Penten Group Ltd v Spartafield Ltd

INTRODUCTION

The topics raised at adjudication enforcement hearings seem to change with the seasons. A few years ago, those debates centred on alleged breaches of natural justice. More recently, it was the intricacies of the payment notice/payless notice regime which held centre stage. And now the wheel has turned again and the courts are grappling with the consequences of what might be termed serial adjudication. In this case, that is complicated by the fact that the adjudicator had to reach a decision about the contract and its terms, before going on to deal with the underlying financial claims.

On any view, this is a case bedevilled by the almost maniacal desire of the parties to issue notices of adjudication against each other. This impulse seems to have overwhelmed every other consideration. I note too that this has not always been successfully translated into action. I have seen at least five notices of adjudication, and I am told that there might be as many as nine in total, but so far there has been only one completed adjudication. All this might be thought to be some way from the use of adjudication as a simple and clear dispute resolution process.

Despite this unpromising background, Mr Darling QC and Ms Drake were able to advance clear arguments concerning the principal issues between the parties, and allow me time to give an ex tempore judgment, all within the allotted time of the hearing. I am extremely grateful to them both.

THE HISTORY

The employer/defendant, whom I shall call Spartafield, engaged the contractor/claimant, whom I shall call Penten, to carry out building works at Plumbers Row, in London. The works began in mid 2013. It is common ground that there was a letter of intent dated 19 July 2013. It also appears to be common ground that, at least at one point, there was an intention to sign a JCT ICD contract. However, no contract in that form was ever concluded. On about 27 April 2015, Spartafield terminated Penten’s employment.

By a notice of adjudication dated 13 October 2015, Spartafield commenced Adjudication 1. I have considered the entirety of the notice of adjudication which commenced Adjudication 1. For the purposes of brevity, it is appropriate to set out simply that part of the notice which identified the redress sought. Paragraph 13 sought a series of declarations as follows:

“13.1

That a valid Construction Contract exists between the parties, and the terms of that Contract include the provisions of ICD2011.

13.2

The Employer was entitled to terminate the Contract.

13.3

As a result of a valid termination Notice being issued [the validity of which has not been challenged by the Responding Party] SL is entitled to:

(i)

The Payment of Liquidated Damages from the Date for Completion up to and including the Date of Termination in the sum of £216,000 or such sum as the Adjudicator may decide is due. [Please note cost arising to SL after the Date of Termination will be dealt with separately under the provisions of clause 8.7 of the Contract and do not form part of the Adjudication].

(ii)

The repayment of the balance of Advance Payments made to date in the sum of £23,400.00 or such sum as the Adjudicator may decide is due.

(iii)

Interest on the above sums at 5% per annum above the official dealing rate of the Bank of England current as of 27 April 2015 or at such rate and for such period as the Adjudicator may decide is due. Detailed calculations are included in the Referral.

13.4

PG shall pay in full the fees and expenses of the Adjudicator or such proportion as the Adjudicator shall decide.

13.5

PG shall pay in full the fees of appointing the Adjudicator or such proportion as the Adjudicator shall decide.

13.6

That any sum SL is entitled to be paid by PG shall be paid within 7 days of the Adjudicators Decision and interest shall continue to accrue and be due the rate of £36.07 per diem or at such other rate as the Adjudicator shall decide from the date of this Notice until all sums are paid into the account of Stonegrove.”

By a decision dated 26 November 2015, the adjudicator, a solicitor called Mr Gupta, decided as follows:

“154.

I decide that a valid construction contract does exist between the parties but that the terms of that contract were not the JCT Contract but the Letter of Intent. (10/125)

155.

I decide that Spartafield was entitled to terminate the employment of Penten Group, but that the termination was under the Letter of Intent and that this was done by Spartafield’s letter dated 27 April 2015.

156.

I decide that Spartafield has no entitlement to liquidated damages in either the sum claimed or in any sum.

157.

I decide that Spartafield is entitled to be reimbursed the outstanding balance of its advance payment in the sum of £23,385.87 by Penten Group.

158.

