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


You are here: BAILII >> Databases >> England and Wales High Court (Technology and Construction Court) Decisions >> Alstom Signalling Ltd. (t/a Alstom Transport Information Solutions) v Jarvis Facilities Ltd [2004] EWHC 1285 (TCC) (28 May 2004)
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Cite as: [2004] EWHC 1285 (TCC)

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Neutral Citation Number: [2004] EWHC 1285 (TCC)

In The High Court of Justice
Queen's Bench Division
Technology and Construction Court

St Dunstans House
1 Fetter Lane
London
28 May 2004

B e f o r e :

His Honour Judge Humphrey LLoyd QC
____________________

Between:
ALSTOM SIGNALLING LIMITED (TRADING AS ALSTOM TRANSPORT INFORMATION SOLUTIONS)
Claimant
and

JARVIS FACILITIES LIMITED

Defendant
-and-


JARVIS FACILITIES LIMITED
Claimant
and

ALSTOM SIGNALLING LIMITED (TRADING AS ALSTOM TRANSPORT INFORMATION SOLUTIONS)
Defendant

____________________

Roger ter Haar QC appeared for Alstom, instructed by Lovells.
Martin Bowdery QC appeared for Jarvis, instructed by Eversheds.

____________________

HTML VERSION OF JUDGMENT
____________________

Crown Copyright ©

  1. Alstom Signalling Ltd (Alstom) was the main contractor engaged by Railtrack plc (Railtrack) to design, manufacture and install plant for a project to extend the Tyne and Wear Metro from Pelaw to South Hylton via Sunderland (the Sunderland Direct Project). The main contract was dated 14 December 1999. Alstom (which traded as Alstom Transport Information Solutions) engaged Jarvis Facilities Limited (Jarvis), to design, supply, install, test and commissioning of signalling and telecommunications equipment for the project. (Jarvis traded as Jarvis Rail.) For the purposes of these proceedings I assume that there was a sub-contract between Alstom and Jarvis (of which more anon). The facts that I set out are drawn primarily from the documents submitted by both parties but I also had witness statements from a number of people, including from or for Jarvis: Mr Alan Robson and Mr Peter Mills; and, for Alstom, Mr A. R. Marshall and Mr Nabeel Ikram.
  2. The subcontract included as Special Conditions (see schedule B) additions and amendments for use in conjunction with the I Chem E Model form for Process plants – SubContracts – Second Edition 1997. Clause 2.2 provided that in the event of conflict an order of priority was to be followed: SubContract Agreement; Schedule of Post Tender amendments – Annex B1; Schedule B – Special Conditions and Particular Conditions; Schedule A (main Contract Particulars; Schedule C – including Specification – annex C1; Schedule D, Schedule G (and thereafter the remaining Schedules followed in alphabetical order).
  3. Schedule E was entitled "Prices, Rates and Changes". It contained the following:
  4. "1.1 The Subcontract Price shall be determined by the application of the rules in this schedule.
    1.2 The SubContract Price shall be as set out in Annex E3 - Target Cost Summary."

    The Target Cost Summary in Annex E3 comprised Preambles as extracts from the main contract and schedules of "Basic Price Summary", a "Target Cost Reconciliation" etc and a sheet with "Potential Future Variations". The total was expressed to be £10,238,432.66.

  5. Schedule F contained Terms of Payment.
  6. "1.0 Payment of the subcontract price.
    1.1 Payment of the subcontract price shall be in accordance with the procedure as defined in 2.0 below at intervals as defined in Annex F1 – Project Cut-Off Dates.
    1.2 …
    1.3 It is the intention of the Employer, the Contractor and the Subcontractor to work towards a "Neutral Cash Flow" method of financing in order to reduce any financing allowance contained within the Management Fee.

    2.0 Submission of request for payment
    2.1 The Subcontractor shall submit to the Contractor, a request for payment in the following form:
    (a) For his first application the Subcontractor shall estimate the total of expenditure he has incurred up to the end of the period preceding the period in which he is making his application, coupled to this is his estimate for the value of work anticipated to be completed by the end of the period in which he is making his application,
    (b) For his second and subsequent applications the Subcontractor shall substantiate the previous estimate of the total of expenditure he applied for in the preceding application. He shall estimate the value of works up to the end of the preceding period in which he is making his application, coupled to this is his estimate for the value of work anticipated to be completed by the end of the period in which he is making his application.
    (c) With any current application there is a requirement to forecast the expected value of the works that will be undertaken in the period following the period in which he application is being made.

    2.2 The Subcontractor's request for payment shall be supported by all relevant documentary evidence as required, including a statement showing the manner in which the total requested has been calculated.

    2.3 The Subcontractor shall provide from commencement of the Project a detailed cashflow, which he will maintain on a period by period basis as part of the Project reporting requirement.

    2.4 The Subcontractor issues an application for payment every twenty eight days. This cycle shall correspond with the Railtrack payment and reporting cycle. The application by the Subcontractor shall occur on the Wednesday of the Railtrack reporting cycle. The contractor shall in the same week of such application, put to the Subcontractor any questions or queries in relation to information provided, and failing a satisfactory response from the Subcontractor, exclude such items from the certificate as disallowed costs. Such items may be included in a subsequent certificate when the Contractor has established their validity.

    2.5 Following the receipt of the application for payment from the Subcontractor, the Contractor shall issue a certificate for the instalment to which the request for payment relates. The certificate shall show the manner in which the total certified has been calculated under the terms of the contract.

    2.6 The Contractor shall pay to the Subcontractor the amount due on the certificate within seven days of the Railtrack certificate being issued in accordance with Annex F1 – the Project Cut-Off Dates (which contains the amount certified against the application aforementioned)."

    Annex F1 were calendars for 2000 and 2001 with the relevant dates (cost of work done; issue of weekly report) highlighted.

