MR JUSTICE AKENHEAD:
Introduction
1. HS Works Limited (“HSW”) is a civil engineering company carrying out construction works in the utilities sector. Enterprise Managed Services Ltd (“
2. Following completion of the Sub-Contract Works or the termination of the Sub-Contract in late 2007 or early 2008, issues arose between the parties in relation to the evaluation of the final account and to a number of contra-charges said to be due to
3. In the first decision, the adjudicator decided that £1,835,252.26 interest plus VAT and the adjudicator’s fees should be paid by
The Sub-Contract
4. The Sub-Contract contains the following material terms:
“31.1.1 The Sub-Contractor is entitled to payment for work undertaken properly and fully completed to permanent reinstatement stage and following the submission and validation of a job pack for each work order…
31.2 …The Sub-Contractor shall make an application to payment in accordance with Table 1… Prior to the date on which each payment becomes due. The application shall be in such a form and contain such particulars as the contractor may from time to time direct…
31.3 Under no circumstances shall the sum stated in an application for payment from the Sub-Contractor necessarily be considered as the sum due to be paid under the provisions of this clause.
31.4 Not later than the date identified by Table 1…the Contractor shall calculate the value of the Sub-Contractor’s works and shall issue a payment certificate to the Sub-Contractor specifying the said value and the basis upon which the value is calculated…. The payment certificate shall further indicate the amount of retention to be withheld (or released as the case may be)…
31.5 Subject to clause 31.6, the Contractor shall make payment of the amount proposed to be paid under clause 31.4 not later than the final date for payment identified by column D of Table 1.
31.6 Notwithstanding the notice referred to in clause 31.4, if the Contractor intends to withhold payment, in whole or in part, after the final date for payment referred to in clause 31.5, the Contractor shall give notice to that effect not later than the date identified by Column E of Table 1. Such a notice shall state the amount proposed to be withheld and the grounds for withholding payment or, if there is more than one ground, each ground and the amount attributable to it. Without prejudice to the generality of this clause, the Contractor shall (subject to the notice) be entitled to withhold payment from monies otherwise payable under this Sub-Contract, for monies due and owing by the Sub-Contractor to the Contractor under or in connection with other Sub-Contracts…
31.7.5 …the Sub-Contractor shall, within [a specified period] submit to the Contractor a final application for payment setting out all items and amounts to which the Sub-Contractor considers he is entitled under or in connection with the Sub-Contract…
31.7.6 Any amount to be paid in relation to the final application for payment referred to in clause 31.7.5 above shall become due on the date identified by Column G of Table 1…The provisions of clauses 31.4, 31.5 and 31.6 shall thereafter apply.
37.4 Either party may decide…to refer the Dispute at any time to adjudication…”
The General History
5. The
6. Although the Lot 8 accounting seems at some stage to have become combined with one or more other sub-contract between the parties, HSW submitted what they considered was their final account for Lot 8 to
7. There then followed a period of discussions and negotiation between the parties. It is abundantly clear that there were disputes between the parties both as to the proper value of HSW’s works as well as the contra charges.
8. There was no dispute before me that
9. By 16 October 2008,
“Contract Value Sub-Total | £24,707,783.92 |
(£1,835,252.26) | |
Outstanding Contra Charges | (£42,651.35) |
(£56,702.56) | |
Contra Charge Total | (£1,934,606.17) |
Retention Held | (£250,000.00) |
Grand Total | (£22,809,259.49) |
10. On 18 November 2008, HSW wrote to
“It is our intention to commence adjudication proceedings in the very near future against [
On 16 December 2008, HSW gave Notice of Adjudication (“the First Adjudication”). Mr Peter Cousins, a Chartered Engineer, was nominated as adjudicator on 18 December 2008 and the Referral was served on 22 December 2008. After various challenges and two extensions, he issued his decision on 2 February 2009, requiring
11. On 12 January 2009,
“HSW’s position on the final account values has not changed and…we maintain that on the Lot 8 contract alone a final account value of £29,017,687.72 is applicable for which Enterprise has previously certified £24,894,511.75 but paid £22,809,259.79 as contra-charge deductions of £1,835,252.26 have wrongly been made…”
12. On 2 February 2009,
These Proceedings
13. HSW issued its claim, HT 09 72, to enforce the First Adjudication decision on 20 February 2009.
14. The issues are in simple terms:
(a) In the First Adjudication, did the Adjudicator exceed or fail to fulfil his jurisdiction in failing to address the merits and quantum of the contra charges? Did he in that respect fail to comply with natural justice? How, if at all, should the decision in the Second Adjudication impact on the First Adjudication decision?
(b) In the Second Adjudication, did the Adjudicator have jurisdiction to issue his decision? Did the Adjudicator fail to apply the rules of natural justice?
(c) If both decisions are valid, how should they be given effect to?
(d) Should the Court decide the substantive issue as to whether new withholding notices needed to be issued by
The First Adjudication
15. HWS’ Solicitor sent to
“The difference and the dispute
(1) The matter in dispute is the deduction by the Contractor of the amounts described by the Contractor as “contra charges”
(2) The Sub-Contractor has, as it is required to do under clause 31.7.5 of the Sub-Contract, provided to the Contractor its final application for payment for each of the discrete projects undertaken on instruction from the Contractor. The Sub-Contractor’s final account was submitted…in final form under cover of a letter dated 14 May 2008…
(4) Clause 31.7.6 provided…
(5) Clause 31.6 provides that if the Contractor intends withholding any payment after the final date for payment the Contractor is required to:
(a) give notice to the Sub-Contractor of its intention to withhold payment after the final date of payment referred to in clause 31.7.6…
(b) state the amount proposed to be withheld; and,
(c) state the ground and/or each ground for the withholding and the amount attributable to it.