I decide that Spartafield is entitled to be paid interest from 7 September 2015 in the sum of 274.86.

159.

I decide that the sum of £23,385.87 plus interest of £274.86 shall be paid by Penten Group to Spartafield within seven days of the date of this Decision and that, if such sum is not paid within the said seven days, interest will therefore accrue at the rate of £3.52 per day.

160.

My fees and expenses total £6,700. I decide that Spartafield shall pay 50% of my fees and that Penten Group shall pay 50% of my fees.

161.

Notwithstanding the joint and several liability of the parties for my fees and expenses, Spartafield shall pay my fees and expenses in the sum of £3,350 such sum to be paid within 7 days of the date of this Decision, namely by 3 December 2015.

162.

Notwithstanding the joint and several liability of the parties for my fees and expenses, Penten Group shall pay my fees and expenses in the sum of £3,350 such sum to be paid within 7 days of the date of this Decision, namely by 3 December 2015.

163.

If either party pays any part of my fees which I have decided are payable by the other party, that party may recover those fees from the other party”.

In consequence of that decision, I am told that:

By a notice of adjudication dated 10 December 2015, Penten sought monies from Spartafield, based on Mr Gupta’s decision that the contract between them was governed by the letter of intent. I shall call that Adjudication 2. Spartafield challenged the adjudicator’s jurisdiction. The adjudicator subsequently resigned on the basis that the dispute in Adjudication 2 had not crystallised at the time of the notice of adjudication.

On 12 January 2016, Spartafield served a notice of adjudication on Penten. The redress that was sought was in the following terms:

“SL seeks the appointment of an Adjudicator to make the following declarations:

15.1

That the first Adjudicator was neither required nor had the necessary jurisdiction to decide on the terms of the contract between the Parties if he did not accept that it was ICD 2011.

15.2

That a contract between the Parties is in existence based on the simple requirements for a valid contract to be formed and an agreed contract sum and contract sum analysis, an agreed completion date, and agreed unamended contract conditions.

15.3

That Payment is due to SL from PG as certified by Architects Certificate No 017 dated 8 April 2015 in the sum of £84,154.12 adjusted only for reimbursement of the Advance Payment or such other sum as the Adjudicator shall decide.

15.4

That PG cannot rely on the LOI as a basis of payment which only was to come into force as a basis for payment of costs to be reimbursed to SL in the event that the contract did not proceed. The Contract did proceed to the extent that works as certified by the CA against an agreed Contract Sum of £1,150,000 amounted to some £926,970.67 were carried out together with some £228,210.71 of direct payments being made by SL on behalf of PG due to its impecuniosity. We do not believe these sums to be disputed, with the net result that as of the date of termination some 100% of the agreed contract sum had been paid by the Employer despite the works being substantially behind programme and incomplete. It cannot be realistically argued that "the works did not proceed" which would be a condition precedent to PG recovering its costs as opposed to being reimbursed in accordance with the agreed Contract Sum Analysis.

15.5

In the event that the Adjudicator disagree and believes the LOI to be the basis of contract then:

(i)

PG is only entitled to recover its own reasonable direct and proven costs incurred, and

(iii)

Any costs payable to third parties, including sub-contractors and suppliers, are to be substantiated and payable by reference to the sums payable under the formal executed contract. i.e. the agreed contract sum as set out in the Contract Sum Analysis which both parties have worked to throughout.

(iv)

That sums claimed by PG for the supply of plant and equipment post the Date of Termination are not Construction Operations as defined by the amended HCGRA and cannot form part of this or any other Adjudication save by agreement between the Parties. SL rejects any such agreement.

15.6

PG shall pay interest on the above sums at 5% per annum above the official dealing rate of the Bank of England current as of 27 April 2015 or at such rate and for such period as the Adjudicator may decide is due. Detailed calculations are included in the Referral.

15.7

PG shall pay in full the fees and expenses of the Adjudicator or such proportion as the Adjudicator shall decide.

15.8

PG shall pay in full the fees of appointing the Adjudicator or such proportion as the Adjudicator shall decide.

