England and Wales High Court (Technology and Construction Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		24th October 2014

 

 


Mr Justice Akenhead:

1. The Court is here concerned with a relatively simple application for summary judgment for the enforcement of an adjudicator's decision which has only been complicated by very late applications by the Defendants to submit further evidence and for an adjournment.
2. The Court is here concerned with a relatively simple application for summary judgment for the enforcement of an adjudicator's decision which has only been complicated by very late applications by the Defendants to submit further evidence and for an adjournment.

The Background

3. Mr James Tobutt and his brother Mr Thomas Tobutt, the Defendants, at least until about 2009 or 2010 traded as a firm, JT Tarmac ("the Firm"). It seems that they then incorporated their business into a limited company, JT Tarmac Ltd ("the Company"). From 2007 to 2009 the Firm engaged A.T. Stannard Limited ("Stannard"), the Claimant, to carry out works of repair to carriageways and footpaths following works undertaken by or on behalf of Thames Water. I was told during the hearing (although there is no direct evidence of this) that from about May 2009 the Firm acted for about a year in anticipation that it would change its status to operate as a limited company, albeit that the Company was not incorporated until February 2010. After May 2009 it seems therefore that Stannard was retained by the Firm on behalf of the Company (yet to be formed) and after it was formed by the Company on at least two projects, the later one being one in which the main contractor was Clancy Docwra.
4. Stannard claimed that it remained entitled to the payment of retention money due to it in respect of the contract between it and the Firm for the contract works which it had carried out up to May 2009; the sum involved was £41,222.69 plus VAT. History does not particularly relate why Stannard waited until 2014 to institute adjudication proceedings in relation to this retention money. By this stage the Firm was represented by a firm, ISA Management Consultants, which was essentially Mr Ian Scott who happens to live in Yalding in Kent, which is a low lying area prone historically to flooding.

The Adjudication

5. On 13 June 2014, Stannard served its Notice of Adjudication on the Firm through Mr Scott, albeit that, due to flooding damage to his property, Mr Scott may well not have received it until some days later. On 16 June 2014, the RICS appointed Mr R Ames as adjudicator. The Referral Notice was served on 16 June 2014, again it is possible that it did not get to Mr Scott on that day. The Firm was given initially until 23 June 2014 to submit a Response, later extended to 30 June 2014. In fact the Firm did not actually ever submit a Response but Mr Scott wrote to the adjudicator on 25 June 2014 confirming that his client "will be participating in the adjudication". There was some correspondence between Mr Scott and the adjudicator suggesting that the latter recuse himself but, given that this is no longer pursued as a ground for not enforcing the adjudication decision, it is unnecessary to go into the detail about the grounds for this. On 3 July 2014 Mr Scott wrote to the adjudicator, copied to Stannard's representatives, offering an "initial response":

"(1) A letter of agreement exists drafted by Mr A T Stannard and signed by all parties that agrees that any retention received by JT Tarmac [the Firm] on contracts with Clancy Docwra Limited which specifically states that retention due to A T Stannard would only be paid when received by [the Firm]. This letter is current and is in force. [The Firm] at no time had any contracts with Messrs Optomise [sic] who only dealt with [the Company].

(2) To date despite the fallacious claims made none of the outstanding retention has been paid. On June 13^th 2014 Messrs Clancy Docwra confirmed in writing that no retention had been released and further advised that subject to certain conditions 50% of the retention may be released, to date no money has been forthcoming.

(3) There is to be taken into consideration a counterclaim by [the Firm] against A T Stannard Ltd for the cost of defects and remedial works on "white work" carried out by A T Stannard on the Brixton Contract, money currently being withheld by Clancy Docwra against this defective work exceed £75,000.00…"

6. Although Mr Scott indicated on several occasions over the next few days that a Response was or would be forthcoming, no such Response was ever served before the adjudicator published his decision. At no stage did Mr Scott or anyone else from the Firm indicate to the adjudicator or to Stannard or its representatives that any issue was being taken in relation to jurisdiction, let alone in relation to whether the contract (in respect of which Stannard was claiming) was to be considered as between Stannard and the Company.
7. On 14 July 2014, the adjudicator issued his decision and it is clear that he had regard to the contents of the letter of 3 July 2014 in so doing that. For instance he expressly addressed the issue as to whether or not Stannard was entitled to the release of retention, deciding that it was so entitled, with 50% due to be released on completion and 50% one year later (see Paragraph 57). His decision was that Stannard was entitled to payment of its retention in the full sum claimed together with interest and that the Firm should pay his fees plus VAT.

