Royal Courts of Justice
Strand, London, WC2A 2LL
Before :
MR JUSTICE AKENHEAD
Between:
WITNEY TOWN COUNCIL | Claimant |
- and - | |
BEAM CONSTRUCTION (CHELTENHAM) LIMITED | Defendant |
Mark Raeside QC and Omar Eljadi (instructed by Dutton Gregory LLP) for the Claimant
Ian Wright (instructed by Harrison Clark LLP) for the Defendant
Hearing date: 11 August 2011
JUDGMENT
Mr Justice Akenhead:
By these Part 8 proceedings, Witney Town Council ("the Council") seek declarations that an adjudicator, Mr Anthony Bingham, had no jurisdiction to adjudicate upon what is said to be a number of disputes referred to him for decision. These proceedings are being heard together with proceedings issued in Birmingham by the Contractor, Beam Construction (Cheltenham) Ltd ("Beam"), to enforce the decision reached by Mr Bingham.
The Background
By a building contract made in early 2010, the Council employed Beam to design and construct the new Madley Park Community Hall, Witney in Oxfordshire. The contract was in the JCT Design and Build form 2005, Revision 2, 2009 and the Contract Sum was £749,726. A Mr Treloar was named as the Employer’s Agent. The contract contained an adjudication clause:
“9.2 If a dispute or difference arises under this Contract which either Party wishes to refer to adjudication, the Scheme shall apply, subject to the following:
.1 for the purposes of the Scheme the Adjudicator shall be the person (if any) and the nominating body shall be that stated in the Contract Particulars…”
The reference to the Scheme is to the Scheme for Construction Contracts issued pursuant to the Housing Grants Construction and Regeneration Act 1996 ("HGCRA”).
The contract required the works, subject to extensions of time, to be completed by 7 November 2010. Provision was made for extensions of time and in certain circumstances "loss and/or expense" in relation to delay and disruption. The contract provided for interim payments followed by a final accounting process after Practical Completion of the works. Mr Treloar issued ten certificates for payment during the course of the project. On any count the works were late and eventually Mr Treloar awarded a three-week extension to take the new completion date up to 26 November 2010.
Some controversy surrounds what happened on 6 January 2011 when it is said that the Council took full possession of and access to the works opening the building for use in a public election. Beam says that Practical Completion of the works occurred then but the Council says that, whilst it did use the building for a short period of time, that was by arrangement and in effect the building and the works were given back to Beam to finish the works. I can not resolve that issue, nor is it necessary for me to do so.
So far as is material to this case, the story begins on 21 January 2011 when Beam submitted by e-mail its "draft final account" for the works. The relevant parts of this account are as follows:
“1. Main Works Stages | |
Contract Sum | £749,726.00 |
Less [various items] | |
Less Client’s Prov Sum | £20,000.00 |
£686,226.00 | |
5. Variations/Instructions | |
Add [various items] | |
Kitchen as Martin Luck | £37,752.00 |
[3 more items] | |
Prolongation costs from 7th Nov 2010 to 21st Jan 2011 | |
11 weeks @ £1,500 per week | £16,500.00 |
Total | £802,032.13 |
Less 2.5% Retention | £20,050.80 |
£781,981.33 | |
Less Previously Certified | £678,497.17 |
Nett Application | £103,484.16 excl VAT” |
Mr Treloar issued Certificate No 10 on 2 February 2011 which identified a gross valuation of £703,874.79 less 5% retention of £35,193.74, leaving a net sum certified of £668,681.05. The amount of this certificate was said to be nil because the amount previously certified was greater. The contract suggests that retention was agreed to be 3% and that on Practical Completion half of that was to be released to Beam but, for reasons best known to him, Mr Treloar certified a 5% retention and Beam does not seem to have objected, possibly because its application for payment identified a 5% retention. The maintenance of the 5% retention within Certificate No 10 suggest that Mr Treloar believed that Practical Completion had not occurred, whilst Beam’s assertion that only 2.5% retention was allowable was consistent with its position on this topic.
It seems to be the case that Beam did return to the site after 6 January 2011 although it is not clear whether its workmen were there every day. There was some communication between Mr Treloar and Beam which highlighted what was in issue. In an e-mail dated 7 February 2011, Mr Treloar made a number of points including that a contingency sum of £35,000 should have been deducted and that nothing was allowable for prolongation together with a number of other points. Issues began to emerge between the parties in relation to various outstanding items of work, some of which were associated with health and safety matters, the maple flooring and a gantry. The parties were at odds as to the extent to which Beam was entitled to an extension of time.
On 22 February 2011, Beam’s claims consultant Mr Lee wrote to the Council identifying the issues relating to extension of time and also the issues relating to the draft final account (in the gross sum of £802,032.13 compared with the gross sum of £703,874.79 certified in Certificate No. 10).
On 2 March 2011, again by e-mail to Mr Treloar, Beam sent in what it called its "final account". The form of it was similar to the "draft final account" but there were some changes (identified with an *):
“1. Main Works Stages | |
Contract Sum | £749,726.00 |
Less [various items | ] |
Less Client’s Prov Sum | £20,000.00 |
*Less Contingency 5% | £35,701.00 |
£650,525.00 | |
5. Variations/Instructions | |
Add [as before] | |
*Lettering to external gable | £753.00 |
*Change ceiling from suspended grid to mf ceiling | £4,470.00 |
*Prolongation costs from 7th Nov 2010 to 26th Nov 2010 | |
3 weeks @ £1,500 per week | £4,500.00 |
*Interest for amounts not certified | |
and incorrect retention | £3,454.53 |
*Interest for unfixed materials on-site not valued or included in Arch Certificates | £340.89 |
*Insurance of completed buildings from 6th Jan 11 | £1,450.00 |
* Prolongation costs from 26th Nov 2010 to 2nd March 2011 | |
14 weeks @ say £1,200 per week | £16,800.00 |
*Legal costs to conclude settlement of final accounts say | £12,000.00 |
Total | £776,108.15 |
*Less 1.5% Retention | £11,641.62 |
£764,466.53 | |
*Less Previously Certified | £668,681.05 |
Nett Application | £95,785.48 excl VAT” |
On 11 March 2011, the Council purported to terminate the employment of Beam under the contract pursuant to the termination clause on the basis, as asserted, that Beam was not proceeding regularly and diligently and had failed to do so notwithstanding what was said to be a contractual warning notice on 21 February 2011 from Mr Treloar.
