ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
LIVERPOOL DISTRICT REGISTRY
(HIS HONOUR JUDGE MACKAY
(sitting as a deputy High Court judge))
Royal Courts of Justice
Strand
London, WC2
B E F O R E:
LORD JUSTICE SIMON BROWN
LORD JUSTICE JUDGE
LORD JUSTICE JONATHAN PARKER
THOMAS-FREDRIC'S (CONSTRUCTION) LIMITED
Claimant/Respondent
-v-
KEITH WILSON
Defendant/Appellant
(Computer-Aided Transcript of the Palantype Notes of
Smith Bernal Wordwave Limited
190 Fleet Street, London EC4A 2AG
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Official Shorthand Writers to the Court)
MR M O'REILLY (instructed by Messrs Tierney & Co, Sheffield S25 2LE) appeared on behalf of the Appellant
MR A SINGER (instructed by Messrs Knowles Solicitors, Liverpool L1 6EN) appeared on behalf of the Respondent
J U D G M E N T
LORD JUSTICE SIMON BROWN: This is an appeal (by permission of Latham LJ) against the order of His Honour Judge MacKay in the Liverpool Technology and Construction Court on 9 May 2003 giving summary judgment under CPR 24.2 in favour of the respondents, the claimants in the action, for £11,813 plus interest of £177.20 (£11,990.20 in all) in respect of a claim brought to enforce an adjudicator's award dated 28 January 2003, made pursuant to Part II of the Housing Grants, Construction and Regeneration Act 1996 and the Scheme for Construction Contracts (England and Wales) Regulations 1998 ("the 1998 Regulations"). By section 107 of the Act, Part II applies only to construction contracts in writing. Section 107(2)(c) provides that a construction contract is in writing If it "is evidenced in writing".
The arbitrator's award here was in respect of a construction contract evidenced in writing by a letter dated 6 August 2002. It has been the appellant's case throughout that that contract was made, not with him personally, but with a company Gowersand Ltd ("Gowersand"). It is further his case that the adjudicator accordingly had no jurisdiction to embark on the adjudication, the referral notice having been directed towards the wrong party, and that he personally is not bound by the adjudicator's decision.
With that briefest of introductions let me turn next to the background to the dispute, although this too can be sketched in comparatively briefly. The appellant is the principal shareholder and company secretary of Gowersand, a company formed for various building projects, including the development of two dwellings and an access drive on land at the rear of the appellant's home at Pear Tree Farm, Laughton near Sheffield. By an agreement entered into in March 2001, the respondent builders undertook the development. Between then and the summer of 2002 they carried out the bulk of the works and received a number of substantial payments. As a result of certain disputes, however, that agreement was determined and a second agreement was made for the works to be completed on agreed terms.
The second agreement was made orally on 5 August 2002 and it was evidenced by a letter dated 6 August 2002 from the developer's surveyors to the respondents. Essentially what was agreed was that the contract works would be completed by 16 August 2002 for the further sum of £35,000, that sum to be paid by four equal weekly payments of £8,750, such payments being due:
"... on the condition that the work is carried out diligently and that the value of the works is considered correct to that amount."
The letter referred to the appellant, Mr Wilson, in its heading. Beneath the surveyor's signature at the foot, however, the appellant himself had signed the letter "on behalf of Gowersand Ltd".
The appellant accepts that following the first agreement the respondents had addressed all correspondence to him personally. But they took no exception to the letter of 6 August, and by 12 September 2002 they had made arrangements to transfer the NHBC certificate to Gowersand. Not until 6 November 2002 did they contend that this contract was, after all, with the appellant.
Most of the adjudicator's decision dated 28 January 2003 is concerned with the substantive disputes arising between the parties, disputes which are of no materiality on the present appeal. With regard to the identity of the developer, however, and more particularly the question of the adjudicator's jurisdiction to entertain this reference, the following passages of his decision are of importance:
By a letter of 2nd January 2003 the Respondent alleges that he, Mr Keith Wilson, is not the developer in the contract for the construction of the two dwellings at Pear Tree farm. It is alleged that the correct name of the developer is Gowersand Limited, a company for which Mr Wilson is said to be the Company Secretary. As a consequence of this allegation the Respondent further alleges that there can be no referral to an adjudication on the ground that the wrong party has been named in the Notice of Adjudication and the Referral Notice. Following consideration of submissions made by the Claimant on 6th January 2003 the allegation was rejected and the parties informed that the adjudication would continue.
