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Clark Electrical Ltd v JMD Developments (UK) Ltd

[2012] EWHC 2627 (TCC)

Neutral Citation Number: [2012] EWHC 2627 (TCC)

Case No: 2LS 70450

IN THE HIGH COURT OF JUSTICE

QUEENS BENCH DIVISION

LEEDS DISTRICT REGISTRY

TECHNOLOGY AND CONSTRUCTION COURT

The Court House

Oxford Row

Leeds LS1 3BG

Date: 28 September 2012

Before :

His Honour Judge Behrens sitting as a Judge of the High Court in Leeds

Between :

CLARK ELECTRICAL LIMITED

Claimant

- and -

JMD DEVELOPMENTS (UK) LIMITED

Defendant

Stephen Beresford (instructed by CA Law) for the Claimant

Riaz Hussain (instructed by Weightmans LLP) for the Defendant

Hearing dates: 6 September 2012

Judgment

Judge Behrens :

1 Introduction

1.

This is an application for summary judgment by Clark Electrical Limited (“CEL”) against JMD Developments (UK) Ltd (“JMD”). CEL seek to enforce an adjudication award of £194,369.12 plus VAT made on 12th April 2012 by Mr Lawless, the adjudicator, pursuant to what he held to be an ad hoc adjudication agreement made between the parties on or about 13th March 2012 when JMD paid him an appointment fee of £6,000.

2.

JMD contend that there is no statutory or contractual right to an adjudication and contend that the adjudicator was wrong to find that the parties had formed an ad hoc adjudication agreement either on the basis that he did or on any other basis. Accordingly it contends there was no jurisdiction to make the award and that it is not bound by the award.

3.

Mr Beresford on behalf of CEL accepts that there was no express contractual right in the contracts to an adjudication and that, for the purpose of this summary judgment application, it is arguable that there is no statutory right to an adjudication. However he contends that it is clear that JMD have agreed to be bound by the adjudicator’s decision in the full sense of the word – i.e. both in respect of the award itself and in respect of his jurisdiction to make the award. In support of this contention he relies on an e-mail sent by Mr Teale (an employee of JMD) to Mr Lawless on 7th March 2012 and on the payment of £6,000 by JMD on 13th March 2012. In those circumstances he submits that there is no defence to the enforcement of the award.

4.

Before considering the matter in more detail it is right that I should immediately acknowledge the very considerable assistance I have received from Counsel in this application. Mr Hussain helpfully referred to all the relevant decisions in his very full skeleton argument and the oral submissions from both Counsel were concise, clear and extremely helpful.

2 The facts

2.1

The Contract(s)

5.

JMD engaged CEL to carry out certain electrical works at the premises of Sedacol UK Limited at Selby North Yorkshire. The site was being developed as an alcohol distillery. JMD was itself under a subcontractor to the Main Contractor Giordano and C Spa.

6.

As summarised in the Particulars of Claim the works comprised 8 packages:

1.

Provision and installation of 11 kv cabling

2.

Distillery works and variations

3.

Substation works

4.

Substation earthing systems

5.

Dry Mill works

6.

Wet Mill works

7.

Gluten Dryer Works

8.

Dayworks with materials

7.

There is a dispute as to whether the works were comprised in one or eight subcontracts. There is also a dispute as to whether the works fall within the exception in section 105(2)(c)(ii) of the Housing Grants, Construction and Regeneration Act 1996 (“HGCRA”) in that JMD contends that the electrical works were carried out for the process and production on a site for construction of excluded plant.

8.

Both of these disputes are relevant to the question of whether there is a statutory right to an adjudication. However, in the light of Mr Beresford’s concession in relation to the statutory right I need say nothing more about these disputes.

9.

CEL carried out works on the site between September 2011 and January 2012. CEL claims (based on an application for payment dated 22nd December 2011) amount to £487,459.87. Payments totalling £309,610 were made by JMD between 16th November 2011 and 13th January 2012.

2.2

The adjudication process

10.

On 2nd March 2012 CEL served on JMD a Notice of Adjudication on the ground that JMD had failed to make adequate and proper payments. It claimed £177,849.87 plus VAT.

11.

