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
		21 January 2015

The Hon. Mr Justice Coulson:

1. INTRODUCTION

1. This is essentially an adjudication enforcement dispute, although the procedural position has been complicated by the fact that St Austell Printing Company Limited ("St A"), the party who lost the adjudication, have issued pre-emptive Part 8 proceedings seeking a declaration that the adjudicator did not have the jurisdiction to decide that £417,919.66 was due to Dawnus Construction Holdings Limited ("Dawnus"). There is a separate Part 7 claim in which Dawnus seek enforcement of the sums found due by the adjudicator.
2. In the documents produced in connection with these two sets of proceedings, St A rely on two grounds in support of their case that the adjudicator did not have the necessary jurisdiction. The first is the well-worn suggestion that the dispute had not crystallised between the parties at the time of the notice of adjudication. The second is the rather more novel submission that, because the claim that was referred to adjudication related only to a part of Dawnus' original interim application, and expressly excluded other elements of that application, the adjudicator was not empowered to order the payment of any sums which he found due.
3. I propose to set out the factual background and then go on and deal with each of those objections in turn. I am grateful to both counsel for their assistance and, in particular, their very clear written skeleton arguments which were provided promptly and led to a significant saving in time at the hearing.

2. FACTUAL BACKGROUND

4. By a contract dated 20 November 2011, St A engaged Dawnus to carry out and complete the design and construction of two warehouse/industrial units in St Austell, Cornwall. The contract incorporated the JCT design and build contract form, 2005 edition. The contract sum was in excess of £5.5 million. The contract administrator was David Langdon, now known as AECOM, whose primary point of reference was Mr Jones.
5. Practical completion of the works was achieved on 6 February 2013. On 26 April 2013 AECOM issued interim valuation 17 in the gross sum of just over £6 million. Thereafter there were discussions between Dawnus and AECOM about the final account. It appears that these did not progress very smoothly. They certainly did not progress promptly. The difficulties were exacerbated by Mr Jones' redundancy in August 2013. Whether rightly or wrongly, Dawnus were unimpressed with his replacement.
6. On 10 December 2103 Dawnus issued interim application for payment No.19, together with a mass of supporting documentation. Although this was not a final account application, it was a comprehensive application for interim payment which took account of the fact that the works had been completed for some time. The application was in the gross sum of almost £8 million, and the net sum claimed was £2.3 million. This included a claim in respect of changes and variations of about £1.9 million, of which around £900,000 reflected the measured work element of those changes and variations. The due date for payment of the interim application was 4 January 2014.
7. On 17 December 2013 Dawnus enclosed a sales invoice in the sum of £2.3 million, again seeking payment by 4 January 2014. It appears that this was intended to be a payee's notice because Dawnus mistakenly believed that AECOM had failed to serve a payment notice in due time. In fact they had not.
8. Thus, on 19 December 2013 AECOM delivered to Dawnus payment notice No.18. This said that the sum so far paid to Dawnus (just over £6 million, by way of the valuation and payment made in April, noted in paragraph 5 above) remained the correct valuation and that no further sum was due to Dawnus. Thus the figure of "£0.00" was entered into the "amount due" column. The payment notice was accompanied by what was called 'a letter of clarification'. That included these passages:

"We are currently reviewing your revised final account dated 10 December 2013. We understand that this revised account addresses out initial queries raised from your original submission and hence will require further assessment. We recently visited site on 11 December 2013 to meet with the client and his recently appointed advisors to discuss and further substantiate our version of the final account. During this visit to site it was clear a number of defects had not been addressed at this stage. With this in mind we will be writing to Dawnus formally detailing these outstanding defects. This document will include dates we see reasonable to address and rectify the defects highlighted and failure to do so will result in the possibility of corrective adjustments being taken by our client and the cost being incurred offset to your account.

