Vertase FLI Ltd v Squibb Group Ltd

This is an application for summary judgment to enforce the second decision of an adjudicator dated 7 September 2012 ("Adjudication No 2"). The central question is what the adjudicator decided in a previous adjudication ("Adjudication No 1") and whether in Adjudication No 2 he was being asked to decide the same issue again.

The Decision in Adjudication No 1 was issued on 22 May 2012. The adjudicator decided that the Claimant ("Vertase") should pay the Defendant ("Squibb") £167,501, and he granted Squibb an extension of time to 9 March 2012. Vertase refused to pay and Squibb applied, successfully, to Coulson J for the decision to be enforced.

By the decision in Adjudication No 2 the adjudicator ordered Squibb to pay Vertase the sum of £184,813 and to pay the adjudicator's fees and expenses in the sum of £5,512.50. Squibb has paid or agreed to pay these sums less £105,000 awarded in respect of liquidated damages (and the court was given an undertaking to that effect). The question for the court is whether or not to enforce the decision in relation to the £105,000.

On the application Vertase was represented by Ms Alexandra Bodnar, instructed by TLT LLP, and Squibb was represented by Ms Jessica Stephens, instructed by Freeth Cartwright.

By a sub-contract dated 20 September 2011 Vertase employed Squibb to provide plant, labour and temporary works resources for the removal of asbestos and the demolition of all existing structures at the former Leamington Foundry, Leamington Spa.

The sub-contract was a credit contract. Squibb was to pay Vertase the sum of £45,000 in return for its entitlement to retain, sell and keep the proceeds of sale in respect of materials taken from the site following demolition. The commencement date was 26 September 2011 and Squibb was to complete the work within a period of 18 weeks, that is by 27 January 2012. Liquidated damages were payable at the rate of £15,000 per week thereafter. The sub-contract incorporated the ICE Design and Construct Conditions with amendments, which provided that the ICE Adjudication Procedure (1977) “or any amendment or modification thereof being in force at the time of the said Notice” was to apply. This has given rise to an issue between the parties because Squibb asserts that the 2011 version of the ICE Adjudication Procedure was in force well before the issue of the notice of adjudication in Adjudication No 2 on 20 July 2012, and therefore is the procedure that governs Adjudication No 2.

The sub-contract works were not in fact completed until 27 April 2012. Squibb's case is that the delay in completion was caused by matters for which Vertase was responsible. In Adjudication No 1 it claimed a full extension of time and, in addition, sought payment of consequential loss and damage in excess of £550,000.

In its Response to the Referral Notice, Vertase contended that Squibb was entitled to an extension of time until 5 February 2012 but was entitled to nothing in respect of loss and expense. In addition, it claimed £180,000 in respect of liquidated damages.

In its claim for liquidated damages Vertase relied on the decision of Jackson J in Balfour Beatty Construction Ltd v Serco Ltd [2004] EWHC 3336. At [53] of his judgment, Jackson J said this:

“I derive two principles of law from the authorities, which are relevant for present purposes.

(1)

Where it follows logically from an adjudicator's decision that the employer is entitled to recover a specific sum by way of liquidated and ascertained damages, then the employer may set off that sum against monies payable to the contractor pursuant to the adjudicator's decision, provided that the employer has given proper notice (insofar as required).

(2)

Where the entitlement to liquidated and ascertained damages has not been determined either expressly or impliedly by the adjudicator's decision, then the question whether the employer is entitled to set off liquidated and ascertained damages against sums awarded by the adjudicator will depend upon the terms of the contract and the circumstances of the case."

It should be noted that Jackson J was not here indicating some new way of formulating a claim for liquidated damages, he was simply saying that where an entitlement to liquidated damages flowed logically from an adjudicator's decision relating to an extension of time the employer could set off the amount of those damages against the sum that would otherwise be payable to the contractor under the decision, provided that he had complied with any provisions relating to the giving of a notice to withhold the money.

Squibb took two points in response to Vertase's claim for liquidated damages (at paragraphs 222-224 of its Reply). First, it asserted that Vertase "must have actually incurred the liquidated damages, which it has failed to prove". Second, that Vertase had failed to provide an appropriate notice of its intention to withhold or deduct liquidated damages.