On 5th March 2012 the Construction Industry Council appointed Mr Lawless as adjudicator. On the same day Mr Lawless wrote a long letter with two enclosures to each of the parties. A number of points have been made about this letter. The letter included an outline timetable for the adjudication which provided that JMD respond to the Referral no later than 21st March 2012. Second he enclosed his Schedule of Conditions. He stated that in line with Section 10 he would raise an Invoice and send it to each party in due course.

12.

The Schedule of Conditions is headed In the Matter of the Housing Grants, Construction and Regeneration Act 1996. Section 9 deals with the adjudicator’s fees and provides for an hourly rate and expenses. Section 10 requires each party to contribute equally as security for the fees an appointment fee of £6,000.

13.

On 7th March Mr Lawless wrote to each of the parties enclosing a fee invoice for £6,000 plus VAT said to be due for payment by 14th March 2012. The invoice stated that the moneys were due in respect of the Appointment fee as per section 10 of the Schedule of Conditions.

14.

On 7th March 2012 Shaun Teale sent to Mr Lawless (with a copy to CEL) the e-mail now relied on by Mr Beresford. It reads:

Dear Mr Lawless

We have now had an opportunity to review the attachments to your e-mails. … Thank-you also for your revised timetable.

We have also reviewed the HGCRA and in particular SI 1998 649 Scheme for Construction Contracts 1998, a document that we are unfamiliar with, unlike [CEL]. At this point we do not have representation and are not familiar with the adjudication protocols; accordingly we would appreciate your guidance on the procedures and our responsibilities.

If we have correctly understood the Scheme, clause 7 suggests that at the same time as sending you the Notice and supporting documents, [CEL] are to provide copies of those same documents to us. However, to date we have not received the documents referred to. Consequently we feel it is appropriate to put [CEL] and yourself on notice to this effect and request your guidance. We are sure it was simply an oversight on behalf of [CEL] that they failed to forward copies to us and therefore feel certain that [CEL] will see fit to agree to extend the timetable to take account of this and provide the correct documentation to enable us to proceed.

We would state that this is particularly important in this case, given that the last correspondence from [CEL] claimed the sum due to them was £220,266.87 plus a further £38,135.89 of unspecified works and the sum now claimed is £177,849.87 representing a 31% reduction in the claim, highlighting the ongoing discrepancies that we have continually stated since the first application from [CEL].This was the main reason we requested substantiation from [CEL] in January 2012 to resolve the issues. This detail has yet to be received, despite repeated requests.

I look forward to receiving your proposal for moving forward, and to receipt of [CEL]’s claim.

Yours sincerely

15.

On 13th March 2012 JMD paid Mr Lawless’s invoice for £6,000 plus VAT by direct bank transfer. There was no covering letter.

16.

Shortly thereafter JMD instructed Peter Dale of P W Dale Consulting Ltd to act for them in relation to the adjudication.

17.

On 19th March 2012 Mr Dale wrote to the adjudicator (with a copy to CEL’s agent – Mr Sutcliffe). Mr Dale drew attention to section 105(2) of HGCRA. He submitted that the electrical work was excluded under that section and contended that Mr Lawless had no jurisdiction to proceed with the adjudication. He submitted that the payment of the £6,000 by JMD was not to be treated as its acceptance that Mr Lawless had jurisdiction to adjudicate.

18.

There followed an exchange of submissions between Mr Dale and Mr Sutcliffe on the jurisdiction issue. Mr Sutcliffe maintained that there was statutory jurisdiction and Mr Dale maintained his position that there was not. No part of the submissions were directed to the question of whether the parties had made an ad hoc agreement to adjudicate.

19.

In the light of Mr Beresford’s concession as to statutory jurisdiction it is not necessary to refer to the nature of the arguments in any more detail. It is perhaps worth noting that in the letter of March 27th 2012 Mr Dale concluded:

As to CEL’s conclusion that you are not entitled to inquire into or decide the question of your own jurisdiction we agree with the position stated in your letter of 19th March 2012 … Our client maintains the site and operations fall under the exclusions set out in section 105(2)(c) … and consequently you have no jurisdiction.

Our client’s position remains that should you make a non-binding conclusion that you have jurisdiction then [JMD]’s further participation in the purported adjudication is fully reserved. Its position remains that you do not have jurisdiction and for the avoidance of doubt [JMD] will not accept the validity of your decision, nor will it accept liability for any of your fees and expenses, which you may determine it is liable.