15.9

That any sum SL is entitled to be paid by PG shall be paid within 7 days of the Adjudicators Decision and interest shall continue to accrue and be due per diem or at such other rate as the Adjudicator shall decide from the date of this Notice until all sums are paid into the account of Stonegrove.”

No adjudicator was appointed in respect of this notice. A notice in identical form was issued on 20 January 2016, but again no adjudicator was appointed. It is this specific notice to which Penten object in these proceedings. For convenience, I shall call this Adjudication 3.

The same day, that is to say 20 January 2016, Penten themselves served a further notice of adjudication, again claiming monies due under the letter of intent (Adjudication 4). Mr Matt Malloy had been appointed as the adjudicator. Adjudication 4 is proceeding, with the decision due next week. Accordingly, answers to the issues now raised are required by the parties as a matter of urgency.

THE RELIEF CLAIMED

The relief claimed by Penten in these Part 8 proceedings comprised a series of declarations in the following terms:

“13.

(a) A declaration that Mr Gupta’s adjudication decision dated 26 November 2015 is enforceable;

(b)

A declaration that any adjudicator appointed pursuant to the defendant’s latest adjudication notice dated 20 January (or any future adjudication notified in the same terms) will not have jurisdiction to determine the matter set out therein because:

(i)

The matters referred have already been decided by Mr Gupta; and

(ii)

The notice of adjudication purports to refer more than one dispute to adjudication.”

Although there is no formal counterclaim, paragraph 23 of Spartafield’s defence in these proceedings is in the following terms:

“In the light of the above and the documents appended hereto the defendant respectfully asks:

(a)

That the declarations sought by the claimant that Mr Gupta’s adjudication decision dated 26 November 2015 be enforceable in total be denied and that the part of Mr Gupta’s decision relating to the letter of intent be severed due to lack of jurisdiction or any submission within the adjudication on that matter. There is clearly a strong arguable that the letter of intent should not and does not provide a valid basis for payment.

(b)

That the declaration sought at paragraph 13b be denied on the basis that they are irrelevant given no such adjudication as proceeded.”

As to that last point, Mr Darling QC confirmed that, whilst Spartafield does not formally undertake not to commence separate proceedings along the lines of the notices in Adjudication 3, “as presently advised it has no intention to do so”. I am bound to say that, for the reasons noted below, I think that is very wise. They would be misconceived.

THE PRINCIPAL ISSUE: THE DECISION IN ADJUDICATION 1 CONCERNING THE LETTER OF INTENT

Beneath the welter of documents in this case, the principal issue between the parties is very straightforward. It concerns the decision in Adjudication 1, to the effect that there was a valid construction contract between the parties, but that the terms of that contract were not the ICD form, but the letter of intent of 19 July 2013. Penten say that the adjudicator was entitled to reach that decision and that it is binding on both sides until it is challenged in litigation. Spartafield say that, whilst the adjudicator was entitled to conclude that the contract did not incorporate the ICD form, he was not entitled to conclude that the parties’ rights and obligations were governed by the letter of intent.

Mr Darling QC submitted that this issue was essentially a matter of construction of the notice of adjudication set out at paragraph 5 above. I respectfully agree. There is a wealth of authority in support of the proposition that the adjudicator derives his or her jurisdiction from the terms of the notice of adjudication, and that any jurisdictional issues will be considered by reference to the nature, scope and extent of the dispute identified in that notice. I note, by way of example only, the decisions in Wales and West Utilities Ltd v PPS Pipeline Services GmbH [2014] EWHC 54 (TCC) and University of Brighton v Dovehouse Interiors Ltd [2014] EWHC 940 (TCC).

