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England and Wales High Court (Technology and Construction Court) Decisions
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McConnell Dowell Constructors (Aust) PTY Ltd v National Grid Gas PLC [2006] EWHC 2551 (TCC) (3 October 2006)
URL: http://www.bailii.org/ew/cases/EWHC/TCC/2006/2551.html
Cite as:
[2007] BLR 92,
[2006] EWHC 2551 (TCC),
[2006] ArbLR 49
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Neutral Citation Number: [2006] EWHC 2551
(TCC) |
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Case No:
HT-06-245 |
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH
DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
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|
|
|
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Tuesday, 3rd October,
2006 |
B e f o r e :
MR JUSTICE JACKSON
____________________
|
McCONNELL DOWELL
CONSTRUCTORS |
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(AUST) PTY LTD |
|
|
Claimant |
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v |
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NATIONAL GRID GAS PLC |
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(formerly Transco plc) |
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Defendant |
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____________________
Transcribed from tape by Harry Counsell &
Co.
Official Court Reporters
Clifford's Inn, Fetter Lane. London EC4A
1LD
Tel: 0207 269 0370 Fax: 0207 405 9884
____________________
MR ALEXANDER NISSEN (instructed by Baker McKenzie LLP) appeared on
behalf of McConnell Dowell Constructors.
MR NICHOLAS BAATZ Q.C. (instructed
by Eversheds LLP) appeared on behalf of National Grid Gas.
____________________
HTML VERSION OF JUDGMENT
____________________
Crown Copyright ©
MR JUSTICE JACKSON:
- This judgment is in seven parts, namely: Part 1 –
Introduction; Part 2 - The Facts; Part 3 - The Present Proceedings; Part 4 -
McConnell's application for summary judgment; Part 5 - NGG's application for a
stay of execution; Part 6 - The cross-applications relating to NGG's
counterclaim; Part 7 - Conclusion.
Part 1 - Introduction
- This is an application for summary judgment to
enforce an adjudicator's decision, coupled with a series of other applications
arising from procedural disputes between the parties. The claimant in these
proceedings is McConnell Dowell Constructors (Aust) PTY Limited, which is an
Australian company registered in the State of Victoria. I shall refer to this
company as "McConnell". The defendant is National Grid Gas plc, to which I
shall refer as NGG. NGG was formerly known as Transco plc. NGG is a gas
supplier. It transports gas across the UK using pipelines.
- This litigation concerns the construction of a gas
pipeline in Lancashire. In this judgment, I shall refer to the Institution of
Civil Engineers as "ICE". I shall refer to the Housing Grants Construction and
Regeneration Act 1996 as "The Construction Act". I shall refer to the
Arbitration Act 1996 as "The Arbitration Act". I shall refer to the late
Payment of Commercial Debts (Interest) Act as "The 1998 Act".
- After these introductory remarks, I must now turn to
the facts.
Part 2 - The Facts
- By a contract dated 21st August 2001,
McConnell agreed with NGG to carry out the construction of a gas pipeline
running from Samlesbury to Helmshore in Lancashire. The contract documents
comprised a document headed "Contract Agreement", and a number of documents
referred to in the contract agreement. The documents referred to included the
Core Clauses of the NEC Engineering and Construction contract (second edition)
Option A; also, the Priced Contract with Activity Schedule, with certain
secondary options and an Appendix 1. Amongst the secondary options was Option
Y (UK) 2. I shall refer to all of the above documents collectively as "The
contract". I shall refer to the Core Clauses, Option A, as amended by Option Y
(UK) 2, as "The Conditions". There is also contained within Option A a
document entitled "Schedule of Contract Data Part One". I shall refer to this
document as "the Schedule of Contract Data". The total of the lump sums set
out in the activity schedule was £15,995,869.
- Let me now read out the relevant provisions of the
contract. The contract agreement includes the following clauses:
"1. The following documents (hereinafter called "the
Contract") shall be read as one and shall constitute the entire
express agreement between the parties with respect to the Works and
shall prevail over and supercede all prior agreements, understandings,
statements, commitments and communications between the parties with respect
to the Works and neither party shall be bound by any of the foregoing
not appearing in or incorporated by specific reference into the
Contract.
(a) This Contract Agreement …
(d) The Conditions of Contract are the Core Clauses for Option
A: Priced Contract with Activity Schedule and secondary options H, L, M,
P, R, Y (UK) 2, Y (UK) 3 and Z1, Z2, Z3 and Z4, as detailed in the
Contract Data Part One, together with Appendix 1 …
5. The Contract shall be governed by and construed in
accordance with English Law and in the event of any dispute relating thereto
the parties hereby submit to the jurisdiction of the Courts of
England."
- The conditions of contract include the following
clauses:
"10.1 The Employer, the Contractor, the
Project Manager and the Supervisor shall act as stated in
this contract and in a spirit of mutual trust and co-operation. The
Adjudicator shall act as stated in this contract and in a spirit of
independence.