  7. Jarvis substantially completed its work in 2002. Thereafter a dispute or disputes arose about the amount claimed by Jarvis to be due to it as set out in its application for certificate no 31. On 15 October 2002 Alstom sent Jarvis a lengthy review. It set out why Alstom thought that the amount previously valued might be increased by some £126,000. However Alstom considered that nothing was payable because of the operation of a provision known as "pain-share" or "pain/gain". On 31 October 2002 Jarvis gave notice of adjudication. Mr Peter H.J. Chapman was the adjudicator. He gave a decision dated 18 December 2002. It read, in part:
  8. "Preliminary Issue
    As a Preliminary Issue in this Adjudication I was asked by the parties to decide on whether the contractual arrangements as to adjudication were compliant with the Housing Grants, Construction and Regeneration Act 1996. The reason for this preliminary determination was essentially a matter concerning my powers, as adjudicator, to award costs. If I were to find that the contractual adjudication provisions were non-compliant with the Act, the Railtrack Rules would not apply and the statutory scheme (The Scheme for Construction Contracts) would be deemed to control the adjudication procedure and thereby restrict certain powers that the contractual scheme made available to the adjudicator.
    In my letter to the parties dated 19 November 2002, and after hearing oral arguments from the Parties and reading various submissions on this matter, I determined that the Railtrack Rules were not Act-compliant and therefore the current adjudication would be conducted under the statutory scheme (the Scheme).
    Hearings
    The two hearings were arranged in which the Adjudicator was given an opportunity of hearing the parties and thereby forming a better understanding the competing positions.
    The first hearing took place on Friday 13 December 2002 at 46 Essex Street. In addition to the adjudicator, this hearing was attended by the following:
    From Jarvis:
    Alan Robson Esq
    Peter Slater Esq
    Peter Mills Esq of Eversheds
    From Alstom:
    Chris Fossey Esq
    Phil Taylor Esq
    Nabeel Ikram Esq of Lovells
    The second hearing took place on Monday 16 December 2002 at Evershed's offices in Queen Victoria Street, London at which the Parties, represented by leading Counsel argued before the Adjudicator issues concerning the terms of the unsigned contract and in particular whether this Contract contained what has become known as the pain-share/gain-share provision. Additionally, at the second hearing, other matters relating to the law pertaining to the parties' entitlements and obligations were discussed.
    At the second hearing, apart from myself, were:
    For Jarvis:
    Alan Robson Esq
    Richard Ward Esq of Eversheds
    Peter Mills Esq of Eversheds
    Martin Bowdery QC of Counsel
    For Alstom:
    Chris Fossey Esq
    Neil Irving Esq
    Tony Marshall Esq of Lovells
    Nabeel Ikram Esq of Lovells
    Roger Ter Haar QC of Counsel
    The Issues
    The basis of payment under the contract was that Jarvis, as Subcontractor, would be paid by Alstom, the Contractor, in accordance with Schedule E of the Conditions of Contract as a target cost. In their words Jarvis would be paid what the works cost plus a management fee to cover the work undertaken by Jarvis in managing the works.
    It is the referring party's case that Alstom had not complied with the Contract requirements in this regard. Particularly, Jarvis contend that Alstom failed to serve a Notice of Intention to withhold payment from Application 31 in the time prescribed by Section 111 of the Housing Grants, Construction and Regeneration Act 1996 and the Scheme for Construction Contracts 1998.
    Further, or in the alternative, Jarvis argue that Alstom failed to value properly Application 31 under the terms of the contract and alleged that a figure of £1,442,980 plus interest should be paid to Jarvis under the terms of the Contract.
    The referring party also alleges that, under Paragraph 2.4 of Schedule F of the Contract, Alstom was obliged within the same week of Application 31 to put to Jarvis any questions or queries provided with the application and only upon a failure by Jarvis to provide an adequate response to such questions or queries was Alstom entitled to exclude items from the Certificate as disallowed costs. In that Alstom failed to put to Jarvis any questions or queries in relation to information with Application 31 and within the same week of that application Alstom, by deducting this sum of almost one and a half million pounds, acted in breach of the Contract.
    The referring party also pleads that under the provisions of the Scheme at Section 110(3) of the scheme will determine a final date for making payment in the absence of the Contract specifying the same and that final date, in Jarvis' opinion, is seventeen days after the date that payment has become due. By Section 111 of the Act, a party to a construction contract may not withhold payment after the final date for payment unless he has given an effective notice of intention to withhold payment and, by paragraph 10 of the Scheme, an effective notice must not be given later than 7 days before the final date for payment. In that Jarvis allege that Alstom failed to serve effective notice Alstom are not entitled to withhold payment from any amounts applied for by Jarvis.
    Finally, the referring party alleged that Alstom's valuation fails to take into account the true value of the works and therefore represents a substantial under-valuation of the amount of payment to which Jarvis is entitled.
    Discussion
    Let me first remind the parties that we are currently in an adjudication, which, as I pointed out at the close of the second hearing, is an interim and provisional method of dispute resolution. In the time that I am permitted under the Housing Grants Construction and Regeneration Act, the degree of detail that can be investigated is limited. Furthermore, the time I have available to produce this decision document is exceedingly short (about 30 hours), due mainly to the late hearings held in this case. Consequently, my reasoning is brief although I assure the parties that I have given close attention and considerable thought to the matters in issue before formulating my decisions.
    Although I sincerely hope this decision will be the end of the matter between the parties, I am conscious that the final account has not yet been prepared and further adjudication or other means of dispute resolution may follow. I am also aware that my decision in this Sub-Contract dispute may have some influence 'up the contractual chain' even though adjudication decisions do not necessarily have to be followed by parties different from those contesting this reference.
    I will attempt to address each of the issues in turn, starting with what has become termed the pain/gain issue.
    [The adjudicator then dealt with the "Pain/Gain Issue" and the Burden of Proof Issue"]
    Housing Grants Construction and Regeneration Act Issues
    I was urged by Mr Bowdery to construe the HGCR Act 1996 in the spirit contemplated by the drafters – that is a statutory device that unlocks cash-flow (the construction industry's life-blood) to a contractor/subcontractor. I can assure both parties that I am fully aware of the industry practices and the commercial mischief that existed prior to the Act.
    Let me begin this section by addressing the matter of the 'amount or sum due'. Mr ter Haar tried most ably to convince me that the amount or sum due was the amount or sum that was certified and, as the provisions of the Act as to withholding notices applied to the sum due, if Alstom had actually paid the amount shown on the certificates there was withholding and thus no need for a withholding notice.
    He is correct in as far as he goes but his analysis stops short of what I consider to be a crucial element of this issue. In my view, and after reading Clause 2.4 and 2.6 of Schedule F to distraction, the amount due is the amount of the application minus only those items for which questions and queries have been raised within the stipulated period and for which no satisfactory response has been received. In other words, the amount due (on the certificate) is not necessarily what the certifier has stated on the bottom line if that certifier had acted in breach of contract. I believe this is the intent of the Act and I find support for my views when I read Section 111.
    Section 111(b) requires the paying party to state why monies are being withheld. The Act does not provide for such statements elsewhere. The applicant needs to know why its application is reduced by the certifier and therefore I believe the intent of the Act is that the withholding notice must reflect the difference between application and certificate – not between certificate and payment to be made. Reasons for this latter difference may be simply that the payer is impecunious and this is of small interest to the applicant albeit of consequence. The applicant cannot take steps to rectify the payer's position.
    Whilst I admit the Act could be clearer, as Adjudicator I must construe the Act in a manner that gives business efficacy to the provisions and reflects what I consider to be the intent of the legislature.
    As alluded to above, I consider that questions and queries pursuant to Clause 2.4 should be specific. I do not consider that Clause 2.4 is satisfied simply because questions and queries on matters have been raised in connection with previous applications. Mr Bowdery's point is well taken in that questions and queries raised on an earlier application may be partially answered (in the mind of the applicant) and thus would no longer be appropriate for later applications.
    I agree to an extent with Alstom in that it would not be necessary for a verbatim repetition of earlier questions and queries raised by not responded to. What I do consider necessary is for clear cross referencing to be made to those unanswered questions and queries raised earlier, for example, words such as:
    "Question 1: Please refer to page x of Alstom's letter dated xx.xx.xx, in which paragraphs x and xx remain unanswered"
    would be adequate so long as paragraphs x and xx gave specific and focused questions and queries.
    In the present case and in response to Application 31 I find that the provisions of Clause 2.4 were not satisfied. No specific and focused questions and queries were raised with the same week as receipt of the application. Alstom should not, therefore, have reduced the sum applied for in producing Certificate 30 and having done so was in breach of the Contract.
    Certificate 30 was erroneous and should have reflected the exact sum that Jarvis had applied for. Clearly the retention as specified under the Contract (at this stage 1.5%) must be applied.
    This finding, harsh as it may appear to Alstom, is what I consider to be the effect of Clause 2.4 when properly and purposively construed. As a consequence, the analysis of the various reductions made to Application 312 (ie the discussions held on Friday 13th December) do not fall to be decided at this stage. As I mentioned in my recent letter to the parties, it would perhaps have been better for me to have determined matters in principle before embarking on the quantification arguments in detail, but being adjudication, time did not permit. As generally expressed above, I do hope that Messrs Taylor and Slater were able to acquire a valuable insight and better understanding of the opposing party's position from the discussions and my questioning at that hearing.
    A further issue brought to my attention was the date for final payment. It was argued that the final payment provision was linked to the main contract and that this was insufficiently certain (in that it could be changed without reference to Jarvis) to satisfy Section 110(1)(b). The matter is important because withholding notices must be issued no later than 7 days before the final date for payment and the suspension provisions under S112 do not engage until the final date for payment has passed.
    Mr Bowdery urged me towards the default provisions under the Scheme at Paragraph 8(2) ie 17 days from the date that payment becomes due.
    Mr ter Haar took the view that the link to the provisions in the main contract was sufficiently determinate to be Act-compliant. The fact that the final date could be changed without reference to Jarvis was not fatal as to compliance.
    I have again attempted to construe the statute in a purposive manner and with my understanding of the intent of the Act in mind. I believe S110(1)(b) requires that the final date shall be a date that is embedded in the contract between the parties and is incapable of being changed absent consent of both contracting parties. Consequently, I am persuaded by Mr Bowdery's submissions. I do not believe the draftsman meant that such final date could be changed unilaterally (possibly necessitating an action in damages from Jarvis under third party rights legislation).
    Accordingly, I do not consider that the Contract does satisfy S110(1)(b) and thus the parties have failed to provide a final date for payment. The default provisions of the Scheme thus apply and the final date for payment is 17 days from the date that payment becomes due. The last date for issue of a S111 withholding notice is thus 10 days after the date payment becomes due.
    [The adjudicator then dealt with "Interest" and "Extension of Time"]
    Summary of decisions
    Having considered all the evidence put before me and having listened to the parties in person and their legal representatives and based on the reasons set out in the discussion section above, I decide as follows.
    The Contract governing the contractual relationship between Alstom and Jarvis was a Sub-Contract, unsigned, excluding any provision for a pain share/gain share agreement. Upon receipt of Application 31, Alstom failed to provide questions and queries in accordance with Clause 2.4 of Schedule E5 and thus were in breach of the Contract by certifying a sum in respect of Application 31 less than that contained in the application (including retention). As a result of this breach I decide that Alstom should pay Jarvis the net sum of one million, four hundred and forty two thousand, nine hundred and eighty pounds (£1,442,980) plus interest calculated in accordance with this decision. Due account shall be taken by the parties of contractual retention. In addition to this sum, Alstom are to pay interest at 9% pa calculated in accordance with this decision.
    I decide that all payments calculated under this decision shall be paid within 21 days of the publication of this decision, namely by or before Wednesday 8th January (I have made due allowance for the Christmas break). After Wednesday 8th January, the interest on all payments outstanding at that time will be increased to 18% per annum, calculated daily and compounded quarterly.
    I find that the Contract did not contain or provide for an effective final date for payment and thus I decide the final date for payment shall be 17 days after the date that payments become due.
    Because of my findings associated with the HGCR Act, there is no need for me to discuss each and every item in the list of matters or alleged under-valuation as set out in Jarvis' Scott Schedule. I am aware that Application 31 is not the final application under this Contract and thus the matters that were discussed at the meeting on 13th December may have to be reconsidered in detail in the future. If I am to understand that I have been selected as adjudicator for any further disputes concerning this Contract, the same matters may come to me for determination in the future and I will thus retain my notes and papers on the individual issues of alleged under-valuation pending further references. I hope, however, that my comments earlier in this decision document (as to how the parties could narrow their differences by proper dialogue) will be heeded and thereby minimise the need for further adjudication, etc.
    ……."