We will endeavour to send you our final version of the account early in the New Year. We would consider this reasonable following your recent response to our measured accounts. In regards to Dawnus' loss and expense claim we have been able to meet with the client and his advisors to establish an accurate understanding of the events you have detailed within the claim document. We have another meeting to progress with these discussions scheduled for the week commencing 6 January 2014 following which we will respond to your loss and expense claim separately early in the New Year."

9. Neither AECOM nor St A (nor their "advisors") reverted to Dawnus in the New Year, or at all. Thus no defects were identified; there was no version of the final account provided to Dawnus; and no response to the loss and expense claim. On the papers before me, nothing of any substance happened at all until 26 August 2014, when Dawnus grew exasperated and commenced adjudication proceedings. These proceedings were limited by Dawnus to the measured value of 115 specific changes and variations. Because points now arise as to the scope of the adjudication, it is necessary to identify the relevant documents and what they said.
10. The notice of adjudication said this at paragraph 5.4:

"There are a number of Changes within Interim Certificate 18, these are the 115 Changes which make up the bulk of the difference between the parties. The Referring Party limits submissions in this adjudication to these 115 Changes as identified in the attached schedule, and reserves its right to deal with other matters in Interim Certificate 18, and later certificates, in the future."

In Section 6 of the notice, at paragraph 6.1b), Dawnus expressly sought payment by St A of the sums claimed in respect of the 115 changes. Thus this is not a case in which, by reference to the relief claimed in the notice of adjudication, Dawnus limited their claim to a declaration as to their entitlement. They expressly sought an order for payment.

11. In the referral notice, at paragraph 3.2, Dawnus emphasised the limitations of the dispute which they were referring to adjudication. They said:

"For the avoidance of doubt, the dispute referred to in adjudication through this Referral relates only to the proper valuation of 115 Changes contained within the Schedule…for the purposes of this Adjudication, the Referring Party accepts the Responding Party's valuation in all other respects which for the avoidance of doubt includes all contract works, or deductions in respect of provisional sums and all valuations of changes not listed in the schedule. The Referring Party does however reserve its future position in respect of these matters."

12. St A took both their jurisdictional points (no crystallisation and no power to order payment of part only of interim application 19) in the adjudication. They said that no dispute about the changes had crystallised at the time of the notice in August. As to the second point, the issue was summarised at paragraph 13 of their Rejoinder, in these terms:

"What DCL cannot do is to refer a dispute in respect of an element of the application (and strictly limit the jurisdiction of the Adjudicator to just this element) and then to seek payment in respect of just this element referred without consideration of DCL's or SAPC's entitlement in respect of the other elements of the application. The Contract does not envisage or give DCL an entitlement to payment in respect of an element of interim application as opposed to its entitlement, which is not contested, to payment in respect of the entire application."

13. The adjudicator concluded that St A's jurisdictional challenge was "entirely without merit" and went on to deal with the detail of the claim by way of a detailed decision dated 31 October 2014, which ran to 127 pages and 471 paragraphs. It is that decision which ordered St A to make payment to Dawnus, by 7 November 2014, of the sum of £417,919.66 together with his fees. It is that decision which Dawnus now seek to enforce.

3. OBJECTION 1: HAD THE DISPUTE CRYSTALLISED IN AUGUST 2014?

14. The Law
15. I take as my starting point the judgment of Jackson J (as he then was) in AMEC Civil Engineering Limited v Secretary of State for Transport [2004] EWHC 2339 (TCC). There he said:

"3. The mere fact that one party (whom I shall call "the claimant") notifies the other party (whom I shall call "the respondent") of a claim does not automatically and immediately give rise to a dispute. It is clear, both as a matter of language and from judicial decisions, that a dispute does not arise unless and until it emerges that the claim is not admitted.

4. The circumstances from which it may emerge that a claim is not admitted are Protean. For example, there may be an express rejection of the claim. There may be discussions between the parties from which objectively it is to be inferred that the claim is not admitted. The respondent may prevaricate, thus giving rise to the inference that he does not admit the claim. The respondent may simply remain silent for a period of time, thus giving rise to the same inference.

