Letchworth Roofing Company v Sterling Building Company

This is an application for summary judgment to enforce the decision of an adjudicator dated 19^th January 2009. The total sum sought is £55,893.07 inclusive of VAT and interest. Although the defendant is not represented today, I have had the benefit of a detailed skeleton argument prepared on its behalf by Mr. Andrew Singer of Counsel. It is therefore appropriate that I deal in detail with the two points which he raises in that skeleton.

The application for summary judgment is resisted on two separate grounds. First, it is said that the decision was issued by the adjudicator out of time, with the result that his decision is a nullity. Secondly, it is said that the adjudicator failed to deal properly or at all with a particular dispute that was referred to him.

The defendant engaged the claimant to carry out roofing work at South Hill Church, Cemetery Hill in Hemel Hempstead. There is no dispute that the subcontract order incorporated the JCT Standard Form of Subcontract DOM/1. Clause 38A of that subcontract form contains a comprehensive set of adjudication provisions including, at clause 38A5.3, a requirement that the adjudicator reaches his decision within 28 days of his receipt of the referral. The clause provides that the 28 day period can always be extended by 14 days by the referring party.

A dispute arose between the parties by reference to the claimant’s interim application number 5. The claimant, as the referring party, issued a notice of intention to refer (commonly called the notice of adjudication) on 9^th December 2008. The referral notice, that is to say the more detailed claim document, was dated 12^th December and reached the adjudicator on 13^th December. Accordingly, allowing for the three intervening bank holidays (which are not to be taken into account in calculating the 28 days: see section 116(3) of the Housing Grants (Construction and Regeneration) Act 1996), this meant that the 28 days expired on 12^th January 2009. If the claimant was prepared to grant the 14 day extension, then time expired on 26^th January 2009.

The claimant had anticipated that an extension was likely to be necessary. At paragraph 79 of the referral notice, the claimant said:

“Letchworth, however, do not wish for any party to be disadvantaged by the Christmas holiday and will thus grant an extension to the date when the adjudicator must make his decision.”

The adjudicator noted this concession in his letter of 15^th December 2008, written to both parties, in which he set out a proposed timetable. He said that he would “take this into account if it proves necessary”.

Also on 15^th December, the defendant sought an extension of time for the service of its response until 9^th January 2009. This application was put on the basis of the imminent holiday period. It is worth noting that such an extension, if granted, would have allowed the adjudicator just three days to consider the response before the expiry of the 28 day period on 12^th January.

The following day, 16^th December, the adjudicator agreed to extend time for the defendant’s response until 7^th January 2009. In so doing he said this:

“In order to allow sufficient time for SBD to respond I will allow their response time to be extended until close of business on Wednesday, 7^th January 2009 thus allowing them this week and a further three days into week commencing 5^th January 2009.

In order to accommodate this I will reset the date for the decision to 19^th January 2009, i.e. plus one week (although I would reserve my position on the further week allowable between referring party and adjudicator)”.

On 5^th January 2009 the adjudicator wrote again to the parties to confirm the timetable to which he was working. He said:

“Following the Christmas/New Year break I would like to confirm the present position as to timetable as my previous directions 1 and 2.

1.

SBD to respond by close of business Wednesday, 7^th January 2009.

2.

Decision issued on Monday, 19^th January 2009.”

In responding to the adjudicator’s letters of 16^th December 2008 and 5^th January 2009, neither party ever suggested that the adjudicator’s understanding of the timetable was in any way incorrect. Neither did they raise any point about the proposed date of 19^th January. Accordingly, it is plain that the adjudicator was working on the basis that both parties were happy for him to take the further seven days that he had indicated, to 19^th January 2009, if that is what he required.

In my judgment this was confirmed when, on 13^th January 2009, the adjudicator wrote to the parties to say that he had nearly concluded his review of the referral and response and assumed that no further submissions were to be made by either side. He also said that he would shortly commence the preparation of his decision, and he referred expressly to that decision being issued on 19^th January. Again, neither party said that they disagreed with that timetable. Instead, both parties wrote to the adjudicator to say that they had no further submissions to make.

