Cain Electrical Ltd v Cox (t/a Pennine Control Systems)

This is an application for summary judgment to enforce payment of the decision of an adjudicator. It is brought by Cain Electrical Limited, whom I shall refer to as “CEL”, against Pennine Control Systems, whom I shall call “PCL”.

The application arises in connection with a contract for the carrying out of cable works on the Humber Bridge in the autumn of 2010. The adjudication decision is that of Mr Peter Sanders dated 23 February 2011. Mr Sanders was appointed by the Construction Industry Council to act as adjudicator following service of a Notice of Intention to Refer by CEL on 19 January of this year.

The decision dealt with CEL’s claim to be paid the amount of two outstanding invoices for work done. One was an invoice dated 16 October 2010 for a sum of £23,250 plus VAT, and the other was an invoice dated 16 November 2010 for a sum of £29,804 plus VAT. These were referred to by the adjudicator in his decision as “invoice 3” and “invoice 4”. I shall use the same description.

The adjudicator decided that PLC should pay to CEL a sum of £23,000 plus VAT in respect of invoice 3 and a sum of £9,989.49 plus VAT in respect of invoice 4. He awarded simple interest on the amounts awarded under those invoices of, respectively, £503.48 and £203.62, and he awarded to CEL compensation of £100 in each case under the Late Payment of Commercial Debts Interest Act 1998. His fees of the adjudication, which he directed should be paid by PCL, amounted to £3,523 plus VAT. The day after the present action was commenced by CEL, on 8 March 2011, PCL paid the amount awarded in respect of invoice 3 plus VAT, but did so expressly without any admission of liability.

So the dispute is now over the enforcement of the remainder of the adjudicator’s decision, which has a monetary value of about £12,600 plus some £4,139.25 in respect of the fees of the adjudicator, which CEL have paid because PCL has declined to do so.

Summary judgment is resisted by PCL on the ground that the adjudicator lacked jurisdiction to make his decision. The arguments I have heard have been commendably brief. They raise some important if rather technical points which all concern whether there was a construction contract in writing which satisfied the requirements of section 107 of the Housing Grants Construction and Regeneration Act 1996, which I shall refer to hereafter as “the Act”. They are all arguments which this Court will not need to entertain when section 139 of the Local Democracy Economic Development Construction Act 2009 comes into force, save possibly in relation to a dwindling number of contracts to which the 1996 Act will continue to apply.

It is common ground in this case that the parties entered into a contract covering cable works at the Humber Bridge. The contract was one under which CEL was to install certain lengths of mains electricity and optical fibre cable which was to be supplied to it by PCL. The cable was to be installed in existing ducts and connected up by CEL at either end. The works were works for which PLC was being employed by a main contractor: so this was a sub-contract.

It is now common ground that the contract was a construction contract. There was a point under section 105 of the Act raised by PCL in the adjudication which has now been dropped. It is also common ground that the written terms of the contract were contained in PCL’s purchase order number 6073/RAC, dated 29 July 2010, and in an exchange of emails between the parties later the same day. The purchase order was quite a detailed document and referred expressly to a number of drawings, and also to “your emails dated 4 May 2010 and 10 May 2010 (3 in number).” It referred as well to the installation of the cabling, its connection and testing and to the issuing of EICC certificates for the work. The purchase order provided for a start date of 16 August 2010 for the fibre optic cable installation and duct proving, and for a start date of 30 August 2010 for the mains cable installation. The completion date was set for 15 October 2010 and there was a payments schedule which provided for £10,500 plus VAT to be invoiced on 16 August (which was the first of the two start dates), £23,000 to be invoiced on 30 September, and £23,000 to be invoiced on 16 October (which was the day following the expected completion date). The purchase order provided that the total order value was a “job lot lump sum price” of £56,500.

The four emails from CEL referred to in the purchase order were as follows: (1) an email dated 4 May 2010 which contained CEL’s quotation reference DJC1673. That was a quotation for the proposed works which contained, amongst other things, a statement in the following terms: “It has been assumed that all ducts will be proved by others and that suitable draw ropes will be installed before the commencement of cable pulling”. (2) an email from CEL to PCL sent at 09.03 hours on 10 May 2010, which gave a reply to a number of specific queries that had been raised by PCL about what was or was not included within the scope of the quotation. (3) an email, again sent on 10 May sent by CEL to PCL at 09.16 hours, which set out a schedule of labour rates which were to be applied to the quotation and also a charging rate for travelling time, transport and accommodation. (4) a final email sent on 10 May by CEL to PCL at 09.50 hours, which replied to two additional queries which had been made by PCL about the cost of any additional work that might be done if the work was spread over two site visits rather than one, and the additional cost per section that would apply if the cables were pulled (i.e. installed within the ducts) at weekends rather than on a week day.