Mr Lee wrote again at this stage to the Council’s own claims consultant, Knowles, on 14 March 2011 reiterating his client's position about when completion took place and rehearsing his client’s arguments about the maple floor and the lighting gantry. He referred to the final account application for payment and he highlighted that Mr Treloar had acted wrongly in deducting 5% as opposed to 3% retention. He said that the essence of his client’s position was:
“1. The Works were practically complete by 6 January 2011, or in the alternative 28 January 2011. The continued with-holding of the certificate of practical completion is a breach of contract for which damages are claimed.
2. No proper extension of time has been granted. Damages are claimed as a result.
3. No proper ascertainment, certification or payment of loss and expense has been received. Damages and interest are claimed as a result.
4. Our Client’s draft final accounts submitted on 21 January 2011 has not been properly valued and certified in accordance with the Contract and interest and damages are claimed as a result.
5. Retention has been incorrectly deducted throughout, and is being with-held now beyond practical completion, in further breach of contract. Again, interest and damages are claimed as a result.”
On 21 March 2011, Mr Lee wrote to the Council saying that his client was:
“…proceeding to compile its case for a referral to an Adjudicator. As we have noted to you previously, this will necessarily involve the Council in unnecessary expenditure of approximately £35,000 on top of the debt due to our client, which is a further £107,427.10 plus VAT.”
This figure represented the retention free sum claimed in the "final account".
However, on 23 March 2011, as recorded by Mr Lee in a further letter on that day to the Council, Beam’s staff arrived at the site to find that the locks had been changed so that they could not get access. In the letter, Mr Lee on behalf of his client said that this was a fundamental breach of contract and as a result the Council’s “right to withhold any retention has been lost". The letter demonstrates that no love was lost between the parties
Knowles replied on the same day saying that its client denied that it was "indebted to your client in the amount £107,427.10”.
The Adjudication
Beam served its Notice of Adjudication on 5 April 2011. Paragraphs 3 and 6 identify that "Practical Completion was achieved on Thursday, 6 January 2011” and that Beam had "made several applications to extensions of time". It continued:
“7. [Beam] submitted its draft final account for the Works on 21 January 2011 in the sum of £802,032.13, and the latest payment certificate issued by the Employer’s Agent dated 2 February 2011 certified a gross £703,874.79, less 5% retention, being £668,681.05 net paid to date.
8. [Beam] submitted its final account for the works on to March 2011 in the sum of £776,108.15.
9. In breach of contract, [the Council] has deducted 5% retention through its gross valuations, certificates and payments for this project, despite the Contract stating at Clause 4.18.1 that retention was agreed to be 3%. Interest is due as a result of this underpayment throughout the project and is claimed.
10. By a letter dated 11 March 2011…[the Council] purported to terminate the Contract under Clause 8.4.2…However, [the Council] failed to serve any prior notice under Clause 8.4.1, and the purported termination is void and of nil effect…
12. On 23 March, [Beam] arrived on site to find that the locks had been changed by the [Council] on or around 22 March, without notice. To deny access in this matter is a fundamental breach of contract. In the alternative, this is a repudiatory breach which [Beam] has no alternative but to accept, therefore bringing the Contract to an end….
15. Interest is claimed on all sums due amount paid, in accordance with the Clause 4.10.6 of the Contract…
19. And whereas the following dispute has arisen between the parties requiring the decision of an adjudicator:
19.1. What value is due to [Beam] from [the Council]?
19.2. What value is due to [Beam] from [the Council] under and in connection with the account dated 21 January 2011?
19.3. What value is due to [Beam] under and in connection with the account dated to March 2011?
19.4. What is the time or times for payment?
19.5. What sum is due to [Beam] as interest?
19.6. Is [Beam] entitled to recover the costs of the action?
19.7. Is [Beam] entitled to such further or other sums from [the Council] as the Adjudicator decides?”
Mr Bingham was appointed as adjudicator by the RICS and there is no challenge relating to the formality of his appointment. On 11 April 2011 Beam served its Referral Notice. Paragraph 1 refers to the contract, extracts being attached. Paragraphs 2 to 6 deal with "Delays", referring to various minutes, and Information, Site instruction and Site Reports sheets, along with various letters by which it notified delays and requested extensions of time and applied for payments for prolongation costs “as loss and/or expense” both in its draft final account of 21 January 2011 and its final account of 2 March 2011. Paragraphs 7 to 19 dealt with the issues which had emerged in relation to completion with a primary assertion being that Practical Completion took place on 6 January 2011 when, it is said, full possession was taken by the Council; an alternative case was put that Practical Completion was achieved on 28 January when "the only significant piece of work carried out after the date", namely the installation of sliding wall partitions, was completed (this having been raised in correspondence before). Beam challenged assertions made in correspondence beforehand that the lighting gantry and maple flooring were incomplete and that issues in relation to these two items justified the withholding of the Practical Completion Certificate. Beam asserted that there was in effect another agenda as to why the Council was behaving as it was, which was problems with covenants and ownership of the hall. Paragraphs 20 to 23 addressed the "Final Account":
“20. [Beam] submitted its draft final account for the Works on 21 January 2011 in the sum of £802,032.13 and the latest payment certificate issued by the Employer’s Agent dated 2 February 2011 certified a gross £703,874.79, less 5% retention, being £668,681.05 net paid to date. Copies of applications for payments and valuations and certificates for payment are enclosed…
21. [Beam] submitted its final account for the works on 2 March 2011 in the sum of £776,108.15.
