AMD Environmental Ltd v Cumberland Construction Company Ltd

INTRODUCTION

This is a disputed adjudication enforcement. Two issues arise: the alleged absence of a crystallised dispute at the time of the notice of adjudication, and the failure of the adjudicator to address the matters in issue. Within that first point, there is a novel alternative argument to the effect that the adjudicator acted in breach of natural justice in seeking to obtain, and obtaining, further information from the claiming party which (so it is said) had not been provided before.

By a sub-contract made in June 2014 the defendant, Cumberland, engaged the claimant, AMD, to carry out mechanical and electrical works at the Hilton Hotel in Park Lane, London. By Application 11 dated 31 March 2015, AMD claimed a final account sum of £527,770.33. Cumberland did not agree with that claim. There were numerous exchanges between Cumberland and AMD between March and August 2015, but the issues were not resolved. On 2 September 2015, AMD issued a notice of adjudication.

The RICS appointed the well-known adjudicator, Mr Matt Malloy, to deal with this dispute. By a decision dated 21 October 2015, he determined as follows:

The sums at (d) and (e) above were not paid so, on 18 December 2015, AMD issued these enforcement proceedings. They now seek to enforce the adjudicator’s decision by way of summary judgment pursuant to CPR Part 24.

THE JURISDICTIONAL CHALLENGES

In the adjudication, Cumberland took two jurisdictional points. The first was that the sub-contract was not in writing and the second was that the dispute had not crystallised by 2 September 2015.

The first point was misconceived because the statutory requirement that the contract had to be in writing, so as to permit adjudication, was deleted as long ago as November 2011. As to the second point; in a letter dated 17 September 2015 and repeated in his decision, the adjudicator rejected it. He pointed to the fact that there had been a five month gap between the application for payment on 31 March 2015, and the notice of adjudication on 2 September 2015. He was satisfied that, as a result of that, a dispute had crystallised between the parties.

Notwithstanding the adjudicator’s ruling and the subsequent events, the crystallisation point is still relied on by Cumberland. As I have said, they put forward an alternative argument relating to particularisation, which I shall also address. In addition, Cumberland now take a further jurisdictional point to the effect that the adjudicator failed in his decision to address important matters in issue. I deal with those jurisdictional challenges in Sections 3 and 4 below.

CRYSTALLISATION

I have observed before that this argument is frequently advanced and almost as frequently rejected by the courts: see St Austell Printing Company Ltd v Dawnus Construction Holdings Ltd [2015] EWHC 96 (TCC). The only recent case of which I am aware, in which it was successfully argued that the dispute had not crystallised by the time that the adjudication started, was Beck Interiors Ltd v UK Flooring Contractors Ltd [2012] EWHC 1808 (TCC). That was a situation where the claim was sent to the responding party after close of play on Maundy Thursday, and where the notice of adjudication was then served the following Tuesday. Akenhead J had no difficulty in finding that the claim had not been disputed by silence over the Easter weekend, so that crystallisation had not occurred by the following Tuesday. But in general terms, the courts have found that a claim which is not accepted in whole or in part for a reasonable period thereafter, is deemed to be disputed: see Ringway Infrastructure Services Ltd v Vauxhall Motors Ltd [2007] EWHC 2421 (TCC).

In the present case I have concluded that, for a number of reasons, the crystallisation argument is hopeless.

First I note that Cumberland replied to the adjudicator’s ruling on 17 September 2015, that there was a crystallised dispute, by requesting that same day an extension of time to serve its response. Moreover, on 18 September 2015 Cumberland wrote again, expressly acknowledging the adjudicator’s decision “to overrule our barrister’s objections to an adjudication.” There was no reference in either letter to any reservation of the right to challenge the decision subsequently on this same ground. On the contrary, these communications appear on their face to accept the adjudicator’s ruling and treat him as having the necessary jurisdiction: see Nordot Engineering Services Ltd v Siemens PLC [2001] CILL 1778-1779. They certainly do not amount to an adequate reservation of the point so as to allow Cumberland to maintain the argument before me, in line with the guidance of Akenhead J in Allied P&L v Paradigm Housing Group Ltd [2009] EWHC 2890 (TCC).