11.1 In these conditions of contract, terms identified in the
Contract Data are in italics and defined terms at capital initials
…
51.5 Interest is calculated at the interest rate and is
compounded annually …
90.2 If the Contractor is dissatisfied with an action
or a failure to take action by the Project Manager, he notifies his
dissatisfaction to the Project Manager no later than
- four weeks after he became aware of the action or
- four weeks after he became aware that the action had not been
taken.
Within two weeks of such notification of dissatisfaction, the
Contractor and the Project Manager attend a meeting to
discuss and seek to resolve the matter.
90.3 If either Party is dissatisfied with any other matter, he
notifies his dissatisfaction to the Project Manager and to the
other Party no later than four weeks after he became aware of the matter.
Within two weeks of such notification of dissatisfaction, the Parties and
the Project Manager attend a meeting to discuss and seek to resolve
the matter.
90.4 The Parties agree that no matter shall be a dispute
unless a notice of dissatisfaction has been given and the matter has not
been resolved within four weeks. The word "dispute" (which includes a
difference) has that meaning.
90.5 Either Party may give notice to the other Party at any
time of his intention to refer a dispute to adjudication. The notifying
Party refers the dispute to the Adjudicator within seven days of
the notice …
90.8 The Adjudicator acts impartially. The
Adjudicator may take the initiative in ascertaining the facts and
the law.
90.9 The Adjudicator reaches a decision within
twenty-eight days of referral or such longer period as is agreed by the
Parties after the dispute has been referred. The Adjudicator may
extend the period of twenty-eight days by up to fourteen days with the
consent of the notifying Party.
90.10 The Adjudicator provides his reasons to the
Parties and to the Project Manager with his
decision.
90.11 The decision of the Adjudicator is binding until
the dispute is finally determined by the tribunal or by agreement
…
92.1 The Adjudicator gives his decision on the dispute
as independent adjudicator and not as arbitrator. His decision is
enforceable as a matter of contractual obligation between the Parties and
not as an arbitral award …
93.1 If after the Adjudicator
within the time provided by this contract a Party is
dissatisfied, that Party notifies the other Party of his intention to
refer the matter which he disputes to the tribunal. It is not
referable to the tribunal unless the dissatisfied Party notifies
his intention within four weeks of
- notification of the Adjudicator's decision or
- the time provided by this contract for this notification if the
Adjudicator fails to notify his decision within that time
whichever is the earlier. The tribunal proceedings are
not started before Completion of the whole of the works or earlier
termination.
93.2 The tribunal settles the dispute referred to it.
Its powers include the power to review and revise any decision of the
Adjudicator and any action or inaction of the Project
Manager or the Supervisor related to the dispute. A Party is
not limited in the tribunal proceedings to the information,
evidence or arguments put to the
Adjudicator."
- The Schedule of Contract Data includes the following
provisions:
"1 … the Adjudicator is to be agreed between the
parties …
9 Disputes and determination
- The person who will choose a new adjudicator if the Parties cannot
agree a choice is the - President for the time being of the
Institution of Civil Engineers
- The tribunal is arbitration.
10 Optional statements
- The arbitration procedure is the Institution of Civil Engineers
Arbitration Procedure (England and Wales) 1997 …"
- The Schedule of Contract Data also states that the
works should commence on 23rd July 2001 and should be completed by
13th September 2002. McConnell duly commenced work in July 2001.
Unfortunately, the works were delayed for a number of reasons, and the costs
escalated. A dispute developed between the parties as to what additional
payments and what extensions of time should be granted to McConnell. This
dispute was resolved by a supplemental agreement dated 12th
December 2002.
- The Supplemental Agreement provided as follows:
"1. Preamble
A Under a contract dated 21st August 2001 ("the
Contract") the Employer entered into an agreement with the Contractor in
which the Contractor was to construct the 1050 mm Samlesbury to
Helmshore Pipeline and Associated AGI works (hereinafter called the
"Works")
B Disputes have arisen between the Parties regarding the
extent to which the Contract Price for the Works and the Date for
completion of the Works should be changed to take into account the
occurrence of certain facts, matters and events. The Parties have agreed
to settle these disputes on the terms set out in this Supplemental
Agreement.
C The terms of the Contract shall continue with full force
and effect save and except to the extent to which the terms of this
Supplemental Agreement modify, alter or vary the terms contained in the
Contract.
2. Terms of Supplemental Agreement.
2.1 The total Contract Price shall be adjusted to
£30,500,000.00, and the unpaid balance of this sum shall be paid in
accordance with the terms set out at ection 3 of the Supplemental
Agreement.
