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

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

		Cardiff Civil Justice Centre 2 Park Street, Cardiff, CF10 1ET
		26 January 2017

 


HHJ KEYSER QC:

1. By this Part 8 claim the claimant seeks the answer to a point of construction in respect of the contract between the parties arising out of a major construction and engineering project known as the Plymouth Eastern Corridor Integrated Transport Scheme, which I shall refer to as 'the Project'.
2. The basic facts are not in issue and are briefly as follows. Plymouth City Council appointed the defendant as the main contractor for the project. The contract governing the relationship between Plymouth and the defendant was made on 27 August 2008 and was called the Highway Services Contract. I shall refer to it as the 'Main Contract'.
3. The defendant sub-contracted part of the work under the Project. The sub-contract, which was dated 3 August 2010, was variously called Target Cost/Framework-related Agreement and Services Agreement; for convenience, I shall refer to it as the 'Services Agreement'. Both the Main Contract and the Services Agreement were construction contracts within Section 104 of the Housing Grants, Construction and Regeneration Act 1996, which I shall refer to as 'the 1996 Act' or just 'the Act'. Because both agreements were made before October 2011, the relevant statutory regime for adjudication was that set out in the Act before it was amended.
4. In the course of the Project there were four adjudications between the claimant and the defendant, resulting in four decisions: (1) 2 November 2011, decision of Mr A J Turner; (2) 26 April 2013, decision of Mr D H Simper; (3) 8 June 2015, decision of Mr D White; (4) 24 July 2015, decision of Mr P Higgins. These have been referred to as 'the Turner decision', 'the Simper decision', 'the White decision' and 'the Higgins decision' respectively. Matters decided in the Turner decision and the Simper decision were relied on as the basis of valuations by the adjudicators in the White decision and the Higgins decision. Now that the Project has been completed, the claimant wishes to litigate those matters in court because it says that, if they were determined in its favour, it would recover something in the order of an additional £1 million. However, there is an issue between the parties as to whether the Services Agreement, on its true construction, precludes the claimant from now seeking to litigate those matters.
5. The present claim was agreed by both parties to be a convenient way to determine this construction issue. In those circumstances, the claim form shows that the claimant seeks to establish 'that it is permitted to commence legal proceedings, in order to finally determine matters which were the subject of adjudicators' decisions dated 2 November 2011 and 26 April 2013', that is the Turner decision and the Simper decision.
6. The specific question put forward for my answer, and agreed by the defendant to be the appropriate question, is as follows: Does recital (3) of the contract between Dawnus and Amey [that is, the Services Agreement] operate so as to incorporate clause 63 of the contract between Amey and Plymouth County Council [that is, the Main Contract] such that there is a condition precedent (being the service of a notice of dissatisfaction) with which Dawnus must comply before it can ask the court to finally determine the matters which were subject of decisions of Mr A J Turner and Mr D Simper? The claimant says that the answer to the question is 'no', and the defendant says that it is 'yes'.
7. The relevant principles governing the construction of the contracts in this case may be shortly stated. The starting point is the language used by the parties in the written agreement. This was made clear by the Supreme Court in Arnold v Britton and Others [2015] UKSC 36, [2015] AC 1619. The proper approach to construing the language was summarised by Lord Bingham of Cornhill in Derry Containers Ltd. v Tasman Orient Line CV [2005] 1 WLR 215, paragraph 12: 'The contract should be given the meaning it would convey to a reasonable person having all the background knowledge which is reasonably available to the person, or class of persons, to whom the document is addressed.' The ramifications of those basic principles have been discussed in detail in many cases. I refer in particular to Rainy Sky SA and others v Kookmin Bank [2011] UKSC 50, [2011] 1 WLR 2900, at paragraphs 15–30, and to the judgment of Lord Neuberger PSC in Arnold v Britton and Others [2015] UKSC 36, [2015] AC 1619, at paragraphs 15–22. For brevity's sake, I shall not recite those passages in this judgment.
8. I turn to the agreements in this case.
9. The Services Agreement referred to the claimant as the 'Services Supplier,' to the defendant as the 'Contractor', to itself as the 'Agreement', and to the Main Contract as the 'Main Contract'. At the head of the Services Agreement stood four recitals. Recital (1) referred to the Main Contract. Recital (2), which is significant, said that the claimant should be deemed to have full knowledge of the provisions of the Main Contract. Recital (3) was in these terms; I emphasise the parenthesis as being especially material:

'The terms and conditions of the Main Contract shall apply (save where the provisions of the agreement conflict or otherwise specifically require) as if they were repeated in this agreement, without prejudice to the generality of the foregoing. All provisions and obligations within the main contract which require the contractor to include the same within the agreement shall be deemed to be included within this agreement'.

