Banner Holdings Ltd v Colchester Borough Council

Introduction

By a contract dated 16.09.08, the Claimant, Banner Holdings Limited, whom I shall call ‘Banner’, was engaged by the Defendant, Colchester Borough Council, whom I shall call ‘CBC’, to build a visual arts facility in Colchester. The contract incorporated the GC Works/1 Form of Contract and the provisions of Model Form 24.

There were disputes between the parties and, on 08.04.09, CBC purported to determine for cause Banner’s employment under the contract. Banner disputed, and continue to dispute, the validity of that determination and, having been through the TCC pre-action protocol process, they commenced proceedings in the TCC in the autumn of last year in which they challenged that determination. Following the exchange of detailed pleadings, there was a CMC before me in that case on Friday 15^th January 2010 and a trial was fixed for November 2010.

On 13^th January 2010, two days before the CMC, although unknown to me at the time, CBC issued a Notice of Adjudication seeking, amongst other things, a declaration that the contract had been validly determined by the Determination Notice of 08.04.09. Subsequently, the well-known construction practitioner and author, Mr Stephen Furst QC, accepted the appointment to act as adjudicator, but those proceedings are now subject to the outcome of this separate dispute.

On 22^nd January, Banner issued a new Claim Form in the TCC under CPR Part 8 seeking a declaration that the adjudicator had no jurisdiction to decide the dispute that had been referred to him. That claim is supported by the witness statement of their solicitor, Mr John Malins. The claim is resisted by CBC, who have served a detailed Defence and Counterclaim, and I have also been provided with a witness statement in support of their position by Mr Andrew Lancaster, their solicitor. Due to the urgency of the relief sought, the TCC was able to fix a final hearing in this matter for yesterday, 28^th January 2010. However, in view of a misunderstanding that arose at the time of listing, I allowed the Claimant to return today in order to make full submissions on the issues between the parties. I am very grateful to both counsel for their assistance.

The issues between the parties break down into two broad areas. First, there is Banner’s case that Condition 59(8) of the Contract expressly provided that an adjudicator appointed under the Contract had no jurisdiction to vary or overrule any decision made by CBC, as Employer, in respect of determination. This requires a consideration of the express terms of the Contract, which are set out in Section 2 below. I then go on to outline briefly some of the relevant factual material in Section 3 below. My analysis of, and conclusions on, that first issue are then set out in Section 4 below.

Secondly, there is CBC’s case that if, which they dispute, Banner are right about Condition 59(8), the express terms of the Contract do not comply with s.108 of the Housing Grants Construction and Regeneration Act 1996 (“the 1996 Act”) and accordingly must be replaced by part, or all, of the Scheme for Construction Contracts, SI 1998, no.649 (“the Scheme”). I deal with that aspect of the dispute between the parties, and the sub-issues that arise, at Section 5 below.

The Relevant Terms Of The Contract

It is necessary to set out some parts of Condition 56 in full:

The grounds referred to in paragraph (1) are –

Condition 57 dealt with the consequences of determination by the Employer. Condition 57 (1) set out the consequences if the determination occurred for one of the reasons set out in Condition 56(6). This contained a series of provisions which are relatively draconian in effect, because they assume that the determination had been justified by the contractor’s conduct (i.e. determination for cause). Those provisions in Condition 57(1) included the following:

On the other hand, Condition 57(4) provided that:

The provisions relating to adjudication are set out in detail in Condition 59. It is unnecessary for me to set out all of the relevant provisions. I have identified two which matter for the purposes of these proceedings. First, Condition 59(5) which provided as follows:

In order to decide the issues before me, it is only necessary to refer to three particular matters of fact.

On 5^th February 2009, CBC’s project manager served a notice on Banner pursuant to Condition 56(6)(b) setting out a list of specific workmanship defects and condemning “the present installation”. The notice also notified Banner of the Project Manager’s opinion that completion would not be achieved by the contractual completion date of 22^nd May 2009.

On 22^nd March 2009, CBC served a second notice on Banner: again this was said to be pursuant to Condition 56(6)(b) and it set out a longer, attached, list of defects and failures on the part of Banner. The opinion as to the likely failure to complete by the contractual completion date was repeated.

On 8^th April 2009, CBC served the Notice of Determination under Condition 56. That notice was in the following terms:

As I have already noted, it is CBC’s case that this notice was validly served under Condition 56(1), i.e. that they properly determined for cause. If CBC are wrong about that then, of course, pursuant to Condition 56(8), the determination will be deemed to be a determination at will. That is Banner’s case in the main action. The validity or otherwise of this determination notice is referred to again below.