22. In breach of contract, [the Council] has deducted 5% retention throughout its gross valuations, certificates and payments for the project, despite the Contract stating at Clause 4.18.1 that the retention was agreed to be 3%. Interest is due as a result of this underpayment throughout the project, and is claimed.
23. Interest is claimed on all sums due and underpaid, in accordance with the Clause 4.10.6 of the Contract.”
Paragraphs 24 to 31 dealt with termination. Beam asserted that the termination notice dated the 11 March 2011 was void because there was no prior notice and in any event no specified default had been made out. It stated that the changing of the locks was a fundamental or repudiatory breach which was accepted. It went on:
“30. Secondly, the contractual right of [the Council] to withhold retention is at an end, and all retention must be returned.
31. Thirdly, the time periods in the Contract for dealing with the final accounts are obviously not applicable.”
Paragraph 35 stated:
“…the following dispute has arisen between the parties requiring the decision of an adjudicator:
35.1. What value is due to [Beam] from [the Council]?
35.2. What value is due to [Beam] from [the Council] under and in connection with the account dated 21 January 2011?
35.3. What value is due to the [Beam] from [the Council] under and in connection with the account dated to March 2011?
35.4. What is the time or times the payments?
35.5. What sum is due to the Referring Party as interest?
35.6. Is [Beam] entitled to recover the costs of the action?
35.7 Is [Beam] entitled to any such further or other sums from [the Council] as the Adjudicator decides?"
In the following final paragraph, Beam referred this "dispute" to adjudication.
The Council promptly made it clear to the adjudicator that it considered that more than one dispute was being referred to adjudication but the adjudicator emphatically and very promptly made it clear that he did not consider the point a good one. Effectively, the Council reserved its position on this point.
The adjudication proceeded with a detailed Response being served by the Council and a Reply being served by Beam. The Reply contains for the first time a breakdown of the interest claim of £3,454.53 within the final account of 2 March 2011. It comprised three elements, late payment, reduced valuations and the wrongful reduction of too much retention.
The adjudicator issued his decision on 31 May 2011, albeit that it was subject to slip corrections made on 3 June 2011 (about which no point is taken). He referred to the Notice of Adjudication identifying the "Decisions/Reddress required by Beam” set out in Paragraphs 19.1 to 19.7. He confirmed that he had dismissed the Council’s "Jurisdiction Points" at the outset. At Paragraph 6 he stated:
“ISSUE-“COMPLETION”
Adjudicator’s Note: Issues below are important since they go to the Redress in the "Notice of Adjudication".
Beam says: Practical Completion was 06 January 2011.
Witney says: Practical Completion not achieved then, or at all.
Adjudicator answers: Practical Completion was achieved 06 January 2011.
REASONS: Witney took possession on 05 January 2011 and opened the Community Hall for public use; for local elections on 06 January 2011…[further reasoning followed over two paragraphs]”
He adopted a similar style in Paragraphs 7 to 10 on the "Delay Issue" and the issues of "Termination of the Main Contract” and repudiation:
“(1) The Contract Completion date is 07 November 2010
(2) Extension of Time: 3 weeks already awarded therefore 26 November 2010.
Adjudicator: It is not clear as to how the Extension of Time has been awarded. Further, the Extension of Time challenge in Beam’s letter (Simon Lee 22 February 2011) is not met head on. The Adjudicator doing the best he can takes the Extension of Time within 3 weeks of 06 January and identifies 3 x £1000 LAD applies.
ISSUE: "Termination of the Main Contract".
Witney issued a "Termination by Employer" notice under JCT [clause 8.4] on 14 March 2011.
Adjudicator: Witney is too late. Such termination machinery only applies prior to Practical Completion.
Adjudicator answers: Witney’s attempt to terminate fails.
ISSUE: “Did Witney repudiate the contract?"
Adjudicator answers: YES. Beam denied access 22 March 2011 (to complete Works or carry out snagging). This is repudiatory breach, which is accepted…
ISSUE: “Was Beam entitled to complete the outstanding Works, carry out remedial Work and snagging?"
Adjudicator answers: YES”
At Paragraphs 12, 13 and 14, the adjudicator addressed the issues as to whether the Council was "correct to condemn" the maple floor and the lighting gantry as well as addressing the Council’s “criticisms of fire detection and alarm systems…and other electrical works". The adjudicator had been with the parties to the site and looked at these areas of the works; he expressed the view that the floor "looks very good indeed" and "shows no sign of any problem" and he thought that the complaint about the gantry was exaggerated and could be resolved by a very cheap fix. As to the other matters, he accepted that there was work outstanding and that he would "make an adjustment in the account below", which he did.
He then moved on:
“14. ISSUE: “What value is due to [Beam] in connection with the account 21 January 2011?"
Adjudicator: NONE. The document sent by Beam on 21 January 2011 is headed "Draft Final Account"…This is not a Final Account ("Final Statement" per JCT [clause 4.12]) it is merely a draft. It merely foreshadows what is yet to come being the Final Statement. No liability arises on the mere draft.”