  9. Thereafter there was correspondence. Alstom complied with the decision. On 8 January 2003 it paid Jarvis £1,695,501.50 and interest of £32,733.90. However it expected that there would then be further discussions about, effectively, the final account. It is clear from the correspondence that Jarvis took the position that, notwithstanding the adjudicator's view that there might a "proper dialogue", as it had got a decision in its favour it would only talk on its own terms, even though the decision was necessarily provisional. It cancelled meetings; it took the view that there was nothing to discuss, when quite clearly there was much to clarify and to discuss; it declined to permit Alstom to carry out an audit which it had sought under the provisions of the contract, on the specious grounds that it was not seeking a further payment on account or that an audit could only happen after final settlement. Mr ter Haar QC for Alstom rightly described Jarvis' attitude as offensive.
  10. On 16 May 2003 Alstom asked Jarvis to "ensure that all future correspondence is sent to our Borehamwood offices, marked for the attention of Mr John Baron, acting Project Manager". On 27 May 2003, 278 days after application 31, Jarvis submitted its application for payment 32. The application was for £1,328,350 (a remarkable increase, especially as regards cost, given that the works had been completed some time ago). It was sent to an office that Alstom had in Birmingham. Alstom also had its registered office in Birmingham (at a PO Box). The covering letter was sent by courier and read :
  11. "We enclose for your attention, a copy of our Application for Payment No 32 dated 24 May 2003, for costs incurred up to 17 May 2003.
    We have enclosed three lever arch files of supporting documentation, together with a copy of our application on CD.
    File 1 includes the summary of our Application in the sum of £1,328,350. Would you please note that our application includes for the release of retention, currently being held in the sum of £190,773.00. We have not included for projected costs as we considered this to be inappropriate in this instance. File 1 includes substantiating documentation for all heads of cost other than subcontract costs which are included in Files 2 and 3.
    File 2 includes Team Telecom Final Account, Jackson Eve application 23, a Rhode and Schwarz summary and Internal Trading costs. With regard to Rhode and Schwarz we would confirm that all invoices have been included in previous applications. Should you require further copies, please ask. With regard to Jackson Eve account, please note that we have included the sum claimed by Jackson Eve in respect of its loss and expense in the sum of £569,019.00.
    File 3 includes the Final Account and supporting documentation in respect of Wrights.
    We trust that the above meets with your approval and look forward to receiving your certificate and subsequent payment in due course.

    The application was supported by three lever arch files of documentation. Amongst the attachments to the letter were two summaries relating to Jarvis' sub-subcontractors:

    "SUBCONTRACTORS' SUMMARY
    Summary of Subcontracts for Application 32

    Subcontractor     Comments
           
    Final Account Final Account Final Account Final Account
           
    1. Team Telecom (Operational Telecom)   £667,950.96 As agreed Final account and as attached
           
    2. Rhode & Schwarz   £505,069.00 As Summary
           
    3. Vital Resources   £605,168.79 As attached summary for VITAL
           
    4. Leda   £26,446.70 As Jarvis Application 30
           
    5. MDA Rail   £7,946.00 As Jarvis Application 27
           
    6. Racal Services   £8,696.00 As Jarvis Application 27
           
    7. EVE Rail   £2,928,734.50 As attached build up
           
    8. Wrights Civil Engineering   £363,901.75 As Agreed Final Account for Wrights
           
    9. MG Telecommunications   £15,275.00 As Jarvis application 22
           
    10. Traffic Management Services   £565.00 As Jarvis application 22
           
    11. Peek Traffic Ltd – Level Crossing Works, Camera mods   £6,050.00 As Jarvis application 24
           
    12. Internal Trading   £148,398.25 As attached breakdown
           
    Subcontractors Total to Final Summary   £5,284,201.95  

    SUMMARY OF APPLICATION FOR JACKSON EVE RAIL

      Eve Val 23 Comment
         
    Summary    
         
    Troughing works £590,722.52 As Eve account Application 23
         
    Location stages and base £140,481.10 As Eve account Application 23
         
    Signal Bases £570,278.13 As Eve account Application 23
         
    Cable Pulling £352,008.37 As Eve account Application 23
         
    Provision of installers £269,188.50 As Eve account Application 23
         
    Site Instructions £423,871.32 As Eve account Application 23
         
    Allowance for coner gauge cracking £13,165.56 As Eve account Application 23
         
    Loss and expense £569,019.00  
         
    Interest £0.00  
         
    Total £2,928,734.50

  12. Alstom acknowledged receipt in a letter of 29 May:
  13. "Dear Alan
    REF: SUNDERLAND DIRECT – SIGNALLING INSTALLATION, TEST & COMMISSIONING & TELECOMMUNICATION
    Application for Payment No 32
    We refer to your letter reference JAR/81362/ALSTOM/pls/05A07 dated the 27th May enclosing your Interim Application for Payment No 32.
    Unfortunately, despite our specific instruction, reference our letter Proj/CMF/CMF568/saw dated the 16th May 2003, requiring all correspondence to be forwarded to our offices at Borehamwood, the document was delivered to our Birmingham office.
    We have arranged that the document is forwarded onto the specific department at our Borehamwood offices, the anticipated delivery date is Monday 2nd June 2003.
    Pursuant to paragraph 2.4 of Schedule F of the Contract all applications shall occur on the Wednesday of the Railtrack reporting cycle, therefore with respect to the current application for payment, it will be registered from Wednesday 18th June 2003.
    In accordance with the aforementioned paragraph, we advise it is ALSTOM's intention that all questions and queries in relation to the information provided will be presented to you during the week commencing 18th June 2003.
    In the mean time we attach herewith a copy of a letter we recently received from the Employer, the letter is self-explanatory and we invite you to comment upon the content."

    Jarvis replied on 2 June:

    "Dear Chris
    RE: SUNDERLAND DIRECT
    I acknowledge receipt of your letter dated 29th May 2003 and comment as follows.
    Our Application for Payment dated 27th May 2003
    Your letter suggests you will not be given consideration to our application for payment this month relying upon your letter dated 16th May which was not received in our office until the 22nd May and made no mention to the fact that your accounts office had moved. We delivered by recorded delivery our application for payment to your Birmingham Office on Tuesday 27th May, there is no acceptable reason why you should not consider this application. To suggest it would take you until Monday 2nd June to transfer this application to your Borehamwood Office is unacceptable and I am confident would be viewed as delaying tactics on your behalf.
    I will be away on holiday until Monday 9th June 2003, upon my return I will contact you with a view to agreeing either a further interim valuation or a final account, looking forward to speaking with you to avoid further adjudication on this contract."

  14. The correspondence (to which Jarvis drew attention) continued with four letters from Alstom:
  15. First, on 4 June 2003:

    "Dear Alan
    REF: SUNDERLAND DIRECT – SIGNALLING INSTALLATION, TEST & COMMISSIONING & TELECOMMUNICATION
    Application for Payment No 32
    We refer to your letter reference hl/ar/ALSTOM/CF/Sn'lnd/020603 dated the 2nd June 2003 responding to our letter dated 29th May 2003.
    With respect to your applications we assure you that ALSTOM are giving this subject all due consideration, we will be forwarding to you over the forthcoming period our questions and/or queries for clarification and or substantiation in order that we are able to validate the amounts in accordance with the terms of the Contract.
    With regard to the processing of your application we reiterate that pursuant to Clause 2.4 Schedule F of the Subcontract Agreement, the application of the Subcontractor shall occur on the Wednesday of the Railtrack reporting cycle. Thus in accordance with the aforementioned requirement the first Wednesday in the Railtrack cycle for the current application to be registered is the 18th June 2003.
    We set out below our questions and queries raised so far, this list is not conclusive since we are in the process of evaluating all the information presented it is not unreasonable to assume that further questions and queries will follow, in the mean time we await your response/ information in respect of the following.
    Section:- General
    1. Pursuant to Clause C3.1.2.4 we are required to reconcile the costs against the works carried out at this moment, there is no cost value reconciliation, clearly this exercise is warranted before ALSTOM are able to certify the application.
    2. Pursuant to Clause 62.6 'Applications for Payment' of the Main Conditions of Contract under Schedule A of the Subcontract Agreement ALSTOM are required to verify each application based upon evidence of the following:-
    Clause 62.6.2.1 Labour submitted on a weekly basis showing a daily summary to the Employer's representative for approval. The weekly sheet is to indicate the task/s allocation throughout each day.
    Clause 62.6.2.3 Summary of invoices and authenticated receipts for payment for all sub-contract costs.
    Clause 62.6.2.4 Summary of invoices and authenticated receipts for payment received for all bought in items.
    3. In accordance with Clause 1.7 of Schedule J of the Subcontract Agreement we request a copy of the Contract plan and Procurement Schedule for all Sub-contractors along with all relevant method statements and possession applications and approval notices for all works within the current application.
    4. Pursuant to Clause 18.4 & 5 of the Subcontract Agreement and in order that ALSTOM are able to validate the value of all variations kindly furnish us with the following:- a register of all variations ordered (and confirmed by ALSTOM) copies of the resource schedule per variation order and details of the costs applicable to each variation order.
    5. Where ever day work sheets form the basis of your evidence of costs, pursuant to clause 2.2 of Schedule G of the Subcontract Agreement kindly furnish ALSTOM with a copy of the applicable weekly 'Real-time' possession report.
    6. Where ever day work sheets form the basis of your evidence of costs kindly make reference to/ reconcile the day work hours to eg original scope of work; variation or change orders or other.
    Design
    7. Application No 32 includes time sheet for Mr R Berridge week ending 6/09/02, contract rate is £44.30 but the payment schedule uses £44.60 please clarify. The sheet did not record the work activities carried out nor did it record the particular change order / variation order, or the item of the original scope of works, as applicable.
    Project Management
    8. In Application No 32 Ann Breen is recorded in the contract as the Safety Adviser at the rate of £21.14/hr however in the day work sheet summary she is recorded as the planner as grade at the rate of £27.83. Kindly clarify.
    Sub-Subcontractors
    9. Jarvis Rail is reported as a sub-subcontractor in order that ALSTOM are able to validate in accordance clause C3.1.6.9 of RT/24 Schedule 2 of Schedule A of the Subcontract Agreement, kindly furnish us with all relevant substantiation as required under the aforementioned clause. Furthermore in the process of evaluating the Jarvis Rail account we note the following anomalies and request your assistance to clarify them:-
    The application is supported by a summary of the Jarvis Rail account, kindly forward a copy of the authenticated invoice complete with all supporting documentation.
    There are references to a number of variations, kindly forward a copy of the Variation instruction and/or ALSTOM confirmation for each variation recorded.
    10. The Jackson Eve Rail account is presented in summary sheet form, in order that ALSTOM can validate the application pursuant to Clause 62.6 'Applications for Payment' of the Main Conditions of Contract under Schedule A of the Subcontract Agreement, kindly forward a copy of the authentic invoice complete with all supporting documentation.
    11. Day work Sheets
    We are currently in the process of reviewing all day work sheets submitted and anticipate that a schedule of detailed specific questions will be forwarded to you by no later than 11th June 2003.
    In the event that you believe the aforementioned information has already been forwarded to ALSTOM, if you can kindly refer to the particular submission eg Application No etc this will enable us to expedite our task more efficiently and thus reduce the overall time to validate your application.
    Finally with regard to the Network Rail's letter dated 23rd May 2003 we note you have instructed a staff member to investigate the matter we trust that you will advise us in due course of your proposals regarding this matter."

    Secondly, on 6 June:

    "Further to the letter of 4th June 2003, ALSTOM records that the questions and queries relating to Application 31, which were detailed within ALSTOM's response to the Adjudication Notice, remain unanswered by Jarvis.
    For the avoidance of doubt, to the extent that these questions and queries have not subsequently been addressed in our letter of 4th June, we are still expecting Jarvis to provide satisfactory responses and Jarvis should consider this letter as the appropriate reminder of the outstanding action."

    This letter therefore reiterates earlier questions and queries which had been included in what came to be known as the "lilac file".

    Thirdly, on 13 June:

    "Further to our letter reference Proj/CMF/CMF/570/SAW dated the 4th June 2003 regarding the above subject matter.
    Since receiving your letter reference hl/ar/Alstom/CF/Sn'lnd/020603 dated the 2nd June 2003 we have not received any form of communication from your good self and/or your staff regarding this subject. Whilst we appreciate that you have been on a short vacation we had expected that some one in your organisation would have been dealing with this matter in your absence.
    We reiterate ALSTOM's intent to resolve all outstanding issues in order to achieve an amicable settlement of the application as efficiently as is possible.
    Pursuant to the conditions of Contract ALSTOM are required to validate the content of your application and certify for payment within fourteen days of receipt. In accordance with the conditions of Contract if ALSTOM are unable to validate the content of the application due to a lack of relevant documentary evidence, those invoice values, which cannot be satisfactorily substantiated will be deducted from the application.
    To this end we request your confirmation that the information requested will be forthcoming. Whilst we appreciate such an exercise may place demands upon your staff we would nevertheless request that you notify us of the anticipated date when the substantiating information will be available in order that we can organise for the necessary staff to carry out the validation exercise.
    It was considered prudent to point out to you, at this time, Clause 38.4 of the Subcontract Special Conditions which states:-
    "No payment by the Contractor, Final Certificate or other certificate, or valuation under the Subcontract shall be evidence that the Subcontractor has performed his obligations under the Subcontract, or shall prejudice or affect any right to remedy of the Contractor".
    In accordance with the terms of the Contract ALSTOM are obligated to validate that all the costs presented are due under the terms and conditions of Contract. In order to satisfy this requirement, we reiterate that the costs need to be reconciled to the Subcontract scope of works.
    We conclude with a proposal that should you consider that a meeting is beneficial for the purpose of clarifying our requirements, we are able to attend if it will promote an efficient resolution."

    Fourthly, on 16 June:

    "Further to our letter reference Proj/CMF/CMF/570/SAW dated the 4th June 2003 regarding the above subject matter.
    In the course of carrying out the exercise to validate your current Application for Payment No 32 we note that there are a number of reference numbers, used in the Daywork sheet, for the description of works. We understand these reference numbers are an internal description adopted by your company. Kindly forward a schedule of the works reference numbers in order that we are able to allocate the time claimed against the relevant work activity.
    We also note that your sub-subcontractor has added a figure of 15% mark-up to his subcontractor's price. Kindly confirm if this was acknowledged and agreed by Alstom and/or Employer and if not how this figure is arrived at?"

  16. On 18 June 2003 Jarvis wrote by way of reply:
  17. "We refer to the recent correspondence regarding our Application for Payment number 32 submitted to you on 27 May 2003.
    In order that you may clearly understand our position we would confirm the following:
    1. We have already set out our position regarding service of our application for payment, receipt of which, under any circumstances should be regarded as 28 May 2003. In the adjudication concerning Application 31, you may recall that Mr Chapman considered that the Contract did not satisfy s110(1)(b) of the Act and that as such, the Scheme applied.
    2. Under the Scheme, the final date for payment is 17 days from the date that payment becomes due. We consider that our payment became due on 15 June 2003.
    3. You may also recall that Mr Chapman also found that No specific and focused questions and queries were raised with(in) the same week as receipt of the application. Alstom should not therefore have reduced the sum applied for ….
    4. With regard to your letter dated 4 June, we note that you have quoted extracts from the Contract under the heading of General items 1 to 6. We do not accept that your queries are specific or focused. For example with regard to authenticated receipts, you have not taken into account the fact that these receipts have already been provided to you. This has been the subject of considerable correspondence leading up to the adjudication, which you have chosen to ignore.
    5. With regard to Item 7, please reduce the rate for Mr Berridge from £44.60 to £44.30 for the purposes of Application 31.
    6. With regard to Item 8, Ann Breen should be charged at the Contract rate of £21.14 for the purposes of Application 32.
    7. With regard your items 9 to 11, again these queries are general with the exception of the authenticated receipt for Eve Rail. We are currently processing Eve's application number 23 and a further authenticated receipt will be provided.
    8. With reference to Mr Chapman's comments quoted in 3 above, we do not consider that the comments included in your letter dated 6 June 2003 constitute an adequate reason for non payment. You may recall that we constantly complained during, the administration of Applications 28, 29, 30 and 31, that the questions you raised were not specific and in many instances impossible to answer. It is with regret that you are still following the same path.
    9. We consider that again, you have not looked carefully at our application and, with the exception of items 5 and 6 above, you have not identified individual queries to which we can respond. This is typified in your letter dated 13 June which again refers to "information" in the general sense.
    10. In your letter dated 16 June 2003, you have again made a general reference to a number of reference numbers, used on Daywork sheet(s). You have neither identified the Daywork sheets in question nor the Subcontractor. If, as we suspect this is in respect of Eve Rail, please be advised that this Subcontract account was audited by yourselves and Railtrack in January 2002. At that time, specific and detailed queries were answered and are on file.
    To conclude, we share your view that a meeting would be beneficial in an attempt to resolve the final account and we propose that we meet on either the 25th or 27th June, time and venue to be agreed. You no doubt appreciate failure to agree will result in a further Adjudication.
    Looking forward to your call to confirm the arrangements."