The two emails which followed the issuing of the purchase order on 29 July were emails in which the parties agreed that the second invoice, namely, the invoice of 30 September, should in fact be rendered on 16 September.

The work began on 16 August 2010, but it overran. The evidence I have seen suggests that practical completion was achieved on or about 5 November and the testing and certification of the works was completed by 16 November. It is common ground that all of the cabling that CEL was required to install under the terms of the purchase order was in fact installed, and was tested and certified.

CEL’s case is that it carried out some additional works, including the proving of the ducts, and also incurred certain additional costs. So CEL claimed not only to be entitled to be paid the agreed final sum of £23,000 plus VAT under invoice 3 but also to be entitled to render a further invoice (invoice 4), on 16 November 2010, for an additional sum of £29,804 plus VAT. Neither of these two invoices was paid, and a dispute between the parties arose in December of last year.

The Notice of Intention to Refer or “Notice of Adjudication” was, as I have said, filed by CEL on 19 January 2011. It was followed on 26 January by a lengthy Referral Notice to which was attached a witness statement of CEL’s managing director, Mr Cain. The Response to the Referral Notice was served on 9 February and it raised, amongst other things, an objection to the jurisdiction of the adjudicator.

On 9 and 11 February, in two separate emails, CEL served a Reply. Mr Sanders then proceeded to consider the parties’ respective submissions, both as to his jurisdiction and as to the merits, and published his decision on 23 February. As I indicated earlier, the claim form and the application for summary judgment under CPR Part 24 were issued on 8 March and it was on the following day that, without any admission of liability, PCL paid the amount of invoice 3.

Until service of the Referral Notice by CEL, it appears that the parties were in agreement that the contract had been one made by an exchange of communications in writing, namely, the purchase order, the documents referred to in the purchase order and the email exchange of 29 July, and that CEL was therefore entitled to refer the dispute over payment of invoices 3 and 4 to adjudication under the Act. That position changed after the Referral Notice was served. In its Response, PCL raised an objection to the adjudicator having jurisdiction on the ground that CEL was now purporting to rely on certain matters as having been the subject of oral agreement which were not reflected in the written terms of the contract. The three matters in particular were: (1) who was to prove the ducts; (2) when payment of invoices was due; and (3) when any additional sums invoiced would be invoiced. In relation to the first of those issues, the Referral Notice and the witness statement of Mr Cain referred to a meeting which had taken place between the parties on 30 April 2010, some months before the purchase order was placed, at which Mr Cain said that it had been agreed that proving of the ducts would be PCL’s responsibility.

As to the second and third issues, namely, payment and invoicing, the evidence of Mr Cain was that it had always been understood that any sums would be invoiced on the 16th of the month and that it had been orally agreed that payment was due on receipt by PCL of CEL’s invoice. In consequence, CEL argued for three alternative final dates for payment. Alternative (1) was in accordance with the alleged oral agreement i.e. on receipt of invoice. Alternative (2) was 17 days from the due date, the due date being the date of the invoice, namely, the 16th of the month. Here CEL relied on paragraph 8 of Part 2 of the Scheme under the Act. Alternative (3) placed the due date 7 days after completion of the works, with the final day for payment being 17 days thereafter. Here CEL relied on paragraph 7 and paragraph 8 of Part 2 of the Scheme. In the Response, PCL denied that any of the matters alleged to have been orally agreed were in fact agreed and contended that, if the oral agreements were part of CEL’s case, the adjudicator lacked jurisdiction to entertain the claim.

The adjudicator proceeded to decide the matter of his jurisdiction, recognising expressly that his decision on that issue could not be binding.

