Dorchester Hotel Ltd v Vivid Interiors Ltd

INTRODUCTION

The Claimant engaged the Defendant to carry out the refurbishment of its hotel. The works were completed in about September 2007. On 19th December 2008, the Defendant commenced adjudication proceedings on its final account claim. The Referral Notice was accompanied by 37 lever arch files, which included six substantial witness statements and two experts’ reports of 30 and 20 pages respectively. Although an extension of the 28 day adjudication period has been agreed, extending the Adjudicator’s time to reach his decision until 28th February 2009, the Claimant maintains that, in all the circumstances, the timetable is too tight and that there is a very real risk of there being a breach of natural justice. It seeks declarations to that effect in these Part 8 proceedings. Accordingly, this claim raises the novel question of the extent, if at all, to which the TCC should intervene in an ongoing adjudication in connection with potential breaches of the rules of natural justice.

The background to this dispute can be briefly summarised. The contract between the parties incorporated the JCT Standard Form of Building Contract (1998 Edition). Clause 41A of those conditions stipulates that the Adjudicator must reach his decision within 28 days of the Referral Notice, or 42 days if the claiming party (in this case the Defendant) consents to such extension. It is also open to the parties to agree a longer period than 42 days.

The Defendant’s draft final account in the approximate gross sum of £4.39 million was provided on 28th March 2008 at the end of the six month deadline provided by the contract. The documentation made plain that further information would be provided by the Defendant. That information was provided in a relatively piecemeal fashion between May and October 2008, with consequential changes to the total sum sought. By 28th October 2008, the gross final account claim stood at £4.032 million, with a net sum allegedly due of £1.788 million. It appears that little happened after that until 12th December 2008, when the Defendant served the Notice of Intention to Refer in respect of the final account, in the revised net sum of £1.538 million.

The Referral Notice itself was issued on 19th December 2008. It was 92 pages long. As noted above, it incorporated 37 lever arch files divided into six sections. The claims covered a variety of heads, including a net claim for executed works, including variations, of £1,106,091.11; a claim for a full extension of time of 16 weeks to 28th September 2007; a claim for loss and expense of £432,126.98; and a claim for the return of liquidated damages in the sum of £60,000.

It appears that within the 37 files there were five entirely new files. Three of those contained the statements and the experts’ reports to which I have previously referred. One file is said to contain a remeasurement exercise, although it is now alleged by the Defendant, somewhat oddly, that that remeasurement exercise is actually irrelevant to its final account claim. I am bound to say that the Referral Notice does not make that clear at all. The fifth and final new file is said to contain material specifically requested by the Claimant during what final account negotiations there were in the autumn of 2008. In addition, and perhaps more importantly for present purposes, it seems that many of the individual claim figures within the final account have been recast or revised so that, on the material that I have seen, the majority of the individual claim figures are different, albeit by a relatively modest amount, from those claimed in March 2008.

The Adjudicator, Mr Eric Mouzer, has been previously involved in valuation disputes on this contract. He was not prepared to accept the reference unless the Defendant agreed to disregard the holiday period from 24th December 2008 to 4th January 2009 for the purposes of calculating the 28 days. The Defendant properly agreed to this. That extended time for completion of the adjudication to 28th January 2009. It is my understanding that it remains the Adjudicator’s view that this timetable is sufficient, although it may be that he reached that conclusion before looking at the detail within the 37 files.

At all events, the Defendant has accepted that such a period is not long enough. The Defendant has proposed a timetable pursuant to which:

In this Part 8 claim, the Claimant seeks the following declarations:

“(1)

There is a serious risk of a breach of natural justice in the conduct of the adjudication if the adjudication is conducted in accordance with the present timetable … because

(i)

In the context of a complex final account dispute the brevity of the time afforded by Vivid to The Dorchester, namely a period of only 18 working days between 5th January and 28th January 2009, precludes The Dorchester from a reasonable and fair opportunity adequately to review the 92 page Referral and the accompanying 37 lever arch files of evidence (some of which contains new material and/or different amounts or bases of claim) and hence from formulating and submitting its response and factual and expert evidence. In consequence, in breach of natural justice, The Dorchester is or would be deprived of a reasonable and fair opportunity to be heard in answer to the dispute referred to adjudication.

