CARILLION CONSTRUCTION LTD V SMITH
Technology and Construction Court
Akenhead J
10 November 2011
THE FULL TEXT OF THE JUDGMENT OF AKENHEAD J
1. Carillion Construction Ltd ("Carillion") seeks by way of Part 8 proceedings declarations in relation to certain questions which have arisen out of its contractual relationship with Mr Stephen Smith or, alternatively, a company now struck off the Companies Register in September 2011, Underground Pipeline Ltd ("the Company"), formerly owned by him and his former wife. Some of these questions raise matters which can not be dealt with without oral evidence and I have set aside two days at the end of November 2011 for them to be dealt with. The issue which it is rightly agreed by the parties that I can and should deal with now on the basis of the written documentation before the Court is whether the Adjudicator in what is now the third adjudication brought by Mr Smith or his company has jurisdiction in relation to the dispute which has been referred to him; the essential issue on this point is whether or not this latest dispute referred to adjudication is in substance the same as the dispute referred eight years ago to adjudication and resolved by the Adjudicator in the second adjudication between the parties.
Factual Background
2. The facts are based on the documentation put before the Court and are not intended to be binding in relation to the issues for which I have deferred the hearing at the end of November 2011.
3. Carillion (then trading as Crown House Engineering) was a mechanical and electrical contractor engaged by The Royal Liverpool & Broadgreen University Hospitals NHS Trust to carry out infrastructure refurbishment at BroadgreenHospital in Liverpool. One of the McAlpine companies was also involved, amongst other things in relation to various ground and trench digging activities. It seems that by 2000 Mr Smith had a firm which traded as Underground Pipeline Services of which he was the sole proprietor and that the Company was also in existence (although there remain issues as to whether Mr Smith and his wife had become shareholders, directors and secretary before about November 2000 and as to whether he acted as an agent for the Company before then). Mr Smith was invited to tender for the supply, installation, testing and commissioning of underground water and gas pipeline systems for this project and he did so. Following a "Pre Sub-Contract Interview Meeting" dated 11 May 2000, Carillion sent an order dated 22 May 2000 addressed to "Underground Pipeline Services" instructing the recipient "to supply, install, test & commission the complete underground water & gas pipeline systems in accordance with" various documents. The order was expressed to be "subject to the terms and conditions contained within the Sub Contract Agreement attached". There is some suggestion on the face of the order that the sub-contract documentation was to be signed, sealed, initialled and returned by the recipient. I will refer to Mr Smith, the Company or the "Sub-Contractor" (as a more neutral term) as such where the context permits.
4. There is no dispute between the parties that whoever the Sub-Contract was between (that is either Mr Smith and Carillion or the Company and Carillion) not only was there a Sub-Contract but also that it incorporated those terms and conditions. Those terms and condition were of a relatively standard type. Carillion by Clause 5.2 was on a non-exclusive possession basis to make available parts of the site to provide such means of access as would be "necessary to enable the Sub-Contractor to execute the Sub-Contract works in accordance with the Sub-Contract". The Sub-Contractor was required to proceed with the Sub-Contract Works with due diligence (having commenced) and without delay. The Second Schedule identified a 24 week period for carrying out and completing the Sub-Contract Works. Clause 6.5 in broad terms entitled the Sub-Contractor to extensions of time for delay caused by three reasons, factors entitling Carillion to extensions under its Main Contract, variations of the Sub-Contract Works and "any breach of this Sub-Contract by the Contract". There appears to have been no express provision to enable the Sub-Contractor to recover as such "loss and expense" caused by any such delay. It was certainly arguable that Clauses 8 and 9 which dealt with variations and their valuation might enable loss and expense caused by delay and disruption attributable to variations to be recoverable within the valuation process. Clause 15 dealt with payments which were to be on an interim basis initially followed by a final accounting process which was to take place pursuant to Clause 15.8 "not later than 3 months after practical completion of the Sub-Contract Works".
5. Clause 18.2 provided for adjudication:
"The parties have the right to refer any dispute under the subcontract to Adjudication in accordance with the attached Adjudication Rules ORSA/CEDR current at the time of the dispute either party may give notice in writing to the other at any time of his intention to refer the dispute to Adjudication…"
Clause 18.3A provided for arbitration as the final dispute resolution process. No point has been taken in this case that matters currently in court should be stayed to arbitration. The Adjudication Rules provided by Clause 4 that
"the Adjudicator's decision shall be binding until the dispute is finally determined by…arbitration"; however Clause 30 provided that, if no notice of dissatisfaction with the Adjudicator's decision was given within 60 days of notification of the decision, "the decision of the Adjudicator shall be final and binding upon the parties".
