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Adjudication
Jamil Mohammed v Dr. Michael Bowles [2002]

Daniel Atkinson 13 April 2003


KEYWORDS: Jamil Mohammed v Dr Michael Bowles (Bankruptcy Registrar 2002) [2003]AdjLR03/14, Austin Hall Building Ltd v Buckland Securities Ltd [2001] BLR272, George Parke v The Fenton Gretton Partnership [2002] CILL1712, Macob Civil Engineering Limited v Morrison Construction Ltd [1999] BLR93, Oakley v Airclear Environmental Ltd [2002] CILL1824, The Project Consultancy Group v Trustees of Gray Trust [1999] BLR377, Housing Grants Construction and Regeneration Act 1996, Insolvency Act 1986, Section 268(1)(a), Insolvency Rule 6.5(4), Insolvency Rules 1986, statutory demand, decision, debt, binding contractual obligation, set aside, Registrar Derek.

The decision in Jamil Mohammed v Dr Michael Bowles [2002] examines whether a statutory demand based on an adjudicator's decision could be set aside on the basis of an objection to jurisdiction or on the basis that the adjudicator's decision was not directly enforceable and could not therefore be a debt.

The facts were as follows. Mohammed was a building contractor and had entered into a contract with Dr Bowles to perform building works at his home. In October 2001 as a result of Mohammed's financial difficulties, arrangements were put in place to enable Mohammed to finish the contract as evidence by letters dated 6th and 10th October 2001between Dr Bowles and the Architect. Eventually Dr Bowles invoked the dispute procedure under Article 6 of the contract and referred the dispute to adjudication. A Notice of Adjudication was issued on or about 18th March 2002 and the adjudicator issued her Decision on 10th May 2002. From the outset Mohammed disputed the jurisdiction of the adjudicator. The adjudicator considered these matters in her decision, determined that she had jurisdiction and ordered that Mohammed should pay Dr Bowles the sum of 26,495.54. No payment was made.

A statutory demand dated 12th September 2002 was served under section 268(1)(a) Insolvency Act 1986. On 1st October 2000an application to set aside the statutory demand was filed. The application was made under the Rule 6.4 (1) of the Insolvency Rules 1986 and relied upon two grounds set out in the Insolvency Rules 1986 namely, Rule 6.5(4)(b) the debt is disputed on grounds that appear to the court to be substantial and Rule 6.5(4)(d) the court is satisfied on other grounds that the demand ought to be set aside. The application was heard and the High Court of Justice in Bankruptcy.

Two separate issues were required to be decided. The first issue related to the objection to jurisdiction and whether this was a matter that prevented the adjudicator's decision being enforced and the basis of a statutory demand and whether or not that issue was required to be heard by the Court. The second issue related to the interim status of the adjudicator's decision and whether it was capable of creating a debt for the purposes of the statutory demand.

The Jurisdictional Challenge

Mohammed submitted that an adjudicator could not determine whether he had jurisdiction in respect of the dispute and if the adjudicator purported to rule on jurisdiction that decision was void and of no effect between the parties. Mohammed submitted that if a party challenged jurisdiction, any decision of the adjudicator would not be binding on that party. Muhammad relied upon the decision of Dyson J in The Prospect Consultancy Group v Trustees of Grays Trust [1999] BLR 377.

Mohammed had challenged the adjudicator's decision from the outset and submitted that the fact that he had signed the adjudication agreement did not amount to a submission to jurisdiction as he had clearly reserved his rights. Mohammed argued the following points in his objection to jurisdiction:

  1. The 1996 Act is expressly stated not to apply to construction contracts with a residential occupier - Section 106;
  2. The original construction contract containing the adjudication clause was superseded by a later contract which did not contain such a clause.

Dr. Bowles raised the whole issue as to whether an objection to jurisdiction went to the root of the adjudicator's decision or whether that decision was binding until such objection was taken in the Courts.