The Contractor has failed to give such notices under the Sub-Contract, and specifically in respect of the withholding of monies categorised by the Contractor as “contra charges” stated in its letter dated 10 July 2008 that: “With regards to the contra charges disputed, an analysis is being carried out on your reasons for disputing the contra charges and this will be returned to you along with other final account items on or before the 6th August 2008…” Despite the Contractor’s assurances that it would provide an analysis by the due date the Contractor failed to do so.
(6) The Sub-Contractor’s final application dated 14/05/08 confirms the Sub-Contractor’s gross application for payment in the sum of £32,265,014.72 [in respect of all contracts]. Against the gross amount applied for by the Sub-Contractor, the Contractor has certified an amount for payment of £27,393,970.43…
(8)(a) The sum that the Sub-Contractor has deducted in connection with
(b) Alternatively, if the Adjudicator should find that the Contractor has given notice within the prescribed period the Sub-Contractor will contend that the Contractor has failed to comply with the requirements of clause 31.6 by failing to state the amount to be withheld in respect of each discrete works order and/or for such other reasons as are stated in the Referral and therefore the Contractor has no contractual or lawful right to withhold an amount greater than £92,964.50 and the Sub-Contractor claims payment of the balance of £1,742,287.76 with interest
The redress sought
The Adjudicator will be requested to decide and declare that:
(i) The Contractor has no right to withhold payment of monies as “contra charges” in respect of work undertaken by the Sub-Contractor in connection with the work stream known as
£1,835,252.26 (plus VAT as applicable); alternatively,
£1,742.287.76 (plus VAT as applicable) or such other amount as the Adjudicator shall decide; or, in the further alternative,
that the Sub-Contractor is entitled to payment of damages for the Respondent’s failure to make payment”.
16. There was a substantial exchange of correspondence between the parties during the First Adjudication none of which is relevant to what remains in issue before the Court. The Referral made it clear that HSW’s “primary contention” was that, since there were no withholding notices after the submission of its final account on 14 May 2008:
“…[
The sum referred to is slightly less than that referred to as having been deducted earlier but nothing turns on this apparent discrepancy. The alternative case was that, apart from some £93,000’s worth, the contra charges were unjustified.
17.
18. The Adjudicators’ decision materially stated:
“13. HSW’s dispute as to these contra charges are put in two alternative ways. Their primary case… is that no valid withholding notice was given within the prescribed period set out in the contract. Their alternative case, should I find against them on their primary case, is that any withholding notice that was given was invalid because it did not give amounts and/or reasons for withholding…As part of this alternative case, HSW also say that there are other reasons for objections “as stated in the Referral”. Those reasons include whether or not the contra charges are, in any event, justified.
14. It is therefore important to note that my jurisdiction is very limited. It only refers to contra-charges made against the application dated 14 May 2008, and I agree with
15.
57. For these reasons I decided that the 14 May application was a valid submission under clause 31.7.5 of the contract.
63. I therefore find that for a withholding notice to be effective it must have been issued by 9 July 2008..
68.
77. For the above reasons I decide that a valid withholding notice was not issued for the 14 May application and the effect is that no sums may be withheld from the amount due.
78. As I have previously set out
79… given the lack of evidence I think it inherently unlikely that the amount due for the 15 May application was less [than] the amount that they had previously decided was due.
81. For the above reasons I decided that the sum of £1,835,252.26 should be repaid to HSW
82. From the above decision it is apparent that I have upheld HSW’s primary case. Therefore I have no jurisdiction to decide their secondary case. Even if I did and decided that the contra charges were justified that could not have any practical effect because the lack of a withholding notice would be fateful [sic] in any event…”
19. In summary, he decided as follows:
(a)
(b) Interest of £59,281.17 and £175.98 per day after the decision.
(c)
20. Part only of the first sum has been paid, belatedly, and none of the other sums. HSW seeks recovery of them in the claim brought by it.
The Second Adjudication
21. In its notice of Adjudication, dated 2 February 2009,
“2.1 On 14 May 2008, HSW submitted what is alleged to be its final application for payment under clause 31.7.5 of the Sub-Contract. This was incorrect…
2.3 On 16 October 2008, [
2.4 Thereafter the parties engaged in a series of both open and without prejudice discussions to attempt to agree HSW’s final application. On 12 January 2009, [
2.5 A dispute therefore exists between the parties as to the proper valuation of HSW’s works carried out under the Sub-Contract.
3.1 [
3.1.1 A declaration as to the proper valuation of the works carried out by HSW under the Sub-Contract;
3.1.2 A declaration as to the sum payable by HSW to
22. In its Referral Notice,
“the expert witness report of Mark Gordon of Ridge and Partners ”
This report at least had not been served in any form prior thereto; it reviewed, albeit at some length, the methodology used by
23. The “redress” sought was as follows:
“12.1.1 A declaration as to the proper valuation of the works carried out by HSW under the Sub-Contract; [Enterprise] submits that this declaration should be in the sum of £22,429,912.54 or such other sum the Adjudicator shall deem fit
12.1.2 a declaration as to the sum payable by HSW to [
12.1.4 An award that HSW shall pay the fees and expenses of the Adjudicator and the nomination fee of the nominating body…”
24. HSW’s solicitor objected in writing to the jurisdiction of the Adjudicator, reasons being advanced in written submissions dated 9 February 2009. So far as is material, the grounds advanced included:
(a) the lack of a crystallised dispute;
(b) the Referral and the redress sought was said to be in breach of natural justice.
This latter ground reflected a complaint by HSW about the belated provision of Mr Gordon’s report and the fact that it would not be possible for them, in the requisite period allowed for the adjudication, to defend itself, or the adjudicator “to make the necessary contractual ascertainment of” the final account.
