Harding (t/a MJ Harding Building Contractors) v Paice & Anor

This is an application by the Claimant for summary judgment against the Defendants in relation to two adjudication decisions under which a total sum of £269,917.86 is claimed, together with further interest and costs.

The central issue on this application is whether the adjudicator had jurisdiction and that depends, first, on whether the relevant contract contained an express provision for adjudication and, secondly, whether in the absence of an express term there is no implied term under the Housing Grants, Construction and Regeneration Act 1996 (as amended) (“the Act”) and the Scheme for Construction Contracts (“the Scheme”) because the residential occupier exception applies.

The Defendants had known each other for about thirty years and about fifteen years ago decided to start a family. They have three children but are now separated. Miss Springall purchased 12 Woodcote Park Avenue in Purley, Surrey, which had planning permission to build two houses in the rear garden. There was vacant land at the end of the garden of an adjoining property, number 12A Woodcote Park Avenue, and Mr Paice purchased that land in about October 2011.

There were discussions between the Claimant and the Defendants as to the construction of houses at the rear of number 12 and 12A Woodcote Park Avenue. In the end, the centre plot, which is house A, was sold to the Claimant so that he could construct a property on it and Miss Springall retained the other plot behind number 12, which has been referred to as house B, and Mr Paice had the plot behind number 12A, house C.

After negotiations the Claimant and the Defendants entered into a JCT Intermediate Building Contract IC2011 dated 25 March 2013 (“the Contract”) under which the Claimant agreed to construct and fit out houses B and C. Various amendments were negotiated to the Contract. The Claimant says that the Contract with those amendments still retained a provision for adjudication at Clause 9.2, but the Defendants say that on a true construction of the Contract there was no provision for adjudication.

A dispute arose concerning payment of the Claimant’s interim payment notice No. 7 and the Claimant referred that dispute to adjudication. The Defendants contended that the adjudicator had no jurisdiction on the basis that there was no contractual mechanism for adjudication. Further they said that the Contract did not come within the Scheme as it was excluded by section 106 of the Act as it was a contract with residential occupiers. In addition, various points about crystallised dispute and whether the dispute had already been compromised, were raised.

The adjudicator dealt with those contentions in a letter dated 21 October 2013, which he reproduced in his first decision which was made on 4 November 2013 (although the date is shown as 2012). He held that Clause 9.2 of the Contract provided for adjudication and that the Contract, in any event, was not one with a residential occupier so that section 106 of the Act did not exclude adjudication. He therefore decided that he had jurisdiction. In that first adjudication the Claimant sought some £102,000, being the sum claimed in interim payment notice No. 7. He awarded the Claimant £8,252.72.

The Claimant then commenced a second adjudication in relation to interim payment notice No. 8 and the same adjudicator was appointed. The Defendants raised the same challenges to the jurisdiction of the adjudicator as in the first adjudication. The adjudicator said in his email of 7 November 2013 that his view on jurisdiction was the same. In a response on the same day the Defendants said:

“We note your view on jurisdiction in this second adjudication remains unchanged from the first adjudication. On that basis we take it that you have concluded that you have jurisdiction to act in this second adjudication. Our clients will continue to participate in this second adjudication, strictly without prejudice to its position on jurisdiction, as set out in the response to referral in this second adjudication.”

Somewhat strangely, the Claimant’s representatives then wrote two emails, also on 7 November 2013, indicating first that the Claimant considered that the adjudicator had exceeded his jurisdiction in the first adjudication so that the Claimant did not consider that it was bound by the first decision. The Claimant said that he would refer the dispute to adjudication to be decided by another adjudicator.

In a second email, the Claimant repeated that he considered that the adjudicator had exceeded his jurisdiction in the first adjudication. The Claimant said he did not consider that the adjudicator had jurisdiction to decide the dispute in the second adjudication. He said he would refer the dispute in the second adjudication to be decided by another adjudicator.

On 8 November 2013 the Claimant’s representatives sought confirmation of the adjudicator’s resignation in the second adjudication. On 11 November 2013 the adjudicator wrote to say, amongst other things, that his appointment could not be revoked unless the Defendants agreed.