The adjudicator found that he had jurisdiction. Neither party seeks to support the reasoning which led him to this conclusion, and both now agree that how he decided the point is irrelevant. I can therefore summarise his conclusion in a very few sentences. He found that the purchase order, and the documents referred to in it, were both the starting point and the finishing point for identifying the terms of the contract. He found that the contract was a contract which was evidenced in writing in those documents. He held that the disputed assertions about what had or had not been agreed at the meeting on 30 April 2010 about duct proving could not contradict what was contained in writing in the quotation of 4 May expressly referred to in the purchase order and the statement in that quotation which I have earlier quoted. Accordingly, in his view, duct proving was the responsibility of PCL. He observed, correctly, that the written terms of the purchase order said nothing about the due date for payment or a final date for payment. He considered that there was no need to have regard to the alleged and disputed oral agreements on those matters because the deficiencies in the written terms could be supplied by sections 109 and 110 of the Act and Part 2 of the Scheme. He therefore proceeded to determine the due date and the final date for payment in accordance with those statutory provisions.

The adjudicator went onto address the merits and to value the additional work for which invoice 4 had been presented. He assessed the value of that work by reference to the evidence before him of what CEL had done, and his view of what reasonable sum was payable, having regard to the agreed schedule of rates quoted by CEL. PCL has not criticised that part of the adjudicator’s decision.

At the stage of enforcement, which now concerns only the adjudicator’s decision about invoice 4, PCL’s objections are that, since CEL asserted in the Referral Notice that it was entitled to payment of invoice 4 because it had been orally agreed at a meeting on 30 April that the ducts were to be proved by others, and that it was understood by some process of oral agreement that any additional works would be invoiced on the 16th of the month, and that payment was due on the date of the invoice because, according to Mr Cain, it had been orally agreed that payment would be made on receipt of CEL’s invoices, the adjudicator lacked jurisdiction. He lacked jurisdiction because none of these were matters recorded in the written contract terms but were alleged to have been agreed orally. Accordingly, on CEL’s own case, the contract was one where not all of the terms were in writing. It therefore did not satisfy the requirements of section 107 of the Act and the Scheme did not apply to it.

Section 107 provides in its material parts as follows:

“(1)

The provisions of this part apply only where the construction contract is in writing and any other agreement between the parties as to any matter is effective for the purposes of this part only if in writing.

(2)

There is an agreement in writing -

(a)

if the agreement is made in writing, whether or not it is signed by the parties;

(b)

if the agreement is made by exchange of communications in writing; or

(c)

if the agreement is evidenced in writing.”

PCL relies on the decision of the majority of the Court of Appeal in RJT Consulting Engineers Limited v DM Engineering [2002] 1 WLR 2344. In that case the Court decided that section 107(1) of the Act, when read with section 107(2), meant that all of the material terms of the contract, whether relevant to the particular issues in the adjudication or not, have to be in writing. The leading judgment was given by Ward LJ, with whose judgment Robert Walker LJ agreed. At paragraphs 12 to 14 Ward LJ said this:

“12.

I turn to the construction of section 107. Section 107(1) limits the application of the Act to construction contracts which are in writing or to other agreements which are effective for the purposes of that part of the Act only if in writing. This must be seen against the background which led to the introduction of this change. In its origin it was an attempt to force the industry to submit to a standard form of contract. That did not succeed but writing is still important and writing is important because it provides certainty. Certainty is all the more important when adjudication is envisaged to have to take place under a demanding timetable. The adjudicator has to start with some certainty as to what the terms of the contract are.

13.

Section 107(2) gives three categories where the agreement is to be treated in writing. The first is where the agreement, whether or not it is signed by the parties, is made in writing. That must mean where the agreement is contained in a written document which stands as a record of the agreement and all that was contained in the agreement. The second category, an exchange of communications in writing, likewise is capable of containing all that needs to be known about the agreement. One is therefore led to believe by what used to be known as the eiusdem generis rule that the third category will be to the same effect namely that the evidence in writing is evidence of the whole agreement.

14.

Sub-section (3) is consistent with that view. Where the parties agree by reference to terms which are in writing, the legislature is envisaging that all of the material terms are in writing and that the oral agreement refers to that written record.”

The judge at first instance, Judge McKay, had held that the case fell within section 107(2)(c), i.e. that the contract was evidenced in writing, because there were written exchanges which confirmed that there was a contract between the parties, albeit that not all of the material terms were set out. The Court of Appeal held that that approach was wrong. Ward LJ went on in paragraphs 17 and 19 of his judgment to say as follows:

“17.

In my judgment the learned judge was wrong to conclude as a matter of law that it was sufficient to give the jurisdiction to entertain an adjudication that there was evidence in writing capable of supporting merely the existence of the agreement, or its substance, being the parties to it, the nature of the work and the price.

…

19.