Thereafter, in accordance with his timetable, the adjudicator provided his decision on 19^th January 2009. Further to that decision he found that the sum of £46,807.14 was due and owing to the claimant from the defendant. That sum has not been paid and forms the basis of the claimant’s claim now for summary judgment.

It is trite law that, unless there is a want of jurisdiction or there has been a breach of natural justice, the court will enforce the decison of the adjudicator: see, for example, Carillion Construction v. Devonport Royal Dockyard Limited[2005] EWCA (Civ) 1358; [2005] BLR 310. With that principle in mind, I turn to the two matters raised by the defendant in response to this enforcement application.

The 28/42 Days

In the absence of an agreed extension of time, the adjudicator is obliged to complete his decision within 28 days or, if extended by the referring party, within 42 days. If the adjudicator fails to do so he has no remaining jurisdiction and any subsequent decision that he might purport to provide is a nullity: see for example Ritchie Brothers (PWC) Limited v. David Philip (Commercial) Limited[2005] SLT 341 and Hart Investments Limited v. Fidler[2006] EWHC 2857 (TCC).

Here the decision was provided within the 42 day period. Accordingly, the only point available to the defendant is the submission that the claimant did not extend the adjudicator’s time from 28 days to 42 days. On the facts as I have set them out, it seems to me that such a submission is unarguable. In particular:

The defendant takes the point that the claimant’s position as to extensions was ambivalent, because paragraph 81 of the referral notice objected to the defendant having additional time for its response. Mr. Watkins correctly notes in his witness statement that, in truth, there was no ambiguity at all. That part of the referral notice was dealing with the time that the defendant should be given to respond to the claim. That is an entirely separate matter, and unconnected to the time that the adjudicator was to be given to decide the totality of the dispute.

For these reasons, therefore, it seems to me that the defendant’s submissions in relation to time are hopeless and cannot succeed. The claimant always accepted the need for an extension. It did not challenge the extension indicated by the adjudicator and supports that extension now. The decision was not a nullity and there is therefore no jurisdiction point.

The Dispute And The Alleged Breach Of Natural Justice

Every dispute referred to an adjudicator is defined by reference to the notice of adjudication: see Mecright v. TA Morris Developments Limited 26^th June 2001 (unreported) and Griffin v. Midas Homes Limited [2000] 78 Con LR 152. The dispute cannot be cut down or enlarged by subsequent documents without agreement between the parties and the adjudicator: see KNS Industrial Services Limited v. Sindall [2001] 17 Const LJ 170. In addition, it has long since been accepted that, if a responding party wishes to raise a cross-claim by way of a defence to a claim, a withholding notice is almost always required: see VHE Construction Plc v RBSTB Trust Co Ltd [2000] BLR 187.

As I understand his skeleton argument on behalf of the defendant, Mr. Singer seeks neatly to sidestep these principles by arguing that a responding party to an adjudication is entitled to raise any matter by way of defence which would amount in law or fact to a defence to the claim being pursued. He submits that this would include any cross-claim raised by the responding party, regardless of what is in the notice of adjudication and the absence of a proper withholding notice. In support of this submission, he relied on the general statement of principle by Akenhead J in Cantillon v. Urvasco [2008] EWHC 282 (TCC) and the subsequent decision of HHJ Davies in Quartzelec Limited v. Honeywell Control Systems [2008] EWHC 3315 (TCC). I shall return to those cases once I have identified a little more closely the nature of the dispute referred to the adjudicator in the present case.

Here, the dispute that was the subject of the notice of adjudication was the claimant’s claim under interim application 5 dated 9^th November 2008, in the gross sum of £117,286. The defendant had refused to pay because, amongst other things, it claimed to be entitled to raise a cross-claim for delay. Part of the dispute was expressly identified in the notice of adjudication as being “whether a valid withholding notice [concerning that delay cross-claim] is in place”.

