WITNEY TOWN COUNCIL V BEAM CONSTRUCTION (CHELTENHAM) LTD
Technology and Construction Court
Akenhead J
12 September 2011
THE FULL TEXT OF THE JUDGMENT OF AKENHEAD J
1. By these Part 8 proceedings, Witney Town Council ("the Council") seek declarations that an adjudicator, Mr Anthony Bingham, had no jurisdiction to adjudicate upon what is said to be a number of disputes referred to him for decision. These proceedings are being heard together with proceedings issued in Birmingham by the Contractor, Beam Construction (Cheltenham) Ltd ("Beam"), to enforce the decision reached by Mr Bingham.
The Background
2. By a building contract made in early 2010, the Council employed Beam to design and construct the new Madley Park Community Hall, Witney in Oxfordshire. The contract was in the JCT Design and Build form 2005, Revision 2, 2009 and the Contract Sum was £749,726. A Mr Treloar was named as the Employer's Agent. The contract contained an adjudication clause:
"9.2 If a dispute or difference arises under this Contract which either Party wishes to refer to adjudication, the Scheme shall apply, subject to the following:
.1 for the purposes of the Scheme the Adjudicator shall be the person (if any) and the nominating body shall be that stated in the Contract Particulars…"
The reference to the Scheme is to the Scheme for Construction Contracts issued pursuant to the Housing Grants Construction and Regeneration Act 1996 ("HGCRA").
3. The contract required the works, subject to extensions of time, to be completed by 7 November 2010. Provision was made for extensions of time and in certain circumstances "loss and/or expense" in relation to delay and disruption. The contract provided for interim payments followed by a final accounting process after Practical Completion of the works. Mr Treloar issued ten certificates for payment during the course of the project. On any count the works were late and eventually Mr Treloar awarded a three-week extension to take the new completion date up to 26 November 2010.
4. Some controversy surrounds what happened on 6 January 2011 when it is said that the Council took full possession of and access to the works opening the building for use in a public election. Beam says that Practical Completion of the works occurred then but the Council says that, whilst it did use the building for a short period of time, that was by arrangement and in effect the building and the works were given back to Beam to finish the works. I can not resolve that issue, nor is it necessary for me to do so.
5. So far as is material to this case, the story begins on 21 January 2011 when Beam submitted by e-mail its "draft final account" for the works. The relevant parts of this account are as follows:
"1. Main Works StagesContract Sum / £749,726.00
Less [various items]
Less Client's Prov Sum / £20,000.00
£686,226.00
5. Variations/Instructions
Add [various items]
Kitchen as Martin Luck / £37,752.00
[3 more items]
Prolongation costs from 7th Nov 2010 to 21st Jan 2011
11 weeks @ £1,500 per week / £16,500.00
Total / £802,032.13
Less 2.5% Retention / £20,050.80
£781,981.33
Less Previously Certified / £678,497.17
Nett Application / £103,484.16 excl VAT"
6. Mr Treloar issued Certificate No 10 on 2 February 2011 which identified a gross valuation of £703,874.79 less 5% retention of £35,193.74, leaving a net sum certified of £668,681.05. The amount of this certificate was said to be nil because the amount previously certified was greater. The contract suggests that retention was agreed to be 3% and that on Practical Completion half of that was to be released to Beam but, for reasons best known to him, Mr Treloar certified a 5% retention and Beam does not seem to have objected, possibly because its application for payment identified a 5% retention. The maintenance of the 5% retention within Certificate No 10 suggest that Mr Treloar believed that Practical Completion had not occurred, whilst Beam's assertion that only 2.5% retention was allowable was consistent with its position on this topic.
7. It seems to be the case that Beam did return to the site after 6 January 2011 although it is not clear whether its workmen were there every day. There was some communication between Mr Treloar and Beam which highlighted what was in issue. In an e-mail dated 7 February 2011, Mr Treloar made a number of points including that a contingency sum of £35,000 should have been deducted and that nothing was allowable for prolongation together with a number of other points. Issues began to emerge between the parties in relation to various outstanding items of work, some of which were associated with health and safety matters, the maple flooring and a gantry. The parties were at odds as to the extent to which Beam was entitled to an extension of time.
