Bell Building Projects Ltd V Carfin Developments Ltd

BELL BUILDING PROJECTS LTD V CARFIN DEVELOPMENTS LTD

Scotland, Glasgow Sheriff Court

Sheriff Principal James A Taylor

24 September 2010

THE FULL TEXT OF THE JUDGMENT OF SHERIFF PRINCIPAL JAMES A TAYLOR

[1] The defenders and appellants (hereinafter "the defenders") are the employers in a building contract. The pursuers and respondents (hereinafter "the pursuers") are their sub-contractors. The defenders were represented by Mr Thomson, Advocate, and the pursuers by Mr Borland, Advocate. I am indebted to both counsel for their thoughtful submissions. In the event I preferred the submissions of the pursuers, as had the learned sheriff, and accordingly I have refused the appeal.

[2] The parties entered into a contract in which the pursuers were employed to design and construct commercial and/or retail units and other ancillary works in Motherwell. The contract is a construction contract as defined by Part II of the Housing Grants, Construction & Regeneration Act 1996 (hereinafter "the Act"). In about July 2009 the pursuers submitted to the defenders a claim for payment based upon valuation No 11, the total amount claimed being £63,048 excluding VAT. The defenders resisted payment and issued a Notice of Withholding in respect of six items with a total value of £83,000. The pursuers referred the dispute to adjudication as they were entitled to do in terms of Section 108(1) of the Act. The adjudicator appointed was Alan Stewart. He came to the view that the defenders were entitled to withhold payment in respect of two of the six items with a total value of £23,000 excluding VAT but that quoad ultra the pursuers were entitled to the balance. The Notice of Adjudication (6/7 of process) identifies at paragraph 3.2 the issue referred for a decision. It is in the following terms:-

"By email dated 11 May 2008 the respondent issued a purported Withholding Notice in the sum of £83,000. The respondent has sought to withhold on six grounds however, it is the Referring Party's contention that the grounds for Withholding are unfounded in fact and, as such, the purported Withholding Notice is invalid."

The total sum in respect of which it was said by the adjudicator that the defenders were entitled to withhold payment was £26,000. This related to alleged ponding in the footpaths and the use of red whin chips. The date upon which the Notice of Adjudication was given was 1 July 2008. The adjudicator's decision is dated 31 July 2008.

[3] A Certificate of Practical Completion was issued on 28 November 2007 certifying the date of practical completion as 23 November 2007 and the expiry of the defects liability period as 23 November 2008.

[4] By notice dated 21 July 2009 the pursuers again gave intimation to the defenders that they wished to refer a further dispute to adjudication. The nature of the dispute referred to adjudication on this occasion is stated in the following terms:-

"4.1 The Employer took possession of the entire site on 23 November 2007, or such other date as the Adjudicator shall so decide;

4.2 Practical Completion of the works was achieved on 23 November 2007 as certified by the Employer's Agent, or such other date as the Adjudicator shall so decide;

4.3 In the alternative, Partial Possession occurred on 23 November 2007, or such other date as the Adjudicator shall so decide;

4.4 The Defect Liability Period in terms of the contract has expired;

4.5 The Respondent has failed to properly administer the contract by appointing a new Employer's Agent;

4.6 A Notice of Completion of Making Good Defects should have been issued in accordance with clause 16.4 of the contract;

4.7 The Respondent has failed to properly administer the contract and in doing so is benefiting from its own breach;

4.8 The Respondent has failed to issue a valid withholding notice following receipt of the Referring Party's invoice dated 29 January 2009;

4.9 The Referring Party is due to be paid the gross amount of £20,185.18, excluding VAT, or such other sum as the Adjudicator may so decide in respect of retention monies;

4.10 The Referring Party is due to be paid the total sum of £26,000.00 excluding VAT, or such other sum as the Adjudicator may so decide, in respect of monies due for the alleged ponding in the footpaths and for the red whin chips;".

In this notice they specified that they were seeking payment of the £26,000 relating to the two items of work in respect of which the Notice of Withholding had been held by the first adjudicator, Mr Stewart, to be legitimate and also the sum of £20,185.18 being the final moiety of retention. Mr Jack McKinney was appointed adjudicator. He issued his decision on 1 September 2009. He found the pursuers to be entitled to both sums plus VAT. Said sums are the sums sued for.

[5] The sheriff granted summary decree in favour of the pursuers. In so doing he rejected the defenders' submission that the second adjudicator ought to have resigned because the dispute which he was being asked to determine was the same or substantially the same as that which had been determined by Mr Stewart by virtue of his decision dated 31 July 2008. The defenders appealed.