On the point of construction of section 107, what has to be evidenced in writing is, literally, the agreement, which means all of it, not part of it. A record of the agreement also suggests a complete agreement, not a partial one. The only exception to the generality of that construction is the instance falling within sub-section 5 where the material or relevant parts alleged and not denied in the written submissions in the adjudication proceedings are sufficient. Unfortunately, I do not think sub-section 5 can so dominate the interpretation of the section as a whole so as to limit what needs to be evidenced in writing simply to the material terms raised in the arbitration. It must be remembered that by virtue of section 107(1) the need for an agreement in writing is the precondition for the application of the other provisions of Part II of the Act, not just the jurisdictional threshold for a reference to adjudication. I say "unfortunately" because, like Auld L.J. whose judgment I have now read in draft, I would regard it as a pity if too much "jurisdictional wrangling" were to limit the opportunities for expeditious adjudication having an interim effect only. No doubt adjudicators will be robust in excluding the trivial from the ambit of the agreement and the matter must be entrusted to their common sense. Here we have a comparatively simple oral agreement about the terms of which there may be very little, if any, dispute. For the consulting engineers to take a point objecting to adjudication in those circumstances may be open to the criticism that they were taking a technical point but as it was one open to them and it is good, they cannot be faulted. In my judgment they were entitled to the declaration which they sought and I would accordingly allow the appeal and grant them that relief.”

In PCL’s submission. the problem here is that CEL was arguing in the Referral Notice that not all the material terms of the contract were contained in the purchase order, so the Act and the Scheme did not apply. PCL suggests that this case is very similar to a case decided by Judge McCahill QC called Westdawn Refurbishments Ltd v Roselodge Limited [2006] ADJ LR 04/25. In that case the claimant’s quantity surveyor had prepared a Referral Notice stating that the contract was one that was evidenced in writing and that there were no material terms which were not evidenced in writing. It was a case where, as her, there had been a written quotation which had been accepted by the service of a purchase order. However, in the adjudication, the argument developed on behalf of the claimant was that there had been some oral discussion and agreement about three matters which were not evidenced in the purchase order or in any written document. Unlike in the present case, the respondent agreed with that argument. One of the matters which had been orally agreed was the time for payment of the claimant’s invoices. Judge McCahill held that all three of the matters which had been the subject of oral agreement were material terms of the contract and, since they were not evidenced in writing, the contract did not fall within the Scheme and therefore the adjudicator had had no jurisdiction to arrive at his decision.

Mr Singer, who appears as Counsel on behalf of PCL, submits that CEL could have withdrawn their reliance on the oral agreements in the course of the adjudication. He accepts that, had CEL done so, the objection to the adjudicator’s jurisdiction would have fallen away. However CEL did not, and Mr Singer submits that they have not done so even in the witness statement of their solicitor, Mr Smith, which has been filed in support of the Part 24 application. Having failed to abandon reliance on the oral agreements, he submits that it is now too late for CEL to cure the defect.

Mr Singer says that, as claimant in this action, CEL must demonstrate that the adjudicator had power to make a binding decision on the case which was put before him. For the purposes of an application for summary judgment, CEL must establish that there is no real prospect of PCL proving the contrary at trial. Given CEL’s reliance on contract terms which it says were agreed orally, CEL cannot, in Mr Singer’s submission, pass that test. The Part 24 application must therefore be dismissed.

Mr Kearney, who appears on behalf of CEL, disputes every component of that analysis. First, he contends that the application is one for summary judgment on a claim for payment of the balance of Mr Saunders’s decision and therefore, in looking at that claim, one must go first to the particulars of claim which have been served in the action. Those particulars of claim make it clear that CEL is now saying that this is a case where the contract was made by an exchange of communications in writing and therefore falls squarely within section 107(2)(b) of the Act.

Asking, rhetorically, “What does CEL have to show in order to obtain summary judgment on such a claim?”, Mr Kearney submits that the requirements of Part 24 are that CEL should provide credible evidence that CEL was entitled to refer the dispute to the adjudication of Mr Sanders and that there is no real prospect of PCL establishing the contrary. He points out that this is a case where no draft defence has been filed by PCL and where the witness statement of Mr Booth, PCL’s solicitor, which has been filed in response to the application for summary judgment, does no more than reiterate that PCL’s stance is that it denies that any term of the contract was agreed orally and refers to the fact that CEL’s case in the Referral Notice at the adjudication was different and relied upon certain orally agreed terms.