The Notice of Adjudication served by CBC on Banner on 13^th January 2010 sets out CBC’s case as to how and why the determination was validly achieved under Conditon 56(1). I note that the dispute to be referred under this Notice is said to be:

“…whether, as CBC contend, the determination was valid under Condition 56(1)(a)”.

The summary entitled ‘Reliefs and Remedies Claimed’ is in the following terms:

“The adjudicator is asked to give the following relief:

(i)

A declaration that the Agreement was properly determined by CBC under Condition 56(1)(a);

(ii)

A declaration that the calculations required under Condition 57(1)(e), Condition 57(2) and Condition 57(3) should be carried out;

(iii)

A declaration that the balance due under Condition 57(2) and Condition 57(3) should be paid to the appropriate party as soon as it has been ascertained pursuant to declaration 2;

(iv)

A decision that BHL pay the Adjudicator’s costs and expenses of this adjudication in full.”

The Issue

Banner submit that, by their Notice of Adjudication, CBC are asking the adjudicator to vary, or overrule, CBC’s decision to give notice of determination under Condition 56(1) and that, pursuant to Condition 59(8)(c), that is not something that the adjudicator has the power or jurisdiction to undertake.

CBC submit that they are not seeking to vary, or overrule, that decision. They maintain that they are simply asking the adjudicator to uphold their case that the determination was valid under Condition 56(1). They accept that, if they fail to achieve that, Condition 56(8) must apply and the determination will automatically be deemed to be a determination at will. Either way, they say, the financial consequences of the determination can then be properly ascertained in the adjudication.

Having considered the documents and the detailed submissions, I am in no doubt that CBC are right, and that Condition 59(8) does not prevent them from seeking the relief that I have identified above. There is, to my mind, no question of this dispute falling outside the adjudicator’s jurisdiction. There are a number of reasons for that conclusion.

First, I conclude that, as a matter of law, CBC are not seeking by their Claim Form to vary or overrule the decision of the Employer to give notice of determination under Clause 56(1). Indeed, that is actually the opposite of what they are seeking to do. Far from varying or overruling that decision, CBC now ask the adjudicator to confirm the validity of that decision. So, on its face, that claim does not fall foul of Condition 59(8)(c).

If, as is likely, when the adjudication proceeds, Banner contend that the decision should be deemed to have been made under Condition 56(8) instead (because, they say, the determination was not a valid determination for cause under Condition 56(1)), then I still do not consider that that would amount in law to a request to the adjudicator to vary or overrule the decision of 8^th April 2009. The adjudicator cannot vary or overrule that decision – i.e. the decision to determine - because the decision to determine has been taken and it cannot now be undone. The fact of the determination, the reality that Banner will never now complete the work, is irreversible. But in my view, the adjudicator would not be varying or overruling the original decision if he concluded that this was not a valid determination under Condition 56(1). If that was his view, the determination would automatically be a determination at will under Condition 56(8). All the adjudicator would have done would have been to identify the status of the determination and its financial consequences. He would neither vary that decision, nor would he overrule it.

It seems to me that a decision that a determination was not for cause, in accordance with one Condition of the Contract, such that, according to those same Conditions, the determination was automatically a deemed determination at will, does not and cannot amount in law to a variation or an overruling of the original decision to determine.

Secondly, on a proper construction of the Contract, and in particular the words of Clause 56(8), I am in no doubt that the adjudicator is not deprived of the necessary jurisdiction. It seems to me clear that the draughtsman of Clause 59(8) was intending to differentiate between the decision itself - which, for the reasons I have given, is not something which can be varied or overruled - and the consequences of that decision, and in particular the financial effect if it transpires that the decision under Condition 56(1) was unjustified. The latter is a dispute that can be referred to adjudication.

In my judgment, there is a clear distinction between the various matters identified at sub-clauses (8)(a)-(8)(f), namely the decisions which it is said an adjudicator does not have the power to vary or overrule, and the very last part of the Condition, which is plainly intended to be in juxtaposition with, and in contrast to, the unchallengeable nature of the decisions themselves. That last part of the Condition says that, in relation to those decisions, “the Contractor’s only remedy against the Employer shall be financial compensation”.