25. It is possible at least that this objection followed on from the adjudicator’s letter of 6 February 2009 directing
“There is no breach of natural justice in [
We do not understand paragraph 25 of HSW’s submissions. If HSW alleges this dispute is too substantial to be considered within the 28 day timetable then we would respectfully disagree. Parliament has dictated that any dispute or difference can be referred to adjudication for decision within the 28 day period. Adjudication is an interim measure and should HSW or [
26. On 10 February 2009, the adjudicator resolved that he could and should continue to act as adjudicator. On the 11 February 2009, HSW’s solicitor referred to the fact that Mr Gordon referred to “the volume of hard and soft copy information”. He asked the adjudicator to:
“direct that [
On 11 February 2009,
27. On 11 February 2009, the Adjudicator wrote to the parties in these terms:
“…reference is made to certain documents and electronic schedules, which have been taken into account by Mr Gordon in preparing his report, but which apparently have not been included within the referral. If this is in fact the case, in the interest of natural justice, I direct that copies of such documents and schedules are provided to the responding party and myself, as soon as possible.”
He also asked if
28.
“In relation to your direction that [Enterprise] provide copies of documents that Mr Gordon has seen in preparing his report, Mr Gordon has seen only those documents appended to the Referral and has had an opportunity to observe the systems set out in his report and Mr Cleminson’s witness statement. Such an opportunity will be afforded to you and HSW at the meetings we have requested…
As for electronic copies of documents in the Referral, please can Mr Pugh let us have a list (including references to tabs and page/file numbers) and we will take instructions as to whether these are available electronically.
Finally,[
29. On 12 February 2009, HSW’s solicitor wrote to the adjudicator, indicating that
“Also, in your letter, you state that the reason for your direction is “in the interest of natural justice”. Mr Gordon in his report refers at paragraph 1.4.6 to there being “around 51,000 work requests”. HSW has raised in its written submissions on jurisdiction its concerns specifically on this point… Furthermore, and regarding the inclusion of Mr Gordon’s report, [
HSW considers that you are correct to raise the issue of natural justice and for that reason alone HSW would invite you to reconsider your decision to continue to act as adjudicator in this matter. However, coupled with [
30.
“[Enterprise] has stated that the documents appended to the Referral are the documents upon which it intends to rely in this reference.Those documents are derived from systems which are available for inspection during the course of meetings with you and HSW (in so far as an inspection is necessary). We will take instructions on whether documents appended to the Referral are available electronically if Mr Pugh provides a list of what he requires in an electronic format. ”
Also on that day
31. On 13 February 2009, HSW served its Response. It was a 52 page document and it was accompanied by four files. There are numerous references to
“HSW, for the afore-noted reasons, denies that the sum to be declared as the proper valuation of its works is £22,429,912.54; the Adjudicator is charged with deciding (in default of [Enterprise] what is the proper valuation of HSW’s works and in the absence of any payment certificate or notice of withholding that amount should properly be the amount of HSW’s final application dated 14 May 2008 (less previous payments and retentions properly withheld).”
32. On 16 February 2009,
33. On 18 February 2009, a meeting was held between the parties and the adjudicator. There was a discussion again about the CD supplied the day before. Mr Pugh said that, if the adjudicator admitted it, then his client would want time to review the information on the discs and to apply that information against its May 2008 final account. He handed back the CD to
34. A Reply was sent by
The Decision in the Second Adjudication
35. The adjudicator issued his decision on 12 March 2009. The decision runs to some 55 pages. It is not suggested that it was insufficiently reasoned. At Paragraphs 11 to 13, he recorded the jurisdictional challenge which had been made and the view which he had formed that nonetheless he should continue to act as adjudicator. Under a heading “Generally”, he set out how he had approached reaching his decision:
“14. The matters referred to me in this adjudication were of a complicated nature and during the course of the reference, I have been provided with a total of 38 large lever arch files and a number of smaller files. In addition, I have been provided with three compact disks of data. The task of making this decision has been particularly onerous, taking into account the volume of documentation provided and the fact that from the meeting on 18/02/09 to the date of this Decision, I had 17 working days.
15. It is therefore appropriate that I make some general comments in relation to the methods used by me to reach my Decision.
16. The dispute concerns the total of some 51,000 separate jobs not all of which are disputed. The Parties had conveniently sub-divided the disputed items into categories, where one principle applies to a number of like disputed items. This has been extremely helpful.
17. In respect of each separate category, I have taken into account the Parties’ representations and depending on the volume of the supporting documentation, either checked all the information, or in the case of a large disputed item, carried out a series of spot checks, to verify the sums claimed.
18. During the course of the Sub-Contract the Parties developed a system of electronic communication, which, due to the volume of paper which would otherwise have been generated, was essential. Each Party had its own systems and each Party had access to the Thames Water system. At a meeting in [
19. Due to the method chosen by the parties, of electronic accounting, there clearly is a large risk of human error e.g. inputing [sic] a wrong WR number etc, and I am sure that many of the disputed items are as, a result of such errors. However, that is one of the pitfalls of the Parties chosen method of working and until all such errors are discovered and rectified, the Parties will have to live with the consequences.
20. In dealing with the disputed items, I have allocated the time available to me in proportion to the time available i.e. a high-value item will attract more of my time than a low value item. By so doing I feel that I have spent my time as efficiently as was possible.
21. Due to the fact that I was unable to verify the valuation of each individual job, I formed a view based upon the checks carried out, that on the balance of probability the checks carried out by me, were representative of the entire section of the account.”
