Osc Building Services Ltd V Interior Dimensions Contracts Ltd

OSC BUILDING SERVICES LTD V INTERIOR DIMENSIONS CONTRACTS LTD

Technology and Construction Court

Ramsey J

8 January 2009

THE FULL TEXT OF THE JUDGMENT OF RAMSEY J

Introduction

1. This is an application by the Claimant ("OSC") for summary judgment under Part 24 on its claim to enforce an adjudication decision.

2. The Defendant ("IDC") resists enforcement on two grounds. First, it says that the referral broadened the dispute in the notice of adjudication so that the adjudicator did not have jurisdiction to deal with the broadened dispute covering the valuation of OSC's final account. Secondly, IDC Says that the adjudicator failed to decide the dispute which had been referred to him on OSC's final account but instead decided the value of an interim payment application.

Background

3. IDC was the main contractor on a project known as the Leigh Medical Centre at Leigh-on-Sea in Essex. In July or August 2006 IDC engaged OSC to carry out various drainage and site access works. The scope of the work was originally limited but was subsequently increased, and OSC were also engaged to install a retaining wall and site mat and to reposition a sump tank. The contract did not contain adjudication provisions complying with s.108 of the Housing Grants Act and as a result under s.108 the provisions of the Scheme for Construction Contracts ("the Scheme") applied in providing a right of adjudication.

4. The sub-contract works commenced on 11 August 2006 and were completed at the end of July 2007. In June 2007 OSC submitted application for payment number 10, which was referred to as a draft final account. On 5 September 2007, in advance of a meeting between the parties, IDC submitted comments on that document, and on 7 September 2007 sent a schedule of queries and information which it required. On 21 September 2007 OSC sent through further information.

5. There was a further exchange of correspondence on 6 November 2007, and this was followed by OSC submitting a revised final account breakdown on 8 January 2008. On 25 January 2008 IDC commented on this document, and this was then responded to by OSC's letter of 13 May 2008, which attached another revised final account assessment. On 20 May 2008 IDC replied with a revised assessment of £283,202.05, which was stated to be subject to adjustment for costs in connection with remedial works to a Gatic Cover. No further sums were paid.

6. On 9 September 2008 OSC served a notice of adjudication. On 12 September 2008 the RICS nominated Mr. Derek Pye as the adjudicator. The adjudicator issued his decision on 22 October 2008, in which he ordered IDC to make payment to OSC. IDC wrote to OSC on 29 October 2008 stating that the decision was invalid and unenforceable for the following reasons:

"(1) The referred dispute relates to the final account whereas the Decision is in relation to an Interim Payment; and

(2) The dispute set out in the Notice of Adjudication is limited to the absence of a withholding notice but was purportedly expanded in the Referral to include a valuation of the "Final Account".

In the circumstances, we believe the adjudicator went beyond the jurisdiction given to him in the notice.

Entirely without prejudice to the above, in recognition of what was said in our letter dated 20 May 2008, we are prepared to make a further payment of £7,296.56 (to include for interest). Furthermore, again entirely without prejudice to our contention that no payment is due pursuant to the Adjudicator's Decision, we also offer to pay 50% of the Adjudicator's fee (inclusive of VAT) but reserve the right to reclaim the same in the event that the Decision is found to be unenforceable in any subsequent proceedings."

7. They therefore sent a cheque in the sum of £10,641.01 to OSC. OSC issued a claim form on 4 December 2008 and directions were given leading to this hearing during the vacation.

The Issues

8. I now turn to consider the issues on this Part 24 application to decide whether IDC has no real prospect of successfully establishing that the adjudicator did not have jurisdiction, or that there is no other reason why the matter should not proceed to trial.

Did the referral enlarge the dispute in the notice of adjudication?

9. I note at the outset that this was not a matter which was raised by IDC in the adjudication. I shall consider the effect of this later. The notice of adjudication identified the dispute as follows:

"3. The dispute concerns non payment by IDC to [OSC] in respect of [OSC's] final account.

4. A valid withholding notice has not been received and at the time of the notice of adjudication the application has not been paid."

10. It then continued by setting out the redress sought and included the following relief at paragraphs (a) to (c):

"(a) A declaration that IDC's letter to OSC dated 20 May 2008 constitute IDC's certification (albeit not accepted by OSC) of OSC's final account.

(b) A declaration that OSC is entitled to a further minimum payment in the net sum of £23,202.05 together with an order for its payment to be made forthwith.

(c) A declaration that OSC is entitled to a further payment above that referred to in (b) above in the gross sum of £21,646.26, or such other sum as the adjudicator may decide."

11. It can be seen that, at (b), OSC is seeking the difference between IDC's assessment of the sum due and the amount which OSC considered had been paid in the sum of £260,000. OSC was then seeking, at paragraph (c), a further sum of £21,646.26, or such other sum as the adjudicator should decide, in addition to IDC's assessment.