5. The period of time for which a respondent may remain silent before a dispute is to be inferred depends heavily upon the facts of the case and the contractual structure. Where the gist of the claim is well known and it is obviously controversial, a very short period of silence may suffice to give rise to this inference. Where the claim is notified to some agent of the respondent who has a legal duty to consider the claim independently and then give a considered response, a longer period of time may be required before it can be inferred that mere silence gives rise to a dispute."

This analysis explains the general view that crystallisation may require no more than the service of a claim by the claiming party and subsequent inactivity for a further short period by the responding party. In practice, in the overwhelming majority of cases dealing with this point, the court has found that the dispute had crystallised by the time of the notice of adjudication.

16. In a more recent cast on crystallisation which summarised the relevant principles, Ringway Infrastructure Services Ltd v Vauxhall Motors Ltd [2007] EWHC 2421 (TCC), Akenhead J said:

"(1) The existence of a dispute or difference may be inferred from what is said or not said by the party in receipt of what may be termed "a claim".

(2) There does not have to be an express rejection of a "claim" by the recipient. In so far as the case of Monmouthshire County Council v Costelloe and Kemple Ltd (1965) 5 BLR 83 suggests otherwise, the more recent cases of Amec and Collins suggest otherwise.

(3) A "claim" for the purpose of giving rise to a dispute or difference may not be a claim for money or for the payment of money. The variety, extent and scope of disputes are infinite. It may involve simply an assertion of a right by one party.

(4) One needs to determine whether there is "claim" and whether or not that claim is disputed from the surrounding facts, circumstances and evidence pertaining up to the moment that the dispute, subsequently referred to adjudication (or arbitration), has crystallised."

17. That the crystallisation argument is almost never successful can be illustrated by the extreme circumstances that existed in the only two recent cases in which it has been upheld:

(i) In Enterprise Managed Services Ltd v Tony McFadden Utilities Ltd, [2009] EWHC 322 (TCC); [2010] BLR 89 Utilities pursued Enterprise as assignees, but they did not notify Enterprise of the existence of either the assignment, or their claim as assignees, until the very date on which they purported to give notice of adjudication. Accordingly, because the notice of the claim as assignees was given at the same time as the reference was made, I said that it was simply not possible for a dispute between the parties about that claim to have crystallised prior to the notice of adjudication.

(ii) In Beck Interiors Ltd v UK Flooring Contractors Ltd [2012] EWHC 1808 (TCC); [2012] BLR 417, Akenhead J ruled that, whilst there was plainly a dispute between the parties as to the increased costs of completion, the adjudicator had no jurisdiction to decide the liquidated damages claim. That was because he found that no dispute about that claim had crystallised at the time of the notice of adjudication. That in turn was because the claim was first intimated in a letter sent after close of business on the last working day before the Easter weekend, and the notice of adjudication was then issued on the Tuesday after that weekend. The (unsurprising) silence over the Easter bank holiday weekend could not amount to rejection of the claim.

