Adjudication Watch - December 2015

02 December 2015


In this latest 'Adjudication Watch' our construction experts review key cases relating to adjudication from the last few months, including yesterday's Court of Appeal decision arising out of serial adjudications.

Key Point: make construction contracts clear and certain

Purton t/a Richwood Interiors v Kilker Projects Limited [2015]

With effect from 1 October 2011, the right to adjudication was extended to include construction contracts that were partly or wholly oral; prior to this, s107 (now repealed) of the Housing Grants, Construction and Regeneration Act 1996 (the Act) required the contract to be in writing or evidenced in writing.

The background to this Technology and Construction Court (TCC) decision is that Mr Purton carried out joinery sub-contract works for Kilker Projects Limited at the Dorchester Grill in 2014.

The parties were in agreement that there was an oral contract for joinery works but were in dispute about when that contract had been entered into, the scope of works agreed and exactly which entity had entered into the contract with Kilker.

There were two adjudications and this judgment relates to Mr Purton's application to enforce the second adjudication.

Kilker's argument was that there was no concluded contract between the parties on the basis alleged by Mr Purton and, therefore, the adjudicator had no jurisdiction to reach a decision. Mr Purton maintained that he entered into an oral contract with Kilker during the week of 9 June 2014, with an itemised list of work and an agreed contract price of £350,000. Kilker argued that either there was no such contract or if this contract did exist, it was not a dispute under this contract that was referred to adjudication.

In short, Mr Purton was successful and the adjudication award in his favour of £151,407 plus interest was enforced. The key points of the decision are set out below.

  • The fact that the joinery works had been carried out by Mr Purton was significant and, in that scenario, a court will readily find that there was an intention to create legal relations; if the contract price is uncertain, then an entitlement to quantum meruit payment is likely to follow.
  • In order for the right to adjudication to apply, the Act requires that there be a construction contract (as defined in the Act) and a dispute arising under that contract. It does not, however, require that each and every term of the contract can be identified accurately.
  • The TCC emphasised that if there was a contract (which was agreed) but it had been misdescribed by Mr Purton in his adjudication claim, the key factor was whether the adjudicator, if correctly informed, could have properly concluded he had jurisdiction and that the outcome of the adjudication would not have been affected as a result.
  • Put simply: there was a contract to which the Act applied, works were carried out and a dispute had arisen. Whether Mr Purton or, alternatively, Kilker was correct in relation to the exact terms of the contract had no effect on the applicability of the Act (and therefore the right to adjudication) or on the substantive decision reached in the adjudication.

Mr Purton won in the end, but this decision highlights again the need for certainty and clarity in construction contracts to avoid confusion, delay and costs.

Key Point: you cannot agree that the parties' costs of adjudication will be recoverable unless that agreement is made after the notice of intention to refer a dispute to adjudication is given

Husband and Brown Limited v Mitch Developments Limited [2015]

As part of this decision, Husband and Brown, whose business was land acquisition and planning development, successfully claimed its outstanding fee under an oral agreement with Mitch in relation to the acquisition by Mitch of a commercial development site.

The key issue in relation to adjudication is that Husband and Brown also claimed its costs incurred in an earlier adjudication (also seeking recovery of its outstanding fee).

Husband and Brown argued that the adjudication costs were foreseeable and recoverable, as the costs resulted from Mitch's breach of contract in failing to pay the fee due.

In its defence, Mitch argued that the agreement was a contract for the negotiation of a price for the sale of land and was not therefore a "construction contract" within the ambit of the Act because Husband and Brown's work for Mitch did not involve "construction operations".

The court agreed, and Husband and Brown's claim for adjudication costs failed. In reaching its decision, the court emphasised that:

  • if a matter did not fall within the scope of the Act, then it was not reasonably foreseeable that the costs of adjudication would result from a dispute; and
  • importantly, that even if the court was wrong on the reasonable foreseeability point, to allow a claimant to recover its costs of adjudication would subvert the statutory Scheme under the Act, which does not allow for such costs recovery unless the parties agree the allocation of their costs in writing after the giving of a notice of intention to refer the dispute to adjudication.

Key Point: the adjudication enforcement process is defined and limited by the parameters of the adjudication decision

Imperial Chemical Industries Limited v Merit Merrell Technology Limited [2015]

In these proceedings ICI sought to enforce an adjudication decision stating that ICI was entitled to certain specified documents, but in which the adjudicator had not decided that Merit was required to "deliver up" these documents to ICI.

Following the decision, ICI sought enforcement through the TCC and an order that Merit deliver up the documents to ICI.

Merit opposed the application on various grounds, including jurisdiction, with most of the related arguments being based on issues of contractual interpretation. The jurisdiction argument failed.

The TCC did not make an order for delivery up of the documents, as sought by ICI. The primary reasons stated by Mr Justice Edwards-Stuart for this decision were that:

  1. the adjudicator had declined to make such an order and if the TCC were to make this order, it would be "going further than the adjudicator was prepared to go"; and
  2. no enforcement in this regard was required as there was no relevant breach i.e. Merit had not been directed by the adjudicator to deliver up the documents - the decision had simply stated that ICI was entitled to the specified documents.

This decision highlights the fact that in the adjudication enforcement process used in the TCC (effectively, an application for summary judgment), the court's consideration is defined and limited by the parameters of the adjudication decision. Such proceedings do not necessarily open up the entire dispute between the parties.

Key Point: be precise and intentional in your notice of referral to adjudication

Matthew Harding (trading as MJ Harding Contractors) v Paice and Springall [2015]

This Court of Appeal decision was handed down yesterday (Tuesday 1 December 2015) and we cover it in some detail as it clarifies the position on serial adjudications.

Background

In March 2013, Matthew Harding (trading as MJ Harding Contractors) (Harding) agreed with Gary Paice and Kim Springall (PS) to build and fit out two houses in Purley, Surrey - more than two years on, both parties probably wish they hadn't.

Although works commenced in April 2013, by September, the parties were in dispute. Since then, four adjudications have been commenced plus court proceedings resulting in the Court of Appeal decision handed down yesterday. PS have stated that a fifth adjudication will follow.

After three successful adjudications commenced by Harding, PS commenced the fourth adjudication. Harding objected stating that the issues raised in the fourth adjudication had already been dealt with in the third adjudication. Harding lost on this point in the TCC in November 2014 and it is this decision that was being reviewed on appeal by the Court of Appeal in its decision handed down yesterday.

In this increasingly complex web of disputes, as a further complication, PS proved mostly successful in the fourth adjudication. Harding did not pay however, and the decision was never enforced as in March 2015 the TCC held that the adjudicator's decision was tainted by apparent bias - we reviewed this decision in our Adjudication Watch in April.

Issues for the Court of Appeal

Harding was not happy with the TCC decision of November 2014 and appealed on two grounds:

  1. that the TCC decision of 21 Nov 2014 was incorrect in the construction of para 9(2) of part 1 of the Scheme for Construction Contracts provided for in the Act as amended (the Scheme); and
  2. that the Judge also erred in his analysis of scope and effect of adjudicator's decision in adjudication 3.

Harding's appeal was unsuccessful and the decision of the Court of Appeal was unanimous in supporting the approach taken by the TCC in November 2014. As mentioned above, although by this time, the fourth adjudication had proved abortive, PS had now confirmed a clear intention to commence a fifth adjudication.

The Decision

The key points in the Court of Appeal's decision were as follows:

  1. Clarification of paragraph 9(2) of Part 1 of the Scheme.

    Para 9(2) states:

    "An adjudicator must resign where the dispute is the same or substantially the same as one which has previously been referred to adjudication and a decision has been taken in that adjudication."

    Harding argued that the wording in paragraph 9(2) meant that PS could not commence a further adjudication relating to the valuation dispute as 9(2) must encompass both the dispute referred and the decision reached by the adjudicator.

    The Court of Appeal did not agree and held that "decision" in 9(2) must mean what the adjudicator actually decided ie a concluded decision:  Lord Justice Jackson stated: "Parliament cannot have intended that if a claimant refers twenty disputes or issues to adjudication but the adjudicator only decides one of those disputes or issues, future adjudication about the other matters is prohibited."

  2. On the second issue, again, the Court of Appeal supported the TCC first instance decision on the following basis.

    The adjudicator in adjudication 3 had dealt with the contractual issue referred to him but not the valuation issue also referred. In his decision, the adjudicator stated: "The parties made submissions in this adjudication about the proper valuation but these did not fall to be considered by me because of the rule relating to a notified sum becoming automatically due in the absence of a valid pay-less notice."

As a result, in this case, PS are still entitled to refer the outstanding valuation dispute to adjudication.

So, in order hopefully to avoid serial adjudications, be precise when preparing a notice of referral to adjudication and ensure that you are referring everything that you intend to refer and that those issues are capable of being addressed by the adjudicator.


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