2.2 This adjustment to the total Contract Price shall be in
full and final settlement of the following:
i. The Contractor's entitlement to adjustment of the total
Contract Price in respect of Compensation Events (as defined by clause
60 of the Contract) where such entitlement has accrued or arisen,
whether wholly or in part, by virtue of any act, omission, default,
instruction, physical condition, weather condition, decision, survey,
drawing or diagram inaccuracy, transaction, event or other matter
occurring prior to the date of this Supplemental Agreement and
regardless of whether such entitlement has been notified orally or in
writing or at all, and regardless of whether such entitlement was
known or not known to either Party prior to or at the date of this
Supplemental Agreement.
ii. The Contractor's entitlement to reimbursement for all
additional costs, losses, damages and expenses associated with
carrying out the Works, including all damages for prolongation, delay
and disruption, whether such entitlement arises under the Contract in
tort or otherwise, where such entitlement has accrued or arisen either
wholly or in part by virtue of any act, omission, default,
instruction, physical condition, weather condition, decision, survey,
drawing or diagram inaccuracy, transaction, event or other matter
prior to the date of this Supplemental Agreement and regardless of
whether such entitlement has been notified orally or in writing or at
all, and regardless of whether such entitlement was known or not known
to either Party prior to or at the date of this Supplemental
Agreement.
iii The Contractor's entitlement to adjustment of the
total Contract Price in respect of any Compensation Event (as defined
by clause 60 of the Contract) arising from any act, omission, default,
instruction, physical condition, weather incident, decision, survey,
drawing or diagram inaccuracy, transaction, event or other matter
occurring after the date of this Supplemental Agreement where such
adjustment would otherwise be £5,000.00 or
less.
2.3 In consideration of those matters taken into account at
2.2 (i) and (ii) above, the Date for Completion of the Works shall
be:
Mechanical completion: 28th February 2003
Completion of the works: 19th September 2003
2.4 The Contractor hereby warrants that as at the date of this
Supplemental Agreement it had no entitlement to any adjustment of the
total Contract Price, any entitlement to adjustment to the Date for
completion of the Works or entitlement to reimbursement for additional
costs, losses, damages and expenses associated with carrying out the Works
other than that for which provision is now made in sections 2.2 and 2.3 of
this Supplemental Agreement.
2.5 The Contractor hereby irrevocably waives and withdraws all
claims against the Employer arising from any act, omission, default,
instruction, physical condition, weather condition, decision, survey,
drawing or diagram inaccuracy, transaction, event or other matter
occurring prior to the date of this Supplemental
Agreement."
It is not necessary for me to read out clause 3 of the
Supplemental Agreement, which deals with the mechanics of
payment.
- After the Supplemental Agreement had been
executed, McConnell duly proceeded with the remainder of the works. Following
completion of the works, it was necessary to establish what further payments
were due to McConnell in addition to the sum of £30.5 million specified in the
Supplemental Agreement. This involved (a) examining the work which was done
and the events which occurred after 12th December 2002, (b)
identifying which matters were included in the revised contract price of £30.5
million and (c) evaluating what payments were due to McConnell in respect of
matters not included within the revised contract price.
- NGG paid the sums which they conceded were due. By
a letter dated 17th February 2006 McConnell claimed that it was
entitled to a further payment of £1,477,702. This claim was based upon a
re-measure of provisional sum items and provisional quantities, as well as
compensation events said to have occurred after 12th December 2002.
- NGG rejected McConnell's claim. By a letter dated
21st April 2006, NGG asserted that most of the matters for which
McConnell was claiming additional payment had been settled by the Supplemental
Agreement.
- By a notice of adjudication, dated 2nd
June 2006, McConnell referred its claim against
NGG to adjudication. NGG did not accept that an adjudicator
would have jurisdiction. In those circumstances, unsurprisingly, the parties
did not agree upon the identity of the adjudicator. Accordingly, McConnell
applied to the President of the ICE to appoint an adjudicator. On
8th June 2006 the President of the ICE appointed Mr. A.R. Elven
to act as adjudicator.
- NGG maintained that Mr. Elven had no jurisdiction
to adjudicate upon McConnell's claim, because the issues between the parties
concerned the meaning and effect of the Supplemental Agreement. The
Supplemental Agreement did not contain an adjudication clause. Furthermore, in
NGG's view, the Supplemental Agreement was not a construction contract within
the meaning of Part 2 of The Construction Act. Very sensibly, NGG took a full
part in the adjudication, despite reserving its position and denying that the
adjudicator had jurisdiction.
- On 26th June, NGG served its response
in the adjudication. In this response, NGG set out not only its jurisdiction
arguments but also its substantive defence to McConnell's claim.
- On 31st July 2006, the adjudicator
issued his decision. The adjudicator concluded that he did have jurisdiction.
The adjudicator considered the meaning and effect of the Supplemental
Agreement, and decided that this did not shut out McConnell's various heads of
claim. He noted that all of the works for which McConnell was claiming payment
had been carried out after the date of the Supplemental Agreement. The
adjudicator then evaluated the various heads of claim in the total sum of
£681,159.01.
- Turning to interest, the adjudicator noted that McConnell
was claiming interest in accordance with the 1998 Act. He also noted that
NGG's only submission in relation to interest was the assertion "NCD is not
entitled to interest as alleged or at all". The adjudicator rejected that
defence of blanket denial. He awarded interest in accordance with the
provisions of the 1998 Act as proposed by McConnell. After twenty-one pages
of careful calculations, the adjudicator assessed that interest in the total
sum of £353,130.37. If one adds together the principal and interest, the
total sum awarded by the adjudicator to McConnell was
£1,034,289.38.
