Building contract – Adjudication – Service of notice – Contract providing for means of serving of notices – Service to be by personal delivery or fax – Claimant serving adjudication notice by post – Adjudicator making award – Whether adjudication notice validly served – Whether award enforceable — Whether breach of natural justice – Claim dismissed
By a written contract, the defendant engaged the claimant to provide construction management services in respect of the construction of a hotel and office building. Under the contract, unresolved disputes were to be referred to adjudication, under the Model Adjudication Procedure published by the Construction Industry Council. Clause 26 provided that any notices served thereunder were to be delivered personally or sent by fax to the addresses or numbers specified in a schedule.
The office building was removed from the scope of the claimant’s remit and it was agreed that it should be compensated for the profits that it had therefore forgone. The defendant rejected the claimant’s profit claim and the claimant served a notice of adjudication, claiming more than £107,000 loss of profits plus VAT and interest. It sent the notice by post and the defendant and thereafter its solicitor received it the following day. An adjudicator was appointed. However, the defendant disputed his jurisdiction, contending that the failure to serve the adjudication notice in the manner specified in the contract invalidated the adjudication. The adjudicator rejected that argument and made an award of £47,870 plus VAT and interest.
The claimant brought proceedings to enforce the award. In its defence, the defendant reiterated its objection regarding the service of the adjudication notice. It further contended that the award had been vitiated by procedural flaws, in that the adjudicator had based it on an approach for which neither party had contended and on which neither had been given an opportunity to comment, namely a percentage profit-to-sales ratio contained in a set of the claimant’s accounts, which the parties had agreed should be ignored since they were irrelevant to the adjudication.
Held: The claim was dismissed.
(1) Since an adjudicator derived jurisdiction from the notice of adjudication, the invalid service of that notice would generally deprive him or her of jurisdiction: Ide Contracting Ltd v RG Carter Cambridge Ltd [2004] EWHC 36 (TCC); [2004] BLR 172 applied. By section 115 of the Housing Grants, Construction and Regeneration Act 1996, parties were free to agree the manner of service of any notice to be issued pursuant to the construction contract, and the provisions of the Civil Porcedures Rules that dealt with service were not to be regarded as having been incorporated wholesale into the adjudication process: Cubitt Building & Interiors Ltd v Fleetglade Ltd [2006] EWHC 3413 (TCC); [2006] 110 Con LR 36 applied. Consequently, failure to serve a notice in the manner specified in the contract would invalidate it. However, in the instant case, the adjudication service had been validly served in accordance with clause 26 of the contract. The method of personal delivery specified in that clause meant something different from personal service and was not therefore restricted to handing over the document in a personal exchange between two individuals. “Delivery” meant actual delivery, whether by post or some other mechanism: Construction Partnership UK Ltd v Leek Developments Ltd [2006] CILL 2357 applied. Personal delivery meant actual delivery by an appropriate individual within the claimant to a similarly appropriate individual within the defendant. The method of delivery did not matter, provided that the document was delivered to the address named in the schedule. Delivery in that manner had occurred in the instant case; personal delivery to the defendant’s solicitor, which was the most appropriate party to receive the notice, had been made.
(2) None the less, the adjudicator’s award should not be enforced owing to a breach of the rules of natural justice. Although the rules of natural justice could not always be fully applied in the context of adjudication, and an alleged breach would not affect enforcement of an adjudicator’s decision unless it went to the heart of the decision, a breach of that kind had occurred in the instant case: Balfour Beatty Construction Ltd v Lambeth London Borough Council [2002] EWHC 597 (TCC); [2002] BLR 288 and Kier Regional Ltd (t/a Wallis) v City & General (Holborn) Ltd [2006] EWHC 848 (TCC); [2006] BLR 315 applied. The adjudicator did not have jurisdiction to consider or make findings on the accounts since he was not entitled to go beyond the agreement of the parties that those accounts should be ignored: Shimizu Europe Ltd v LBJ Fabrications Ltd [2003] EWHC 1229 (TCC); [2003] BLR 381 applied. Even if he had been entitled to look at the accounts, he should have sought the submissions of the parties before adopting an approach based on them. Where an adjudicator considered that the referring party’s claims could not be sustained, but identified away in which a claim might be advanced, he would normally be obliged to raise that point with the parties in advance of his or her decision. The breach of natural justice was significant or material to the adjudicator’s decisions because his entire decision was founded on the calculation derived from the accounts.
Lynne McCafferty (instructed by Fenwick Elliott) appeared for the claimant; Gideon Scott Holland (instructed by Sellar Property Group) appeared for the defendants.
Sally Dobson, barrister