8. On 22 February 2011, Beam's claims consultant Mr Lee wrote to the Council identifying the issues relating to extension of time and also the issues relating to the draft final account (in the gross sum of £802,032.13 compared with the gross sum of £703,874.79 certified in Certificate No. 10).
9. On 2 March 2011, again by e-mail to Mr Treloar, Beam sent in what it called its "final account". The form of it was similar to the "draft final account" but there were some changes (identified with an *):
"1. Main Works StagesContract Sum / £749,726.00
Less [various items]
Less Client's Prov Sum / £20,000.00
*Less Contingency 5% / £35,701.00
£650,525.00
5. Variations/Instructions
Add [as before]
*Lettering to external gable / £753.00
*Change ceiling from suspended grid to mf ceiling / £4,470.00
*Prolongation costs from 7th Nov 2010 to 26th Nov 2010
3 weeks @ £1,500 per week / £4,500.00
*Interest for amounts not certified
and incorrect retention / £3,454.53
*Interest for unfixed materials on-site not valued or included in Arch Certificates / £340.89
*Insurance of completed buildings from 6th Jan 11 / £1,450.00
* Prolongation costs from 26th Nov 2010 to 2nd March 2011
14 weeks @ say £1,200 per week / £16,800.00
*Legal costs to conclude settlement of final accounts say / £12,000.00
Total / £776,108.15
*Less 1.5% Retention / £11,641.62
£764,466.53
*Less Previously Certified / £668,681.05
Nett Application / £95,785.48 excl VAT"
10. On 11 March 2011, the Council purported to terminate the employment of Beam under the contract pursuant to the termination clause on the basis, as asserted, that Beam was not proceeding regularly and diligently and had failed to do so notwithstanding what was said to be a contractual warning notice on 21 February 2011 from Mr Treloar.
11. Mr Lee wrote again at this stage to the Council's own claims consultant, Knowles, on 14 March 2011 reiterating his client's position about when completion took place and rehearsing his client's arguments about the maple floor and the lighting gantry. He referred to the final account application for payment and he highlighted that Mr Treloar had acted wrongly in deducting 5% as opposed to 3% retention. He said that the essence of his client's position was:
"1. The Works were practically complete by 6 January 2011, or in the alternative 28 January 2011. The continued with-holding of the certificate of practical completion is a breach of contract for which damages are claimed.
2. No proper extension of time has been granted. Damages are claimed as a result.
3. No proper ascertainment, certification or payment of loss and expense has been received. Damages and interest are claimed as a result.
4. Our Client's draft final accounts submitted on 21 January 2011 has not been properly valued and certified in accordance with the Contract and interest and damages are claimed as a result.
5. Retention has been incorrectly deducted throughout, and is being with-held now beyond practical completion, in further breach of contract. Again, interest and damages are claimed as a result."
12. On 21 March 2011, Mr Lee wrote to the Council saying that his client was:
"…proceeding to compile its case for a referral to an Adjudicator. As we have noted to you previously, this will necessarily involve the Council in unnecessary expenditure of approximately £35,000 on top of the debt due to our client, which is a further £107,427.10 plus VAT."
This figure represented the retention free sum claimed in the "final account".
13. However, on 23 March 2011, as recorded by Mr Lee in a further letter on that day to the Council, Beam's staff arrived at the site to find that the locks had been changed so that they could not get access. In the letter, Mr Lee on behalf of his client said that this was a fundamental breach of contract and as a result the Council's "right to withhold any retention has been lost". The letter demonstrates that no love was lost between the parties
14. Knowles replied on the same day saying that its client denied that it was "indebted to your client in the amount £107,427.10".