12. In the referral the redress sought is set out at paragraph 5 and includes at (a) to (c) similar redress, except for the adjustment of the sum in paragraph (c) to £24,401.26.

13. Mr. Winser, on behalf of IDC, submits that under the notice of adjudication the adjudicator only had jurisdiction to decide on non- payment against IDC's certification but not to determine the value of OSC's final account. Miss Garrett, on behalf of OSC, submits that when the whole of the notice of adjudication and referral are read in context with the relevant documents there was no expansion of the dispute in the referral.

14. I consider that Miss Garrett's submissions on this matter are correct for the following reasons:

(1) On my reading of the notice of adjudication and the referral the dispute being referred to adjudication was the question of what sum were due to OSC when the notice of adjudication was issued. Those documents have to be read in the context and against the background of the prior communications between the parties, which included the process of submissions, comments and assessments which had taken place by that time.

(2) The sum due to OSC comprised two parts: the sum due on the basis of IDC's assessment and an additional sum which OSC asserted was due. I consider that the reference to non- payment by IDC to OSC in respect of OSC's final account, in paragraph 3 of the notice of adjudication, encompasses both those sums, which were further identified in paragraphs (b) and (c) of the notice and the referral. In the absence of a withholding notice any sums due fell to be paid.

(3) I do not consider that the difference between the sums stated in paragraph (c) of the adjudication notice and those stated in paragraph (c) of the referral, can sensibly be said to expand the claim when the precise sum was left open by the words "or such sum as the adjudicator may decide".

15. I, therefore, do not consider that there are real prospects of establishing that the adjudicator did not have jurisdiction because the scope of the adjudication was expanded in the referral.

Can IDC now raise a jurisdictional argument?

16. The question was also posed of whether, in any event, it was open to IDC to raise this particular jurisdiction issue now having not raised it during the course of the adjudication. Mr. Winser says that it is open for IDC to raise it and he refers me to the decision of His Honour Judge Seymour QC in Mecright Ltd v T.A. Morris Developments Ltd [2001] Adj.L.R. 06/22, in which His Honour Judge Seymour had to consider the provision in paragraph 8(1) of Part I of the Scheme. That provision deals with the question of whether more than one dispute can be referred to an adjudicator and provides as follows:

"The adjudicator may, with the consent of all parties to those disputes, adjudicate at the same time on more than one dispute under the same contract."

17. Judge Seymour had to consider what the words "with the consent of all parties to those disputes" meant, and he said this:

"It seems to me that such consent or agreement must be express and is not to be implied from conduct or in some other way. Adjudication is intended as a summary process. There is implicit within it a risk of injustice but Parliament has considered that risk to be acceptable because an adjudication is of limited temporal effect and only of an interim nature. While, as I have pointed out, my view and that of other judges is that those who describe a dispute which they wish to refer to adjudication in vague terms have only themselves to blame, if the scope of what has been referred appears to be wider than what they may have thought it seems to me to be wrong in principle to expose those involved in an expeditious process such as an adjudication to the requirement to take care to express themselves during the process in such a way that it cannot be said that by words or conduct they have unintentionally consented or agreed to some process other than that upon which they were initially agreed. This risk is eliminated if, as it seems to me to be right, any consent or agreement for the purposes of the Scheme has to be expressed."

18. Mr. Winser therefore says that, in the absence of express consent for there to be an enlargement of the jurisdiction of the adjudicator, that jurisdiction would not be enlarged and in those circumstances he can still maintain a jurisdictional challenge.

19. Miss Garrett says that that is not correct, and she refers me to the decision of the Court of Appeal in Thomas-Fredric's (Construction) Ltd v Keith Wilson [2004] BLR 23, in which the Court of Appeal reviewed the decision of Dyson J (as he then was) in The Project Consultancy Group v The Trustees of the Gray Trust [1999] BLR 377 and the decision of His Honour Judge Gilliland QC in Nordot Engineering Services v Siemens PLC (unreported 14th April 2000).

20. In the Project Consultancy case Dyson J accepted that the principles enunciated by Devlin J in Westminster Chemicals & Produce Ltd v. Eicholz & Loeser [1954] 1 Lloyd's Rep 99 at 105 to 106 were equally applicable to an adjudication. Devlin J said this:

"If he protests against the jurisdiction of the arbitrator, which is merely an elaborate way of saying: I have not agreed to abide by your award, if he protests in that form it is held that he can take part in the arbitration without losing his rights, and what he is doing, in effect, is that he is merely saying: I will come before you but I am not by my conduct in coming before you and arguing the case to be taken as agreeing to accept your award because I am not going to do so. In those circumstances, he may or may not be allowed to take part in the arbitration. Customarily I think he is, but whether that be so or not if he protests it is well held that he enters into no agreement to abide by the award."

