and 13 and the work which was the subject matter of those Valuations. It was argued that the work which was the subject of Valuations 12 and 13, being work included within the bulk of schedule 4, was accordingly not covered by the Contract comprised by the first letter of intent.
The work which was the subject matter of Valuations 12 and 13 like much of the work carried out by AWS at the property, and paid for by Buckingham, was not included within the two specific lump sum items in the first letter of intent.
Judge Coulson held however that it was work carried out by AWS and paid for by Buckingham because it was work which the supervising officer instructed AWS (on behalf of Buckingham) to carry out. Accordingly, the work in Valuations 12 and 13 was work instructed under Clause 13 of the JCT 1998 Edition which was itself expressly incorporated into the Contract comprised within that first letter of intent.
Judge Coulson held that the work in Valuations 12 and 13 was carried out pursuant to a Contract which contained an express agreement to adjudicate.
Judge Coulson held that in the circumstances the work which was the subject matter of the Adjudicator's decision was carried out as extra or varied work under a Contract which contained express agreement to adjudicate. The Notice of Adjudication identified the dispute being referred to the Adjudicator as a failure to make payment for that work in accordance with that Contract. Judge Coulson held that accordingly the Adjudicator had the necessary jurisdiction to reach his decision and it ought therefore to be enforced.
A complication was introduced by both parties by arguments concerning the Contract payment machinery. Without a replacement supervising officer after the sacking of the quantity surveyors, AWS was unclear how it could claim its perceived financial entitlement arising out of Valuations 12 and 13. In the Referral Notice, AWS put its claim by reference, not to the payment mechanism in the Contract, but to the payment provisions set out as part of the Scheme in the 1996 Act. Buckingham challenged on the basis that he was a residential occupier of the property, the Act could not apply and the Adjudicator had no jurisdiction.
Judge Coulson held that the precise nature of the contractual payment machinery operating in January and February 2005 was an issue which did not affect the enforcement proceedings. The Adjudicator derived his jurisdiction, to consider claims in respect of the work which was the subject of Valuations 12 and 13, from the terms of the Contract and the Notice of Adjudication. He concluded that the sums claimed in Variations 12 and 13 were due and payable by Buckingham. Any enquiry into the precise status of Valuations 12 and 13 was entirely a matter for him. Since the Adjudicator had the jurisdiction to consider what was due by reference to Valuations 12 and 13, it is not for the court to review the correctness of that decision.
Judge Coulson referred to the decision of the Court of Appeal in C&B Scene Concept Design Limited v Isobars Limited [2002] E.W.C.A. Civ. 46. There the Court of Appeal allowed an appeal in which the recorder had refused to enforce the decision of the adjudicator on the ground that he had wrongfully endeavoured to enforce the contract terms, rather than the scheme under the 1996 Act. In allowing the appeal, Sir Murray Stuart-Smith said:
"29 ...The Adjudicator's jurisdiction is determined by and derives from the dispute that is referred to him. If he determines matters over and beyond the dispute, he has no jurisdiction. But 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 entitlement to receive payment following receipt by the Employer of the Contractor's Applications for interim payment Nos 4, 5 and 6 ... In order to determine this 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 of failure to serve a timeous notice by the Employer. Even if he was wrong on both these points that did not affect his jurisdiction.
30. It is important that the enforcement of an adjudicator's decision by summary judgment should not be prevented by arguments that the adjudicator has purported to decide matters that are 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 is that he has to decide. If he erroneously decides that the dispute referred to him is wider than it is, then, in so far as he has exceeded his jurisdiction, his decision cannot be enforced. But 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, is still binding and enforceable until the matter is corrected in the final determination."
In the instant case, the Notice of Adjudication sought payment of the £50,000-odd made up of two sums due by reference to interim Valuations, nos 12 and 13, issued under the Contract. The dispute which was referred to the Adjudicator in those terms was wide enough to allow him to reach the decision which he did. On one analysis, the most that can be said was that the Adjudicator has done the exact opposite of what the Adjudicator did in C&B Scene; the instant adjudicator applied the Scheme under the Act rather than the Contract payment mechanism. However, the point of principle was precisely the same: his choice of payment mechanism might be incorrect, but it did not affect his jurisdiction.
For the avoidance of doubt, Judge Coulson recorded that the Contract, including the agreement to adjudicate, continued to govern any disputes as to valuation and payment arising out of Valuations 12 and 13, and that no jurisdictional challenge, based on the 1996 Act, were open to Buckingham in any event. He gave four reasons for these conclusions.
Accordingly, Judge Coulson held that whether there was anything in the point about the status of Valuations 12 and 13 and the precise operation of the Contract payment machinery (which he did not accept) it did not affect the conclusion that the Adjudicator had the necessary jurisdiction to consider the claims set out in Valuations 12 and 13 and to make a decision based upon them.
That disposed of the application, but for completeness Judge Coulson dealt with three other matters which were raised in the course of argument.