- The adjudicator's own fees and disbursements
amounted to £38,506. McConnell paid the whole of the adjudicator's fees and
disbursements in the first instance. The adjudicator ordered that NGG should
pay £36,273.50 towards this sum. The adjudicator further ordered that NGG
should pay the sums which had been awarded to McConnell by 7th
August 2006.
- NGG took the view that the adjudicator's decision
was wrong for a number of reasons. More fundamentally, NGG maintained that the
adjudicator's decision was made without jurisdiction. Accordingly, NGG refused
to pay the sums which had been awarded. McConnell was aggrieved by that
refusal. Accordingly, McConnell commenced the present proceedings.
Part 3 - The Present Proceedings
- By a claim form issued in the Technology and
Construction Court on 18th August 2006, McConnell claimed against
NGG the various sums awarded by the adjudicator. McConnell also applied for
summary judgment pursuant to CPR Part 24.
- On the same date that proceedings were issued
(namely, 18th August) this court gave directions for the service of
evidence by both parties, and fixed a hearing date of 28th
September.
- On 30th August, NGG served a defence
and counterclaim. NGG denied that the adjudicator had jurisdiction, and argued
that most of the items for which the adjudicator awarded payment had either
been settled or waived by the Supplemental Agreement. NGG contended that even
if the adjudicator's decision were enforced, part of the interest awarded
should be disallowed or reimbursed to NGG. This was because the 1998 Act only
applied to contracts made after 7th August 2002, and the contract
in this case was made before that date. NGG also asserted that it was entitled
to damages for breach of clause 2.4 of the Supplemental Agreement.
- Finally, NGG counterclaimed for the following six
declarations:
"(A) That on the true construction of the December Agreement
the Claimant cannot recover in respect of any entitlement where such
entitlement accrued or arose either wholly or in part by virtue of any
event or matter occurring prior to the date of the agreement (12 December
2002).
(B) That each of the items listed in the schedule hereto (save
as highlighted in yellow) were matters settled by the 2002 Agreement, and
that accordingly the Claimant has no further entitlement in respect
thereof.
(C) That in the premises of clause 2.4 of the 2002 Agreement
the Claimant's claim in respect of each of the items listed in the
schedule hereto and highlighted in yellow is defeated by circuity of
action.
(D) That in the premises of clause 2.5 of the 2002 Agreement
the Claimant waived its claims in respect of each of the items listed in
the schedule hereto and highlighted in yellow.
(E) That Mr. Elven had no jurisdiction to make the purported
decision dated 31 July 2006.
(F) That the Defendant is entitled to restitution of any sum
recovered by the Claimant in accordance with The Late Payment of
Commercial Debts (Interest) Act 1998 and to a set off
accordingly."
- At the same time as serving its defence and
counterclaim, NGG issued an application for summary judgment in respect of its
counterclaim for declaration (F) relating to interest. NGG also applied to
this court to order a trial of the following five preliminary issues:
"1. Whether on the true construction of the 2002 Agreement
the Claimant can recover in respect of any entitlement where such
entitlement accrued or arose either wholly or in part by virtue of any
event or matter occurring prior to the date of the 2002 Agreement (12
December 2002)?
2. Whether the items listed in the schedule to
the Defence and Counterclaim (save as highlighted in yellow) were
matters settled by the 2002 Agreement?
3. Whether in the premises of clause 2.4 of the
2002 Agreement the Claimant's claim in respect of each of the items
listed in the schedule to the Defence and Counterclaim (save as
highlighted in yellow) is defeated by circuity of
action?
4. Whether in the premises of clause 2.5 of the
2002 Agreement the Defendant waived its claims in respect of each of the
items listed in the schedule to the Defence and Counterclaim (save as
highlighted in yellow)?
5. Whether interest is recoverable in accordance
with The Late Payment of Commercial Debts (Interest) Act 1998 where the
contract was made before 7th August
2002?"
NGG also intimated an application to stay the execution of any order that
may be made enforcing the adjudicator's award.
- On 14th September, McConnell issued an
application for an order that NGG's defence and counterclaim be stayed to
arbitration pursuant to section 9 of the Arbitration Act.
- By this stage there were five separate
applications or cross-applications before the court. There was some lively
correspondence between solicitors, debating when and in what order the various
applications should be heard. It seemed to me highly undesirable that the
parties should be put to the cost and inconvenience of attending court on two
separate occasions. Therefore, at the start of the hearing on 28th
September I directed that counsel for both parties should make their
submissions in respect of all issues, starting with McConnell's application
for summary judgment.
- Both Mr Alexander Nissen for McConnell and Mr
Nicholas Baatz Q.C. for NGG presented their submissions with great skill and
economy. I am grateful to solicitors and counsel on both sides for their
co-operation in covering so much ground at a one-day hearing.
- I must now deal with the individual issues,
starting with McConnell's application for summary judgment.
Part 4 - McConnell's application for summary
judgment
- There is no dispute that the adjudication
provisions contained in the contract comply with the requirements of the
Construction Act. Mr Nissen, on behalf of McConnell, submits that on
well-established principles the adjudicator's decision (whether right or
wrong) is binding upon both parties until such time as the issues are finally
resolved either by arbitration or litigation. Accordingly, the adjudicator's
decision should now be enforced by summary judgment.
