Adjudication
William Oakley v Airclear Environmental Limited (2001)

© Daniel Atkinson 2002 06 January 2002

In William Oakley v Airclear Environmental Limited (2001) the main issue was whether the Adjudicator’s decision created a debt due for the purposes of a statutory demand, which in turn depended upon the validity of the Adjudicator’s decision. The judgment examines the operation of estoppel by convention founding the jurisdiction of an Adjudicator in the absence of a contract.

In 1999 Scottish and Newcastle Retail Limited ("S&N") wished to carry out works to premises known as Bar 38, Mermaid Quay, Cardiff. William Oakley was a partner in a firm of contractors G Oakley & Sons ("Oakley"), which was invited to tender for the main contract. The Main Contract was the Intermediate Form of Building Contract 1991 Edition which was eventually executed, with amendments, by S&N and Oakley.

Airclear was listed in the Main Contract as one of a group of named possible subcontractors in relation to mechanical and air-conditioning works. The appointment of the subcontractor was required to be achieved by completion of the Document NAM/T which is in three sections. Section I is completed by the employer and is an invitation to the potential subcontractor to tender, setting out the description of the proposed subcontract works and a description of the main contract terms. Section II is the tender to be completed by the potential subcontractor and sets out the timing of any subcontract works to be carried out, the provision of insurance, and any special contractual provisions which the subcontractor wished to include in any contract. Section III sets out the terms of the subcontract agreement between the main contractor and the successful subcontract tenderer. Article 1.2 of Section III provided that the Sub-Contract Conditions were those set out in NAM/SC 1998 Edition issued by the Joint Contracts Tribunal. Article 3 of Section III provided for adjudication in accordance with Clause 35A of NAM/SC.

As is common in the construction industry, the parties did not complete the required documents. On 13^th December 1999,Oakley notified S&N that it had received no formal instruction or subcontract documentation to engage Airclear and that it could not continue to pay Airclear without proper instruction. S&N responded by stating that Section 3 of NAM/T had been issued to the named sub-contractors. Shortly after,on 20^th December 1999, Airclear faxed to Oakley a completed and signed Section III of NAM/T. Oakley never signed any version of NAM/T. Work continued and Oakley made stage payments of various “remittance advices” with deductions for “retention”, “discount” and “contra-charges”.

Disputes arose. In subsequent communications and applications to resolve the disputes, the parties took changing positions on the issue whether or not there was a contract between them. Airclear raised the issue of deductions in its letter dated 1^st February 2000 stating that there was no contract between Oakley and Airclear. Airclear’s primary position that there was no contract was repeated in a written submission dated 9^th June 2000.

On 6^th July 2000 Oakley applied to the President of the RICS for the appointment of an arbitrator citing Clause 35B of NAM/T as the clause giving the President power to make the appointment. On 1^st August 2000 Airclear invited Oakley to agree to the appointment of an Adjudicator pursuant to Clause 35A.2 of NAM/SC. Airclear notified that if the proposal was not accepted that Airclear would make application to the President of the Royal Institute of British Architects pursuant to “Section 19 of Tender and Agreement NAM/T”. The President of RICS appointed an arbitrator on 2^nd August 2000. On 4^th August 2000 Oakley recorded its surprise that Airclear was proceeding with the appointment of an Adjudicator when an arbitrator had been appointed. On 8^th August 2000 Airclear raised objections to the jurisdiction of the appointed arbitrator. On 29^th August 2000 Airclear applied to the President of RIBA for the appointment of an adjudicator who was duly appointed. On 5^th September 2000 Oakley wrote to RIBA stating that certain matters had to be decided before proceeding, including whether or not there was a contract between the parties. The adjudication proceeded but Oakley played no part following its letter of 5^th September 2000.

The adjudicator gave a written adjudication decision dated 9 October 2000 and determined that he had jurisdiction, and that the monies deducted as set-off and discount by Oakley should be released to Airclear. Oakley did not pay pursuant to the adjudicator's decision. On 19^th December 2000 Airclear served a statutory demands on Oakley pursuant to the Insolvency Act 1986, section 268(1) (a), and the Insolvency Rules 1986, rule 6. By a notice of application dated 15^th January 2001, Oakley applied to set aside the statutory demands.

