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England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Harding (t/a M J Harding Contractors) v Paice & Anor  EWCA Civ 1231 (01 December 2015)
Cite as:  2 All ER (Comm) 656,  BLR 85,  EWCA Civ 1231, 163 Con LR 299,  2 CLC 1003,  WLR 4068,  CP Rep 10,  1 WLR 4068,  2 All ER 819
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ON APPEAL FROM THE HIGH COURT OF JUSTICE, QUEEN'S BENCH DIVISION
THE HONOURABLE MR JUSTICE EDWARDS-STUART
Strand, London, WC2A 2LL
B e f o r e :
LADY JUSTICE RAFFERTY
LADY JUSTICE GLOSTER
| MATTHEW HARDING
(TRADING AS M J HARDING CONTRACTORS)
|(1) GARY GEORGE LESLIE PAICE
(2) KIM SPRINGALL
WordWave International Limited
Trading as DTI
165 Fleet Street, London EC4A 2DY
Tel No: 020 7404 1400, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
Mr David Sears QC and Mr Charles Pimlott (instructed by Silver Shemmings Llp) for the Respondents/Defendants
Hearing date: Wednesday 18th November 2015
Crown Copyright ©
Lord Justice Jackson :
|Part 1. Introduction||Paragraphs 2 to 15|
|Part 2. The facts||Paragraphs 16 to 34|
|Part 3. The present proceedings||Paragraphs 35 to 41|
|Part 4. The appeal to the Court of Appeal||Paragraphs 42 to 47|
|Part 5. The construction of paragraph 9 (2) of Part I of the Scheme||Paragraphs 48 to 61|
|Part 6. The scope and effect of Mr Linnett's decision in the third adjudication||Paragraphs 62 to 74|
|Part 7. Executive summary and conclusion||Paragraphs 75 to 79|
"Right to refer disputes to adjudication.
(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.
For this purpose "dispute" includes any difference.
(2) The contract shall include provision in writing so as to—
(a) enable a party to give notice at any time of his intention to refer a dispute to adjudication;
(b) provide a timetable with the object of securing the appointment of the adjudicator and referral of the dispute to him within 7 days of such notice;
(c) require the adjudicator to reach a decision within 28 days of referral or such longer period as is agreed by the parties after the dispute has been referred;
(d) allow the adjudicator to extend the period of 28 days by up to 14 days, with the consent of the party by whom the dispute was referred;
(e) impose a duty on the adjudicator to act impartially; and
(f) enable the adjudicator to take the initiative in ascertaining the facts and the law.
(3) The contract shall provide in writing 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.
The parties may agree to accept the decision of the adjudicator as finally determining the dispute.
(5) If the contract does not comply with the requirements of subsections (1) to (4), the adjudication provisions of the Scheme for Construction Contracts apply."
"Payment notices: contractual requirements
(1) A construction contract shall, in relation to every payment provided for by the contract—
(a) require the payer or a specified person to give a notice complying with subsection (2) to the payee not later than five days after the payment due date, or
(b) require the payee to give a notice complying with subsection (3) to the payer or a specified person not later than five days after the payment due date.
(2) A notice complies with this subsection if it specifies—
(a) in a case where the notice is given by the payer—
(i) the sum that the payer considers to be or to have been due at the payment due date in respect of the payment, and
(ii) the basis on which that sum is calculated;
(b) in a case where the notice is given by a specified person—
(i) the sum that the payer or the specified person considers to be or to have been due at the payment due date in respect of the payment, and
(ii) the basis on which that sum is calculated.
(3) A notice complies with this subsection if it specifies—
(a) the sum that the payee considers to be or to have been due at the payment due date in respect of the payment, and
(b) the basis on which that sum is calculated."
"Requirement to pay notified sum
(1) Subject as follows, where a payment is provided for by a construction contract, the payer must pay the notified sum (to the extent not already paid) on or before the final date for payment.
(2) For the purposes of this section, the "notified sum" in relation to any payment provided for by a construction contract means—
(a) in a case where a notice complying with section 110A(2) has been given pursuant to and in accordance with a requirement of the contract, the amount specified in that notice;
(b) in a case where a notice complying with section 110A(3) has been given pursuant to and in accordance with a requirement of the contract, the amount specified in that notice;
(c) in a case where a notice complying with section 110A(3) has been given pursuant to and in accordance with section 110B(2), the amount specified in that notice.
(3) The payer or a specified person may in accordance with this section give to the payee a notice of the payer's intention to pay less than the notified sum.
