ISG Retail Ltd v Castletech Construction Ltd

This is an application for summary judgment to enforce a decision of an adjudicator. By a decision dated 4 March 2015 the adjudicator decided that the defendant, Castletech Construction Ltd (“CC”) had provided nothing of value to the claimant ISG Retail Ltd (“ISG”), so that, in breach of contract, there had been a complete failure of consideration by CC. Since ISG had made an advance payment to CC of £35,000 plus VAT, the adjudicator ordered CC to repay that sum forthwith.

He also decided that ISG was not entitled to interest on that sum.

CC resists the application on the ground that the adjudicator lacked jurisdiction to do what he did.

ISG was represented by Mr. Luke Wygas, instructed by Knights Solicitors LLP, and CC was represented by Mr. Peter Oliver, instructed by Contract & Construction Consultants Ltd.

The Notice of Adjudication dated 3 February 2015 set out the terms of the contract and then asserted (at paragraph 10) that a dispute had arisen between the parties under the contract.

It then recited that “pursuant to the contract” ISG had paid £35,000 plus VAT to CC. It asserts that CC completely failed to perform its obligations so that there was “a complete failure of consideration”.

At paragraph 13 the Notice of Adjudication said this:

“ISG has suffered loss as a consequence of CC’s breaches, in the sum of £35,000 plus VAT. This sum must be repaid to ISG forthwith, plus interest plus costs.”

At paragraph 14 of its Referral Notice, which was served two days later, ISG asserted:

“As a matter of law, if a defendant has been paid in advance but fails fully to perform its obligations as it promised to do, it follows that the claimant can recover its advance payment by virtue of total failure of consideration. That is exactly what has occurred in this matter.”

Then, at paragraph 17:

“In the event, ISG has incurred a loss and is entitled to recover in restitution the sum of £35,000 plus VAT by reason of a total failure of consideration.”

This paragraph, together with paragraph 16 immediately before it, included for the first time a reference to restitution.

Under the heading “The Redress Sought”, ISG said that it wanted the adjudicator to make the following decisions:

“32.1

That CC acted in breach of contract as set out above.

32.2

That as a result ISG suffered the loss summarised above.

32.3

That CC owes sums to ISG as a consequence.

32.4

That ISG is entitled to payment by CC in the sum of £35,000 plus VAT, or such other greater or lesser sum as the Adjudicator may decide is due.

32.5

That ISG is entitled to interest on such sums.”

In its Response CC did not dispute that there was a contract, although it denied that the documents forming the contract were those relied on by ISG. At paragraph 4.1 it said this:

“ISG are not entitled to the remedy that they have claimed (restitution) in adjudication at all because that is an equitable remedy not within an adjudicator’s jurisdiction/power.”

Then, at paragraph 4.4:

“There is no pleaded or factual basis on which the adjudicator can find any breach of contract/partial failure of consideration other than a 100% failure to perform (which is clearly not the case on the evidence).”

The point was repeated at paragraph 15 where CC denied being in breach of contract or that there was a total failure of consideration.

In relation to the question of restitution, CC submitted, at paragraph 22 of the Response:

“This confirms that ISG’s restitutionary claim is not made under the sub-contract - because restitutionary claims are not made under contracts, they are made in equity, restitution being an equitable remedy - and as such the adjudicator has no jurisdiction/power to decide it.”

The reference to “under contracts” is a reference to paragraph 1 of Part I of the Scheme for Construction Contracts (made by way of SI No 649 of 1998) which confers the right on any party to a construction contract to refer to adjudication “any dispute arising under the contract”.

CC resists the application for summary judgment on the grounds that the adjudicator had no jurisdiction because:

In its skeleton argument CC says that it refused to repay ISG as it had undertaken substantial work and because ISG had no right to seek accelerated performance under the contract (paragraph 11).

CC submits, correctly, that the scope of the referral is determined by the terms of the Notice of Adjudication. It then submits that, since there is no mention of, let alone a claim for, restitution in the Notice of Adjudication, the adjudicator can have had no jurisdiction to decide that ISG was entitled to a sum by way of restitution.

I was referred by counsel to several authorities, but it is necessary to refer only to a few of them. Some of the authorities were directed to the proposition that the words “under this contract” are not apt to cover, for example, a claim for misrepresentation or for negligent misstatement. That is because the words are not wide enough to include disputes which do not concern obligations created by or incorporated in that contract (see, for example, Slade LJ in Fillite (Runcorn) Ltd v Aqua-Lift [1989] WL 649986, at page 8).

