By letter dated 29 January 2001 the Defendant
disputed the applications for payment and said that it was unaware of any
variation to the works. It is common ground that the letter was not served in
time to satisfy the requirements of clause 30.3.3 of the JCT Form (which
requires a written note to be sent within 5 days of receipt of the
applications in payment) nor within the time specified in paragraph 9 and 10
of the scheme.
The Referral to Adjudication
Article 5 of the JCT Form of contract provides
“that if any dispute or difference arises under this contract either party may
refer it to adjudication in accordance with clause 39A.” Adjudication is not
compulsory: but either party may avail themselves of it. It is unnecessary to
refer to the detailed provision of Clause 39A save to note that the
Adjudicator must give his decision on the dispute or difference referred to
him within 28 days (unless the parties agree to extend it by up to 14 days):
Clause 39A.7.1 provides that the decision of the Adjudicator shall be binding
on the parties until the dispute or difference is finally determined by
arbitration or legal proceedings. Clause 39A.7.3 provides:
“If either Party does not comply with the decision of the
Adjudicator the other Party shall be entitled to take legal proceedings to
seek compliance pending any final determination of the referred dispute or
difference pursuant to clause 39A.7.1.”
In its notice of referral the Claimant stated
under the heading ‘The dispute – the referring party’s case’
“31. A dispute has arisen between the parties as to the
Employer’s obligation to make payment and the Contractor’s entitlement to
receive payment following receipt by the Employers of the Contractor’s
Applications for Interim Payments No.’s [1] 4, 5 and 6:”
(Application 1 is no longer material).
In paragraph 32-49 of the Notice of Referral the
nature of the claim is set out. In summary it is contended that, in the
absence of Alternative ‘A’ and ‘B’, the contract is supplemented by the
provisions of the Scheme, which provides that the Contractor is entitled to be
paid by the Employer on ‘the making of a claim’; that the contract by clause
30.3.3 requires the Employer to give notice within 5 days signifying the
amount of payment proposed to be made by the employer and the method of
calculation of the amount; under clause 30.3.4 the Employer was required to
specify any amount proposed to be withheld or deducted from the amount due,
the ground or grounds for such withholding or deduction and the amount of
withholding or deduction attributable for each ground; no such notice having
been served, the Claimant was entitled to payment pursuant to clause 30.3.5.
By its Response to the Referral notice the
Defendant in paragraph 39 admitted paragraph 31 of the Referral notice. Mr
Constable submits that this shows that there was agreement as to the dispute
which was referred to the Adjudicator. I agree. The Defendant in its response
did not deal with the argument summarised in paragraph 13 above. It disputed
its liability to pay on the grounds to which I have already referred in
paragraph 9, namely £69,000 not being due under the original contract, and the
variations were not authorised, etc, and also raised allegations of poor
workmanship.
The Adjudicator acceded to the Claimant’s
argument. He said:
“83 Such matters [the grounds upon which liability was disputed]
might be germane if the contract conditions were other JCT or alternative
institutional standard forms, where applications in respect of interim
statement or payments, employ terminology such as “amounts due”. That
description (without qualification by the introduction of further clauses)
arguably allows an employer to abate amounts otherwise due on the basis of
defective works or works not carried out, without even having to issue a
withholding notice.
84. However, that is not the case in the contract between the
Parties, which incorporated the JCT With Contractor’s Design 1998 Edition
Form.
85. Uniquely, I believe, at least among JCT Forms, the With
Contractor’s Design include the term as condition 30.3.5.
‘Where the Employer does not give any written notice pursuant
to clause 30.3.3 and/or to clause 30.3.4 the Employer shall pay the
contractor the amount stated in the Application for Interim Payment.’
86. It is clear from the Parties’ submissions that the Employer
has not given written notice pursuant to clauses 30.3.3 and 30.3.4, in
respect of any of the Applications for Interim Payments made by the
Contractor.”
And later he said:
“90. Thus, in my view, clauses 30.3.3, 30.3.4 and 30.3.5 taken
together impose an absolute imperative obligation on the Employer to pay the
Contractor the amount stated in the Application for Interim Payment, in the
absence of the written notices specified.
91. Those written notices have not been given by the Employer,
thus I decide that the Employer shall pay to the contractor the amounts
stated in Application Nos 4, 5 and 6 for Interim Payment.”
He decided that the Claimant was entitled to be paid £115,996.33 plus
V.A.T. and interest which together amounted to £140,855.34, the sum for which
summary judgment was sought.