It seems to me that the words of the contract are clear and so, since the 2011 Adjudication Procedure had come into force prior to the service of the notice of adjudication in Adjudication No 2, it is the 2011 Adjudication Procedure that applies to that adjudication.

Ms Stephens relied upon the following provisions of the 2011 Adjudication Procedure:

There was, in fact, an error in the wording of Clause 6.6 as quoted in Ms Stephens's skeleton argument. In her skeleton argument the word "another" in the final sentence had been replaced by "any" (Footnote: ¹). The final sentence of Clause 6.7 of the 1997 Adjudication Procedure was in the following terms:

"The Parties shall be entitled to the relief and remedies set out in the decision and to seek summary enforcement thereof, regardless of whether the dispute is to be referred to legal proceedings or arbitration. No issue decided by an Adjudicator may subsequently be laid before another adjudicator unless so agreed by the Parties."

(My emphasis)

The only difference between the wording of these two clauses is the substitution of the word "the" for "an" in the final sentence. In the circumstances of this case that difference is irrelevant. However, the fact that the words "another adjudicator", not "any adjudicator", are used in both clauses is relevant. Since in this case the same adjudicator was appointed in both adjudications, the question of an issue being decided by another adjudicator has not arisen.

In relation to clause 5.2, Ms Stephens is correct to point out that the final sentence of clause 5.2 of the 2011 Adjudication Procedure does not appear in the earlier procedure. However, in my judgment nothing turns on this.

At paragraph 8.2.1 of the Decision, the adjudicator said this:

“What amount is Vertase entitled to in respect of liquidated damages?

Squibb assert that the general principle governing a defendant's right to rely on a cross-claim depends upon the timeous issue of a "withholding" notice, which in this case was not issued.

In their Response, Vertase claim that I have jurisdiction to consider a cross-claim in respect of liquidated damages, which they say they have a right to for the period between the completion date for Squibb's works and the date on which Squibb actually completed their works.

Both parties have quoted relevant cases. Vertase assert that the judgment in Balfour Beatty Construction Ltd v Serco Ltd (2004) gives them the right to include as a defence a contractual entitlement that follows logically from an Adjudicator's decision on extension of time.

Squibb, conversely, rely on the judgment in the case between Letchworth Roofing Company Ltd v Sterling Building Company Ltd (2009) in which it was decided that any such counterclaim must be dependent on the timeous issue of a withholding notice. Squibb assert that no such withholding notice was issued, and in consequence Vertase’s counterclaim must fail.

I have investigated both cases, and find that, disregarding any decision I might make in respect of extension of time, Vertase did not issue any withholding notice compliant with either the contract or the Housing Grants, Construction and Regeneration Act 1996. This position is confused by the fact that Vertase cannot withhold from any payment due, as the contract does not provide for any payments to be made by them. Vertase could have issued a notice in respect of payment due in respect of liquididated damages that would have been compliant with the Housing Grants, Construction and Regeneration Act 1996.

Squibb also assert that Vertase have no entitlement to liquidated damages on the ground that no liquidated damages have been withheld from them or claimed from them under the main contract. Although no link exists between sub-contract and main contract, other than the premise that the conditions of main contract are incorporated into the sub-contract, Vertase do not have a right to claim liquidated damages under the sub-contract unless they can demonstrate an equivalent loss under the main contract.

I find that Vertase have no entitlement to take liquidated damages from any amount that I might decide is due to be paid to Squibb.”

(My emphasis)

The first issue which arises out of this passage is whether or not the sentence that I have shown in italics represents a continuation of the adjudicator's summary of the argument being put forward by Squibb (it is clear from its opening words that in the first sentence the adjudicator is summarising Squibb’s position), or whether it constitutes the adjudicator's own conclusion.

Ms Bodnar submits that it is the former. Building on this she submits that the conclusion in the last paragraph of the passage quoted must have been based only on the adjudicator’s finding that Vertase had not issued any withholding notice.

