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You are here: BAILII >> Databases >> England and Wales High Court (Technology and Construction Court) Decisions >> KNS Industrial Services Ltd v. Sindall Ltd [2000] EWHC Technology 75 (17th July, 2000) URL: https://www.bailii.org/ew/cases/EWHC/TCC/2000/75.html Cite as: [2000] EWHC 75 (TCC), 75 Con LR 71, (2001) 17 Const LJ 170, (2001) 3 TCLR 10, [2000] EWHC Technology 75 |
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IN THE HIGH COURT OF JUSTICE
TECHNOLOGY AND CONSTRUCTION COURT
HIS HONOUR JUDGE HUMPHREY LLOYD Q.C.
B E T W E E N:
KNS
INDUSTRIAL
SERVICES
(
BIRMINGHAM)
LIMITED
Claimant
and
SINDALL
LIMITED
Defendant
Case No. HT 00/164
Date of Judgment 17 July 2000
The claimant (KNS)
was a subcontractor to the defendant
(
Sindall).
The subcontract incorporated the standard conditions DOM/1.
It sought summary judgment pursuant to Part 24 of the CPR
pursuant to the decision of an adjudicator on the ground that the adjudicator
had no jurisdiction to reduce the amount that he had decided was due
to
KNS
by
Sindall.
Sindall
cross-applied for summary judgment against
KNS
on
the ground that the action was bound to fail. For reasons which appear from
the judgment it was decided that the adjudicator had not exceeded his jurisdiction
and that the action should be dismissed with costs. Sections 110 and 111
of the Part II of the Housing Grants Construction and Regeneration
Act 1996 considered. Clauses 21 and 29 of DOM/1 considered. Fastrack
Contractors
Ltd
v
Morrison Construction
Ltd
[2000] BLR 168 referred to.
Dicta in Northern Developments (Cumbria)
Ltd
v
J & J Nichol [2000]
BLR 158 explained.
Philip Harris of Merricks appeared for the claimant.
Paul Darling QC appeared for the defendant, instructed by Fenwick Elliott.
Subject to editorial correction the judgment of His Honour Judge Humphrey LLoyd QC was as follows:
J U D G M E N T
1. This action arises out of the decision of an adjudicator.
Unusually, the claimant (KNS)
seeks by it and by an application under Part 24
of the CPR to enforce what the adjudicator did not specifically decide
should be paid by the defendant (
Sindall).
KNS
says that the adjudicator had
no jurisdiction to reduce the figure which he did award and that, on the basis
of what he did decide, more is unquestionably due to it.
Sindall
says that both
the action and the application are misconceived. It has made a counter application
under Part 24 to obtain summary judgment against
KNS
on the grounds that its
claims are bound to fail.
2. KNS
entered into a sub-contract dated 8 October 1998
to carry out mechanical and electrical works for
Sindall
at Mermaid House, 43
Acacia Road, London NW8 where
Sindall
were carrying out works for Sir David
Alliance. The sub-contract price was originally approximately ,160,000. The
contract incorporated the standard conditions DOM/1 subject to the terms of
Sindall's
order forms.
3. Relevant conditions of DOM/1 included the following:-
21. Payment of Sub-Contractor
21.1 The first and interim payments and the Final Payment shall subject to clause 32 be made to the Sub-Contractor in accordance with the provisions of clause 21.
21.2 .1 The first payment shall be due not later than one month after the date of commencement of the Sub-Contract Works on-site or if so agreed of off-site works related thereto.
.2 Interim payments shall be due at intervals not exceeding one month calculated from the date when the first payment was due.
.3 The final date for payment for the first and interim payments shall be not later than 17 days after the date when they become due.
21.3 .1 Subject to any agreement between
the Sub-Contractor and the Contractor as to stage payments and subject
to any decision of the Adjudicator under Clause 38A or of an arbitrator
or the Courts under Clauses 38B or 38C as the case may be, the amount
of the first and each interim payment to the Sub-Contractor shall
be the Contractor's gross valuation
as referred to in clause 21.4
less
.1 an amount equal to any amount which may be deducted and retained as Retention by the Contractor in respect of the Sub-Contract Works in accordance with clause 21.5;
.2 the total amount previously due in first and interim payments in respect of the Sub-Contract Works.
.2 Not later than 5 days after the date on which any interim payment becomes due the Contractor shall give a written notice to the Sub-Contractor which shall specify:-
.1 the amount of the interim payment which is proposed to be made in respect of the Sub-Contract Works and the basis on which such amount was calculated; and
.2 by way of deduction from such amount, the amount of any payment proposed to be made from the Sub-Contractor to the Contractor and the basis on which such amount was calculated.
.3 Not later than 5 days before the final date for payment of any interim payment, the Contractor may give a written notice to the Sub-Contractor which shall specify any amount proposed to be withheld and/or deducted from the amount notified under clause 21.3.2, the ground or grounds for such withholding and/or deduction and the amount of the withholding and/or deduction attributable to each ground. If no notice is given, the Contractor shall pay the amount stated in his notice under clause 21.3.2 by the final date for payment of it.
Interest
.4 If the Contractor fails properly to pay the amount, or any part thereof, due to the Sub-Contractor by the final date for its payment the Contractor shall pay to the Sub-Contractor in addition to the amount not properly paid simple interest thereon for the period until such payment is made. Payment of such simple interest shall be treated as a debt due to the Sub-Contractor by the Contractor. The rate of interest payable shall be five per cent (5%) over the Base Rate of the Bank of England which is current at the date the payment by the Contractor became overdue. Any payment of simple interest under clause 21.3.3 shall not in any circumstances be construed as a waiver by the Sub-Contractor of his right to proper payment of the principal amounts due from the Contractor in accordance with, and within the time stated in, this Sub-Contract or of the rights of the Sub-Contractor in regard to suspension of performance of his obligations under this Sub-Contract to the Contractor pursuant to clause 21.6 or to determination of his employment pursuant to the default referred to in clause 30.1.1.3.