(4) A notice under subsection (3) must specify—
(a) the sum that the payer considers to be due on the date the notice is served, and
(b) the basis on which that sum is calculated.
It is immaterial for the purposes of this subsection that the sum referred to in paragraph (a) or (b) may be zero.
(5) A notice under subsection (3)—
(a) must be given not later than the prescribed period before the final date for payment, and
(b) in a case referred to in subsection (2)(b) or (c), may not be given before the notice by reference to which the notified sum is determined.
(6) Where a notice is given under subsection (3), subsection (1) applies only in respect of the sum specified pursuant to subsection (4)(a).
(7) In subsection (5), "prescribed period" means—
(a) such period as the parties may agree, or
(b) in the absence of such agreement, the period provided by the Scheme for Construction Contracts."
"9 – (1) An adjudicator may resign at any time on giving notice in writing to the parties to the dispute.
(2) An adjudicator must resign where the dispute is the same or substantially the same as one which has previously been referred to adjudication and a decision has been taken in that adjudication."
9.—(1) Where the parties to a construction contract fail, in relation to a payment provided for by the contract, to provide for the issue of a payment notice pursuant to section 110A(1) of the Act, the provisions of this paragraph apply.
(2) The payer must, not later than five days after the payment due date, give a notice to the payee complying with sub-paragraph (3).
(3) A notice complies with this sub-paragraph if it specifies the sum that the payer considers to be due or to have been due at the payment due date and the basis on which that sum is calculated.
(4) For the purposes of this paragraph, it is immaterial that the sum referred to in subparagraph (3) may be zero.
(5) A payment provided for by the contract includes any payment of the kind mentioned in paragraph 2, 5, 6, or 7 above.
Notice of intention to pay less than the notified sum
10. Where, in relation to a notice of intention to pay less than the notified sum mentioned in section 111(3) of the Act, the parties fail to agree the prescribed period mentioned in section 111(5), that notice must be given not later than seven days before the final date for payment determined either in accordance with the construction contract, or where no such provision is made in the contract, in accordance with paragraph 8 above."
"Termination by Contractor
8.9 Default by Employer
.1 If the Employer:
.1 does not pay by the final date for payment the amount due to the Contractor in accordance with clause 4.11 and/or any VAT properly chargeable on that amount; or
.2 interferes with or obstructs the issue of any certificate due under the Contract; or
.3 fails to comply with clause 7.1; or
.4 fails to comply with clause 3.18,
the Contractor may give to the Employer a notice specifying the default or defaults (the 'specified default or defaults').
.2 If before practical completion of the Works the carrying out of the whole or substantially the whole of the uncompleted Works is suspended for a continuous period of the length stated in the Contract Particulars by reason of:
.1 Architect/Contract Administrator's instructions under clause 2.13, 3.11 or 3.12; and/or
.2 any impediment, prevention or default, whether by act or omission, by the Employer, the Architect/Contract Administrator, the Quantity Surveyor or any of the Employer's Persons
(but in either case excluding such instructions as are referred to in clause 126.96.36.199), then, unless in either case that is caused by the negligence or default of the Contractor or of any of the Contractor's Persons, the Contractor may give to the Employer a notice specifying the event or events (the 'specified suspension event or events').
.3 If a specified default or a specified suspension event continues for 14 days from the receipt of notice under clause 8.9.1 or 8.9.2, the Contractor may on, or within 21 days from, the expiry of that 14 day period by a further notice to the Employer terminate the Contractor's employment under this Contract.
Consequences of Termination under clauses 8.9 to 8.12, etc.