These Proceedings

8. Following various abortive requests for payment by Stannard, it issued proceedings on 28 August 2014 seeking to enforce the decision of the adjudicator against the Firm. The Firm throughout these proceedings has been represented by solicitors. Stannard's application for summary judgement was supported by a witness statement from its solicitors. On 3 September 2014, Mr Justice Edwards-Stuart issued an order giving directions which was served on the Firm and its solicitors. This required the Firm to serve evidence by 18 September 2014 and fixed the hearing for 17 October 2014; if anything, this gave a longer than usual period between the issue of the summary judgement application and the hearing for applications such as this. The order, as is common, gave the parties "permission to apply to set aside or vary these directions on two working days' notice to the other" going on in bold writing that if "such application relates to the hearing date, then it must be made and filed with the court by no later than 1 pm Thursday, 11 September 2014". No such application was made before the hearing.
9. The Firm served three witness statements within time, the statements being dated 14 September 2014. Mr James Tobutt said that with his brother he "traded as JT Tarmac as a partnership which in 2010 changed its status to that of a Limited Co". He referred to the fact that there were numerous defects in Stannard's work. However, apart from addressing in some detail the position about defects and likely repair costs, he proffered neither hint nor suggestion that the contract with Stannard was with anyone other than the Firm. His brother in a short statement simply agreed with the contents of his brother's statement. Mr Scott in his first witness statement said that he was an accountant and management consultant who had worked for the Tobutts for seven years; he addressed in some detail the issue (no longer pursued) about the conduct of the adjudicator but he said nothing about whether the Firm or the Company was to be considered as the party with whom Stannard was in contract.
10. Counsel for each party exchanged skeleton arguments with Mr Gibson-Lee putting in a commendably short skeleton of less than half a page and with Mr Winser setting out more of the background in an understandably somewhat longer skeleton. There was no hint or suggestion in Mr Gibson-Lee's skeleton that there might be an application to adduce further evidence, let alone an application to adjourn the proceedings.
11. Essentially Mr Gibson-Lee's argument was that there had been no effective threshold referral to adjudication because there had been inferentially or possibly expressly a novation between Stannard, the Firm and the Company whereby it was mutually agreed that the Company would take over the Firm's rights and obligations so that in effect Stannard had no further rights contractually to pursue the Firm. Mr Winser's primary argument in response was that this was if anything a jurisdictional challenge, albeit not evidentially supported, which was never raised before the adjudicator and, in the light of authority, the Firm had waived any right it had to challenge the enforcement of the adjudicator's decision on that basis.
12. Mr Gibson-Lee's response to this was to say that his client would like a judgment on the principle of Mr Winser's primary argument; if his client lost, then he accepted that there would have to be summary judgment. If his client won, then he would wish to submit a further witness statement from Mr Scott and some further written evidence. Following a short adjournment, Mr Winser indicated that he would not oppose the submission of that further evidence, arguing that it added nothing or at best little. That was met by Mr Gibson-Lee indicating that his client would need a further adjournment to provide further evidence in practice to put more flesh on the other evidence.

The Law and Practice

13. The Court of Appeal has on several occasions warned against spurious challenges to adjudicator's decisions, most firmly in Carillion Construction Ltd v Devonport Royal Dockyard Ltd [2005] EWCA Civ 1358 when Chadwick LJ said:

85. The objective which underlies the Act and the statutory scheme requires the courts to respect and enforce the adjudicator's decision unless it is plain that the question which he has decided was not the question referred to him or the manner in which he has gone about his task is obviously unfair. It should be only in rare circumstances that the courts will interfere with the decision of an adjudicator. The courts should give no encouragement to the approach adopted by DML in the present case; which (contrary to DML's outline submissions, to which we have referred in paragraph 66 of this judgment) may, indeed, aptly be described as "simply scrabbling around to find some argument, however tenuous, to resist payment".