The Respondent provided further documentation in support of the allegation that Gowersand Limited is the developer in the contract by providing copies of letters from the solicitors, accountants and bankers of Gowersand on 6th and 8th January 2003. During a telephone conference the parties were invited to attempt to reach an agreement on this issue. The parties were unable to do so and therefore the Claimant was asked for further submissions on this issue. After consideration of the submissions by the Claimant on 10th January 2003 the parties were again informed that the inquiries as to the identity of the contracting parties were those named in the Notice of Adjudication and the Referral Notice. That being the case the parties were informed that the adjudication would continue.
The investigation of these allegations led the Respondent to request an extension of time for submission of the Response which the Claimant agreed to and revised directions were issued for the submission of the Response and the date for making the decision in this matter.
It has not been necessary to hold a meeting in connection with this adjudication. This decision has been made solely on the basis of the documentation received.
...
Throughout the contract the parties were in dispute as to progress, valuation of the works and payment. The parties agree that these disputes led to the formation of a further agreement thereby compromising their differences and disputes under the original agreement and bringing it to a conclusion. The new agreement was made by the parties at a meeting on or about 5th August 2002 and was confirmed by way of a letter from Oldale Owen Associates on 6th August 2002 (the Agreement). The parties agree that the Agreement is a construction contract within the meaning of the Act requiring the Claimant to complete the construction of the two dwellings and associated works for a lump sum payment of £35,000.00 payable over four weeks in instalments of £8,750.00.
...
The Respondent alleges that the Claimant is mistaken as to the identity of the Respondent. The Respondent maintains that the developer is Gowersand Limited whose Company Secretary is Mr Keith Wilson and that Gowersand Limited was the developer in both the original contract and the 6th August 2002 Agreement. It is clear that the developer in the original agreement is Mr Wilson. The quotations and subsequent correspondence from the Claimant are all addressed to Mr Wilson in person. Indeed there has never been shown to me any correspondence from either Mr Wilson or Gowersand Limited. The only reference to Gowersand Limited, on any documentation, appears to have been the 6th August 2002 Agreement which was signed by Mr Wilson on behalf of Gowersand Limited. However that letter merely confirms the agreement made at an earlier meeting when the parties to the contract were clearly Thomas Fredric Construction Limited and Mr Keith Wilson, the parties to the original agreement."
It is convenient at this stage to set out parts of the letter of 2 January 2003 referred to at the beginning of paragraph 1.8 of the decision, in which the developer's surveyors raised the jurisdictional objection to this adjudication:
"... the parties are wrongly named in the Referral Notice and we do not believe that you have the jurisdiction to decide the case.
...
The final [agreement] in the 'chain' of contracts was the Agreement of 6 August 2002 noted in the Referral at 2.44. This agreement, we submit, supersedes all other agreements. It is a construction contract within the meaning of Section 104 of the HGCRA (1996) and it is evidenced in writing by the document signed by the Parties, Thomas Fredric Construction Ltd [they did not in fact sign] and Gowersand Ltd.
...
The Adjudicator can have no jurisdiction to decide matters when the Referral does not include a qualifying contract and does not request a decision on the identity of the parties."
As indicated in the passages in his decision already quoted, the adjudicator concluded that he had jurisdiction in the matter and in the event directed the appellant to pay to the respondents by 7 February 2003 various sums, including his own fees, totalling in all £11,813.
Upon the appellant's refusal to pay the award, the respondents on 27 March 2003 issued particulars of claim to enforce the adjudicator's decision, and on the same day obtained from Judge MacKay permission to apply for summary judgment under CPR 24.2, notwithstanding that the appellant had filed neither an acknowledgement of service nor a defence.