- Mr Nicholas Baatz, on behalf of NGG, submits that
the adjudicator had no jurisdiction to adjudicate upon McConnell's claims.
Those claims had been settled by the Supplemental Agreement. Consequently,
there was no "dispute" within the meaning of clause 90 of the conditions.
Furthermore, the Supplemental Agreement did not contain an adjudication
clause. The Supplemental Agreement was not a "construction contract" within
the meaning of the Construction Act. Mr Baatz submits on the basis of these
propositions that NGG's defence has a real prospect of success. Accordingly,
McConnell is not entitled to summary judgment under CPR Part 24.
- Three previous decisions of the Technology and
Construction Court are directly relevant to the questions which I have to
decide. Both counsel have analysed these decisions in some detail. They are
Shepherd Construction Ltd v Mecright Ltd (2000) BLR 489; Quarmby
Construction Co Ltd v Larraby Land Ltd (Leeds Technology and Construction
Court 14th April 2003); Wesminster Building Company Ltd v
Beckingham [2004] EWHC 138 (TCC); 2004 BLR 163.
- In Shepherd, a compromise agreement was
entered into between a main contractor and a subcontractor concerning the
value of variations. The material part of the compromise agreement reads as
follows:
"We, Mecright Ltd, accept the sum of £366,000 in respect of
manufacture, supply, delivery and installation … in full and final
settlement of all our claims under the above contract but without
prejudice to our outstanding obligations."
- Subsequently, the subcontractor made claims for
further payment, which it referred to adjudication. In the adjudication
proceedings, the subcontractor argued that the settlement agreement had been
made under duress. The main contractor commenced proceedings in this court,
claiming a declaration that the adjudicator had no jurisdiction. His Honour
Judge Humphrey Lloyd Q.C. granted the declaration sought. At paragraphs 12 to
14 of his judgment, Judge Lloyd said this:
"12. The issues as presented to me really boil down to whether
the question of whether the agreement was entered into under duress is a
matter which prevents me from granting the declaration sought. It is common
ground that there was an agreement. Equally, the settlement agreement is an
agreement which, but for the plea of economic duress, would have the effect
of extinguishing all the disputes that then existed on 15th March
so that there could be no dispute capable of being referred to adjudication
thereafter in relation to valuation.
13. The subcontract incorporated the terms of DOM//1. Clause
38A.1 of DOM//1 applies where a party exercises its right under Article 3 to
refer "any dispute or difference arising under this Subcontract to
adjudication". In my judgment where parties have reached an agreement which
settles their disputes there can thereafter be no dispute about what had
been the subject matter of the settlement capable of being referred to
adjudication under a provision such as clause 38A.1 or otherwise for the
purposes of section 108 of the Housing Grants, Construction and Regeneration
Act 1996. The prior disputes have gone, and no longer exist. Therefore, on
3rd July there was no dispute about any of the matters which were
the subject of the notice of adjudication (just as there was no dispute
about whether the agreement had been entered into under duress). Thus
Mecright had no right to apply for adjudication, and the adjudicator had no
authority or jurisdiction to deal with the notice of 3rd
July.
14. Similarly, although Mr. Bartle reserved the points (but he
would have grave difficulty in contending to the contrary) I should make it
clear that in my judgment a dispute about a settlement agreement of this
kind could not be a dispute under the subcontract since the effect of a
settlement agreement is one which replaces the original agreement to the
extent to which it applies. Here, the agreement has the effect of replacing
Shepherd's obligations to value and to pay Mecright under the sub-contract
the value of the work. The only subsisting obligation to pay that apparently
was not extinguished was the obligation to release retention as and when the
time arose. So there could be no dispute under the subcontract. Indeed, it
was also part of Shepherd's case, and in my judgment correctly accepted by
Mr. Bartle, that the effect of the settlement agreement is that a dispute
about it is outside section 108, since a settlement agreement is not a
construction contract within the meaning of section 108. Mr. Darling
referred to an extract from a judgment of His Honour Judge MacKay in
Lathom Construction Limited v Cross, which is to be found in the
Construction Industry Law Letter, where he seemed to be of the same
view. A dispute about an agreement which settles a dispute or disputes under
a construction contract is not a dispute under that contract. The
word "under" in the Act was plainly chosen deliberately. It has been
followed in this subcontract. It is not, nor is it accompanied by words such
as, "in connection with" or "arising out of", which have a well-established
wider reach."
- In the latter part of his judgment, Judge Lloyd
went on to hold that the settlement agreement was valid unless and until the
court held that it was void for economic duress. Accordingly, the settlement
agreement was binding upon the subcontractor.