Dr Bowles accepted that Mohammed had reserved its position to challenge the adjudicator's decision and submitted that he was therefore entitled to start proceedings in the Court seeking a declaration that the adjudicator had no jurisdiction. Dr Bowles submitted that the adjudicator's decision only became a nullity if the Court decided that she had no jurisdiction.

Dr Bowles submitted that the instant proceedings in the High Court of Justice in Bankruptcy were not the appropriate hearing to investigate jurisdiction. Dr Bowles submitted that the only ground for setting aside an adjudicator's decision was where there was a triable issue as to the existence of a counterclaim, set off or cross demand (Rule 6.5(4)(a)).

Dr Bowles submitted that if the Court held that it could set aside under Rules 6.5(4)(b) or (d) that Court should still dismiss the application as it was strenuously denied that Mohammed had strong arguments on jurisdiction as alleged. Dr Bowles pointed to the fact that Mohammed accepted that the contract provided for adjudication and argued that there was no evidence that the original contract was superseded by the exchange of letters in October 2001.

It was found as a fact that the parties had entered into a contract for residential construction works that included a form of dispute resolution which adopted the framework of the dispute resolution procedure contained in the 1996 Act. It was held that it was not necessary to consider whether the exchange of letters in October 2001 created a new contract, one which replaced the existing contractual arrangements although it was stated that it was doubtful if they did.

It was held that the adjudicator had already determined the issue of jurisdiction and it was not for the Court to look behind the adjudicator's decision. If Mohammed was unhappy with the adjudicator's determination upon the question of jurisdiction then his remedy was to apply to the court to have that decision set aside on the basis that he disputed the adjudicator's jurisdiction and/or to seek a declaration on the question of jurisdiction. Mohammed had not chosen to adopt that course.

It appears on a narrow interpretation of this part of the judgment that the Court decided that the adjudicator was given jurisdiction to decide his own jurisdiction and that his decision on jurisdiction was binding on the parties unless overturned by another court. Alternatively on a wider interpretation of this part of the judgment the Court may have decided that an issue of jurisdiction was not a matter that should be decided by the High Court of Justice in Bankruptcy on an application to set aside a statutory demand, whatever the merits of the objection to jurisdiction. It does appear from the remainder of the judgment that the Court was prepared to treat an adjudicator's decision as binding on the parties, but only once it had established that there was a contract which contained an adjudication procedure. The Court appears to have decided that the issue of the validity of the adjudicator's decision was not one for the High Court of Justice in Bankruptcy, but only because the issue had been canvassed before the adjudicator and decided.

Status of the Adjudicator's Decision

The next issue was whether an adjudicators decision could create a debt and form the basis of a statutory demand.

Mohammed submitted that the decision of an adjudicator did not bind the parties and was not itself an enforceable obligation to pay and that it was necessary to institute court proceedings to create an enforceable obligation. Muhammad relied upon the judgment of HH J Bowsher QC in Austin Hall Building Limited v Buckland Securities Ltd [2001] in which he stated that the decision of an adjudicator, like the decisions of a certifier, could be relied on as a basis for an application to the court for judgment but they were not in themselves enforceable. Judge Bowsher stated that the 1996 Act itself made a distinction between a decision of an adjudicator and legal proceedings and Parliament was clearly not regarding the decision of an adjudicator as having been reached as a result of "legal proceedings".

Mohammed submitted that even had the adjudicator's award been a binding one, it could demonstrate strong arguments as to why the adjudicator's award was wrong and/or unfair and would not be replicated by an arbitrator.

Mohammed submitted that there was clear jurisprudence to the effect that the issue of court proceedings was the appropriate way to enforce the decision of an adjudicator. The adjudicator's award was not binding on Mohammed by reason of the jurisdictional challenge. Bankruptcy was a remedy of such profound, and lasting effect that it was entirely inimical to the philosophy underpinning the adjudicators regime, namely that it provided an interim remedy.

