Royal Courts of Justice
Strand, London, WC2A 2LL
Before :
THE HONOURABLE MR. JUSTICE COULSON
Between :
CSK Electrical Contractors Ltd | Claimant |
- and - | |
Kingwood Electrical Services Ltd | Defendant |
Mr Edmund Neuberger (instructed by Buckles Solicitors LLP) for the Claimant
The Defendant did not appear and was not represented at the hearing
Hearing date: 11 March 2015
Judgment
The Hon. Mr Justice Coulson:
INTRODUCTION
In July 2014, the defendant engaged the claimant to carry out electrical works at the West Stand and in the executive boxes at Twickenham. This is an application by the claimant for summary judgment to enforce two adjudicator’s decisions arising out of those contracts. Both decisions are dated 19 January 2105. In the first, the defendant was ordered to pay the claimant the sum of £60,161.40. In the second the defendant was ordered to pay the claimant £272,078.03. The defendant was also ordered to pay interest.
As is well known, the TCC will ordinarily enforce the decision of an adjudicator: see Carillion Construction Ltd v Devonport Royal Dockyard Ltd [2005] EWCA Civ. 1358. The exceptions to this general rule are where a properly arguable case can be made out that there has been a breach of natural justice, or that the adjudicator lacked the necessary jurisdiction to reach the decision. In the present case, the defendant has raised challenges under both heads. Accordingly, I propose to deal one by one with those challenges, which are:
That no dispute had crystallised before the reference to adjudication;
That the adjudicator’s appointment was invalid;
That the timetable in the adjudication was too onerous and therefore unfair; and
That, if none of the above points are accepted by the court, there should, at any rate, be a stay of execution.
GROUND 1: NO CRYSTALLISED DISPUTE
It is axiomatic that a dispute must have crystallised between the parties before it can be referred to adjudication. That said, as I pointed out recently in St Austell Printing Co Ltd v Dawnus Construction Holding Ltd [2015] EWHC 96 (TCC), this point, although often taken by defendants, is rarely successful.
The starting point is the decision of Jackson J (as he then was) in AMEC Civil Engineering Ltd v Secretary of State for Transport [2004] EWHC 2339 (TCC). There he said:
“3. The mere fact that one party (whom I shall call “the claimant”) notifies the other party (whom I shall call “the respondent”) of a claim does not automatically and immediately give rise to a dispute. It is clear, both as a matter of language and from judicial decisions, that a dispute does not arise unless and until it emerges that the claim is not admitted.
4. The circumstances from which it may emerge that a claim is not admitted are Protean. For example, there may be an express rejection of the claim. There may be discussions between the parties from which objectively it is to be inferred that the claim is not admitted. The respondent may prevaricate, thus giving rise to the inference that he does not admit the claim. The respondent may simply remain silent for a period of time, thus giving rise to the same inference.
5. The period of time for which a respondent may remain silent before a dispute is to be inferred depends heavily upon the facts of the case and the contractual structure. Where the gist of the claim is well known and it is obviously controversial, a very short period of silence may suffice to give rise to this inference. Where the claim is notified to some agent of the respondent who has a legal duty to consider the claim independently and then give a considered response, a longer period of time may be required before it can be inferred that mere silence gives rise to a dispute.”
That analysis explains the general view that, for crystallisation to occur, no more than the service of a claim by the claiming party, and subsequent inactivity for a further short period by the responding party, may be enough. The same approach was taken by Akenhead J in Ringway Infrastructure Services Ltd v Vauxhall Motors [2007] EWHC 2421 (TCC).
As I have said, the crystallisation argument is almost never successful. That can be illustrated by the relatively extreme circumstances that existed in the two cases in which the point has been upheld. Thus:
In Enterprise Managed Services Ltd v Tony McFadden Utilities Ltd [2009] EWHC 322 (TCC) Utilities pursued Enterprise as assignees but they did not notify Enterprise of the existence of either the assignment or their claims as assignees until the very date on which they purported to give notice of adjudication. Plainly in those circumstances, no dispute could be said to have crystallised by the date of the notice.
In Beck Interiors Ltd UK Flooring Contractors [2012] EWHC 1808 (TCC) Akenhead J ruled that there was no crystallised dispute in relation to the liquidated damages claim, because that was a claim that had first been asserted in a letter sent after close of business on the last working day before the Easter weekend, and the notice of adjudication was then issued on the Tuesday after that weekend. The silence over the Easter bank holiday did not amount to a rejection of the claim.