18. Analysis
19. Applying those principles to the issue of crystallisation in this case, I am in no doubt that, however it is analysed, the dispute about what, if any, sums were due to Dawnus on the basis of interim application 19 had crystallised long before the notice of adjudication. Indeed, I consider that the contrary is unarguable. That doubtlessly explains why Mr Jinadu, with typical acumen, did not seek to rely on the point in his oral submissions this afternoon. However in view of the amount of time, paper and costs which have been spent on this point, both in the adjudication and in the build-up to today's hearing, it is appropriate that I deal with how and why I consider that there was never any basis for this objection. If nothing else, it plainly goes to costs, and the basis on which costs should be assessed.
20. First, if we just consider the application of 10 December 2013 and the response of 19 December 2013, it will immediately be noted that the detailed claim was considered by AECOM, on behalf of St A, and that it was rejected on its merits. This is shown by the letter of clarification to which I have referred, and the valuation of 19 December 2013. A claim had been asserted and then expressly rejected. Nothing more is required for a dispute to have crystallised.
21. Secondly, if that exchange is then placed in its context, the conclusion that a dispute had crystallised is inevitable. The detail of Dawnus' outstanding claims had been the subject of discussion before they were formerly advanced in application 19: that much is clear from AECOM's letter of 19 December 2013. After the rejection of that claim there was a period of eight months before the notice of adjudication was issued. That was a period of eight months in which AECOM had promised to respond on a whole raft of matters, but had failed to do so. Such a long period of inactivity, particularly in the light of the specific promises that were made in the letter of 19 December 2013, again clearly and obviously amounted to a rejection of Dawnus' claim.
22. It is not uncommon for employers to say that no dispute has arisen because there were elements of the contractor's claim that required further particularisation or explanation. That indeed is one of the suggestions in the letter of 19 December 2013. It was also the suggestion in a recent case in Northern Ireland, Gibson (Banbridge) Ltd v Fermanagh District Council [2013] NIQB 16. There, Weatherup J said that it was clear that the claim should have been assessed long before it eventually was, and that if supporting documentation was missing, that would no doubt be reflected in any subsequent assessment by the employer or his agent. I respectfully agree with that reasoning, and consider it applicable in the present case.
23. Accordingly, for all those reasons, I am in no doubt that the first jurisdictional challenge, that the dispute had not crystallised, must fail. I understand why Mr Jinadu did not feel that he could legitimately support it. I now turn to the second objection.

4. OBJECTION 2: NO POWER TO ORDER PAYMENT FOR PART ONLY OF INTERIM APPLICATION 19

24. Outline
25. As I have said, the second jurisdictional objection (which Mr Jinadu stoutly maintained, both in his helpful written skeleton and his clear oral submissions this afternoon) is that the adjudicator did not have the power to order St A to make any payment, because the dispute that was referred to the adjudicator was strictly limited to just one part of interim application 19. Mr Jinadu emphasised that it was not simply what he called the "cherry-picking" of the measured work element of the 115 changes that gave rise to this submission, but more particularly the passages in the notice of adjudication and in the referral (to which I have already referred) which sought to limit the dispute referred to those claims only.
26. The Law
27. It seems to me that the relevant authorities on this point are the two well-known, and now relatively old cases, of Fastrack and David McLean. The definition of the word 'dispute', referred to in countless adjudication enforcement judgments since, is that of His Honour Judge Thornton QC in Fastrack Contractors Ltd v Morrison Construction Ltd [2000] BLR 168. In his judgment the judge talked about the "pruning" that may be made by the referring party of any existing claim before it was referred to the adjudicator. He said this:

"21. Fastrack suggested that the reference that I am concerned with consisted of a number of disputes, each of which was one of the individual heads of claim that had been referred. Fastrack also suggested that the dispute that could be referred to an adjudication pursuant to the HGCRA need not be identical to the pre-existing dispute, it need be no more than a dispute which was substantially the same as that pre-existing dispute.

22. Neither of these contentions of Fastrack is sustainable. The statutory language is clear. A "dispute", and nothing but a "dispute", may be referred. If two or more disputes are to be referred, each must be the subject of a separate reference. It would then be for the relevant adjudicator nominating body to decide whether it was appropriate to appoint the same adjudicator or different adjudicators to deal with each reference. Equally, what must be referred is a "dispute" rather than "most of a dispute" or "substantially the same dispute."

23. In some cases, a referring party might decide to cut out of the reference some of the pre-existing matters in dispute and to confine the referred dispute to something less than the totality of the matters then in dispute. So long as that exercise does not transform the pre-existing dispute into a different dispute, such a pruning exercise is clearly permissible. However, a party cannot unilaterally tag onto the existing range of matters in dispute a further list of matters not yet in dispute and then seek to argue that the resulting "dispute" is substantially the same as the pre-existing dispute."