Ms Stephens, on the other hand, submits that the sentence in italics reflects the adjudicator's conclusion on the submission summarised in the first sentence of the paragraph. Accordingly, she submits that the adjudicator's conclusion that Vertase was not entitled to liquidated damages was based on two grounds: first, the absence of a withholding notice and, second, the failure to demonstrate any equivalent loss under the main contract.

The second issue is whether, if Ms Bodnar is right about the first issue, the adjudicator nevertheless based his findings in the last paragraph on both grounds.

Finally, Ms Bodnar relied also on the decision of Coulson J on the application to enforce the decision in Adjudication No 1. He said, at paragraph 6:

“. . . It is sufficient to note that, amongst other things, the adjudicator decided that:

. . .

6.2

Squibb were entitled to an extension of time of 6 weeks, down to 9 March 2012 (section 9.2.1) . . .

. . .

6.4

There was no withholding notice from Vertase in respect of any cross-claim the liquidated damages (Section 8.2.1);

6.5

In consequence of this, "Vertase have no entitlement to take liquidated damages from any amount that I might decide is due to be paid to Squibb" (last sentence of section 8.2.1). The decision later reiterated: "Squibb shall not be a part to play Vertase the sum of £180,000 or any other amount in respect of liquidated damages." (Section 9.3.3)"

Whilst I agree with Ms Bodnar that, at first reading, this might tend to suggest that Coulson J regarded the adjudicator as having based his decision solely on the lack of a withholding notice, I do not think that that conclusion can safely be drawn. This is for two reasons. First, the use of the words "amongst other things" in the opening words in the passage quoted. Second, in Squibb’s skeleton argument for the hearing before Coulson J there was no reference to the absence of any loss to Vertase in terms of liability under the main contract (Footnote: ²). It is therefore perhaps unsurprising that Coulson J did not refer to it.

This difference of view about what the adjudicator actually decided is important because it impacts directly on the effect of the adjudicator's Decision in Adjudication No 2.

At section 8.1.1, under the heading "What reason, if any, would absolve Squibb from liability for liquidated damages as asserted by Vertase?", the adjudicator said this:

“In my Decision in the first Adjudication, I found that Squibb should not be liable for liquidated damages because Vertase had not issued a valid notice of withholding compliant with the Housing Grants, Construction and Regeneration Act 1996. The situation was complex as Squibb had no payment due under the contract from which Vertase could withhold. I also considered whether Vertase had any right to demand payment of liquidated damages without demonstrating an equivalent loss through the main contract. Vertase have not done this, and the evidence suggests that no liquidated damages have been taken from Vertase under the main contract.

Vertase assert that they have a right under the sub-contract to be paid liquidated damages whether or not a similar loss has been suffered under the main contract. Liquidated damages are intended to represent a true estimate of the risk of loss to the Employer (or main Contractor) in the event that the Contractor (or Sub-Contractor) defaults on his obligations under the contract. In this case, no loss has been demonstrated by Vertase, but I am persuaded by Vertase's arguments on the legal position sufficiently to change the view that I took in my Decision in the first adjudication.

I find that Squibb have not established that the liquidated damages provision in the contract is unenforceable on the ground that Vertase have not demonstrated a loss under the main contract or from any other reason."

Ms Bodnar submits that the adjudicator was here saying no more than that he had changed his mind about a matter raised in Adjudication No 1, but that it was not a matter that formed part of his actual Decision. She submitted that the reference to "Decision" in the last line of the penultimate paragraph of the passage quoted must have been intended as a reference to the adjudication as a whole. However, I think that she accepted that there was one difficulty with this submission - namely, that if she was right in her reading of the relevant passage in Adjudication No 1, the adjudicator had not in fact expressed any view about the no loss argument, or at least none that he recorded in writing in his Decision.

Ms Bodnar's alternative, and somewhat bold, submission was that the adjudicator was simply mistaken when he said that he had changed his view. In my view, this is highly implausible and I reject it.