The application came before the court on 9 May when, as stated, the respondents obtained summary judgment on their claim. Judge MacKay rejected the appellant's argument that he was not party to the construction contract and held that the adjudicator had had jurisdiction conferred on him to make the award. Paragraph 6 of his brief judgment reads:
"The adjudicator was asked to make a decision on this point [the identity of the contracting party]. Unlike many cases relating to jurisdiction, the adjudicator was asked to, and did, make a decision on this point. To the extent that the adjudicator was entitled to receive the application for adjudication and was entitled to rule on it, and the Act provides that this entitlement entitles the applicant (the claimant) to come to court, that is an important matter because the adjudicator has himself ruled on his jurisdiction."
Judge MacKay then quoted the second part of paragraph 5.2 of the adjudicator's decision as set out above, and a little later continued:
The statement from Mr Wilson indicates that in fact the adjudicator's decision was wrong and there is still an issue. But in fact, the adjudicator having made his decision, I consider that this Court should follow it and it is not part of the issues between the parties which are relevant for the determination of this Court. In any event, if I am wrong about that, or if I were to hold against the claimant (which I have not done) on that issue, I consider the claimants are quite correct when they say that the evidence all pointed one way.
On the basis of a summary judgment application, I would say that the evidence does point, almost entirely substantially, with the result that the parties considered at the time that they were entering into a contract. One party was the claimant and the other party was Mr Wilson. Therefore, I find against the defendant on that crucial issue."
Mr Singer seeks to uphold the judgment on both grounds.
It is convenient to turn first to the second ground by which Judge MacKay indicated that he would in any event have granted summary judgment on the claim, his conclusion being that the evidence "all pointed one way" (paragraph 11) or "almost entirely substantially" pointed that way (paragraph 12) i.e. to the appellant being the contracting party.
For my part, I have the greatest difficulty with this conclusion. As already explained, the adjudicator's jurisdiction under the 1996 Act only arises in respect of a construction contract in writing, and here, as indeed paragraph 5.2 of the adjudicator's decision recognises, the only agreement relied upon is that evidenced by the letter of 6 August 2002, a letter expressly signed by the appellant on behalf of Gowersand.
Had Judge MacKay had in mind this court's judgments in RJT Consulting Engineers Ltd v DM Engineering Ltd [2002] 1 WLR 2344 (judgments which one cannot help noticing overturned another of his decisions), I cannot think that he would have reached the conclusion he did upon the identity of the contracting parties. As the headnote makes plain, RJT Consulting decided that:
"... for an agreement to be in writing within section 107(2)(c) of the 1996 Act the whole contract had to be evidenced in writing, not merely part of it, and it was not sufficient to confer jurisdiction to entertain an adjudication under section 108 that there was evidence in writing capable of supporting merely the existence or substance of an agreement, the parties to it, the nature of the work and the price; that, since the documents relied on by the defendant contained no evidence of the terms of the oral agreement made between the parties or of those terms on which the defendant sought to rely in the adjudication, there was no 'agreement in writing' within the meaning of section 107; ..."
Despite Mr Singer's able and resourceful submissions on the point, I cannot find within the letter of 6 August 2002 any evidence, let alone clear evidence, to the effect that Mr Wilson rather than Gowersand was the contracting party.
That, however, is not decisive of this appeal. Even assuming, as to my mind is tolerably plain, that the adjudicator reached the wrong conclusion on the underlying issue as to the true identity of the contracting parties, his decision upon it would nevertheless be binding and enforceable provided only and always that the appellant had indeed agreed to accept his ruling. This of course was the first ground of the judge's decision and it is to that that I now turn.
Before examining the authorities which bear on it, it is worth taking notice of the precise effect of an adjudicator's decision under the 1996 Act. This is stipulated by section 108(3) as follows:
"The contract shall provide that the decision of the adjudicator is binding until the dispute is finally determined by legal proceedings, by arbitration (if the contract provides for arbitration or the parties otherwise agree to arbitration) or by agreement.