10. Clause 20 was headed 'Dispute Resolution'. Clause 20(a) read: 'Any dispute or difference between the parties may be referred to adjudication by notice to the other, in accordance with the provisions of appendix 12'. The remaining paragraphs of clause 20, paragraphs (b) to (e), dealt with an optional procedure, to be adopted by agreement between the parties in writing, to seek to resolve disputes informally by a mechanism there set out and, if no resolution were achieved pursuant to that mechanism, requiring the matter to go to adjudication, or 'dispute resolutions' as it was called under appendix 12. However, paragraph (f) provided: 'Nothing in this clause 20 shall prevent either party from proceeding directly to referring any matter for resolution in accordance with appendix 12.'
11. Appendix 12, headed 'Dispute Resolution Procedure', with the sub-heading 'Adjudication', made provision in respect of the appointment, functions and duties of an adjudicator. I have regard to the entirety of the appendix, but in particular it contained two passages of importance, as follows:

'The contractor and the services supplier each has [sic] the right to refer any dispute or difference under this agreement for adjudication, and either party may at any time give notice in writing…to the other at any time of its intention to refer the dispute or difference to adjudication'.

'The decision of the adjudicator shall be binding until the dispute is finally determined by legal proceedings or by agreement in writing between the contractor and services supplier'.

12. I turn to the Main Contract. The section of the Main Contract dealing specifically with disputes and termination comprised clauses 59-67. Clause 60.1 provided: 'A dispute arising under or in connection with this contract may be referred to and decided by an adjudicator. A party may refer a dispute to the adjudicator at any time'. Clause 61 made provision in respect of the appointments, functions and duties of the adjudicator. Clause 62 contained provisions relating to the procedure in an adjudication, and the adjudication decision. Clause 62.11 provided:

'The adjudicator's decision is binding on the parties unless or until revised by the tribunal, and is enforceable as a matter or contractual obligation by the parties, and not as an arbitral award. The adjudicator's decision is final and binding if neither party has notified the other within the times required by this contract that he is dissatisfied with a matter decided by the adjudicator, and intends to refer the matter to the tribunal'.

(The reference to 'the tribunal' appears to be an unedited hangover from the standard contract form that was the ultimate source of the drafting.)

13. For present purposes, the most important provision of the main contract is clause 63, headed 'Review by the Courts'.

'63.1 A party does not refer any dispute under or in connection with this contract to litigation in the English courts unless it has first been decided by the adjudicator in accordance with this contract.

63.2 If, after the adjudicator notifies his decision, a party is dissatisfied, that party may notify the other party of the matter which he disputes and state that he intends to refer it to litigation. The dispute may not be referred to litigation unless this notification is given within four weeks of the notification of the adjudicator's decision.

63.3 In any litigation proceedings, the relevant court has the powers to reconsider any decision of the adjudicator, and to review and revise any action or inaction of the service manager related to the dispute. A party is not limited in litigation proceedings to the information or evidence put to the adjudicator.

63.4 A party does not call the adjudicator as a witness in litigation proceedings.'

(The 'service manager' mentioned in clause 63.3 is defined in clause 2.90 as 'Tom White at Plymouth City Council or any successor who may be appointed by the employer, that is the City Council, to perform this role during the contract period'.)