    A letter from Alstom also of 18 June probably crossed with that letter:

    "Further to our letter reference Proj/CMF/CMF/570/SAW dated the 4th June 2003 regarding the above subject matter.
    In the course of carrying out the exercise to validate your current Application for Payment No 32 we have noted the following information is required before we are able to progress the exercise.
    To this end we have attached herewith the following schedules each provides a detailed commentary with reference to the information omitted from your application which is required before ALSTOM are able to complete the validation exercise.
    Appendix A:- Materials Schedule
    Appendix B:- Plant Schedule
    Appendix C:- Daywork sheets
    Appendix D:- Jarvis Subcontractor accounts
    In accordance with Clause 2.4 Schedule F of the Conditions of Contract it is incumbent upon Jarvis to provide sufficient information to ALSTOM in order that the application can be certified. The information provided is to enable Alstom to be reasonably certain that the works to which payment is sought have been properly and correctly valued. The information provided to ALSTOM in order to enable ALSTOM to be reasonably satisfied that the values within the application are true costs in accordance with the terms and conditions of contract.
    We note that since the receipt of your letter dated 2nd June 2003 there has been no response from you and/or your staff in respect of any of the matters raised in connection with the certification process of your application number 32. It is of course Jarvis's prerogative whether to provide the information requested, thus allowing ALSTOM to carry out its obligations under the Conditions of Contract, or not and in which case ALSTOM would have no other option but to certify the application as nil value."

    Alstom wrote again on the next day, 19 June:

    "We refer to your letter reference hl/ar/Alstom/Sn'lnd/180603 dated the 18th June 2003 regarding the above subject matter. It is a little unfortunate that your letter has crossed with our latest request for information, whereby we have provided a number of questionnaire schedules, which raise specific questions regarding individual costs.
    We note your comments and set out below our response to each point raised. We reiterate ALSTOM'S commitment to settle this account as efficiently as possible. We believe that through constructive dialogue all matters can be resolved.
    Whilst we do not wish to enter into protracted correspondence, deluged by perpetual reiterations, it is important that we endeavour to eradicate misunderstandings and/or disagreements in order to settle all pending issues.
    Point 1: - Date of Application
    We do not concur with your opinion, for the following reasons:- firstly we had explained that your application had unfortunately been incorrectly address and thus was sent to the wrong address. The application was received at the correct address on Monday 2nd June 2003. Secondly, the Contract is most explicit in respect of the submission of Subcontract payment applications. We reiterate pursuant to clause 2.4 of Schedule F of the Subcontract agreement, applications for payment "shall occur on the Wednesday of the Railtrack payment reporting cycle" according to the payment cycle, set down in the Contract and which is incorporated into the Subcontract agreement, it had been established that, the next date for receipt of a payment application was the 18th June 2003.
    Furthermore notwithstanding ALSTOM's contractual obligation in a bid to progress the validation process we have forwarded a number of requests for information and/or clarification on matters of your application and received only your letter in response.
    Point 2
    We did not concur with your opinion that payment was due on the 15th June 2003. We reiterate that payment will be implemented in accordance with the conditions of Contract, at this moment ALSTOM are endeavouring to carry out the validation exercise as required under the terms of the Contract, we have requested information and or clarification and explained why such information is required.
    Point 3
    We have no comment upon the abstract of the adjudicator's commentary you have cited, however we believe it is pertinent to point out another of the adjudicator's remarks, in the paragraph entitled "Burden of Proof Issue" it states:-
    Clearly it is for the applicant, in this case Jarvis, to provide sufficient information to the certifier, Alstom, to enable Alstom to be reasonably certain that the work for which payment is sought has been properly and correctly valued".
    We trust you concur with the adjudicator's remarks.
    Point 4
    With regard to the general items 1 to 6 of our letter dated 4th June 2003, the remarks are not meant to be specific or focussed since they are 'general remarks' which in fact apply to every section of your application, needless to say our subsequent questions have been specific and focused. However, we believe, the general remark remains valid until such time as the requisite information is provided it is difficult to see how ALSTOM are able to validate the application in accordance with the conditions of Contract. We acknowledge there has been a considerable amount of correspondence exchanged but again there is no evidence on our files that the general level of supporting documentation raised in our letter was provided. If however your staff can refer to specific submissions whereby the information requested was presented kindly advise in order that we can progress the validation exercise.
    Point 5
    We acknowledge your agreement to the amendment to this application number 32.
    Point 6
    Again we acknowledge your agreement to the amendment to application number 32.
    Point 7
    With regard to items 9 & 10 of our letter namely Subcontractors we note that you are currently processing your subcontractor, Eve, account and await the further authenticated receipts in due course. We have already prepared a schedule of questions in respect of the Eve account and Messrs Wright account the schedule was forwarded under cover of our letter dated the 17th June 2003. We reiterate there were no references, in the application linking the costs to either the variation account and/or other works this exercise will be required in order to conclude the validation exercise.
    With regard to item 11 in our letter namely Daywork Sheets a detailed schedule of questions has been prepared, a number of questions have already been forwarded to you and further questions and/or clarification are being raised and will be forwarded in due course.
    Point 8
    We do not concur with your comments we, believe, we have already demonstrated out intent to resolve all outstanding issues in connection with this account. We have, since receiving your application, issued a number of questionnaires for further information and clarification as and when this information is provided we shall validate the costs presented in the application, as efficiently as possible, but of course this exercise is subject to the proviso that the necessary information is provided.
    Point 9
    We note your concerns and reiterate that it is ALSTOM's intention that this account will be settled by mutual agreement, cognisant of the terms and conditions of Contract, and that the process will take no longer than is necessary.
    Point 10
    We have forwarded to you a schedule of the queries and questions raised in connection with the Daywork sheets. There is little doubt that further questions will develop over the forthcoming days. Whilst we acknowledge a considerable amount of information had been provided, unfortunately it would appear the information we have requested is not included.
    It is reassuring to note your agreement to our proposal to meet, we trust you also are committed to settling this account as swiftly as possible. With both parties working towards an amicable settlement hopefully there will be no need for third party interventions."

  18. The hope expressed in the last paragraph of the letter of 19 June 2003 was not realised (although Jarvis before me professed itself still "ready, willing and able to embark upon a negotiation and if necessary adjudication to resolve the final account"), even though on 2 July Alstom had sent Jarvis its evaluation of the Jarvis application. It concluded Jarvis owed Alstom money. I refer to it later. First, on 29 July 2003, Alstom commenced an action in this court (HT 03 260) in which it sought a declaration that the subcontract contained an agreement to share "pain and gain" or alternatively (since the first declaration subsumed a question about the existence of a subcontract) that the price to be paid to Jarvis for its work was to be calculated taking into account a share by Jarvis of the "pain" suffered by Alstom under its main contract with Railtrack. (I shall call it action 260.) In its particulars of claim Alstom said that as between itself and Railtrack it calculated that it had borne "pain" of £1.5 million and that Jarvis owed it £839,175 (for payment of which it also made a claim) based on a "forecast cost of completion" by Jarvis of £14,108,559, i.e. about £4 million more than the contract price. By that time Alstom had settled with Railtrack.
  19. Secondly, two further notices requiring adjudication were served: by Jarvis on 28 January 2004 and by Alstom on 11 February 2004. In its notice Jarvis said:
  20. "Jarvis seeks a decision from the adjudicator that ALSTOM is obliged to certify and pay and must certify and pay the sum of £1,328,250 plus interest on such sum as the adjudicator decides, for the following reasons:
    (a) ALSTOM failed to put to Jarvis any sufficiently focussed questions or queries within the same week as application 32; alternatively if and insofar questions were put to Jarvis and if and insofar these questions were sufficiently focused, Jarvis satisfactorily answered any such questions or queries such that the sum applied for should be certified and paid to Jarvis.
    (b) Further or in the alternative, ALSTOM failed to serve a notice of intention to withhold payment for application 32 in the time prescribed by the Act and the scheme.
    (c) Further or in the alternative, ALSTOM failed to value properly application 32 under the terms of the contract."

    The adjudication initiated by Alstom was a riposte: "This adjudication is brought to enable ALSTOM to obtain relief which they cannot or may not be able to obtain in the second adjudication", i.e. it was to recover money paid. Mr Chapman gave a decision in these adjudications on 15 March 2004. (On 23 February 2004 the trial of issues of liability in action 260 had started before Mr Recorder Reese QC, issues of quantum having been deferred; judgment was reserved.) Mr Chapman's decision read (in part):