The parties may agree to accept the decision of the adjudicator as finally determining the dispute."
Section 108(5), I should perhaps add, provides that:
"If the contract does not comply with the requirements of subsections (1) to (4), the adjudication provisions of the Scheme for Construction Contracts apply."
The scheme itself is provided for by regulations made under section 114(1) of the Act ("the 1998 Regulations"). Paragraph 23(2) of the scheme, scheduled to the 1998 Regulations, provides:
"The decision of the adjudicator shall be binding on the parties, and they shall comply with it until the dispute is finally determined by legal proceedings, by arbitration (if the contract provides for arbitration or the parties otherwise agree to arbitration) or by agreement between the parties."
In short, unless the parties agree to accept the adjudicator's decision as finally determining the dispute -- and that certainly has never been suggested here -- the decision has to be complied with only in the short term, i.e. until the dispute is finally determined by some other means. As Ward LJ explained in the opening paragraph of his leading judgment in RJT Consulting:
"[The Act] gave the important and practical right to refer disputes to adjudication so as to provide a quick enforceable interim decision under the rubric of 'pay now, argue later'."
By no means does it follow, however, that even in the short term the adjudicator's decision binds the parties if a respectable case has been made out for disputing the adjudicator's jurisdiction.
In RJT Consulting itself the underlying question going to jurisdiction was whether the agreement was in writing within the meaning of section 107(2)(c) of the Act. The adjudicator decided as a preliminary issue that it was and accordingly held that he had jurisdiction. RJT Consulting disputed that and sought a declaration from the court that the contract was not an agreement in writing, a declaration refused by the judge but granted on appeal. No substantive decision therefore was ever made by the adjudicator in that case.
A substantive decision was however made by the adjudicator in The Project Consultancy Group v The Trustees of the Gray Trust [1999] BLR 377. Indeed, the matter came before Dyson J at first instance in the Technology and Construction Court, just as it came before Judge Mackay here, as an application for summary judgment of an award under Part 24.2. The underlying question going to jurisdiction there was whether the construction contract had been entered into before or after 1 May 1998, the 1996 Act being applicable only to construction contracts entered into after that date.
For present purposes, the most important passages in Dyson J's judgment are these:
Ms Rawley also submits that, if a defendant can resist enforcement proceedings on the grounds that the adjudicator has no jurisdiction to make the award, the plain intention of Parliament that adjudicators' awards should be honoured pending final resolution of disputes will be frustrated. It will, she suggests, be easy enough for an imaginative defendant cynically to invent an argument that there was no contract, or that any contract made was concluded before 1 May 1998. In, my view, these fears are exaggerated. It will only be in comparatively few cases that such argument will even be possible. Where they are advanced, the adjudicator and the court will be vigilant to examine the arguments critically.
I concluded, therefore, that it is open to a defendant in enforcement proceedings to challenge the decision of an adjudicator on the grounds that he was not empowered by the Act to make the decision."
Then, a little later:
Ms Rawley submits that, by putting forward their case to the adjudicator that the contract was made before 1 May 1998, and that for that reason he had no jurisdiction, the defendants were submitting the question of jurisdiction to the adjudicator for his decision, and agreeing to be bound by it. She relies on the principles enunciated by Devlin J in Westminster Chemicals & Produce Ltd v Eicholz & Loeser [1954] 1 LLR 99, 105-6. Although that case concerned an arbitration, I agree that what Devlin J said was equally applicable to an adjudication. He said that if two people agree to submit a dispute to a third person, then the parties agree to accept the award of that person, or, putting it another way, they confer jurisdiction on that person to determine the dispute. If one of the parties thinks that the dispute is outside the agreement that they have made, then he can protest against the jurisdiction of the arbitrator.
'If he protests against the jurisdiction of the arbitrator, which is merely an elaborate way of saying: "I have not agreed to abide by your award," if he protests in that form it is held that he can take part in the arbitration without losing his rights, and what he is doing, in effect, is that he is merely saying: I will come before you, but I am not by my conduct in coming before you and arguing the case, to be taken as agreeing to accept your award, because I am not going to do so". In those circumstances he may or may not be allowed to take part in the arbitration. Customarily I think he is, but whether that be so or not, if he protests it is well settled that he enters into no agreement to abide by the award.'