28. In David McLean Housing Ltd v Swansea Housing Association Ltd [2002] BLR 125 there was a debate about what relief the claimant was seeking (and was entitled to seek) in the adjudication. The particular problem was that the claimant in the notice of adjudication had sought a declaration as to his entitlement, but had failed expressly to seek a sum by way of payment. Although the adjudicator had ordered payment, he had ordered it sufficiently far in the future to allow the defendant to raise a legitimate set-off prior to the due date. Therefore the question for His Honour Judge Humphrey Lloyd QC was the extent to which the claimant was entitled to summary judgment. Because of the problem to which I have just referred, the judge refused the claim for summary judgment. He dealt with the relief that could be sought in adjudication in this way:

"15. …The Scheme (and, so as far as I am aware, other standard forms of contract) does not confer on an adjudicator a right to adapt, vary or otherwise modify a contract. Under the statutory Scheme an adjudicator has to decide a dispute under the contract (and in other schemes, disputes arising out of or in connection with the contract). It is a decision about to the rights and liabilities of the contract which are questioned. Thus paragraph 20 of the Scheme expressly provides for the review of a certificate that has been issued (sub-para (a)) and for the adjudicator to decide a person "is liable to make a payment under the contract … [emphasis supplied] and, subject to section 111(4) of the Act, when that payment is due and the final date for payment". His decision does not create or modify a right or liability except, perhaps, in one respect.

16. I agree with Mr Harding that since the Scheme (see paras 20 (b) and 21) provides for the time for compliance with an adjudicator's decision to be set, it or the adjudicator's decision may alter the time within which, for example, a payment might otherwise have had to have been made, where an adjudicator decided that there had been an under-payment or under-certification. The purpose is of this is clear. If an adjudicator were merely to decide that a different certificate should be issued or a different payment should be made the paying party could properly take the view that it would have the contractual period in which to honour the decision. Hence the statutory provisions make it clear that it has not to have that time. Indeed it may have had it already, and more, and that therefore a shorter period of time may be appropriate. Thus the Scheme permits the time within payment is to be made to be altered. Indeed if the decision does not set a time compliance is immediate which in my view shows that the decision does not affect or create a new cause of action. The scheme is an implied term of the contract. As part of the contractual scheme it therefore modifies the ordinary contractual relationship. Only to that extent might one say that there has to be, as it were, in the words of Judge Hicks, compliance with the adjudicator's decision other than in accordance with what would otherwise be the strict terms of the contract. The scheme and the other contractual terms have to be read together.

17. The words "due under the contract" mean what is due on facts and on a proper application of the contractual terms. The adjudicator decides that issue. The decision establishes what is due under the contract. The parties have agreed to accept the decision as binding (section 108(3) of HGCRA and paragraph 23(2) of the Scheme) so, unless otherwise agreed by them or determined by a court or arbitral tribunal, each agrees that, for example, the amount to be paid is and was due, and each must act accordingly and accept any assumptions upon which the decision must have been based…

If, for example proceedings are necessary to enforce the award the defendant cannot be allowed heard to allege that the decision was incorrect, i.e. that the claimant has not got a right or cause of action as some necessary fact or aspect of the law is missing, and is in effect temporarily estopped by its agreement from doing so. But ultimately the claimant will, if necessary, have to establish its right and cause of action. If the decision was itself a cause of action then it would supplant any cause of action."