2.3

The adjudicator’s decisions.

20.

On 2nd April 2012 the adjudicator made a detailed non binding decision on jurisdiction. It is a lengthy document of some 41 pages followed by a number of Appendices. In summary he held:

1.

That there was no statutory jurisdiction. He held that the works were excluded under section 105(c)(ii). He also held that there was one contract comprising different work packages. Thus if the works had not been excluded under section 105(c)(ii) there would have been no jurisdictional bar to statutory adjudication.

2.

That there was an ad hoc arbitration agreement arising out of the payment of the £6,000 by both parties. The agreement is contained in the letter of 5th March 2012 containing the terms of the adjudicator’s contract which was accepted by the conduct of the parties in paying the appointment fee.

21.

On 3rd April 2012 JMD wrote to the adjudicator challenging the non binding conclusion and stated that it would take no further part in the adjudication process. On 10th April 2012 Mr Dale wrote to the adjudicator confirming this, purporting to terminate the contract with the adjudicator and denying any liability for any fees of the adjudicator.

22.

On 12th April 2012 the adjudicator awarded CEL £177,453.88 exclusive of VAT.

3 The Law

3.1

Ad hoc adjudication agreements

23.

I was referred to four cases where ad hoc agreements have been discussed – the decision of Devlin J (as he then was) in Westminster Chemicals v Eicholz [1954] 1 LlR 99, 105 – 106, the decision of Dyson J (as he then was) in Project Consultancy v Trustees of Gray Trust [1999] BLR 377, the decision of HHJ Gilliland QC in Nordot Engineering Services v Siemens Plc (SF00901 TCC 16/00) dated 14 April 2000 and the decision of the Court of Appeal in Thomas-Frederic’s (Construction) v Wilson [2004] BLR 23.

24.

There is a review of the previous authorities in the judgment of Simon Brown LJ in Thomas-Frederick and it is unnecessary for me to repeat it here. In my view the following propositions can be derived from the authorities:

1.

It is open to a defendant in enforcement proceedings to challenge the decision of the adjudicator on the grounds that he was not empowered by the Act to make the decision. [See paragraph 9 of the judgment of Dyson J].

2.

If two people agree to submit a dispute to a third person, then the parties agree to accept the award of that person, or, putting it another way, they confer jurisdiction on that person to determine the dispute.

3.

If one of the parties thinks that the dispute is outside the agreement that they have made, then he can protest against the jurisdiction of the adjudicator. [see paragraph 14 of the judgment of Dyson J and the citation from Devlin J’s judgment].

4.

Where the parties agree to be bound by the adjudicator’s decision “in the full sense” they are agreeing to be bound by his decision on jurisdiction (subject to a later challenge – as provided in section 108 of HGCRA). [see paragraph 27 of the judgment of Simon Brown LJ].

5.

It is a question of fact whether a party submits to the jurisdiction of a third party. [See paragraph 15 of the judgment of Dyson J].

6.

In three of the four cases there was held to be no submission to the jurisdiction. In the fourth – Nordot - the Defendant had written a letter, described as “clear and unequivocal” that it would abide by the adjudicator’s decision. However I agree with Mr Beresford that it is not a prerequisite of submission that there be a clear and unequivocal statement such as occurred in that case. Where, as here, the agreement is said to derive from correspondence the Court must construe the correspondence in accordance with the ordinary canons of construction.

7.

There is a concern that the salutary power to promote early payment in construction cases is emasculated by jurisdictional challenges. The solution to this concern is as Simon Brown LJ said:

“not in finding defendants too readily to have, in the full sense, submitted to the adjudicator's jurisdiction, which if properly advised they plainly would not do. Rather, as Dyson J observed in paragraph 8 of his judgment in the Project Consultancy Group case, it is for courts (and adjudicators) to be "vigilant to examine the arguments critically." It is only if the defendant had advanced a properly arguable jurisdictional objection with a realistic prospect of succeeding upon it that he could hope to resist the summary enforcement of an adjudicator's award against him.”

25.

