HORNE V MAGNA DESIGN BUILDING LTD

HORNE v MAGNA DESIGN BUILDING LTD

Technology and Construction Court

Akenhead J

17th October 2014

THE FULL TEXT OF THE JUDGMENT OF AKENHEAD J

1. In these proceedings, Mr Horne seeks to enforce an adjudication decision made in his favour. The major part of the issue between the parties on these enforcement proceedings has been whether the adjudicator wrongly decided that he did not have jurisdiction to order that the builders, who had instituted the adjudication in the first place, should pay him money.

The Background

2. It appears to be common ground that Mr Horne engaged the first named Defendant ("Magna") to carry out various works at his flat at 53 Tanners Yard, 239 Long Lane, London, SC1 4PT, that the contract sum was £55,000 and that the contract incorporated the JCT Minor Works Building Contract 2011. There were issues between the parties as to the extent to which these works had been completed. It was asserted that the works were supposed to have commenced on 4 November 2013 with an estimated completion date of 7 December 2013. By 23 January 2014 Mr Horne served on Magna a default notice pursuant to Clause 6.4.1 of the Minor Works Conditions of Contract which was followed by a further notice on 31 January 2014 by which Magna's employment was purportedly terminated pursuant to Clause 6.4.2, it being alleged that the specified default had not been remedied. There were some communications between Magna and Mr Horne and his solicitors over the following few months.

3. On 10 June 2014, Magna served Notice of Adjudication on Mr Horne; this described the dispute as follows:

"1.1 Dispute over outstanding payment of £16,214.88 which [Magna] is due under contract for works completed…and invoiced to [Mr Horne]…

Roland Horne sent a letter to [Magna] accusing [it] of not commencing with work 'regularly and diligently' and to return to site within 7 days or terminate the contract as per Clause 6.4.1 JCT Minor Works contract terms. [Magna] maintains that it did commence with work regularly and diligently, remained in communication during this period and was awaiting confirmation of payment and delivery of items which Roland Horne was aware of, as can be proven by correspondence between the parties.

[Magna] return to site on 23/01/14 and 24/01/14 as requested within the 7 day period so that there were no grounds for Roland Horne to terminate the contract and withhold payment due for works completed and invoiced. Relevant Horne then instructed a solicitor to write a letter to [Magna] on 31/01/14 denying [Magna] return to site within that period, forcing [Magna] to respond and incur unnecessary legal fees…"

The "redress" sought was payment of £16,214.88 said to be "the outstanding amount for works completed and invoiced" by Magna and a request that Mr Horne make a payment of adjudicator's fees.

4. Although the Court has not been provided with the adjudication documents (other than the decision of the adjudicator), it is clear that the adjudicator was nominated by the RICS on 11 June 2014 and on or about 13 June 2014 Magna served its Referral. On 14 June 2014, as I was informed by Mr Stevenson for Mr Horne, Mr Horne served a schedule with supporting documents which purported to identify what additional costs he had incurred in completing the allegedly incomplete work. He served his Response on 20 June 2014; Magna served a Reply on 25 June 2014 and Mr Horne served a Rejoinder on 27 June 2014.

5. The Minor Works Contract Conditions provides for termination of the Contractor's employment if the Contractor "fails to proceed regularly and diligently with the Works" following the continuation of such default for seven days from receipt of a notice from the Architect/Contract Administrator which has specified such default. Clause 6.7.1 provides that where the Contractor's employment has been terminated in that way (amongst others) the Employer may employ and pay other people to carry out and complete the Works and that:

".2 no further sum shall become due to the Contractor other than any amount that may become due to him under clause 6.7.4…"

Clauses 6.7.3 and 6.7.4 provided:

".3 following the completion of the Works and the making good of defects in the…an account of the following shall within three months thereafter a set out in a certificate issued by the Architect/Contract Administrator or a statement prepared by the employer:

.1 the amount of expenses properly incurred by the Employer pursuant to clause 6.7.1…and of any direct loss and/or damage caused to the Employer and for which the Contractor is liable, whether arising as a result of the termination or otherwise;

.2 the amount of payments made to the Contractor; and

.3 the total amount which would have been payable for the Works in accordance with this Contract;

.4 if the sum of the amounts stated under clause 6.7.3.1 and 6.7.3.2 exceeds the amount stated under clause 6.7.3.3, the difference shall be a debt payable either Contractor to the Employer or, if that sum is less, by the Employer to the Contractor."

