Aveat Heating Ltd v Jerram Falkus Construction Ltd

This is an application on the part of the claimant under part 24 of the Civil Procedure Rules to enforce the decision of an adjudicator under the Housing Grants Construction and Regeneration Act 1996 (“the Act”). The claimant was engaged by the defendant to carry out plumbing and mechanical works pursuant to a contract dated 8^th August 2005 incorporating the GC/Works sub-contract conditions. The claimant undertook to design, instal, test and commission the plumbing and mechanical works to 89 of the 109 dwellings at the Rockingham Estate, London SE1 where the defendant was engaged as main contractor. The adjudicator was Mr. M.E.Pontin, who gave his decision on 17^th November 2006. The adjudicator decided that the gross value of the claim was £369,331.20, plus a further net payment of £15,767.20 plus VAT, plus interest and the claimant’s costs and expenses.

Mr. Davies submitted that the terms of the contract were not compliant with the Act. Clause 38A.5 of the contract begins

Mr. Davies submitted that that provision was not compliant with section 108(2)(c) of the Act, which provides that the contract shall require the adjudicator to reach a decision within 28 days of referral or such longer period as is agreed by the parties after the dispute has been referred. “Referral”, he submitted, meant despatch of the notice of referral. Receipt might (and in this case did) occur later. I reject that argument. A thing is not referred to another unless that other receives it. It may be sent with the intention of referring it but never received. It has then not been referred. In my judgment, the word is unambiguous. Referral takes place upon receipt of the notice by the adjudicator.

Nevertheless, the contract is in my judgment non-compliant on another ground. Clause 38A.5 provides:

Mr. Webb submitted that I was wrong in saying that if the contract was not compliant with the provisions of the Act, so that the Scheme applied, the Scheme applied in place of the provisions of the contract. He drew my attention to the following passage in Keating on Construction Contracts, 8^th ed., paragraph 17-014:

Mr. Webb submitted that I was wrong to say in paragraph 19 of Epping Electrical that to have two competing adjudication provisions in a contract would be a recipe for confusion and uncertainty. He submitted that on the contrary, my conclusion would lead to uncertainty. There might be uncertainty whether the contractual scheme survived. Allowing the parties to follow the things they agreed to would give certainty. Moreover, in general the terms are imposed by the employer on the contractor and it is the contractor, being the person to whom payment is or should be moving, who initiates an adjudication. It cannot be right, he submitted, that the employer can turn round and say that the procedure he stipulated is not in accordance with the Act.

It is true that the Act does not say that if the Scheme applies, the contractual adjudication provisions are void. But if they are not void, then the contract contains competing and to some extent mutually contradictory provisions. One could then make sense of the contract only if, in the case of every pair of mutually contradictory provisions, only one member of the pair were to be treated in any given case as prevailing over the other. I unhesistatingly follow Judge Toulmin in reaching the conclusion that that is not the intention of the legislation. The solution stated in the text of Keating is simpler. It is that the two sets of adjudication provisions, contractual and the Scheme, exist as alternative packages, only one of which (at the option of the party initiating the adjudication) applies in any given case. Although in the present case the notice of intention to refer a dispute to adjudication clearly refers to the contractual adjudication provisions, that may not always be so. Thus there might well be confusion and uncertainty over which terms apply.

Mr. Webb said that in general the terms are imposed by the employer. But they are standard terms presumably designed to secure compliance with the Act. If the parties had intended to have their own private non-compliant adjudication system (necessarily in addition to an express or implied compliant system), that would surely have been expressed. No such intention appears in the present agreement. In my judgment, the Scheme and the contractual provisions cannot coexist in the contract unless provision is made in the contract how that is to work. I thus conclude that it is the footnote to paragraph 17-014 of Keating that applies in this case, not the text of that paragraph.

I conclude that the Scheme was implied into the contract in place of clause 38A. Mr. Davies submitted that the decision of the adjudicator was made out of time. The Scheme provides by paragraph 19 that the adjudicator shall reach his decision not later than 28 days after the date of the referral notice, subject to provision for extension of time. The referral notice was dated 11^th October 2006. The time was validly extended by 7 days, so that the decision, Mr. Davies submitted, had to be reached by 15^th November. It was not reached until 17^th November.

In Ritchie’s case at first instance, [2004] BLR 379, 381, 382, Lord Eassie gave powerful reasons why, in paragraph 19 of the Scheme, the “date of the referral notice” means the date of despatch of that notice. That is anomalous if I am right on the construction of section 108(2)(c) of the Act. Particularly since a referral notice may be undated, and given my interpretation of section 108(2)(c), I conclude that the date of the referral notice means the date of its receipt by the adjudicator. There seems to be no reason why the Scheme should provide a lesser time than is permitted by the Act. The adjudicator received the referral notice on 13^th October. I conclude that his decision was in time.

Mr. Davies’s next point was that the matter was not referred to the adjudicator within 7 days of the notice of adjudication as required, he submitted, by section 108(2)(b) of the Act or paragraph 7(1) of the Scheme. The notice of adjudication was dated 6^th October 2006 and the notice of referral was served on the adjudicator 13^th October. Thus this point fails.