21.4 Gross valuation
Subject to clause 37.2.3, where applicable,
the gross valuation
to be made by the Contractor shall be the total
of the amounts referred to in clauses 21.4.1 and 21.4.2 less the total
amount referred to in clause 21.4.3 up to and including a date not more
than 7 days before the date when the first and each interim payment
is due:
.1 .1 the total value
of the
sub-contract work on-site properly executed by the Sub-Contractor,
including any work so executed for which clause 16.1 refers
and including any work so executed for which a 4.6 Quotation
has been accepted by the Contractor and any
variations
thereto
to which Clause 4.6.8 applies, but excluding any restoration,
replacement or repair of loss or damage and removal and disposal
of debris which in clauses 8B.4 and 8C.4 are treated as if they
were a
Variation
together with, where applicable, any adjustment
of that total
value
under clause 37;
.2 the total value
of the materials
and goods delivered to or adjacent to the Works for incorporation
therein by the Sub-Contractor but not so incorporated provided
that the
value
of such materials and goods shall only be included
as and from such times as they are reasonably, properly and
not prematurely so delivered and are adequately protected against
weather and other casualties;
.....
29 Determination of the employment of the Sub-Contractor by the Contractor
....
29.2 .1 If before the date of practical completion of the Sub-Contract Works the Sub-Contractor shall make default in any one or more of the following respects; or
.1 without reasonable cause he wholly or substantially suspends the carrying out of the Sub-Contract Works; or
.2 without reasonable cause he failed to proceed regularly and diligently with the Sub-Contract Works; or
.3 he refuses or neglects to comply with a written direction from the Contractor requiring him to remove any work, materials or goods not in accordance with this Sub-Cont[r]act and by such refusal or neglect the Works are materially affected; or
.4 he fails to comply with the provisions of clauses 26.1 and/or 26.2; or
.5 he fails pursuant to the Sub-Contract Conditions to comply with the requirements of the CDM Regulations
then the Contractor may issue a notice to the Sub-Contractor specifying the default or defaults (the 'specified default or defaults').
. 2 If the Sub-Contractor continues a specified default for 10 days from receipt of the notice under clause 29.2.1 then the Contractor may on, or within 10 days from, the expiry of that 10 days by a further notice to the Sub-Contractor determine the employment of the Sub-Contractor under the Sub-Contract. Such determination shall take effect on the date of receipt of such further notice.
.3 If
the Sub-Contractor ends the specified default, or
the Contractor does not give the further notice referred to in clause 29.2.2
and the Sub-Contractor repeats a specified default (whether previously repeated or not) then, upon or within a reasonable time after such repetition, the Contractor may by notice to the Sub-Contractor determine the employment of the Sub-Contractor under this Sub-Contract. Such determination shall take effect on the date of receipt of such notice.
.4 A notice of determination under clause
29.2.2 or clause 29.2.3 shall not be given unreasonably of vexatiously.
...
29.5 In the event of the employment of the Sub-Contractor under the Sub-Contract being determined under clause 29.2 or 29.3 or 29.4 and so long as that employment has not been reinstated then clause 29.6 shall apply.
...
29.6 .3 Until after completion of the Sub-Contract Works and the making good of defects as referred to in clause 14.3 the Contractor shall not be bound by any provisions of the Sub-Contract to make any further payment to the Sub-Contractor; provided that clause 29.6.3 shall not be construed so as to prevent the enforcement by the Sub-Contractor or any rights under this Sub-Contract in respect of amounts properly due to be discharged by the Contractor to the Sub-Contractor which the Contractor has unreasonably not discharged and which have accrued 31 days or more before the happening of any of the events listed in clause 29.3.1.
.4 Upon completion of the Sub-Contract
Works and the making good of defects of the kind referred to
in clause 14.3 the Sub-Contractor may apply to the Contractor
and the Contractor shall pay to the Sub-Contractor the value
of any work executed or goods and materials supplied by the
Sub-Contractor to the extent that their
value
has not been included
in previous interim payments. The Contractor, in discharging
his obligations to pay the Sub-Contractor may deduct therefrom,
without prejudice to any other rights of the Contractor and
subject to clause 21.3, the amount of any direct loss and/or
damage caused to the Contractor by the determination; or, to
the extent that such deduction does not account for the full
amount of any such direct loss and/or damage, may recover the
difference between the amount deducted and the aforesaid full
amount as a debt from the Sub-Contractor.
29.7 The provisions of clause 29.1 to 29.6 are without prejudice to any other rights or remedies which the Contractor may possess.
38A Adjudication
.1 Clause 38A applies, where pursuant to Article 3, either Party refers any dispute or difference arising under this Sub-Contract to adjudication.
.2 The Adjudicator to decide the dispute or difference shall be either an individual agreed by the Parties or, on the application of either party, an individual to be nominated as the Adjudicator by the person named in the Appendix part 8 ("the Nominator") provided that:-
.1 no Adjudicator shall be agreed or nominated under clause 38.A.2.2 or clause 38A.3 who will not execute the Standard Agreement with the Parties and
.2 where either Party has given notice of his intention to refer a dispute to adjudication then
- any agreement by the Parties on the appointment of an Adjudicator must be reached with the object of securing the appointment and of the referral of the dispute or difference to the Adjudicator within 7 days of the date of the notice of intention to refer (see clause 38A.4.1);
- any application to the nominator must be made with the object of securing the appointment of, and the referral of the dispute or difference to, the Adjudicator within 7 days of the date of the notice of intention to refer;
.3 upon agreement by the Parties on the appointment of the Adjudicator or upon receipt by the Parties from the nominator of the name of the nominated Adjudicator the Parties shall thereupon execute with the Adjudicator the JCT Adjudication Agreement
.3 If the Adjudicator dies or becomes ill or is unavailable for some other cause and is thus unable to adjudicate on a dispute or difference referred to him, the Parties may either agree upon a person to replace the Adjudicator or either Party may apply to the nominator for the nomination of an adjudicator to adjudicate that dispute or difference; and the Parties shall execute the JCT Adjudication Agreement with the agreed or nominated Adjudicator.