In paragraph 33 of his judgment Simon Brown LJ summarised the proper approach in a case where as here a claimant seeks to enforce an award with an application for summary judgment:

The position can I think be summarised in the following two propositions. (1) If a defendant to a Part 24(2) application has submitted to the adjudicator's jurisdiction in the full sense of having agreed not only that the adjudicator should rule on the issue of jurisdiction but also that he would then be bound by that ruling, then he is liable to enforcement in the short term, even if the adjudicator was plainly wrong on the issue. (2) Even if the defendant has not submitted to the adjudicator's jurisdiction in that sense, then he is still liable to a Part 24(2) summary judgment upon the award if the adjudicator's ruling on the jurisdictional issue was plainly right.

3.2

Linnett v Halliwells [2009] EWHC 319

26.

This case involved a claim by the adjudicator for his fees in a case where the Defendant had contested his jurisdiction. It is relevant to the present dispute because in his non binding decision in this case Mr Lawless has relied on the payment of the £6,000 as evidence of an adjudication agreement between CEL and JMD. In his judgment Ramsey J drew a clear distinction between the contract between the adjudicator and the parties (“the adjudicator's contract”) and adjudication agreement between the parties themselves.

27.

In paragraphs 32 to 34 of his judgment Ramsey J said:

32.

It is to be noted that, although adjudication is said to be “statutory adjudication” it is, on analysis, contractual. The adjudication process consists of two agreements. One agreement, the Adjudication Agreement, is that made between the parties to a construction contract either expressly or impliedly by the Scheme under s.108 of the 1996 Act. The second agreement, the Adjudicator’s Agreement, is an agreement which may be made between the Adjudicator and one or both of the parties.

33.

The adjudication provisions in s.108 of the 1996 Act are concerned only with the Adjudication Agreement. They require the parties to agree upon certain terms in their contract. These terms include provisions requiring the adjudicator to reach his decision within 28 days or such longer period as may be agreed (s.108(2)(c)); imposing a duty on the adjudicator to act impartially (s.108(2)(e)) and providing that the adjudicator is not liable to the parties unless there is bad faith (s.108(4)). Those provisions are essentially obligations or rights of the adjudicator which would be expected to be contained in the Adjudicator’s Agreement or, like similar provisions in s.29(1) and 33 of the Arbitration Act 1996 in relation to the immunity and duties of an arbitrator, to be imposed upon the parties and the adjudicator as a matter of statute. In the absence of any other route, the necessary terms of the Adjudicator’s Agreement would have to be implied into that agreement.

34.

Similarly, in adjudication, the ability of an adjudicator to obtain fees depends on there being a contractual right to payment under the Adjudicator’s Agreement with one or both of the parties. There is nothing in s.108 of the 1996 Act which gives the adjudicator a right to payment. It is to be noted that, in this case, under Clause 41A.2 of the Building Contract it was envisaged that the parties and the adjudicator would all execute the JCT Adjudication Agreement which would, amongst other things, provide the adjudicator with a direct route to payment of his fees from both the referring and the responding party. Although that provision was included in the JCT Standard Form, in this case no such adjudication agreement was entered into between both parties and the adjudicator.

In paragraphs 69 to 71 Ramsey J analysed the position where there is a jurisdictional challenge:

69.

If there is a valid jurisdictional challenge and if a party has not participated in the adjudication then, on the basis of the view I have expressed above, that party can have no liability for the fees and expenses of the adjudicator.

70.

If, however, a party has participated in the adjudication process, albeit without prejudice to its contention that the adjudicator did not have jurisdiction, then in principle by participating and thereby requesting the adjudicator to adjudicate on the dispute I consider that the party will generally be liable for the reasonable fees and expenses of the adjudicator on the same basis as set out above.

71.

I emphasise that this is a matter of contract as between the adjudicator and the relevant party. If the adjudicator did not have jurisdiction then any decision made by the adjudicator will be null and void. This will preclude one party from recovering from the other party any sums based on the adjudicator’s allocation of the fees and expenses contained in the invalid decision.

4 Submissions

28.

Mr Beresford’s primary submission is that JMD submitted to the adjudicator’s jurisdiction in the full sense by virtue of the e-mail of 7th March 2012 and the subsequent payment of the adjudicator’s appointment fee. He submits that once the submission to jurisdiction had been made it was irrevocable with the result that the numerous protests that were made by Mr Dale were of no effect. They were made too late.

29.

In support of his submission Mr Beresford accepts that the e-mail must be read as a whole but relies in particular on 3 passages in the e-mail –

1.