36. He then went on to deal with the “Measured Items”, which were essentially in relation to the measurement of works executed by HSW and to miscellaneous items. These had been split into various sections 1(A) to 1(M) and other heads and each category had been addressed in written and oral submissions by the parties. For some items, he simply accepted the evidence of one side or the other. I will not set out every item addressed by the adjudicator over some 30 pages of his decision but will set out that relating to works said to have been “over applied” which was the example used by the parties in argument before me:
“26.1 This category of jobs relates to WR’s where [Enterprise] is of the view that HSW has overpriced, as a result of using an incorrect code from the Schedule of Rates, or where a correct code has been used, but an incorrect rate has been used. There are a total of 698 jobs in this category and HSW has claimed a total of £406,186 91 against [
26.2 At the meeting on 18/02/09…WR71TMGL was investigated and the procedure was demonstrated on the computer. I have checked this example on the paper documentation provided to me. The procedure is relatively simple in that on file 7 tab 1C, there is a spreadsheet of all the jobs under this heading. The code and the value applied for by HSW is shown and the code and the value certified is given. At file 10, the job pack can be found, which gives a description of the operations carried out on site. The code for the work described in the job pack can be checked with the description on the “Highways Schedule of Rates.”
26.3 A code 4 repair was claimed by HSW which is described as “Mains Repairs Size (A-B),” while the wording on the front sheet of the job pack states, “Dug round valve and exchanged bolts in both flanges.” The code has been changed by [
26.4 I did spot checks on a further 5 WR’s and in each case I preferred the code allocated by [Enterprise] to that of HSW, as more accurately reflecting the description of the work carried out and entered on the front page of the job pack.
26.5. At the meeting on 18/02/09, HSW commented that we had only looked at one example and could not comment further. I have not received any evidence from HSW to rebut the documentary evidence provided by [
26.6 I therefore find, on the balance of probability, that the value of this head of claim is £211,989 17.”
37. The adjudicator then addressed the contra charges in some detail over some 18 pages of his decision. In the final paragraphs of the decision, the adjudicator, materially, stated as follows:
“135. I declare that the proper valuation of the works carried out by HSW under the Sub-Contract is £23,253,931.09…
136. I declare that no sums payable by HSW to
139. Each party shall be responsible for the payment of my fee and expenses which I determined in the total sum of £24,823.38, inclusive of VAT in the sum of £3,237.83 (i.e. each party shall pay a total of £12,411.69)”
It is clear from Summaries forming part of the decision that the total valuation was decided by the adjudicator to be £24,816,445 76 as the value of work done by HSW less the value of the contra charges of £1,562,514.67.
The Law
38. The first area of contention is how if at all the Court deals simultaneously with two adjudication enforcements which decide different things but which might or do impact on each other. There are first of all the cases in which one or other of the other decisions is invalid on jurisdictional or natural justice grounds. This class of case gives rise to no problem as an unenforceable decision can be ignored for all practical purposes in connection with the enforcement of a valid decision. Included in this class are those cases in which the second or later adjudicator has decided something which has already been decided in an earlier valid and enforceable decision; the later adjudication is to that extent unenforceable.
39. The more difficult case arises when there are two enforceable decisions which might or do impact on each other. In YCMS Ltd v Grabiner [2009] EWHC 127 (TCC), the Court addressed this issue, drawing on the earlier decision of Mr Justice Jackson (as he then was) in Interserve:
“ 51. So far as the possibility of setting off one adjudicator’s decision against another, this was considered by Jackson J (as he then was) in Interserve Industrial Services Ltd v Cleveland Bridge UK Ltd [2006] EWHC 741 (TCC). Having reviewed the authorities, he said at paragraph 43:
“… Where the parties to a construction contract engage in successive adjudications, each focused upon the parties’ current rights and remedies, in my view the correct approach is as follows. At the end of each adjudication, absent special circumstances, the losing party must comply with the adjudicator’s decision. He cannot withhold payment on the ground of his anticipated recovery in a future adjudication based upon different issues. I reach this conclusion both from the express terms of the Act, and also from the line of authority referred to earlier in this judgment.”
In Interserve, the sum due under the later adjudication had not fallen due for payment albeit that the later decision had been issued during the course of the proceedings for the enforcement of the earlier decision. In YCMS, a similar situation arose with the added complication that it was unclear whether the later decision was valid or likely to be challenged as invalid. In neither case had the defendant sought to enforce the later decision by separate proceedings.
40. In my view, these steps need to be considered before one can consider whether in effect or in actually to permit a set off of one decision against another:
(a) First, it is necessary to determine at the time when the Court is considering the issue whether both decisions are valid; if not or if it can not be determined whether each is valid, it is unnecessary to consider the next steps;
(b) If both are valid, it is then necessary to consider if, both are capable of being enforced or given effect to; if one or other is not so capable, the question of set off does not arise.
(c) If it is clear that both are so capable, the Court should enforce or give effect to them both, provided that separate proceedings have been brought by each party to enforce each decision. The Court has no reason to favour one side or the other if each has a valid and enforceable decision in its favour.
(d) How each decision is enforced is a matter for the Court. It may be wholly inappropriate to permit a set off of a second financial decision as such in circumstances where the first decision was predicated upon a basis that there could be no set off.
41. The next legal area to consider is how and when a dispute crystallises. This has been fully reviewed by the Court of Appeal in Amec Civil Engineering Ltd v Secretary of State for Transport [2005] BLR 227:
“1. The word “dispute” which occurs in many arbitration clauses and also in section 108 of the Housing Grants Act should be given its normal meaning. It does not have some special or unusual meaning conferred upon it by lawyers.
2. Despite the simple meaning of the word “dispute”, there has been much litigation over the years as to whether or not disputes existed in particular situations. This litigation has not generated any hard-edged legal rules as to what is or is not a dispute. However, the accumulating judicial decisions have produced helpful guidance.
3. The mere fact that one party (whom I shall call “the claimant”) notifies the other party (whom I shall call “the respondent”) of a claim does not automatically and immediately give rise to a dispute. It is clear, both as a matter of language and from judicial decisions, that a dispute does not arise unless and until it emerges that the claim is not admitted.
4. The circumstances from which it may emerge that a claim is not admitted are Protean. For example, there may be an express rejection of the claim. There may be discussions between the parties from which objectively it is to be inferred that the claim is not admitted. The respondent may prevaricate, thus giving rise to the inference that he does not admit the claim. The respondent may simply remain silent for a period of time, thus giving rise to the same inference.