14. The critical provision for present purposes, in the light of the issue that I identified earlier, is clause 63.2, which restricts the right to refer a dispute to litigation.
15. I have already mentioned the main parts of the factual matrix in which the contracts fall to be construed. There is a further part of the relevant matrix that should be mentioned, namely section 108 of the 1996 Act as it then stood. I shall not read it all out. Subsection (1) provided: '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.' Subsection (2) made specific provision as to what the contract must provide for. Subsection (3) provided: 'A contract shall provide that the decision of the adjudicator is binding until the dispute is finally determined by legal proceedings, by arbitration, if the contract provides for arbitration or the parties otherwise agree to arbitration, or by agreement.' Subsection (5) provided: 'If the contract does not comply with the requirements of subsections (1) to (4), the adjudication provisions of the scheme for construction contracts apply.'
16. The issue, in a nutshell, is whether, as the defendant says, clause 63.2 of the Main Contract applies to the Services Agreement, in accordance with the main part of recital (3) of the Services Agreement or, as the claimant says, its application is excluded by the parenthesis in recital (3), namely the words 'save where the provisions of the [scil. Services] services agreement conflict [scil. with those of the Main Contract] or otherwise specifically require.'
17. Mr Quiney QC's submissions for the claimant may be summarised as follows. It is accepted that there is nothing inherently objectionable about clause 63.2 of the Main Contract. Such a clause is capable of being both valid and effective. The principal question is whether the clause has been incorporated into the Services Agreement. For the purposes of recital (3), there is a conflict, or clash, between, on the one hand, clause 20 and clause 12.2 of the Services Agreement and, on the other hand, clauses 62 and 63 of the Main Contract, in that the former permit litigation unconditionally whereas the latter do not. It is accepted that if one adopts an entirely literalistic reading, there is no formal contradiction. However, to import the words of clause 63 into the Services Agreement is radically to alter its meaning and to derogate from the plain meaning of the agreement as it stands, which is to give an unconditional right to litigate. Such a result is the outcome of trying to adopt an unrealistic and unworkable 'mosaic approach' (as it was elegantly put) to the construction of recital (3). In fact, there are two schemes of dispute resolution, one in the Main Contract and one in the Services Agreement, and these are quite different. One example is the contrast between the unfettered right to litigate provided by the Services Agreement and the very different provisions of the Main Contract. But it is wrong to focus solely on that; one must look more widely. The very scheme in clause 62 of the main contract is quite different from the simpler scheme, with different timetables, in appendix 12. Clause 63 cannot be viewed in isolation, but is inextricably linked to clause 62; see for example clause 62.11 and clauses 63.1 and 63.2.
18. Mr Quiney submits that recital (3) is a catch-all designed to provide for the case for which the Services Agreement does not make any provision. However clause 20 and appendix 12 do set out specific requirements regarding the management of disputes, and therefore the words in parenthesis in the recital directly apply. As a matter of the commercial common sense of the arrangements, recital (3) is neither arbitrary nor pointless. It reflects clause 16 of the Main Contract and clause 2 of the Services Agreement. Clause 16.3 begins: 'The conditions of contract for each sub-contract are to include …'; there follow a number of points that I shall not recite, but the basic point is to tie in the performance obligations of the sub-contractors with those of the main contractor, the present defendant, which continues to be responsible for the contractual performance vis-à-vis the employer, the city council: see clause 16.1. Clause 2 of the Services Agreement begins:

'Without prejudice to the specific terms and obligations in this agreement, the services supplier acknowledges that the services are to be provided as part of the performance of the contractor of the main contract, and for the benefit of the employer, and accordingly…'

and then there are various acknowledgements and undertakings by the service supplier, which (to put the matter broadly) correspond with clause 16.3 of the Main Contract; that is, the effect is to correlate the performance obligations under the two agreements. It is submitted for the claimant that recital (3), though not restricted to this, has as its most basic commercial purpose the tying in of the contractual relationships, as referenced in the two provisions that I have referred to. However, it is said, procedural matters, including those relating to dispute resolution, have no bearing on this purpose. That is both obvious and indeed reflected in the fact that clause 16 of the Main Contract does not identify dispute resolution provisions as those requiring to be replicated in the sub-contract. To attempt to pick out words and clauses, or sub-clauses from the Main Contract for transposition into the Services Agreement, without regard either to the commercial purpose of the latter or to the need to adopt a sensible concept of conflict for the purposes of recital (3), is to make not only the construction but even the identification of the contractual terms a matter of the greatest difficulty and impracticability.