    "Introduction
    [Having recited the history much as set out in his first decision, Mr Chapman continued]
    Two further disputes have been referred to adjudication before me. These are referred to as the second and the third adjudications. The second adjudication was notified by Jarvis on the 28th January 2004 with the referral served on 4th February 2004. The third referral was notified by Alstom on 17th February 2004 and the referral served on 4th March.
    The issues in both the second and third adjudications concern the payments due or purportedly due to Jarvis – Alstom's position being that payments made already exceed the final amounts due to Jarvis and Jarvis claiming that additional monies are due and as yet unpaid.
    The parties agreed to refer to me preliminary issues which have conveniently been called the 'gateway issues' and this decision is in connection with those issues alone.
    On 5th March 2004 a hearing was held in my chambers at which the parties' competing contentions on the gateway issues were presented to me. Those present, apart from myself, were:
    For Jarvis:
    Alan Robson Esq
    Peter Mills Esq of Eversheds
    James Benedick Esq of Eversheds
    Martin Bowdery QC of Counsel
    For Alstom:
    Chris Fossey Esq
    Nabeel Ikram Esq of Lovells
    Roger ter Haar QC of Counsel
    The Gateway Issues
    The gateway issue in connection with the second adjudication concerns withholding of payments for which Jarvis has applied and whether, under the Housing Grants, Construction and Regeneration Act 1996 (the Act) and the associated Scheme for Construction Contracts (the Scheme) (which I have previously decided controls any adjudication brought by the parties under this Contract), the sum applied for is to be paid in full.
    The gateway issue in connection with the third adjudication is jurisdictional. Jarvis argues that the Scheme (at paragraph 9.2) requires an adjudicator to resign where an issue referred to adjudication is the same or substantially the same as one that has previously been referred to adjudication, and a decision has been taken in that adjudication.
    Discussion
    Gateway issue on the matter of withholding
    On or before 30th May 2003 Alstom received Application No. 32 from Jarvis. The parties agree that the latest date for receipt is the 30th May 2003. Under the Contract at Schedule F various procedural steps are set out that govern the submission of payments applications (by Jarvis) and the processing thereof (by Alstom). At paragraph 2.4 Jarvis are required to make applications every 28 days to correspond with the Railtrack payment ad reporting cycle. The application is supposed to be submitted on the Wednesday of the Railtrack reporting cycle. Alstom are to put to Jarvis, with the same week of such application, questions and queries in connection with the information provided by Jarvis and shall (only) disallow payments for which Jarvis has failed to provide satisfactory answers to such questions and queries.
    The reference to 'within the same week of such application' appears to be accepted by the parties to mean within a week of the application and I would certainly concur with this interpretation.
    On 4th June 2003, Alstom did write to Jarvis setting out some questions and queries in connection with Application No 32. Jarvis argues that with three exceptions – all of which were dealt with by Jarvis – the questions and queries were not sufficiently focussed to enable satisfactory answers to be provided. Jarvis referred me to my earlier decision in which I made clear that any questions and queries issued pursuant to paragraph 2.4 should be focussed and specific.
    I have reviewed the questions and queries in the 4th June letter in detail. I agree that Q7 and Q8 were specific and required satisfactory answers from Jarvis to allow the payment in respect of these matters to proceed. There is no issue between the parties in this connection and Jarvis readily accepted that the 'contract rates' – somewhat lower than the rates claimed – should apply.
    Jarvis argues that Q1 to Q6 are 'blocking devices' aimed at preventing payment to Jarvis, that Questions 9 and 11 were too general and that Question 10 was (eventually) answered. Jarvis thus argue that with the exceptions mentioned the questions contained in the letter of the 4th June were not sufficiently specific and thus fall foul of my previous decision. My views on these matters are as follows:-
    Q1: Cost Value Reconciliation: I find this a general query and not sufficiently specific to reasonably deny Jarvis payment of sums claimed.
    Q2: Verification by Evidence: I find this to be insufficiently specific in the context of a review of an interim payment application.
    Q3: Contract Plan and Procurement Schedule: I find this to be insufficiently specific in the context of a review of an interim payment application.
    Q4: Validation of Variations: I find this to be insufficiently specific in the context of a review of an interim payment application.
    Q5: Daywork Sheet: I find this to be insufficiently specific in the context of a review of an interim payment application.
    Q6: Daywork Sheets: I find this to be insufficiently specific in the context of a review of an interim payment application.
    Q9: Sub-Subcontractor: I find this to be insufficiently specific in the context of a review of an interim payment application.
    Q10: Jackson Eve Account: I consider that this question and query is sufficiently specific to be valid under paragraph 2.4.
    Q11: Daywork Sheets review: I find this to be insufficiently specific in the context of a review of an interim payment application.
    Accordingly, with the exception of Questions 7 and 8, I find only Question 10 to be in the nature of a question for which paragraph 2.4 permits disallowance. This view coincides with that held by Jarvis.
    Another letter, written by Alstom of 6th June 2003, purported to raise questions and queries pursuant to paragraph 2.4. This letter was brief but referred to what has become known in this reference as the lilac file – a file I was shown during the previous adjudication. For the same reasons as given in the earlier adjudication and I the paragraphs immediately above, I do not consider the matters raised in the lilac file to be sufficiently specific and focussed to fall within the ambit of paragraph 2.4.
    By way of reiteration of and expansion on my previous decision, I would state that the sort of questions that I believe were contemplated by paragraph 2.4 were very much of the nature of the questions posed by Questions 7 and 8. These are the sort of questions that can be answered promptly by Jarvis so that their payment application is not jeopardised. This is not to say that Alstom should be disallowed from asking questions of a more general nature but, to my mind, these general questions should not be asked pursuant to paragraph 2.4. This may appear to be a fine distinction but, I believe, one that is important. If questions of a general nature are asked pursuant to paragraph 2.4 Jarvis could be kept out of its rightful financial entitlements indefinitely and this cannot be the intent behind the Contract.
    Under this particular Contract, I envisage there being an ongoing dialogue between Alstom and Jarvis whereby the financial motivation required by Alstom is requested and hopefully provided by Jarvis separately from the specific queries – such as those posed by Questions 7 and 8 – that alone may result in disallowance (pursuant to paragraph 2.4) if not answered satisfactorily. I am not blind to the potential difficulty of the system I have described where general questions are repeatedly asked by Alstom but are not answered by Jarvis and for that reason Alstom might consider that disallowance under paragraph 2.4 is permissible. In such circumstances I remain of the belief that Alstom is required to rephrase any general questions so that they are sufficiently specific to permit prompt and final answers by Jarvis. Failure by Jarvis to respond adequately to such specific questions would then result in paragraph 2.4 disallowances. I do not maintain that the arrangements provided for payment certification under the Contract are by any means ideal, but we must make the best of what we have.
    Thus, with the possible exception of the subject matter of Q10 I find no reason for Alstom to have excluded payments from Jarvis' application as being 'disallowed payment' under paragraph 2.4. I understand and have no reason to doubt that some of the requested information was provided by Jarvis some five months later albeit, argues Alstom, not in complete form.
    I am not persuaded by Alstom's arguments concerning failure by Jarvis to comply with the Railtrack payment cycle. Whether or not the Act is of higher priority than the Contract misses the point that this provision is directory in nature and should not (without express authority within the Contract) be permitted to destroy a substantive entitlement of Jarvis – i.e. to receive payment pursuant to an application.
    If this was all, I would be contemplating a deduction from the application of a sum equivalent to that claimed by Jarvis in respect of the Jackson-Eve sub-contract and the reduced sums due for Mr Berridge and Ms Breen. But that is not all. Under Section 111 of the Act, a party to a construction contract may not withhold payment after the final date for payment unless an effective notice of intention to withhold payment has been given. The Act specifies the requirements of the withholding notice and further imposes on the parties (at Section 110) the provisions of the Scheme where the parties have failed to specify within the Contract when payments are to become due. In such cases (and in my earlier decision I found this Contract to be such a case), interim payments are to be made within 7 days following the relevant period or after the making of the claim by the payee. Paragraph 10 of Part II of the Scheme states that any such notice of intention to withhold payment shall be given not later than 7 days before the final date for payment which in turn (and pursuant to paragraph 8 of Part II of the Scheme) is 17 days from the date the payment becomes due.
    Under the Act, failure to serve an effective withholding notice within the time permitted prohibits the payer withholding (any) sums from the payee in respect of the sum due under the Contract.
    Alstom did not serve a withholding notice in due form and/or in due time and thus the requirements of Section 111 were not met. Alstom is not entitled to withhold monies from the sums due under the Contract to Jarvis.
    This determination raises two immediate matters. First, the interaction between paragraph 2.4 of Schedule F and the provisions of the Act and secondly whether Alstom's argument as to what is the 'sum due under the Contract'.
    As to the first, I reiterate the view I formed at the previous adjudication wherein I failed to see how the provisions of paragraph 2.4 (as to the dates for payment being linked to the dates of the Railtrack certificate) provide sufficient certainty of the dates for payment under the Contract to avoid the provisions of the Scheme from applying. Consequently the last date for the issue of a withholding notice is governed by the Scheme as set out above. I see that failure by Alstom in compliance with either paragraph 2.4 or Section 11 as being fatal to Alstom's right to deduct money from the Jarvis application. Consequently, Alstom's failure to serve a withholding notice pursuant to Section 111 prevents Alstom paying Jarvis anything less than the sum due under the Contract.
    The second point concerns the 'sum due' under the Contract. Alstom argues that this is the sum properly due rather than the sum applied for by Jarvis. Under the Scheme at paragraph 2 of Part II the 'amount due' is to be determined by way of deducting the amount already paid from the value of work done (including materials on site if applicable) plus other sums due to the payee under the Contract. The amount due cannot exceed the difference between the contract price and the aggregate of the instalments paid to date. In the subject Contract the contract price is still to be finally determined and as I write the parties await (as far as I am aware) the decision of the TCC on the applicability of the pain/gain mechanism under the Contract. This judgment should assist the parties in knowing how the contract sum is to be calculated.
    Until such time as that is determined I will follow my earlier decision in which I stated that the sum due equates to the amount claimed by Jarvis less only those deductions that are rightfully made by Alstom and which were the subject of a previously issued withholding notice.
    These determinations may appear to be harsh to Alstom but the intent of the Act (in the context of Part II) was primarily to provide cash-flow and prevent the injustices resulting from arbitrary withholding of payments until the latest time possible.
    Gateway issue on the matter of jurisdiction
    Under paragraph 9.2 of Part 1 of the Scheme an adjudicator must resign where the dispute that is referred to him or her is the same or substantially the same as one that has previously been referred to adjudication and a decision has been taken in that adjudication.
    I am quite clear in my view that the subject matter in the second and third adjudications is substantially the same – that is the amount to be certified as being due to Jarvis in connection with Application No. 32. What is not quite so clear is whether a decision has been taken in the second adjudication that would require the adjudicator to resign in the third adjudication.
    I have pondered over the wording of the paragraph in question. The Scheme refers to 'a' decision and not 'the' decision, also that the operative verb is 'taken' rather than 'made'. This wording could therefore require that a step has been taken in the adjudication rather than a final determination having been made. Although this interpretation would be a convenient means of avoiding the dilemma pointed out by Alstom (insofar as there ever being a determination by adjudication of the issues between the parties), I would struggle with adopting this interpretation as I do believe the draftsman intended to mean that a substantive decision should have been made or taken in the previous adjudication before resignation was required in the subsequent adjudication.
    Although by reference to my decisions in these gateway issues the second adjudication has been dealt with in general terms – I have not made a decision on the absolute values of the various matters in issue between the parties and I do not intend to do so at this stage. Far, far better for the parties to await the outcome of the TCC and then adjudicate the matter in full and unequivocal terms, hopefully assisted by a thorough audit of Jarvis' cost and expense and in the knowledge of whether the pain/gain provisions apply.
    At the hearing on the 5th March both parties expressed their desire to get the matters in issue settled once and for all and I heartily agree with these sentiments and trust that both parties were expressing their honest and considered views through their counsel. This being the case, I have decided to resign from the third adjudication at my own volition (under paragraph 9(1) of Part 1 of the Scheme and I will not charge the parties any fees for the time I have spent considering that matter. The parties are asked to treat this part of this decision as notice given by me under paragraph 9(1). By taking this unusual step I believe I have safeguarded the parties' opportunities in referring the substantive matter of the true value of the final account to me at a later date and once the pain/gain determination has been issued by the TCC. There is no need for me to make a determination of the actual value of Application 32 at this stage as Jarvis are herein found to be entitled to the full sum applied for."