In Paragraph 15 he addressed the issue “What value is due to [Beam] in connection with its Final Statement of 02 March 2011?":
“Adjudicator: JCT [clause 4.12] provided that Beam will submit its "Final Statement" within three months of Practical Completion (i.e. 06 April 2011). The account is 02 March 2011 is in time. However, as is pleaded at Referral…the contractual time period and machinery are not applicable. The position is that the account falls due for payment at end March 2011.
[Beam] says the gross due is £776,108.15 (per Referral [paragraph 21]):
Broadly this is [Appendix 4 of Referral]:
Contract Sum
£749,726.00
Less Provisional Sums & Contingency
-£99,201.00
£650,525.00
ADD Variations
£125,583.15
£776,108.15
(NOTE: The Gross certified 02/02/11
£703,874.79)
Note 1: [the Council] takes the point that the matters surrounding this section of the Adjudication (i.e. "the Account"), only relates [sic] to the subject of retention [Response 7.1]. The Adjudicator does not accept that point. Redress at ‘Notice of Adjudication’ [19.1] requires an answer to "What value is due to the Referring Party from the Responding Party" and [at 19.2 and 19.3] "What value under specific accounts". The Adjudicator will decide what gross sum and net sum is due for payment and when…
Adjudicator’s appreciation of the account: | |
Beam Total | £776,108.15 |
Not allowed: i.e. omit from £776,108.15 | |
(1) Omit Legal Costs £12,000.00 | |
Reason: The preparation of the Final Account is an ordinary part of the Contract. | |
(2) Prolongation: | |
Omit £16,800 Prolongation | |
Costs 26 November 2010 to 02 March 2011: | |
Not made out | |
(3) Omit interest on unfixed materials £340.89: | |
Not made out | |
(4) Omit interest on Retention £3,454.53: | |
Not made out. See increased sum below. | |
(5) Adjust change ceiling to M/F. Omit £1500 | |
(6) Adjustment for other incomplete/remedial Works £4000 | |
(7) Adjustment for Liquidated damages £3000 | |
Total rounded adjustment £41,000. | |
Gross | £776,108.15 |
Less | -£41,000.00 |
Total (Rounded) | £735,000.00 |
Less Previous Paid | £668,681.00 |
Balance Cash (exclusive of VAT) | £66,319.00 |
Note: Retention inapplicable given Repudiatory Breach. | |
Add interest on incorrect deduction (Referral [paragraph 22]) on all certificates. See Reply to Response Bundle (page 19) were taken to date end of May (Rounded) | £3500.00 |
£69,819.00 |
Paragraph 16 was headed "Redress (per ‘Notice of Adjudication’)" and reads as later corrected:
“19.1 What value is due to the [Beam] from [the Council]?
Adjudicator Answers: Gross £735,000
19.2 What value is due to [Beam] from the Council] under and in connection with the account dated 21 January 2011?
Adjudicator Answers: None
19.3 What value is due to [Beam] from the Council] under and in connection with the account dated 2 March 2011?
Adjudicator Answers: £735,000 less previous payments.
19.4: What is the time or times for payment?
Adjudicator Answers: The new date was 02 March. The Final Date for Payment is 02 April 2011.
19.5 What sum is due to [Beam] as interest?
Adjudicator answers: £66,319 x 5.5% for 2 months = £640
19.6 Is [Beam] entitled to recover the costs of the action?
Adjudicator answers: That Adjudicator allocates his fees to be paid by [the Council]. No other legal fees are allocated/allowed.
19.7 Is [Beam] entitled to any such further or other sums from [the Council]?
Adjudicator answers: The Net Due Sum forthwith to Beam is £69,819.00 plus £640.00 (all excluding VAT) plus the Adjudicator’s fee, if already paid by Beam to the Adjudicator.”
The Council was unwilling to pay what the adjudicator had ordered and, after Beam had commenced proceedings in the Birmingham TCC to seek to enforce of the decision, the Council commenced Part 8 proceedings in the TCC in London and, following some exchanges between the Court and the parties, and with the knowledge and concurrence of His Honour Judge Grant in Birmingham, it was resolved that both sets of proceedings would be heard together and all matters resolved in London.
These Proceedings
Essentially the issues between the parties revolve around whether the adjudicator had jurisdiction in the circumstances in which the Council argues that more than one dispute was referred to him and essentially he dealt with all that was referred to him. It was agreed between Counsel that this was the real point in issue, it being effectively accepted that all the matters which were referred to the adjudicator were in issue between the parties at the time that the adjudication procedure was instituted. It is clear that the parties remain firmly in dispute with each other about what has occurred or not occurred but it is accepted that it is no part of the Court’s function to determine any of the underlying substantive issues.
In effect, each party seeks summary relief. Beam seeks by way of summary judgment enforcement of the adjudicator’s decision whilst the Council seeks by way of Part 8 proceedings declarations to the effect that it is not enforceable. Both parties introduced two witness statements which exhibited often quadruplicated documentation.
The Law
The statutory Scheme for Construction Contracts, which was expressly incorporated into the contract, contains the following requirements:
“1(1) Any party to a construction contract (the "referring party") may give written notice (the "notice of adjudication") of his intention to refer any dispute arising under the contract, to adjudication…
(3) The notice of adjudication shall set out briefly-
(a) the nature and a brief description of the dispute and the parties involved,
(b) details of where and when the dispute has arisen,
(c) the nature of the redress which is sought, and…
7. (1) Where an adjudicator has been selected…the referring party shall, not later than seven days from the date of the notice of adjudication, refer the dispute in writing (the "referral notice") to the adjudicator.
(2) A referral notice shall be accompanied by copies of, or relevant extracts from, the construction contract and such other documents as the referring party intends to rely upon.