(ii)

Absent The Dorchester being allowed a reasonable and fair opportunity adequately to review the Referral and the accompanying evidence and to formulate and submit its response and factual and expert evidence in response to each of the claims made in the final account, the Adjudicator is unable to carry out his duty of deciding the case impartially and fairly as between the parties within the time limits allowed. Vivid would have an unfair tactical advantage over The Dorchester with regards to its submissions and evidence in support given the size and complexity of the claim and the length of time which it has had to consider and formulate its claim compared to the significantly less time that The Dorchester has been permitted to respond.

(2)

Unless the parties agree a realistic timetable which allows The Dorchester a reasonable and fair opportunity adequately to review the 92 page Referral and the accompanying 37 lever arch files of evidence and to formulate and submit its own Response and factual and expert evidence in response, any decision issued by the Adjudicator against the existing timetable … would be unenforceable by reason of breach of natural justice.

(3)

In the light of declarations 1 and 2, the Adjudicator is entitled to resign the reference if the timetable is not extended by agreement of the parties to allow The Dorchester a reasonable and fair date to serve its response. In the event that the Adjudicator resigns, Vivid will be held responsible for the Adjudicator’s fees in full.”

The Claimant’s particular concern is the date for its response of 28th January 2009. It is said that this is only 18 working days after 5th January and is simply not long enough to respond to the detailed claim now made, particularly given the new evidence and the wide variety of altered figures.

In response, the Defendant has taken two principal points. First, it maintains that the Court has no jurisdiction to grant the declarations sought, principally because this would involve interference with the Adjudicator’s discretion and in particular his right to set his own timetable. Secondly, the Defendant contends that the extended timetable set out above is more than sufficient in all the circumstances, particularly given that the Claimant has had the majority of the final account documentation since March 2008.

JURISDICTION

Paragraph 9.4.1 of the TCC Guide (Second Edition, First Revision) is set out at page 446 of volume 2 of the White Book. The paragraph provides that:

“9.4.1

As noted above, the TCC will also hear any applications for declaratory relief arising out of the commencement of a disputed adjudication. Commonly, these will concern:

(a)

Disputes over the jurisdiction of an adjudicator. It can sometimes be appropriate to seek a declaration as to jurisdiction at the outset of an adjudication, rather than both parties incurring considerable costs in the adjudication itself, only for the jurisdiction point to emerge again at the enforcement hearing …

(c)

Disputes over the permissible scope of the adjudication, and, in particular, whether the matters which the claimant seeks to raise in the adjudication are the subject of a pre-existing dispute between the parties.”

On its face, therefore, this paragraph would suggest that, in general terms, the Court does have the jurisdiction to entertain the Part 8 claim in these proceedings.

In my view, that result would be consistent with commonsense and in accordance with the TCC’s aim to provide assistance (albeit only in those limited circumstances where it is appropriate) in ongoing adjudications: see Vitpol Building Service v Samen [2008] EWHC 2283 (TCC) and the cases cited there. If an ongoing adjudication is fundamentally flawed in some way, or may be just about to go off the rails irretrievably, then it seems to me that it must be sensible and appropriate for the parties to be able to have recourse to the TCC: otherwise a good deal of time and money will be spent on an adjudication which will ultimately be wasted. That was recognised in the early cases involving a challenge to the adjudicator’s jurisdiction. For example, in ABB Zantingh Ltd v. Zedal Building Services Ltd [2001] BLR 66, HHJ Bowsher QC said that it was “an entirely proper course” for the jurisdiction dispute to be referred to the Court during the adjudication itself, in order to prevent wasted effort and costs being expended on an adjudication which the adjudicator may not have had the jurisdiction to determine.

It seems to me that, if the Court has the power to grant a declaration in respect of an adjudicator’s jurisdiction in an ongoing adjudication, it also has the power to grant a declaration if it considers that there has been or will be a breach of natural justice which will have a significantly prejudicial effect on the responding party, in this case the Claimant.