Accordingly, I find that the crystallisation point is not open to Cumberland at this hearing.

Secondly, if I am wrong about that, and it is open to Cumberland to argue this point afresh, my conclusion is precisely the same as that of the adjudicator. I have been taken through some of the correspondence from between December 2014, (when AMD’s claim was first intimated) to August 2015, (when the parties’ respective final positions were clearly set out in the email exchanges). Eight months of detailed too-ing and fro-ing between the parties is, in my view, ample evidence of a dispute having crystallised. Indeed I note that, as early as December 2014, Cumberland set out their valuation of AMD’s account in a negative sum, and that was a position and a figure from which they never really moved in the following eight months.

The specific point taken by Cumberland is that, during this lengthy period of exchanges, they repeatedly asked AMD for particulars of certain elements of the claim, and that those particulars were not always forthcoming. Indeed, in at least one important respect, it is said by Cumberland that particulars were provided by AMD in answer to the adjudicator’s request, which they had previously failed to provide in answer to a similar request from Cumberland. Much of that version of events is disputed by AMD, who say that the particulars provided to the adjudicator were simply a re-ordering of information already supplied. I cannot of course, on an application for summary judgment, decide those factual issues. However, in my view, it is unnecessary for me so to do.

Whatever the precise factual position, I consider that it is wrong in principle to suggest, as Cumberland must do, that a dispute had not arisen until every last particular of every last element of the claim had been provided. When a contractor or a sub-contractor makes a claim, it is for the paying party to evaluate that claim promptly, and form a view as to its likely valuation, whatever points may arise as to particularisation. Efforts to acquire further particularisation should proceed in tandem with that valuation process.

Disputes about an alleged lack of particularisation are commonplace in building contract disputes. They are part of the overall dispute between the parties. In an ordinary case, a paying party cannot put off paying up on a claim forever by repeatedly requesting further information; a fortiori, a paying party cannot suggest that there is no dispute at all because the particularisation of the claim is allegedly inadequate. Any other conclusion would allow a paying party limitless time, either to avoid an adjudication altogether, or at least to avoid the enforcement of any adverse decision. It would deprive the payee of its statutory right to adjudicate.

Accordingly, in my view, the alleged absence of particularisation is not a proper ground for resisting enforcement of an adjudicator’s decision. I respectfully agree with the similar conclusion reached by Weatherup J in Gibson (Banbridge) Ltd v Fermanagh District Council [2013] NIQB 16.

Thirdly, I reject the contention advanced by Mr Davis, that this was not an ordinary case, so that the principles outlined in paragraphs 14 – 16 above do not apply. He argued that this was an unusual situation where the claim provided by AMD was “so nebulous and ill-defined” that Cumberland could not sensibly be required to respond to it. This possible exception to the general rule about particulars is derived from the judgment of Jackson J (as he then was) in Amec Civil Engineering Ltd v Secretary of State for Transport [2004] EWHC 2339 (TCC). But on the facts of this case, that is simply not a fair description of AMD’s claim, particularly given the material that I have been shown regarding the exchanges between the parties between December 2014 and August 2015. That detailed material, back and forth, makes it only too clear that, although the parties were not agreed about the claim, and they were not agreed about whether or not proper particulars had been provided, this was very far from being a situation where the claim was ‘nebulous or ill-defined’.

Fourthly, I find that the argument advanced by Mr Park, the relevant Director at Cumberland, that no dispute had crystallised by 2 September 2015, to be at odds with his own correspondence. I note simply by way of example:

I should address briefly the alternative way in which that argument is put, namely that somehow the adjudicator’s request for further information, and AMD’s compliance with that request, constituted a breach of natural justice. I reject the submission that it is somehow unfair if the adjudicator is given information during the adjudication which had not previously been available (whether it had been previously requested, or not). Often an adjudicator will focus on something which he or she considers to be important, and ask for more information. It is obviously wise for the claiming party to provide that information, regardless of their own view as to its materiality. That is no different to the situation in litigation or arbitration when the judge or the arbitrator seeks particular information which they regard as important in reaching their decision. The (potentially late) provision of such information may have a bearing on costs, but it does not have any bearing on jurisdiction.