5. The period of time for which a respondent may remain silent before a dispute is to be inferred depends heavily upon the facts of the case and the contractual structure. Where the gist of the claim is well known and it is obviously controversial, a very short period of silence may suffice to give rise to this inference. Where the claim is notified to some agent of the respondent who has a legal duty to consider the claim independently and then give a considered response, a longer period of time may be required before it can be inferred that mere silence gives rise to a dispute.
6. If the claimant imposes upon the respondent a deadline for responding to the claim, that deadline does not have the automatic effect of curtailing what would otherwise be a reasonable time for responding. On the other hand, a stated deadline and the reasons for its imposition may be relevant factors when the court comes to consider what is a reasonable time for responding.
7. If the claim as presented by the claimant is so nebulous and ill-defined that the respondent cannot sensibly respond to it, neither silence by the respondent nor even an express non-admission is likely to give rise to a dispute for the purposes of arbitration or adjudication.”
30. In Collins (Contractors) Limited v Baltic Quay Management (1994) Limited [2004] EWCA Civ 1757, Clarke LJ at paragraph 68 quoted Jackson J’s seven propositions and said of them:
“63. For my part I would accept those propositions as broadly correct. I entirely accept that all depends on the circumstances of the particular case. I would, in particular, endorse the general approach that while the mere making of a claim does not amount to a dispute, a dispute will be held to exist once it can reasonably be inferred that a claim is not admitted. I note that Jackson J does not endorse the suggestion in some of the cases, either that a dispute may not arise until negotiation or discussion have been concluded, or that a dispute should not be likely inferred. In my opinion he was right not to do so.
64. It appears to me that negotiation and discussion are likely to be more consistent with the existence of a dispute, albeit an as yet unresolved dispute, than with an absence of a dispute. It also appears to me that the court is likely to be willing readily to infer that a claim is not admitted and that a dispute exists so that it can be referred to arbitration or adjudication. I make these observations in the hope that they may be of some assistance and not because I detect any disagreement between them and the propositions advanced by Jackson J.”
1. Clause 66 refers, not only to a “dispute”, but also to a “difference”. “Dispute or difference” seems to me to be less hard-edged than “dispute” alone. This accords with the view of Danckwerts LJ in F & G Sykes v. Fine Fare [1967] 1 LLR 53 at 60 where he contrasted a difference, being a failure to agree, with a dispute.
2. In many instances, it will be quite clear that there is a dispute. In many of these, it may be sensible to suppose that the parties may not expect to challenge the Engineer’s decision in subsequent arbitration proceedings. But major claims by either party are likely to be contested and arbitration may well be probable and necessary. Commercial good sense does not suggest that the clause should be construed with legalistic rigidity so as to impede the parties from starting timely arbitration proceedings. The whole clause should be read in this light. This leads me to lean in favour of an inclusive interpretation of what amounts to a dispute or difference.
3. The main circumstances in which it may matter whether there was a dispute or difference which has been referred to and settled by the Engineer include (a) where one party contends that this has occurred without due reference to arbitration, so that the Engineer’s decision has become final and binding; and (b) where, as in the present case, one party wishes to contend that arbitration proceedings have not been started within a statutory period of limitation.
4. If the due operation of the mechanism of clause 66 really is to be seen as a condition precedent to the ability to start arbitration proceedings within a period of limitation, the parties cannot have intended to afford one another opportunistic technical obstacles to achieving this beyond those which the clause necessarily requires.
5. I agree with the judge that, insofar as the existence of a dispute may involve affording a party a reasonable time to respond to a claim, what may constitute a reasonable time depends on the facts of the case and the relevant contractual structure. The facts of the case here included that:
(a) Major defects in very substantial works emerged relatively shortly before the perceived end of the limitation period. These required detailed investigation. In consequence, the formulation of a precisely detailed claim was impossible within a short period.
(b) Liability for the defects was bound to be highly contentious, but Amec were bound to be a first candidate for responsibility.
(c) Amec (and others) were inevitably going to resist liability well beyond the perceived end of the limitation period.”
42. The Court also reviewed the Amec case in Cantillon Ltd v Urvasco Ltd [2008] EWHC 282 (TCC):
“55. There has been substantial authority, both in arbitration and adjudication, about what the meaning of the expression “dispute” is and what disputes or differences may arise on the facts of any given case. Cases such as Amec Civil Engineering Ltd -v- Secretary of State for Transport [2005] BLR 227 and Collins (Contractors) Ltd -v- Baltic Quay Management (1994) Ltd [2004] EWCA (Civ) 1757 address how and when a dispute can arise. I draw from such cases as those the following propositions:
(a) Courts (and indeed adjudicators and arbitrators) should not adopt an over legalistic analysis of what the dispute between the parties is.
(b) One does need to determine in broad terms what the disputed claim or assertion (being referred to adjudication or arbitration as the case may be) is.
(c) One cannot say that the disputed claim or assertion is necessarily defined or limited by the evidence or arguments submitted by either party to each other before the referral to adjudication or arbitration.
(d) The ambit of the reference to arbitration or adjudication may unavoidably be widened by the nature of the defence or defences put forward by the defending party in adjudication or arbitration.
It will follow from the above that I do not follow the judgment of HHJ Seymour, QC, in Edmund Nuttall Ltd -v- RG Carter Ltd [2002] BLR 312 where the learned judge said at paragraph 36:
“However, where a party has an opportunity to consider the position of the opposite party and to formulate arguments in relation to that position, what constitutes a “dispute” between the parties is not only a “claim” which has been rejected, if that is what the dispute is about, but the whole package of arguments advanced and facts relied upon by each side”.