Mr. Davies further submitted that the adjudicator was not appointed under the Scheme although the Scheme applied, since the notice of adjudication was expressly based on clause 38A of the GC/Works sub-contract. Thus he was not validly appointed and was without jurisdiction. Mr. Davies relied on paragraphs 16, 30 and 33 of the decision of the Court of Appeal in Pegram Shopfitters Ltd. v. Tally Weijl (UK) Ltd. [2003] EWCA Civ 1750 and paragraphs 5 to 11 of the decision of the Court of Appeal in AMEC Capital projects Ltd. v. Whitefriars City Estates Ltd. [2004] EWCA Civ 1418. Neither of those decisions supports the proposition for which Mr. Davies contends. In my judgment this argument of Mr. Davies fails.

Mr. Davies submitted that the adjudicator’s decision was out of time even if not due until 17^th November. The adjudicator acknowledged receipt of the notice of referral by letter dated 13^th October 2006 apparently faxed at 16:24. Thus the time for reaching the decision would expire at 16:24 on 17^th November at latest (I have given times which appear to me to be correct and which differ from those given by Mr. Davies, but that difference does not affect the argument). The decision appears to have been sent to the parties by fax timed at 18:29 on 17^th November. Moreover, 18:29 was after business hours, and the fax message was not in fact received by the defendant until opening of business at 09:00 on Monday, 20^th November. In my judgment, no account is to be taken of fractions of a day. The adjudicator reached his decision on 17^th November, within the time allowed.

Mr. Davies submitted that the claimant did not expressly consent to an extension of time to 17^th November. The claimant did, however, expressly consent in writing on 7^th November to an extension of time of 7 days, which in my judgment is sufficient to give rise to a valid extension. Mr. Davies also submitted that the extension was granted retrospectively. That is not right even on Mr. Davies’s contention that the time limit for reaching the decision was 7^th November.

Mr. Davies submitted that the notice of intention to refer the matter to adjudication did not comply with the requirements of paragraph 1(3) of the Scheme and was thus not a notice of adjudication. As to the dispute, the notice said

Mr. Davies referred me to the decision of HH Judge Humphrey LLoyd Q.C. in Ken Griffin and John Tomlinson v. Midas Homes Ltd. (unreported) 21^st July 2000. He relied on paragraph 2 of that decision, in which Judge LLoyd said

Mr. Davies responded to the notice of adjudication by letter dated 9^th October 2006 to the defendant’s solicitors. He wrote

I have to consider the overlapping questions whether there was a dispute, and if so whether it was sufficiently clearly identified in the notice of adjudication. Mr. Davies submitted that the claimant wrongly claimed in the notice of referral that the parties were in dispute in relation to a 19-page application for payment number 7, although such alleged dispute was not mentioned in its notice of adjudication. He submitted that the referral notice, taken separately from or together with the claimant’s reply dated 26^th October 2006 to the defendant’s “response”, was substantially different from the 19-page application for payment number 7. The “response” in question was the defendant’s valuation of the sub-contract final account. That was a 124-page document complete with 2 lever arch files containing 19 appendices. It had been sent to the claimant on 28^th September 2006.

The notice of referral showed that the alleged dispute arose from application number 7, as Mr. Davies pointed out. Many documents were appended to the notice of referral. Appendix 10.4 consisted of application number 7 plus a few pages, plus some pages emanating from the defendant. Application number 7 was for a gross sum of £385,631.35, of which a summary was given on the first page. In paragraph 4.04 of the referral notice it was stated

Adopting that small correction to the claim of 18^th April 2006, I set out in the table below the items of the claim and their respective amounts as claimed on 18^th April and as claimed in the notice of referral:

Mr. Davies said that since he had not seen all the documents referred to in the adjudication before he received the referral document a dispute could not have crystallized at that time. Many of the matters and documents relied on by the claimant in the adjudication had not formed part of the claimant’s application number 7. The package constituting the 19-page application number 7 did not include that contained in the “two lever arch files and further document” that purported to be the claimant’s alleged referral notice and purported reply to a non-existent response. Moreover, the case on which the adjudicator purportedly decided was based on two lever arch files of material and another document.

The two lever arch files to which Mr. Davies referred were the appendices to the referral notice. It is apparent from the adjudicator’s decision that he also considered (as the response) the defendant’s valuation of the final account. Mr. Davies did not specify the differences that he was alleging between the claimant’s application number 7 and its notice of referral. It is abundantly clear that there was a dispute over application number 7. It appears to me that exactly the same dispute is the subject of the notice of referral. I have not been asked to look at the voluminous detail nor has it been described to me. I conclude that there was a dispute, and that that dispute was referred to the adjudicator.

The question remains whether the dispute was sufficiently described in the notice of adjudication. Given the background, there is not the slightest doubt that the defendant knew what the dispute was. It chose to take only a limited part in the adjudication. I am satisfied that the notice in the circumstances was sufficient, and that the adjudicator had jurisdiction to make his decision.

Mr. Davies submitted that the adjudicator lacked jurisdiction because a condition precedent to his appointment had not been fulfilled. Clause 38A.3.2 of the GC/Works standard form provides

Finally, Mr. Davies submitted that the adjudicator in asking the claimant for a schedule of its costs and expenses and in awarding £12,044.25 by way of costs and expenses without having received any substantiation showed a real danger that he was biased and did not comply with the principles of natural justice. I am not satisfied that he was biased. However, he would have jurisdiction to award costs only by virtue of clause 38A.6 of the GC/Works conditions. Under the Scheme, an adjudicator has no jurisdiction to award a party its costs or expenses. Since I have held that the adjudicator’s jurisdiction derived from the Scheme, his award of costs and expenses cannot stand. To that extent only, I grant the defendant permission to defend the claim.