Judgement date: 15 February 2016
(1) The Court observed that the alleged absence of a crystallised dispute at the time of a notice of adjudication is an argument “which is frequently advanced and almost as frequently rejected by the courts”.
(2) In general, the courts have found that a claim which is not accepted in whole or in part for a reasonable period thereafter is deemed to be disputed.
(3) Disputes about an alleged lack of particularisation are commonplace in building contract disputes. In general, a paying party cannot put off paying up on a claim forever by repeatedly requesting further information, and a paying party cannot suggest that there is no dispute at all because the particularisation of the claim is allegedly inadequate.
(4) The Court also decided that, if there has been an inadvertent failure to consider one of a number of issues embraced by a dispute that the adjudicator has to decide, such a failure will not ordinarily render the decision unenforceable.
(5) Finally, the Court held that an unmeritorious challenge to an adjudicator’s decision can lead to costs being awarded on an indemnity basis.
Technology and Construction Court, Mr Justice Coulson
In June 2014, Cumberland Construction Company Limited (the defendant contractor) engaged AMD Environmental Limited (the claimant sub-contractor) to carry out certain mechanical and electrical works at London’s Park Lane Hilton Hotel.
In March 2015, by Application No. 11, the sub-contractor claimed the final account sum of £527,770.30. The contractor disagreed with the claim. Numerous exchanges followed between the parties but they failed to resolve the issues in dispute.
On 2 September 2015, the claimant issued a notice of adjudication. The Adjudicator was appointed by the RICS and, seven weeks later (on 21 October), he determined that:
- the value of the sub-contract works undertaken by the claimant sub-contractor was £464,448.34;
- the contractor’s payless notice was inadequate and did not accord with the Housing Grants, Construction and Regeneration Act 1996 (”Construction Act”);
- the contractor was not entitled to set off any contra charges from payments due to the sub-contractor in respect of the claim; and
- the contractor was required to pay the sub-contractor the sum of £77,993.26 plus VAT, together with interest, up to the date of the Adjudicator’s decision, of £2,044.92 and the contractor was also primarily liable for the Adjudicator's fees and expenses.
The defendant contractor failed to pay the sub-contractor the sum determined by the Adjudicator (plus VAT thereon) together with interest, up to the date of the Adjudicator’s decision. Accordingly, the sub-contractor issued proceedings to enforce the Adjudicator's decision by way of summary judgment pursuant to CPR Part 24.
In the adjudication, the contractor took two jurisdictional points. The first was that the sub-contract was not in writing. The second was that the dispute between the parties had not crystallised by 2 September, the date the sub-contractor issued the notice of adjudication.
The Adjudicator rejected the first point on the grounds that the statutory amendments to the Construction Act which took effect in 2011 removed the requirement for contracts to be in writing. With regard to the second point, the Adjudicator pointed to the five month gap between Application No. 11 and the notice of adjudication given in September 2015 and was satisfied that, as a result of the time gap, a dispute had crystallised between the parties.
Notwithstanding the Adjudicator's ruling and subsequent events, the defendant maintained its submission that the dispute had not crystallised by 2 September. In addition, the contractor took a further jurisdictional point - that the Adjudicator failed in his decision to address important matters in issue.
In relation to the first issue, the contractor developed two alternative arguments:
- First, a lack of particularisation in the claimant’s claim constitutes ground for resisting enforcement of the Adjudicator’s decision; the contractor stated that, during the lengthy period of exchanges between the parties, it repeatedly asked the claimant sub-contractor for particulars of certain elements of the claim, and those particulars were not forthcoming; and
- second, it was a breach of natural justice that, during the adjudication, the Adjudicator was given information by the claimant which had not previously been available to the defendant (whether it had been previously requested, or not).
- With regard to the crystallisation issue, the Court held that the defendant’s argument was “hopeless” [para 9], for the reasons stated in the paragraphs below. It began its commentary on this point by noting that the crystallisation argument is frequently advanced but “almost as frequently rejected by the courts” (St Austell Printing Company Ltd v Dawnus Construction Holdings Ltd  EWHC 96). It cited Beck Interiors Ltd v UK Flooring Contractors Ltd  EWHC 1808 (TCC) as the only recent case of which it was aware in which it was successfully argued that the dispute had not crystallised by the time that the adjudication started. The Court stated that, in general terms, the courts have found that a claim which is not accepted in whole or in part for a reasonable period thereafter is deemed to be disputed: Ringway Infrastructure Services Ltd v Vauxhall Motors Ltd  EWHC 2421 (TCC).
- The Court commented [para 12] that eight months of detailed correspondence between the parties was “ample evidence of a dispute having crystallised”. In relation to the defendant’s argument that the lack of particularisation in the claimant’s claim constitutes ground for resisting enforcement of the Adjudicator’s decision, Coulson J stated [para 14] that it is wrong, in principle, to suggest that a dispute has not arisen until “every last particular of every last element of the claim had been provided”. The judge went on to say [para 14]: “When a contractor or a sub-contractor makes a claim, it is for the paying party to evaluate that claim promptly, and form a view as to its likely valuation, whatever points may arise as to particularisation. Efforts to acquire further particularisation should proceed in tandem with that valuation process.”
- In addressing the defendant’s argument that the Adjudicator’s request for further information, and the claimant's compliance with that request, constituted a breach of natural justice, the Court held that the argument was tantamount to saying that an adjudicator cannot ask for information which he or she believes will be of assistance in reaching their decision which would be contrary to the Scheme for Construction Contracts, and indeed contrary to a basic principle of adjudication, which allows the adjudicator a wide leeway to seek information that he or she believes to be important.
- In relation to the defendant’s submission that the Adjudicator failed to address the matters in issue, the Court followed the principles [para 21] summarised in Pilon Ltd v Breyer Group PLC  EWHC 837 (TCC):
- The question which has been referred to an adjudicator may consist of a number of separate sub-issues. If the adjudicator has endeavoured generally to address those issues in order to answer the question then, whether right or wrong, his decision is enforceable.
- If the adjudicator fails to address the question referred to him because he has taken an erroneously restrictive view of his jurisdiction (for example, he has failed even to consider the defence to the claim or some fundamental element of it), then that may make his decision unenforceable, either on grounds of jurisdiction or natural justice.
- However, the adjudicator's failure must be deliberate. If there has simply been an inadvertent failure to consider one of a number of issues embraced by the single dispute that the adjudicator has to decide, then such a failure will not ordinarily render the decision unenforceable.
- Applying the above to the facts, the Court [para 27] “an analysis of his decision reveals a careful consideration of all the relevant matters”; the Adjudicator had not deliberately or inadvertently ignored the defendant contractor's submissions. Even if the Court was wrong, there had been no material breach of the rules of natural justice.
- The claimant sought interest at 8.5% pursuant to the Late Payment of Commercial Debts (Interest) Act 1998, with the defendant suggesting 2.5%. The Court decided that the right figure was 6%: “That is because this adjudication decision should have been honoured some time ago, and the arguments in support of the defendant’s position were properly categorised as hopeless. The TCC is concerned that too many adjudication decisions are not being complied with, and that there are too many disputed enforcements where the grounds of challenge are without merit. Thus a high interest rate under the Act will be awarded in such cases.”
- The claimant was entitled to £109,408.55 including VAT and £1,679.72 by way of interest.
For the full judgment, please see http://www.bailii.org/ew/cases/EWHC/TCC/2016/285.html