Thus, so it seems to me, Condition 59(8), when taken as a whole, expressly preserves Banner’s right to argue, in an adjudication, that the particular decision in question was wrong, and that financial compensation should be made to them as a result of that wrongful decision. The last line and a half of Condition 59(8) makes it clear that the adjudicator can consider whether or not one of the listed decisions – including the decision to determine under clause 56(1) - was correct, because it would only be if he concluded that the decision was wrong or unjustified that the adjudicator would then be in a position to award the Contractor financial compensation. In this case, the adjudicator cannot award Banner financial compensation unless he has first decided that the decision of 8^th April was wrong, in the sense that the alleged determination for cause was unjustified, and was therefore a deemed determination at will. The adjudicator clearly has the power to make that decision because that is what Condition 59(8) expressly provides.

I do not accept the submission made by Mr Sears that, in some way, those last words in Condition 59(8) are only applicable if the parties had agreed that there would be financial compensation payable to Banner, and the only dispute is as to the amount of that compensation. There is nothing in the words used which import any such limitation; on the contrary, it seems to me plain that those final words are of wide application, to ensure that a Contractor who is aggrieved by a decision, even though he cannot seek to vary or overrule the decision itself, can claim the financial compensation arising from a finding that the original decision was indeed unjustified.

During the course of argument I raised an example of this construction in practice, by taking one of the other decisions in Condition 59(8) which was not concerned with determination. The example I took was by reference to Condition 59(8)(b): a decision taken by the Employer or his Project Manager not to allow a key member of the Contractor’s staff a pass to get in and out of site. It seems clear on its face that Condition 59(8)(b) is intended to ensure that the adjudicator could not overrule or vary such a decision. Thus, even if the employee in question was a vital part of the Contractor’s team, it appears that the adjudicator could not, in accordance with this provision, seek to vary or overrule the original decision to deny him access.

But, equally clearly, Condition 59(8) would allow the Contractor in such circumstances to refer a claim for financial compensation to adjudication, where he would argue that the decision was unlawful or contrary to the Contract and that, in consequence, he was entitled to financial compensation. That claim would plainly and obviously fall within the jurisdiction of an adjudicator on the words of Condition 59(8).

Thirdly, there is Condition 59(8)(c). On the basis of my primary findings, it is unnecessary for me to consider this Condition in detail, but it was the subject of some debate and I ought to deal briefly with it. I do so with a certain amount of diffidence because I think that, on any view, the provision is very clumsily drafted. The difficulty arises from the fact that, although Condition 59(8) is a form of exclusion clause, there is a proviso at the start of sub-clause (c) which appears to suggest that, if the circumstances are not in accordance with the proviso, the exclusion will not apply.

The proviso states that the prohibition on the Adjudicator’s power to overrule or vary a decision to determine only applies if “the circumstances mentioned in Condition 56(1)(a) or (b)…. have arisen and have not been waived by the Employer”. On a logical analysis, therefore, that would suggest that if the proviso does not apply, i.e. if those circumstances are found not to have arisen, then the restriction on the adjudicator’s jurisdiction does not apply either.

In the present case, Banner will argue that the Condition 56(1) circumstances have not arisen. If they are right about that, then it might be said that the proviso would not apply – the circumstances under Condition 56(1) having not arisen - and that, therefore, the alleged restriction on the adjudicator’s jurisdiction would not operate in these circumstances.

Mr Sears contends that such a construction would be outside the general purpose of Condition 59(8), which is obviously designed to try and limit the jurisdiction of the adjudicator. I accept that, as far as it goes. The difficulty is that this particular excluding provision contains a proviso which is clearly designed to limit the scope of the exclusion. Mr Sears also argued that the intention must have been to refer just to the procedural steps noted in Condition 56(1)(a) and (b). Thus, he said, the proviso relates to whether notice had been given; and whether the ground was in existence 14 days after such notice was given. He said this would therefore limit the disputes, in connection with a decision to determine, which the adjudicator had the jurisdiction to address. However, that is not a straightforward construction for three reasons. First, if the Condition was designed to prevent the adjudicator from considering the underlying basis of the determination at all (and that is, after all, Banner’s principal point), then the proviso would seem to be at odds with that: on a plain reading of the words, one of the ‘circumstances mentioned in Condition 56(1)(a)’ is whether a Condition 56(6) ground has arisen. Secondly, that is a strained interpretation of the words that are used. Thirdly, I am not at all sure that, even on this basis, the disputes would be limited in the way suggested. For example, disputes as to whether grounds were in existence 14 days after the giving of a notice can be extremely difficult and time-consuming.