In accordance with those principles, I am in no doubt that, in the present case, the dispute between the parties had crystallised before the reference to adjudication. That is because:
The relevant invoices from the claimant to the defendant were dated 11 November 2014;
The defendant did not respond to those invoices. The adjudicator found that the latest date for a valid payless notice was 11 December 2014, but no such notice was issued by the defendant by that date;
On 16 December 2014, the claimant’s representatives wrote to the defendant pointing out that no payless notice had been issued, and that if the outstanding monies were not paid immediately, a reference to adjudication would be made.
The defendant’s reply of 18 December 2014, said that the claims were “unfounded and will be strenuously defended”.
Thus a dispute had crystallised between the defendant and the claimant because the defendant had (a) failed to pay the invoices in accordance with the contract; (b) failed to serve a valid payless notice within proper time; and (c) expressly said that the claims were disputed and would be defended. For those reasons, the defendant’s crystallisation challenge must fail.
GROUND 2: INVALID APPOINTMENT
The defendant relies on the decision of Ramsey J in Eurocom Ltd v Siemens PLC [2014] EWHC 3710 (TCC), in which he found that the claimant’s representatives had fraudulently misrepresented to the relevant appointing authority the fact that a lengthy list of potential adjudicators could not be appointed because they would have a conflict of interest. In reality, there were no such conflicts of interest, and the ruse was designed by the claimant to avoid the appointment of the adjudicators on the list. The judge found that this irrevocably tainted the appointment of the adjudicator.
There can be no doubt that the facts of Eurocom have shaken public confidence in the adjudication process. For that reason alone it is, I think, understandable as to why the defendant (who has not had recourse to legal advice) has raised the point in this case: that is one of the baleful consequences of Eurocom. However, on analysis, the fraud identified in that case simply does not arise here.
The adjudicator was appointed by CEDR. The application to CEDR for the appointment, made by the claimant’s representatives, included the sentence “It is preferred that any of the adjudicators in the attached list are not appointed.” The evidence is that that sentence was included as an error, and it may be that it came from a template that those representatives habitually use. But the important thing was that there was no attached list. The position therefore was that, not only was that sentence included in error, but that no list of ‘preferred adjudicators not to be appointed’ was ever completed or attached. In those circumstances, therefore, the situation is entirely different to that in Eurocom.
In Eurocom at paragraph 57, Ramsey J identified three issues arising in a fraudulent misrepresentation case:
“First, whether a false statement was made; secondly, whether any false statement was made fraudulently or recklessly and thirdly, the effect of any such statement.”
None of those elements apply here. There was no false statement because there was no list. There can therefore be no question of fraud or recklessness, and, since there was no statement, it could not have had any effect.
In his careful skeleton, Mr Neuberger raised an additional point, namely that even if the list had been completed, it would not have amounted to a false statement, because it was simply a statement of a preference. He argued that it could not therefore amount to the sort of deliberate misrepresentation which occurred in Eurocom. Since it is unnecessary for me to decide that point in this case, I decline to do so. There may be circumstances in which a stated preference could amount to a misrepresentation, but I take the point that this would never be very straightforward.
Accordingly, for the reasons I have given, there can be nothing in ground 2.
GROUND 3: TIMETABLE
The defendant’s third challenge is the suggestion that the adjudicator’s timetable was too quick and put too great a strain on their resources.
Again, this point has been taken in a number of the authorities. It has never to my knowledge been upheld. Cases in which the point has been rejected include Bovis Lend Lease Ltd v Trustees of the London Clinic Ltd [2009] EWHC 64 (TCC) and Dorchester Hotel Ltd v Vivid Interiors Ltd [2009] EWHC 70 (TCC). The plain fact is that adjudication is a rough and ready process because it has to be carried out within a very strict timetable. That often causes particular pressure for the responding party. That is, I am afraid, a fact of adjudication life; it is inherent in the whole process.
In the present case, the claimant’s evidence is that they had proper cash flow reasons for pursuing the claim when they did. I accept that evidence. The importance of cash flow is, after all, the principle that lies behind the adjudication process. Moreover, the timetable set down by the adjudicator made the best use of the 28 days that was available. Although it took place over the Christmas/New Year period, the defendant had been in possession of the relevant invoices since the middle of November and therefore must have known what points it wanted to make in the adjudication, particularly as, on 18 December 2014, it said that the claims would be ‘strenuously defended’. In addition, there was nothing of any great complexity about the disputes between the parties. Indeed, the only real point of substance was the issue around the absence of a valid payless notice. On one view, that was a relatively straightforward matter and easily capable of determination within the 28 days.