8 (1) The adjudicator may with the consent of all the parties to those disputes, adjudicate at the same time more than one dispute under the same contract…
(3) All the parties…may agree to extend the period within which the adjudicator may reach a decision in relation to or any of these disputes.
20. The adjudicator shall decide the matters in dispute. He may take into account any other matters which the parties to the dispute agree should be within the scope of the adjudication or which are matters under the contract which he considers are necessarily connected with the dispute. In particular, he may-
(a) open up, revise and review any decision taken or any certificate given by any person referred to in the contract…
(b) decide that any of the parties to the dispute is liable to make a payment under the contract… and, subject to section 111 (4) [of the HGCRA] when that payment is due and the final date of payment.
(c) having regard to any term of the contract relating to the payment of interest decide the circumstances in which, and the rates at which, and the periods for which simple or compound rate of interest shall be paid.
25. The adjudicator shall be entitled to payment of such reasonable amount as he may determine by way of fees and expenses reasonably incurred by him. The parties shall be jointly and severally liable for any sum which remains outstanding following the making of any determination on how the claimant shall be apportioned."
It is clear, and is rightly accepted by both parties in this case, that, save where otherwise agreed between the parties, only a single dispute may be referred to adjudication. This has been justified at least partly upon the basis that, given the usual 28 day time constraint for an adjudicator to issue a decision, it is more expedient and fairer for all concerned if the adjudicator only has to deal with a single dispute.
However, over the years both in the law and practice relating to adjudication and arbitration, confusion has often arisen as to what a dispute is. The answer to this is that, to borrow from Mr Justice Jackson (as he then was) in Amec Civil Engineering Ltd v Secretary of State for Transport [2004] EWHC 2339 (TCC), the circumstances in and by which a dispute may arise are “Protean”. It is almost impossible to give a definition which will work in every case as to what a dispute is. It will usually involve a claim or assertion which is expressly or by implication challenged or not accepted. It may be broad or narrow. It may be a one or a multiple issue dispute.
It is important to bear in mind that construction contracts are commercial contracts and parties, at least almost invariably, can be taken to have agreed that a sensible interpretation will be given to what the meaning of a dispute is. It is conceivable that there may be a dispute on a construction contract which is simply: what is due to one or other of the parties? That could be a very broad dispute covering a large number of issues. For instance, there may be a dispute between the parties about an interim valuation with the contractor saying that it is entitled to payment for 50 variations but overall it is claiming £100,000; the Architect certifies £80,000 and disagrees with the contractor on each of the 50 variations (a) the amount of work done and (b) the rate or price. One could say that there were 100 disputes, namely 2 per variation. Alternatively and obviously sensibly, one could and should say that there was one dispute with 100 sub-issues. The parties can not sensibly have intended in these circumstances that each sub-issue for the purposes of adjudication and even arbitration gives rise to a separate dispute which must be referred to a separate adjudication or arbitration. The dispute in this example will be as to what sum the contractor was entitled to on the interim valuation. A particular dispute, somewhat like a snowball rolling downhill gathering snow as it goes, may attract more issues and nuances as time goes on; the typical example in a construction contract is the ever increasing dispute about what is due to the contractor as each monthly valuation and certificate is issued; a later certificate may accept amounts in issue previously not certified but then reject some more items of work. One may in the alternative have a dispute, like the proverbial rolling stone gathering no moss, which remains the same and unaffected by later events; an example might be disputed responsibility over an accident on site.
In Cantillon Ltd v Urvasco Ltd [2008] EWHC 282 TCC, the Court said:
“55. There has been substantial authority, both in arbitration and adjudication, about what the meaning of the expression "dispute" is and what disputes or differences may arise on the facts of any given case. Cases such as Amec Civil Engineering Ltd -v- Secretary of State for Transport[2005] BLR 227 and Collins (Contractors) Ltd -v- Baltic Quay Management (1994) Ltd[2004] EWCA (Civ) 1757 address how and when a dispute can arise. I draw from such cases as those the following propositions:
(a) Courts (and indeed adjudicators and arbitrators) should not adopt an over legalistic analysis of what the dispute between the parties is.
(b) One does need to determine in broad terms what the disputed claim or assertion (being referred to adjudication or arbitration as the case may be) is.
(c) One cannot say that the disputed claim or assertion is necessarily defined or limited by the evidence or arguments submitted by either party to each other before the referral to adjudication or arbitration.
(d) The ambit of the reference to arbitration or adjudication may unavoidably be widened by the nature of the defence or defences put forward by the defending party in adjudication or arbitration.
It will follow from the above that I do not follow the judgment of HHJ Seymour, QC, in Edmund Nuttall Ltd -v- RG Carter Ltd[2002] BLR 312 where the learned judge said at paragraph 36:
"However, where a party has an opportunity to consider the position of the opposite party and to formulate arguments in relation to that position, what constitutes a "dispute" between the parties is not only a "claim" which has been rejected, if that is what the dispute is about, but the whole package of arguments advanced and facts relied upon by each side".
In my view, one should look at the essential claim which has been made and the fact that it has been challenged as opposed to the precise grounds upon which that it has been rejected or not accepted. Thus, it is open to any defendant to raise any defence to the claim when it is referred to adjudication or arbitration. Similarly, the claiming party is not limited to the arguments, contentions and evidence put forward by it before the dispute crystallised. The adjudicator or arbitrator must then resolve the referred dispute, which is essentially the challenged claim or assertion but can consider any argument, evidence or other material for or against the disputed claim or assertion in resolving that dispute.”
