IN THE HIGH COURT OF JUSTICE QUEEN'S BENCH DIVISION TECHNOLOGY AND CONSTRUCTION COURT
Royal Courts of Justice Strand, London, WC2A 2LL 5 September 2013
B e f o r e :
MR JUSTICE AKENHEAD ____________________
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Anneliese Day QC (instructed by Trowers & Hamlins LLP) for the Claimant James Bowling (instructed by Speechly Bircham LLP) for the defendant Hearing date: 23 August 2013 ____________________
HTML VERSION OF JUDGMENT ____________________
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Mr Justice Akenhead:
In these proceedings, the Claimant, CG Group Ltd ("CG") seeks to enforce the decision of an adjudicator issued on 3 July 2013. The Defendant, Breyer Group PLC ("Breyer") challenges the enforcement on two related grounds, lack of jurisdiction and breach of natural justice, alleging that the adjudicator decided the elements of CG's disputed claim on a basis that was not part of the overall dispute or that he did not give the parties and in particular Breyer the opportunity to deal with that basis of argument.
Breyer was a main contractor engaged to carry out work at Carradale House, 1-88, St Leonards Road London, E14. By a sub-contract made in April 2012, Breyer engaged CG to carry out interior refurbishment works to kitchens and bathrooms in a number of the apartments at this development. It seems to be common ground that the sub-contract incorporated a sub-contract order from Breyer and its standard sub-contract conditions (amongst other documents). Clause 8 contained payment provisions:
Provision was made by Clause 16 of the Sub-Contract Conditions for determination of the Sub-Contract by the Contractor for default. In those circumstances the Contractor was to "be liable to pay only for such work as has been by that date properly executed and shall be entitled to recover any loss or expense caused by such determination."
CG started work in or about April or May 2012 but by the end of the year there were problems on site and there were disputes about the periodic valuations and payments. It is common ground that CG stopped their work over the Christmas holiday period and there was a meeting between representatives of the parties on 3 January 2013. Again, it was and is common ground that there was some agreement or understanding that CG would not come back to work although their work was incomplete. The disagreement goes to the basis on which this agreement or understanding was reached with CG saying that there was a mutually agreed termination with no obligation on it to complete the works and with it being entitled to be paid appropriately for the work carried out to date by it. Breyer's position is that there was in effect a repudiation which it accepted.
On 23 January 2013, CG submitted to Breyer a "Draft Final Account" which identified a total of £457,366.29 as the value of work. This included VAT but allowed for deductions for retention and main contractor's discount. Against sums previously certified, there was a net sum of £187,720.95 said to be due. There were some discussions between the parties over the following fortnight but on 6 February 2013 produced its own valuation which purported to show that CG had been overpaid by some £184,000 including VAT.
CG served a Notice of Adjudication on 8 May 2013. After referring to the Sub-contract, the Notice addressed the "Background to the Dispute":
The adjudicator (Mr Richard Silver) having been appointed, CG then served its Referral Notice on 15 May 2013. Various documents including witness statements were attached. Relevant parts are as follows:
Agreed Payment Terms: Monthly
6.13 period: 35 days
Valuation monthly
First payment as a payment schedule
On 29 May 2013, Breyer served its Response, material parts of which are as follows:
Within a few days, CG served a Reply to the Response, relevant parts of which are:
On 21 June 2013, Breyer served a Rejoinder, which stated (inter alia) as follows:
On 3 July 2013, the adjudicator produced his decision, material parts of which are as follows:
This was reflected in Paragraph 140 of the decision.
Breyer did not pay the net sum said to have been due. On 29 July 2013, CG issued enforcement proceedings in the TCC. Witness statements were exchanged. Essentially, Breyer argues that, on analysis, the adjudicator decided the case on a basis that had not been argued and that therefore he had no jurisdiction to decide the case as he did; even if he did, it argues that he was materially in breach of the rules of natural justice because at the very least Breyer should have been given the opportunity to address the point and because it would have had compelling arguments that the adjudicator was wrong as a matter of law. The point which it is said was not effectively before the adjudicator or argued in the adjudication was that the provisions of Clause 8 were actually applicable, CG having, it is said, "nailed its colours to the mast" in saying that the Scheme applied to provide a payment regime post-determination.
CG argues that there can be no jurisdictional challenge because the overall dispute was broadly defined as being whether Breyer had failed to pay what is being claimed in the Draft Final Account. It goes on to say that there was no breach of the rules of natural justice because, broadly, he decided the adjudication on a point which was well within what the parties put before him.
The TCC has recently considered the types of challenge that are made in this case. In ABB Ltd v Bam Nuttall Ltd [2013] EWHC 1983 (TCC) , the Court referred to the warning given to courts by Lord Justice Chadwick in Carillion Construction Ltd v Devonport Royal Dockyard Limited [2005] EWCA 1358:
It is unnecessary to reiterate what was said in ABB about what is needed to establish a sufficient breach of natural justice to prevent enforcement of a adjudicator's decision. In summary, a material breach of the rules of natural justice must be established. It is clear that the decision an adjudicator who substantially decides a dispute on the basis of a legal point which has not been raised or covered by either party will not usually be enforced.
When considering jurisdictional challenges based on an assertion that the adjudicator decided something which was not referred to him or her, it is obvious that the Court will have to analyse what the question or dispute referred to him or her was. That can involve sometimes a detailed analysis of what happened between the parties before the adjudication was initiated, albeit sometimes one can see from the Notice of Adjudication or from the Referral what is being referred to adjudication.