Accordingly, I consider that the proviso to Condition 59(8)(c) does not assist Banner and, if anything, provides further support for the conclusion that I have already reached. But I make plain that that is a subsidiary part of my decision on this issue. My principal reason for concluding that the adjudicator has the necessary jurisdiction is that Condition 59(8) does not, on its true construction, affect or limit that jurisdiction in this case; any decision as to the validity or otherwise of the determination under Condition 56(1) would not modify or overrule the original decision to determine. Further, Condition 59(8) is expressly worded so as to ensure that, if, as is likely, Banner wish to argue that the decision was not in accordance with Condition 56(1), and is therefore a deemed determination at will, they are entitled so to argue in the adjudication and seek the various financial consequences that would flow from such a result.

The second issue, as to whether or not Condition 59(8) complies with the 1996 Act, only arises if I am wrong on Issue 1 and that, in some way, Condition 59(8) does prevent the adjudicator from considering this dispute as to the validity of the determination under Condition 56(1).

The dispute arises in this way: if Banner are right that Condition 59(8) deprives the adjudicator of jurisdiction, CBC say that the Contract does not comply with s108 of the 1996 Act because it denies them the right to adjudicate that dispute. In consequence, they maintain, Condition 59 has to be replaced by the Scheme for Construction Contracts which, they say, would give the adjudicator the necessary jurisdiction. Banner counter by arguing that, even if this were right, it would not be necessary to replace the whole of Condition 59 with the whole of the Scheme, and that, whatever the replacement process, the Scheme contains a paragraph which would give rise to the same prohibition as Condition 59(8).

Thus, the sub-issues are:

Section 108 of the 1996 Act provides as follows:

This is a construction contract within the meaning of the 1996 Act, and it is agreed that there is a dispute or difference between the parties as to the validity of the determination under Condition 56(1). On the face of s108, therefore, CBC would be entitled to refer that dispute to adjudication. Of course, on my reading of Condition 59(8) there would be nothing to stop them from so doing; in that way, what I believe to be a common sense reading of Condition 59(8) is supported by a common sense reading of s108 of the 1996 Act.

But if I am wrong about Condition 59(8), and it does prevent CBC from referring this dispute to adjudication, then it seems to me plain that such a provision falls foul of the provisions in s108 of the 1996 Act. There is nothing in s108, or any other part of the 1996 Act, that could justify such a limit on the adjudicator’s power and jurisdiction. Section 108 contains no qualification, no limitation, upon the nature, scope and extent of the disputes that can be referred to adjudication under a construction contract. There is certainly no basis for reading s108 as excluding an adjudicator’s jurisdiction to decide, under this form of contract, whether the determination under Condition 56(1) was justified or not. One point only is raised by Mr Sears in answer to this, and I deal with it in Section 5.4 below.

In passing, I note that CBC contend that Condition 59(5), set out above, is also non-compliant with the 1996 Act because it purports to provide that the adjudicator’s decision remains valid even if it is issued after the statutory period. There is authority which makes plain that this particular provision does not comply with the 1996 Act: see, for example, Epping Electrical Company Limited v Briggs & Forrester Plumbing Services Limited [2007] EWHC 4 (TCC) and Aveat Heating Limited v Jerram Falkus Construction Limited [2007] EWHC 131 (TCC). Mr Sears properly accepts that this provision does not comply with the 1996 Act.

Section 108(5) is clear: if the adjudication provisions in a contract do not comply with the 1996 Act, “the adjudication provisions of the Scheme for Construction Contracts apply”. This has led to a debate in the cases about whether this means that the Scheme as a whole applies, or whether the process is limited to incorporating those parts of the Scheme which are necessary to replace those express terms which do not comply with the Act, sometimes called the piecemeal approach.

The position on the authorities can be summarised as follows:

Although, as I shall explain, I do not need finally to decide this point in this case, I would offer the tentative view that, at least in relation to the adjudication provisions in s108, the wording of section 108(5) suggests that the whole Scheme replaces the express terms, regardless of how many (or how few) of those express terms fail to comply with the Act. More generally, I do not believe that it should be for the court to have to piece together a compliant set of provisions from two different sources. That would not make for certainty.