The Adjudicator's Decision

6. It is clear from the decision that Mr Horne and his legal team argued in the adjudication and that it was not Magna which was entitled to money but that it was Mr Horne. It appears to have been accepted that at the very least the adjudicator had jurisdiction to decide whether Magna was entitled to any payment and if so how much in money terms and also as to whether there had been a lawful termination of Magna's contractual employment. It is clear also that Mr Horne's legal team argued that he could and should decide whether he had a net entitlement and if so in what sum; it is equally clear that in effect a jurisdictional issue was raised and that is why he considered that he had no jurisdiction to decide that there was a net sum due to Mr Horne. The decision is dated 21 July 2014 and is split into seven chapters A to G. He concluded at Paragraph C7 that he had jurisdiction to decide a dispute concerning:

"the validity of [Mr Horne's] purported termination of [Magna's] employment under the Contract; and

the extent, if any, to which [Magna] is entitled to payment of what it says is an outstanding invoiced a balance of £16,214.88."

7. The adjudicator referred to several jurisdictional submissions made by Mr Horne which included one that he had jurisdiction to investigate and decide the amount of any balance due to Mr Horne on the following any justifiable termination. The adjudicator addressed this at Paragraphs D8 to 12, referring to a decision of Mr Justice Coulson in Workspace Management Ltd v YJL London Ltd [2009] EWHC 2017 TCC and he concluded that he is "jurisdiction is limited to a consideration of the amount, if any, of the "outstanding payment of £16,214.88 which [the Contractor] is due under the contract".

8. He then went on to consider at Paragraphs E6 to 24 what he called Issue No. 1 one: "was [Magna's] employment validly terminated?" He concluded that this employment was "effectively and properly terminated on 31 January 2014 upon its receipt" of Mr Horne's solicitors letter of that date. Act Paragraphs E25 to 41 he addressed his Issue No 2: "What about the financial consequences of the termination?" He referred to Clauses 6.7.2 and 6.7.3 of the Minor Works Conditions and to Magna's priced Schedule of Works which totalled £65,944.25, an adjustment of £2,296.57 said to represent the value of work still to be completed and the payments to date of £47,432.80. He considered that Magna's calculation and resulting claim were deficient in a number of respects, for instance the lack of detailed analysis of the value of those elements of the Works which remain to be completed. Against that, he referred to the facts that Mr Horne had prepared an account which purported to satisfy the requirements of Clause 6.7.3 (see Paragraph E33) and that this produced a balance due to Mr Horne of £28,468.19. He adjusted this downwards to £27,164.79 in relation to "underpaid agreed variations". But there is nothing in the decision which suggests that he carried out any detailed analysis of this cross claim. He was, however, clearly dissatisfied with the proof offered by Magna in relation to its claim. He went on however to say the following:

"38. In view of what I say at Paragraph 7 to 12 of Section D above, it would not be appropriate for me to make any finding in respect of the actual balance due pursuant to Clause 6.7.4

39. However, I am required to establish the amount, if any, of [Magna's] claim to which it is entitled.

40. For that purpose, I find that [Mr Horne's] claim represents, at its least accurate, a close approximation of what, had the matter been referred to me for determination, I would have found to be its proper entitlement.

41. Accordingly, I find that [Magna] has no entitlement to payment of any part of its claim of £16,214.88."

9. He concluded in Paragraph G that Magna's contractual employment was effectively and properly terminated and that it was not entitled to payment of any part of it is purported invoiced outstanding balance. He directed that Magna should be liable for the full amount of his fees of £4,692.