The request for an extension of time in paragraph 3 of the e-mail.

2.

The request for guidance on procedures and responsibilities in paragraph 2 of the e-mail.

3.

The final paragraph where Mr Teale invites the proposal for moving forward.

30.

Mr Beresford submits that these passages show that JMD were participating in the adjudication process and thus submitting to the jurisdiction of the adjudicator in the full sense.

31.

Mr Hussain refutes this interpretation of thee-mail and of the conclusions that Mr Beresford seeks to draw from it. He submits that the payment of the appointment fee is of no assistance in determining whether there was an ad hoc agreement to abide by the decision of the adjudicator in the full sense. He points to the decision in Linnett and makes the point that there can still be liability for the adjudicator’s fee where there is a legitimate challenge to the jurisdiction. Thus payment of the fee does not assist in determining whether there was a submission to the jurisdiction in the full sense. He submits that the e-mail has to be read in context. He points to the fact that CEL were, as expressed in the e-mail, unrepresented, not familiar with the adjudication process and had not, at the time of the e-mail, received the documentation which should have been served on them. He submits that the three passages relied on by Mr Beresford have to be read with those factors very much in mind. He submits when read in that context it is fanciful to suggest that any of the three passages amount to a clear and unequivocal submission to the jurisdiction. In his submission when read as a whole the e-mail is doing no more than explaining that JMD have not received the relevant documents, are unrepresented are unfamiliar with the process and accordingly need more time and guidance on the process.

5 Discussion and Conclusion

32.

As Lord Hoffmann has explained in a well-known passage:

“Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonable have been available to the parties in the situation in which they were at the time of the contract.”

33.

In this case the e-mail was addressed to the adjudicator so that the reasonable person is a reasonable adjudicator. Thus I have to determine the meaning which would be conveyed a reasonable adjudicator receiving the 7th March 2012 e-mail. I also agree with Mr Hussain that the background knowledge available in this case to the reasonable adjudicator of the e-mail would include the three matters contained in the e-mail, that is to say, that JMD had not received the relevant documentation, that it was unrepresented and unfamiliar with the adjudication process.

34.

It is to my mind not without significance that Mr Lawless did not interpret the e-mail as a submission to the jurisdiction in the full sense. His ruling on 2nd April was described as “Non binding”. If there had been a full submission it would have been binding. Furthermore he did not find it necessary to refer to the e-mail in the whole of his lengthy judgment.

35.

Whilst I accept that a clear and unequivocal representation may not be necessary in every case this e-mail is, as Mr Hussain pointed out, at the opposite end of the spectrum. It contains no reference to the adjudicator’s decision at all. As he says it is simply a request for guidance as to the procedure and a request for more time to deal with the matter having regard to the fact that JMD had not, at that time received the relevant documents.

36.

In all the circumstances I find it impossible to interpret the e-mail as a whole in the way suggested by Mr Beresford. It is not, in my judgment, a submission to the jurisdiction of the adjudicator in the full sense.

37.

I also agree with Mr Hussain, for the reasons he gave, that the payment of the appointment fee by JMD does not amount to a submission to the jurisdiction in the full sense. It is, at its highest, equivocal. As Ramsey J demonstrated in paragraph 70 of his judgment JMD could be liable for his fee even if it contested the jurisdiction. It follows that the decision of Mr Lawless on jurisdiction based on an ad hoc agreement was in my judgment not plainly right. In my judgment it was, with respect, wrong.

38.

It follows that this application for summary judgment fails and falls to be dismissed.

6 Post Script

39.

In the course of her witness statement Ms Shelston invited me to strike out the claim. However there was no cross application for summary judgment by JMD and Mr Beresford (possibly with some encouragement from the bench) invited me not to deal with it. It would not be possible to strike out the claim without deciding that the claim for a statutory adjudication was fanciful in the light of section 105(c)(ii) HGCRA. Although the point is addressed in Mr Hussain’s skeleton argument it is not addressed by Mr Beresford at all. In the absence of a formal cross application (together with the appropriate fee!) it would not be right to deal with that application at this stage. If JMD wish to bring such an application I will give appropriate directions when judgment is handed down.

Clark Electrical Ltd v JMD Developments (UK) Ltd

[2012] EWHC 2627 (TCC)

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