Adjudication
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KEYWORDS: |
Adjudication, Housing Grants Construction and Regeneration Act 1996, repudiation, dispute, time for payment, evidence, allegations of fraud, stay, HH Judge Wilcox. |
The decision in All In One Building & Refurbishments Limited v Makers UK Limited [2005] EWHC 2943 (TCC) on 19 December 2005 by HHJ David Wilcox is unremarkable in terms of the propositions of law, since it applies principles clearly established in other cases. What is of interest are the facts and the approach that is to be taken by adjudicators in dealing with evidence and the lack of it, and when faced with an allegation of fraud.
Makers engaged AIO under a sub-contract dated 22 November 2004 to refurbish flats in a development at Northampton. AIO used agency labour and hired in necessary plant.
On 29 July Makers issued a notice of intention to determine the sub-contract alleging that AIO had no supervision or labour on site to carry out the works and gave AIO five days to remedy the situation.
On 29 July 2005 AIO issued a written Confirmation of Verbal Instruction (CVI) for Makers alleged verbal instruction that all AIO's labour was to leave site at 9.30 am.
On 12 August AIO wrote to Maker recording that AIO were excluded from the project's premises and therefore no longer had possession of the site. AIO alleged that Makers was in repudiatory breach of contract and that as a result AIO was no longer bound by the sub-contract. AIO purported to terminate its employment under the sub-contract.
On 15 August AIO sent a draft assessment of account for £547,411.05. It was made up of five items. Four of those items were supported by eleven spreadsheets with detailed information of the contract schedule of works, instructions, flooring package, materials on site and loss and expense. The fifth item was for loss of overheads and profit on the incomplete works arising out of the alleged repudiatory breach by Makers in the sum of £159,912.59 based on 21.10%. No breakdown was given.
On 15 August AIO served a notice of referral invoking the adjudication procedure drafted by its solicitors.
The referral notice stated the nature of the dispute as non payment by Makers of AIO's Interim Application dated 15 August 2005 for which £309,866.90 was alleged to be outstanding together with VAT.
Makers submitted that at the time of the referral, there was no dispute.
Judge Wilcox observed that it was a matter of fact whether a dispute has arisen. Denial of a claim gave rise to a dispute and a denial of a claim could be express or by conduct. Judge Wilcox observed that in Collins Ltd v Baltic Quay Management (1994) Ltd [2005] 1 BLR the Court of Appeal approved the approach of Jackson J as to some relevant considerations for a court ascertaining whether or not a dispute had arisen in Amec Civil Engineering Ltd v Secretary of State for Transport, October 2004. Judge Wilcox considered that the propositions 4, 5 and 7 of that judgment were relevant to the instant case:
"4. The circumstances from which it may emerge that a claim is not admitted are Protean. For example, there may be an express rejection of the claim. There may be discussions between the parties from which objectively it is to be inferred that the claim is not admitted. The respondent may prevaricate, thus giving rise to the inference that he does not admit the claim. The respondent may simply remain silent for a period of time, thus giving rise to the same inference.
5. The period of time for which a respondent may remain silent before a dispute is to be inferred depends heavily upon the facts of the case and the contractual structure. Where the gist of the claim is well known and it is obviously controversial, a very short period of silence may suffice to give rise to this inference. Where the claim is notified to some agent of the respondent who has a legal duty to consider the claim independently and then give a considered response, a longer period of time may be required before it can be inferred that mere silence gives rise to a dispute.
7. If the claim as presented by the claimant is so nebulous and ill-defined that the respondent cannot sensibly respond to it, neither silence by the respondent nor even an express non-admission is likely to give rise to a dispute for the purposes of arbitration or adjudication."
Makers relied upon passages in Fast Track Contractors v Morris [2000] 1 BLR 171 at p.176 and in KNS Industrial Services (Birmingham) Ltd v Sindall Ltd [2000] Con LJ 170 at p.179 for what constituted a dispute. These early helpful analyses with others were considered in Amec and Baltic Quay.
Judge Wilcox considered that the proper approach was to adopt a rigorous and common sense approach, bearing in mind that the issues arose in a comparatively modest construction dispute and there was no warrant for being legalistic and overly technical when considering what labels were used when identifying whether and what dispute has arisen. He considered that the court must look to the substance of the claims identified and denied and not to the descriptive labels variously attached by lay persons and professionals.
Judge Wilcox held that in the instant case a dispute had arisen.
Makers argued that the original demand for payment was an interim application so that the claim could not be considered as a dispute until the 30 days contractually allowed for interim payments had lapsed.
Judge Wilcox did not accept this arguments. He found that by 13 August it was clear that both parties accepted that the contract had wrongfully been brought to an end although each party blamed the other for being the contract breaker. He found that Makers were not going to pay what was claimed by AIO for the alleged financial consequences of the breach. By the time of the notice of referral there was a dispute on the claims.