In the response to referral in the second adjudication the Defendants said:

“... our clients raised jurisdictional challenges and participated in the adjudication and continue to do so, subject to those jurisdictional challenges. You have a reached a conclusion that you do have jurisdiction and that you will continue to act in adjudication number 2. Our clients’ jurisdictional challenges will now only become an issue in the event that our clients need to raise the same as a defence to any enforcement proceedings that may arise. On the above basis our clients do not agree that you should step down in the adjudication number 2 and your appointment is not revoked.”

The adjudicator then continued and made his decision in the second adjudication on 28 November 2013, awarding the Claimant some £249,769.59.

On 10 December 2013 the Defendants themselves sought to refer a dispute concerning termination of the Contract to adjudication pursuant to Clause 9.2 of the Contract. It is said in the submissions that this adjudication notice was issued in error and was withdrawn on 16 December 2013.

On 13 December 2013 the Claimant issued the claim form in these proceedings and, in accordance with the usual practice, directions were given on 17 December 2013 leading originally to a hearing on 31 January 2014. The parties sensibly agreed to stay proceedings to see whether they could resolve their differences, but on 20 February 2014 the Claimant applied to have the proceedings restored, and by order dated 21 February 2014 this hearing was fixed for 15 April 2014.

From what I have set out above, there would appear to be a number of issues which could arise in this case, but the parties have limited the issue, initially, to the question of whether or not there was a provision for adjudication within the Contract. There is a secondary issue raised, which is the issue which was raised before the adjudicator, as to whether or not, if there were not an express provision within the Contract, there would be an implied term of the Contract providing for adjudication arising under the Scheme. That would require consideration of whether the Defendants in this case were residential occupiers.

On behalf of the Defendants it is also said that, if that were the position, then the adjudicator in both adjudications, as set out in his decisions, was appointed pursuant to the terms of the adjudication provision incorporated in the contract and not under an implied term and therefore would not have jurisdiction, relying on the decision in Twintec Ltd v Volkerfitzpatrick Ltd [2014] EWHC 10 at [58], where Edwards-Stuart J held that the question of how the adjudicator was appointed was a matter of substance which went to the heart of the adjudicator’s jurisdiction.

I shall consider first whether or not there was an adjudication provision contained within the Contract.

Miss Catherine Piercy, who appears on behalf of the Defendants, submits that there is no adjudication provision within the Contract. She refers to the terms of the JCT form which, in its original form, had Article 7, which provided for adjudication. It said:

“If any dispute or difference arises under this Contract, either party may refer it to Adjudication in accordance with clause 9.2.”

In this case there were modifications to the Contract set out in the schedule of amendments. Miss Piercy refers to the Contract Particulars which, under Clause 9.2.1, referring to adjudication, set out the ability of the parties to nominate the adjudicator or the adjudicator nominating body or, alternatively, not to do either but to leave the parties to use one of the five nominating bodies identified there.

The parties inserted the nomenclature “n/a” which, she says and it does not seem to be disputed would mean “not applicable”. On that basis, she then refers to what was in the Contract, in the conditions, which at Clause 9.2 provided for adjudication as follows:

“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...”

So far as the schedule of amendments was concerned, under Article 7 it stated “delete the whole of Article 7 and replace with number not used”. There was also a provision referring to Article 7 in Article 9, “Legal Proceedings”, where it said originally:

“Subject to article 7 and where it applies to article 8, the English court shall have jurisdiction over any dispute or difference between the parties which arises out of or in connection with the contract.”

The parties deleted the words “subject to Article 7 and where it applies to Article 8”. Miss Piercy submits that on this basis, objectively considering those changes, deleting Article 7 and having it as “not used” and putting “not applicable” next to the provision in the contract particulars for 9.2.1 meant that the parties intended objectively to delete the provision for adjudication and therefore the provisions of Clause 9.2, which are still within the conditions, are not applicable because the intention from the other amendments was that adjudication should not apply.

She draws a number of parallels with that position. She refers to Article 8, “Arbitration”, which, similarly, provides for arbitration. That article again was deleted in the schedule of amendments with “number not used”, and she says that, if you look at the conditions, then Clauses 9.3 to 9.8 relating to arbitration are still there. Therefore she submits that the intention in deleting of Article 7 in this case, similarly to the deletion of Article 8, was to delete adjudication in the same way as arbitration was deleted.