- Three years later, similar issues arose for
decision at the Technology and Construction Court in Leeds. In Quarmby
the employer was seeking damages for delay against the main contractor. In
July 2001 the parties reached an agreement about this matter in
correspondence. On 20th July 2001, the contractor wrote as follows:
"We were extremely disappointed to receive your notice of
adjudication dated 13th July 2001, particularly as you had
indicated that you wished to resolve our differences without the need for
proceedings. As you are well aware, there are a number of live issues
between us, not least your refusal to honour valuation no. 12. However,
for purely commercial reasons only, we are prepared to pay you the sum of
£43,196.85 in full and final settlement of your claims relating to
liquidated and ascertained damages under the contract. The sum is
calculated as the difference between your claim for £60,000 offset against
outstanding interim certificate no. 12, in the sum of £14,300.55 plus VAT,
i.e. £16,803.15.
This payment will not constitute an admission that these sums
are due and owing to Larraby Land Limited, nor that Quarmby Construction
Company Limited waives its rights to challenge certificates issued by the
Architect."
- The employer replied on 23rd July,
accepting that offer. Subsequently, the contractor applied for a further
extension of time, which the architect refused. The contractor referred this
matter to adjudication. The adjudicator held that the contractor's claim was
not barred by the agreement of 2001, and he awarded an extension of time. The
contractor then brought proceedings to enforce the adjudicator's award and
recover liquidated damages which it had paid to the employer.
- His Honour Judge Grenfell gave judgment for the
contractor. Judge Grenfell's reasoning may be summarised as follows:
(1) Despite Judge Lloyd's reasoning in Shepherd,
section 108 of the Construction Act should not be construed unduly
restrictively. Furthermore, Shepherd should be distinguished on its
facts from the instant case.
(2) The adjudicator was correct to consider whether the
parties' dispute had been compromised by the July
correspondence.
(3) Nevertheless, the compromise issue went to the
adjudicator's jurisdiction. Therefore, the court had to consider that same
issue again, before enforcing the adjudicator's
decision.
(4) On the facts, the contractor's present claim for extension
of time had not been compromised by the July
agreement.
- The third case in the trilogy is
Westminster. In this case, during the course of buildingworks the
employer and the contractor signed a capping agreement which included the
following provision:
"(6) Total fees shall not exceed £300,000 including VAT
before deductions."
- There was subsequently a dispute about what
payments were due to the contractor. This dispute was referred to
adjudication. The adjudicator held that the capping agreement was unsupported
by consideration, and therefore ineffective. The contractor brought
proceedings to enforce the adjudicator's decision. The employer, relying on
Judge Lloyd's decision in Shepherd, argued that the adjudicator lacked
jurisdiction because the capping agreement amounted to a compromise of
underlying disputes.
- His Honour Judge Thornton Q.C. rejected the
employers' defence, and gave summary judgment enforcing the adjudicator's
decision. In paragraphs 23 and 24 of his judgment, Judge Thornton analysed the
decision in Shepherd. At paragraph 25, Judge Thornton said this:
"That case is, however, not relevant to this one. First and
foremost, the agreement of 20th February 2003 was not a
settlement agreement settling all disputes or a stand alone agreement.
It was clearly intended to be a variation agreement varying the terms of
the underlying contract. It is to be read with and as part of that
underlying contract. Furthermore, it does not settle all disputes, it
merely provides a new contract sum or cap, albeit that that cap is
subject to unspecified deductions. Thus, a dispute as to whether it is
enforceable is one arising under the contract since its terms form part
of and are to be read with the underlying
contract."
- Let me now stand back and review those three
authorities. It seems to me that in each case the relationship between the
first agreement and the second agreement was crucial. The reason why the
adjudicator had jurisdiction in Beckingham was that the second
agreement operated as a variation of the first agreement. The second agreement
was not a stand alone agreement. Both agreements were subject to the same
adjudication provisions, and, therefore, the adjudicator had jurisdiction to
determine the effect of the second agreement. On the other hand, in both
Shepherd and Quarmby the second agreement was a stand alone
agreement, which did not incorporate and was not subject to any adjudication
provision. Accordingly, in each of those cases the court analysed the second
agreement in order to determine whether there was a surviving dispute which
could be adjudicated.
- With the benefit of this guidance from earlier
decisions of the Technology and Construction Court, I must now turn to the
present case. The crucial question to consider is the relationship between the
contract and the supplemental agreement. Mr Nissen submits that the
Supplemental Agreement operates as a variation of the contract, and therefore,
both are subject to the same adjudication provisions. Mr Baatz, on the other
hand, submits that the Supplemental Agreement is "carved out" from the
original contract. The Supplemental Agreement does not contain an adjudication
clause. Matters compromised by the Supplemental Agreement ceased to be
disputes referable to adjudication under the contract.
- On this issue, I prefer and accept the submissions
of Mr Nissen. In my judgment, the Supplemental Agreement operated as a
variation of the original contract, and was subject to the same adjudication
provisions. I have reached this conclusion for five reasons:
(1) The Supplemental Agreement varied the contract sum and the
contractual completion dates. (See clauses 2.1 and 2.3 of the Supplemental
Agreement).
(2) The Supplemental Agreement defined, as it had to, (a)
which matters were covered by the increased contract sum and (b) which
matters were not so covered and therefore may be the subject of a claim
for additional payment under the terms of the original contract. (See
clause 2.2 of the Supplemental Agreement).