It is, I think, possible to illustrate this by reference to the recent decision of Akenhead J in CJP Builders Ltd v William Verry Ltd [2008] BLR 545. There, following the conclusion of an adjudication, the responding party successfully resisted the application to enforce the adjudicator’s decision because the Judge found that the adjudicator had wrongly decided that the contractual adjudication scheme in operation in that case prevented him from extending time for the responding party’s response, and the adjudicator had therefore wrongly failed to have regard to that response at all. The Judge held that this was a breach of natural justice which would have had serious consequences. I consider that, if that matter had come before the Judge during the adjudication, it is idle to suggest that a different result would have occurred, or that the Judge would not have had the jurisdiction to make the order allowing the extension and requiring the adjudicator to have regard to the response. A good deal of effort, time and cost would therefore have been saved.

In developing his jurisdiction argument Mr Buckingham, on behalf of the Defendant, argued that the declarations sought by the Claimant in this case were akin to an injunction and that, by reference to the decision of HHJ Wilcox in Workplace Technologies plc v E Squared Ltd [2000] CILL 1607, the Court did not have the necessary jurisdiction to grant such an injunction. I am not persuaded that the declarations sought here are akin to an injunction, but even if it was, I am clear that in Workplace Technologies HHJ Wilcox did not say that the Court did not have the jurisdiction to grant an injunction. What he properly emphasised was that such an injunction would only rarely be granted, which is a very different thing.

Mr Buckingham’s other submission was that, since the declarations sought went to the Adjudicator’s discretion to fix his own timetable and to conduct the adjudication in a manner which he saw fit, the Court should not entertain an application which would interfere with that discretion. In my judgment, that submission has greater force, but it does again seem to me to be a matter of fact and degree, rather than a matter of principle. Again I would conclude that, if the Court decided that this was one of those very rare cases where the Adjudicator’s exercise of his discretion was in some way fundamentally wrong in law, the Court should not sit idly by until the adjudication is finished and contested enforcement proceedings are in train.

Accordingly, for these reasons, I have concluded that the TCC does have the jurisdiction to consider the application for a declaration in this case. But I make it clear, as I hope I made clear in argument, that such a jurisdiction will be exercised very sparingly. It will only be appropriate in rare cases for the TCC to intervene in an ongoing adjudication. It is important that, wherever possible, the adjudication process is allowed to operate free from the intervention of the Court. Applications of this sort will be very much the exception rather than the rule. They will only be granted in clear-cut cases such as (I venture to suggest) those that existed in CJP Builders.

NATURAL JUSTICE

It is also necessary to say something about the application of the rules of natural justice to an adjudication of this sort, since that is the basis of the Claimant’s complaint in this case. I take it to be settled law that the rules of natural justice do generally apply to the adjudication process: see, for example, Discain Project Services Ltd v Opec Prime Development Ltd [2001] BLR 287; Glencot Development and Design Company Ltd v Ben Barratt & Sons (Contractors) Ltd [2001] BLR 207; and RSL (South West) Ltd v Stansell Ltd [2003] EWHC 1390 (TCC).

But these and other authorities have stressed that there are obvious limits on the application of these rules to the adjudication process. As HHJ Bowsher QC pointed out in Discain, “The adjudicator is working under pressure of time and circumstance which make it extremely difficult to comply with the rules of natural justice in the manner of a court or arbitrator.” Or, as HHJ Lloyd QC put it in Balfour Beatty Construction Ltd v London Borough of Lambeth [2002] EWHC 597 (TCC), the purpose of adjudication is not to be thwarted “by an overly sensitive concern for procedural niceties”.

Accordingly, a Court has to approach an alleged breach of the rules of natural justice in an adjudication with a certain amount of scepticism. The concepts of natural justice which are so familiar to lawyers are not always easy to reconcile with the swift and summary nature of the adjudication process; and in the event of a clash between the two, the starting point must be to give priority to the rough and ready adjudication process. It seems to me that such an approach is even more necessary in circumstances where, as here, it may be said that the breaches of natural justice have not yet occurred and, depending on what happens, may never in fact arise.