  21. On receiving the decision of 15 March 2004 Alstom acted promptly. On 18 March 2004 it commenced an action against Jarvis (claim no HT 04 85). (I shall call it action 85.) In its particulars of claim Alstom asked for the following:
  22. (1) An order that Jarvis do repay to ALSTOM the sum of £1,695,501.50 and interest of £32,733.90 paid by ALSTOM to Jarvis on 8 January 2003 pursuant to the Adjudicator's decision of 18 December 2002 alternatively such lesser sum as this Court may find due, together with interest pursuant to the Supreme Court Act 1981;

    (2) A declaration that the Adjudicator's Decision of 16th March 2004 be set aside in so far as it related to the Second Adjudication on the grounds that the Adjudicator had no jurisdiction to make the decision which he did;

    (3) A declaration that the Adjudicator was wrong to decide that the ALSTOM had failed to issue a withholding notice which they were required to issue in respect of Payment Application No. 32;

    (4) A declaration that upon the true construction of the Sub-Contract and in the events which had happened Jarvis were not entitled to any payment in respect of Payment Application No. 32 alternatively were not entitled to any payment in respect of the amounts included in Payment Application No. 32 relating to the Eve Rail sub-sub-contract;

    (5) A declaration that upon the true construction of the Sub-contract and in the events which had happened the Sub-Contract Price does not exceed £10,238,432.66 alternatively does not exceed such larger sum as this Court may find due;

    (6) An order that Jarvis do repay ALSTOM the sum of £2,461,775.69 (plus VAT) being the amount paid to Jarvis by ALSTOM in excess of the aforesaid figure of £10,238432.66 alternatively such lesser sum as this Court may find due to ALSTOM, together with interest upon any sum so ordered pursuant to the Supreme Court Act 1981;

    (7) An order restraining Jarvis from enforcing or seeking to enforce the Adjudicator's Decision dated 16th March 2004;

    etc.

  23. Amongst other things Alstom pleaded that no withholding notice was necessary in relation to Payment Application 32 and Mr Chapman was wrong so to decide. It said:
  24. "38. The Adjudicator was wrong in so holding:

    (1) ALSTOM's obligation was to pay such sum as might be certified under the machinery of Schedule F of the Sub-Contract: they paid all sums so certified and accordingly did not withhold any sum due under the Sub-Contract within the meaning of Section 111 of the Act;

    (2) Further or alternatively, by reason of the matters referred to at paragraphs 32 to 36 above Jarvis were not entitled to the sum claimed in Payment Application No 32 which accordingly was not a "sum due under the contract" within the meaning of Section 111 of the Act;

    (3) Further or alternatively Jarvis was and is not entitled to more than £10,238,432.66 as the Subcontract Price under the Sub-Contract. As Jarvis had already been paid more than that sum no further "sum was due under the contract" within the meaning of Section 111 of the Act.

    (4) Further or alternatively if it was necessary for ALSTOM to serve a withholding notice, they satisfied that obligation by sending a letter dated 2 July 2003 (ref proj/CMF580/CMF/saw)."

  25. In addition Alstom also contended that the Adjudicator's jurisdiction was limited by the Contract Price. Its case assumed that the adjudicator was acting under the Scheme for Construction Contracts (England and Wales) Regulations 1998 (as contained in the Schedule to S.I. 1998 No. 649). I shall do the same. Nothing in this judgment should therefore be considered as an endorsement (or criticism) of Mr Chapman's view that the Railtrack procedure does not comply with section 108 of the Act (see below). However Mr Chapman's decision meant that the issues were also about the meaning and application of Part II of the Scheme. That provides (inter alia):
  26. PART II-PAYMENT
    Entitlement to and amount of stage payments
    1. Where the parties to a relevant construction contract fail to agree-
    (a) the amount of any instalment or stage or periodic payment for any work under the contract, or
    (b) the intervals at which, or circumstances in which, such payments become due under that contract, or
    (c) both of the matters mentioned in sub-paragraphs (a) and (b) above, the relevant provisions of paragraphs 2 to 4 below shall apply.
    2.(1) The amount of any payment by way of instalments or stage or periodic payments in respect of a relevant period shall be the difference between the amount determined in accordance with sub-paragraph (2) and the amount determined in accordance with sub-paragraph (3).
    (2) The aggregate of the following amounts
    (a) an amount equal to the value of any work performed in accordance with the relevant construction contract during the period from the commencement of the contract to the end of the relevant period (excluding any amount calculated in accordance with subparagraph (b)),
    (b) where the contract provides for payment for materials, an amount equal to the value of any materials manufactured on site or brought onto site for the purposes of the works during the period from the commencement of the contract to the end of the relevant period, and
    (c) any other amount or sum which the contract specifies shall be payable during or in respect of the period from the commencement of the contract to the end of the relevant period.
    (3) The aggregate of any sums which have been paid or are due for payment by way of instalments, stage or periodic payments during the period from the commencement of the contract to the end of the relevant period.
    (4) An amount calculated in accordance with this paragraph shall not exceed the difference between-
    (a) the contract price, and
    (b) the aggregate of the instalments or stage or periodic payments which have become due.
    Dates for payment
    3. Where the parties to a construction contract fail to provide an adequate mechanism for determining either what payments become due under the contract, or when they become due for payment, or both, the relevant provisions of paragraphs 4 to 7 shall apply.
    4. Any payment of a kind mentioned in paragraph 2 above shall become due on whichever of the following dates occurs later-
    (a) the expiry of 7 days following the relevant period mentioned in paragraph 2(1) above, or
    (b) the making of a claim by the payee.
    5. The final payment payable under a relevant construction contract, namely the payment of an amount equal to the difference (if any) between
    (a) the contract price, and
    (b) the aggregate of any instalment or stage or periodic payments which have become due under the contract,
    shall become due on the expiry of-
    (a) 30 days following completion of the work, or
    (b) the making of a claim by the payee,
    whichever is the later.
    …..