Judge Coulson considered that the property was one of Buckingham's residences and that he was therefore a residential occupier. Accordingly, if the Adjudicator's jurisdiction had derived from the 1996 Act, then he would not have had jurisdiction because s.106(1)(a) would have applied.
Judge Coulson emphasised that in this case the Adjudicator's jurisdiction did not derive from the 1996 Act but from the Contract agreed between the parties and, therefore, the residential occupier point does not arise.
Judge Coulson considered that Buckingham's argument that because the Contract had been terminated, it was therefore irrelevant was manifestly a bad one. The Contract may have come to an end, but the parties' accrued rights and liabilities under the Contract remained for the Adjudicator to determine. AWS had an accrued right in respect of Valuations 12 and 13, and the subsequent termination of the Contract did not alter or affect that right.
Further the suggestion that AWS had terminated the Contract by its letter of 1 December was wholly wrong. After 1 December, works continued at the property and, in early January, although Buckingham sacked the quantity surveyors, he expressly told AWS that he was taking over the administration of the Contract himself. The continuing existence of the Contract was affirmed by both parties repeatedly after 1 December. In those circumstances the Contract was not, and could not have been, terminated by AWS's letter of 1 December in any event.
Judge Coulson rejected as a matter of principle the argument that the adjudication provisions in the Contract should be struck out as offending against the Unfair Terms in Consumer Contract Regulations 1999. He adopted the phrasing of His Honour Judge Thornton QC in Westminster Building Company Ltd v Beckingham [2004] B.L.R. 163 at p. 170, the adjudication agreement would be unfair and, hence, not binding on Mr Buckingham if:
The only authority of which Judge Coulson was aware in which it was found that adjudication provisions might contravene these Regulations was Picardi v Cuniberti [2003] B.L.R. 487. There, His Honour Judge Toulmin C.M.G. held that relevant conditions, including an adjudication agreement, had not in fact been incorporated into the contract. Therefore his remarks about the Regulations were obiter. Furthermore, there was little doubt that one of the principal reasons why the learned judge came to the view that, if there had been an adjudication agreement, it may have offended against the Regulations, was because the proposed adjudication agreement in that case had been originally put forward by Claimant architect, so that, if he had been able to establish the contract for which he contended, he could then have relied upon that agreement.
In Westminster v Beckingham itself, Judge Thornton rejected the suggestion that the term was unfair on the facts with which he had to deal. Importantly, he found at paragraph 21:
"The terms of the contract were decided upon by Mr Beckingham's agents who are chartered surveyors, and Mr Beckingham had, or had available to him, competent and objective advice as to the existence and effect of the adjudication clause before he proffered and entered into the contract. Westminster did no more than accept the contract terms offered and had not reasonable need to draw to Mr Beckingham' attention the potential pitfalls to be found in the adjudication clause and in its operation during the course of the work. The clause did not therefore contravene the requirement of good faith (see especially the speech of Lord Bingham in the case of Director-General of Fair Trading v The First National Bank plc [2002] 1 A.C. 481)."
Judge Coulson considered that the instant case was precisely on all fours with the decision in Westminster and the same result should apply.
Judge Coulson suggested that a more comprehensive review of the authorities was provided by His Honour Judge Richard Seymour QC in Bryen & Langley Limited v Martin Rodney Boston [2004] E.W.H.C. 2450. Again the judge ruled that the adjudication agreement was not unfair. Again it was a highly material face that there (as in the instant case) the Claimant's agents had proffered the contract terms, which included the adjudication agreement. Judge Coulson agreed with and adopted Judge Seymour's comments at paragraphs 43 and 44 of his judgment. In particular, he agreed with his commonsense conclusion that:
"While it may be going too far to say that a building contractor who merely, without more, accepts a proposal from a 'consumer' as the terms of the contract to be made between them could never contravene the requirement of good faith, it is difficult to envisage circumstances in which the criticism could properly be made that the contractor had acted contrary to the requirement of good faith in such a case."
For all those reasons, Judge Coulson rejected the suggestion that the adjudication agreement in the JCT conditions in the instant case was unfair to Buckingham, pursuant to the Unfair Terms in Consumer Contracts Regulations 1999.
Judge Coulson held that the Adjudicator had the necessary jurisdiction to reach the decision he did and granted summary judgment to AWS for the following:
Judge Coulson recorded his sympathy for Mr Buckingham's position, not because he had any defence to the enforcement claim (because he did not) but because it seemed that he had apparently been let down by his previous professional advisors. In particular, it seemed that the disputes arose because there was not in place a clear lump sum Contract at the outset covering all the proposed Works at the property. Judge Coulson observed that if work begins on site without a lump sum agreement in place, events can quickly mean that the parties move apart, rather than together, and the prospect of ever agreeing a lump sum recedes into the distance. Unhappily for Buckingham, that seem to be what happened. These difficulties were then compounded by the curious decision not to advance any case at all on the merits in the adjudication.
These points did not and could not give Mr Buckingham any sort of defence to enforcement proceedings.