This alternative argument is tantamount to saying that an adjudicator cannot ask for information which he or she believes will be of assistance in reaching their decision. In my judgment, that would be contrary to the Scheme for Construction Contracts, and indeed contrary to a basic principle of adjudication, which allows the adjudicator a wide leeway to seek information that he or she believes to be important. It cannot possibly be right that an adjudicator who does that, and a claiming party who responds to the request, is somehow acting in breach of natural justice. Accordingly, I reject this alternative way in which the crystallisation point was put.

FAILURE TO ADDRESS MATTERS IN ISSUE

The law on this topic was summarised in Pilon Ltd v Breyer Group PLC [2010] EWHC 837 (TCC) as follows:

“22.1

The adjudicator must attempt to answer the question referred to him. The question may consist of a number of separate sub-issues. If the adjudicator has endeavoured generally to address those issues in order to answer the question then, whether right or wrong, his decision is enforceable: see Carillion Construction Ltd v Devonport Royal Dockyard Ltd [2005] EWCA Civ 1358.

22.2

If the adjudicator fails to address the question referred to him because he has taken an erroneously restrictive view of his jurisdiction (and has, for example, failed even to consider the defence to the claim or some fundamental element of it), then that may make his decision unenforceable, either on grounds of jurisdiction or natural justice: see Ballast PLC v The Burrell Co Ltd [2001] BLR 529; Broadwell v k3D [2006] ADJCS04/21; and Thermal Energy Construction Ltd v AE&E Lentjes UK Ltd [2009] EWHC 408.

22.3

However, for that result to obtain, the adjudicator's failure must be deliberate. If there has simply been an inadvertent failure to consider one of a number of issues embraced by the single dispute that the adjudicator has to decide, then such a failure will not ordinarily render the decision unenforceable: see Bouygues (UK) Ltd v Dahl- Jensen (UK) Ltd [2000] BLR 49 and Amec Group v Thames Water Utilities Ltd [2010] EWHC 419 (TCC).

22.4

It goes without saying that any such failure must also be material: see Cantillon v Urvasco and CJP Builders Limited v William Verry Limited [2008] EWHC 2025 (TCC). In other words, the error must be shown to have had a potentially significant effect on the overall result of the adjudication: see Keir Regional Ltd v City and General (Holborn) Ltd [2006] EWHC 848 (TCC).”

Of those principles, the first three are all in play here, although it is important to stress that those principles are principally dealing with a failure to address the principal question put before the adjudicator, and are only peripherally concerned with an adjudicator’s failure to deal with one particular issue out of many. An inadvertent failure by an adjudicator to deal with one of many issues, particularly in a final account dispute, will not generally amount to a breach of natural justice or a ground for resisting enforcement. That can be seen in paragraphs 22.1 and 22.3 of the judgment in Pilon v Breyer, set out above. There are also two more recent cases which reach the same conclusion.

In KNN Holborn LLP v GD City Holdings Ltd [2013] EWHC 2846 (TCC), one of the complaints made by GD was that they had relied on a clause in the contract which limited their liability, but the adjudicator had made no reference to that clause in the decision. There was an argument that this was a breach of natural justice. Stuart-Smith J noted that that would not ordinarily render the decision unenforceable, by reference to the decision in Pilon v Breyer. He said that the burden of showing that there was a material breach rested with GD and that they had not done so.

In Veridis UK Ltd v Mullaly and Co Ltd HHJ Davies concluded that an adjudicator’s failure to have regard to the defendant’s case that particular certificates had not been provided, which may have caused a reduction in the value of the work, was not a breach of natural justice. The point may have been inadvertently overlooked, but the judge went on to say that it was equally possible that the adjudicator had decided that the defendant had not proved that element of the contra charge to which the certificates went. He said it was not a case where the adjudicator did not have the necessary jurisdiction to reach the conclusion that he did. With those principles in mind, I turn to the particular complaint raised here.