6. The disclosed documentation reveals that monthly applications for payment were made by "Underground Pipeline Services". Such and other documentation until about November 2000 appears to have emanated from Mr Smith or his firm but in and after November 2000 it seems largely and possibly exclusively to have emanated from of the Company. Some or all payments were made to "Underground Pipeline Services" which, at least on the face of correspondence, appears to have been the trading name of the Company. Disclosed accounts for the company approved by the Directors including Mr Smith record that "on 1st November 2000, the company acquired the whole of the business of Underground Pipeline Services at its net book value of £110,122 from Mr S Smith…"
7. It is unexceptionable that, having commenced the Sub-Contract Works in or about mid-2000, the Sub-Contractor did not complete them within the 24 week period identified in the Sub-Contract. Indeed, the Sub-Contract Works were not apparently completed until 5 May 2001. There clearly was disagreement between it and Carillion as to the causes of the delay and the extent to which if at all there was any entitlement to extensions of time. Disputes also arose in relation to the valuation of the Sub-Contract Works.
8. The Company instituted the First Adjudication in May 2002 and a Mr Blizzard was appointed adjudicator ("the First Adjudicator"). I was not referred to much of the detailed documentation relating to the dispute which led up to this adjudication or indeed which was generated for the purposes of the adjudication. The decision issued on 2 August 2002 primarily addressed issues which had arisen on revised final accounts submitted by the Sub-Contractor in March 2002. The Notice of Adjudication and the Referral asked the First Adjudicator to:
"1. Instruct [Carillion] to pay [the Sub-Contractor] all outstanding monies as set out in his Final Account submitted on 22nd March 2002 within 7 days.
2. Instruct [Carillion] to issue an extension of time to [the Sub-Contractor] from 27th October to 5th May 2001 inclusive.
3. Ascertain interest… [and alternatively]
1. Ascertain the value of the Final Account for the gas installation submitted on 15th March 2002.
2. Ascertain the value of the Final Account for the water installation submitted on 22nd March 2002.
3. Request the adjudicator to instruct [Carillion] to pay [the Sub-Contractor] all monies due within 7 days."
9. The First Adjudicator clearly analysed the final accounts and decided that, basically, the gas and water elements were worth £91,364.16 and £257,201.55 respectively. From the decision, it is clear that the final accounts also claimed head office overheads and profit calculated on the Hudson Formula, which is a time related method of ascertaining such heads of loss. However, the Sub-Contractor had deducted overheads and profit said to have been recovered through variations (which allow for overheads and profit). He recorded that the parties agreed that the Sub-Contractor was delayed and disrupted and that the Sub-Contractor had made it clear that the claim for overheads and profit "arises through the variation account under clauses 8 and 9 of the contract". Put another way, it seems that the Sub-Contractor was arguing that the claim did not arise as a claim for damages but through the provisions for valuation of variations. However, the parties are recorded in the decision as having apparently agreed that the First Adjudicator did not have jurisdiction to decide whether the Sub-Contractor was entitled to any extension short of 5 May 2001. Therefore, he could not decide any other date and he felt that he had "no alternative in this adjudication but to decide that I cannot instruct [Carillion] to issue an extension of time to [the Sub-Contractor] from 27 October 2005 May 2001 inclusive". He therefore felt he had no alternative but to make no allowance for overheads and profit due to prolongation. He ultimately decided that, based on the final account figures resolved upon by him Carillion should pay the Sub-Contractor a net sum of £110,726.57 plus VAT and that Carillion should pay his fees. Carillion honoured this decision.
10. Following this, it seems that Mr Smith sought further payment particularly in relation to the delays to the Sub-Contract Works. To that end, he prepared a "Claim for Extension of Time and Claim for Loss and/or Expense at Broadgreen Hospital, Liverpool" dated 31 January 2003 ("The Second Adjudication Claim") which on that date the Company submitted to Carillion. Also at that time he submitted a Payment Application No 13 which claimed £62,140 for prolongation, £111,344.75 for disruption and £113,956.24 for overhead recovery. Additionally £12,200 was claimed for claim preparation costs.
11. It seems that this Second Adjudication Claim was rejected at least partly on the basis that Carillion considered that the Sub-Contractor was solely responsible for all the delay. This led to the institution of Adjudication No 2 by a letter dated 17 June 2003 from the Company to Carillion which was treated as a Notice of Adjudication:
"By your submission dated 28th April 2003 it appears that you hold [the Sub-Contractor] solely responsible for their extended time onsite…
We must therefore state that due to the contents of your letter in your submission of 28th April 2003, and your 'threats' therein, we can only conclude that a dispute has existed since receipt of this letter and document.
As it is apparent that we are unable to resolve this dispute amicably, we feel compelled to instigate adjudication proceedings in an effort to settle this account without further delay.
By this referral notice, we have requested the Chartered Institute of Arbitrators… to appoint an adjudicator to carry out the following:-
1) Ascertain the value of [the Sub-Contractor's] submission dated 31st of January 2003…
2) Ascertain the value of the interest on outstanding sums in accordance with the statutory entitlement.