8.12 If the Contractor's employment is terminated under any of clauses 8.9 to 8.11, under clause 188.8.131.52 or under paragraph C.4.4 of Schedule 1:
.1 no further sums shall become due to the Contractor otherwise than in accordance with this clause 8.12;
.2 the Contractor shall with all reasonable dispatch remove or procure the removal from the site of any temporary buildings, plant, tools and equipment belonging to the Contractor and Contractor's Persons and, subject to the provisions of clause 8.12.5, all goods and materials (including Site Materials);
.3 where the Contractor's employment is terminated under clause 8.9 or 8.10, the Contractor shall as soon as reasonably practicable prepare and submit an account or, where terminated under clause 8.11 or 184.108.40.206 or under paragraph C.4.4 of Schedule 1, the Contractor shall at the Employer's option either prepare and submit that account or, not later than 2 months after the date of termination, provide the Employer with all documents necessary for the Employer to do so, which the Employer shall do with reasonable dispatch (and in any event within 3 months of receipt of such documents). The account shall set out the amounts referred to in clauses 220.127.116.11 to 18.104.22.168 and, if applicable, clause 22.214.171.124, namely:
.1 the total value of work properly executed at the date of termination of the Contractor's employment, ascertained in accordance with these Conditions as if the employment had not been terminated, together with any other amounts due to the Contractor under these Conditions;
.2 any sums ascertained in respect of direct loss and/or expense under clause 4.17 (whether ascertained before or after the date of termination);
.3 the reasonable cost of removal under clause 8.12.2;
.4 the cost of materials or goods (including Site Materials) properly ordered for the Works for which the Contractor then has paid or is legally bound to pay;
.5 any direct loss and/or damage caused to the Contractor by the termination;
.4 the account shall include the amount, if any, referred to in clause 126.96.36.199 only where the Contractor's employment is terminated either:
.1 under clause 8.9 or 8.10; or
.2 under clause 188.8.131.52, if the loss or damage to the Works occasioned by any of the Specified Perils was caused by the negligence or default of the Employer or of any of the Employer's Persons;
.5 after taking into account amounts previously paid to the Contractor under this Contract, the Employer shall pay to the Contractor (or vice versa) the amount properly due in respect of the account within 28 days of its submission to the other Party, without deduction of any retention. Payment by the Employer for any such materials and goods as are referred to in clause 184.108.40.206 shall be subject to such materials and goods thereupon becoming the Employer's property"
9.2 If a dispute or difference arises under this Contract which either Party wishes to refer to adjudication, the Scheme shall apply, subject to the following:
.1 for the purposes of the Scheme the Adjudicator shall be the person (if any) and the nominating body shall be that stated in the Contract Particulars; …"
The nominating body in this case was the Royal Institution of Chartered Surveyors.
i) A decision that PS, having failed to serve any effective Pay Less notice, were obliged to pay £397,912 to Harding pursuant to section 111 (1) of the 1996 Act; alternatively
ii) A decision that £397,912 was the sum properly due to Harding under clause 8.12 of the contract conditions.
i) The employer's termination of the contract was invalid.
ii) The contractor effectively terminated the contract on the grounds of lack of instructions.
iii) PS's Pay Less notice was invalid because it did not specify the basis of the employer's contentions.
iv) Accordingly under section 111 of the 1996 Act PS were required to pay £397,912 to Harding.
v) In those circumstances it was not necessary to decide whether or not £397,912 represented a correct valuation of the works in accordance with clause 8.12 of the contract conditions.
"i. That the Value of the Contract Works (as per Priced Document: Contract Sum Analysis) is the sum of £340,032,60 or such other sum as the Adjudicator shall decide;
ii. That the value of Variations and/or loss and/or expense and/or damages is in the sum of -£5,473,01 or such other sum as the Adjudicator shall decide;
iii. That the value of loss of profit is in the sum of £ NIL or such other sum as the Adjudicator shall decide;
iv. That the value of abatement and/or set off for defective works is in the sum of £45,400.00 or such other sum as the Adjudicator shall decide;
v. As to the amount due from Harding to us or from us to Harding as applicable;…"
i) The adjudicator decided that PS were obliged to pay the sum shown on the face of the contractor's account because they had failed to serve a compliant Pay Less notice.
ii) As a result of the adjudicator's decision PS were obliged to pay that sum over to Harding, which they had duly done.
iii) The failure to serve a compliant Pay Less notice could not deprive PS for ever of the right to challenge the contractor's account.
iv) PS were entitled to have determined either by adjudication or litigation the question of what sum was properly due in respect of Harding's account.
v) Accordingly PS were entitled to proceed with the fourth adjudication.
i) The judge erred in his construction of paragraph 9 (2) of Part I of the Scheme.
ii) The judge erred in his analysis of the scope and effect of Mr Linnett's decision in the third adjudication.
"31. Section 108(3) of the 1996 Act and paragraph 23 of the Scheme provide for the temporary binding finality of an adjudicator's decision. More than one adjudication is permissible, provided a second adjudicator is not asked to decide again that which the first adjudicator has already decided. Indeed paragraph 9(2) of the Scheme obliges an adjudicator to resign where the dispute is the same or substantially the same as one which has previously been referred to adjudication and a decision has been taken in that adjudication.
32. So the question in each case is, what did the first adjudicator decide? The first source of the answer to that question will be the actual decision of the first adjudicator. In the present appeal, Mr Holt did not even take us to the first adjudicator's decision, although he was invited more than once by the court to do so. He was conscious, no doubt, that it would show, as it does, that the decision was limited to the grounds for extension of time in the two letters.