In my view, the defendants' solicitors' letter of 9 March 1999 stated in the clearest terms that the defendants protested the adjudicator's jurisdiction, and that they would not recognise and comply with any decision to award money to the claimant. The letter also made it clear that, if the adjudication proceeded, they reserved their right to participate, but without prejudice to their contention that there was no jurisdiction. ... It is a question of fact whether a party submits to the jurisdiction of a third person. ..."
I need read no more. Dyson J's conclusion there was that the defendants had not submitted to the jurisdiction of the adjudicator, and accordingly he dismissed the claimant's application for summary judgment.
The editors of Building Law Reports were somewhat critical of that approach in their commentary. They observed that "the ramifications of this decision are potentially extensive", and concluded:
"The possibilities of challenging the jurisdiction of an adjudicator are broad if not infinite. This decision confirms that any arguable challenge to the jurisdiction of the adjudicator will secure that the decision of the adjudicator is summarily unenforceable. If the decision is not enforceable immediately, the underlying dispute going to the jurisdiction of the adjudicator has to be resolved either by the court or in appropriate cases by the arbitrator. Accordingly one of the principal objects of the 1996 Act, namely the prompt resolution of disputes, is necessarily but effectively undermined."
I shall return to that later.
The only other authority which seems to me of some help is Judge Gilliland QC's unreported decision in Nordot Engineering Services Ltd v Siemens Plc (SF 00901 TCC 16/00) dated 14 April 2000. That too concerned a Part 24 application to enforce an adjudicator's award by summary judgment. In that case, however, the application succeeded notwithstanding that a jurisdiction issue had arisen, the issue there being whether the contract was a construction contract at all. Judge Gilliland correctly directed himself in accordance with Dyson J's judgment in the Project Consultancy Group case and at page 9 said this:
"... the sensible way is for whoever objects to raise the objection and to make clear that they are not going to be bound by the adjudicator's decision on that point if it goes against them. Obviously if it goes in their favour that is the end of the matter subject to an application, perhaps by the other side, to the court.
The question I have to decide in this case is not so much whether it is incompetent for the parties to confer jurisdiction because, in my judgment, they can. That is supported by what Mr Justice Dyson said, but whether, on the facts of this case, one can properly say there has been a submission to the jurisdiction of the adjudicator [which] depends on the fair reading and interpretation of the correspondence which passed between the parties ..."
Judge Gilliland then turned to the correspondence and noted the defendant's statement to the adjudicator, "We will, however, abide by your decision in this matter and will comply with whatever direction you deem appropriate", words which he described as "clear and ... unequivocal". That language, he said, was essentially the language referred to by Devlin J in the Westminster Chemicals case cited in Dyson J's judgment, and it amounted to an agreement to be bound by the decision of the arbitrator or adjudicator. Accordingly, he concluded, there had been an "ad hoc submission" to the adjudicator in the full sense that the defendants "were agreeing to be bound by that decision (subject to any later challenge)", that parenthesis of course reflecting the provisions of section 108(3) of the Act as to the short-term effect of an arbitrator's decision.
I do not overlook Judge Bowsher QC's decision in Whiteways Contractors (Sussex) Ltd v Impresa Castelli Construction UK Ltd, an unreported judgment of 9 August 2000, but confess to have found it of less help than the other cited cases. Judge Bowsher made brief reference to only one other decision, that of Judge Thornton QC in Fastrack Contractors v Morrison [2000] BLR 168, and from that too I gained little help.
Let me then turn, with these authorities in mind, to the position in the present case. The facts are essentially as set out in paragraph 1.8 of the adjudicator's decision (quoted in full above) and in the appellant's surveyor's letter of 2 January 2003 to which it referred. Mr Singer seeks to rely also on a statement subsequently made by the appellant which was put before the judge below, in which Mr Wilson briefly referred to "the ruling of the Adjudicator" on the jurisdictional issue, but I cannot see how this advances his argument.