19. Finally, it is said, with particular reference to the principles set out in Nobahar-Cookson v The Hut Group Ltd [2016] EWCA Civ 128, that a party to a contract is not to be taken to have given up valuable rights unless it has made it clear that it intends to do so. That principle, it is said, is to be applied in this case in the context of the default position under the statutory adjudication procedure, which is an unfettered right to litigate. Indeed, such a right lies at the heart of the concept and process of adjudication, which represents a quick and efficient method of achieving a provisional resolution of disputes before they can, if need be, be finally resolved in the relative leisure of court proceedings.
20. The submissions for the claimant were powerfully and attractively put (my summary fails to do them full justice), but I am unable to accept them. In my judgment, the answer to the question in the Part 8 claim form is 'yes', for essentially the reasons compelling the advance by Mr Kearney for the defendant.
21. I agree with Mr Quiney that clause 20 of the Services Agreement permits but does not oblige the parties to refer a dispute to adjudication. There is an optional procedure to be followed by agreement in writing under clause 20 (a) – (e), whereby an attempt at informal dispute resolution may be made; in that circumstance, if no resolution is forthcoming, adjudication appears to be required. But that is, in itself, an optional procedure, and clause 20 (a) is not mandatory.
22. Any adjudication under the Services Agreement, whichever limb of clause 20 it is under, is governed by appendix 12. I have read out the two important passages in appendix 12. They correspond to the requirements respectively of section 108(2)(a) and section 108(3) of the 1996 Act. They are part of the adjudication provisions of the Services Agreement. If that suite of provisions was compliant with section 108, that suite of provisions will apply. If it was not compliant, the statutory scheme will apply. No-one has suggested that the adjudication provisions in the Services Agreement was non-compliant with section 108, but the point does not matter for present purposes.
23. Clause 63.1 and clause 63.2 of the Main Contract are not part of the adjudication provisions of the Main Contract. They deal with a different thing: not the right to adjudication in accordance with section 108 (that is dealt with by clauses 61 and 62), but the right to litigate. They restrict the right to litigate in two ways: first, by requiring an adjudication decision as a pre-condition to litigation; second, by requiring notice of intention to litigate within the specified time scale.
24. Clause 63 does not engage section 108 and deals with an entirely distinct matter. If that were in doubt, it is settled by the decision of Edwards-Stuart J in Anglian Water Services Ltd v Laing O'Rourke Utilities Ltd [2010] EWHC 1529 (TCC). The clause in that case—clause 93.1 of the relevant agreement: see paragraph 4 of the judgment—was materially identical to clause 63.2 in the present case, though the wording was different. The judge held that the clause was not part of the adjudication provisions (see paragraph 31) and that it did not infringe the requirements of Part 2 of the 1996 Act (see paragraph 17). This provides the answer to Dawnus's contention that clause 63.2 conflicts with the provisions of the Services Agreement, or that the latter specifically require that it be not incorporated.
25. The Services Agreement does indeed make provision for adjudication pursuant to the requirements of section 108, but it does not make provision in regard of the right to litigate. Mr Quiney says that the incorporation of clause 63.2 would radically alter the meaning of the Services Agreement. Insofar as that may be true, it is unimportant; it is no more than to say that without clause 63.2 there is no restriction on the right to litigate, whereas with it there is. That is not a conflict or contradiction. Clause 63.2 can be transposed into the Services Agreement without introducing contradiction or incoherence or a clash or a conflict, call it what one will.
26. This again is amply demonstrated by the Anglian Water Services case. There the contractual provisions did not comply with Part 2 of the 1996 Act, with the result that they were replaced by adjudication provisions in the statutory scheme; see paragraph 3 of the judgment. In accordance with section 108 (3) of the Act, paragraph 23 (2) of the scheme provided:

'The decision of the adjudicator shall be binding on the parties and they should comply with it until the dispute is finally determined by legal proceedings, by arbitration, if the contract provides for arbitration or the parties otherwise agree to arbitration, or by agreement between the parties.'

The provisions of appendix 12 are in materially similar terms. They do not conflict with clause 63.1, any more than in the Anglian Water Services case clause 93.1 conflicted with the scheme. There, as here, the time bar can happily exist side by side with the adjudication provisions; as they relate to different matters they are not in conflict.