(3) Recital C, upon which Mr Baatz placed much emphasis in
argument, seems to me to support the proposition that the Supplemental
Agreement varies the original contract and is not a stand alone
agreement.
(4) The officious by-stander test, which Mr Baatz has invited
me to apply, supports this conclusion. The contract and the Supplemental
Agreement are mutually intertwined. It would not make commercial sense to
have one procedure for resolving disputes under the contract and a
different procedure for resolving disputes under the Supplemental
Agreement. Suppose that an officious by-stander had been present on 12th
December 2002 and had asked whether the dispute resolution machinery of
the contract would apply to disputes under the Supplemental Agreement.
Both parties would have testily turned round to the officious by-stander
and said "Yes, of course".
(5) The reasoning of Mr. Justice Ramsey in L. Brown &
Sons Limited v Crosby (Technology and Construction Court,
5th December 2005) strongly supports the above analysis (see in
particular paragraph 51 of Mr. Justice Ramsey's
judgment).
- By 2006 the parties were in disagreement about how
much should be paid to McConnell over and above the adjusted contract sum of
£30.5 million. This dispute had a number of elements. First, it had to be
determined which heads of claim were included in the adjusted contract sum and
therefore shut out by the Supplemental Agreement. Secondly, the heads of
claim, which were not shut out, had to be assessed and valued. It seems to me
that all of these matters constituted a dispute or disputes falling within the
adjudicator's jurisdiction.
- In my judgment, the present case is analogous to
Westminster. Judge Humphrey Lloyd's decision in Shepherd should
be distinguished for a number of reasons. In particular, the settlement
agreement in Shepherd did not incorporate, either expressly or
impliedly or by operation of statute, an adjudication clause. Secondly, the
settlement agreement in Shepherd resolved all disputes between the
parties. In the present case, by contrast, the Supplemental Agreement was
subject to the adjudication provisions. Furthermore, the Supplemental
Agreement resolved some disputes but not others. As Mr Baatz graphically put
it in argument, in our case there are two buckets. Some claims have been
settled and go into the first bucket. Other claims have not been settled and
go into the second bucket.
- Let me now draw the threads together. I am quite
satisfied that it was a task for the adjudicator, not for this court (in
enforcement proceedings), to determine which claims had been settled by the
Supplemental Agreement. The adjudicator may have been wrong in his decision,
but that is for determination in subsequent proceedings. The adjudicator
reached a decision which was within his jurisdiction. That decision is, for
the time being, binding upon the parties, and it must be enforced by this
court.
- In relation to interest Mr. Baatz has made out a
strong case to the effect that the adjudicator took too high a rate. This is
because the contract was made before the 1998 Act came into force. It is
unfortunate that no-one drew this fact to the adjudicator's attention during
the course of the reference. Mr Nissen has an argument by which he proposes in
future proceedings to support the adjudicator's rate of interest. This
argument appears to me to be somewhat thin, to say the least. Such
considerations, however, are irrelevant to the question of enforcement. This
court must enforce the adjudicator's decision, whether right or wrong. See the
Court of Appeal's decision in Carillion Construction Limited v Devonport
Royal Dockyard Ltd [2005] EWCA Civ 1358
; [2006] BLR 15 and the cases there cited.
- For all of the reasons set out above, McConnell
succeeds in its application for summary judgment.
Part 5 - NGG's application for a stay of
execution
- RSC, Order 47, Rule 1(1) empowers the court to
stay the execution of a judgment if:
"There are special circumstances which render it inexpedient
to enforce the judgment."
- NGG applies, pursuant to that rule, for an order
that execution of McConnell's summary judgment be stayed. The application is,
essentially, based upon two grounds. First, it is said that NGG has a good
prospect in future proceedings of clawing back much of the moneys awarded by
the adjudicator. Secondly, McConnell is an Australian company, which is
registered in Victoria. At the time of contracting with NGG, McConnell had a
registered branch office in the UK. Now, however, that office has been closed
down. Consequently, any judgment or arbitral award obtained by NGG will have
to be enforced in Victoria. Mr Baatz submits that this process will be more
time consuming and expensive than enforcing against McConnell's registered
office in England.
- I am bound to say that I could see much force in
this argument, but for McConnell's offer of a bond. By letters dated
23rd August and 19th September 2006, McConnell's
solicitors offered to provide a bond, which would protect NGG's position if
NGG subsequently obtains a judgment or arbitral award clawing back money
awarded by the adjudicator.
- If a bond is provided by McConnell, that will be
sufficient to meet the specific concerns expressed by NGG. In those
circumstances, the general principle applies, that an adjudicator's decision
must be enforced promptly, even if the defendant has good prospects of
recovering the money paid in later proceedings. See the judgment of Judge
Coulson in Wimbledon Construction Company 2000 Limited v Derek Vago
[2005] BLR 374
and the judgment of Judge Toulmin CMG QC in Hillview
Industrial Developments (UK) Limited v Botes Building Limited [2006] EWHC 1365 (TCC).