Mr Kearney’s submission is, however, that the question of the jurisdiction of the adjudicator is a question for the court. The question here is whether there was a construction contract in writing which satisfied the requirements of 107(2)(b). That, he says, is a free-standing question which, subject to any argument of election or estoppel (which is not advanced in this case), is not determined or circumscribed by what either party may have argued before the adjudicator. The fact is that CEL no longer relies on any orally agreed terms of the contract. It relies now, like PCL, on the purchase order and the emails that were exchanged between the parties on 29 July 2010. The particulars of claim make that clear. There is no reference in the particulars of claim to any oral agreements. Mr Kearney contends that the witness statement of Mr Smith supports that case because in paragraph 3 it refers to the claimant’s claim “as set out in its particulars of claim” rather than the claimant’s claim “as set out in the submissions placed before the adjudicator”. In Mr Kearney’s submission, it is not too late for CEL to change tack in this fashion for three reasons. First, he submits that the argument that was put forward by CEL in its Referral Notice did not, and indeed could not, have enlarged the scope of the dispute which was referred to the adjudicator. He makes the point that the dispute that was in fact referred to the adjudicator is the one outlined in the Notice of Intention to Refer. The dispute was described in the Notice of Intention to Refer as being one arising out of the terms evidenced by the purchase order alone. Second, Mr Kearney points out that, in the Reply which CEL served in the adjudication, CEL took care to row back from relying upon any oral terms by characterising what had happened at the meeting on 30 April 2010 as no more than “pre-contract negotiations” which did not form part of the contract. He also says that a fair reading of the Reply is that CEL was treating the alleged agreements about payment terms in a similar fashion.

Third and last, Mr Kearney points out that this is not a case where PCL seeks to argue that any estoppel or election has arisen out of the way in which CEL put its case before the adjudicator. He suggests that is because PCL always denied that there were ever any oral terms. So in Mr Kearney’s submission the position now is that both sides accept that the contract was in writing and evidenced by the terms of the purchase order and the email exchange of 29 July. Although the adjudicator may have concluded that he had jurisdiction by a different route, that is irrelevant. The adjudicator did have jurisdiction. There is no triable issue to the contrary and therefore summary judgment should be granted.

In my judgment there is no triable issue and Mr Kearney is right that his client is entitled to judgment. I do not, however, accept that the ambit of the Notice of Intention to Refer is the key to this conclusion, or that the Reply effectively withdrew reliance on all the oral term arguments.

It is true that the Notice of Intention to Refer began by stating, “The contract was made on 29 July 2010 and is on the terms of the respondent’s purchase order” and that it set out the terms incorporated in the purchase order. It is also true that the Notice went on to say, “The scope of this claim is to determine the claimant’s entitlement to payment for work carried out in accordance with the contract …”. In Coulson on Construction Adjudication, 2^nd edition, at paragraphs 7.47 to 7.60, the author sets out a number of cases which illustrate how the courts have treated the Notice of Intention to Refer, rather than any later submissions filed in the adjudication, as the document which establishes the width of the adjudicator’s jurisdiction. The particular decision to which Mr Kearney referred in his skeleton argument for that proposition is the judgment of Judge Humphrey Lloyd QC in Griffin (t/a K&D Contractors) v Midas Homes Limited [2000] 78 Con LR 152.

But Mr Singer is right, in my view, when he says that whether jurisdiction in accordance with the Notice of Intention to Refer is established must depend on the evidence placed before the adjudicator. In this case the evidence included a witness statement from Mr Cain which referred to terms which he thought had been orally agreed.

As for the Reply, I accept that CEL did retreat from the oral agreement about who was responsible for proving ducts, but my reading of the two Reply emails is that CEL still retained its case based on oral agreements about the due date for payment of invoices. The irony is that this was wholly unnecessary because CEL’s arguments in Alternative (2) and Alternative (3), based on sections 109 to 110 of the Act and Part 2 of the Scheme, were quite sufficient for CEL’s purposes.

The reason why I consider that there is no triable issue is that the only material in support of such an issue is that contained in the Referral Notice and Mr Cain’s witness statement. CEL now disowns both documents insofar as they suggest that any terms were orally agreed. For its part PCL has always denied that any terms were ever agreed which were not put in writing. Against that background, I do not consider that there is any real prospect of PCL establishing at a trial of the claim in this action that Mr Sanders did not in fact have jurisdiction, even though the reason why he had jurisdiction has only become clear from the stance taken by CEL in the particulars of claim .

It follows that I will grant judgment for the unpaid balance of the decision of the adjudicator and also for the amount of his costs.