29. Analysis
30. In the light of those authorities, and as a matter of both law and common sense, I conclude that the second jurisdictional challenge maintained by St A must also fail.
31. First, the decision in Fastrack makes plain that a claimant is entitled to prune his original claim for the purposes of his reference to adjudication. So if his interim application for payment is for measured work and loss and expense, he may decide that, because the loss and expense claim could be difficult to present in an adjudication, he will instead focus in those proceedings on just the straightforward claim for measured work.
32. That is not only permissible, but it is a process that is to be encouraged. Claims advanced in adjudication should be those claims which the referring party is confident of presenting properly within the confines of that particular jurisdiction. What if, in my example, the claim for loss and expense is recognised by the referring party as being very difficult to sustain. What if he in fact decides that he no longer intends to pursue it? It would be a nonsense if he had to include such a claim in his notice of adjudication merely because that claim formed part of his original interim application.
33. Secondly, there can be no doubt that, in the words of Judge Lloyd in David McLean, St A were liable to make an interim payment to Dawnus under the contract. On the adjudicator's analysis, a substantial sum was due to Dawnus in respect of the measured work element of the 115 changes included in interim application 19. That amount, at the very least, should have been paid by 4 January 2014. The adjudicator's decision is therefore a decision reflecting St A's existing liability to pay. It manifestly does not create a liability to pay when none existed before.
34. Mr Jinadu argues that their liability was to pay on the basis of the whole of interim application 19, not just what they called the "cherry-picked" elements. In my view, that submission ignores Fastrack. It also seems to flout common sense. This was Dawnus' application for payment and, since there is nothing anywhere to say that there had been an earlier overpayment to Dawnus, or any counterclaim, it must follow that, if the adjudicator had been obliged to consider the entirety of the interim application, he would either have found that further sums were due to Dawnus or, at the very least, that their entitlement was not less than the sum which he found to be due. In other words, this is a sterile objection.
35. Thirdly, let us now assume, in St A's favour, that they did have some sort of cross-claim, whether by reference to a claim for overpayment, or a claim for liquidated damages, or a claim for damages for defects. Let us also assume that this cross-claim arose for assessment at the same time as interim application 19, and that the cross-claim would have reduced or even extinguished the sum due by reference to the measured work element of the 115 changes. In my view, as Ms Lee correctly points out, the mere fact that Dawnus had limited their own claim to the measured work value of the 115 changes, did not in any way limit or prevent St A from defending that claim, and raising their own cross-claim by way of set-off. That would have been an entirely legitimate defence to the claim in the adjudication, whatever the notice of adjudication or the referral might have said.
36. There is authority for this. In Pylon Ltd v Breyer Group PLC [2010] EWHC 837 (TCC), I said:

"25. It is not uncommon for adjudicators to decide the scope of their jurisdiction solely by reference to the words used in the notice of adjudication, without having regard to the necessary implications of those words: that was, for example, what went wrong in Broadwell. Adjudicators should be aware that the notice of adjudication will ordinarily be confined to the claim being advanced; it will rarely refer to the points that might be raised by way of a defence to that claim. But, subject to questions of withholding notices and the like, a responding party is entitled to defend himself against a claim for money due by reference to any legitimate available defence (including set-off), and thus such defences will ordinarily be encompassed within the notice of adjudication.

26. As a result, an adjudicator should think very carefully before ruling out a defence merely because there was no mention of it in the claiming party's notice of adjudication. That is only common sense: it would be absurd if the claiming party could, through some devious bit of drafting, put beyond the scope of the adjudication the defending party's otherwise legitimate defence to the claim."

Accordingly, the absence of a cross-claim in the present adjudication cannot be the result of the wording of the notice of adjudication or of the referral, because neither would or could have prevented St A from raising any legitimate cross-claim by way of defence to the limited claim being advanced in the adjudication.

37. For these reasons, therefore, the second ground of jurisdictional objection must also fail.
38. In consequence Dawnus are entitled to summary judgment, pursuant to CPR Part 24, in relation to the sums ordered by the adjudicator. That is the relief claimed in action HT-2004-0130. St A's Part 8 claim, action HT-2014-109, seeking declarations in respect of the adjudicator's lack of jurisdiction, is dismissed.