When the matter came before Mr Recorder
Moxon-Browne, QC Mr Christopher Lewis on behalf of the Defendants made a
number of submissions as to why the claimants were not entitled to summary
judgment. For present purposes only three of those submissions are important.
1. That since the parties had failed to elect Alternatives ‘A’ and ‘B’, the
whole of clause 30, and not only the provisions as to how and when the interim
payments were to be made, fell away. Accordingly the express provision in
clauses 30.3.3 and 30.3.4 as to the requirement of the employer to give
notice, and clause 30.3.5 as to the effect of failure to give notice, fell by
the wayside. Instead the provisions of the Scheme, not only as to how the
amount of the interim payments was calculated and the time when they were due
but also the provisions as to notice, and the effect of failure to give
notice, were implied into the contract.
2. That both under the Act (ss110 and 111) and under the Scheme failure to
give a notice within the stipulated time does not preclude the Employer from
contending on an adjudication that the sums claimed are not “due under the
contract” for the reasons upon which the Defendant wished to rely.
3. That by failing to appreciate that the contractual provisions of Clause
30 had been superseded by the provisions of the Scheme, the Adjudicator
addressed himself to the wrong question and in so doing he exceeded his
jurisdiction.
The Learned Recorder acceded to the first of these
submissions, and held that the second and third were at least arguable, such
that there was an arguable defence entitling the Defendant to permission to
defend.
In this Court the Defendant/Respondent did not
appear. Mr. Constable in his helpful and attractive submissions, addressed
himself first to the third proposition, although he maintained in his skeleton
argument (and oral submission in relation to the first point), that the
Recorder was in error on the other points. The second point is one of some
general importance in construction contracts, and is one upon which there has
been some difference of view at first instance. But although we obtained every
assistance from Mr Constable, we did not think it right, in the absence of
argument from the Respondent, to express a view on this point, which would in
any event be obiter, if we concluded, as we do that the Recorder’s decision on
the third point was erroneous.
Equally it is unnecessary to decide whether the
Recorder was wrong on the first point. Mr. Constable relied on words which I
have underlined in s.110(3), which provides:
“If or to the extent that a contract does not contain
such provision as is mentioned in subsection (1) and (2) [Requirements as to
how the amount of an interim payment is to be calculated and when it is to
be made], the relevant provisions of the Scheme of Construction Contracts
apply.”
Mr. Constable submitted that only the provisions as to how and when (i.e.
those contained in clauses 30.1, 30.2A and 2B and 30.3.1) are substituted; all
the other provisions of Clause 30 remain intact.
For the purposes of this judgment I am content,
without deciding, to assume that the Recorder was right on both these first
two points and that accordingly the Adjudicator was wrong; he ought as a
matter of law to have held that Clauses 30.3.3-6 were not part of the contract
and that under the scheme the failure to serve a timeous notice did not
prevent the Defendant relying on the matters of the defence which it wished to
advance, on the basis that all the Claimant was entitled to be paid was what
was ‘due under the contract’; or at least that these points were arguable.
The real question is whether this error on the
part of the Adjudicator went to his jurisdiction, or was merely an erroneous
decision of law on a matter within his jurisdiction. If it was the former the
Recorder was right to hold that summary judgment should not be entered. If it
was the latter, then in my judgment the proper course, subject to any question
of stay of execution, is that the Claimant is entitled to summary judgment.
The whole purpose of s.108 of the Act, which
imports into construction contracts the right to refer disputes to
adjudication, is that it provides a swift and effective means of resolution of
disputes which is binding during the currency of the contract and until final
determination by litigation or arbitration. s.108(3). The provisions of
s.109-111 are designed to enable the contractor to obtain payment of interim
payments. Any dispute can be quickly resolved by the Adjudicator and enforced
through the courts. If he is wrong, the matter can be corrected in subsequent
litigation or arbitration.
In Northern Developments (Cumbria) Ltd v J
& J Nichols, His Honour Judge Bowsher QC cited with approval the
following formulation of principles stated by His Honour Judge Thornton QC in
Sherwood v Casson:
“(i) a decision of an adjudicator whose validity is challenged
as to its factual or legal conclusions or as to procedural error remains a
decision that is both enforceable and should be enforced;
(ii) a decision that is erroneous, even if the error is
disclosed by the reasons, will still not ordinarily be capable of being
challenged and should, ordinarily, still be enforced;
(iii) a decision may be challenged on the ground that the
adjudicator was not empowered by the Act to make the decision, because there
was no underlying construction contract between the parties or because he
had gone outside his terms of reference;
(iv) the adjudication is intended to be a speedy process in
which mistakes will inevitably occur. Thus, the Court should guard against
characterising a mistaken answer to an issue, which is within an
adjudicator’s jurisdiction, as being an excess of jurisdiction;
(v) an issue as to whether a construction contract ever came
into existence, which is one challenging the jurisdiction of the
adjudicator, so long as it is reasonably and clearly raised, must be
determined by the Court on the balance of probabilities with, if necessary,
oral and documentary evidence.”