The Adjudication
15. Beam served its Notice of Adjudication on 5 April 2011. Paragraphs 3 and 6 identify that "Practical Completion was achieved on Thursday, 6 January 2011" and that Beam had "made several applications to extensions of time". It continued:
"7. [Beam] submitted its draft final account for the Works on 21 January 2011 in the sum of £802,032.13, and the latest payment certificate issued by the Employer's Agent dated 2 February 2011 certified a gross £703,874.79, less 5% retention, being £668,681.05 net paid to date.
8. [Beam] submitted its final account for the works on to March 2011 in the sum of £776,108.15.
9. In breach of contract, [the Council] has deducted 5% retention through its gross valuations, certificates and payments for this project, despite the Contract stating at Clause 4.18.1 that retention was agreed to be 3%. Interest is due as a result of this underpayment throughout the project and is claimed.
10. By a letter dated 11 March 2011…[the Council] purported to terminate the Contract under Clause 8.4.2…However, [the Council] failed to serve any prior notice under Clause 8.4.1, and the purported termination is void and of nil effect…
12. On 23 March, [Beam] arrived on site to find that the locks had been changed by the [Council] on or around 22 March, without notice. To deny access in this matter is a fundamental breach of contract. In the alternative, this is a repudiatory breach which [Beam] has no alternative but to accept, therefore bringing the Contract to an end….
15. Interest is claimed on all sums due amount paid, in accordance with the Clause 4.10.6 of the Contract…
19. And whereas the following dispute has arisen between the parties requiring the decision of an adjudicator:
19.1. What value is due to [Beam] from [the Council]?
19.2. What value is due to [Beam] from [the Council] under and in connection with the account dated 21 January 2011?
19.3. What value is due to [Beam] under and in connection with the account dated to March 2011?
19.4. What is the time or times for payment?
19.5. What sum is due to [Beam] as interest?
19.6. Is [Beam] entitled to recover the costs of the action?
19.7. Is [Beam] entitled to such further or other sums from [the Council] as the Adjudicator decides?"
16. Mr Bingham was appointed as adjudicator by the RICS and there is no challenge relating to the formality of his appointment. On 11 April 2011 Beam served its Referral Notice. Paragraph 1 refers to the contract, extracts being attached. Paragraphs 2 to 6 deal with "Delays", referring to various minutes, and Information, Site instruction and Site Reports sheets, along with various letters by which it notified delays and requested extensions of time and applied for payments for prolongation costs "as loss and/or expense" both in its draft final account of 21 January 2011 and its final account of 2 March 2011. Paragraphs 7 to 19 dealt with the issues which had emerged in relation to completion with a primary assertion being that Practical Completion took place on 6 January 2011 when, it is said, full possession was taken by the Council; an alternative case was put that Practical Completion was achieved on 28 January when "the only significant piece of work carried out after the date", namely the installation of sliding wall partitions, was completed (this having been raised in correspondence before). Beam challenged assertions made in correspondence beforehand that the lighting gantry and maple flooring were incomplete and that issues in relation to these two items justified the withholding of the Practical Completion Certificate. Beam asserted that there was in effect another agenda as to why the Council was behaving as it was, which was problems with covenants and ownership of the hall. Paragraphs 20 to 23 addressed the "Final Account":
"20. [Beam] submitted its draft final account for the Works on 21 January 2011 in the sum of £802,032.13 and the latest payment certificate issued by the Employer's Agent dated 2 February 2011 certified a gross £703,874.79, less 5% retention, being £668,681.05 net paid to date. Copies of applications for payments and valuations and certificates for payment are enclosed…
21. [Beam] submitted its final account for the works on 2 March 2011 in the sum of £776,108.15.
22. In breach of contract, [the Council] has deducted 5% retention throughout its gross valuations, certificates and payments for the project, despite the Contract stating at Clause 4.18.1 that the retention was agreed to be 3%. Interest is due as a result of this underpayment throughout the project, and is claimed.
23. Interest is claimed on all sums due and underpaid, in accordance with the Clause 4.10.6 of the Contract."