- Let me now draw the threads together. On the basis
that a bond along the lines offered in correspondence will be provided, I
refuse NGG's application for a stay. In the unlikely event that the parties
are unable to agree the wording of the bond, the dispute should be referred
back to myself for decision.
Part 6 - The cross-applications relating to NGG's
counterclaim
- As explained in Part 3 above, McConnell is
applying for an order that the counterclaim be stayed to arbitration. NGG is
applying for summary judgment in respect of part of the counterclaim and for
the trial of preliminary issues.
- Logically, I must consider first the application
for a stay pursuant to section 9 of the Arbitration Act. This raises the
question whether the contract contains an arbitration clause.
- Mr Baatz submits that there is no effective
arbitration clause, because clause 5 of the contract agreement overrides
clauses 9 and 10 of the Schedule of Contract Data. I have come to the
conclusion that this submission cannot be correct. The Schedule of Contract
Data is a form published by the ICE which the parties fill in as they see fit.
In the blank form, clause 9 reads: "The tribunal is …" There then follows a
series of optional statements. If the chosen tribunal is arbitration, the
optional statement reads: "The arbitration procedure is …" It can be seen that
in the present case the parties have applied their minds to each of the issues
raised by the printed form. They have jointly decided that if either party is
dissatisfied with an adjudication decision, the tribunal to resolve their
disputes shall be an arbitrator, and the procedure shall be that prescribed by
the ICE. I must give effect to that which the parties have themselves written
into their contract. See Homberg Houtimport BV -v- Agrosin Private
Limited [2004] 1 AC 715.
- I shall therefore proceed on the assumption that
clause 9 of the Schedule of Contract Data is a valid arbitration clause. What
then is the effect of clause 5 of the contract agreement, and how can this be
reconciled with the arbitration clause? In my view, the effect of clause 5 is
two-fold. First, it provides that the proper law of this contract (which has
been made between and English company and an Australian company) is English
law. Secondly, clause 5 provides that the English courts shall regulate the
dispute resolution procedure. Thus, it is the English courts which enforce an
adjudicator's decision in accordance with clause 90.11 of the contract
conditions. It is the English courts which hear appeals or applications
arising out of any arbitration, and so forth. In my view, this reconciliation
of the various dispute resolution provisions in the contract makes good
commercial sense and is in accordance with the expressed intention of the
parties. Furthermore, this interpretation of the dispute resolution provisions
follows the approach of the Commercial Court in three cases where a similar
problem arose. See the decision of Mr. Justice Steyn in Paul Smith Limited
v H & S International Holding Inc. [1991] 2 Lloyds Law Reports 127;
the decision of Mr. Justice Moore-Bick in Shell International Petroleum Co.
Limited v Coral Oil Co Limited [1999] 1 Lloyds Law Reports 72; the
decision of Mrs. Justice Gloster in Axa Re v Ace Global Markets Limited
[2006] EWHC 216 (Com).
- The next question which arises is whether the
claims advanced by NGG in its counterclaim fall within the scope of the
arbitration clause. I have already held that the Supplemental Agreement
incorporates the dispute resolution machinery set out in the contract. It
seems to me that all of the disputes fall within the scope of clauses 90, 92
and 93 of the contract conditions. Accordingly, the first level of dispute
resolution is a reference to the project manager. The second level of dispute
resolution is adjudication. The third level of dispute resolution is
arbitration.
- Section 9 of the Arbitration Act provides:
"(1) A party to an arbitration agreement against whom legal
proceedings are brought (whether by way of claim or counterclaim) in
respect of a matter which under the arbitration agreement is to be
referred to arbitration may (upon notice to the other parties to the
proceedings) apply to the court in which the proceedings have been brought
to stay the proceedings so far as they concern that
matter.
(2) An application may be made notwithstanding that the matter
is to be referred to arbitration only after the exhaustion of other
dispute resolution procedures …
(4) On an application under this section, the court shall
grant a stay unless satisfied that the arbitration agreement is null and
void, inoperative, or incapable of being performed."
This section gives no discretion to the court. The fact that
this court is seized of the issues and could offer a speedy resolution of
all the matters raised by the counterclaim is nothing to the point. I am
bound to respect the dispute resolution machinery which the parties have
chosen and have written into their contract.
- For all these reasons, pursuant to section 9(4) of
the Arbitration Act, I make an order that the counterclaim be stayed. In those
circumstances, NGG's applications for summary judgment on part of the
counterclaim and for the trial of preliminary issues must be dismissed.
Part 7 - Conclusion
- For the reasons set out in Part 4 above, McConnell
is entitled to summary judgment on its claim. There is one small point of
detail on the figures which I should mention. It appears to me, from page 47
of the adjudicator's decision, that the figure pleaded in the Particulars of
Claim for the adjudicator's fees and expenses should be reduced by £2,232.50.
I would be grateful if counsel could check this point and agree the arithmetic
before the order for summary judgment is drawn up.
- For the reasons set out in Part 5 above, NGG's
application for a stay of execution is refused.
- For the reasons set out in Part 6 above, the
counterclaim is stayed pursuant to section 9 of the Arbitration Act. NGG's
applications for summary judgment and the trial of preliminary issues are
refused.