These Proceedings

10. Magna did not pay the adjudicator's fees. On 5 August 2014, Mr Horne's solicitors wrote to Magna referring to the fact that the adjudicator had found but did not award a sum due to Mr Horne but that Mr Horne could initiate a second adjudication to recover that amount. They indicated that Mr Horne would forego his right to pursue such an adjudication if the adjudicator's outstanding fees were paid.

11. Thereafter on 15 September 2014 he issued proceedings against Magna claiming not only £4,692 and some related solicitor costs (£240) incurred by the adjudicator. Additionally he sought a declaration that the adjudicator did have jurisdiction to award the sum of £27,164.79 and an order that Magna paid that sum together with interest.

12. Mr Horne issued an application for summary judgement. On 16 September 2014 the Court issued its Order giving directions, amongst others, requiring Magna to serve any evidence which it wished to rely upon. Magna did not serve any evidence or argument but attended the hearing through its director, MrPostlethwaite. He is, clearly, not legally qualified but he presented his arguments with politeness. Mr Horne was represented by Mr Stevenson, the well-qualified and experienced construction lawyer.

13. MrPostlethwaite accepted expressly at that Magna should honour the decision in relation to the adjudicator's fee and the related solicitor's costs. He argued, albeit without reference to legal authority, that the adjudicator was right to decide that he did not have jurisdiction to award any further sum to Mr Horne. The argument is therefore came down to whether Mr Horne was entitled summarily to a declaration that the adjudicator did have such jurisdiction and that there should be judgement in his favour of the son of £27,164.79 in consequence.

Discussion

14. As on many cases involving challenges to the jurisdiction of an adjudicator, one must first consider what the dispute was which was referred to adjudication. One must then move on to consider the extent to which the adjudicator must consider all defences available, even if they have not been raised before. In my judgment, based on previous authorities, the appropriate analysis needs to be as follows:

(a) The Notice of Adjudication initiates the adjudication, with the appointment of the adjudicator and thereafter the service of the referral notice following.

(b) Therefore, it is to the Notice of Adjudication that one must initially go to ascertain what dispute is purportedly to be referred to adjudication.

(c) The fact that the Notice of Adjudication identifies a particular dispute is not absolutely determinative of whether there is a different view and whether it is precisely as formulated in the Notice. The particular dispute has to have crystallised before the Notice. Secondly, one can have regard to the preceding communications between the parties to interpret and to determine what the scope of the dispute is.

(d) It is open to a defending party in an adjudication to raise any matter, whether of law or of fact, by way of defence in an adjudication whether it has specifically been raised before or not. It may well be that some of those matters do not amount to a defence in law or in fact; a common example is a set off which, having not been raised before the and therefore not the subject matter of the appropriate contractual or statutory withholding notice requirements, will not be an effective defence. That does not however undermine the adjudicator's jurisdiction as such to address the defence, good or bad though it may be.

15. Reliance has been placed by both sides' Counsel on a decision of Mr Justice Coulson, Workspace Management Ltd v YIL London Ltd [2009] BLR 497. The material facts were that Workspace engaged YJL and numerous disputes arose in relation to delay, related loss and expense, liquidated damages and valuation. A third adjudication about valuation of work was started whilst an arbitrator was addressing delay issues; in March 2009 the arbitrator issued an award in favour of Workspace for £85,000. Several months before the adjudicator had produced a decision in favour of YJL for £56,143. YJL paid the balance and the argument went to whether the adjudicator had jurisdiction to decide what he had done. That adjudication was actually instituted by Workspace by its Notice of Adjudication which said that the "the dispute is over Architect's Certificate No 27…[and] sums to be repaid by [YJL]". The background was that Workspace's Architect had issued a negative certificate which, taking account of sums repaid, would have resulted in YIL being due £230,779. YJL argued that the negative balance should be reduced to the point that it was owed money, taking into account what it had already paid back. The adjudicator decided in favour of YJL such that no sum was due to Workspace, in effect declaring that £56,143 was due to YJL; this was the same sum as YJL was withholding against the sum due to Workspace pursuant to the March 2009 arbitration award.