She also draws a parallel between the position on sectional completion where, under the eighth recital it is stated “the division of the works into sections is shown on the bills of quantity”. The eighth recital was deleted and the schedule of amendments put in place of it. Within the contract particulars, there is provision for the sections to be defined, but there was “n/a” put there with the sections deleted. She submits that when considering the relevant contract provisions which have sections within them, the intention of the parties was that those provisions should not apply. She also refers to the provisions which relate to listed items under 4.9.4 and 4.9.5, where again “n/a” has been put in the contract particulars, and therefore, when one comes to the clause, she submits that it was intended that, in those circumstances, the relevant clauses, 4.9.4 and 4.9.5, would not apply.

She refers to the well-known authorities on construction of contracts, and in particular to the decision of the House of Lords in Investors Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896, and the well-known passage in the speech of Lord Hoffmann at pages 912 to 913. She also refers to the passages in Chartbrook Ltd v Persimmon Homes Ltd & Ors [2009] UKHL 38 at [33] and [42], where at [42] the position is summarised, again by Lord Hoffmann, in these terms:

“The rule excludes evidence of what was said or done during the course of negotiating the agreement for the purpose of drawing inferences about what the contract meant. It does not exclude the use of such evidence for other purposes: for example, to establish that a fact which may be relevant as background was known to the parties...”

Miss Piercy submits that on this basis it is permissible for limited purposes to look at the correspondence which had passed between the parties. She says from that correspondence various things can be derived. First of all, the fact that the Defendants were asserting they were residential occupiers and, secondly, that they were agreeing that there should be dispute resolution. She submits that the provisions within the conditions, at Clauses 9.1 to 9.3, form the totality of the dispute resolution provisions, subject to the remainder of Article 9 providing for court proceedings. Equally, she says that it shows the parties intended to delete Article 7, and thereby, she submits, to delete adjudication.

In cases where there is no application for rectification and where there is no other purpose for looking at that correspondence, I consider that there is great danger in looking at it. Clearly it cannot be used to try to infer what the objective intention of the parties was when the correspondence contains their subjective intention expressed during the course of their negotiations. Whether subjectively they intended to do something during the course of those negotiations may be relevant to other remedies, but it is not relevant when one comes to an objective consideration of the position in this case. The mere fact that one party asserts, for instance, that it is a residential occupier and the other party does not say whether that is correct or not, does not establish that it is common ground that the party is a residential occupier nor does it assist in trying to interpret the terms of the agreement. Therefore, so far as background facts are concerned, I consider that very limited assistance, if any, is to be gathered from the exchanges between the parties when they were negotiating the terms of the Contract.

Mr Graeme Sampson, who appears on behalf of the Claimant, says that, if the court starts to look, so far as subjective intention is concerned, then he would rely on the fact that there was the further notice of adjudication put in on 10 December 2013 as part of that intention. In my judgment, none of the correspondence negotiating the contract or conduct after the contract is any assistance in interpreting the contract in this case.

Mr Sampson submits that, contrary to what Miss Piercy says, this is a Contract where, on an objective reading of the Contract, by leaving in Clause 9.2 the parties intended the provision as to adjudication to apply. He points to Article 7 and says that, if the parties had intended adjudication not to apply, it would not be a question of deleting Article 7 but rather rewording it so as to make it clear that adjudication under Article 7 does not apply. He says that Clause 9.2 remains and that it is not necessary in this case to have a separate article in order to bring the provisions of adjudication in Clause 9.2 into effect. The terms of Clause 9.2, he submits, apply on its own terms.

Despite the very able arguments of Miss Piercy, I consider that Mr Sampson’s submissions are right. This is a case where amendments were made, but in interpreting those amendments, even adopting the more favourable position set out in Keating on Construction Contracts at paragraph 3-007 as to how one deals with deletions, I do not consider that Miss Piercy can get over the problem that Clause 9.2 is still present and provides for adjudication in clear terms. By deleting the provision in Article 7 which provides for adjudication, does not mean that adjudication does not apply unless that is the only provision for adjudication. The statement in the contract particulars relating to Clause 9.2.1 stating “not applicable” might mean either that the parties did not want adjudication or that they did not want to name the adjudicator or did not want to name an adjudication body. I do not consider that this provision in the contract particulars has any effect on the clear wording in Clause 9.2 which provides for adjudication.

Under the terms of this Contract, it is not strictly necessary to have an article in order to incorporate a provision in the conditions of the Contract if those conditions are incorporated in any case. Indeed, the provisions for mediation in Clause 9.1 do not have a parallel article to give effect to Clause 9.1. Therefore Clause 9.1 is a self- standing dispute resolution procedure which applies in this case and is not dependent on there being an article to bring it into effect. Equally, Clause 9.2, on a similar interpretation, does not need an article of agreement. The absence of Article 7, in this case, does not therefore mean that Clause 9.2 does not have effect.

Whilst Miss Piercy made powerful submissions in which she sought to draw parallels between the position on adjudication and the position on sectional completion and on listed items, there is a distinction. In relation to sectional completion, the amendments mean that there is no definition of sections within the contract particulars. Where a clause refers to sections or sectional completion there is nothing on which obligations related to sections or sectional completion can bite and therefore no difficulty arises. The same applies to the listed matters. The same does not apply to Clause 9.2 in the absence of Article 7 or the absence of contract particulars.

Clause 9.2 is a self-standing provision for adjudication. By way of contrast, in relation to arbitration, as the adjudicator noted in his decision, Article 8, “Arbitration”, says that, where Article 8 applies then, subject to various points, any dispute or difference is to be referred to a particular form of arbitration. If Article 8 were to be deleted, then like adjudication there is still, under Clause 9, an arbitration clause but it contains the opening words “Any arbitration pursuant to Article 8”. This ties arbitration under Clause 9 to Article 8 so that both Article 8 and Clause 9 are needed for arbitration to apply. This means that, in the case of arbitration, where Article 8 is deleted, Clause 9 cannot apply because it could not be “arbitration pursuant to Article 8.

Equally, under the terms of Article 8 within the contract particulars, it is expressly said that Article 8 and Clauses 9.3 to 9.8 (Arbitration) “apply/do not apply” which again is worded to make it clear whether or not it applies. In this case the word “apply” was deleted. Therefore in the case of arbitration, by deleting Article 8 and also by saying that the arbitration provisions “do not apply” in the contract particulars, it is clear that arbitration is not incorporated. This is not however the way in which Clause 9.2 and Article 7 have been drafted. First of all, Article 7 in its terms does not say that where Article 7 applies then there is adjudication. Equally, in the contract particulars there is no provision saying that Article 7 and Clause 9.2 (adjudication) “apply/do not apply”.

It may well be that, as Mr Sampson submits, that is because, except for various statutory exceptions, the general rule is that there would, in any event, be adjudication under the Act and the Scheme as an implied term of the Contract, even if there is not an express term of the Contract and so there is no need for an “apply/do not apply” provision.

In addition, so far as the schedule of amendments is concerned, Miss Piercy referred to the Lewison, The Interpretation of Contracts, (5th Ed.) chapter 7, section 4, which says that bespoke amendments take precedence over the un-amended terms of a contract. In this case that is also dealt with under the express terms of the Contract. However those express amendments do not have the effect of taking away the clear terms of Clause 9.2.

Therefore on that basis I consider that, despite the amendments which have been made, on a true construction of the Contract, based upon an objective interpretation of its terms, the parties intended there to be the provision for adjudication under Clause 9.2. In those circumstances, the adjudicator had jurisdiction in both the first adjudication and the second adjudication and on that basis the Defendants do not have reasonable prospects of successfully defending the claim. This application for summary judgment therefore succeeds and there is no other reason why this matter should not be determined now.

In those circumstances I do not need to consider the second issue of whether there is an implied adjudication clause or whether the residential occupier exception applies.

Therefore, subject to submissions which I shall now hear as to what is the appropriate sum and possibly on the question of whether there has already been payment in respect of the first adjudication, I give judgment in favour of the Claimant.