.4 .1 When pursuant to Article 3 a Party requires a dispute or difference to be referred to adjudication then that Party shall give notice to the other Party of his intention to refer the dispute or difference, briefly identified in the notice, to adjudication. Within 7 days from the date of such notice or the execution of the JCT Adjudication Agreement by the Adjudicator if later the Party giving the notice of intention shall refer the dispute or difference to the Adjudicator for his decision ("the referral"); and shall include with that referral particulars of the dispute or difference together with a summary of the contentions on which he relies, a statement of the relief or remedy which is sought and any material he wishes the Adjudicator to consider. The referral and its accompanying documentation shall be copied simultaneously to the other Party.
.2 The referral by a Party with its accompanying documentation to the Adjudicator and the copies thereof to be provided to the other Party shall be given by actual delivery or by FAX or by registered post or recorded delivery. If given by FAX then, for record purposes, the referral and its accompanying documentation must forthwith be sent by first class post or given by actual delivery. If sent by registered post or recorded delivery the referral and its accompanying documentation shall, subject to proof to the contrary,be deemed to have been received 48 hours after the date of posting subject to the exclusion of Sundays and any Public Holiday.
....
38A .7 .1 The decision of the Adjudicator shall be binding on the Parties until the dispute or difference is finally determined by arbitration or by legal proceedings or by an agreement in writing between the Parties made after the decision of the Adjudicator has been given.
.2 The Parties shall, without prejudice to their other rights under the Contract, comply with the decisions of the Adjudicator; and the Contractor and the Sub-Contractor shall ensure that the decisions of the Adjudicator are given effect.
.3 If either Party does not comply with the decision of the Adjudicator the other Party shall be entitled to take proceedings in the Courts to secure such compliance pending any final determination of the referred dispute or difference pursuant to Clause 38A.7.1.
4. Appendix A to the sub-contract contained the following:
Clause 1 - Payment of Valuations
1.1 Payment and Valuations
shall be one monthly.
1.2 The Subcontractor shall submit his 'Application
for Payment' 3 days prior to the Valuation
Date.
1.3 Sindall
Construction
Ltd.
will evaluate
the
value
of works executed by the Subcontractor up to the
Valuation
Date. (N/A if Subcontractor is Nominated then NSC4 form of subcontract
applies and the Quantity Surveyor shall be responsible for the evaluation).
1.4 Section 113 of the Housing Grant, Construction & Regeneration Act 1996 ('Construction Act') shall be incorporated into this Subcontract.
1.5 Payment shall become due no later than 28
says from the date of issue of the Main Contract Payment Certificate
applicable to the relevant Valuation
Date.
Clause 2 - Adjudication & Dispute Resolution:
2.1 For the avoidance of doubt, the dispute resolution provisions of the subcontract shall remain in full force.
2.2 For Subcontracts where the 'Construction Act' is applicable, the following in respect of Adjudication provisions.
2.2.1 The Adjudicator shall be appointed by the Royal Institute of Chartered Surveyors.
2.2.2 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.
2.2.3 Should any Adjudication action be commenced by the Subcontractor, then the Subcontractor shall be responsible for the full cost of such action.
Thus the conditions forming part of the sub-contract made the payment period 28 days from receipt of the main contract payment certificate.
5. On 10 November 1999 KNS
submitted an application (no.
14) for ,1,102,422.93. On 29 November 1999,
Sindall
notified
KNS
that it considered
the gross
value
of the sub-contract work was to be ,908,422.25, later revised
to ,995,940.25. On 13 December
KNS
submitted a final account summary (which
the adjudicator subsequently decided constituted an application for an interim
payment) in the sum of ,1,136,076.94. This came to be known as application 15.
On 22 December 1999
Sindall
notified
KNS
of its intention to withhold ,44,158.52.
There was no dispute that
Sindall
was entitled to do so. By 20 January 2000
KNS
thought that it ought to have been paid on its December application (no.
15) and therefore it gave
Sindall
notice of its intention to suspend performance
of the sub-contract works.
Sindall
countered on 21 January 2000 by warning
KNS
that it intended to determine its employment under the sub-contract and followed
it up by a long letter on 26 January in which it set out its position
very
clearly.
It explained why it thought its
valuation
of ,995,940.25 was correct and showed
that there had been an overpayment of ,63,579. On 1 February 2000
KNS
stopped
work so on 4 February 2000
Sindall
implemented its notice and determined the
employment of
KNS
under the sub-contract.
6. On 9 March 2000, ie over a month later, KNS
served notice
of adjudication and made an application to the President of the Royal Institution
of Chartered Surveyors for the appointment of an adjudicator. The notice of
adjudication was full and apparently carefully drafted by
KNS's
solicitors.
It read, in part:-
5. In accordance with the terms of the sub-contract
KNS
submitted monthly applications or payment, including application
no 14 dated 10th November 1999 in the gross sum of ,1,102,422.93 and
application no 15 dated 13th December 1999 in the gross sum of ,1,136.076.94
(excluding
VAT).
6. Wrongfully and in breach of the sub-contract
Sindall
has failed to
value
KNS'
works in accordance with the terms
of the sub-contract and has paid only the net sum of ,941,910.49.
7. Accordingly, the balance due to KNS
up to
and including the amount due under application no 15 is as follows:
Gross value ,1,136,076.94
Less discount (2.5%) (, 28,401.92)
_) ,1,107,675.02
Less retention (3%) ( ,33,230.25)
Less amount paid to date (net of VAT) ,
941,910.49
Amount due (exclusive of VAT) ,
132,534.28
VAT
@ 17.5% , 23,193.50
Amount due (inclusive of VAT) ,
155,727.78
8. The sum of ,155,727.78 together with interest
remains due and payable to KNS.
No timely and
valid
notice of intention
to withhold payment has been served upon
KNS.
Further, in breach of
the sub-contract,
Sindall
has failed to notify
KNS
of the amount of
the payment to be made or proposed to be made and the basis of calculation
of such payment within the time limited by the terms of the sub-contract
or at all.