"16. It is of course right, as Miss Cheng points out, that Adjudication Decision No. 3 did not require this sum to be repaid by the Claimant to the Defendant but, so it seems to me, that does not prevent the Adjudicator's findings in paragraph 24 of his decision from forming an important and express part of that overall decision. In any event, if I was wrong about that, and his findings were not express, it seems to me that they follow logically from the decision itself. They are, in other words, a necessary and indispensible result of the Adjudicator's overall decision.

17. There are a number of authorities dealing with what might be properly inferred from an adjudicator's decision. The vast majority of them are concerned with claims for liquidated damages in circumstances where an adjudicator has found that a period of delay (for which the contractor claimed an extension of time) was in fact a period of culpable delay for which liquidated damages were appropriate. In Balfour Beatty Construction v Serco Limited [2004] EWHC 3336 TCC, Jackson J (as he then was) reviewed all of those authorities and he derived two principles dealing with what can and cannot be safely inferred from such a decision. He said:

"(a) Where it follows logically from an adjudicator's decision that the employer is entitled to recover a specific sum by way of liquidated and ascertained damages, then the employer may set off that sum against monies payable to the contractor pursuant to the adjudicator's decision, provided that the employer has given proper notice (insofar as required).

(b) Where the entitlement to liquidated and ascertained damages has not been determined either expressly or impliedly by the adjudicator's decision, then the question whether the employer is entitled to set off liquidated and ascertained damages against sums awarded by the adjudicator will depend upon the terms of the contract and the circumstances of the case."

21. The starting point for any consideration of jurisdiction is the Notice of Adjudication: see Jerome Engineering Limited v Lloyd Morris Electrical Limited [2002] CILR 1827. Here, the dispute set out in the Notice of Adjudication was said to be "the proper valuation of Certificate 27". That was the dispute that the Adjudicator decided. He arrived at a figure that was considerably less than the amount shown on the certificate, and that calculation demonstrated that, once allowance had been made for the sums already paid by the Defendant, the Claimant had been overpaid. That was the result of the dispute which the Adjudicator was obliged to decide, and he did not stray beyond his jurisdiction in so doing.

22. Miss Cheng submitted that the Adjudicator had the jurisdiction to reach a nil valuation of Certificate 27, but not the jurisdiction to go on and consider whether any sum was due to the Defendant from the Claimant. As she put it, "Once he got to nil, he could stop." I consider that that argument takes an unrealistic view of the valuation process that the Adjudicator went through. He carried out his detailed valuation. It was only when he totalled up the figures and compared the result with what had been already paid that he would have become aware that the sum due was less than the amount that had already been repaid by the Defendant to the Claimant. He could not do part of that valuation and then stop. It was a composite exercise and had to be completed in full.

23. On this point, MrSteynor drew my attention to paragraph 15 of the witness statement of Ms Alderson in support of the Defendant's position. That says:

"…Workspace consistently claimed a net sum giving the result of the benefit of the payment made by YJL in compliance with the second adjudication decision. The Adjudicator's third decision, therefore, inevitably required him to take into account that payment made by YJL. If he had not done so, then he would still have concluded that a payment of £77,371.70 was due to Workspace. The Adjudicator was therefore addressing not only the valuation of Certificate 27 but also the balance of the account between the parties. Although he states that he cannot decide that the balance of £48,830.30 plus VAT was due, he has in fact done so in his decision. He clearly found that the payment of £126,192 was made and that the sum of £77,371.70 was due or he could not have deducted it against the negative valuation. There is no basis in his decision for distinguishing between any part of the payment made as a sum due."