Ms Stephens made the fair point that we are not looking at a judgment of the Supreme Court, but at a document drafted by a lay person (in the sense of a non-lawyer). She submitted that there had clearly been a change in position, and that change must have been a change in the adjudicator's reasoning otherwise it would not have been necessary for the adjudicator to express himself in those terms. This suggests strongly, she submitted, that the reason for the adjudicator's original finding that there was no entitlement to liquidated damages was not limited to the withholding notice point, but was based also on the no loss point.

I consider that the adjudicator's reference, at section 8.1.1 quoted above, to changing "the view that I took in my Decision in the first Adjudication" is telling. When one considers the heading below which this passage appeared ("What reason, if any, would absolve Squibb from liability for liquidated damages as asserted by Vertase?"), I can read this in only one way: that the adjudicator is saying that he is changing his view about one of the reasons that would absolve Squibb from liability. That reason was that the absence of any loss demonstrated by Vertase would be fatal to its claim for liquidated damages.

Further, as Ms Stephens pointed out, it would be strange for the adjudicator to have recorded Squibb's assertion about the absence of any loss in the sixth paragraph in section 8.2.1 of his Decision in Adjudication No 1 if he was not proposing to express a conclusion on it, or if he regarded it as irrelevant to his decision.

Ms Bodnar relied strongly on the fact that in his Decision the adjudicator was usually careful to introduce any finding with the words "I find", a submission that she supported by examples, and that these words are not to be found in the sixth paragraph.

But following Ms Bodnar's approach, what the adjudicator certainly did was (a) to summarise each party's position about the entitlement to liquidated damages and the need for a withholding notice, (b) make a finding that no appropriate withholding notice had been issued (although one could have been), (c) summarise Squibb’s assertion that Vertase could not claim liquidated damages unless similar damages had been claimed from them under the main contract, and (d) conclude with the finding that Vertase had no entitlement to deduct liquidated damages from any amount found due to Squibb.

On this analysis the adjudicator did not make an intermediate finding either that the want of a withholding notice was fatal to Vertase's claim to liquidated damages, or that the lack of any claim against Vertase under the main contract was also fatal to its claim liquidated damages. So whilst there are no words to the effect of "I find that the lack of any liability on the part of Vertase under the main contract is fatal to Vertase's claim to liquidated damages”, similarly there are no words to the effect of "I find that the failure to issue a withholding notice is fatal to Vertase's claim to liquidated damages”.

In short, and staying with Ms Bodnar's approach, the adjudicator summarised each party's arguments on the various points, made a finding of fact about the absence of a withholding notice and then reached his conclusion that Vertase had no entitlement to deduct liquidated damages from any sums awarded to Squibb. So whilst I was at first impressed with Ms Bodnar's point about the adjudicator's use of the words "I find", I consider that on analysis it does not provide any pointer to the true meaning of the relevant paragraphs in section 8.2.1.

Taking section 8.2.1 of the Decision in Adjudication No 1 as a whole, I consider that in the italicised passage quoted above the adjudicator was expressing his own view and not summarising a submission by Squibb. This conclusion is reinforced (albeit weakly, I accept) by the fact that I can find no passage in Squibb's submissions during Adjudication No 1 that reflects the wording used by the adjudicator in the italicised passage, which tends to suggest that it was his own view that he was expressing.

These considerations, when taken with his reference in the second Decision to changing the view that he took in the first Decision, lead me to the conclusion that the adjudicator's finding in Adjudication No 1 that Vertase had no entitlement to deduct liquidated damages was a finding based on both the want of a withholding notice and the absence of any liability under the main contract.

I now turn to consider the impact of this conclusion on Vertase's application for summary judgment.

Ms Bodnar submits that the dispute in each of the two adjudications was different and so the adjudicator was, in effect, entitled to reach apparently conflicting conclusions (if that is what he did). She submits that Adjudication No 1 was about the extension of time, and associated loss and expense, to which Squibb was entitled under the sub-contract. Adjudication No 2 was, by contrast, about Vertase's entitlement to a sum of money for breach of contract and/or delay. In that adjudication, liquidated damages was merely one of a number of heads of claim.

The first point made by Ms Stephens is that the adjudicator concluded in Adjudication No 1 that Vertase had no entitlement to liquidated damages and that that should have been the end of the matter. The dispute about Vertase's entitlement to liquidated damages was essentially the same in each referral.

She submits also that the adjudicator was not entitled, in Adjudication No 2, to reconsider the point about the need for Vertase to demonstrate a loss given the content of his Decision in Adjudication No 1. In relation to this point, there had been no change in circumstances and Vertase could no more demonstrate a loss under the main contract in Adjudication No 2 than it could in Adjudication No 1. This is to be contrasted with the position in relation to the withholding notice, because before commencing Adjudication No 2 Vertase had issued an appropriate withholding notice.

Ms Stephens submitted also that the argument founded on Balfour Beatty v Serco is misconceived. That decision does not create some right to liquidated damages that does not exist under the contract: it is simply a decision about jurisdiction. It says that where an adjudicator's decision on one party’s entitlement to an extension of time has the logical consequence that the other party must be entitled to liquidated damages (subject to the service of any appropriate notice), the adjudicator who is determining the extension of time may, in the same referral, deal also with the entitlement to liquidated damages.

Ms Stephens submits that Vertase's submissions in the adjudications showed very clearly that liquidated damages were being claimed on the usual contractual basis.

So the thrust of Ms Stephens’s submissions is that, whichever way one looks at it, what Vertase managed to do was to persuade the adjudicator in Adjudication No 2 to alter a conclusion that he had reached in Adjudication No 1. That conclusion, she submits, formed part of his reasoning that led to his rejection of Vertase's claim liquidated damages.

In my judgment, in spite of Ms Bodnar’s ingenious and attractive argument, it ought to follow, from the conclusions that I have already reached about what the adjudicator decided in Adjudication No 1, that in Adjudication No 2 he purported to change his mind about a finding made in his first decision. Since that initial finding was final and binding on the parties until finally determined by litigation or arbitration, it was not open to the adjudicator to change it. To put it another way, since the parties are bound by his decision in Adjudication No 1 that the absence of any loss in respect of delay precluded Vertase from claiming liquidated damages, that conclusion, until finally determined by litigation or arbitration, remains one with which the parties are bound to comply. It matters not whether it is right or wrong.

The only question that remains is whether there is anything in the authorities that compels a different conclusion. To that I now turn.

There can be no doubt that once a dispute has been determined by adjudication, there cannot be another adjudication about that same dispute: see, for example, Quietfield Ltd v Vascroft Construction Ltd [2006] EWCA Civ 1737, at [20]. Or, as May LJ put it in Quietfield [at 31]:

“More than one adjudication is permissible, provided a second adjudicator is not asked to decide again that which the first adjudicator has already decided."

In Benfield Construction Ltd v Trudson (Hatton) Ltd [2008] EWHC 2333, at [34], Coulson J’s summary of the relevant principles included the following:

“(c)

The extent to which a decision or a dispute is binding will depend on an analysis of the terms, scope and extent of the dispute or difference referred to adjudication and the terms, scope and extent of the decision made by the adjudicator."

In Redwing Construction Ltd v Charles Wishart [2010] EWHC 3366, Akenhead J considered the position where a dispute in an earlier adjudication is materially different from the dispute referred in a second adjudication but the reasoning of the adjudicator in his or her decision effectively establishes a proposition which impinges on the dispute in the second adjudication. He said, at [27]:

“(d)

any decision which can be described as deciding the dispute, as referred or as expanded effectively within the adjudication process, is binding and cannot be raised or adjudicated upon again in any later adjudication."

Since I have concluded that in Adjudication No 1 the adjudicator decided that Vertase was not entitled to claim or deduct liquidated damages if it did not sustain any similar loss under the main contract (as well as being disentitled owing to the want of a withholding notice), it is clear in the light of these authorities that he could not decide the same issue again in Adjudication No 2. But that is exactly what he purported to do at the end of section 8.1.1 of his decision in Adjudication No 2.

For these reasons, Vertase’s application to enforce the decision in Adjudication No 2 insofar as it relates to the £105,000 fails and is dismissed.

I will hear counsel on any questions of costs arising out of this judgment or in relation to the form of the order if these cannot be agreed.