21. In Nordot v Siemens Judge Gilliland QC said:

"The sensible way is for whoever objects to raise the objection and to make clear that they are not going to be bound by the adjudicator's decision on that point if it goes against them. Obviously, if it goes in their favour that is the end of the matter, subject to an application perhaps by the other side to the court. The question I have to decide in this case is not so much whether it is incompetent for the parties to confer jurisdiction because in my judgment they can. That is supported by what Mr. Justice Dyson said. But whether on the facts of this case one can properly say there has been a submission to the jurisdiction of the adjudicator depends on the fair reading and interpretation of the correspondence which passed between the parties."

22. It seems to me that little assistance is to be gained from the decision in the Mecright case, which was dealing with the express provisions of paragraph 8(1) of the Scheme. Where there is a provision for consent to be given it seems to me that, in principle, more formality is needed than otherwise.

23. On the basis of the decisions referred to in the Thomas-Frederic's case, it seems to me that where a party submits to the jurisdiction of an adjudicator without raising any objection then the general principles apply as set out in the Westminster Chemicals case, and as applied by Dyson J. Those general principles say that there must be a protest against the adjudication continuing and a protest to the effect that the adjudicator does not have jurisdiction to deal with a particular dispute. If a party does not protest then, it seems to me, that party accepts the submission of that particular issue to the jurisdiction of the adjudicator.

24. In this case the position was not dealt with at all by IDC. They proceeded with the adjudication and they responded to the claims made both in the notice of adjudication and in the referral very fully. Indeed, on one occasion they raised a jurisdiction point, which it is accepted for the purpose of today is not relevant to the issues which I have to consider. In those circumstances, it seems to me that they did submit to the jurisdiction. But, as I have indicated, this is not necessary for my decision on this point and because I have not been referred to authority on this particular point, my view must be taken as provisional.

Did the adjudicator have jurisdiction to decide that a sum was due on the basis of an interim application?

25. In relation to the second point, the adjudicator set out in his decision, at paragraphs 27 to 35, the process of submissions, comments and assessments of OSC's final account. He noted at paragraph 35 that Driver Consult, on behalf of OSC, wrote a letter dated 13 August 2008 to IDC in which they advised that they were compiling a final account. In paragraphs 2 to 4 of the Rejoinder, although IDC did refer to a jurisdiction point, they did not deal with this particular aspect.

26. I now turn, therefore, to consider this matter. The sub contract in this case, which was originally limited to some £6,000 worth of work, was to be carried out in 14 days in August 2006. In those circumstances, it only provided for a final account after completion of the works but not expressly for interim payments. IDC submitted that this provision complied with the requirements of the 1996 Act, but the adjudicator held that it did not and that the Scheme provisions were applicable to interim applications and payment. He said, at paragraphs 50 and 51:

"The parties agree that once the Sub Contract Works had been expanded, from the original works package scheduled to be complete within some two weeks, that the Sub Contract proceeded on the basis of monthly interim applications for payment based on the value of all works carried out in the relevant period.

On this basis [OSC] was entitled to a payment in respect of its application made on 13 May 2008, if any payment was found to be due, on the grounds that it was in excess of 28 days from IDC's previous payment on 3 October 2007."

27. He also stated, by way of a clarification, at paragraph 115:

"For the avoidance of any doubt I make it clear that this Decision is given in respect of an interim application based on [OSC's] application for payment of 13 May 2008, which was based on its Final Account at that time. It is not a Decision as to the final value of [OSC's] Final Account, which both parties are aware, from Driver Consult's letter of 13 August 2008, was at that time yet to be compiled and issued in due course."

28. Mr. Winser submits that the adjudicator only had jurisdiction to decide the value of the final account and not to decide the value of an interim application. He relies on that passage from the adjudicator's decision at paragraph 115 as showing that the adjudicator decided a matter which was outside his jurisdiction. He says that there is a fundamental difference between a final account claim and an interim application, and for an adjudicator to make a decision on an interim application when the dispute relates to the final account would be outside the adjudicator's jurisdiction and would set a dangerous precedent.

29. Miss Garrett submits that the substantive dispute is not changed merely because the label 'final account' or 'interim payment' is applied to it. She says that the adjudicator decided the issues which were referred to him and dealt with in the notice of adjudication, the referral and the response. She accepts that the claim was referred to inaccurately as the final account, as it was a claim for payment on an interim application deriving from interim application 10.

30. I accept Mr. Winser's submission that, in many contracts, there is an important difference between the process of interim applications and final accounting. However, in the present case I consider that I have to construe what was being referred to the adjudicator by the notice of adjudication and the referral and how the reference to OCS's 'final account' was to be dealt with. In my judgment, this final account was, in fact, the last interim application, number 10, which became a draft final account. In the circumstances of this case, as set out in Driver Consults' letter to IDC of 13 August 2008, there was then to be a final account, which Driver Consult was preparing. The phrasing both of the letter of 13 August 2008 and the reply of 16 August 2008, in my judgment, supports the fact that the application being considered was an interim application.