In my view, one should look at the essential claim which has been made and the fact that it has been challenged as opposed to the precise grounds upon which that it has been rejected or not accepted. Thus, it is open to any defendant to raise any defence to the claim when it is referred to adjudication or arbitration. Similarly, the claiming party is not limited to the arguments, contentions and evidence put forward by it before the dispute crystallised. The adjudicator or arbitrator must then resolve the referred dispute, which is essentially the challenged claim or assertion but can consider any argument, evidence or other material for or against the disputed claim or assertion in resolving that dispute.”
There is nothing further I can add to this which would be of assistance in this case.
43. The parties also sought to address the Court on what, in the context of the First Adjudication, the adjudicator should have addressed having declined to decide upon the alternative case advanced by HSW on the merits of the contra charge claims. In Cantillon v Urvasco, the Court considered that the ambit of the reference to adjudication may unavoidably be widened by the nature of the defence or defences put forward by the defending party in adjudication or arbitration. That however does not mean that, if the adjudicator decides that as a matter of law the defence is a bad one, he or she must go on to address the facts which go to support that bad defence and make some sort of declaration; the adjudicator’s jurisdiction is originally described and defined by what dispute is referred to him or her albeit that each defence must be considered, whether good or bad. Either there needs be no decision beyond a rejection of the defence or the decision needs to reflect the acceptance of the defence in principle.
44. Reliance was placed on Quartzelec Ltd v Honeywell Control Systems [2008] EWHC 3315 (TCC), a decision of Judge Davies in the TCC in
45. He then went on to address the law and adopt the Cantillon decision. He said at Paragraph 30:
“…Where the dispute referred to adjudication by a claimant is one which involves a claim to be paid money, it is difficult to see why a respondent should not be entitled to raise any defence open to him to defend himself against that claim, regardless of whether or not it was raised as a discrete ground of defence in the run-up to the adjudication, and subject to any considerations of natural justice. The adjudicator has jurisdiction to, and should, consider any such defence. That may result in him accepting or rejecting the defence, in whole or in part. It may be the case that one ground for rejecting a defence not previously raised is that it cannot properly be advanced in the absence of a withholding notice. It may be the case that another ground for rejecting a defence not previously raised is that the failure to raise it at an earlier stage is fatal to the adjudicator’s assessment of the genuineness of that defence. But it does not seem to me that a decision to either such effect is a decision by the adjudicator as to his jurisdiction to consider the defence; instead it is a decision within his jurisdiction about the merits of that defence.”
He concluded at Paragraph 33 that on the facts of that case:
46. It is of some interest that Judge Davies then proceeded to decide finally one of the substantive issues in the case, whether a withholding notice had to be served in relation to the “omissions” point. If a substantive issue can be decided by the Court with no or no significant extra expense or delay and it is otherwise just to do so, the overriding objective would suggest that the Court can and should address it, subject of course to there being no arbitration agreement or to any other good reason. It may well be that, even if the substantive issue goes against the party seeking to enforce the award, that party should be entitled at least to the consequential relief ( interest and adjudicator’s fees) ordered by the adjudicator in its favour, on the basis that the enforceable decision should have been honoured.
47. The next legal issue is what the approach should be to what have been called “kitchen sink” adjudications, which are essentially where the dispute is so extensive that an adjudicator or the defending party can not readily or easily deal with it in the standard 28 day period for adjudications. In CIB Properties Ltd v Birse Construction [2005] BLR 173, a case in which the parties had agreed to extend time for the adjudication to three months, HHJ Toulmin CMG QC said at Paragraph 199:
48. In William Verry (Glazing Systems) Ltd v Furlong Homes Ltd [2005] EWHC 138 (TCC), HHJ Coulson (as he then was) said:
57. Mr Bingham next contended that if an adjudicator runs out of time and cannot produce a fair decision within the statutory time limit he should say so, and not go on to reach an unfair Decision. I accept that proposition, and to that extent, therefore, I would agree not only with Mr Bingham but with the analysis of His Honour Judge Toulmin QC in CIB –v- Birse (above). In both that case and this, despite the mass of material, the adjudicator felt that he was able to come to a proper decision on the matters raised before him. I have seen nothing to suggest that Mr Sims’ decision in this case was, or even might have been, unfair. On the contrary, it seems to me that the adjudicator in this case produced a detailed and painstaking decision which properly reflected all the material with which he had been provided. I reject any suggestion that the Decision, or the way it was arrived at, was or even might have been unfair.”
49. I have been referred to no case however (and can find none) in which this approach has ever been applied to refuse enforcement of an otherwise enforceable adjudication. What can be had regard to is the following:
(a) A most important factor in the consideration by the Court is whether and if so upon what basis the adjudicator felt able to reach his decision in the time available.
(b) In terms of the opportunity available to the defending party in an adjudication, the Court can and should look at the opportunities available to that party before the adjudication started to address the subject matter of the adjudication and at what that party was able to and did do in the time available in the adjudication to address the material provided to it and the adjudicator.
50. Finally in reviewing the question of natural justice in adjudication, the following from the judgment in the Cantillon case is apposite:
“From this and other cases, I conclude as follows in relation to breaches of natural justice in adjudication cases:
(a) It must first be established that the Adjudicator failed to apply the rules of natural justice;
(b) Any breach of the rules must be more than peripheral; they must be material breaches;
(c) Breaches of the rules will be material in cases where the adjudicator has failed to bring to the attention of the parties a point or issue which they ought to be given the opportunity to comment upon if it is one which is either decisive or of considerable potential importance to the outcome of the resolution of the dispute and is not peripheral or irrelevant.
(d) Whether the issue is decisive or of considerable potential importance or is peripheral or irrelevant obviously involves a question of degree which must be assessed by any judge in a case such as this.