On the issue of construction, on behalf of Penten, Ms Drake submits that:

On behalf of Spartafield, Mr Darling QC submits that:

I am reminded that in Absolute Rentals Ltd v Glencor Enterprises Ltd (2000) CILL 1637, Judge Wilcox, one my illustrious predecessors in this court, referred to adjudication as “a robust and summary procedure” and that “there may be casualties” along the way. He said that at a time when the adjudicator was at least spared having to reach conclusions as to the existence of the contract or the applicable terms. Now that an adjudicator may have to decide those things too, Judge Wilcox’s observation is even more apposite. This case is a good example of the process because, for reasons which I shall explain, and despite Mr Darling QC’s powerful submissions to the contrary, I have reached the firm conclusion that the adjudicator was entitled to reach the conclusion that he did, and that he did have the necessary jurisdiction to decide that there was a valid contract which incorporated the letter of intent.

First, I find that the notice of adjudication in Adjudication 1 sought a declaration that there was a binding contract between the parties. Paragraph 9 of that notice asked the adjudicator to decide the dispute, which “concerned the existence of a valid construction contract”. It seems to me that it was impossible for the adjudicator to answer that question without deciding what the terms of any such contract might be. Since a valid contract can only come into existence if there is agreement between the parties on certain basic matters (see Keating on Construction Contracts, 9^th Edition, paragraph 2-019), it would not have been possible for the adjudicator to decide whether or not there was a valid contract without deciding whether basic terms had been agreed and, if so, what precisely those terms were.

Secondly, the adjudicator’s decision makes plain that Penten’s defence to the claim in Adjudication 1 was that the terms of the contract were not the ICD form, but were those set out in the letter of intent. Penten said the ICD terms were never agreed. The adjudicator refers to that as ‘the main issue’ which he has to decide, and he deals with it in detail at paragraphs 73-95 of his decision. His decision also makes plain that Penten’s reliance on the letter of intent was set out in their first response to Spartafield’s referral notice; in other words, the letter of intent was “in play” from the start. That seems to me to be borne out by the passages which Ms Drake took me to in Spartafield’s reply, and indeed their surrejoinder. Both of those dealt in detail with the arguments surrounding the letter of intent. It was plainly an important element of the principal issue in Adjudication 1.

It is correct that Spartafield did not refer to the letter of intent in the notice of adjudication (paragraph 5 above). But a claiming party cannot artificially restrict the responding party’s defence to its claim by saying that, because they made no reference to a particular point in the notice of adjudication, it therefore cannot arise for decision. It is not appropriate to construe a notice of adjudication in such a way as to deprive the responding party of a defence which, but for the wording, would be open to that party to raise: see Pilon Ltd v Breyer Group PLC [2010] EWHC 837 (TCC).

Moreover, it is important to have regard to the underlying reality of the position. There was, at one point, an intention to enter into the ICD form, but this did not happen. The adjudicator had to consider whether, even though the form had never been concluded, the incorporation of the terms had been agreed. He decided that incorporation had not been agreed. That is therefore the current position, although Spartafield can, if they want, challenge that decision in court at a later date. It seems to me that, in those circumstances, without the ICD terms, the adjudicator had no sensible alternative but to find that the terms were as set out in the letter of intent.

Spartafield now say that there was a third option, namely a simple contract that was not the ICD, but was not the letter of intent either. That is not something that has been particularised in any document and the details are wholly unclear. It is common ground that this third option was not advanced in Adjudication 1. If I am right, and the adjudicator had to decide what the terms were of any valid contract, then it plainly should have been advanced in Adjudication 1. Spartafield cannot rely on their own omission to raise this now in a new adjudication. It is not possible for Spartafield to advance this point, unless and until they challenge Mr Gupta’s decision in Adjudication 1, which will have to be by way of subsequent litigation.

I deal briefly with some other matters raised in argument. I consider that Mr Darling QC may be reading too much into the single word “include”. I do not read that as in any way restricting the adjudicator’s task to deciding if the contact incorporated the ICD form, and nothing else. If anything, the use of the word suggests that Spartafield were saying that the contract may include the ICD but it may also include other relevant terms as well. The point is, at best, neutral.

As to Ms Drake’s argument about the financial claims at paragraph 13.2 and 13.3 of the notice in Adjudication 1, I do not consider that, on its own, it is a particularly powerful point; it could be said that, as a matter of construction of the notice, that the financial claims arose only out of the ICD form. That said, I acknowledge that the proof of the pudding might be said to indicate the opposite, because the advance payment was a claim that the adjudicator upheld, and has been subsequently repaid by Penten to Spartafield, even though he found that the ICD terms did not apply. Again, therefore, that seems to me to be a point that is broadly neutral.