In his witness statement, Mr Park identified three variation claims (VO4, VO10 and VO46), in respect of which the adjudicator failed to have regard to the submissions made by Cumberland. The reasoning that he advances is this: because (contrary to Cumberland’s case) the adjudicator reached the conclusion that monies were due to AMD in respect of these three variations, his reasoning was illogical and must therefore have resulted from a failure to consider Cumberland’s submissions. In my view, that argument is again hopeless. There are a number of reasons for that.

First, this argument involves a critique of the adjudicator’s reasoning. It is tantamount to saying that the adjudicator was wrong, and therefore his decision should not be enforced. That is of course, contrary to basic principle: see the well-known passage in the judgment of Chadwick LJ in Carillion v Devonport.

Secondly, there is no evidence that the adjudicator failed to consider Cumberland’s submissions. On the contrary, an analysis of his decision reveals a careful consideration of all the relevant matters. The schedule attached to his decision makes it clear that he considered all the material put before him. He repeatedly said that he was reaching conclusions “doing my best on the information available”. Accordingly, should it be necessary, I refute as a matter of fact that the adjudicator either deliberately or inadvertently ignored Cumberland’s submissions.

It is sensible to take one of these disputed VOs as an example of this, so I take the first, which is VO4. Mr Park said in his statement that, because the BMS does not work properly, that must be the fault of AMD, who installed it. Because the adjudicator had awarded some £34,000 odd to AMD for the BMS, Mr Park says that he must therefore have ignored Cumberland’s submissions. What the adjudicator said about VO4 was this:

“The reports provided regarding the BMS do not identify that the issues have been caused by workmanship issues and/or issues for which AMD is responsible. I therefore do not accept that AMD should not be paid for this work which represents the expenditure of a provisional sum. In terms of quantum, the build up supports the valuation of £34,165.52 and not the revised amount claimed.”

In other words, the adjudicator was saying that, whatever the difficulties might be concerning the BMS, they had not been shown to be the responsibility of AMD. That does not show that he ignored the submissions and the detailed documents provided by Cumberland; on the contrary, he referred to the detail of the very reports on which Cumberland had sought to rely. Thus, the adjudicator dealt entirely properly with the information before him; he just reached a conclusion that was contrary to Cumberland’s case.

Thirdly, even if I was wrong about that, following the reasoning in KNN and Veridis, I am not persuaded that any failure on the part of the adjudicator has led to a material breach of natural justice. Given the time constraints of adjudication, and the need to reach a decision on a detailed final account claim like this in a short period of time, the adjudicator was entitled to deal with matters relatively briskly. I note that, as part of this overall claim, there were twenty such variation disputes, and Cumberland has focused simply on three. It has not been shown that there has been any material breach of natural justice arising out of the way in which the adjudicator dealt with 15% of the disputed variations.

CONCLUSIONS

For those reasons, this application to enforce the adjudicator’s decision is granted. The claimant is entitled to £109,408.55 including VAT and £1,679.72 by way of interest.

I add two points to the written transcript of my ex tempore judgment, summarising my views on two consequential matters, namely interest and costs.

Mr Thompson argued for interest at 8.5% pursuant to the Late Payment of Commercial Debts (Interest) Act 1998. Mr Davis asked for 2.5%. I noted that typical figures in the Rolls Building are between 4 or 5%. However, I decided that, in this case, the right figure was 6%. That is because this adjudication decision should have been honoured some time ago, and the arguments in support of the defendant’s position were properly categorised as hopeless. The TCC is concerned that too many adjudication decisions are not being complied with, and that there are too many disputed enforcements where the grounds of challenge are without merit. Thus a high interest rate under the Act will be awarded in such cases.

For the same reasons, I acceded to Mr Thompson’s submission that AMD were entitled to indemnity costs. There is plenty of authority that indemnity costs are appropriate in a case of this kind, where the challenge to the decision is without merit: see, by way of example only, JG Walker Groundworks Ltd v Prior Homes (East) Ltd [2013] EWHC 3723 (TCC).