The best-known authority on the issue of whether a complex dispute with a good deal of supporting documentation can ever fairly be determined by the adjudication process is CIB Properties Ltd v Birse Construction Ltd [2005] 1 WLR 2252. HHJ Toulmin CMG QC held that it was for the adjudicator to decide whether or not he could fairly reach a decision within the timetable. On the facts of that case, he concluded that the adjudicator had been careful to consider how he could conduct the adjudication fairly at all stages and, by granting a number of extensions of time, the adjudicator had succeeded in doing just that. Those extensions had been agreed by the parties at the adjudicator’s urging.

With those authorities in mind, therefore, I now turn to deal with the substantive application in the present case.

SHOULD A DECLARATION BE GRANTED?

On the information before me, I have concluded that the Defendant commenced these adjudication proceedings at a time (the last day before the Christmas vacation) and in a manner (a Referral Notice bringing with it 37 lever arch files including important new material never seen before) in order to obtain the greatest possible advantage from the summary adjudication procedure. Such conduct is not uncommon. It is a matter of regret that the adjudication process, which was itself introduced as a method of dispute resolution which would avoid unnecessary legal disputes and procedural shenanigans, is now regularly exploited in the same way. I am confident that the enthusiasts for adjudication in and out of Parliament in 1996 did not envisage that the system would be used for the making of a claim of this type and in these circumstances. However, the Courts have long accepted that the 1996 Housing Grants (Construction and Regeneration) Act, and the standard forms of building and engineering contracts amended in its wake, permit such claims to be made, and what is more those claims can be made “at any time”. The difficulties that this latitude can create explain why the Claimant now seeks these declarations in accordance with CPR Part 8.

I accept, up to a point, Mr Buckingham’s submission, made in answer to this criticism, that the Defendant here was faced with a Claimant who was stone-walling in relation to at least some aspects of its final account claim. However, it seems to me that that, of itself, is not a justification for the making of a claim in the way that this claim was made. I do, however, acknowledge that the Defendant has sought to ameliorate its conduct, at least to an extent, by agreeing the revised timetable to which I have already referred.

Notwithstanding these criticisms of the Defendant’s conduct, I have concluded that, for four separate reasons, I should not today grant the declarations sought. I deal with each of those four reasons briefly below.

The Adjudicator’s View

The Adjudicator has said in clear terms that he can fairly determine the adjudication by 28th January, let alone the extended date of 28th February. In many ways, in accordance with CIB v Birse, that is the most important factor of all for the Court to weigh in the balance. If the Adjudicator is of that view, it should not ordinarily be for the Court, in any but the most obvious case, to reach a different conclusion. I accept Mr Buckingham’s submission that the Adjudicator has a wide discretion to fix the timetable and that it will only be in the rarest cases which would necessitate the Court to intervene. I do not believe, for the reasons noted below, that this is such a case.

Of course, the Adjudicator’s duty to determine the adjudication fairly is a continuing one. He will need to ensure that he continues to conduct the adjudication in a fair manner for the remaining six weeks or so that it has left to run, just as the adjudicator did in CIB v Birse. That may even mean extending the timetable beyond 28 February. If he does not conduct the adjudication in this way, the Claimant may have a good ground for resisting the enforcement of any subsequent decision that the Adjudicator may reach.

The Agreed Timetable

As recorded in paragraph 6 above, the timetable in the present case extends to 28th February and allows the Claimant until 28th January to file its first Response, and until 18th February 2009 for its Rejoinder. My impression is that, whilst such a timetable is plainly and obviously tight in all the circumstances, particularly given the volume of material and the degree of changed figures to which the Claimant has to respond, I do not believe that it can be said, at this stage, that such a timetable is incapable of giving rise to a fair result. It is not uncommon in an adjudication for the responding party (in this case the Claimant) to be given only a fortnight for its Response; and it is in my experience unusual for that party to have the last word, which in this case, by putting in a Rejoinder, the Claimant will obtain.

