The judgment of Recorder R Moxon Browne in C&B Scene Concept
Design v Isobars Ltd [2001] centred on the effect on the payment
provisions, if the parties failed to complete the contract form. In
this case the form of contract was the JCT 1988 With Contractor's Design and
the parties had failed to choose either Alternative A or B so that the
operation of the payment provisions was uncertain. In that case
Recorder Browne held that the Scheme applied and crucially displaced the
provision at Clause 30 that in the absence of notice from the Employer, the
contractor was entitled to be paid the amount applied for. That
however was the basis of the Adjudicator's award. Recorder Browne had
to consider whether the consideration by the Adjudicator of a contractual
provision which did not apply to the contract between the parties, was an
excess of jurisdiction such as to prevent enforcement. The issue
turned on the characterisation of the mistake.
Background
The contract consisted of the JCT Standard Form of Building Contract with
Contractors' Design, 1988 edition. The JCT Form was left unsigned, and its Appendices were left uncompleted.
The contract required agreement of
variations to the works and the contract price.
Clause 30 of the JCT Form required the parties to elect which
of Alternatives "A" and "B" they adopted. The two
alternatives were set out in Appendix 2. Alternative A provided for interim
payments to be made in accordance with predetermined stages, i.e. according
to the progress of the Work; while Alternative B provided for interim
payments to be made according to the elapse of predetermined periods of
time.
In January 2001 C&B sent Isobars three Applications for Interim
Payment:
- No. 4, "as per original agreement" in the sum of 69,000,
- No. 5, in respect of 7 alleged variations, in the sum of 45,496.33,
- No. 6
in respect of "AA Print and Design" in the sum of 1,500.
Recorder Browne observed
- that of the original contract sum of 450,000.00,
Isobars had
paid at least 436,000.00 so there was not on any view 69,000.00 owing per
original agreement,
- that while there was a dispute about variations the
requirement that variations be agreed and priced was never implemented and
- that in relation to Application No. 6 there
was at
least some indication that C&B itself believed that work done by AA
Design and Print was outside the scope of the JCT works.
By letter Isobars disputed the applications
for payment and stated that it was unaware of any variations to the works.
The letter did not comply with Clause
30.3.3 of the JCT Form.
The Adjudicator took the view that Isobar's failure to
serve any valid notice under Clause 30.3.3 of the JCT Form gave C&B
an absolute right to payment of the sums set out in the Applications under
Clause 30.3.5. Accordingly the Adjudicator held that each of the interim applications
should be paid including that in relation to AA Design and Print's work. The
Adjudicator noted Isobars contention that this application fell
outside the JCT Contract but nevertheless considered himself bound by Clause
30.3.5.
C&B sought to enforce the Adjudicator's decision by summary judgment.
The Law
Recorder Browne referred to the judgment of Dyson LJ in Macob Civil Engineering v
Morrison Construction (1999) BLR 93 at 97:
"It is clear that Parliament
intended that the adjudication should be conducted in a manner which those
familiar with the grinding detail of the traditional approach to the
resolution of construction disputes apparently find difficult to accept. But
parliament has not abolished arbitration and litigation construction
dispute. It has merely introduced an intervening provisional stage in the
dispute resolution process. Crucially, it has made it clear that decisions
of adjudicators are being and are to be complied with until the dispute is
finally resolved".
Recorder Browne observed that an adjudicator's award could be vitiated,
on the ground that the Adjudicator has addressed himself to the wrong task
(for example basing his decision on contractual provisions which were never
agreed between the parties). He considered that the latter situation may perhaps be
characterised as an excessive assumption of jurisdiction (because the
Adjudicator was not empowered to base his decision on the wrong contract) or
more generally as "asking the wrong question," and referred to Bouygues (2000)
BLR 522 where the Court of Appeal approved the test formulated in Nikko
Hotels (1995) 2 EGLR 103
"If he has answered the right question in the
wrong way his decision will be binding. If he has answered the wrong
question, his decision will be a nullity."
The Main Issue
C&B argued that the purpose of HGCRA would be defeated
if every mistake by an Adjudicator was to be characterised as an excessive
assumption of jurisdiction. C&B also argued that in any event by participating in
the adjudication Isobars had waived any jurisdiction points it might
have.
Recorder Browne held that the parties' failure to complete Appendix 2 to the JCT Form was
significant. He held that Alternatives "A" and "B" were quite different, and the election of one
or other of them was fundamental to the proper operation of the entire
machinery for making of interim payments. He held that if no election was made, Clause 30
of the JCT Form fell away. Recorder Browne rejected C & B's
submission that Clauses 30.3.3 to 30.3.5 of the JCT Form were workable in the
absence of an election between Alternatives "A" and "B".
Recorder Browne held that in the absence of any agreement in terms
of Clause 30 of the JCT Forms, section 109 of the Housing Grants Construction and
Regeneration Act 1996 implied terms derived from the
Scheme for Construction Contracts (England and Wales) Regulations 1998
("the Scheme"). Part II of the Scheme provided that where parties
have failed to agree machinery for interim payments, section 2 of Part II of the
Scheme would apply, thereby importing a standard form of interim payment
machinery into the contract. The Scheme machinery was in very different terms
from that provided by Clause 30.3 of the JCT Form.
Recorder Browne held that by overlooking the fact that Clause 30.3 of the JCT
Form had been substituted by Part II of the HGCRA Scheme, the Adjudicator
had exceeded his jurisdiction, or at least had "asked the wrong
question" in the
Bouygues sense. He considered this
latter point was absolutely fundamental to the Adjudicator's whole
approach and critical to his decision and was therefore a compelling reason why
Isobars should have leave
to defend its claim.
While this conclusion strictly made it unnecessary to consider the other
jurisdiction points, Recorder Browne proceeded to do so. There were three
different objections to jurisdiction.
Jurisdiction 1 - Adjudicator's Qualifications
Isobars argued that while the contract provided for adjudication by a
member of the RIBA, the Adjudicator was not so qualified, being a member of
the RICS. Recorder Browne considered that this objection, although no doubt accurate as a matter of fact,
did not provide a sound basis for a belated challenge to the Arbitrator's
jurisdiction. The point was not taken before the Adjudicator and Isobars was
therefore taken to have consented to an adjudication by a member of the RICS rather than the RIBA and to have waived any right to raise a challenge
to the Adjudicator's jurisdiction on this ground. Recorder Browne referred
to the judgment in Maymac Environmental
Services v Faraday Building Services 16.10,2000. At p 14, lines 10-23, Toulmin HHJ said
"Maymac make a further submission. They say that
Faraday agreed that the dispute should be adjudicated and cannot rely from
their agreement. I agree with this submission. Faraday consented to submit
to the adjudication and admitted that there was a contract to which the Act
and the scheme apply. The adjudication was conducted on that basis.
Accordingly, Faraday are estopped by representation and convention from now
arguing that the Act and the scheme did not apply and that the adjudicator
was not entitled to make an adjudication which would be binding until the
final determination of the dispute."
Recorder Browne considered that this reasoning (which was applied to a
challenge to jurisdiction on grounds rather less obvious than the
Adjudicator's lack of appropriate qualifications in the present case)
applied a fortiori where the possible ground for objection was a very
obvious one.
Jurisdiction 2 - Applications Outside Contract
Isobar' second jurisdiction point was that while the contract provided that
there was no entitlement to payment for variations unless they had been
the subject of prior agreement, and since there was
no such prior agreement the application for payment for
variations has not arisen "under the contract". In relation to
valuations 4 and 5, Isobar argued that on C&B's own case Applications 4 and 5 arose out of a compromise meeting held on
1st November 2000; while valuation No. 6 related to arrangements for making
direct payments to a subcontractor (AA Paint and Design) which were
arrangements wholly outside the JCT contract.
Recorder Browne considered that a
compromise gave rise to a cause of action in contract quite independently
of the contractual provisions which were the subject of the compromise; and
more generally. He considered that there were good reasons why the
potentially draconian provisions of HGCRA should apply only to valuations
arising out of contractual machinery which had been properly used, and not
to agreements which arose out of the rough and tumble of a
compromise meeting. The language of Article 5 of the JCT Contract was clear
in its reference to disputes arising "under this Contract". It was
certainly arguable that this form of words (as opposed to words such as
"arising out of this contract") did not apply to a dispute about a
compromise agreement. Recorder Browne held that it was too late to take a
jurisdiction point based on this argument. The situation was quite close to
that considered by Toulmin HHJ in the Maymac case, where
the jurisdiction issue centred on whether or not a contract governed by HGCRA had ever come into being, as opposed to whether or not a particular
dispute arose "under" it.
Isobar argued that a point of this kind
only becomes discernible after a judgment based on an erroneous assumption
of jurisdiction has been delivered. Recorder Browne did not accept that
argument. He saw no reason why the point could not have been taken at the
outset, as Toulmin HHJ found an analogous point should have been taken in
the Maymac case. Recorder Browne emphasised the fact that Isobars did
take just such a point before the Adjudicator in relation to the AA Design
and Print valuation (ie, No. 6). If Isobars was able to take the point in relation to valuation No. 6 it
could equally have taken the point in relation to valuations 4 and 5, and
its failure to do so amounted to a waiver.