Maker's fallback argument was that the assessed figures were akin to a draft final account, and that because under the contract two months was allowed for payment of a final account a dispute would not crystallise until the expiration of that period.
Judge Wilcox held that a distinction must be drawn between the date for payment and an entitlement to payment. It was the entitlement to payment that was being denied in relation to the claims. The contract may prescribe a time when payment becomes due and that may be a material factor amongst many others in arriving at the conclusion as to whether a claim is denied or not. It was not determinative as to whether a dispute has arisen.
Judge Wilcox found that the first four items of AIO's claim could have been accepted by Makers professional employees and had been foreshadowed. The fifth item was in a different category since the evidential detail had not been provided. Judge Wilcox held that the entitlement to such a claim was something that in principle could have been accepted or rejected. He found that it was rejected because it was a claimed consequence of the repudiatory breach that Makers said from the outset was the responsibility of AIO. Whatever the level of supporting evidence that might have been furnished, Makers would not entertain such a claim.
The fifth head of claim caused the adjudicator difficulty. He observed in his award that there was substantial inherent risk in issuing a decision on a £159,912 claim that had neither been properly evidenced nor tested.
Judge Wilcox expressed surprise that the adjudicator contemplated such a decision. He observed that if the head of claim was not proved the adjudicator should have dismissed that head of the claim. It was for the referring party to pursue and prove his claim.
Judge Wilcox held that at the time of the notice of referral there was a dispute as to the issue of interest and overhead. He did not accept that it was a nebulous or vague claim. The adjudicator had jurisdiction for this element of claim. AIO accepted the adjudicator's belated invitation to pursue this aspect of the claim by providing the appropriate detail in evidence rendering it evidentially viable and Makers sought further time to respond to the late particularised claim.
Maker's argued that the decision of the adjudicator to deal with the fifth head of claim for the profit and overhead claim as repudiation damages, offended against the rules of natural justice. Makers argued that the adjudicator carried out an independent exercise which had not been contended for by either party, namely to fix a figure of 8.6% as appropriate for lost profit and overheads.
Judge Wilcox observed that the adjudicator was an experienced quantity surveyor so that such assessments were within his expertise. Judge Wilcox found that the adjudicator used material put before him by AIO and some documentation which originally had emanated from Makers showing that at 25 July 2005 a figure of 8.6% had been canvassed by Makers as an appropriate mark-up. He found that Makers had sought time to deal with this issue and were able to make submissions on 24 October 2005. Judge Wilcox found that the adjudicator came to a judgment on the evidence before him within his professional and legal competence.
Judge Wilcox held that there was no basis for concluding that there was any procedural unfairness causing prejudice to Makers.
Makers argued that the vital issues of fact underlying the disputes were resolved in an unfair way by the adjudicator, thus prejudicing Makers and offending against the rules of natural justice.
Judge Wilcox referred to Dyson LJ in Amec Payments Ltd v White Friars City Estates Ltd [2005] 1 BLR p.1 at paragraph 22.
"It is easy enough to make challenges of breach of natural justice against an adjudicator. The purpose of the scheme of the 1996 Act is now well known. It provides a speedy mechanism for setting disputes in construction contracts on a provisional interim basis, and requiring the decisions of adjudicators to be enforced pending final determination of disputes by arbitration, litigation or agreement. The intention of Parliament to achieve this purpose will be undermined if allegations of breach of natural justice are not examined critically when they are raised by parties who are seeking to avoid complying with adjudicator's decisions. It is only where the Defendants advance a properly arguable objection based on apparent bias that he should be permitted to resist summary enforcement of the adjudicator's award on that ground."
Judge Wilcox considered that central to the resolution of who was the contract breaker was whether Makers' quantity surveyor, Mr Bullen, had in fact instructed AIO off the site on 29 July 2005 and confirmed that instruction in the written CVI. An issue that the adjudicator had to decide was whether the signature of Mr Bullen was in fact a forgery and by implication who was a party to it.
Judge Wilcox found that the adjudicator concerned himself as to how best to fairly and economically to resolve the issue. On 27 September the adjudicator had made known that he would require the attendance of Mr Bullen. Judge Wilcox considered that that was a sensible consideration for the adjudicator who would be called to resolve issues of fact based upon the credit of significant witnesses. On 6 October 2005 the adjudicator wrote to the parties solicitors addressing the need for direct evidence from the other party to Mr Bullen's instruction, namely Mr Barlow the Managing Director of AIO. He asked that the statement should include the precise words used by Mr Bullen when he asked AIO to leave the site and the reasons he gave for the request, and the precise words used by Mr Barlow in his response, and the precise time and location and date when the instruction was signed.
On 10 October 2005 he asked the parties to ensure their availability for a meeting if necessary to resolve the issue as to the termination of AIO's employment on 29 July.