33. The scope of an adjudicator's decision will, of course, normally be defined by the scope of the dispute that was referred for adjudication. This is the plain expectation to be derived from section 108 of the 1996 Act and paragraphs 9(2) and 23 of the Scheme. That is also the plain expectation of paragraph 9(4) of the Scheme, which refers to a dispute which varies significantly from the dispute referred to the adjudicator in the referral notice and which for that reason he is not competent to decide. There may of course be some flexibility, in that the scope of a dispute referred for adjudication might by agreement be varied in the course of the adjudication."
"Whether dispute A is substantially the same as dispute B is a question of fact and degree. If the contractor identifies the same Relevant Event in successive applications for extensions of time, but gives different particulars of its expected effects, the differences may or may not be sufficient to lead to the conclusion that the two disputes are not substantially the same. All the more so if the particulars of expected effects are the same, but the evidence by which the contractor seeks to prove them is different."
Accordingly, the dispute hereby referred and what MJH seeks is:
159.1. pursuant to, amongst others, paragraphs 20 to 26 above [these paragraphs rely upon section 111 of the 1996 Act and the lack of a valid Pay Less notice], a Decision that the Employer must and shall immediately pay MJH the sum of £397,912.48 being the outstanding sum under the Contract since 6 September 2014 or such other sum as the Adjudicator shall decide;
159.2 in the alternative, without prejudice to MJH's primary position which is expressly reserved, a Decision that after taking into account amounts actually and physically previously paid to MJH under the Contract the amount properly due to MJH in respect of the account and that shall be paid by the Employer to MJH on or before 6 September 2014, without deduction of any retention, (or any other sum for that matter), shall be the sum of £397,912.48 in accordance with MJH's Cl.8.12 Account (which forms Exhibit A attached hereto) or such other sum as the Adjudicator shall decide."
"185. For the avoidance of doubt, I stress that I have not decided on the merits of Harding's valuation and have not decided that £397,912.48 represents a correct valuation of the works. The parties made submissions in this adjudication about the proper valuation but these did not fall to be considered by me because of the rule relating to a notified sum becoming automatically due in the absence of a valid pay-less notice."
"What Lidl might have done, after Mr Bergin's decision, was to have sought a declaration from an adjudicator as to what is quite clearly in dispute which is the true value of the final account."
"Sheriff Taylor's analysis, once articulated, is obviously right. And it has a series of advantages:
(a) It makes irrelevant the problem with the narrow construction – namely that Parliament was setting up a complex and fuzzy line between sums due on the one hand and counterclaims on the other – a line somewhere to be drawn between set-off, claims for breach of contract which do no more than reduce the sum due and claims which go further, abatement and so on.
(b) It provides a fair solution, preserving the builder's cash flow but not preventing the client who has not issued a withholding notice from raising the disputed items in adjudication or even legal proceedings.
(c) It requires the client who is going to withhold to be specific in his notice about how much he is withholding and why, thus limiting the amount of withholding to specific points. And these must be raised early.
(d) It does not preclude the client who has paid from subsequently showing he has overpaid. If he has overpaid on an interim certificate the matter can be put right in subsequent certificates. Otherwise he can raise the matter by way of adjudication or if necessary arbitration or legal proceedings."
"18. I held [in ISG v Seevic] that if an employer fails to serve the relevant notices under this form of contract it must be deemed to have agreed the valuation stated in the relevant interim application, right or wrong. Accordingly, the adjudicator must be taken to have decided the question of the value of the work carried out by the contractor for the purposes of the interim application in question.
19. However, I made it clear that this agreement as to the amount stated in a particular interim application (and hence as to the value of the work on the relevant valuation date) could not constitute any agreement as to the value of the work at some other date (see paragraph 31).
20. This means that the employer cannot bring a second adjudication to determine the value of the work at the valuation date of the interim application in question. But it does not mean any more. There is nothing to prevent the employer challenging the value of the work on the next application, even if he is contending for a figure that is lower than the (unchallenged) amount stated in the previous application. If this was not made clear by my judgment, then it should have been, and it is certainly made clear by the decision of the Court of Appeal in Rupert Morgan Building Services (LLC) Ltd v Jervis  1 WLR 1867, in particular the passage from paragraph 14 that is set out in paragraph 30 below. My judgment in ISG v Seevic was not intended to go behind that."
Lady Justice Rafferty:
Lady Justice Gloster: