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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Steve Ward Services (UK) Ltd v Davies & Davies Associates Ltd [2022] EWCA Civ 153 (14 February 2022) URL: https://www.bailii.org/ew/cases/EWCA/Civ/2022/153.html Cite as: [2022] EWCA Civ 153, 203 Con LR 57 |
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ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURT OF ENGLAND AND WALES
TECHNOLOGY AND CONSTRUCTION COURT
MR ROGER TER HAAR QC (Sitting as Deputy High Court Judge)
Strand, London, WC2A 2LL |
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B e f o r e :
LORD JUSTICE COULSON
and
LORD JUSTICE ARNOLD
____________________
Steve Ward Services (UK) Limited |
Appellant |
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- and - |
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Davies & Davies Associates Limited |
Respondent |
____________________
Nigel Davies appeared in person for the Respondent
Hearing Date : 25 January 2022
____________________
Crown Copyright ©
LORD JUSTICE COULSON :
1. INTRODUCTION AND PRELIMINARY PROCEDURAL MATTERS
2. THE FACTS
2.1 The Background
"The Client hereby agrees to engage the Contractor to provide the Client with the following services…"
Those services were described as "design, supply and build of Funky Brownz…internal decorations".
2.2 The Terms of Mr Davies' Appointment
"The adjudicator is proceeding in accordance with the CIC LVD MAP current as at the date of this letter unless either Party objects in writing within 48 hours of receipt of this letter, in the event of which the said CIC LVD MAP will not apply on an ab initio basis (i.e. from the date of the RICS's nomination)."
As I have said, there was no such objection.
"Basis of Charge
"Time related for hours expended working or travelling in connection with the Adjudication including all time up to settlement of any Fee Invoice, which, for the avoidance of doubt, may include any time including Court time, spent securing payment of any fees, expenses and disbursements due.
Amount of Charge
The Adjudicator's (Nigel J. Davies) fee shall be charged in accordance with the CIC LVD MAP current as at the date of this letter as set out in Schedule 1 thereto. Should the said CIC LVD MAP cease to apply then the amount of charge for the Adjudicator shall be £325 per hour applied on an ab initio basis, i.e. it will be applied from the date of the Adjudicator's nomination by the RICS.
In any event the CIC LVD MAP shall no longer apply from the point at which a CIC LVD MAP Decision is delivered and thereafter the £325 per hour charge shall apply, e.g. in relation to securing unpaid fees, expenses and disbursements due.….
Frequency of Charge
A Fee Invoice will be raised and is due for payment 7 days thereafter.
In the event of the Adjudication ceasing for any reason whatsoever prior to a Decision being reached, a Fee Invoice will be raised immediately and is due for payment 7 days after the date of the Invoice.
In the event of any invoice not being settled as stated an additional charge may be raised for interest charges, which charges will be calculated at the rate of 2.5% per calendar month or pro-rata any part thereof, for the period between the date of invoice and the date of payment in full of that invoice.
Miscellaneous Provisions:
1. The Parties agree jointly and severally to pay the Adjudicator's fees and expenses as set out in this Schedule. Save for any act of bad faith by the Adjudicator, the Adjudicator shall also be entitled to payment of his fees and expenses in the event that the Decision is not delivered and/or proves unenforceable.…
3. The Parties acknowledge that the Adjudicator shall not be liable for anything done or omitted in the discharge or purported discharge of his functions as Adjudicator (whether in negligence or otherwise) unless the act or omission is in bad faith, and any employee or agent of the Adjudicator shall be similarly protected from liability.
4. The Adjudicator is appointed to determine the dispute or disputes between the Parties and his decision may not be relied upon by third parties, to whom he shall owe no duty of care…."
(Emphasis supplied)
"31. The Adjudicator may resign at any time on giving notice in writing to the Parties.
The Decision
32. The Adjudicator shall reach their decision within the time limits in paragraph 21 above and issue the decision as soon as possible after that. The Adjudicator shall be required to give reasons unless both Parties agree at any time that the Adjudicator shall not be required to give reasons.
33. If the Adjudicator fails to reach or issue a decision in accordance with paragraph 32 above, the Adjudicator shall not be entitled to any fees or expenses."
(a) Paragraph 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.
(3) Where an adjudicator ceases to act under paragraph 9(1) –
(a) the referring party may serve a fresh notice under paragraph 1 and shall request an adjudicator to act in accordance with paragraphs 2 to 7; and
(b) if requested by the new adjudicator and insofar as it is reasonably practicable, the parties shall supply him with copies of all documents which they had made available to the previous adjudicator.
(4) Where an adjudicator resigns in the circumstances referred to in paragraph (2), or where a dispute varies significantly from the dispute referred to him in the referral notice and for that reason he is not competent to decide it, the adjudicator shall be entitled to the payment of such reasonable amount as he may determine by way of fees and expenses reasonably incurred by him. Subject to any contractual provision pursuant to section 108A(2) of the Act, the adjudicator may determine how the payment is to be apportioned and the parties are jointly and severally liable for any sum which remains outstanding following the making of any such determination."
(b) Paragraph 11:
"(1) The parties to a dispute may at any time agree to revoke the appointment of the adjudicator. The adjudicator shall be entitled to the payment of such reasonable amount as he may determine by way of fees and expenses incurred by him. Subject to any contractual provision pursuant to section 108A(2) of the Act, the adjudicator may determine how the payment is to be apportioned and the parties are jointly and severally liable for any sum which remains outstanding following the making of any such determination.
(2) Where the revocation of the appointment is due to the default or misconduct of the adjudicator, the parties shall not be liable to pay the adjudicator's fees and expenses."
(c) Paragraph 12:
"The adjudicator shall –
(a) act impartially in carrying out his duties and shall do so in accordance with any relevant terms of the contract and shall reach his decision in accordance with the applicable law in relation to the contract; and
(b) avoid incurring unnecessary expense."
(d) Paragraph 13:
"The adjudicator may take the initiative in ascertaining the facts and the law necessary to determine the dispute, and shall decide on the procedure to be followed in the adjudication….."
(e) Paragraph 20:
"The adjudicator shall decide the matters in dispute. He may take into account any other matters which the parties to the dispute agree should be within the scope of the adjudication or which are matters under the contract which he considers are necessarily connected with the dispute …."
(f) Paragraph 25:
"The adjudicator shall be entitled to the payment of such reasonable amount as he may determine by way of fees and expenses reasonably incurred by him. Subject to any contractual provision pursuant to section 108A(2) of the Act, the adjudicator may determine how the payment is to be apportioned and the parties are jointly and severally liable for any sum which remains outstanding following the making of any such determination."
(g) Paragraph 26:
"The adjudicator shall not be liable for anything done or omitted in the discharge or purported discharge of his functions as an adjudicator unless the act or omission is in bad faith, and any employee or agent of the adjudicator shall be similarly protected from liability."
2.3 The Resignation of Mr Davies
"Please could you explain to me why this adjudication is being commenced against Bhavishya Investment Limited? Why does the Referral paragraph 3 identified it as the "Employer" under the contract, which document is identified at Referral paragraph 4 and 5 in addition to Referral tab 1?
The document at Referral tab 2 identifies the client as Vaishali Patel, so why commence an adjudication against Bhavishya investment Limited?"
a) "On what documented, pre-contract basis do you assert that Vaishali Patel held herself out as acting on behalf of BIL?"
He sought documents showing that Ms Patel acted not in her personal capacity but on behalf of BIL, "in circumstances where the contract on which SWS relied to bring the adjudication does not refer to BIL".
b) "Even if BIL were the owners of the property, how was that relevant or determinative of the identity of the contracting parties?"
c) "How does the fact that the point has been missed by at least the Responding party's representative change the stated identity of the contracting parties?"
"We can confirm that Bhavishya Investment Limited are the landlords who commissioned the works"."
That again did not answer any of the adjudicator's questions, and did not tell him anything he did not already know.
3. THE JUDGMENT AND THE ISSUES ON APPEAL
a) Issue 1: Was there a jurisdictional issue in the adjudication? (Section 4 below);
b) Issue 2: Was Mr Davies entitled to decline jurisdiction and resign in consequence? (Section 5 below);
c) Issue 3: Subject to bad faith, was Mr Davies entitled to be paid for the work done prior to his resignation? (Section 6 below);
d) Issue 4: Was Mr Davies guilty of bad faith? (Section 7 below);
e) Issue 5: Were Mr Davies' own terms of appointment contrary to UCTA? (Section 8 below);
f) Issue 6: Should this court interfere with the judge's costs order? (Section 9 below).
4 ISSUE 1: WAS THERE A JURISDICTIONAL ISSUE IN THE ADJUDICATION?
4.1 The Judgment
4.2 The Law
4.3 Discussion
5. ISSUE 2: WAS MR DAVIES ENTITLED TO DECLINE JURISDICTION AND RESIGN IN CONSEQUENCE?
5.1 The Judgment
"61. The effect of what the Adjudicator did was to deprive the parties of an answer to their differences as to what sum was payable (either by Ms Patel or by BIL) in respect of the project. However it is fair to say that BIL never showed any enthusiasm for this dispute to be aired.
62. The conclusion to which I have come is that the route which the Adjudicator took was outside the ambit of paragraph 13 of the Scheme: that paragraph entitles the Adjudicator to investigate matters "necessary to determine the dispute", which necessarily involves the question, what is the dispute? At the time when the Adjudicator resigned, there was no dispute either as to the identity of the contracting parties or as to his jurisdiction.
63. Accordingly, in my view the Adjudicator's reasoning in deciding to resign on the basis that he had no jurisdiction when that was not an issue which the parties had referred to him was erroneous."
"66. I do not accept that characterisation of what the Adjudicator did. Far from "abandoning his appointment", the Adjudicator acted in accordance with what he regarded as being his duty. Far from there being a "deliberate and impermissible refusal to provide a Decision", the Adjudicator resigned upon the basis that it was not open to him to reach a Decision in a dispute between the Defendant and BIL of the rights and obligations of a contract between the Defendant and Ms Patel. That is very far from being a "deliberate and impermissible refusal to provide a Decision"."
It appears that SWS' characterisation of Mr Davies' conduct, which the judge here rejected, was linked to an earlier assertion in the Costigan King correspondence that Mr Davies had wrongfully repudiated his contract of appointment. That particular assertion was not maintained on appeal. It was plainly wrong given Mr Davies' unqualified right to resign (paragraph 56 below).
5.2 The Law
5.3 Discussion
6. ISSUE 3: SUBJECT TO BAD FAITH, WAS MR DAVIES ENTITLED TO BE PAID FOR THE WORK DONE PRIOR TO RESIGNATION?
6.1 The Judgment
"72. Mr Bowling draws attention to the word "also" in the second sentence of this Clause. He distinguishes this case from cases such as those where an Adjudicator issues an unenforceable decision or produces a decision but fails to deliver it in time. Here, he says, the Adjudicator at one and the same time managed to abdicate his responsibility, exceeded his jurisdiction and failed to exhaust it. He says that this is a situation or a congeries of situations to which Clause 1 does not apply.
73. I do not agree with this submission: in my judgment the Clause means that in addition to being paid for producing a Decision (which is the normal event upon the occurrence of which an Adjudicator is entitled to payment) the Adjudicator is entitled to be paid his fees for work done unless there has been an act of bad faith on the Adjudicator's part."
6.2 The Law
"26. But the terms of engagement must be read together with the terms of the Scheme. The significance of the Scheme is that it contains important provisions which deal with the question of remuneration in the event that the adjudicator does not reach a decision in various circumstances. Para 8(4) provides that, where an adjudicator ceases to act because a dispute is to be adjudicated by another person, he is entitled to payment of his fees and expenses in accordance with para 25. Para 9(1) provides that an adjudicator may resign at any time on notice. Para 9(2) provides that 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. Para 9(4) provides that where an adjudicator resigns in the circumstances referred to in para 9(2), or where a dispute varies significantly from the dispute referred to him in the referral notice and for that reason he is not competent to decide it, he is entitled to payment of reasonable fees and expenses. It is significant that, if the adjudicator resigns by giving notice under para 9(1), he is not entitled to any remuneration. This shows that the adjudicator is entitled to fees and expenses where he does not complete his engagement by making a decision, but only in carefully defined circumstances. The contrast between the treatment of a resignation under para 9(1) and 9(2) is striking.
27. A similar contrast is made at para 11 in relation to the adjudicator's remuneration in the event of a revocation of his appointment. Para 11(1) provides that the parties may at any time agree to revoke the appointment for any reason. In that event, the adjudicator is entitled to payment of reasonable fees and expenses. But if the revocation is due to "the default or misconduct of the adjudicator", para 11(2) provides that there is no entitlement to fees or expenses…
31. None of the circumstances mentioned in para 8(4), 9(2) or 11(1) existed in this case. It follows that the adjudicator had no discrete entitlement to his fees and expenses for the ancillary and anterior functions that he performed. I should add that I accept the submission of Mr Bowling that these functions, which included making directions, considering the papers and so on, had no discrete value to the parties. Even the adjudicator's decision on the jurisdiction issue to which I referred at para 3 above was of no value in itself. It did not produce a decision which was binding in any future adjudication: it is well established that an adjudicator does not have inherent power to decide his own jurisdiction: see Coulson, Construction Adjudication (2nd edition) at para 7.09…
33. Para 11(2) of the Scheme provides powerful support for PCH's case. If the adjudicator's appointment is revoked due to his default or misconduct, he is not entitled to any fees. It can hardly be disputed that the making of a decision which is unenforceable by reason of a breach of the rules of natural justice is a "default" or "misconduct" on the part of the adjudicator. It is a serious failure to conduct the adjudication in a lawful manner. If during the course of an adjudication, the adjudicator indicates that he intends to act in breach of natural justice (for example, by making it clear that he intends to make a decision without considering an important defence), the parties can agree to revoke his appointment. In that event, the adjudicator is not entitled to any remuneration. It makes no sense for the parties to agree that the adjudicator is not entitled to be paid if his appointment is revoked for default or misconduct before he makes his purported decision, but to agree that he is entitled to full remuneration if the same default or misconduct first becomes manifest in the decision itself. I would not construe the agreement as having that nonsensical effect unless compelled to do so by express words or by necessary implication. I can find no words which yield such a meaning either expressly or by necessary implication."
"46. I doubt if the present decision should have any very great ramifications. Prior to this case, I personally had had little acquaintance with the adjudication Scheme under the 1996 Act. It appears, from what we were told, generally to be working very well indeed – and not least, I suspect, because of the short prescribed time limits and the splendid "pay now, argue later" approach, which is thoroughly to be commended. At all events in the fifteen years or so since the scheme has been operating this particular kind of dispute about fees seems, as we were told, not previously to have surfaced in the courts. In any case, if this decision does give rise to concerns on the part of adjudicators then the solution is in the market-place: to incorporate into their Terms of Engagement (if the parties to the adjudication are prepared to agree) a provision covering payment of their fees and expenses in the event of a decision not being delivered or proving to be unenforceable. It is of course a consequence of this court's conclusion that it is for the adjudicator to stipulate for such a term: not for the parties to the adjudication to stipulate to the contrary."
a) Under the provisions of the Scheme, an adjudicator is entitled to resign. No reason is required.
b) Whether or not the adjudicator is entitled to fees following any such resignation will depend on i) the precise terms of his or her appointment, and ii) the conduct of the adjudicator.
c) The court's consideration of conduct may involve asking why the adjudicator resigned, so it may matter whether the adjudicator was right or wrong to resign. To that extent, I disagree with the learned district judge in Paul Jensen, although he was quite right in the result because of the absence in that case of any allegation of default or misconduct.
d) A finding that the resignation involved or was the result of default/misconduct or bad faith, depending on the terms of appointment, will - in accordance with the general approach in PC Harrington - usually be sufficient to disentitle the adjudicator from recovering fees. Conversely, absent such a finding, there will usually be an entitlement to the fees incurred prior to resignation.
6.3 Discussion
7. ISSUE 4: WAS MR DAVIES GUILTY OF BAD FAITH ?
7.1 The Judgment
"79. I do not think it desirable in this case, where I have heard argument limited to the facts of this particular case, to discuss at any length the limits of "bad faith" in construing a clause such as Clause 1. It is sufficient for me to say that a situation such as this where an Adjudicator acting with diligence and honesty comes to the conclusion that the proper course is for him to exercise his right under Paragraph 9(1) of the Scheme to resign is not a situation within the expression "bad faith".
80. Accordingly, my conclusion is that on the true construction of his terms and conditions, the Adjudicator was entitled to be paid for the work done by him, subject to the application of the Unfair Contract Terms Act 1977 ("UCTA"), to which I refer below."
7.2 The Law
"138. In addition to honesty, there are other standards of commercial dealing which are so generally accepted that the contracting parties would reasonably be understood to take them as read without explicitly stating them in their contractual document. A key aspect of good faith, as I see it, is the observance of such standards. Put the other way round, not all bad faith conduct would necessarily be described as dishonest. Other epithets which might be used to describe such conduct include "improper", "commercially unacceptable" or "unconscionable".
139. Another aspect of good faith which overlaps with the first is what may be described as fidelity to the parties' bargain. The central idea here is that contracts can never be complete in the sense of expressly providing for every event that may happen. To apply a contract to circumstances not specifically provided for, the language must accordingly be given a reasonable construction which promotes the values and purposes expressed or implicit in the contract. That principle is well established in the modern English case law on the interpretation of contracts: see e.g. Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900; Lloyds TSB Foundation for Scotland v Lloyds Banking Group Plc [2013] UKSC 3 at [23], [45] and [54]. It also underlies and explains, for example, the body of cases in which terms requiring cooperation in the performance of the contract have been implied: see Mackay v Dick (1881) 6 App Cas 251, 263; and the cases referred to in Chitty on Contracts (31st Ed), Vol 1 at paras 13-012 – 13-014…
144. Although its requirements are sensitive to context, the test of good faith is objective in the sense that it depends not on either party's perception of whether particular conduct is improper but on whether in the particular context the conduct would be regarded as commercially unacceptable by reasonable and honest people. The standard is thus similar to that described by Lord Nicholls in a different context in his seminal speech in Royal Brunei Airlines v Tan [1995] 2 AC 378 at pp.389-390. This follows from the fact that the content of the duty of good faith is established by a process of construction which in English law is based on an objective principle. The court is concerned not with the subjective intentions of the parties but with their presumed intention, which is ascertained by attributing to them the purposes and values which reasonable people in their situation would have had."
7.3 Discussion
8. ISSUE 5: WAS CLAUSE 1 CONTRARY TO UCTA?
8.1 The Judgment
"84. I have considerable doubt whether Clause 1 is caught by Section 3 of UCTA. Clause 1 is simply concerned with payment of the Adjudicator's fees. It says nothing about what contractual performance the Adjudicator is expected to perform. In any event, paragraph 9(1) of the Statutory Scheme gives the Adjudicator an unfettered right to resign which is relevant to the contractual performance that the Adjudicator is expected to perform
85. If I am wrong as to the application of section 3, I have no hesitation in holding that Clause 1 satisfied the requirement of reasonableness in UCTA:
(1) The provision was drafted with the judgment of Davis L.J. in mind and therefore in accordance with terms which the Court of Appeal regarded as being capable of being commercially acceptable – I put it that way because ultimately what is acceptable is a matter for the contracting parties;
(2) On Mr Bowling's submissions, the Adjudicator's terms are terms commonly found;
(3) There was no inequality of bargaining power;
(4) The Defendant could have rejected the terms (and sought a different adjudicator), but instead accepted them not once but twice: on each occasion the Defendant was represented by solicitors with enormous experience and expertise in respect of adjudications."
8.2 The Law
"Liability arising in contract.
(1) This section applies as between contracting parties where one of them deals on the other's written standard terms of business.
(2) As against that party, the other cannot by reference to any contract term—
(a) when himself in breach of contract, exclude or restrict any liability of his in respect of the breach; or
(b) claim to be entitled—
(i) to render a contractual performance substantially different from that which was reasonably expected of him, or
(ii) in respect of the whole or any part of his contractual obligation, to render no performance at all, except in so far as (in any of the cases mentioned above in this subsection) the contract term satisfies the requirement of reasonableness."
"75. …Here, there is no relevant obligation on the Claimant, and therefore nothing that can qualify as "contractual performance" for the purposes of section 3(2)(b)(i). Even if that is wrong, by fixing the rate of interest at a particular level the Claimant is not altering the performance of any obligation assumed by it under the contract. Rather, it is altering the performance required of the appellants.
76. There appears to be no authority in which the application of section 3(2)(b)(i) to a situation similar to that which exists in this case has been considered. The editors of Chitty on Contracts (28th edition) offer this view at paragraph 14-071:
"Nevertheless it seems unlikely that a contract term entitling one party to terminate the contract in the event of a material breach by the other (e.g. failure to pay by the due date) would fall within paragraph (b), or, if it did so, would be adjudged not to satisfy the requirement of reasonableness. Nor, it is submitted, would that provision extend to a contract term which entitled one party, not to alter the performance expected of himself, but to alter the performance required of the other party (e.g. a term by which a seller of goods is entitled to increase the price payable by the buyer to the price ruling at the date of delivery, or a term by which a person advancing a loan is entitled to vary the interest payable by the borrower on the loan)."
77. In my judgment, this passage accurately states the law. The contract term must be one which has an effect (indeed a substantial effect) on the contractual performance reasonably expected of the party who relies on the term. The key word is "performance". A good example of what would come within the scope of the statute is given at paragraph 14-070 of Chitty. The editors postulate a person dealing as a consumer with a holiday tour operator who agrees to provide a holiday at a certain hotel at a certain resort, but who claims to be entitled, by reference to a term of the contract to that effect, to be able to accommodate the consumer at a different hotel, or to change the resort, or to cancel the holiday in whole or in part. In that example, the operator has an obligation to provide a holiday. The provision of the holiday is the "contractual performance". But that does not apply here."
8.3 Discussion
9 ISSUE 6: SHOULD THIS COURT INTERFERE WITH THE JUDGE'S COSTS ORDER?
10. CONCLUSIONS
LORD JUSTICE ARNOLD
LORD JUSTICE MOYLAN