(e) It is only if the adjudicator goes off on a frolic of his own, that is wishing to decide a case upon a factual or legal basis which has not been argued or put forward by either side, without giving the parties an opportunity to comment or, where relevant put in further evidence, that the type of breach of the rules of natural justice with which the case of Balfour Beatty Construction Company Ltd -v- The London Borough of Lambeth was concerned comes into play . It follows that, if either party has argued a particular point and the other party does not come back on the point, there is no breach of the rules of natural justice in relation thereto.”
Discussion
51. I will address, first, the First Adjudication. In essence,
(a) The adjudicator’s jurisdiction was defined in effect by the Notice of Adjudication and the nature of the dispute referred to him.
(b) That dispute involved a primary assertion that, as there were no or no effective withholding notices from Enterprise, the amount withheld for the contra charges was not properly withheld and was payable by Enterprise to HSW. As a matter of logic, if that primary case was upheld, there was no need for the adjudicator to consider the alternative case. This was exactly the view expressed by the adjudicator at Paragraph 14 of his decision.
(c) It cannot be incumbent upon an adjudicator, at least generally, to include in his or her decision a commentary let alone findings upon every issue which arises in the reference, save to the extent that it is necessary to provide reasons and explanations for what he or she does decide.
(d) It was suggested by Mr Lofthouse QC for
(e) Even if one could (and I do not) classify what the adjudicator did as lacking in jurisdiction or as a failure to apply the rules of natural justice, the complaint would be wholly immaterial given what he did find.
52. It follows that the First Adjudication decision should be enforced. The decision should have been honoured by
53. I now turn to consider the enforceability of the Second Adjudication decision. The first sub-issue relates to whether the dispute which was referred to adjudication had crystallised beforehand. I have little doubt that it had crystallised:
(a) By the time that HSW submitted its final account in May 2008, it was already clear that the parties were in dispute on the final account in that by that stage HSW was saying that it was entitled to over £30m whilst
(b) There can be no doubt that the parties were and remained in dispute before and throughout the First Adjudication in respect of the contra charges. Indeed, in the First Adjudication detailed arguments and evidence were deployed on this issue.
(c) The figures on the final account in the same figures as highlighted on or by 16 October 2008 were re-presented by
(d) Thus, by the time that the Notice of Adjudication was served on 2 February 2009, there was a clear dispute between the parties both as to the value of the final account for the
(e) The dispute which the Referring Party,
(f) The fact that
(g) Mr Gordon’s report, which I have not quoted from, supports and indeed goes further than
(h) It is true that the Referral Notice identified a lower gross assessed sum due to HSW but the redress sought was a “declaration as the proper valuation of the works carried out by HSW under the Sub-Contract”, albeit that Enterprise submitted that the declaration should be in the lower sum. There were detailed disputes as to the proper valuation which ranged between some £29m on the one hand and some £24m on the other together with the contra charges.
(i) In the result, the adjudicator found that the gross sum due to HSW was £24,816,445 76 and the value of the contra charges of £1,562,514.67; both these values were respectively more than the sum put forward by Enterprise as the overall value both in the Referral and in the pre-Notice of adjudication stage and less than that put forward by Mr Gordon as the value of the contra charges.
54. Next, there is the question of whether or not the adjudicator failed to act fairly or apply the rules of natural justice in effect by not resigning and by continuing to issue his decision. I have formed the view that no such failure has been established, my reasons being as follows:
(a) It is clear that the adjudicator himself did not, ultimately, consider that he needed more time in which to produce his decision. Although in his decision he averts to the fact that his job had been onerous, he was aware that HSW had made the point that he should consider resigning. He was given a week’s extension of time and did not ask for more. He was an experienced adjudicator and there is no hint or suggestion in his decision or in any other evidence that he thought that he could not act fairly in producing the decision which he did. He clearly did a thorough and conscientious job in reading up for the adjudication, seeking to understand what the parties’ various contentions and evidence were and in producing what was and is by adjudication standards an extensive and reasoned decision.
(b) I do not consider that he can be considered to have acted unfairly for not resigning. HSW’s position in the adjudication must be looked at in the light of the history particularly since May 2008 when it submitted its final account, which it accepted was accompanied by two electronic disks. It obviously had access to its own electronic data and records because otherwise it could not have prepared its final account. It clearly had more than enough information, to hand, to discuss and negotiate on the final account between May 2008 and January 2009. There is no suggestion that the files received with the Referral were wholly new or contained information which HSW had not had to a very large extent beforehand. The fact that the adjudicator was able to cope with very large amounts of information provided to him suggests that HSW could have coped with information which was very largely not fresh to it. HSW, in the adjudication, did accommodate and respond in detail to the information filed by
(c) It is said that HSW could not adequately respond to the information provided with the Referral because it differed from what had been provided before. I do not consider that that is credible in the light of the above. The difference was 1.5% in value and the material was material with which HSW was very familiar. HSW clearly knew from the pre-adjudication phase where and why the main differences arose. What HSW could have done with relative ease, and to some extent at least did, was to put forward its own positive case as to what it said the value of its final account was.
(d) As for Mr Gordon’s report, it was evidence which went to support
(e) The complaint that HSW did not have electronic information from
(f) I do not consider that this is one of those exceptionally rare cases in which the adjudicator can only have acted fairly by resigning.
55. It is then argued by HSW that the adjudicator did not address each and every difference in the accounting position between the parties in his reasoning or otherwise in his decision; it is said that, by simply doing spot checks, the adjudicator was not ruling on what had been referred to him. It is put on a jurisdictional and fairness basis. This is a flawed argument:
(a) One needs to analyse what the adjudicator actually did and what he was presented with.
(b) What he was provided with was extensive evidence and argument by each party by which each asserted in summary that its valuation of the final account and contra charges was right. He records that the parties had conveniently sub-divided the disputed items into categories, where one principle applied to a number of like a disputed items; he had described this as extremely helpful, as it obviously was.
(c) In respect of each separate category, he took into account the parties’ representations and depending on the volume of the supporting documentation, either checked all the information, or in the case of a large disputed item, carried out a series of spot checks, to verify the sums claimed.