Solicitors for both parties communicated with the adjudicator as to unavailability of Mr Bullen and unavailability for the meeting. The adjudicator decided to proceed to a decision without a meeting.
The adjudicator's difficulties were compounded when he received from AIO the unsigned statement purporting to be from Mr Bullen in which he withdrew the assertions made in the sworn statement and went on to allege that he had been forced to make the statement by his employers (Makers) with the threat of his being made redundant by them.
By 12 October Mr Bullen was contactable. Neither the referring party or the adjudicator canvassed the possibility to invite Mr Bullen to give evidence that could be tested if in fact the retraction emanated from him. Makers was content to let the matters rest on its submission contained in the letter of 14 October. Despite having indicated that the time for submissions had passed, on 14 October the adjudicator sought further information – not as to the allegations of fraud and forgery, but to substantiate the claim of AIO as to the loss and profit.
Makers argued that the adjudicator never made it clear whether he intended to take account of the so called retraction evidence until he gave his decision.
Judge Wilcox found that Makers had made submissions on the stance it took in relation to that evidence were it to be admitted and if it were not to be admitted. The adjudicator made it clear that he was able to come to a conclusion without receiving the retraction evidence and on the papers as was contemplated by both parties.
Makers argued that since the adjudicator rightly recognised that the repudiation issue involved allegations of fraud it was extraordinary that he proceeded to a decision without giving either party an opportunity to adduce this essential evidence or to see what Mr Bullen actually had to say for himself.
Judge Wilcox observed that neither of the parties, nor the adjudicator, contemplated adjusting the timetable to enable Mr Bullen to give evidence if he consented. There was no question of denying any party the opportunity to adduce the oral evidence of Mr Bullen. The manner in which the adjudicator should treat the evidence of Mr Bullen was the subject of submission by both parties.
Judge Wilcox held that the manner in which the issue was factually resolved compared with the strict litigation approach was not satisfactory, but Makers had failed to demonstrate that there was breach of any rule of natural justice in relation to the resolution of the issue of repudiation in this adjudication procedure.
Judge Wilcox held that it was not for this court to analyse the reasoning of the adjudicator as to how he arrived at his primary factual position and then applied the law to those facts. That was a decision within the competence of the adjudicator within the scheme. Criticisms as to how the adjudicator dealt with apparent contradictions by Mr Bullen and the like were not a matter for the court.
Makers sought a stay of execution of summary judgment.
Judge Wilcox considered that the considerations to be taken into account were collected in the judgment of HH Judge Coulson QC in Wimbledon Construction Company (2000) Ltd v Vago.
There was no evidence that on receipt of the monies that the company would not continue to trade.
Judge Wilcox observed that the life blood of small construction companies was cash flow. Once that was interrupted or brought to an end the viability of such a company might be put to risk and thus the ability to repay. That too was part of the commercial risk that was taken on board by those who traded with such a company. Judge Wilcox held:
Judge Wilcox gave summary judgment for AIO and exercised his discretion by refusing a stay.
First, Judge Wilcox made the distinction between the date for payment and the entitlement to payment. It was established in this case that the entitlement to payment was denied. There was therefore a dispute even though the time for payment had not passed. Clearly that must be right on the facts.
Second, the adjudicator was faced with a claim with little evidence. Judge Wilcox's view was that the claim should have been dismissed. Despite Judge Wilcox's view and the fact that the Adjudicator did not dismiss the claim but entered into an enquiry on the facts, Judge Wilcox enforced the adjudicator's decision. That raises the issue of the adjudicator's role in adjudication proceedings. In this case the adjudicator took an inquisitorial approach and I suggest that it must be right in practice that an experienced construction adjudicator should make such an enquiry. The process of adjudication is not litigation and need not be solely an adversarial approach. Indeed one of the strengths of the process is the benefits for the parties of the inquisitorial approach, particularly when the parties are not professionally represented.
Of course the adjudicator must be careful in adopting an inquisitorial approach that he gives the parties the opportunity to make submissions and he does not go off on a frolic of his own. In this case Judge Wilcox found that the adjudicator had made his decision based on information provided by the parties. It is suggested that the decision might have been different if this was not the case.
Finally, the adjudicator was faced with the difficult issue of allegations of fraud in relation to evidence adduced. The observations of Judge Wilcox are valuable for adjudicators. He found it surprising that neither the parties nor the adjudicator examined the possibility of more time to allow evidence to be tested. In this case Judge Wilcox found that the parties had made submissions for both possibilities as to the veracity of the evidence and crucially had been given the opportunity to make submissions on those possibilities. The decision is a further example of the reluctance of the court to involve itself in the merits of the case and open up the adjudicator's decision. It is important for adjudicators to examine carefully the process they will adopt in testing the evidence adduced.