9. To the extent that Sindall
is not precluded
from disputing the
value
of
KNS'
account, the dispute referred to adjudication
under this notice includes the proper measurement and/or
valuation
of
additional or
varied
works carried out by
KNS
under the sub-contract.
....
11. The redress sought by KNS
is payment of
the sums detailed above together with interest and the fees of the adjudicator,
and a declaration that
Sindall
has undervalued
KNS'
works carried out
pursuant to the sub-contract and wrongfully withheld payment of such
sums and of retention.
7. Mr Harvey Mason was appointed adjudicator. He duly received
a thirty page document plus voluminous
annexes which set out
KNS's
case at considerable
length.
Sindall
replied, although not at quite the same length, but nevertheless
very
fully. Amongst the points that
Sindall
took was that the contract had been
terminated. It specifically relied on clause 29.6.3 and said that it was "not
bound to make any further payment to
KNS.
there being no present right in relation
to what is alleged to be the December application".
8. The adjudicator informed himself from the considerable
documentation and from meetings between the parties. On 12 April 2000 he issued
his decision which contained only those reasons that he thought necessary (as
of course he was not obliged to give reasons). He arranged his decision very
clearly under a number of heads. For present purposes he arrived at the following
conclusions:-
1. KNS's
application of 13 December was an application
for an interim payment.
2. Since the date of payment was governed by the issue of an interim certificate under the main contract, payment was not due until 10 March 2000.
3. No payment had been made by Sindall
at the
date of his decision nor had
Sindall
notified
KNS
of the amount of payment
as required by the Act.
4. The latest date for a withholding notice was 5 March 2000.
5. The content of the notice served on 22 December
1999 complied with the requirements of the Act but unless Sindall
could
show that it had actually incurred additional costs and that they were
attributable to
KNS
it had not in fact incurred any loss.
6. Since the final date for payment in respect
of KNS's
December application was 10 March 2000 it followed that the
notice of suspension due to non-payment was premature and as a consequence
ineffective.
7. Since the suspension was ineffective it followed
that Sindall
was entitled to take such measures in mitigation as were
necessary. However, the sums claimed for administration and supervision
would be disallowed for the reasons already given in connection with
the withholding notice (which led to ,888.46 being disallowed), namely
that
Sindall
had not shown that the costs had actually been incurred.
8. Sindall
were to pay ,4,884.94 made up as
set out in appendix A to the adjudication decision:-
"BUILD-UP TO ,4,844.94
Gross value
of December application ,1,136,076.94
Less 2.5% discount 28,401.92
1,107,675.02
Less 3% retention 33,230.25
1,074,444.77
Less paid to date 941,910.49
_)132,534.28
Withholding notice 44,158.52
Non compliant work 107,143.83
151,302.35
Less elements disallowed 23,613.01
127,689,34
,4,844.94"
9. Following the decision Sindall
paid ,4,844.94 plus interest.
KNS
however claim in this action that the adjudicator had no jurisdiction to
allow ,107,143.85 for "Non compliant work". It claims that the amount that ought
to have ben awarded was ,104,933.52. This is arrived at by selecting figures
from the decision so
KNS
say, rightly, that it is not departing from these findings.
From the sum of ,107,143.83
KNS
deduct ,22,724.55 to arrive at ,84,419.94, which
when added to ,4,844.94 comes to ,89,264.22. To that sub-total
VAT
of ,15,621.42
is added plus the sum for interest to make ,104,933.52.
10. For the purposes of an application under Part 24 it
is necessary only that the applicant should establish that there are no or no
realistic prospects of success available to the defendant or the claimant, as
the case may be. Sindall's
application would however have the effect of dismissing
the action so I have to be sure that the action would be bound to fail whereas
whatever
views
I may form in relation to
KNS's
application, if it were to be
dismissed the consequences would simply be that
Sindall
would have an opportunity
of establishing its case.
11. Mr Paul Darling QC for Sindall
submitted, as a first
and preliminary point, with some reason, that no judgment could be given on
KNS's
case in the form in which it was presented and pleaded. The claim form
stated that
KNS
sought "an order for payment of all sums pursuant due under
the Adjudicator's decision". The particulars of claim said in paragraph 21 that
Sindall
"had wrongfully refused or failed to pay the sum due to the claimant
under the Adjudicator's decision".
Sindall
had paid ,4,844.94, plus interest,
as required by the decision. The sum of ,104,933.52 was not even mentioned in
the adjudicator's decision. (Mr Harris for
KNS
in his skeleton argument sought
judgment for ,99,328,70.)
Sindall
therefore maintained that, as a matter of
procedure, summary judgment was out of the question.
12. There is clearly no real answer to this objection. The
case presented by KNS
is not a ordinary one. It requires the adjudicator's decision
not just to be construed by reference to the background to and the documents
referred to in the decision but also to be dismembered and reconstructed. Both
the claim form and the particulars of claim were not well drafted. The amount
due "under the adjudicator's decision" is not ,104,933.52, but ,4,844.94. The
application under Part 24 is liable to be dismissed on this ground. On the other
hand a party should not suffer unduly as a result of the ineptitude of its legal
advisers. The overriding objective set out in Rule 1 of the CPR requires a case
to be dealt with justly. The powers of case management enable such mistakes
to be overcome (in the absence of evidence that the party had ignored a warning
of an objection or had failed to take advantage of putting its house in order.
If, for example, it were clear that
Sindall
had no real prospect of success
in defeating
KNS's
claim on its merits and if
KNS
had demonstrated that the
flaws in the particulars of claim could easily be put right by amendment and
if an appropriate application had been made at the hearing (since
Sindall's
case had been set out in Mr Darling's skeleton argument) then this objection
would no longer be effective, except on costs (as Mr Darling accepted). Since
Sindall
had other objections it was not necessary to decide whether to give
Mr Harris time to formulate amendments.
13. Sindall
had a number of main points. It maintained that
the adjudicator kept to his jurisdiction and had arrived at a decision on the
dispute that had been referred to him by
KNS.
