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:
- The 1996 Act is expressly stated not to apply to construction
contracts with a residential occupier - Section 106;
- 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.
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