Finally, as indicated in paragraph 19 above, there is a wider point for consideration here which, although it has been the subject of some commentary, has not been the subject of any previous judicial observation. The point concerns the statutory amendments in respect of written contracts. Before the amendments to the 1996 Act, adjudication could only happen when there was a contract in writing. That was so as to ensure that the adjudicator did not have to deal with complex questions as to contract formation, appropriate terms and the like, in addition to addressing the underlying claims, all in 28 days. Of course that certainty has now gone, and the adjudicator may have to do all of those things within the 28 day period.

This case is, I think, a good example of the change. In my view, this would not have been a dispute that could have been referred to adjudication under the old law. However, following the change in the law, it was validly referred to Mr Gupta for decision in Adjudication 1. Thus, Mr Gupta had to deal with all of the issues (both contractual and financial) within the limited timetable allowed by adjudication. In my view, in such cases, the courts are going to have to give adjudicators some latitude as they grapple with these difficulties. In an ordinary case, and depending on the words of the notice, it may be unduly restrictive to conclude that an adjudicator could decide what the contract was not, but not what the contract was. Similarly, it may be unduly restrictive to say that any notice of adjudication which raised the existence of the contract and/or its precise terms (on the one hand), and the financial claims thereunder (on the other), somehow involved more than one dispute.

For all those reasons therefore, I decide the principal issue between the parties in favour of Penten. The adjudicator in Adjudication 1 had the jurisdiction to reach the conclusion he did. In the circumstances, it is unnecessary for me to address some of the other points raised by Penten. I do say, however, that it seems to me that the severance/waiver argument, arising out of events after the decision in Adjudication 1 was provided, was unlikely to succeed.

CONSEQUENTIAL ORDERS

The declarations sought by Penten do not easily fit in with the conclusions that I have reached.

I am uneasy about granting a declaration in the terms of paragraph 13 of the particulars of claim because it does not seem to me that the parties are actually in dispute about enforceability as such. No one is saying that the decision in Adjudication 1 is not enforceable, save of course for the issue about Mr Gupta’s decision on the letter of intent, on which I have found against Spartafield.

As I indicated to Ms Drake, I hope fairly, I am not prepared to grant a declaration in the terms of paragraph 13b(i) of the Particulars of Claim, because it may well be too wide. Of course it is right that another adjudicator cannot decide what Mr Gupta has already decided: see, again by way of example only, Quietfield Ltd v Vascroft Construction Ltd [2007] BLR 67 and Benfield Construction Ltd v Trudson (Hatton) Ltd [2008] EWHC 2333 (TCC). Adjudication 3 appeared to ignore that basic principle. Thus, in the present case, another adjudicator cannot decide that the contract incorporated terms other than the letter of intent. But the notice of adjudication of 20 January 2016 appears to contain references to other matters, and I cannot at this stage say that these are all caught by Mr Gupta’s decision in Adjudication 1. Since Mr Darling QC does not challenge the basic proposition that a second adjudicator cannot decide something which the first adjudicator has already decided, it seems to me that it is unnecessary to elaborate that point in greater detail.

It follows from what I have said above about two disputes, that I am also uneasy about the declaration sought at 13b(ii). Any adjudication in this case now has to be based on the contractual terms found by Mr Gupta, and so, to that extent, Adjudication 3 was misconceived. But it seems to me that, at least in an ordinary case, a dispute about terms and a dispute about the claims under those terms are all part of a single dispute. Otherwise the whole basis of adjudication becomes unworkable.

In essence, the issue between the parties concerned the letter of intent. Thus, the only substantive declaration that seems to me appropriate is one that says that, unless and until it is challenged in litigation, the parties are bound by the decision in Adjudication 1 to the effect that the contract between them was governed by the letter of intent, and not the ICD terms.