The proceedings were therefore
bound to fail.
KNS's
remedy was to pursue arbitration under Article 3 and clause
38 of DOM/1 in relation to the dispute which provided the only means of correcting
any error that the adjudicator might have made. Further
Sindall
contended that
if the adjudicator had made any errors the nature of adjudication was such that
the parties were bound by them so they could not be put right so as to give
KNS
summary judgment. Finally,
Sindall
relied on clause 29.6.3 which entitled
it not to pay
KNS
any further amounts.
14. It is thus first necessary to determine whether the
adjudicator acted without jurisdiction, as suggested by KNS.
When the jurisdiction
of a person appointed to make a decision under a contract (such as an adjudicator)
is called into question, it is always necessary to ascertain with precision
what the decision-maker was authorized to do. The events leading up to
KNS's
notice of 9 March 2000 have to be examined in order to understand what dispute
the adjudicator was appointed to resolve. In Fastrack Contractors
Ltd
v
Morrison
Construction
Ltd
[2000] BLR 168 at page 176 His Honour Judge Thornton QC
gave a clear and full explanation of the nature of the inquiry which I gratefully
adopt:
"During the course of a construction contract, many
claims, heads of claim, issues, contentions, and causes of action will arise.
Many of these will be collectively, or individually disputed. When a dispute
arises, it may cover one, several or many of one, some or all of these matters.
At any particular moment in time, it will be a question of fact what is
in dispute. Thus the "dispute" which may be referred to adjudication is
all or part of whatever is in dispute at the moment the referring party
first intimates an adjudication reference. In other words, the "dispute"
is whatever claims, heads of claims, issues or contentions or causes of
action that are then in dispute which the referring party has chosen to
crystallise into an adjudication reference. A vital
and necessary question
to be answered, when a jurisdictional challenge is mounted, is: what was
actually referred? That requires a careful characterisation of the dispute
referred to be made. This exercise will not necessarily be determined solely
by the wording of the notice of adjudication since this document, like any
commercial document having contractual force, must be construed against
the background from which it springs and which will be known to both parties."
15. In questioning the adjudicator's jurisdiction KNS
contended
that the adjudicator had no authority to deal with some of the grounds upon
which
Sindall
challenged the claims presented by
KNS
to the adjudicator as
Sindall
had not given a notice of intention to withhold in respect of the amount for
non compliant work which the adjudicator had set against
KNS's
gross
valuation
of December 1999. The parties and the adjudicator referred to provisions of
the Part II of the Housing Grants Construction and Regeneration Act 1996 (HGCRA).
The sections relevant to the issues are sections 110 and 111 which read as follows:
110 (1) Every construction contract shall-
(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 setoff 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.
16. Section 110 sets out certain basic requirements which must be found in every construction contract (as defined by the Act) made after 1 May 1998. If or to the extent that they are not included in a contract then the default provisions of the Scheme apply as implied terms of the contract (see sections 110(3) and 114(4)). DOM/1 meets these requirements. Accordingly the provisions of section 110 are no longer relevant. The terms of sub-contract are the material provisions. On the other hand there is no requirement to incorporate the provisions of section 111 in a construction contract although the parties are entitled to agree on the prescribed period. Thus DOM/1 states the period to be 5 days and sensibly repeats section 111 in clause 21.3.2. If this clause were to conflict with the provisions of section 111 the latter would prevail so it is understandable (if unnecessary) if the section is referred to. With this warning in mind I shall however prefer to use the sub-contract.
17. Clause 21.3 (read with clause 21.4 and the additional
sub-contract provisions in Appendix A) provides that on the valuation
dates
the contractor is to notify the sub-contractor of (1) the amount of the interim
payment due to the sub-contractor as the
value
of work properly executed (and
materials etc) and how it is calculated; (2) the amount of any deduction for
any payment due by the sub-contractor and how it is calculated. Accordingly
the amount notified as due by the Contractor will be the contractor's
view
of
the true
value
of work, taking into account any factors that affect the true
value
of the work, such as the state of completion and proper execution of the
work, including whether it was properly carried out or has proved to be defective,
ie matters which might qualify in law as entitling a contractor to the defences
of abatement or set-off (see for example the well-known restatement by Lord
Diplock in Dawnays
v
Minter [1974] AC 689 at page 714)). Any amount that
is due by the sub-contractor (eg a contra-charge for labour, plant or materials
supplied at the sub-contractor's request) will also be notified as a deduction
so as to arrive at the net amount due under clause 21.3.2. Clause 21.3.3, in
giving effect to section 111, entitles the contractor not to pay that amount
to the sub-contractor in so far there are grounds for withholding it or part
of it or for making a deduction from it provided that an effective notice is
given, ie one which complies with section 111 (and with any additional condition
precedent that may be included in the contract). Section 111(1) makes it clear
that a notice of the kind required by section 110 (ie that provided by clause
21.3.2.2) may suffice, but of course the contractor is entitled to give another
notice (in order to ensure that there is an effective notice) or to give a notice
where none had previously been given. The term withhold is thus used in section
111 to cover both the situation where in arriving a
valuation
the contractor
had not taken account of a countervailing factor as well as the situation where
there is to be reduction in or deduction from an amount that had been declared
or thought to be due. In the former case the word "withhold" may not always
be correct for one cannot withhold what is not due.
18. Thus by the time that KNS
gave its notice of adjudication
there was plainly a dispute about the
valuation
of the work.
Sindall's
valuation
did not agree with
KNS's
November application. On 22 December 1999 it had issued
a notice stating that it intended to withhold ,44,158 (which if implemented
would have resulted in nothing being paid to
KNS).
Although
Sindall
had not
treated
KNS's
December application as an application for a interim payment it
had made it clear in its letter of 26 January 2000 that nothing more was due
to
KNS
so that apart from the question of timing the requirements of clause
21.3.2.1 had evidently been observed.
KNS
had nevertheless suspended work on
the grounds that by February 2000 it ought to have been paid.
Sindall
had determined
the employment of
KNS.
On the face of it, if
Sindall
were right, no further
payments were then due, unless of course they fell within the proviso at the
end of clause 29.6.3 which begins: "Until after completion of the Sub-Contract
Works and the making good of defects as referred to in clause 14.3 the Contractor
shall not be bound by any provisions of the Sub-Contract to make any further
payment to the Sub-Contractor.. " .
19. Clause 38A fulfils Article 3.1: "If any dispute or difference arises under the Sub-Contract either Party may refer it to adjudication in accordance with clause 38A". A notice of intention to refer a dispute to adjudication has two purposes: it notifies the other party to the contract of the dispute, which, although it is to be "briefly identified in the notice" (see clause 38A.4.1), must nevertheless be identified and it also tells the person agreed to be the adjudicator of the existence of dispute (and thus, for example, of the possibility of having to make time available) or it informs the person or body responsible for making an appointment of the nature of the dispute. This may be important so as to avoid a conflict of interest or in the process of selection of a suitably qualified person and it may also affect the execution of a JCT Adjudication Agreement.
20. I have already mentioned that the notice given pursuant
to clause 38A.4.1 was carefully drafted. It was a formal three page document
(plus back sheet). Paragraph 6 said: "Wrongfully and in breach of the sub-contract
Sindall
has failed to
value
KNS'
works in accordance with the terms of the sub-contract
and has paid only the net sum of ,941,910.49.". Paragraph 8 stated: "The sum
of ,155,727.78 together with interest remains due and payable to
KNS.
No timely
and
valid
notice of intention to withhold payment has been served upon
KNS.
Further, in breach of the sub-contract,
Sindall
has failed to notify
KNS
of
the amount of the payment to be made or proposed to be made and the basis of
calculation of such payment within the time limited by the terms of the sub-contract
or at all." Paragraph 11 sought the following: "The redress sought by
KNS
is
payment of the sums detailed above together with interest and the fees of the
adjudicator, and a declaration that
Sindall
has undervalued
KNS'
works carried
out pursuant to the sub-contract and wrongfully withheld payment of such sums
and of retention."
21. I have no doubt whatsoever that the effect of this notice
was to inform Sindall
that
KNS
not only did not agree with
Sindall's
treatment
of its applications but also that it did not agree with
Sindall's
letter of
26 January 2000 (in which
Sindall
had set out at length why no more was to be
paid to
KNS)
and that its claim to redress challenged
Sindall's
determination
of the sub-contract and, with it, any right not to pay
KNS
whatever might have
been due to
KNS.
Obviously the success of that challenge depended on the time
when payment was due to
KNS
but, in the light of
Sindall's
actions, allegations
that it was in breach of the subcontract and that payment was due could only
mean that
Sindall
could not get the benefit of clause 29.6.3. Quite apart from
the requirement to identify the dispute briefly there were presumably reasons
why tactically,
KNS's
solicitors did not wish to bring out all the issues latent
within the seemingly simple claim for a amount due on an interim
valuation.
As Judge Thornton said in Fastrack, "the "dispute" is whatever claims,
heads of claims, issues or contentions or causes of action that are then in
dispute which the referring party has chosen to crystallise into an adjudication
reference". A party to a dispute who identifies the dispute in simple or general
terms has to accept that any ground that exists which might justify the action
complained of is comprehended within the dispute for which adjudication is sought.
It takes the risk that its bluff may be called in an unexpected manner. The
further documents which come into existence following the notice of adjudication
(such as "the referral" which is defined in clause 38A.4..1 of DOM/1) do not
cut down or, indeed enlarge, the dispute (unless they contain an agreement so
to do). The adjudicator is appointed to decide the dispute which is the subject
of the notice and that notice determines his jurisdiction. The adjudicator's
jurisdiction does not therefore derive from the further documents (as was suggested
by Mr Harris during his argument), although those documents are likely to help
the adjudicator to find out what needs to be decided in order to arrive at a
conclusion on the dispute. (However I would be surprised if those who were in
favour of adjudication as required by the HGCRA contemplated that adjudicators
would be presented with page after page of submissions and annexes from the
parties' legal or other advisers, as happened in this not untypical case.)
22. It may be convenient at this stage to deal with a submission
advanced for KNS
which was based in part on an extract from the judgment of
His Honour Judge Bowsher QC in Northern Developments (Cumbria)
Ltd
v
J &
J Nichol [2000] BLR 158. At page 164 Judge Bowsher said:
"For the temporary striking of balances which are contemplated
by the Act, there is to be no dispute about any matter not raised in an
intention to withhold payment. Accordingly, in my view,
the adjudicator
had no jurisdiction to consider any matter not raised in the notice of intention
to withhold payment in this case."
Mr Harris argued that as the adjudicator had apparently reduced
the gross valuation
by amounts which had not been the subject of an effective
notice under clause 21.3.3 (or section 111) the adjudicator had no jurisdiction
to do so. This is a misreading of the extract. If a dispute involves a question
as to whether or not an effective notice has been given which complies with
section 111 and the contract an adjudicator obviously has jurisdiction to investigate
and to decide it. If he decides that no effective notice had been given then
he has no power to put it right. To that extent only he has no "jurisdiction"
to do so since he cannot dispense with a pre-condition to withholding or deducting
an amount. His decision may be right or wrong but it will not be without jurisdiction.
Here the adjudicator plainly had the jurisdiction to decide whether or not
Sindall
had given an effective notice and to act on that decision. According to paragraph
14.7 of his decision
Sindall
did not serve a effective notice for anything other
than the ,44,158 (which was not in issue) so it is not as if he had erroneously
decided that there was an effective notice. His decision however allowed for
a reduction of ,107,143 (less ,22,613) so, in deference to the submissions made
for
KNS,
I shall deal with the question that this application raises: what does
the decision represent if it was within his jurisdiction? However I must make
it clear that if the sums in question did require an effective notice and if
the adjudicator could not have decided that
Sindall
could withhold or deduct
the amounts in question then he may have made an error. That is immaterial since
the adjudicator's decision has to be enforced as it stands regardless of such
an error so on that basis
KNS's
application has to be dismissed and that of
Sindall
allowed.
23. Mr Darling contended that Appendix A to the decision
(the Build-Up) was the adjudicator's valuation.
I doubt
very
much if this submission
is correct. Appendix A does not look like a
valuation.
Similarly I do not consider
that one can safely conclude that the adjudicator accepted
KNS's
December figure
as the true
value
of the works, which is an integral part of its case for otherwise
it cannot contend for its
valuation.
Whilst the adjudicator applied the percentages
for discounts and retention (in full, be it noted) to the gross figure his allowance
for "non-compliant work" might mask matters which would affect the
valuation.
If the issue were solely whether
KNS
was right in its interpretation of the
decision then they are clearly reasons why
Sindall
has real prospects of success
in putting forward alternative interpretations to those suggested by
KNS.
24. Mr Darling was on surer ground in submitting that in
trying to read such a decision there could be no severance of whatever the adjudicator
decided so as to separate the good from the bad. Mr Harris contended that there
could be a severance for otherwise he could not treat the adjudicator's apparent
adoption of KNS's
gross
valuation
of ,1,136,076 as the adjudicator's
valuation,
nor could he isolate (in order to discard as ultra
vires)
the figures
of ,107,143 and ,23,613. He relied on what Dyson J had said in Bouygues UK
Ltd
v
Dahl-Jensen UK
Ltd
[2000] BLR 49 at page 54 (para 25):
"If the mistake was that he decided a dispute that was not referred to him, then his decision was outside his jurisdiction, and of no effect."
I have already explained why the dispute referred to the adjudicator
included any ground open to Sindall
which would justify not paying
KNS.
There
may be instances where an adjudicator's jurisdiction is in question and the
decision can be severed so that the authorised can be saved and the unauthorised
set aside. This is not such a case. There was only one dispute even though it
embraced a number of claims or issues.
KNS's
present case is based on severing
parts of the adjudicator's apparent conclusions from others. It is not entitled
to do so. Adjudicator's decisions are intended to be provisional and in the
nature of best shots on limited material. They are not to be used as a launching
pad for satellite litigation designed to obtain what is to be attained by other
proceedings, namely the litigation or arbitration that must ensue if the parties
cannot resolve their differences with the benefit of the adjudicator's opinion.
KNS
must therefore accept the whole of this decision and if it does not like
it to seek a remedy elsewhere (in the absence of successful negotiation or some
other form of ADR). Furthermore I do not consider that it is right to try to
dismantle and then to reconstruct this decision in the way suggested by
KNS
for that intrudes on the adjudicator's area of decision-making. Mr Mason understandably
and properly said that he had not set out all his reasons. Had he done so he
might well have explained why a certain course was not in accordance with his
thinking. In addition the parties have to accept the decision "warts and all";
they cannot come to the court to have a decision revised to excise what was
unwanted and to replace it with what was is or was thought to be right, unless
the court is the ultimate tribunal. This decision is a decision on whether
Sindall
was by March 2000 right not to pay
KNS
any more money. A party cannot pick amongst
the reasons so as to characterise parts as unjustified and therefore made without
jurisdiction. It is simplistic to say that a decision-maker is not authorised
to make mistakes. It does not follow that every error or mistake falls outside
the decision-maker's jurisdiction. Errors of fact and judgment (and even of
law) are an inevitable risk of any decision-making process but if it is to be
binding, even temporarily, the parties have to accept the risk of such errors.
If the decision is erroneous but within the authority granted a party has to
accept the result.
25. I do not consider that the adjudicator exceeded his
jurisdiction (nor do I consider that it has been shown that he made any significant
mistake). In my judgment Sindall
is right in reading the decision as a
vindication
of its decision to determine
KNS's
employment and not to pay the amounts claimed
by
KNS.
The adjudicator found that although
KNS
was entitled to a further interim
valuation,
it had no right to a further payment at any of the times that it
sought one, threatened to suspend work and did suspend work. Under the sub-contract
payment was governed by the issue of interim certificates under the main contract.
Thus the adjudicator concluded that payment was not due until 10 March. He further
decided that "the notice of suspension due to non-payment was premature and
as a consequence, ineffective" since
KNS
had no right to payment on 20 January
(the date of the notice) or 1 February 2000 (the date of suspension). For the
present the parties have to accept these conclusions. They seem to me to be
right. The adjudicator then decided that
Sindall
was entitled to the amounts
claimed by it but he reduced them since he was not satisfied that it had actually
incurred ,23,613.01 in respect of administration charges, presumably because
of the reference to "direct loss and/or damage .. caused to the Contractor in
clause 29.6.4. Although
Sindall
may be able to question that adjustment either
in fact or in law, the adjudicator's decision is otherwise entirely consistent
with the further conclusion that because
KNS's
notice of suspension was ineffective,
its suspension was unjustified and
Sindall
was right to determine
KNS's
employment.
Under Clause 29.6.3
Sindall
is not obliged to "make any further payment" to
KNS
and is entitled to recover its direct loss and damage from any payments
that may be made. Clause 29.6.4 requires the sub-contractor "upon completion
of the Sub-contract Works and the making good of defects... " to apply for payment
and for the contractor to pay. If section 111 applies (which I doubt since clause
29.6 is part of a typical self-contained code applicable when the sub-contractor
is in serious and irreparable default) then that is the time when notice of
intention to withhold might be given. There was therefore no need to give a
notice in respect of the sums allowed by the adjudicator. The adjudicator appears
prudently to have anticipated the inevitable. However the adjudicator decided
that there should be a payment which is to me the only apparently inexplicable
part of his decision in that clause 29.6.3 gives a contractor the right to defer
further payment "until after completion of the Sub-contract Works and the making
good of defects". Whilst one might understand a decision based on implicit conclusions
that the sub-contract works were effectively complete and that
Sindall
had claimed
all that it could ever recover, clause 29.6.3 postpones the final reckoning
to the time when defects have been made good (which had not arrived - the adjudicator
noted that even practical completion for the M & E works had not taken place
and allowed 3% retention, a rate accepted by
KNS
in its claim in these proceedings).