In the referral notice, the claimant made it plain that, although there was no withholding notice, it was not averse to the adjudicator deciding the merits of the cross-claim and calculating the sum that might otherwise have been withheld, solely to assist the future consideration of the final account. The point is put in the referral notice in the following way:

“152.

Whilst we will demonstrate below that there is no valid withholding notice in place and as such no monies can be deducted, notwithstanding Sterling have failed to issue a valid withholding notice, the claim against Letchworth fails in its entirety, and is a total fabrication.

153.

We have requested that the adjudicator still considers the merits of the Sterling claim, even if he determines no withholding notice is in place, and we ask here for Sterling to consent to this request, which is made to benefit the conclusion of the account after the decision.”

There is no doubt that this is rather clumsily worded and, as I suggested to Mr. Hussain, it was rather odd that the claimant was seeking guidance from the adjudicator on a matter that was expressly said to be relevant, not to the dispute being referred, but to the future consideration of the final account. Notwithstanding that, I am satisfied that, when taken together, these paragraphs are confirming that, for the purposes of the adjudication, the only issue was the validity or otherwise of the withholding notice (as set out in the notice of adjudication), and that, as paragraph 152 made plain, the absence of a valid withholding notice meant that the cross-claim for delay in the adjudication must fail in its entirety. There was nothing in either the adjudication or the referral notice which suggested that the delay cross-claim, regardless of the withholding notice position, was being referred to the adjudicator for decision as part of his consideration of interim application 5.

There is also no doubt that this is how the adjudicator approached this aspect of the dispute. On pages 11 to 12 of his decision, he decided that the letter upon which the defendant relied was not a valid withholding notice, because it did not state the amount to be withheld; it did not give grounds for the withholding; and it was outside the prescribed timeframe. The adjudicator described this latter failure as “an absolute factor to invalidate the withholding notice. It must be issued on time and it was not”. He went on to find that, as a result, the defendant was obliged to pay the amount of the interim payment by the final date for payment and that the decision that he had reached as to the withholding notice meant that no sums were to be deducted from the sum otherwise due to the claimant. He made clear that he had valued the amount of the delay cross-claim, irrespective of the validity point, because that is what he had been asked to do. He expressly stated that that part of his decision was “declaratory only”.

It appears that the defendant’s argument now is that, although the adjudicator expressly held that there was no valid withholding notice, because he also found that the value of the delay cross-claim was £24,866.77, he ought to have taken that into account in his decision, and in the amount awarded to the claimant. Accordingly, the defendant maintains that the adjudicator has not properly decided the dispute before him and that this amounted to a breach of natural justice.

It seems to me that this argument is unsustainable, both as a matter of general principle and on the facts of this case.

Take the general position first. Whilst there is no doubt that a defendant can raise whatever matters he likes by way of defence for the adjudicator to consider, that general principle does not permit a defendant to rely on a cross-claim which should have been the subject of a withholding notice, but was not. In other words, a defendant cannot avoid the absence of a valid withholding notice if, by reference to the contract and on the facts of the particular dispute, the raising of the cross-claim in question required such a notice. To hold otherwise would be to obviate the need for withholding notices at all: see Harwood Construction Ltd v Lantrode Ltd (Unreported, 24.11.00).

Accordingly, as a general proposition, it seems to me plain that, although a defendant can seek to raise a cross-claim in circumstances such as these, if, as here, the adjudicator concludes that such a cross-claim required a valid withholding notice and there was no such notice, then the adjudicator is acting entirely properly by taking out of account the value of the cross-claim, and the court cannot interfere with that decision.

As to the two decisions referred to above, namely, CantillonandQuartzelec, it seems to me that my general conclusion is entirely in accordance with those decisions. In Cantillon, Akenhead J was not concerned about cross-claims or withholding notices at all. In Quartzelecthe point in issue was rather different to the present case. There, the adjudicator refused to deal with a part of the defence – referred to as the omissions defence - because it was raised, he said, too late. On the face of the judgment, it appears clear that this was a significant error by the adjudicator, and his failure to consider that important part of the defence raised by the responding party tainted the whole adjudication process.