27. I go back to recital (3). It says that the terms and conditions of the Main Contract—clause 63.2 plainly is such a term—'shall apply… as if they were repeated in this agreement'. Clause 63.2 is clearly capable of being repeated in the Services Agreement. Of course, the referent of the words 'in accordance with this contract' is different. In the Main Contract those words refer to the Main Contract, as modified by the scheme: see again the Anglian Water Services case, where that was the situation. In the Services Agreement, the words would refer to the Services Agreement. But that does not matter if the provision can be repeated, as it can be. After all, the referents of all clauses are likely to alter as they relate to rights and obligations between different parties. For reasons already set out, there is no contrary requirement in the Services Agreement and no resulting conflict from repeating clause 63.2 there.
28. The result gives rise to no commercial absurdity. There is nothing contrary to common sense in having a restriction on the right to litigate. There are obvious reasons why parties may find certainty and finality advantageous. I note in passing that, of course, the restriction operates bilaterally, though that is not critical.
29. The plea to the commercial purpose of recital (3), with references to the requirements of the Main Contract and the need to tie up the substantive matters affecting performance, cannot avail the claimant. The second sentence of recital (3) is without prejudice to the generality of the first sentence. The acknowledgement in clause 2 is without prejudice to the specific terms and obligations in the Services Agreement and does not purport to reduce the ambit of recital (3). That recital is clear and unambiguous.
30. Mr Quiney relied on the principles discussed in and confirmed by the Court of Appeal's decision in the Nobahar-Cookson case. That case does not assist the claimant. There was there an exclusion or limitation clause, as set out in paragraph 5 of the judgment of Briggs LJ, which excluded liability unless the buyer served a notice within a given time after becoming 'aware of the matter'. As appears from paragraph 9 of the judgment, the argument related to three possible alternative constructions of the phrase 'aware of the matter'. The important paragraphs of the judgment for present purposes are paragraphs 16, 18, and 19. In paragraph 16, Briggs LJ said: 'Recent decisions about exclusion clauses have continued to affirm the utility of the principle, but if necessary to resolve ambiguity, they should be narrowly construed, including in relation to commercial contracts.' In paragraph 18 he said (I omit references):

'In my judgment, the underlying rationale for the principle that, if necessary to resolve ambiguity, exclusion clauses should be narrowly construed, has nothing to do with the identification of the proper aims either of the document as a whole or of the clause in question. Nor is it a principle derived from an identification of the person seeking to rely upon it. Ambiguity in an exclusion clause may have to be resolved by a narrow construction, because an exclusion clause cuts down or detracts from the ambit of some important obligation of the contract or a remedy conferred by the general law, such as, in the present case, an obligation to give effect to contractual warranty by paying compensation for breach of it. The parties are not likely to be taken to have intended to cut down the remedies which the law provides for breach of important contractual obligations, without using clear words having that effect.'

At paragraph 19 he said:

'This approach to exclusion clauses is not now regarded as a presumption, still less as a special rule justifying the giving of a strained meaning to a provision merely because it is an exclusion clause. Commercial parties are entitled to allocate between them the risk of something going wrong in their contractual relationship in any way they choose. Nor is it simply to be mechanistically applied wherever an ambiguity is identified in an exclusion clause. The court must still use all its tools of linguistic contextual, purposive and common sense analysis to discern what the clause really means.'

31. In Seadrill Management Services Ltd v OAO Gazprom [2010] EWCA Civ 691, Moore-Bick LJ described the principle as 'essentially one of common sense; parties do not normally give up valuable rights without making it clear that they intend to do so.' In the present case, however, there is no ambiguity. The first question is whether the clause in question is incorporated. That is principally a matter of the construction of recital (3) in the wider context of the understanding of both of the relevant contracts, but it does not raise any ambiguity regarding the supposedly offending clause, or indeed for that matter, the meaning of recital (3).
32. The second question is the construction of clause 63.2, which is the clause that purports to restrict a valuable right, namely the right to litigate. However, nobody says that clause 63.2 is ambiguous. The argument was focused on whether or not it was incorporated, and it seems to me that the principles in Nobahar-Cookson have no genuine application to the present case. The relevant clause is, in my judgement, clearly incorporated and its meaning is clear, and for these reasons I answer the question in the claim form 'yes'.