However even if the adjudicator was in error
Sindall
could not rely on that
error to avoid payment and indeed has paid the amount awarded. I mention this
apparent flaw because it might conceivably lead to the conclusion that
Sindall's
case did not disclose real prospects of success. In my judgment the decision
of the adjudicator was therefore a decision on the dispute referred to him,
namely was ,155,727.78 due to
KNS?
and within his jurisdiction. That dispute
included
Sindall's
claim that it had lawfully determined the employment of
KNS
and was entitled to the benefit of clauses 29.6.3 and 29.6.4. That was apparently
upheld by the adjudicator. The answer may not to be the liking of
KNS
but it
was a possible consequence of the dispute referred by its notice of adjudication.
26. This action was therefore misconceived and was bound
to fail so not only is KNS
not entitled to summary judgment but
Sindall
is plainly
entitled to summary judgment against
KNS.
This case demonstrates the advantages
of the extension of the right to summary judgment to a defendant against a claimant.
It would be entirely inconsistent with the overriding objective, the powers
of case management and the reforming objectives of the CPR to have to permit
an action of this kind to proceed to some fuller trial, when, thanks to the
comprehensive arguments of the advocates for both parties, all relevant issues
have been fully explored. It would be a waste of money and time to permit this
an action to proceed further. Obviously the dismissal of this action does not
prejudice either party should the underlying disputes be referred to arbitration
or come to the court.
27. Finally, Mr Darling submitted that even if KNS
had had
some entitlement under the decision to a further interim payment consequent
on its December application, as claimed by
KNS,
it would still have had realistic
prospects of success in defending the action on the grounds that
KNS
had unlawfully
suspended the work and that
Sindall
had been entitled to terminate its employment
with ensuing rights not to pay under clause 29.6.3. Mr Harris submitted that
when an adjudicator decided that an amount had to be paid, it had to be paid,
notwithstanding, it seemed, any provision in the sub-contract.
Sindall's
case
presupposes, amongst other things, that in some way one ignores the adjudicator's
conclusions, that the dispute had to be back-dated, as it were, to the period
before
KNS
gave notice of intention to suspend, that in some way
KNS
acquired
some right to payment that might be defeated by the effect in law of clause
29.6.3 and the subsequent events which triggered termination, and that the periods
involved did not exempt
KNS
from the effect of clause 29.6.3 (see the reference
to 31 days). I find it
very
difficult indeed to construct a scenario based on
the facts of this case which might permit
Sindall
to raise the essential point
upon which Mr Harris joined issue, namely the effect of clause 29.6.3 on an
adjudicator's decision.
28. Mr Harris did not shrink from the consequences of his
submission. To take an extreme instance, it would mean that in the event of
an insolvency payment in full would have to be made to the liquidator, despite
the clear wording of clause 29.6.3, with no prospect of recovery of that amount
whether as an overpayment or by way of loss or damage under clause 29.6.4 except
as an unsecured creditor. Seen as a contractual intention this result would
be devoid of any commercial sense and absurd, just as it would be if the there
had been a termination for culpable default. In my judgment the answer is clear.
Clause 38A.7.2 expressly provides that "the parties shall, without prejudice
to their other rights under the Contract, comply with decisions of the Adjudicator...."
(my emphasis). Therefore other rights under the contract which were not the
subject of the decision remain available to the relevant party. If therefore
by the time an adjudicator makes a decision requiring payment by a party the
contract has been lawfully terminated by that party (or that party has real
prospects of success in supporting that termination) or some other event has
occurred which under the contract entitles a party not to pay then the amount
required to be paid by the decision does not have to be paid. If the issue has
not by then become a dispute and has been referred to adjudication (when the
outcome will have to await that further decision) the aggrieved party may ask
the court to enforce the decision (under clause 38A.7.3) and if an application
is made under Rule 24 of the CPR the court will decide whether the defendant
has real prospects of success in sustaining a case based on the events in question.
In addition the latter part of clause 29.6.3 contains an express provision designed
to ensure that a contractor does not abuse its right not to pay until completion.
There is nothing in the Act to suggest that, for example, section 111(4) means
that a decision that a payment should be made, notwithstanding an effective
notice of intention to withhold payment, overrides the parties' other contractual
rights. An adjudicator is appointed to decide whether in the circumstances of
the dispute a particular right exists and should be enforced. Unless the parties
specifically agree, an adjudicator is not appointed to adapt the terms of the
contract or to vary,
add to take away from the terms of the contract. An adjudicator's
powers are limited to those conferred by the contract and thus no more than
those of a contract administrator, such as an architect, engineer or surveyor,
when entrusted with the resolution of disputes. Their role is to apply the terms
of the contract. An adjudicator does the same, but decisions of an adjudicator
are now more immediately enforceable pending the result of litigation or arbitration.
Any other interpretation would also mean that a party who, albeit apparently
wrongly, questioned the existence or ambit of its obligations under the contract
so that an adjudicator's decision was against it, would be worse off as a result
for if it had not done so it would undoubtedly have retained its other rights
under the contract. Accordingly if it had been necessary to do so,
KNS's
application
would have been dismissed on this ground and directions given for the further
conduct of the proceedings.
29. For the principal reasons KNS's
application is dismissed
and
Sindall's
application is allowed.
KNS
will pay the costs of the action,
including
Sindall's
application. In accordance with the arrangements made at
the hearing the parties have made submissions as to
Sindall's
costs so that
they may be summarily assessed.
Sindall's
solicitors warned
KNS's
solicitors
that
Sindall were successful costs on an indemnity basis would be sought as
the action was misconceived. They were right to do so, although I shall not
assess costs on that basis. However apart for the figures for time spent on
attendances (which appear to me to be rather high and should be reduced by about
,1,000) the remaining costs appear to me be reasonably and properly incurred
(and are also in line with the statement of costs prepared for the claimant).
I therefore assess the defendant's costs at ,13,250.