I respectfully agree with this formulation. I
would also add, as I have already pointed out, the provisional nature of the
adjudication, which, though enforceable at the time can be reopened on the
final determination.
Errors of procedure, fact or law are not
sufficient to prevent enforcement of an adjudicator’s decision by summary
judgment. The case of Bouygues (UK) Ltd v Dahl-Jensen (UK) Ltd [2000] BLR 522 is a striking example of this. The Adjudicator had made an obvious
and fundamental error, accepted by both sides to be such, which resulted in a
balance being owed to the contractor, whereas in truth it had been overpaid.
The Court of Appeal held that the Adjudicator had not exceeded his
jurisdiction, he had merely given a wrong answer to the question which was
referred to him. And, were it not for the special circumstances that the
claimant in that case was in liquidation, so that there could be no fair
assessment on the final determination between the parties, summary judgment
without a stay of execution would have been ordered.
In the course of his judgment at p. 525 Buxton LJ
approved the test formulated by Knox J in Nikko Hotels (UK) Ltd v MEPC
plc [1991]2 EGLR 103 at 108B:
“If he 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 Recorder purported to direct himself by this
test. He said at paragraph 40 of his judgment that the Adjudicator’s “decision
is based exclusively on consideration of a contractual provision which did not
apply to the agreement between parties to the adjudication”. And later: “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 jurisdiction.”
But the Adjudicator’s jurisdiction is determined
by and derives from the dispute that is referred to him. If he determines
matters over and beyond the dispute, he has no jurisdiction. But the scope of
the dispute was agreed, namely as to the Employer’s obligation to make payment
and the Contractor’s entitlement to receive payment following receipt by the
Employer of the Contractor’s Applications for interim payment Nos 4, 5 and 6
(see paragraph 12 above). In order to determine this dispute the Adjudicator
had to resolve as a matter of law whether Clauses 30.3.3-6 applied or not, and
if they did, what was the effect of failure to serve a timeous notice by the
Employer. Even if he was wrong on both these points that did not affect his
jurisdiction.
It is important that the enforcement of an
adjudicator’s decision by summary judgment should not be prevented by
arguments that the adjudicator has made errors of law in reaching his
decision, unless the adjudicator has purported to decide matters that are not
referred to him. He must decide as a matter of construction of the referral,
and therefore as a matter of law, what the dispute is that he has to decide.
If he erroneously decides that the dispute referred to him is wider than it
is, then, in so far as he has exceeded his jurisdiction, his decision cannot
be enforced. But in the present case there was entire agreement as to the
scope of the dispute, and the Adjudicator’s decision, albeit he may have made
errors of law as to the relevant contractual provisions, is still binding and
enforceable until the matter is corrected in the final determination.
The Recorder held in relation to Application No.6
for £1,500 for ‘AA Print and Design’, that this did not arise under the
contract and therefore the Adjudicator exceeded the jurisdiction in this
respect as well. I do not agree. The entitlement to payment under Application
No.6 was a dispute specifically referred to him and he decided it. He may have
made an error of law in holding that the Claimant was entitled to it under the
contract. But he did not exceed his jurisdiction, he decided the question that
was referred to him.
For these reasons I would allow the appeal.
Before the Recorder the Defendant contended that
if it was wrong in its main contention, there should nevertheless be a stay of
execution pending determination of cross-claims and final determination of the
dispute. It was also suggested that the Claimants were in financial
difficulty, and this was a ground for a stay. In the event that he found in
the Defendant’s favour, the Recorder did not need to address the question of a
stay. The Defendant/Respondent has not appeared in this Court and has not
served any Respondent’s notice. In my judgment there is no material before the
Court to enable it to depart from the usual rule that the Claimant seeking to
enforce an adjudicator’s award is entitled to summary judgment.
Lord Justice Rix: I agree.
Lord Justice Potter: I agree.
Order: Appeal allowed; judgment for the appellant in the sum of
£150,454.30 Respondent to pay the costs of the appellant in the court of
appeal and below in the sums of £10,427.39 and £6,536.15; costs paid to the
respondent by the appellant pursuant to the order of the court below, in the
sum of £7,500, be repaid by the respondent.
(Order does not form part of the approved judgment)