(d) I set out at Paragraph 35 above a partly representative section of his decision which dealt with one aspect of the disputed final account. He clearly relies upon spot checks to see how credible each party’s underlying evidence is. Six spot checks in that example went one way, supporting
(e) There may arguably be a distinction to be drawn between using spot checks to verify the overall credibility of some evidence and using spot checks to prove or disprove a claim in full. The former approach is commonly used by auditing accountants and quantity surveyors and is even deployed by judges; it is an acceptable approach to check credibility. If spot checks reveal that one side’s quantum on a specific head of claim is unjustified, that undermines the credibility of that side’s position on that particular claim. That can lead legitimately to the conclusion that one side’s evidence on that head of claim is to be preferred. It was this approach which the adjudicator deployed at places in the decision. It can not be said to have been unfair or to have amounted to his failing to address the dispute referred to him.
(f) He can not be criticised for preferring the evidence of
56. I also bear in mind, in considering these last two topics, that one should remember that this 28 day adjudication period called for in statute, and provided for here contractually by the parties, provides a tight timescale for disputes. Parliament provided for “any” relevant dispute to be referable to adjudication and must have envisaged that there would be simple as well as the immensely detailed and complex disputes which can arise on a construction contract. It is often said, with some justification, that construction adjudications provide in many cases only “rough” justice but Parliament and the contractual parties here have expressly legislated for the potential for such justice. One should not equate necessarily an adjudicator’s approach over 28 days with that of a judge or arbitrator who tries the final version of the dispute after exchange of pleadings, evidence and reports over a period of often 6 to 18 months. One has to judge what an adjudicator does against the context of the period provided by the statute or the contract.
57. I conclude that the decision in the Second Adjudication was valid and enforceable.
58. However, one then needs to consider what the impact of the Second Adjudication is and what effect can be given to it in circumstances in which the adjudicator only made a declaration as to the net value of the final account. He did not make a directive decision to the effect that HSW must pay any balance back to
59. Procedurally,
60. Section 108 of the Housing Grants Construction and Regeneration Act 1996 expressly requires parties to construction contracts to provide for reference of disputes to adjudication. Sub-section 3 states:
“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.”
This is reflected in the Scheme for Construction Contracts (SI 649) at Paragraph 23 (2):
“The decision of the adjudicator shall be binding on the parties, and they shall comply with it until the dispute is finally determined…”
61. By necessary implication, the Sub-Contract between the parties must therefore be read as requiring the parties to comply with and abide by the valid decision of any adjudicator. Thus, where, as here, the adjudicator’s decision is declaratory, it must still be complied with by the parties, who must abide by it. For example, if an adjudicator decided that a 10 week extension of time was due, the parties would have to abide by the decision so that the employer could not deduct liquidated damages for that 10 week period, at least until a final decision was reached by court or arbitrator as the case may be. There might still be argument between the parties on that example as to what, if any, compensation was payable with regard to such period.
62. In my judgement, the parties must abide by and otherwise comply with, for the time being, the decision in the Second Adjudication. It might have been open to HSW to raise additional claims, by way of set off, diminution or otherwise, which had not been addressed in the dispute referred to Mr Smith. However, it has not done so. It follows that, if the parties are to give effect to Mr Smith’s decision, as they are required to do contractually, as soon as the sum payable pursuant to Mr Cousin’s decision is paid, a balance will then be due back to
63. It follows from the above:
(a) Both adjudicators’ decisions are valid and enforceable.
(b) The parties and the Court are required to give effect to both decisions.
(c) This necessarily involves bearing in mind that each decision should have been given effect to and complied with by the parties upon receipt of the respective decisions. Thus,
64. The court is left in a difficult position as to how to deal procedurally with what has happened. On the one hand,
65. The Court has a discretion however as to how any order or orders on judgement should be drawn. On balance in this case, I consider that the orders should be drawn to reflect the net effect of this judgement. Put another way, the orders should reflect the facts that HSW was entitled to be paid that which Mr Cousins directed should be paid together with continuing interest (as directed by him), at the rate of £175.98 per day from 2 February 2009 to 12 March 2009, that HSW was bound to pay £12,411.69 towards Mr Smith’s fees as from 12 March 2009, that shortly before the Court hearing Enterprise paid some money to HSW to reflect what it considered was the balancing effect between the two decisions and that, assuming that both decisions were to be given effect to, apart from that belated payment, there would have been a balance due to HWS. I exercise this discretion upon the pragmatic basis that it would be pointless, at least administratively, for Enterprise to hand over the net sum (allowing for the belated payment) due pursuant to the First Adjudication decision to be followed by HSW having to hand back all or the bulk of what had just been paid to it to Enterprise. This is not a case in which there is any suggestion that either side is in any financial difficulties.
66. I will hear the parties on any issue as to discretionary interest and as the form of the orders to be made.
The Substantive Issue
67. As part of its argument with regard to the enforceability of the First Adjudication decision, Mr Lofthouse QC argued that the court can and should address the issue between the parties upon which the adjudicator had decided against his client. That issue, in broad terms, was whether or not fresh withholding notices had to be served by
68. It was said that there was no dispute on the facts as to the service of withholding notices prior to May 2008 against or in respect of interim applications for payment by HSW. No such withholding notices were put in the papers before the Court.
69. The Court neither should nor needs to avoid deciding substantive issues on adjudication enforcement applications, provided that it is in the interest of justice and the furthering of the overriding objective to decide them. Thus, if the argument on the substantive issue is purely a legal one which can be readily accommodated within the timetable for the application without delay and if a decision on the substantive issue will save expense and time, there will often be no good reason for the court to decline to deal with the issue.
70. I was inclined during the argument before me to address this issue in this judgement. Indeed, I provisionally formed the view following argument that
Decision
71. Both the decisions in the two adjudications are to be enforced.