Finally on this point, I note that the defendant could have asked the adjudicator for further time. The defendant did not do that. That strongly suggests to me that this challenge is based, not on something that was of great concern to the defendant at the time, but on an attempted comb through the authorities on adjudication, to try and find a reason after the event for avoiding making payments to the claimant. For all these reasons, I therefore reject the defendant’s challenge on ground 3.
WAIVER
The acceptance to which I have just referred is part of a wider issue raised by Mr Neuberger. That is to the effect that, because grounds 1, 2 and 3 were not raised at the outset of the adjudication by the defendant, the defendant has waived the right to rely on those matters now. He also points to the fact that, after the two decisions were provided to the parties, the defendant paid the adjudicator’s fees, and made a number of applications to the adjudicator to make corrections to those decisions. Mr Neuberger says that in both of those actions, the defendant was confirming the validity of the adjudicator’s decisions.
In one sense it is unnecessary for me to decide this point, since I have rejected the three challenges on their merits. But if I was wrong to reject any of them on that basis, I consider that Mr Neuberger is right to say that the challenges, whether by way of jurisdiction or breach of natural justice, have been waived by the defendant in this case.
The authorities make clear that if a party wishes to raise a jurisdictional objection (which in this case would cover both the crystallisation and the appointment issue), then that objection has to be expressly stated at the outset of the adjudication: see by way of example Allied P&L Ltd v Paradigm Housing Group Ltd [2009] EWHC 2890 (TCC); Brims Construction Ltd v A2M Development Ltd [2013] EWHC 3262 (TCC); and most recently of all, AT Stannard Ltd v Tobutt and Another [2014] EWHC 3491 (TCC). In none of those cases had there been a valid reservation of the jurisdictional challenge at the outset of the adjudication so, in each of them, the right to rely upon and advance the alleged ground of challenge was found to have been lost.
As to the allegation of breach of natural justice (which in this case is the timetable issue), Ramsey J said in Farrelly (M&E) Buildings Services Ltd v Byrne Brothers (Formwork) Ltd [2013] EWHC 1186 (TCC) that:
“27. In principle a party may waive a failure by an Adjudicator to comply with the rules of natural justice, although the nature of a natural justice challenge differs in important respects from a challenge to the jurisdiction of an adjudicator. For there to be a waiver it is evident that a party must be aware of or be taken to be aware of the right of challenge to the adjudicator’s decision. The second step requires a clear and unequivocal act which, with the required knowledge, amounts to waiver of the right…
29. In the case of a natural justice challenge the party has to know or be taken to know that the grounds for a natural justice challenge have arisen. However there has then to be some clear and unequivocal act by that party to show that it does not intend to rely on that natural justice challenge before there can be waiver.”
Here the defendant knew of the relevant facts that gave rise to the alleged breach of natural justice, namely the onerous timetable. It did not raise that complaint during the adjudication. Thereafter, there were clear and equivocal acts to show that the alleged breach had been waived, namely the payment of the fees and the corrections that were sought to be made to the decisions themselves. There is authority to say that this amounts to a waiver: see Shimizu Europe Ltd v Automajor Ltd [2002] B.L.R 113. Although in Laker Vent Engineering Ltd v Jacobs E&C Ltd [2014] EWHC 1058 (TCC) Ramsey J did not regard such conduct as a waiver in that case, that was only because, unlike here, there had been a clear and express reservation of the point at the outset.
For those reasons, therefore, I conclude that if I am wrong to reject any of grounds 1, 2 and 3 on the merits, then that ground has in fact been waived by the defendant, and cannot now be relied on as an effective challenge to the claim for summary judgment.
STAY OF EXECUTION
The general position where there has been no valid payless notice was dealt with recently by Edwards-Stuart J in ISG Construction Ltd v Seevic College [2014] EWHC 4007 (TCC). He said:
“47. The statutory regime would be completely undermined if an employer, having failed to issue the necessary payment or pay less notice, could refer to adjudication the question of the value of the contractor’s work at the time of the interim application (or some later date) and then seek a decision requiring either a payment to the contractor or a repayment by the contractor based on the difference between the value of the work as determined by the adjudicator and the sums already paid under the contract…
52…The contractor’s only entitlement to payment during the course of the project is by way of an interim application. Absent fraud, in the absence of a payment or pay less notice issued in time by the employer, the contractor becomes entitled to the amount stated in the interim application irrespective of the true value of the work actually carried out.”