However it is worth noting that, in dealing with some of the arguments, His Honour Judge Davies did touch on the point that arises in the present case. At paragraph 31 he said this:

“I consider, therefore, that Ms. McCredie was right to submit that if the adjudicator had considered the defence and decided, even if wrongly, that it could not succeed in the absence of a withholding notice, that would be a decision within his jurisdiction and would not be one which this court could review on an enforcement hearing. This is consistent with the judgment of Lord MacFayden in SL Timber Systems Limited v Carillion Construction Limited[2001] BLR 516, to which she referred me, at paragraph 23.”

I respectfully agree with that conclusion.

On the facts of that case, however, HHJ Davies concluded that the adjudicator had not decided that a withholding notice was required and had not been provided. He made it plain that, in his judgment, the adjudicator had muddled together the withholding notice and the jurisdiction points, with the result that, contrary to Quartzelec’s submissions, there was no finding by the adjudicator that a valid withholding notice was necessary. Indeed I note that, although strictly obiter, HHJ Davies went on to conclude that, in his view, no such notice was necessary and that the adjudicator should therefore have dealt with the omissions defence in any event.

In the present case, of course, the adjudicator expressly decided that there was no valid withholding notice, so that the amount of the delay cross-claim did not fall to be deducted from the sums otherwise due to the claimant. That decision cannot now be challenged by the defendant, for the reasons set out by HHJ Davies. Accordingly the argument raised here by the defendant by reference to CantillonandQuartzelec – that every point should have been considered by the adjudicator – cannot operate to defeat this enforcement claim, because it ignores the adjudicator’s decision concerning the absence of a valid withholding notice.

That leaves, finally, the point about the wording of the referral notice in the present case. Mr. Singer’s argument – had he been here to develop it – was, I think, relatively straightforward. He maintained that, because the referral notice sought a decision for the future as to the value of the delay cross-claim, this meant that the adjudicator had the jurisdiction not only to consider whether or not there was a valid withholding notice, but was also required to go on to consider the value of the cross-claim and, if there was a valuable cross-claim, to make a deduction from the sums otherwise due to the claimant. That, ultimately, is a question of construction of the notice of adjudication.

I have set out the relevant sections of both the notice of adjudication and the referral notice above. For the reasons set out in paragraph 21 above, it seems to me plain that those words clearly state that the only issue in the adjudication was the validity of the withholding notice, and that the merits/valuation of the cross-claim was a separate exercise for the future which could not be the subject of a deduction from any sums found due to the claimant. It seems to me, therefore, that as a matter of construction of the notice of adjudication, it could not be said that the adjudicator’s jurisdiction was any wider than that.

Sometimes, the interface between the adjudicator’s jurisdiction and the scope and validity of withholding notices can be said to give rise to difficulties which, on a proper analysis, are simply not there. In my judgment, the general position is clear. An adjudicator has to decide whether or not a withholding notice is required to permit a cross claim to be raised as a defence, and if so, whether or not there has been a valid notice. If he concludes that no notice was required, or that a notice was required and that there was a valid notice, then he must take the cross-claim into account in arriving at his decision. If he concludes that a notice was required, and that either there was no notice or that the notice that has been served was invalid for any reason, then he is not entitled to take the cross-claim into account when reaching his conclusion. That is the general position, and it applies here, notwithstanding the slightly unusual words of the referral notice.

For those reasons, therefore, it seems to me that the second point raised by the defendant does not give rise to any arguable challenge to the decision of the adjudicator.

Accordingly, I grant the claimant summary judgment in the sum of £55,893.07. I should express my gratitude both to Mr Hussain and, despite his absence today, to Mr Singer, for the clarity of their arguments.