Shaw & Anor v Massey Foundation & Pilings Ltd.

These are two linked applications for permission to appeal. Although the appellants have had both solicitors and counsel acting for them in the past, they now appear in person through Mrs Shaw, a qualified barrister.

The first application for permission to appeal arises out of an order of 28^th November 2008 made by HHJ MacKay sitting in the Liverpool County Court (TCC List), in which he gave judgment in favour of the respondents in the sum of £88,000 odd by way of enforcement of an adjudicator’s decision. He dismissed an application by the respondents to stay the claim for arbitration. Judge MacKay did however allow the appellants to apply to have that judgment set aside.

The second application for permission to appeal concerns the order of HHJ Platts, also sitting at Liverpool County Court. His judgment and order were dated 16^th December 2008. In that judgment Judge Platts refused to set aside the judgment on the ground that the appellants were residential occupiers. The appellants had argued that the adjudicator had no jurisdiction because residential occupiers were excluded from the ambit of adjudication by operation of Section 106 of The Housing Grants (Construction and Regeneration) Act 1996 (“The 1996 Act”).

As I have indicated, both appeals arise out of decisions in the County Court. The decision of Judge MacKay is rightly described in the grounds of appeal to be a decision against the grant of interim relief. On behalf of the respondents today, Mr Bradley accepts that, and agrees that I have the jurisdiction to consider the first application.

The decision of Judge Platts was in respect of an application to set aside judgment. If the application had been granted the proceedings would not have been determined. It was not therefore a final order within the definition of Part 2A.2 of the Practice Direction supplementing CPR Part 52. Again, Mr Bradley accepts this, and agrees that I also have the jurisdiction to deal with the second application for permission to appeal. I therefore turn to address one preliminary matter, before going on to deal with each application for permission to appeal.

The appellants seek to make an application to amend their notice of appeal to raise an issue ostensibly concerned with natural justice, which has not been raised before. Given the fact that it is entirely new, and was not taken before either judge below, it seems to me that it is inappropriate to allow the matter to be raised on an application for permission to appeal.

In any event, on analysis, the matters raised in the amendment application are irrelevant to the only issue that now remains, which is whether or not the appellants are liable to pay the sums found due by the adjudicator. The new matters are not in fact concerned with natural justice at all; instead, they seek to raise a point that the appellants were ‘consumers’ when they entered into the construction contract. As I explained to Mrs Shaw during the course of the argument, the notion of ‘consumers’ is not something that is expressly recognised by the 1996 Act. Neither are the Unfair Terms in Consumer Contracts Regulations of any relevance; in my judgment, the cases have clearly decided that ‘a consumer’ has no grounds for complaining about the adjudication process per se under those Regulations: see Lovell Projects Ltd v Legg & Carver [2003] BLR 452, and Steve Domsalla (t/a Domsalla Building Services) v Kenneth Dyason [2007] EWHC 1174 (TCC).

What matters for the purposes of the 1996 Act is the definition of ‘residential occupiers’ under section 106. On the facts of this case, if the appellants are residential occupiers under that provision, then the adjudicator had no jurisdiction to reach his decision and judgment must be set aside. If they are not residential occupiers, the adjudicator did have the necessary jurisdiction and the decision must be enforced. Everything else in the new file of material relating to the application to amend consists either of revamped arguments which are already in play, or an apparent attack on the appellants’ former Contracts Advisor, which as I pointed out during the argument is irrelevant to the issues between the parties today.

I therefore decline permission to amend the notice of appeal to raise matters that are entirely new, although I make clear, even if I had allowed the amendment, for the reasons that I have given, it makes no difference at all to the substantive result.

In 2007 the appellants engaged the respondents to carry out building works at their property in Cheshire. The appellants live at Great Moreton Hall, a very large country house, in Cheshire. The works were carried out to a building known as the East Lodge, which was a separate building some distance away from the main house. Mr Bradley put it at a ¼ mile away down the drive. The contract was in the old Minor Works Form, and did not therefore include any express provision for adjudication.

Disputes arose between the parties, and those were referred to adjudication. The respondents, who were the referring party in the adjudication, relied on the terms of the contract implied therein by operation of Part II of the 1996 Act, and the Scheme for Construction Contracts, which contain detailed provisions concerning adjudication. The appellants argued that the adjudication provisions in the 1996 Act were not implied at all, because they were residential occupiers. The adjudicator rejected that argument.

By a decision dated 25^th September 2008, the adjudicator awarded the respondents the sum of £80,000 odd together with interest and sums for his fees. The total sum due was £86,000 odd. That sum was not paid by the appellants. On 10^th October 2008 the respondents commenced proceedings in the Liverpool County Court to enforce the decision of the adjudicator. On 17^th November 2008, the appellant sought to stay those proceedings pursuant to section 9 of the Arbitration Act 1996.

On 28^th November, HHJ MacKay dismissed the application for a stay under s.9 of the Arbitration Act, and gave judgment in favour of the respondents in the sum of £88,199.66 inclusive of interest.

The appellants now seek permission to appeal against that decision. The grounds of appeal, drafted by counsel, are in these terms:

“The learned judge was wrong to refuse the mandatory stay to arbitration (S.9 Arbitration Act) in circumstances where the contract provides that disputes will be resolved by a valid arbitration clause and the respondents had commenced a Part 7 claim to enforce the decision of the adjudicator, but had failed to make an application to enforce the decision of an adjudicator by way of Summary Judgment, and to have the timetables abridged in accordance with the TCC procedure either at the time of issuing the claim or prior to the application for a stay”

The law in this area is clear and can be condensed into a few simple propositions:

Absent a want of jurisdiction or a failure to comply with the rules of natural justice, the court will enforce the decision of an adjudicator. The position was summarised by Chadwick LJ in Carillion Construction Ltd v Devonport Royal Dockyard Limited [2005] EWCA Civ 1358 in these terms:

“85.

The objective which underlies the Act and the statutory scheme requires the courts to respect and enforce the adjudicator’s decision unless it is plain that the question which he has decided was not the question referred to him or the manner in which he has gone about his task is obviously unfair. It should be only in rare circumstances that the courts will interfere with the decision of an adjudicator….

86.

It is only too easy in a complex case for a party who is dissatisfied with a decision of an adjudicator to comb through the adjudicator’s reasons and identify points upon which to present the challenge under the labels ‘excess of jurisdiction’ or ‘breach of natural justice’…. The task of the adjudicator is to find an interim solution which meets the needs of the case. Parliament may be taken to have recognised that, in the absence of an interim solution, the contractor or sub-contractor or his sub-contractors will be driven into insolvency through a wrongful withholding of payments properly due. The statutory scheme provides a means of meeting the legitimate cash flow requirements of contractors and their sub-contractors. The need to have the right answer has been subordinated to the need to have an answer quickly…

87.

In short, in the overwhelming majority of cases the proper course of the party who is unsuccessful in an adjudication under this scheme must be to pay the amount that he has been ordered to pay by the adjudicator. If he does not accept the adjudicator’s decision is correct (whether on the facts or in law), he can take legal or arbitration proceedings in order to establish the true position….”

The paying party can, as Chadwick LJ indicated, issue a claim form or an arbitration notice in order to obtain a substantive decision on the merits, and that may lead to some or all of the money, originally ordered to be paid by the adjudicator, being repaid to the paying party. But that does not affect the temporary finality of the adjudicator’s decision, or the imperative that that decision must be complied with and, if necessary, enforced by the court.

The fact that the paying party has commenced substantive arbitration proceedings is usually irrelevant to the successful party’s right to enforcement (and indeed execution) of any judgment: see Harlow and Milner v Teasdale (No.2)[2006] EWHC 535 (TCC).

The only authority of which I am aware in which the existence of ongoing arbitration proceedings affected the mechanics of enforcement is my decision in Kier Regional Ltd v City and General (Holborn) Ltd [2008] EWHC 2454 (TCC). But that was a case where the enforcement of an adjudicator’s decision had in fact been ordered by the court in 2006. The difficulty was that the claimant had done nothing to execute that judgment and only sought charging orders and the like at a time when the substantive arbitration was only a few weeks away. In those wholly exceptional circumstances I granted a stay of execution.

In this case, as the first ground of appeal makes clear, the appellants’ position is put on a very narrow basis, namely that the respondents’ failure to issue a summary judgment application, and/or to seek to abridge time in accordance with the TCC procedures, was fatal to their subsequent claim for summary judgment, and meant that the stay for arbitration should have been allowed.

It seems to me that that argument fails at every level. First, in a case like this, where there can be no defence to the claim to enforce the adjudicator’s decision (subject to the jurisdiction point that I deal with in Application 2 below), the respondents were entitled to be paid the £88,000 odd, whether an application for summary judgment had been made or not. Secondly, the appellants were obliged to pay that sum and were in breach of contract for failing so to do. They would be taking advantage of that breach if they failed to pay, and then sought to stay the enforcement claim as if the adjudicator’s decision had never been made.

Thirdly, if the appellants’ argument were right, it would mean that what mattered was whether the application to stay under s.9 of the Arbitration Act or the application for summary judgment was issued first. That would lead to a procedural horserace to see which side could issue their application before the other. That process would be absurdly unfair, and it would mean that the parties’ substantive rights could be in the hands of hard-pressed court staff, for whom the intricacies of the 1996 Act might not be their principal concern.

A party who is ordered to pay a sum of money by an adjudicator has promised, pursuant to the terms of the contract implied by the 1996 Act, to pay that sum, and that party is in breach of that contract if it does not make prompt payment. He is not entitled to stay the action (which action has only been necessitated at all by his breach of contract in failing to pay) in order to commence an arbitration. In the words of the cases, he ‘pays now and argues later’.

Accordingly, there is no doubt that Judge MacKay was quite right to dismiss the application to stay and to enforce the adjudicator’s decision. The application for permission to appeal against the order of Judge MacKay is therefore dismissed.

Judge MacKay allowed the appellants to seek to set aside his judgment on the grounds that the adjudicator had no jurisdiction because the appellants were residential occupiers. That was the issue which Judge Platts dealt with in his detailed and careful ex tempore judgment. He found against the appellants and concluded, as the adjudicator had done before him, that the appellants were not residential occupiers within the meaning of section 106 of the 1996 Act.

Section 106 of the 1996 Act provides as follows:

“(1)

This Part does not apply-

a)

to a construction contract with a residential occupier (see below) or

b)

to any other description of contract excluded in the operation of this Part by order of the Secretary of State.

(2)

A construction contract with a residential occupier means the construction contract which principally relates to operations on a dwelling which one of the parties to the contract occupies, or intends to occupy, as his residence.

In this subsection ‘dwelling’ means a dwelling house or flat, and for this purpose-

‘dwelling house’ does not include a building containing a flat; and

‘flat’ means separate and self-contained premises constructed or adapted for use for residential purposes and forming part of a building from some other part of which the premises are divided horizontally..”

The authorities on this section are very few, particularly on the issue as to what may or may not be encompassed by the term ‘residential occupier’. In Samuel Thomas Construction v Anon (Unreported, 28 January 2000), the adjudicator decided that the employer was not a residential occupier and was therefore caught by the 1996 Act. The contract in question concerned the refurbishment of a number of buildings, some of which were for the employer to live in, but others were being refurbished for onward sale. The adjudicator decided that, where the construction was for two dwellings, one of which was to be occupied, and one of which was to be sold for commercial purposes, the contract in question could not be said principally to relate to operations on a dwelling which one of the parties to the contract intended to occupy, and he decided that he had the necessary jurisdiction to adjudicate. That decision was upheld by HHJ Overend sitting as the TCC judge in Exeter. Rather like Judge Platts before me, given the absence in the present case of a commercial element, I consider that that case is of little assistance, although it does show that the burden is on the employer (in this case the appellants) to demonstrate that the exclusion applies to them.

There was a good deal of evidence before Judge Platts on the issue of whether or not the appellants were residential occupiers. He considered that evidence carefully over the many paragraphs of his judgment and he found that at the time of the contract:

East Lodge was a separate building;

East Lodge was not lived in by either of the appellants;

Neither of the appellants intended to live in East Lodge.

There was also evidence which Judge Platts accepted that:

The works to East Lodge were not being carried out for development or commercial purposes;

At a date sometime after the contract, an intention may have been formed by one of the appellants to live in East Lodge, possibly with a relative.

It was accepted before Judge Platts, and was expressly accepted before me by Mrs Shaw, that “it is the parties’ intentions at the time of the formation of the contract which are relevant” to section 106. I should add that I agree with that conclusion: it is the only proper construction of section 106.

The key paragraphs in the judgment of Judge Platts, so it seems to me, were the following:

“27.

So I look at what position in relation to East Lodge was. Is it part of the one dwelling? I go back to section 106. ‘Dwelling’ is referred to in sub-section (2) but it is defined in the rider to sub-section (2) which says: ‘in this subsection ‘dwelling means a dwelling house’. It seems to me on any ordinary natural construction of that Act, that here we are dealing with two dwelling houses. There is no doubt that in times gone by, I think I can take some judicial notice of this, that probably the Lodge was inhabited by some employee of the owners of the Hall, a gatekeeper or some other such person. Indeed now it is proposed by the defendants that it be occupied as a separate dwelling by Mrs Shaw and her mother. It seems to me that on any natural construction of the words, East Lodge was a separate dwelling house from Great Moreton Hall itself. So I cannot, on a proper interpretation of the Act, conclude that the work on the Lodge was work on Great Moreton Hall i.e. the dwelling house which the defendants at the time were occupying as their residence. I find that it was a separate dwelling house and therefore that position would not avail the defendants were it to be a finding of fact…

31.

I have to construe the statute. This statute could easily have used instead of the word ‘dwelling house’ a more general proposition maybe ‘property’ or ‘demise’, but it does not. It could easily have referred to occupational residence by a member of the family but it does not. It refers to a party to the contract. I have to on the wording of the section it seems to me construe it quite narrowly…

32.

On the basis of that, I ask myself: is there any realistic chance of the defendants successfully arguing that section 106 applies. Having considered the evidence with some care, and with some regret so far as the defendants are concerned, given in particular Mrs Shaw’s personal circumstances which do not appear to be very good at the moment, I am driven to the conclusion that there is no real prospect of that exception being established in this case. The defendants have had ample time to file any evidence in support of it. I have been through the evidence with some care and it seems to me that even if this judgment was set aside and further evidence to be filed, it could not assist the defendants in arguing section 106 applies in this particular case. In those circumstances it seems to me that the application to set aside judgment must fail. Clearly the dispute with the claimants will go on but for the time being, it seems to me on the basis of the statute, the claimants are entitled to their judgment on the adjudicator’s award, and the application is dismissed.”

On the application for permission to appeal, the appellants argue that the judge was wrong to reach those conclusions. They say in particular, and in addition to the points the judge expressly addressed in his judgment, that

The entirety of their property is referred to as Great Moreton Hall in the relevant Land Registry entry, and that their title number includes both the Hall and the Lodge and indeed the other buildings making up the Great Moreton Hall Estate;

The definition of dwelling in s.101 of the 1996 Act, which comes at the end of Part 1 of the Act, includes “outbuildings and appurtenances” and is therefore wide enough to include East Lodge.