In Stocznia Gdynia SA v Gearbulk Holdings [2009] EWCA Civ 75, Moore-Bick LJ said, at [40]:

“On discharge of a contract of this kind a buyer who has paid the whole or part of the price in advance is entitled, in the absence of any agreement to the contrary, to recover what he has paid by reason of a total failure of consideration. He therefore has a right to recover in restitution any payments he has made in respect of the price, a right which is quite distinct from any right he may have (if he is the injured party) to recover damages for the loss of his bargain. In the present case the parties made specific provision for the repayment of instalments and Gearbulk could not, of course, recover both under the contract and in restitution; to do so would result in double recovery. In fact, however, Gearbulk is not seeking to recover the advance payments since it has already done so. There is no inherent inconsistency, however, in recovering instalments of the price under Article 10 and recovering damages for loss of bargain at common law.”

It seems to me that that passage is clear authority for the proposition that where, in a contractual dispute, there has been a total failure of consideration, the buyer may recover the sums he has paid. That is not a claim for damages: it is, I accept, a claim in restitution. However, it is a claim that is an ordinary incident of a claim for breach of contract where the breach amounts to a total failure of consideration.

What the authorities show also is that a claim in restitution can exist where there is no contract. In that case the cause of action is usually unjust enrichment.

In my view this argument, attractively and forcefully as it was put by Mr. Oliver, is wholly misconceived for at least two reasons. First, it is clear from the Notice of Adjudication that the central issue in dispute was whether or not there had been a total failure of consideration: see paragraphs 12 and 23. This was denied by CC - see, for example, paragraph 4.4 of the Response.

In these circumstances it is clear that a dispute had arisen under the contract and so the adjudicator had jusrisdiction to hear it. He was then required to decide the matters in dispute, namely whether or not there had been a total failure of consideration and, if so, whether ISG was entitled to the return of the money, with or without interest.

That is exactly what the adjudicator did. I cannot see how it can be said that this was outside his jurisdiction.

Second, in my judgment the adjudicator was entitled to order restitution if that was a remedy available for the breach of contract in question. It is quite clear from the Stocznia Gdynia case that where money has been paid in advance on account of the contract price and the consideration has wholly failed as a result of the other party’s non-performance (which, in the absence of frustration, will almost invariably constitute a breach of contract) the court will order repayment of the money. Such a remedy has been available in claims for breach of contract for 300 years: see Lord Wright in Fibrosa v Fairbairn Lawson [1943] AC 32, at 61. It is true that the remedy is distinct from a remedy in damages, but I fail to see why that should prevent an adjudicator from awarding a sum by way of restitution where it is an available remedy for the breach of contract in question.

I would agree with Mr. Oliver that, if there had been no contract, the adjudicator could not have made an award by way of restitution even though it was the appropriate remedy in law. But that is because he would not have been determining a dispute that had arisen under a contract.

Mr. Oliver relied strongly on the example of parallel duties in contract and tort. Take the case of a plumber who enters into a contract with a building owner to install a hot and cold water system in a house in accordance with the relevant British Standards, but in circumstances where he is also under an implied contractual duty to exercise reasonable skill and care. If he installs the pipework negligently so that there is a leak, he will be liable for breach of contract - because he will have been in breach of the contractual duty of care. If the dispute were to be referred to adjudication, the adjudicator would be able to award an appropriate sum by way of damages to the building owner.

However, if it emerged that there was no contract - perhaps because there had been no agreement on the price - the building owner would still be entitled to damages, but an adjudicator would have no jurisdiction because there would have been no contract under which the dispute could have arisen and pursuant to which an adjudicator could be appointed.

In my view, the fallacy underlying Mr. Oliver’s submissions was the confusion between the dispute and the remedy. The scope of the jurisdiction of the adjudicator is determined by the nature of the dispute identified in the Notice of Adjudication, not by the nature of the remedy. However, once seized of the dispute, in my opinion the adjudicator can award any remedy within his power - such as the payment of a sum of money - to which the claimant is entitled as a matter of law for the breach of contract found by the adjudicator. A total failure of consideration is, of course, almost invariably the result of a breach of contract (absent frustration).

Mr. Oliver placed great reliance on fact that the cause of action on which a claim for restitution is based is unjust enrichment, and that that is a different cause of action from breach of contract. I agree. But, as I have already explained, there is a type of breach of contract (total non-performance) that can give rise to an alternative remedy by way of restitution. There is nothing in the Scheme that deprives an adjudicator of the power to grant relief by way of restitution if that is an available remedy for the breach of contract in question.

For these reasons I conclude that ISG is entitled to summary judgment. In the circumstances, I do not find it necessary to make any further reference to the authorities to which I was referred.

It follows that in the ordinary course of events ISG would be entitled to its costs of the application. However, I will hear counsel on any matters, either as to costs or the form of relief, upon which there is no agreement.