On 11^th April 2001 in the Cardiff County Court, His Honour Judge Chambers QC refused to set aside the statutory demands. Oakley appealed. Mr Justice Etherton heard the appeal in the High Court of Justice Chancery Division. Judgment was made on 4^th October 2001.

Oakley argued that there was no contract between Oakley and Airclear, or, in any event, there was no contract incorporating NAM/SC and NAM/T. On this basis argued Oakley, the adjudicator had no jurisdiction and his decision was a nullity. Oakley also argued that even if there was such a contract, it was not a contract in writing within Section 107 of the 1996 Act. Oakley argued that on either or both of the first two grounds the debt underlying the statutory demands was disputed on substantial grounds within rule 6.5(4)(b) of the Insolvency Rules 1986.

It was held that there was no concluded agreement between Oakley and the Airclear in the form NAM/T, incorporating NAM/SC. Section I of NAM/T, which Oakley did not see, and Section II of NAM/T, which was never completed, contained provisions that were central to the contract, including a description of the subcontract works and provisions fixing the time for commencing and carrying out the subcontract works. Knowledge and agreement by Oakley to the description of the subcontract works in Section I would have been of particular importance to Oakley since, under the terms of clause 2.2 of NAM/SC, in the event of any discrepancy between the Main Contract and the subcontract documents, the terms of the subcontract documents were to prevail. It was held that the absence of knowledge of, and express agreement by, Oakley to those matters, and also, for example, to the question of insurance and of the treatment of VAT, which ought to have been addressed in Sections II and III of NAM/T, were inconsistent with any intent by Oakley to enter into a formal contract in the terms of NAM/T. The correspondence, including, in particular, the faxed memo of 13 December 1999 was also consistent with this conclusion.

Parliament has provided, by sections 107 and 108 of the 1995 Act, that only certain contracts will carry with them the right to the adjudication process. If a contract does not fall within those provisions, then the adjudication process, however desirable either generally or on the facts of a particular case, simply does not apply. It was held in the present case the learned County Court Judge rightly came to the conclusion that there was no formal written contract made by the parties which fell within the provisions of sections 107 and 108 of the 1996 Act.

The next issue was whether the parties were bound by estoppel by convention which would validate the Adjudicator’s decision. Airclear and Oakley had changed their position as to the existence of a contract in the NAM/T form, and the application of the NAM/SC conditions, in accordance with changing perceptions of what would be tactically advantageous. Airclear’s original position was that there was no contract at all as exemplified by the letter dated 1 February 2000, and the submissions in June 2000. The learned County Court Judge held, that, by virtue of their conduct and common assumptions, Oakley were bound by an estoppel by convention from denying that there was a subcontract in the NAM/T form, incorporating NAM/SC and, in particular, their dispute resolution provisions. It was held that the learned County Court Judge was entitled to find, on the facts, that, at the time of the application for the appointment of the adjudicator by the Airclear, there was a common assumption by the Airclear and Oakley that their contractual relations were governed by NAM/T and NAM/SC, including, in particular, their dispute resolution provisions. The learned Judge plainly had material on which he could properly come to the conclusion of a common assumption, sufficient to found an estoppel by convention, that, at the time of the application for the appointment of the adjudicator, the provisions of NAM/T and NAM/SC were binding on the parties.

The learned County Court Judge also held that in the letter of 5 September 2000 from Oakley to the adjudicator, which was copied to Airclear, Oakley resiled from that common assumption, but that it was too late for them to do so. Mr Justice Etherton on appeal did not accept this part of the first instance decision.