Recorder Browne observed that there was no such waiver in relation to
valuation No. 6. A jurisdiction point was taken. He considered that the
Adjudicator did not fully understand the point being put to him, which was
that because a dispute about Application 6 was not a dispute under the
contract, Clause 30.3.5 did not apply at all. He commented that he would have granted leave to
defend in respect of this Part of the claim.
Jurisdiction 3 - Error of Law, Answering the Wrong Question
Isobar's' jurisdiction point was that there were serious
errors of law in the Adjudicator's decision, which sufficed to vitiate the
award; either because the Adjudicator had "answered the wrong
question" (reference Bouygues (UK) Ltd. v. Dahl Jensen (UK) Ltd (2000) BLR
522) or more radically because a decision based on an error of law was ipso
facto a decision based on an excess of jurisdiction.
Recorder Browne observed that it was clear from the terms of
the Award that the Adjudicator considered that having regard to the
mandatory terms of Clause 30.3.5 of the JCT Form, he was bound to order
payment of the sums stated in the relevant Applications, in, the absence of
any valid notice on the Part of Isobars of an intention to withhold
payment. He considered that in so stating, the Adjudicator had overlooked
the fact that Clause 30.3.5 of the JCT Form had no application to the
contract which as C&B itself had asserted before him, lacked agreed
provisions in relation to 'Alternatives A or B" in Appendix 2 to the
Form. The Scheme applied, which required that amounts due depended on the
value of work in fact done and/or materials in fact supplied. The language
of the Scheme was far removed from Clause 30.3.5 of the JCT Form. It was apparent that
the Adjudicator would
have come to a different decision if he had appreciated that Clause 30.3 of the JCT Form had been supplanted by the relevant
provisions of the Scheme.
Recorder Browne considered that the Adjudicator addressed wholly the wrong question. The
question he asked was whether any of Applications 4, 5 or 6 had been the
subject of any timely notice to withhold payment; and accordingly treated
Isobar's failure to serve such
notice as conclusive of its liability to pay the amounts stated in the
applications. The question the Adjudicator should have asked was what in
terms of the Scheme was the value of work performed and/or
materials supplied during the period the subject of each of the
Applications.
Recorder Browne observed that adjudications was meant
to be swift and conclusive, unless and until the issues decided were reopened
in litigation or arbitration. They were not susceptible of attack on the
grounds of error of fact or law, however obvious. He referred to Bouygues
(2000) BLR 522, Macob (1999),
Northern Developments (2000) BLR 158,
VHE
Construction (2000) BLR 187 and Sherwood v Casson.
Recorder Browne considered that the dicta in these
cases, strong as they were, had no application to a case where the
Adjudicator's decision was based exclusively on consideration of a
contractual provision which did not apply to the agreement between the
parties to the adjudication.
Recorder Browne observed that in Bouygues the Court of Appeal
approved the test formulated by Knox J in Nikko Hotels 1991 2 EGL 103
("If he has answered the right question in the wrong way his decision
will be binding. If he has answered the wrong question, his decision will be
a nullity"). Recorder Browne considered that it was fairly arguable that
the dictum applied in the instant case and the Adjudicator had considered an irrelevant question.
Recorder Browne considered that if the Adjudicator's
conduct in considering Clause 30.3.5 of the JCT Form rather than Part II of
the HGCRA Scheme was in excess of his jurisdiction, that was not the subject of any waiver by
Isobars which had throughout
pursued its argument that no variations had been authorised, and that
Applications 4, 5 and 6 had been sufficiently protested. He considered the Adjudicator's approach to
the case, and any wrongful assumption of jurisdiction by him, would not have
been apparent until his award was published. Recorder Browne did not see any
evidence that Isobars had waived any objection to the Adjudicator's approach to the
case.
Conclusion
Mr Moxon Browne gave leave to the Defendant to defend the Action
and pursue its Counterclaim. Commentary
By way of commentary, it appears that Recorder Browne considered that the
application by the Adjudicator of contract terms which did not apply to the
contract in issue, was so fundamental as to be outside the Adjudicator's
jurisdiction. He appears to have considered that this was a different
point to the third objection to jurisdiction above, which was an application
of the principle in
Bouygues. It must be right that where the Adjudicator makes
his decision on the wrong contract, that he acts in excess of jurisdiction -
unless the issue he is asked to decide is which contract applies.
That does not appear to be the situation in the instant case, where the
Adjudicator examined the contract which the parties agreed applied but,
according to Recorder Browne, made a mistake of interpretation as to which
terms applied.
Note
See the Court of Appeal decision in C&B Scene Concept
Design v Isobars Ltd [2002].
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