Much has been said in this case about the decision of HHJ Thornton QC in Fastrack Contractors v Morrison Construction Ltd [2000] BLR 168. Relevant parts of the judgment are:
“20. It is to be noted that the HGCRA refers to a "dispute" and not to "disputes". Thus, at any one time, a referring party must refer a single dispute, albeit that the Scheme allows the disputing parties to agree, thereafter, to extend the reference to cover "more than one dispute under the same contract" and "related disputes under different contracts". During the course of a construction contract, many claims, heads of claim, issues, contentions and causes of action will arise. Many of these will be, collectively or individually, disputed. When a dispute arises, it may cover one, several or many of one, some or all of these matters. At any particular moment in time, it will be a question of fact what is in dispute. Thus, the "dispute" which may be referred to adjudication is all or part of whatever is in dispute at the moment that the referring party first intimates an adjudication reference. In other words, the "dispute" is whatever claims, heads of claim, issues, contentions or causes of action that are in then in dispute which the referring party has chosen to crystallise into an adjudication reference. A vital and necessary question to be answered, when a jurisdictional challenge is mounted, is what was actually referred? That involves a careful characterisation of the dispute referred to be made. This exercise will not necessarily be determined solely by the wording of the notice of adjudication since this document, like any commercial document having contractual force, must be construed against the underlying factual background from which it springs and which will be known to both parties…
22. Neither of these contentions of Fastrack is sustainable. The statutory language is clear. A "dispute", and nothing but a "dispute", may be referred. If two or more disputes are to be referred, each must be the subject of a separate reference. It would then be for the relevant adjudicator nominating body to decide whether it was appropriate to appoint the same adjudicator or different adjudicators to deal with each reference. Equally, what must be referred is a "dispute" rather than "most of a dispute" or "substantially the same dispute".
23. In some cases, a referring party might decide to cut out of the reference some of the pre-existing matters in dispute and to confine the referred dispute to something less than the totality of the matters then in dispute. So long as that exercise does not transform the pre-existing dispute into a different dispute, such a pruning exercise is clearly permissible. However, a party cannot unilaterally tag onto the existing range of matters in dispute a further list of matters not yet in dispute and then seek to argue that the resulting "dispute" is substantially the same as the pre-existing dispute.
24. Even this prohibition will not always apply since the Scheme gives the adjudicator two powers: to take the initiative in ascertaining the facts and the law necessary to determine the dispute; and to resign if the dispute varies significantly from the dispute referred to him in the referral notice and, for that reason, the adjudicator is not competent to deal with the varied dispute. These powers show that it is possible that a dispute that has validly been referred to adjudication can in some circumstances, as the details unfold during the adjudication, become enlarged and change its nature and extent. If this happens, it is conceivable that at least some of the matters or issues referred to adjudication by the referring party which were not previously encompassed within a pre-existing dispute could legitimately become incorporated within the dispute that has been referred during the process of its enlargement whilst the adjudication proceeds.
25. These considerations do not lead to the conclusion that Morrison's submissions are correct, namely that only the precise sums previously claimed may be referred to adjudication; that no additional or lesser sum may be claimed; and that if a different sum is claimed, the consequence is that the whole reference, in its entirety, is without any jurisdiction. A claim can often be made without its quantification having been finalised or even attempted. The subsequent dispute can then be in the form: "what sum is due?" as opposed to "is £x due?"
26. Thus, whether or not the reference is wholly or partly lacking in jurisdiction will depend on the nature and extent of the dispute that has purportedly been referred to adjudication by the referring party. A particular dispute may be correctly characterised as being in this form: "what sum is due for a particular interim payment?" or "what sum is due for a particular item of work?" or "what sum is due at the Final Account stage?" without any particular or finalised sum being included as part of that claim. Alternatively, the dispute may be correctly characterised as being one concerning the question of whether or not a particular specified sum is due. In the first type of dispute, it would not necessarily follow, if a larger sum had been included in the notice of adjudication than the sum previously claimed in the relevant application, that no dispute had yet arisen. There would be three alternative possibilities in such a situation: that the whole sum referred could be adjudicated upon (the dispute being a general one as to what sum is due and the sums contained in the notification of the dispute and the notice of adjudication being no more than particulars of the overall dispute); that the sum referred should be split by the adjudicator and only the sum previously claimed adjudicated upon (the dispute being as to whether that particular sum was due); or that no part of the sum referred could be adjudicated upon (since the nature and extent of the subject-matter of the reference had transformed it into something different from the pre-existing claim).”
Much of this is uncontroversial but it is said by Mr Raeside QC for Witney that the learned judge overstepped the mark in Paragraph 20 by apparently suggesting that at the time of the reference “the "dispute" is whatever claims, heads of claim, issues, contentions or causes of action that are in then in dispute which the referring party has chosen to crystallise into an adjudication reference”. One needs to see and characterise this in the context of the judgment as a whole and particularly the following paragraphs. He accepts rightly that only one dispute is referable to adjudication but it is clear that it is one dispute which needs to be characterised by reference to the state of play at the time of the initiation of the adjudication. I do not consider that his judgment can be read as suggesting that everything which is the subject matter of dispute at that time equals or equates to the dispute which is to be referred; if HHJ Thornton QC’s judgment does suggest this, it is wrong. It clearly does not mean that, if there are two separable and identifiably different disputes one minute before the Notice of Adjudication is served, they are or can be referred as one dispute in that one adjudication, absent agreement between the parties. That is not to say that one dispute might not encompass two or more causes of action, heads of claim or issues.