86. It is only too easy in a complex case for a party who is dissatisfied with the decision of an adjudicator to comb through the adjudicator's reasons and identify points upon which to present a challenge under the labels "excess of jurisdiction" or "breach of natural justice". It must be kept in mind that the majority of adjudicators are not chosen for their expertise as lawyers. Their skills are as likely (if not more likely) to lie in other disciplines. The task of the adjudicator is not to act as arbitrator or judge. The time constraints within which he is expected to operate are proof of that. The task of the adjudicator is to find an interim solution which meets the needs of the case. Parliament may be taken to have recognised that, in the absence of an interim solution, the contractor (or sub-contractor) or his sub-contractors will be driven into insolvency through a wrongful withholding of payments properly due. The statutory scheme provides a means of meeting the legitimate cash-flow requirements of contractors and their subcontractors. The need to have the "right" answer has been subordinated to the need to have an answer quickly. The scheme was not enacted in order to provide definitive answers to complex questions. Indeed, it may be open to doubt whether Parliament contemplated that disputes involving difficult questions of law would be referred to adjudication under the statutory scheme; or whether such disputes are suitable for adjudication under the scheme. We have every sympathy for an adjudicator faced with the need to reach a decision in a case like the present.

87. In short, in the overwhelming majority of cases, the proper course for the party who is unsuccessful in an adjudication under the scheme must be to pay the amount that he has been ordered to pay by the adjudicator. If he does not accept the adjudicator's decision as correct (whether on the facts or in law), he can take legal or arbitration proceedings in order to establish the true position. To seek to challenge the adjudicator's decision on the ground that he has exceeded his jurisdiction or breached the rules of natural justice (save in the plainest cases) is likely to lead to a substantial waste of time and expense – as, we suspect, the costs incurred in the present case will demonstrate only too clearly."

This of course does not mean that the Court will not fairly and justly review every challenge on its merits.

14. Mr Winser for Stannard relied on GPS Marine Contractors Ltd v Ringway Infrastructure Services Ltd [2010] EWHC 283 TCC This was an adjudication enforcement case in which, although the losing party had raised general and some specific objections to the jurisdiction, it had not raised any objection at that time that the claim referred to adjudication had been compromised; it did however raise this ground on the enforcement. This was challenged by the party seeking to enforce the adjudicator's decision on the grounds that the alleged compromise was too vague, there being no real prospect of success in that defence, that the adjudicator was asked to and did deal with the issue which was raised as a defence in the proceedings, his decision being therefore binding and that there was no reservation of the right to challenge the jurisdiction on this ground. Ramsey J said:

"36. Generally a party who wishes to do so can object to the jurisdiction of an adjudicator and may seek to do so either in general terms or by making a reservation on a specific matter.

37. The underlying issue is whether, taking account of the particular reservation, a party by participating in the adjudication has waived its right to object on grounds of jurisdiction. If the party does not raise any objection and participates in the adjudication then, even if there is a defect in the jurisdiction of the adjudicator, that party will create an ad-hoc jurisdiction for the adjudicator and lose the right to object to any decision on jurisdictional grounds. If a party raises only specific jurisdictional objections and those jurisdictional objections are found by the court to be unfounded then that party is precluded from raising other grounds which were available to it, if it then participates in the adjudication. That participation amounts to a waiver of the jurisdictional objection and confers ad-hoc jurisdiction. Obviously this assumes that, at the relevant time when the party participated in the Adjudication, the jurisdictional objection was available. Some jurisdictional objections, for instance as to the scope of the dispute, may only become apparent during the adjudication process or at the time of the decision."

15. Whilst it is not necessarily a particularly burdensome exercise, and although the onus is on the claimant to show that that the defendant has no real prospect of successfully defending the claim, in practice a defendant to a summary judgment application raising a defence for the first time needs to identify that there is some realistically arguable defence. That can be a matter of law or of simple fact. Where in effect a factual basis of defence or in this case a challenge to the enforceability of an adjudicator's decision is relied upon by the defending party, some credible evidence or basis has to be advanced, albeit that at this stage it does not have to be proved on a balance of probabilities.