  27. Any other payment under a construction contract shall become due
  28. (a) on the expiry of 7 days following the completion of the work to which the payment relates, or
    (b) the making of a claim by the payee,
    whichever is the later.
    Final date for payment
    8. (1) Where the parties to a construction contract fail to provide a final date for payment in relation to any sum which becomes due under a construction contract, the provisions of this paragraph shall apply.
    (2) The final date for the making of any payment of a kind mentioned in paragraphs 2, 5, 6 or 7, shall be 17 days from the date that payment becomes due.
    Notice specifying amount of payment
    9. A party to a construction contract shall, not later than 5 days after the date on which any payment-
    (a) becomes due from him, or
    (b) would have become due, if-
    (i) the other party had carried out his obligations under the contract, and
    (ii) no set-off or abatement was permitted by reference to any sum claimed to be due under one or more other contracts,
    give notice to the other party to the contract specifying the amount (if any) of the payment he has made or proposes to make, specifying to what the payment relates and the basis on which that amount is calculated.
    Notice of intention to withhold payment
    10. Any notice of intention to withhold payment mentioned in section 111 of the Act shall be given not later than the prescribed period, which is to say not later than 7 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.
    …….
    Interpretation
    12. In this Part of the Scheme for Construction Contracts-
    "claim by the payee" means a written notice given by the party carrying out work under a construction contract to the other party specifying the amount of any payment or payments which he considers to be due and the basis on which it is, or they are calculated;
    "contract price" means the entire sum payable under the construction contract in respect of the work;
    "relevant construction contract" means any construction contract other than one
    (a) which specifies that the duration of the work is to be less than 45 days, or
    (b) in respect of which the parties agree that the duration of the work is estimated to be less than 45 days;
    "relevant period" means a period which is specified in, or is calculated by reference to the construction contract or where no such period is so specified or is so calculable, a period of 28 days;
    "value of work" means an amount determined in accordance with the construction contract under which the work is performed or where the contract contains no such provision, the cost of any work performed in accordance with that contract together with an amount equal to any overhead or profit included in the contract price;
    "work" means any of the work or services mentioned in section 104 of the Act."

  29. I here interpose certain provisions of the Housing Grants, Construction and Regeneration Act 1996 (the Act):
  30. 108 (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-
    (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 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.

    (4) The contract shall also provide that the adjudicator is not liable for anything done or omitted in the discharge or purported discharge of his functions as adjudicator unless the act or omission is in bad faith, and that any employee or agent of the adjudicator is similarly protected from liability.

    (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.
    …..
  31. (1) Every construction contract shall-
  32. (a) provide an adequate mechanism for determining what payments become due under the contract, and when, and
    (b) provide for a final date for payment in relation to any sum which becomes due.
    The parties are free to agree how long the period is to be between the date on which a sum becomes due and the final date for payment.
    (2) Every construction contract shall provide for the giving of notice by a party not later than five days after the date on which a payment becomes due from him under the contract, or would have become due if-
    (a) the other party had carried out his obligations under the contract, and
    (b) no set-off or abatement was permitted by reference to any sum claimed to be due under one or more other contracts,
    specifying the amount (if any) of the payment made or proposed to be made, and the basis on which that amount was calculated.
    (3) If or to the extent that a contract does not contain such provision as is mentioned in subsection (1) or (2), the relevant provisions of the Scheme for Construction Contracts apply.
    111 (1) A party to a construction contract may not withhold payment after the final date for payment of a sum due under the contract unless he has given an effective notice of intention to withhold payment.
    The notice mentioned in section 110(2) may suffice as a notice of intention to withhold payment if it complies with the requirements of this section.
    (2) To be effective such a notice must specify-
    (a) the amount proposed to be withheld and the ground for withholding payment, or
    (b) if there is more than one ground, each ground and the amount attributable to it,
    and must be given not later than the prescribed period before the final date for payment.
    (3) The parties are free to agree what that prescribed period is to be.
    In the absence of such agreement, the period shall be that provided by the Scheme for Construction Contracts.
    (4) Where an effective notice of intention to withhold payment is given, but on the matter being referred to adjudication it is decided that the whole or part of the amount should be paid, the decision shall be construed as requiring payment not later than-
    (a) seven days from the date of the decision, or
    (b) the date which apart from the notice would have been the final date for payment,
    whichever is the later."

  33. A week after Alstom commenced action 85, Jarvis started its action (claim HT 04 100) to enforce Mr Chapman's decision that Jarvis was to be paid the amount claimed in Application 32, i.e. £1,328,350 plus interest. (I shall call it action 100.) On Jarvis' application the times were as usual shortened so on 8 April 2004 Jarvis issued an application under Part 24 for summary judgment for the amount claimed. On 7 April 2004 Jarvis also issued an application to strike out certain paragraphs of Alstom's particulars of claim in action 85 and for an order that action 85 should be stayed until judgment was given and the determination of action 100. Both actions (85 and 100) came to me. A Case Management Conference took place on 23 April 2004. The hearing of Jarvis' application for summary judgment had by then been fixed for 28 May 2004.
  34. Having heard Mr ter Haar QC for Alstom and Mr Martin Bowdery QC for Jarvis, I acceded to Alstom's suggestion that there should be earliest possible hearing of the matters in issue between the parties. I decided that since Alstom's case in action 85 constituted effectively its answer and defence (or its principal defence) to Jarvis' action 100 and the application for summary judgment I should hear argument on it and on Jarvis' Part 24 application. In this way the ground of Jarvis' other application to strike out parts of the claim in action 85 would also be covered. The time and expense of at least two possible separate hearings might be avoided. I could see no prejudice to Jarvis: its application would be heard and determined earlier (or no later) than 28 May 2004. The cases of both parties were essentially those presented to the adjudicator by the same counsel that appeared before me. Both parties were in a position to present their cases. Alstom had started its action first and, subject to the application of the overriding objective, had an expectation that it would gain the benefit of having got in first. It should not be deprived of its advantage without good reason. Jarvis would not however lose as a result. Its application would be also heard. As I had more time available than that set for the CMC and as both counsel were able to continue Mr ter Haar therefore began his submissions. As it turned out, they took the time available on 23 April; the hearing was adjourned to enable Mr Bowdery to make his submissions; it was resumed and concluded on 4 May 2004. As by then the judgment of Mr Recorder Reese QC was expected to be given within a week I invited the parties to make written submissions if there was anything in that judgment that bore on the issues before me. A judgment in action 260 was duly given on 11 May 2004: [2004] EWHC 1232 (TCC). The assumption made of the existence of a subcontract was justified as the judge decided that there was a valid and enforceable subcontract. I therefore proceed on that basis. He also held that it contained a mechanism for sharing "pain/gain" but the details had not been agreed so it was for the court to decide what it should be. Alstom did not consider that there was anything in the judgment which was relevant to the issues before me. Mr Bowdery submitted that I should not decide anything on the operation of a target cost under this contract or its relationship to actual cost. I shall not do so. Nothing in this judgment should be read as impinging on or prejudging those subjects (beyond that necessary for the issues that I have to decide). Mr Bowdery also said that I should not determine what was the meaning of the Subcontract Price but here I must do so in order to dispose of the issues raised by both actions 85 and 100. They relate to interim applications and if there is a material difference between the meaning of Subcontract Price for that purpose and for the purpose of a final figure then I do not decide the latter. Jarvis' submissions then seized the opportunity to restate its case.
  35. Preliminary - Right to Judgment on Adjudicator's Decision

  36. On 23 April Mr Bowdery expressed astonishment at the course that I was proposing to take and did take. Before the hearing on 4 May he professed that Jarvis was flummoxed and on that day he said it had gone beyond that state. Extravagant language has its uses, but in this court only if used with reason. Happily Mr Bowdery's own submissions were not confused, although at one stage he accepted that he was walking on two tight-ropes, which occasionally were not running in parallel with each other. Nevertheless, in my view, Mr Bowdery's initial submissions were in part based on a misunderstanding. He suggested that a party such as Jarvis had an almost absolute right to be paid what an adjudicator decides. Obviously it has been clear since applications for enforcement were first made to this court that the intention of Parliament was that adjudicators' decisions should be honoured, even if the reasoning that justified the decision was erroneous in law or fact. However that policy only applies to decisions which were valid, in that they were decisions which the adjudicator was authorised to make: for example, that the adjudicator had the power to do so (sometimes termed the jurisdiction to do so) and that the decision was not vitiated by some material failure to comply with basic concepts of fairness (sometimes termed compliance with the rules of natural justice, whether in respect of independence or impartiality or in respect of procedural fairness). Accordingly, to speak of a right of enforcement of an adjudicator's decision is misleading; the right is always qualified or contingent. Moreover section 108(3) of the Act says that the decision is "binding until the dispute is finally determined by legal proceedings….". Naturally the Act assumes that such a final determination is likely to follow the decision. That is consistent with the concept of adjudication whereby a dispute would be resolved during the course of a contract and only resurrected for final determination, if required, at a later stage. "Pay now; argue later", as some are wont to say. In my judgment there is nothing in the Act (or the Scheme, if applicable) which requires a party who wishes to challenge a decision of an adjudicator to comply with it before being able to advance its case, any more than a party is precluded from subsequently challenging a decision, having complied with it (as Mr Bowdery suggested, at least one stage). Unless a party is estopped from questioning the decision or has waived its right to do so, both of which would require clear evidence (and mere compliance is not) that party is free at any time to obtain a final determination of the dispute which has been provisionally resolved.
  37. There is equally no reason why a challenge to a subsequent decision may not encompass or lead to that final determination in respect of an earlier decision, as sought by action 85. In reality such a party is rarely in a position to act as Alstom has done, unless, for example, there have been successive adjudications and it is ready before the latest. If, however, before an application to enforce an adjudicator's decision is heard, the point decided by it is finally determined adversely to the party who is relying on the decision then that application and the action will fail. That might be so if the point related to a standard form of contract and the point was determined in proceedings between other parties. Any other conclusion would be verging on the absurd: to allo