Accordingly, the failure of the challenges as noted above means that judgment has to be entered for the claimant. The only remaining question is whether or not there should be a stay. The defendant says there should be a stay because of the claimant’s financial position.
The relevant principles governing a stay of execution in cases of adjudication enforcement and financial difficulties are set out in paragraph 26 of my judgment in Wimbledon Construction Co 2000 Ltd v Vago [2005] EWHC 1086 (TCC) as follows:
“26. In a number of the authorities which I have cited above the point has been made that each case must turn on its own facts. Whilst I respectfully agree with that, it does seem to me that there are a number of clear principles which should always govern the exercise of the court's discretion when it is considering a stay of execution in adjudication enforcement proceedings. Those principles can be set out as follows:
a) Adjudication (whether pursuant to the 1996 Act or the consequential amendments to the standard forms of building and engineering contracts) is designed to be a quick and inexpensive method of arriving at a temporary result in a construction dispute.
b) In consequence, adjudicators’ decisions are intended to be enforced summarily and the claimant (being the successful party in the adjudication) should not generally be kept out of its money.
c) In an application to stay the execution of summary judgment arising out of an Adjudicator’s decision, the Court must exercise its discretion under Order 47 with considerations a) and b) firmly in mind (see Awg).
d) The probable inability of the claimant to repay the judgment sum (awarded by the Adjudicator and enforced by way of summary judgment) at the end of the substantive trial, or arbitration hearing, may constitute special circumstances within the meaning of Order 47 rule 1(1)(a) rendering it appropriate to grant a stay (see Herschell).
e) If the claimant is in insolvent liquidation, or there is no dispute on the evidence that the claimant is insolvent, then a stay of execution will usually be granted (see Bouygues and Rainford House).
f) Even if the evidence of the claimant’s present financial position suggested that it is probable that it would be unable to repay the judgment sum when it fell due, that would not usually justify the grant of a stay if:
(i) the claimant’s financial position is the same or similar to its financial position at the time that the relevant contract was made (see Herschell); or
(ii) The claimant’s financial position is due, either wholly, or in significant part, to the defendant's failure to pay those sums which were awarded by the adjudicator (see Absolute Rentals).
With those principles in mind I now turn to the evidence in this case concerning the Claimant's financial position.”
The defendant says that the claimant is in an unhealthy financial position and would not be in a position to pay back any of the judgment sum if or when it was eventually concluded that the claimant was not entitled to the monies awarded by the adjudicator. The claimant says that, on the contrary, its financial position is good, and that if it was wrong about that, the financial position is no worse than it was at the time the contract was entered into, one of the express grounds for the refusal of a stay identified in Wimbledon. The claimant also says that if its financial position is worse, it is because of the non-payment of the relevant sums by the defendant.
The difficulty for the defendant is that it is relying on the claimant’s filed accounts. Those only go up to 31 October 2013. That was some months before the contracts between the parties were even entered into. Furthermore, the claimant only started trading in July 2013, so it is unsurprising that those accounts show a turnover of about £55,000, and a loss of about £18,000.
The best evidence of the claimant’s current financial position is set out at paragraph 44 of Mr Coppinger’s second statement. That shows a monthly turnover from April to August 2014 of figures ranging from £66,000 to £117,000. Those figures exclude the value of these contracts. The turnover from 1 November 2013 to 31 October 2014 was £820,000, and from 1 November 2014 to 28 February 2015 the figure is said to be £347,000 odd. There is a projected turnover for the current year of just over £1 million. In addition, the average monthly turnover between November 2014 and February 2015 was £86,000.
The figures in Mr Coppinger’s statement show that the claimant company is growing steadily. Those figures do not indicate any reason why, if the end result of this dispute was that the claimant had to repay some, or even all, of the sums ordered by the adjudicator, the claimant would not be in a position to do so. Accordingly, the first hurdle for a party seeking a stay, to show that the monies would probably not be repaid, has not been cleared. The financial evidence is not such as to justify a stay of execution.
In the light of that finding, it is unnecessary for me to decide some of the other issues that have arisen in relation to the claimant’s financial position. However, I will say that, since the claimant’s financial position has been growing steadily better over the months, it must follow that their position now is at least as good, if not probably better than, the position at the time that the contracts were entered into in July 2014. That of course is an additional ground, pursuant to the principles summarised in Wimbledon, for refusing the stay.
For those reasons the stay of execution is refused. Judgment will be entered and I will order that the sum due is paid within 7 (seven) days in view of the earlier delays. To those sums, will be added sums due by way of interest and costs.