It seems to me that the findings of fact made by Judge Platts are unchallengeable on this appeal. Indeed, from the material that I have seen, those findings of fact are unquestionably right. The Land Registry point is irrelevant. What matters is not how the Land Registry have registered the appellants’ title; what matters is whether or not, on the facts found by Judge Platts, the appellants are residential occupiers of East Lodge within the definition set out in s.106.

By reference to the individual components of s.106 of Part II of the Act, set out above, it seems to me plain that, on the judge’s findings, East Lodge was:

Not the residence of either of the appellants;

Not occupied by either of the appellants;

Not intended to be occupied by either of the appellants at the time when the contract was made;

Not the dwelling or the dwelling house of either of the appellants.

I respectfully agree with Judge Platts: the definition in section 106 is narrow. But by reference to that narrow definition, on the basis of the findings of fact that he made, I have no hesitation in concluding that his decision was correct. The appellants were not the residential occupiers of the building that was the subject of these works, namely East Lodge. On that basis therefore, the prospective appeal has no prospect of success.

Although that is sufficient to deal with the appeal, there is the further point raised by Mrs Shaw (paragraph 28b) above), which although it was raised for the first time today, I should address because it seems to me a pure matter of law. That is the point about the definition of ‘dwelling’ in s.101 of the 1996 Act.

The full definition reads as follows:

“101.

Minor definitions: Part I

In this Part-

‘dwelling’ means a building or part of a building occupied or intended to be occupied as a separate dwelling, together with any yard, garden, outhouses and appurtenances belonging to it or usually enjoyed with it”

Mrs Shaw says that, if that is the appropriate definition, then it may well be right to say that East Lodge was within that definition, because it was an outhouse or an appurtenance. That contention may be right although I express no conclusion on the point.

Much more importantly for present purposes, I have concluded that the definition in s.101 is irrelevant to the issue that arises here. On the present application we are concerned with the definition of ‘dwelling’ in s.106 of Part II of the Act. That is because the residential occupier exemption provides it own definition of what it takes to be a residential occupier by reference, in part at any rate, to the word ‘dwelling’. The definition in s.101 is expressly said to relate to Part I of the Act only, which is the Part which is irrelevant to (and contains no provisions about) adjudication and therefore the residential occupier exclusion.

Accordingly, I conclude that s.106 has its own definition of dwelling which is the only definition relevant for these purposes. That definition is much more restrictive, and for the reasons I have given it does not include East Lodge. Moreover, it would be a mistake to get too caught up with the definition of the word ‘dwelling’, because what really matters for the purposes of s.106 is the question of whether or not the appellants are ‘residential occupiers’, a term which is not defined in s.101 at all.

I should add this final point to the approved note of the judgment that I gave orally. Mrs Shaw repeatedly maintained that she and her husband were being discriminated against because of the size of their principal property. As I explained to her during argument, I hope politely, this was nonsense. Under the definition in s.106, an old lady who can no longer afford to live in her terrace house may spend her savings on a conversion of the house into three small flats, one of which she will live in, the other two being sold or rented. On that basis, the s.106 exemption would not apply to her either, because of the commercial element of the works (as per Thomas). The section excludes certain works but does not exempt others: it is a matter of the words used in the section and it has nothing to do with the size of the property owned by the employer.

For all those reasons I dismiss the application to appeal against the order and judgment of Judge Platts.

Mrs Shaw raised the possibility of staying execution of the judgment because of the financial position of the respondents. It seems to me that that point is not open to her because it was not raised below and is not part of the grounds of appeal. However, even if I was wrong about that, on the information available to me, this is not a case in which a stay would be appropriate. Although a point is raised as to the uncertain financial position of the respondents, it seems clear on the documents that I have seen that their financial position is no different now to what it had been when the contract was made. That is one of the grounds for exercising the court’s discretion against a stay of execution: see Herschel Engineering Ltd v Breen Property Ltd (No 2) (a decision of HHJ Humphrey Lloyd QC of 28.7.00).

For those reasons these applications for permission to appeal are dismissed.