I derive some support for that conclusion in this case from Mr Clay’s final submission to me this afternoon. He pointed out that section 114, upon which Lord Clarke had relied in Hills, was concerned with payment provisions. Mr Clay submitted that it was, perhaps, unsurprising that that part of the Act was worded in the way that it was because section 110(3), which is also concerned with payment, provides that “if or to the extent that a contract does not contain such provision as is mentioned in sub-section (1) or (2), the relevant provisions of the Scheme for Construction Contracts apply” (emphasis added). In other words, he said, the Act may envisage a piecemeal approach in relation to payment terms.

On the other hand, section 108(5) is not concerned with payment provisions, but is instead setting out the statutory requirements relating to adjudication provisions. There is no similar wording to sections 110 and 114; there is no “to the extent that” in section 108. Instead the provision is that, if the contract does not comply with the Act, the Scheme applies. In those circumstances, it seems to me, the wholesale approach is more likely than not to be the right answer, at least in respect of the adjudication provisions set out in s108.

However, I do not need finally to decide that point in the present case because:

The final point advanced by Mr Sears is that, even if the Scheme applied instead of Condition 59(8), then paragraph 20 of Part I of the Scheme would put the adjudicator right back where he would have been under Condition 59(8)(c).

Paragraph 20 provides as follows:

Banner submit that paragraph 20(a) prevents the adjudicator from opening up or revising any decision or certificate, if the Contract states that the decision or certificate is final and conclusive. That much, I think, is agreed. But they go on to say that, because of the terms of Condition 59(8), the decision as to determination was somehow final and conclusive because, so Mr Sears put it, “the determination was final and binding as far as the adjudicator was concerned. It was final and conclusive as against the adjudicator”.

Mr Clay’s response to that was relatively brief. He said that paragraph 20 was concerned with decisions or certificates which were made final and binding by the terms of the contact itself, such as, for example, a final certificate not challenged during the prescribed period in the contract. Paragraph 20 was, he said, designed to ensure that an adjudicator could not go behind the contractual finality given to those particular certificates or decisions. But, he said, that was a very different thing from the proposed limit to the adjudicator’s jurisdiction in Condition 59(8)(c), which, if Banner were right, at the very most operated to prevent the adjudicator from overruling or modifying the decision to determine, and did not confer any sort of finality to that decision.

My fundamental difficulty with Banner’s case is that, on this hypothesis, they would be seeking to construe paragraph 20 of the Scheme by reference to a Condition of the Contract - 59(8) - which had been replaced by the Scheme and was therefore now irrelevant in any event. I have also concluded that Mr Clay’s submissions on this issue are obviously right. His argument can be tested, I think, in this way: if Banner were saying that the decision to determine under Condition 56(1) of 8^th April 2009 was final and conclusive, then the principal issue in the main action would have fallen away, because they could not then challenge the validity of that decision. Of course, they are not saying that. They say that they can challenge that decision and I am quite sure that they are entitled so to do. In those circumstances, of course, paragraph 20 has no effect upon the dispute which has been referred to the adjudicator: the decision to determine under Condition 56(1) is not, and has not been treated by the parties as being, final and binding.

When paragraph 20 talks about “final and conclusive”, can it really mean, as Mr Sears submits, not ‘final and conclusive as between the parties’ but ‘final and conclusive as against the adjudicator’? I can see no justification for that. Such a strained construction would involve the importation of words not stated in paragraph 20 of the Scheme. It would introduce the novel concept of a decision under a construction contract which is not binding as between the parties to that contract, but is somehow binding on the adjudicator. I am not aware of a construction contract which provides that particular certificates or decisions are to be treated as final and conclusive, but only ‘as against the adjudicator’. It seems to me that there can be no basis for interpreting paragraph 20 as having this effect.

I should add that, if I am wrong in my interpretation of paragraph 20, and it does somehow prevent the adjudicator from deciding the issue that has arisen, then paragraph 20 itself would not comply with section 108 of the 1996 Act for the same reasons as are set out in paragraphs 37-39 above.

Thus, even if (contrary to my primary view), Condition 59(8) would otherwise operate to prevent the adjudicator from considering this dispute, I conclude that this would be contrary to section 108 of the 1996 Act, such that Condition 59 would fall to be replaced by the Scheme, either in whole or in part. In such circumstances I am in no doubt that paragraph 20 of the Scheme would not operate to deprive the adjudicator of the necessary jurisdiction to decide this dispute.

For those reasons I declare that the adjudicator has the necessary jurisdiction to decide the dispute that has been referred to him as to the validity of the determination under Condition 56(1). On that basis, these CPR Part 8 proceedings must be dismissed.