[6] It was not in dispute before me that decisions of adjudicators are binding and must be complied with until the dispute is finally resolved. Mr Thomson accepted the underlying purpose of the Act was to "pay now and litigate later". Under reference to Carillion Construction v Devonport Royal Dockyard 2006 BLR 15 he submitted that an exception to the general rule was that where an adjudicator had acted in excess of his jurisdiction the court would not enforce the adjudicator's decision. Under reference to Diamond v PJW Enterprises Ltd 2004 SC 430 he also accepted that an adjudicator's award created a liability which was immediately enforceable. He drew my attention to the opinion of Lord Justice-Clerk Gill at paragraph 25 where his Lordship expressed the view that a court has jurisdiction to review a decision of an adjudicator which proceeds on an erroneous exercise of jurisdiction. Mr Thomson submitted that there had been an incomplete analysis by Mr McKinney in that when addressing the issue of jurisdiction he ought to have asked himself whether he had jurisdiction given that there had already been an adjudication of the same or substantially the same issue as Mr McKinney was being asked to decide. He submitted that the Withholding Notice served by the defenders and which had been considered by the first adjudicator remained binding until the works which were subject to withholding had been remedied. He submitted that the passage of time was irrelevant. That position was strengthened when the justification for serving the Withholding Notice had been supported by the first adjudicator. He examined the Certificate of Practical Completion and drew my attention to the narrative on the face of the Certificate to the effect that "practical completion has been issued on the basis of the attached agreement dated 28 November 2007." The said agreement is to be found at 6/5/Tab/13/2. It bears to be an agreement between the parties and CRGP Ltd, the employers' agent, in terms of which it is said that "It is hereby agreed that practical completion will be issued on the basis of the following conditions being satisfied by Thursday, 31 January 2008." There then follows a list of items which, it is said, (1) have either been agreed were omitted from the contract or (2) had still to be completed under the contract or (3) that outstanding information had to be issued under the contract. Included in that list were the two issues in respect of which the first adjudicator held the Notice of Withholding to be valid. It was submitted that the document, properly understood, was not a Certificate of Practical Completion. He submitted that it was the product of a separate agreement. He pointed out that the issue had been addressed by the second adjudicator who, at page 10 of his decision, was correct to comment that the contract between the parties did not provide for issuing a Certificate of Practical Completion in such circumstances. When it was put to Mr Thomson that ex facie the document it was valid and binding and that no attempt had been made to reduce it, he submitted that it would be open to the defenders to introduce averments and the appropriate plea-in-law in the present action in order to seek reduction ope exceptionis. Mr Thomson accepted that in terms of Condition 16 of the Standard Form of Building Contract with Contractors Design 1998 Edition, the conditions which applied to the present contract, an employer ought to issue a Schedule of Defects not later than 14 days after the expiry of the Defects Liability Period. He accepted that in normal circumstances if no Schedule of Defects was issued by the employer, the employer was taken to be satisfied that the works were defect free. However, he submitted that in the context of there having been an earlier adjudication in which defects were found to exist, the normal conclusion could not be reached. He also accepted that in certain circumstances the passage of time and a change in circumstances could allow the same issue to be referred to adjudication for a second time. It was a question of degree in every case. He submitted that the second adjudicator ought not to have effectively put aside the decision of the first adjudicator and decided that the pursuers were entitled to payment in respect of the works which the first adjudicator had decided they were not entitled to payment. He submitted that the purpose of Condition 16(2) and the issuing of a Schedule of Defects was to draw to the contractor's attention that defects existed which required to be attended to. In this particular case the contractor was well aware of the defects as they had been pointed out by the first adjudicator.

[7] Mr Thomson then addressed the authorities relating to when it might be said that the dispute in one adjudication was the same or substantially the same as one which has previously been referred to adjudication. If it can be so said the adjudicator must resign. He first drew my attention to the case of Skanska Construction Ltd v ERDC Group Ltd 2003 SCLR 296. In this case the pursuers sought to interdict an adjudicator from continuing with a second adjudication on the basis that what the second adjudicator was being asked to do was the same or substantially the same as that which a previous adjudicator had decided. Lady Paton refused the conclusion for interdict on the basis that a different stage in the contract had been reached, different contractual provisions were applicable, more information had become available and thus different considerations and perspectives applied. However, he submitted that it would not have been sufficient had the only consideration been that a different stage of the contract had been reached and that different conditions applied unless there was some other reason to say that the dispute was different. One would require there to be different factual circumstances. One must look to see if the underlying issue was the same in both cases. In this case the issue was whether defects continued to exist. He also drew my attention to the decision of Lord Glennie in Barr Ltd v Klin Investment UK Ltd 2010 SCLR 33 where again the defenders in that case argued that the dispute which had been referred to adjudication was substantially the same as that which had been referred to and decided in adjudication at an earlier stage. Lord Glennie was of the opinion, which he expressed at paragraph 34, that an extended meaning should not be given to the expression "substantially the same" as it appears in the conditions of contract. His Lordship pointed out that it was not uncommon for there to be a number of references to adjudication and that a party was not required to submit, in one reference, all the disputes or differences which existed at that time. A party could seek to recover payment of that which he considered to be due by more than one means. He could refer one aspect to adjudication which if unsuccessful would leave it open to the same party to seek payment, if necessary, by adjudication of the same sum at a later date. Mr Thomson distinguished Barr from the present case on the basis that in Barr the first adjudication only resolved whether the Withholding Notice had been timeous. The second adjudication considered whether there was substance in the Withholding Notice.

[8] I was also referred to the case of Reinwood Ltd v L Brown & Sons Ltd 2008 1 WLR 696 which was said to be authority for the general proposition that save for special circumstances a Withholding Notice which was validly issued continued to be valid notwithstanding subsequent events unless the subsequent events involved carrying out further work. He therefore submitted that Condition 16 could not operate to strip the Withholding Notice, which had been supported by the first adjudicator, of its binding character.

[9] Mr Thomson submitted that the agreement referred to in the Certification of Practical Completion being a Compromise Agreement, the remedy for the pursuers was to sue upon it. I was referred to the case of Quality Street Properties (Trading) Ltd v Elmwood (Glasgow) Ltd, unreported, Glasgow Sheriff Court, 8 February 2002, which was the decision of Sheriff Principal Bowen QC. Finally I was referred to the case of Minster Trust Ld v Traps Tractors Ltd 1954 1 WLR 963. In that case the court held that documents were not certificates in form and therefore did not have the force which would otherwise have been accorded to them. The substance and intent of the parties as disclosed by the Certificate of Practical Completion was that they had departed from the contract by entering into the Compromise Agreement and that accordingly the remedy of adjudication was not available to them. Thus the adjudicator did not have the necessary jurisdiction to determine the case.

[10] In reply, Mr Borland submitted that one could distill the defenders' submissions down to three distinct arguments. Firstly, the sheriff held that the two adjudications concerned disputes which were not the same or substantially the same and was said by the defenders to have erred in so doing. Secondly, the sheriff had erred in failing to find that the decision of the second adjudicator was based on a compromise. Thirdly, the sheriff had erred in characterising any errors in the second adjudicator's decision as intra vires errors of law.

[11] Turning to the applicable law, Mr Borland drew my attention to the fact that the sheriff had before him Lord Glennie's decision in Barr and he commended to me the approach adopted by the learned sheriff which he said was wholly supported by Lord Glennie's opinion. The provision requiring the adjudicator to resign if the dispute was the same or substantially the same was not designed to cover a second reference to an adjudicator if that second reference was a separate and distinct way of recovering the sum which had been sought in the first adjudication. He submitted that there was no warrant to limit the application of what was said by Lady Paton in Skanska at paragraph 28 of her opinion as had been submitted by Mr Thomson. He urged me to adopt the approach of Lady Paton and hold that the second adjudicator had jurisdiction when the two adjudications concerned different stages of the contract with different contractual provisions applying and thus different considerations and perspectives being relevant in both. He urged me to look carefully at any jurisdictional challenge to see if what was being said was in fact a substantive challenge dressed up as jurisdictional. In this particular case he submitted that the first adjudication had as its basis the pursuers' claim based upon valuation 11. At the time when the first adjudicator was coming to his decision the Defects Liability Period had not expired. Thus the first adjudicator did not and could not have regard for the terms of Condition 16. By the time of the second reference to adjudication the Defects Liability Period had expired. One was therefore now dealing with a different stage of the contract and with different contractual provisions. The context had also changed in that the employer failed to do certain things which in terms of Condition 16 it was obliged to do. The second adjudication was a separate and distinct dispute. That was so even although part of the sum claimed in the second adjudication had been sought in the first adjudication. As was seen in Barr that was not in itself a basis for holding that the second adjudication was the same or substantially the same as the first. My attention was drawn to the mandatory terms of Condition 16 where it was said that the employer "shall" deliver to the contractor the Schedule of Defects which would form an instruction. There was thus, said Mr Borland, no tenable argument that there was no need for an employer to issue a Schedule of Defects on the basis that such defects had been covered by the first adjudication.

[12] In any event, submitted Mr Borland, Mr McKinney had asked himself the correct question. Even if the answer he came to was wrong, and Mr Borland did not accept that to be so, his decision was still intra vires and as such was not open to challenge.

[13] Mr Borland submitted that the Certificate of Practical Completion had not in any respect contaminated Mr McKinney's decision. The pursuers had referred the second dispute to adjudication as a dispute under the contract. It was not a dispute under the Certificate of Practical Completion or any Compromise Agreement. The Certificate had been issued under the contract. He accepted that the mere use of the word "Certificate" was not decisive. But he submitted that in form and substance the Certificate was what it bore to be. He sought to distinguish what was said in Reinwood Ltd on the basis that entirely different contractual provisions applied.