There are two further short points in relation to the timetable. First, I note that the Claimant has calculated its time for response (18 days) from 5th January onwards. As I pointed out to the parties, it seems to me that, in all the circumstances, it was open to the Claimant to work on its Response between 19th December and 5th January. One of the consequences of adjudication is that it can throw people’s working timetables out completely, but that is an inevitable feature of adjudication which we have all had to learn to live with. Accordingly, it seems to me that that was a period in which a good deal of work could have been done in response to the claim. The second point is to formally record that, at the outset of the hearing, I explored with Mr Buckingham whether the Defendant was prepared to grant further time in relation to the Claimant’s Response, and he indicated that the Defendant was not.

New Claims, New Supporting Material

I am not in a position to determine this morning whether or not the Referral Notice contained so much new material of one sort or another that it either means that no dispute had crystallised at the time of the referral to adjudication, or that it is in fact impossible for the new material to be fairly responded to by the Claimant in the time that has been agreed. I confine my observations on this topic to the points made below.

As to the statements and reports, they are said largely to support existing claims. It is not so unusual for such documents to be provided in support of a contested final account claim and, even though it may well have been much better for those documents to have been provided in advance of the Referral Notice, I am not able at this stage to say that the Defendant’s failure to do that amounted to or will definitely lead to a breach of natural justice.

As to the Claimant’s case that the majority of the claim figures have changed, it seems to me that this may or may not give rise to grave difficulties on the part of the Claimant. At this stage I am unable to say which way that issue might go. After all, it can often be the case, in circumstances of this kind, for every claimed figure in the final account to change, but where those changed figures are capable of being traced back to the alteration of a handful of rates or prices. Often a final account claim will appear fearsomely complex and detailed, only for the key disputes between the parties, which would then determine the vast majority of the final account, to boil down to a dozen matters of principle or fact, repeated endlessly through the different heads of claim or areas of work. I am not in a position to say whether or not that is the case here, so I cannot say whether the existence of numerous changed figures is or is not a real point of substance and genuine complaint. If the point is pursued, that would have to await an analysis of the Adjudicator’s decision, when the significance or otherwise of such altered figures will be apparent.

The Claimant’s Remedies

The final reason why I have concluded that I should not grant the declarations sought this morning is that my refusal at this stage does not leave the Claimant without a remedy. Assume that this adjudication proceeds and leads to a result which the Claimant does not like, which result the Claimant ascribes to specific breaches of natural justice that occurred during the adjudication process. The Claimant will be entitled to rely on such breaches, if they can be made out, to resist enforcement, subject of course to the usual rules as to the demonstration of prejudice and the like. On that occasion, the Judge will be in a much better position to see whether or not any breaches of the rules of natural justice have actually taken place and, if so, whether they have caused real prejudice to the Claimant. That is an exercise which, because of the pre-emptive nature of this application, I am unable to undertake today.

Of course, this means that a potential question mark, a shadow of a doubt if you like, hangs over this adjudication. I regard that as unfortunate, but it does seem to me to be an inevitable consequence of the manner in which this adjudication commenced (see paragraphs 23 and 24 above). It does not seem to me in the circumstances that there is anything that the Court can do about that at this stage.

CONCLUSIONS

For the reasons set out above, I refuse to grant the declarations sought. That refusal does not prevent the Claimant from resisting enforcement of any decision in the future by reason of any alleged breaches of natural justice.

I have concluded that the proper order on costs, as I debated with Mr Buckingham, is to reserve costs. If the parties comply with the Adjudicator’s decision, so no point about natural justice is pursued, then the costs would follow the event and the Claimant must pay the Defendant’s costs of and occasioned by this unsuccessful application. If, on the other hand, the Claimant challenges the decision on natural justice grounds, then the costs of this application will fall to be determined by the Judge who deals with that enforcement application, since there may well be an overlap between the points raised now and the points raised then. Accordingly, for the present, the right order is that the costs will be reserved.