Reference is also made to the Court of Appeal decision in Bothma and another v Mayhaven Healthcare Ltd [2007] EWCA Civ 527 which was concerned with an adjudication to do with a Valuation (No 9) which was disputed but in which there was one item "Steel kitchen portakabin@£28.80 per week, £1296, 45 weeks [and an item of delivery]".The Notice of Adjudication sought an extension of time and the “true sum properly payable…under Valuation Number Nine”. The adjudicator had granted an extension of time and allowed a net sum against Valuation No 9. The judge at first instance had ruled that the adjudicator had purported to determine two unrelated disputes. Relevant parts of Lord Justice Dyson’s judgment are:
“7…When the matter came before me as a paper application for permission to appeal, I expressed the view that the judge's reasoning, to which I have just referred, was correct. I said that if Interim Claim 9 had included a claim for extended preliminaries and any other time related sums, there would have been a clear link between the figure claimed for Valuation 9 and the claimant's claim in relation to extensions of time and the validity of the certificate of non-completion. I also expressed the view that the judge's decision on the question of waiver was correct.
8. Before us this morning, Mr Newman does not seek to revive the waiver or estoppel issue that was raised before the judge. Moreover, as I understand it, he does not seek to challenge the reasoning of the judge to which I have referred. He accepts that in this case there was no claim for extended preliminaries in the ordinary sense. His main point is that the claim for 45 weeks, for the hire of kitchen portakabin, was a time-related item sufficient to provide a bridge between the claim in respect of Interim Valuation 9, and the time issues raised by the claim for extension of time and the issue in relation to the validity of the certificate of delay.
9. The portakabin issue was not the subject of any argument, either before the adjudicator or before the judge. It seems to me that the portakabin matter has no materiality to the issues which the Contractor seeks to raise before this court. It is not in dispute, as I understand it, that the portakabin was not for the Contractor's use and was no part of its preliminaries. The portakabin was hired by the Contractor for the use of the employer in relation to kitchen work, which would not be finished until after the completion of the appellant's works. It seems not to be in dispute that there was an agreement between the parties that the employer would reimburse the Contractor fully for the cost of the hire of the kitchen and portakabin and that they did so without dispute. There was simply no dispute between the parties about this item.
10. In my judgment, it is wholly artificial to say that because Interim Valuation 9 included as one of its many items this portakabin item, that that afforded the necessary link between the valuation dispute raised by the claim under Valuation 9 and the time related disputes to which I have already referred.”
Lord Justice Waller agreed.
Drawing all these threads together, I draw the following conclusions:
A dispute arises generally when and in circumstances in which a claim or assertion is made by one party and expressly or implicitly challenged or not accepted.
A dispute in existence at one time can in time metamorphose in to something different to that which it was originally.
A dispute can comprise a single issue or any number of issues within it. However, a dispute between parties does not necessarily comprise everything which is in issue between them at the time that one party initiates adjudication; put another way, everything in issue at that time does not necessarily comprise one dispute, although it may do so.
What a dispute in any given case is will be a question of fact albeit that the facts may require to be interpreted. Courts should not adopt an over legalistic analysis of what the dispute between the parties is, bearing in mind that almost every construction contract is a commercial transaction and parties can not broadly have contemplated that every issue between the parties would necessarily have to attract a separate reference to adjudication.
The Notice of Adjudication and the Referral Notice are not necessarily determinative of what the true dispute is or as to whether there is more than one dispute. One looks at them but also at the background facts.
Where on a proper analysis, there are two separate and distinct disputes, only one can be referred to one adjudicator unless the parties agree otherwise. An adjudicator who has two disputes referred to him or her does not have jurisdiction to deal with the two disputes.
Whether there are one or more disputes again involves a consideration of the facts. It may well be that, if there is a clear link between two or more arguably separate claims or assertions, that may well point to there being one dispute. A useful if not invariable rule of thumb is that, if disputed claim No 1 can not be decided without deciding all or parts of disputed claim No 2, that establishes such a clear link and points to there being only one dispute.
Discussion
Ultimately, there appeared to be little between Counsel as to the principles and approach to be applied. It follows that what one then needs to do is to consider whether in reality there was more than one dispute. Mr Raeside QC argued for the Council that there were effectively four disputes being referred, first relating to the 21 January 2011 draft final account, the second relating to the 2 March 2011 final account, the third being the claim for interest on underpayment of retention and the fourth the claim for the payment of the whole retention based on repudiatory breach. Mr Wright for Beam said that in essence there was one dispute which encompassed what was due and owing to its client from the Council.
I have formed a very clear view that there was in reality only one dispute between the parties by the time of the Notice of Adjudication and only one dispute which was referred to adjudication. That dispute was as to what was due and owing to Beam. My reasons are as follows:
It is rightly accepted that each different component of what was identified in the Notice of Adjudication in Paragraph 19 as the dispute was in fact disputed.
It is undoubtedly the case that the "draft final account” of 21 January 2011 was disputed. It led to correspondence and to the ensuing Certificate No 10 by which that account was challenged in some detail. Accordingly there was a dispute at that time as to what was due or should have been certified in Certificate No 10.
However, the use of the expression "draft" final account must be interpreted as meaning that it was simply a draft and interim or provisional assessment by Beam as to what was due.
The correspondence and indeed the fact that the draft final account sought the return of half of the retention amount (then apparently assumed by both sides to be 5%) points clearly to an issue which had emerged relating to when or if Practical Completion had occurred in January 2011.
It is also the case that there was an issue between the parties as to whether Beam was entitled to an extension of time, and if so what.
It is also clear that the 2 March 2011 final account from Beam was disputed by the Council and its representatives. This account added two additional variation claims, additional and altered prolongation claims, two interest claims, an insurance premium claim and legal costs claim. It accepted an argument put forward by Mr Treloar that the contingency sum in the contract should be credited to the Council.