Dr Bowles relied upon the judgment of HH J Boggis in the case of George Parke v The Fenton Gretton Partnership [2002]. Judge Boggis held that an adjudication creates a debt which may form the basis of a statutory demand and for the purposes of paragraph 12.3 and 12.4 of the Practice direction, the adjudication fell to be treated in the same way as a judgment or order and the court would not go behind it at that stage.

Dr Bowles submitted that as a result Mohammed could only rely on a genuine triable issue as to whether he had a counterclaim, set off or cross demand in order to set aside the demand (Rule 6.5 (4) (a).)

Dr Bowles also referred to the decision in William Oakley v Airclear Environmental Limited [2002] which also concerned an application to set aside a statutory demand based on an adjudicators decision. H H Judge Chambers refused to set aside the statutory demand on grounds that whilst there may not have been a written contract between the parties, the appellants were estopped by convention from denying the existence of such a contract and thus deny the jurisdiction of the adjudicator. Etherton J overturned the decision on estoppel on appeal. He did not however consider whether an adjudicators decision was equivalent to a judgment or order for the purposes of paragraph 12.3 of the practice direction on insolvency proceedings. Dr Bowles submitted that the judge on appeal in the George Parke case specifically addressed his mind to this point and was to be preferred.

Dr Bowles relied on Dyson J in Macob Civil Engineering Ltd v Morrison Construction Ltd for the philosophy of the Act which crucially made it clear that decisions of adjudicators are binding and to be complied with until the dispute was finally resolved. Dr Bowles submitted that these principles applied equally to a contractual as well as a statutory adjudication.

It was held that by the process of adjudication it had been determined that Mohammed owed Dr Bowles the sum of 26,495.54. It was held that this was a liquidated sum and was a debt that was capable of forming the basis of a statutory demand. It was accepted that in order for there to be a final judgment a further step had to be taken in the form of either legal proceedings or arbitration, but that did not stop the adjudicator's decision being enforced as a debt.

It was held that from the judgment of Dyson J in Macob Civil Engineering Ltd v Morrison Construction Ltd it was clear that Parliament intended the statutory regime to provide a quick interim method of resolving commercial building disputes and that the decision of the adjudicator was be regarded as binding and to be complied with until the dispute was final resolve. To that extent a decision was to be treated as if it were a judgment as H H J Boggis stated in the George Parke decision. It was considered that that decision did not conflict with the judgment of Bowsher J in the Austin Hall case.

The Court accepted that to become a legally binding judgment a further step was required. The onus to take that further step was not on Dr Bowles. It was for Mohammed to take the next step because it was Mohammed that was unhappy with the adjudicator's decision. Mohammed had the remedy in his own hands: if he objected to the adjudicator's decision he should make an application to the court but it was not right to simply raise the point and then by doing so ignore the adjudicator's decision and sit back to wait for Dr Bowles to take the next step. Contractually Mohammed committed himself to the adjudication process and unless and until he took some further step in the form of legal process to continue his dispute he was obliged to pay the debt which he owed to Dr Bowles.

Conclusion

Accordingly it was held that the adjudicator's decision was a debt sufficient to form the basis of a statutory demand. The nature of the debt was a binding contractual obligation on Mohammed to pay the sum quantified by the adjudicator's decision unless and until that decision was varied by further process either by way of arbitration or legal proceedings. Mohammed did not dispute the debt on substantial grounds. He had already put his arguments on jurisdiction to the adjudicator who had rejected them. If he was unhappy with that decision his remedy was to go to court but in the absence of any such application it was not for the High Court of Justice in Bankruptcy to consider those arguments although it was considered they did not show an arguable case. On the substantial issues raised by Mohammed whereby he sought to argue procedural unfairness and a technical contractual point, on the evidence it was not considered they were sufficient to argue that the debt was disputed on substantial grounds. The argument that Dr Bowles could not seek to enforce a decision of the adjudicator without taking a further step and obtaining summary judgment, was rejected.

The application to set aside the statutory demand was dismissed.