Discussion

16. Essentially, the Firm seeks to argue that, because there was in practice inferentially at least a novation whereby it was agreed by Stannard, the Firm and the Company that all the Firm's obligations to and rights against Stannard were assumed by the Company, the adjudicator simply had no right or jurisdiction to deal with Stannard's claims for retention. Mr Gibson-Lee argued that this was a threshold issue and not on analysis a jurisdictional challenge at all, citing Section 108 of the Housing Grants Construction and Regeneration Act 1996 ("HGCRA"):

"(1) A party to a construction contract has the right to refer a dispute arising under the contract for adjudication under a procedure complying with this section."

The argument was that, as, on his client's argument, the parties to the construction contract had become Stannard and the Company, Stannard could no longer initiate adjudication at all. I disagree with his argument that this is not a jurisdictional challenge. There is acceptance (or at least no challenge) that there was a construction contract between Stannard and the Firm at least until February-March 2010 when the suggested novation took place and all the work to which the claim relates had purportedly been done before then. The Firm's argument has to be, put simply but properly, that the adjudicator had no jurisdiction because there had been a novation. It is a jurisdictional argument and, if it was sensibly arguable, it both could and should have been raised in the adjudication.

17. There is no doubt that the Firm not only did not raise any such jurisdictional challenge during the course of the adjudication but also it expressly and actively (if ineffectively) participated in the adjudication. Although, through Mr Scott, it sought the recusal of the adjudicator, he expressly wrote to the adjudicator saying that the Firm would participate. The participation was ineffectual but that was apparently due to logistic difficulties and, even up to the weekend before the Monday on which the decision was issued, the Firm was promising to submit a full Response. Earlier on 3 July 2014, Mr Scott had set out in summary what the Response was and, indeed, the adjudicator had regard to this in his decision. It is of course noteworthy that there is not one hint or suggestion in anything which Mr Scott wrote either to the adjudicator or to Stannard's representatives that the Firm had in any way transferred its rights and obligations to the Company.
18. It is clear that, following the reasoning of Mr Justice Ramsey in the GPS Marine Contractors case, the Firm, by participating in the adjudication without any reservation, has waived any right to raise as a jurisdictional (or indeed as some sort of threshold) challenge the current argument that by novation all rights and obligations of the Firm have been transferred to the Company. Mr Gibson-Lee did not seek to argue otherwise, if his threshold argument failed.
19. Even if it in some way it remained open to the Firm to raise the novation issue to prevent enforcement of the adjudicator's decision, no effective evidential basis has been raised. I say this for the following reasons:

(a) Neither witness statement of the two Tobutt brothers provides any evidence from which one could infer a novation. James Tobutt says simply and only that the Firm traded as a partnership "which in 2010 changed its status to that of a Limited Company". That does not give rise to an inference that the Firm's pre-existing obligations and liabilities were transferred to the Company or that it was some sort of novation with Stannard. Indeed, the whole tenor of that statement is a challenge on the merits to Stannard having any entitlement, with arguments being mounted that there was a "pay when paid" agreement (not recognised as enforceable by the HGCRA) and that there were defects in Stannard's work which justified the non-payment of retention.

(b) Mr Scott's first witness statement says nothing about any transfer of obligations or liabilities from the Firm to the Company or about any novation. Indeed, he suggests if anything that the "pay when paid" arrangement was made between Stannard and the Tobutt brothers (which, if anything, points to the Firm being involved in such an arrangement).

(c) Mr Scott's second witness statement dated 14 October 2014 was admitted belatedly; there was no explanation why the Firm had held back this further statement until the date of the hearing which was 17 October 2014. All that this does is to state that the Company was incorporated on 8 February 2010 and that he wrote a letter to regular sub-contractors and suppliers including Stannard on 18 February 2010 which said:

"Please note that with effect from March 1st 2010 JT Tarmac are closing for business to be replaced with JT Tarmac Ltd.

All future dealings and outstanding matters will now be the responsibility of the new company.

If there is information you require please contact the undersigned."