3) Ascertain the date of completion of [the Sub-Contractor's] works.
4) Instruct [Carillion] to award an extension of time for the extended contract period from 27th October 2000 to 6th May 2001 inclusive, or such other time as the adjudicator may ascertain.
5) Ascertain whether the submission of [Carillion] dated 28th 2003 and the contents therein constitute a valid notice of set off in accordance with the contract and ascertain the validity of the contents of the document submitted by [Carillion] dated 28th April 2003.
6) Instruct [Carillion] to pay all monies due to [the Sub-Contractor] within 28 days of his award…"
12. Mr Siamak Soudager was appointed as the Adjudicator in the Second Adjudication. The Company was named as the Claimant in the Referral which followed a few days later but it went into some more detail than the earlier Notice of Adjudication, the relief claimed being however the same. There was a 33 paragraph "History of Events" supported by attached documents. This History averted to an alleged failure on the part of Carillion to award any extension of time and to "clear evidence that [the Sub-Contractor] did encounter disruption on site". It asserted that due to the "actions/inactions" of Carillion the Sub-Contract Works were not carried out in accordance with the master programme (Paragraphs 39 and 40). The Referral goes on to challenge contra-charges raised by Carillion in relation to 22 weeks of supposedly culpable delay on the part of the Sub-Contractor. The Company sought payment of £380,589.53 as set out in the Second Adjudication Claim.
13. It is now necessary to turn to that Claim in some detail because a comparison between it and the Third Adjudication Claim will need to be made. The Second Adjudication Claim comprised a 43 page claim document accompanied by annexures which included the Sub-Contract, an April 2000 programme, "correspondence showing problems on the site i.e. delay and disruption etc", as built programmes, signed contract log sheets and labour and plant analyses. The first chapter was entitled "Statement of Claim":
"In accordance with the requirements of the Contract Conditions this submission, documents, [sic] details and quantifies the entitlement of [the Company] in regards to an Extension of Time and associated Prolongation and Disruption costs (loss and expense).
This document confirms:
1) The total reliance that [the Company] had upon the timely provision of access/egress to the site in order to COMMENCE their works.
2) The total reliance that [the Company] had upon the timely provision of Trenches in order to PROGRESS their works.
3) The total reliance that [the Company] had upon the timely receipt of complete, accurate and finalised design information in order to COMPLETE their works.
And then, in breach of such FUNDAMENTAL REQUIREMENTS:
1) The late completion of [Carillion's] other preceding (trenching) contractors, which effectively restricted [the Company's] areas of work.
2) The delay in the provision of the trenches thereby restricting/preventing [the Company's] ability to effectively and economically progress the works.
3) The failure of the M&E Engineer to issue such critical design information in a timely and co-ordinated manner to suit [the Company's] Construction Programme (i.e. changes in design of the gas and water mains).
This document describes, despite their very best endeavour's [sic], the total and unavoidable detrimental EFFECT of the aforementioned factors upon [the Company's] ability to commence, progress and complete their works in a TIMELY, LOGICAL, CONTINUOUS and ECONOMIC manner.
Such detrimental conditions imposed upon [the Company] THROUGHOUT the currency of works are described and evidenced within this submission by reference to correspondence, as-built programme information, Minutes of Meetings, Site Reports, Requests for Information, Site Letters and Site Instructions issued and revised drawings issued in connection with the work.
The cumulative detrimental effect of such disruptive impositions has been to delay the critical progress of [the Company's] work by a total of 26 WEEKS (on an original Contract Period of 24 weeks) for which an Extension of Time is required in accordance with the Conditions of Contract including, most notably, clause 6.
Despite their very best endeavours to mitigate, the following costs have been unavoidably incurred by [the Company] as a direct effect of such adverse circumstances: £380,589.53…for which reimbursement is required by [the Company] in accordance with the subcontract Conditions, most notably, clause 8, 9 and 10.
Note: …the disruption calculation incorporated as part of this claim assumes a particular level of certification (and therefore number of man hours recovered) in respect of the Final Account. This certification has been agreed through an Adjudication and the adjudicator's decision dated 2nd August 2002…"
14. There then followed an Introduction identifying the Parties, Scope of Works the Sub-Contract Agreement and the Construction Programme said to identify locations and durations for elements of the Sub-Contract Works. It was identified that Carillion had to "issue all information in accordance with" this Programme and to "ensure that all works required to be carried out by others were carried out to allow [the Company] to carry out its works in accordance" therewith, with the requisite excavation of trenches into which the gas and water mains were to be installed being highlighted. This Programme was said to confirm the "order, durations and interaction of [the Company's] works divided over 14 items in 9 areas"; it added that "any deviation from this programme due to the failings of others will clearly not allow [the Company] to carry out their works on the most economical manner". Paragraph 2.3.4 identified those parts of Clauses 6, 8 and 9 relied upon.