The Court will only hold a party bound by an estoppel by convention if and to the extent that it would be unconscionable for that party to deny the common assumption. In Furness Withy (Australia) Pty Limited v Metal Distributors (UK) Ltd (The "Amazonia") [1990] 1 Lloyd's Rep 236, 251, Dillon LJ said:

"The modern formulation of the question to be asked where there is a question of estoppel by convention is that the Court should ask whether in the particular circumstances it would be unconscionable for a party to be permitted to deny that which knowingly or unknowingly he has allowed or encouraged another to assume to his detriment."

In Hiscox v Outhwaite (No 1) [1992] 1 AC 562, 575, Lord Donaldson MR, having referred to the judgment of Bingham LJ in The Vistafjord [1988] 2 Lloyd's Rep 343 said:

"For present purposes all that need be said is that his judgment is authority for the proposition that estoppel by convention is not confined to an agreed assumption as to fact but may be as to law, but the court will give effect to the agreed assumption only if it would be unconscionable not to do so and that once a common assumption is revealed to be erroneous estoppel will not apply to future dealings."

It was held that estoppel by convention binds the parties if and to the extent only that asserting the true legal or factual position would be unconscionable in view of the detriment that would be suffered by the other party as a result of resiling from the common assumption. In the present case, the learned Judge held that Oakley sought to resile from the common assumption as to the NAM/T contract, and the application of the NAM/SC conditions, by its letter of 5 September 2000. It was clear from his adjudication decision that the adjudicator took that letter to be a denial of his jurisdiction. There was no challenge to that important finding by the Judge in Airclear’s Notice. Accordingly, the resiling from the common assumption by the Appellants was at the earliest possible stage of the adjudication process. The evidence did not establish what was the detriment suffered by Airclear that rendered it unconscionable for Oakley to withdraw from the common but incorrect assumption at that time.

It was held that there was nothing unjust or inequitable in Oakley resiling from the common assumption, by its letter of 5 September 2000. At that time Airclear had applied for the appointment of an adjudicator. Airclear had obviously incurred some cost in so doing, and would probably have rendered itself liable for any costs and expenses of the adjudicator incurred up until that point. The adjudication had not, however, at that stage progressed beyond the actual application and appointment. Airclear had not made a formal written submission to the adjudicator. This was not done until 10 September 2000. There is no evidence before the court as to the cost incurred by Airclear in relation to the adjudication up until 5 September 2000, but it was considered not to be substantial. It was held that in the absence of any express finding by the learned Judge that it was unconscionable for Oakley to resile from the common assumption on 5 September 2000 or, if that is implicit in his judgment, as to the basis for the finding, there was no, or at any event insufficient evidential material to draw the conclusion that it was unconscionable for the Oakley so to resile.

Accordingly, it was held that the Adjudicator was not validly appointed and that his decision was a nullity and the appeal was allowed. This disposed of the issue. Mr Justice Etherton QC did however consider further points in relation to the application of Section 107 of the 1996 Act and claims in quantum meruit.

Mr Justice Etherton QC decided that neither the application by Oakley for the appointment of an arbitrator, nor the correspondence of Airclear in response to it, were "written submissions" in arbitral proceedings. The arbitration never got to the stage of written submissions in view of Airclear’s challenge to the appointment of the arbitrator. An argument based on Section 107(5) was therefore plainly wrong.

Mr Justice Etherton QC also decided that all the terms of any contract between Oakley and Airclear were not evidenced in writing within sub-sections 107(2)(c) and (4) of the 1996 Act.

It was argued that even if there was no written agreement in the NAM/T form, incorporating NAM/SC, the statutory demands were valid since Airclear was entitled to the amounts claimed in view of the value of the work it had done on the Site. Mr Justice Etherton QC decided that the Particulars of Debt given in the statutory demands were couched so as to rely upon the decision of the adjudicator, on the existence of a standard NAM/SC subcontract, and to remittance advice slips provided under that contract, and not on quantum meruit. Accordingly, the statutory demands did not properly show the legal basis for the debt demanded. If the basis of the alleged debt was now to be based on a right to payment on a quantum meruit, it would not be right to permit the statutory demands to stand. The threat of insolvency proceedings was not the proper way to resolve the dispute between the parties.