I do not consider that it is possible to infer from this letter that Stannard, simply by receiving it, in some way inferentially agreed that all its rights to payment against the Firm were from then on to be considered to have been transferred to the Company so that it could never pursue the Firm for any outstanding payments. It is not uncommon for partners of a firm to incorporate their business into a company and it will often be the case that in practice the new company will assume in effect voluntarily the job of paying outstanding debts owed by the partnership. That sort of arrangement, which seems to be exactly the one being notified here, can not without more give rise to a novation, particularly one said to arise by inference.

(d) Mr Gibson-Lee then put before the court several cheques from the Company to Stannard post-February 2010, which he said demonstrated inferentially that Stannard must be taken to have agreed that all its pre-February 2010 contractual rights had been novated from the Firm to the Company. He was unable to say whether these cheques related to work which had been carried out after this time. Accordingly, even these cheques, which were not even referred to in Mr Scott's second witness statement, do not go to establish an effective or indeed any novation.

(e) Mr Gibson-Lee also attempted to rely upon a letter dated 13 September 2013 from the Company to Stannard which refers to outstanding retention money and a meeting held between them that day. It refers to 7 Thames Water projects with retentions totalling more than was claimed in the current adjudication and enforcement proceedings. He indicated that this document was signed by both parties. This was simply the "pay when paid" arrangement which is said to have been reached. However, apart from the fact that it is unenforceable under the HGCRA, this does not give rise to any inference that there was a novation.

(f) The Firm submitted a Defence supported by a statement of truth apparently signed by someone other than the Tobutt brothers. It effectively repeats what Mr Scott said in his second witness statement about all matters and undertakings relating to the dissolved partnership being transferred to the Company in March 2010. This does not add anything about novation. Indeed, if novation was to be relied upon, a properly pleaded case about novation should and could have been raised. As it stands, the pleading that there was a transfer of liabilities and obligations of the Firm does not provide a defence, because a transfer or assignment of obligations and liabilities can not be made in law, at least without novation.

(g) Finally, Mr Gibson-Lee applied for an adjournment and yet further time to submit yet further evidence to support his client's case that there had been a novation. I refused this application, not least because there was simply no, let alone any arguably good, explanation as to why any such further evidence had not been filed either in accordance with Mr Justice Edwards-Stuart's directions order, at the time that the Firm's initial evidence was filed (well over a month before the summary judgment hearing) or even at the time that Mr Scott's second witness statement was prepared. The primary purpose of the procedures developed by the TCC for the prompt hearing of summary judgement applications for the enforcement of adjudicators' decisions was to satisfy the policy of the HGCRA to provide prompt resolution of disputes arising in connection with construction contracts. Mr Gibson-Lee was unable to say what the further evidence would be other than in the most general sense. He was unable to say for instance that there had been any material discussions between Stannard and the Company representatives which would or might throw light on whether there was some sort of novation.

(h) The suggestion that there was or might have been a novation is one which obviously never occurred to the Firm or Mr Scott apparently until a few days (at most) before the hearing of the summary judgment application. If anything, the Firm's standpoint in the adjudication and indeed in its first series of witness statements was to the effect that there were defences of the Firm to Stannard's claim for payment of retention. This undermines the extremely belated attempt to argue that there was some novation.

Decision

20. It follows that there must be summary judgement in favour of Stannard against the Firm in the full amounts claimed and as decided by the adjudicator; that is £53,392.63 plus interest pursuant to the decision from 1 August 2014 until the date of judgment. I direct that payment should be made by 31 October 2014 which is 14 days from the date of the hearing at which I indicated in outline terms what my decision would be.
21. It must follow that Stannard is entitled to its costs of an occasioned by the application which came to a total of £13,349.50. Mr Winser argued for indemnity costs on the basis that there simply was no real defence and that this should have been obvious to the Firm and its legal representatives. I do not consider that this is an appropriate case for indemnity costs; it is fair to say that the defence has been unsophisticated but there was just about an arguable point that there was a threshold as opposed to a jurisdictional basis of challenge. That said, Stannard's costs are reasonably modest and would fall on a standard assessment to be reduced by no more than some £1,300 to reflect too much time been booked to the partner and for letters out and the fact that on a standard assessment by a costs judge no doubt there would otherwise be some minor adjustments. I therefore allow costs in favour of Stannard in the sum of £12,000.