This final account was obviously intended to be an updated and finalised final claim and must be seen to have replaced the "draft final account". Realistically, the Council could not have believed that both the draft final and the final accounts were each separately being pursued. For instance, nobody sensibly could have believed that Beam was not giving credit for the contingency sum. The draft final account had metamorphosed into the final account. One might have to consider for consistency purposes the draft final account in resolving the final account but nobody could have been in any doubt that Beam by 2 March was claiming on the basis of the final account.
There were clear links between the final account and some of the other matters in issue. Thus, the disputed prolongation claims in the final account could not be resolved without deciding what if any extension of time was due to Beam because it was only if and to the extent that there was an entitlement to extension that the prolongation entitlement could be established. Similarly, one could not determine the insurance claim, the level of retention to be maintained and the prolongation cost without determining when and if Practical Completion had occurred.
As to retention and the issue as to whether it should be allowable at all, that was in issue by or shortly after the sending of Mr Lee’s letter of 22 March 2011 in which the retention free sum which was the subject matter of the final account was sought.
As to the issue relating to whether or not interest on retention or indeed interest for under or late payment of sums otherwise due was allowable, this had specifically been the subject matter of the final account in which the sum of £3,454.53 was claimed, albeit that no breakdown was apparently provided until served with the Reply in the adjudication. The claim in the final account was not accepted and it was therefore part of the dispute between the parties. The fact that some corroboration for or a breakdown of this claim was first provided in the adjudication itself does not mean that it was not disputed beforehand.
Mr Raeside QC sought to argue that the full retention could only be recoverable by way of damages consequential upon the repudiation. However, on analysis this is not a point which goes to jurisdiction. It is true that the full retention could not contractually be claimed back before the contractual final account and certification process was completed and it is correct that the effect of a repudiation by the Council (if that is what it was) will mean that the Council would not contractually be entitled to hold on to the retention. Jurisdictionally however, the dispute had again moved on from the time of the final account to encompass a claim or assertion that the retention free sum identified as otherwise due to Beam was due. The disputed termination and repudiation had led to a disputed state of affairs in relation to whether any retention could any longer be maintained by the Council.
Thus, the dispute by the time of the Notice of Adjudication encompassed what extension of time was due, when or if Practical Completion had occurred, what had been due historically in the days leading up to Certificate No 10, whether and to what extent each and every sum claimed within the final account was due, who was legally and factually responsible for the contractual or common-law termination of the relationship between the parties and what if anything could be retained by way of retention. There is nothing unusual in a commercial relationship for a dispute which has arisen to develop as this one did particularly in a construction context.
Whilst the Notice of Adjudication is not determinative of what if any dispute has arisen, Paragraph 19.1 initiated the description of the dispute as being: what value is due to [Beam] from [the Council]? The next two items relating to the draft final and final accounts can legitimately be considered as steps on the way to determining what that value was. The next three items relating to time for payment, interest and costs are consequential matters. The final item (“Is [Beam] entitled to such further or other sums from [the Council] as the Adjudicator decides?”) and indeed interest and costs also are matters which are expressly covered within the Scheme, in particular Paragraphs 20 and 25, effectively as aspects of the relief which an adjudicator can grant. Paragraph 19.7 effectively seeks legitimately to enable the adjudicator to award less than what is claimed and to make provision for payment of any net sum found to be due and owing.
Mr Raeside QC argues that the interest relating to retention could only have been claimed by way of damages for and consequential upon the alleged repudiation or an alleged breach of contract by the Council. Whilst I do not accept that this is or is necessarily correct as a matter of law (because it is open usually to the innocent party to an accepted repudiation to claim sums due under the contract at the time of repudiation and the repudiation simply means in relation to retention that the employer has no continued right to retention), it matters not even if the adjudicator got it wrong as a matter of law. There undoubtedly always was a claim in the final account for interest and Paragraph 20 of the Scheme entitles the adjudicator to award any interest which is due. He had jurisdiction to address the issue of interest as claimed.
There are undoubtedly several aspects of the decision of the adjudicator which are odd:
Firstly, the adjudicator deducted from what he found would otherwise have been due to Beam £3,000 liquidated damages which were, the Court was told, never raised or cross-claimed in the adjudication by the Council. Whilst it could be said that the adjudicator had no jurisdiction to do this, the Council does not seek to undermine or challenge the decision on that basis. If anyone could challenge this, it would be Beam because this led to it recovering £3000 less.
Secondly, the adjudicator’s way of dealing with interest in relation to the under and late certification and over-reduction of retention is confusing. In setting out the account in Paragraph 15 of the decision, he omits the whole of the interest claim (“Omit interest on Retention £3,454.53: Not made out. See increased sum below”) but then adds it back later (“Add interest on incorrect deduction (Referral [paragraph 22]) on all certificates. See Reply to Response Bundle (page 19) were taken to date end of May (Rounded) £3500.00”).
I do not consider however that this undermines the enforceability of the decision. In substance, the adjudicator was allowing the sum which was claimed for interest updated until his decision. Whilst his language is arguably infelicitous, what he is actually doing is clear.
Decision
It follows from the above that the adjudicator had jurisdiction to decide what he did decide and there will be judgment in favour of Beam, enforcing the decision of the adjudicator.
As a postscript, it would be helpful and proportionate in future adjudication enforcement proceedings for parties to liaise in relation to the production of evidence to avoid substantial duplication in the exhibits. In this case there were four copies of the contract, three copies of the Notice of Adjudication, the Referral Notice and the adjudicator’s decision and substantial duplication of correspondence. One and a half files would have sufficed here rather than the four files lodged. It wasted time and added unnecessarily to the costs.