In Primus Build Ltd v Pompey Centre Ltd [2009] EWHC 1487 (TCC) , Mr Justice Coulson addressed a case where the claiming party had amongst other things claimed for loss of profit at 3% based on the:
This decision is wholly comprehensible. If the parties are effectively telling the adjudicator that they are agreed that a particular state of affairs was inapplicable, the adjudicator has no jurisdiction to decide the case on the basis of that state of affairs. It is not absolutely clear from the report of this case but it can be inferred that the disputed claim as referred to adjudication was based on the contractual management fee percentage. The judge also decided that the adjudicator was in breach of the rules of natural justice for failing to "go back to the parties with his new calculation" (Para. 37)
Disputes referred to adjudication may be very widely drawn or very narrowly. Thus, parties might be in dispute about a whole final account encompassing 1000s of challenged items of work or they might be in dispute about what a minor sub-sub-clause of the contract means. The Court needs to analyse what was the referred dispute in any given case to see whether it is broad, circumscribed or narrow.
On the face of the adjudicator's decision, it would be difficult to see how any challenge on the basis of jurisdiction or indeed of breach of natural justice and rules could be maintained. The adjudicator, judged on the face of the decision alone, decided that, based on a combination of Clause 8 of the Sub-Contract Conditions and the Scheme:
I use the expression "on the face of the adjudicator's decision" because the adjudicator set out what he understood were the arguments of the parties and made his decision accordingly. At Paragraph 65, he sets out his understanding of Breyer's arguments that there were no inconsistencies or discrepancies in the contract documents in relation to payment terms and, even if there were, payment terms applied. Essentially, Mr Bowling for Breyer argues that Breyer did not actually argue that the payment terms of the Sub-Contract Conditions applied in the circumstances of this case, where there had been either a repudiation (Breyer's case) or a mutually agreed ending of the contractual relationship (CG's case). It is really this issue upon which on analysis he relies for his challenges on jurisdiction and natural justice grounds.
I reject the submission that there is or can be an effective challenge on the jurisdiction. The Notice of Adjudication which effectively initiated the adjudication process puts CG's case on a simple basis that:
Neither party has suggested that factually the dispute which had crystallised up to that point was anything other than a broadly disputed claim for the net sum resulting from the Draft Final Account. Within that dispute were disputed assertions as to whether the Scheme provisions could be applied and as to whether Breyer had given appropriate notices in time. On that basis, the adjudicator had jurisdiction to answer in effect the question which was referred to him, namely: what, if anything, was due for payment to CG in relation to its Draft Final Account. That jurisdiction was not cut down by the Referral which under its definition of the "Dispute" identified this broad issue.
The real issue is one which relates to the challenge on natural justice grounds. Mr Bowling's argument can be simply stated as follows:
The burden is clearly on the party seeking to avoid enforcement on natural justice grounds to show that there was a breach of the rules.
The exchanged submissions (and evidence) set the agenda for an adjudicator's decision. Put another way, adjudicators need only address the factual and legal issues as adumbrated in the exchanged submissions and evidence. They can not be criticised on natural justice grounds if they do that. Jurisdictionally, adjudicators must address the dispute (or question) referred to them but they must also address all defences. Thus, even if the defending party on a payment claim against it raises a set off relating to defects which have never been raised before, the adjudicator needs to address and rule upon it, even if it is simply a rejection on the basis factually that it was never raised before or legally that there was no timeous withholding notice.
It is clear that the Referral Notice was predicated upon the wholesale incorporation of the Scheme and upon more detailed arguments (a payment due date of 23 January, a final date for payment of 9 February and a Payless Notice date of no later than 2 February 2013). This was repeated essentially in the Reply.
It therefore follows that one must search the Response and Rejoinder to see whether (deliberately or possibly by accident) Breyer actually pointed the adjudicator in the direction down which he actually went. Breyer's primary argument was, assuming that their repudiation defence failed, that the valuation process to be followed was "akin to" what would follow on a Clause 16 determination for default by CG (see for example Paragraph 6 of the Response). It did argue (for example, in Paragraph 16) that, although it was not "relevant to the current dispute", Clause 8 did contain the payment terms in relation to periodic stage payments.
However, it is in Paragraph 23(i) of the Response that Breyer argued that there were no inconsistencies or discrepancies in the contract documents in relation to payment terms and that even if there were the alleged discrepancies "the payment terms of the Sub-Contract Conditions would prevail". It goes on to argue (in Paragraph 23(ii) of the Response) however that CG's application for payment or the Draft Final Account "had no place" under the agreement, if such it was, of 3 January 2013 and (in Paragraph 23(iii) of the Response) that the Scheme did not apply to the post-determination evaluation of the CG account.
In my judgment, the adjudicator was acting in accordance with the rules of natural justice or at the very least it has not been established that he was not so acting. My reasons are as follows:
It follows that the challenge to the enforcement of the adjudicator's decision fails. There should be judgment for CG for the amounts claimed.
Following the closing of the oral arguments, Breyer, its solicitors and/or Counsel felt it necessary to make some further submissions said to arise out of something which Counsel for CG had said in her oral submissions on the day of the hearing. That was most unfortunate because it was always open to Counsel for Breyer to make the points during the hearing that were later put forward in writing. Once those further written submissions were made, I felt that I could not ignore them and invited submissions from Counsel for CG which arrived the following afternoon. This meant that, due to other commitments, I could not complete the judgment in the week after the hearing and it has had to wait until the following week. Particularly in the case of adjudication enforcements, which are intended and timetabled to be brought on promptly, this practice is to be discouraged in the interests of expedition and to avoid parties seeking to have second or more "bites of the cherry". In the result, the point raised was a relatively minor and peripheral one with which I have not even have had to deal in this judgment as it simply does not arise.