To my mind it is impossible to conclude from these facts and documents that the appellant was submitting to the jurisdiction of the adjudicator in the full sense described by Judge Gilliland in Nordot Engineering, i.e. that he was agreeing to accept the adjudicator's decision on the issue. The letter of 2 January 2003 squarely took the jurisdictional objection, and nothing that was said then or thereafter can reasonably be understood as an agreement to be bound by the adjudicator's decision on the point, whatever it might be. Rather, the case seems to me to fall full square within Devlin J's words in the Westminster Chemicals case, cited in paragraph 14 of Dyson J's judgment.
It follows that in my judgment the judge below was wrong on this point too. The adjudicator was not asked to make a decision on the jurisdictional issue, certainly not in such a way as to indicate that the appellant would then accept his ruling upon it.
Let me now return briefly to the editors' commentary in the Building Law Reports. I readily recognise the concern lest this salutary new statutory power to promote early payment in construction contract cases be emasculated by jurisdictional challenges. The solution, however, seems to me not in finding defendants too readily to have, in the full sense, submitted to the adjudicator's jurisdiction, which if properly advised they plainly would not do. Rather, as Dyson J observed in paragraph 8 of his judgment in the Project Consultancy Group case, it is for courts (and adjudicators) to be "vigilant to examine the arguments critically." It is only if the defendant had advanced a properly arguable jurisdictional objection with a realistic prospect of succeeding upon it that he could hope to resist the summary enforcement of an adjudicator's award against him.
The position can I think be summarised in the following two propositions. (1) If a defendant to a Part 24(2) application has submitted to the adjudicator's jurisdiction in the full sense of having agreed not only that the adjudicator should rule on the issue of jurisdiction but also that he would then be bound by that ruling, then he is liable to enforcement in the short term, even if the adjudicator was plainly wrong on the issue. (2) Even if the defendant has not submitted to the adjudicator's jurisdiction in that sense, then he is still liable to a Part 24(2) summary judgment upon the award if the adjudicator's ruling on the jurisdictional issue was plainly right.
Applying those propositions in the instant case, I would hold that this appellant did not submit to the adjudicator's jurisdiction in the full sense and that the adjudicator's ruling was, on any view, not plainly right. Indeed, as already indicated, it seems to me that the adjudicator's ruling was, if anything, plainly wrong. I would accordingly allow the appeal, set aside the order made below and substitute for it an order dismissing the respondent's application for summary judgment.
LORD JUSTICE JUDGE: I agree with Lord Justice Simon Brown, and in particular with his analysis of the two essential principles at the very end of his judgment. I shall add a few words of my own by way of emphasis only, and in deference to the courteous determination of Mr Singer's submission.
When considering the jurisdiction issue, Judge MacKay directed himself in this way:
"It seems to me to be clear that if the adjudicator decides a question, then that decision remains decided."
Where, as in the present case, a genuine jurisdictional issue was properly taken before the adjudicator, that approach was, with respect, too narrow. In my judgment, the judge failed sufficiently to address the question whether on the evidence before the adjudicator Mr Wilson had indeed agreed to abide by, or submit to, the decision of the adjudicator on this issue. That was a question of fact. I should simply record that on its own the fact that a jurisdiction point was taken and argued did not automatically justify the inference that Mr Wilson had indeed submitted the jurisdiction issue to the decision of the adjudicator. Indeed, the inference that he had done so would have been more likely to be drawn if the point had not been taken at all.
In short, therefore, Mr Wilson was right to take the point that he did, when he did, and should not be deemed to have submitted to the adjudicator's jurisdiction on the very point which he was plainly, and justifiably, challenging, and which he was entitled to ask the adjudicator to decide.
LORD JUSTICE JONATHAN PARKER: I agree with both judgments. I would only add my appreciation of the submissions which Mr Singer has made.
ORDER: Appeal allowed with costs here and below.
(Order not part of approved judgment)
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