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Jersey Unreported Judgments |
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You are here: BAILII >> Databases >> Jersey Unreported Judgments >> Ductclean (UK) Limited v Freedom Church Jersey Limited [2020] JRC 054 (02 April 2020) URL: http://www.bailii.org/je/cases/UR/2020/2020_054.html Cite as: [2020] JRC 54, [2020] JRC 054 |
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Contract - decision re: an application by the plaintiff for summary judgment.
(Samedi)
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Before : |
Advocate Matthew John Thompson, Master of the Royal Court. |
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Between |
Ductclean (UK) Limited |
Plaintiff |
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And |
Freedom Church Jersey Limited |
Defendant |
Advocate J. D. Garrood for the Plaintiff.
Advocate J. N. Heywood for the Defendant.
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Paras |
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1. |
Introduction |
1 |
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2. |
Background |
2-23 |
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3. |
Submissions |
24-46 |
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4. |
Decision |
47-61 |
judgment
the master:
1. This judgment contains my decision in respect of an application by the plaintiff for summary judgment. The application sought judgment in respect of a decision by an adjudicator (Mr Farnell) dated 24th October, 2019. The adjudication was carried out and the decision made pursuant to the terms of a JCT Minor Works Building Contract; the relevant terms of this contract are set out in this judgment.
2. It was not in dispute that the defendant retained the plaintiff to carry out certain building works at the former Odeon Cinema, Bath Street, Jersey which is owned by the defendant. The defendant is the corporate body of a Christian Charity. The plaintiff and the defendant entered into a JCT (Joint Contract Tribunal) Minor Works Building Contract on 28th June, 2018 ('the Contract'). The relevant provisions of the Contract in summary are as follows:-
(i) The parties agreed a price of £1,240,000;
(ii) The architect/contractor administrator was defined as Richard Gilpin and Andrew de Gruchy of GDG Limited;
(iii) The architect/contractor administrator represented the principal contractor ie the defendant ;
(iv) Article 6 of Contract provided that "if any dispute or different arises under this contract either party may refer to adjudication in accordance with Clause 7.2;
(v) Article 7 provided for arbitration under the Construction Industry Model Arbitration Rules;
(vi) The plaintiff accepts that the applicable law under the Contract was the law of Jersey;
(vii) The Contract provided that the interim valuation dates for the purposes of making interim payments was one month after the commencement of works and thereafter at monthly intervals. The first interim valuation date was 30th June, 2018;
(viii) The contract particulars also provided for a final retention of 5% of the total price payable;
(ix) The particulars further provided that the "there will be no fluctuations";
(x) In respect of adjudication where no adjudicator was named in the contract, an adjudicator would be nominated by the Royal Institution of Chartered Surveyors;
(xi) The Royal Institution of Chartered Surveyors was also granted the power to nominate an arbitrator.
3. The definition section of the conditions of the Contract defined the adjudication process called the scheme by reference to Part 1 of The Scheme for Construction Contracts (England and Wales) Regulations 1998. While these regulations are subordinate English legislation, the reference to Part 1 meant these regulations were expressly incorporated into the Contract.
4. Section 7.2 of the conditions of the Contract provides as follows:-
"If a dispute or differences arise under this contract which either party wishes to refer to adjudication, the Scheme shall apply except that 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."
5. In respect of interim payments these were governed by the conditions in Section 4 of the Conditions to the Contract. In summary within 12 days of any interim valuation, the architect was required to issue an interim certificate of the total value as at the relevant due date of work properly executed, or materials or goods reasonably or properly brought onto site. Clause 4.4 of Section 4 provides for the contractor to seek interim payments. Clause 4.5.1 then provides as follows:-
"Subject to any notice given by the paying Party under clause 4.5.4, the paying Party shall pay the sum stated as due in the relevant certificate on or before the final date for payment under clause 4.3 or 4.8."
6. Clause 4.5.4 provides as follows:-
"4.5.4.1. the Employer intends to pay less than the sum as due from him in a certificate or, where applicable, the Contractor's payment notice; or
4.5.4.2. if the final certificate shows a balance due to the Employer, the Contractor intends to pay less than the sum stated as due,
The Party by whom the payment is stated to be payable shall not later than 5 days before the final date for payment give the other Party notice of that intention (a 'pay less notice'), stating the sum (if any) that he considers to be due to the other Party at the date the pay less notice is given, the payment to be made on or before the final date for payment shall not be less that the amount stated in it as due."
7. On 31st July, 2019, the defendant received an application for an interim payment. This was application No.13. As at the date of this application the defendant had already paid the plaintiff £1,009,090.71. The total amount of costs claimed including payments already previously made was the sum of £1,519,620.58. After deduction of a retention of 5% i.e. £61,732.16 and after deducting the figure for payments previously made, the application sought a further interim payment of £448,797.71.
8. On 14th August, 2019 Mr Gilpin, on behalf of the architect, sent an email of some five pages in response to the plaintiff's application for payment. This email contained extensive criticisms of the plaintiff's performance of the Contract. However it included the following statements:-
"With reference to points a - d any claims to vary money or time relating to applications to change the approved contractual methodology 1 and 2 are completely false and are rejected by FCJL and their agent's representatives."
9. The email also contained the following:-
"Application 13 is rejected for the reasons stated above and it has been noted that this document is the first time DCUK has made reference to any kind of cost variation from the agreed contractual terms to which we have been working for the 14 months."
10. The email also referred to defective workmanship and significant overruns giving rise to claims for liquidated damages.
11. On 30th September, 2019, the plaintiff served a notice of its intention to refer the dispute surrounding application 13 to adjudication.
12. On 1st October, 2019, the plaintiff applied to the Royal Institution of Chartered Surveyors for the appointment of an adjudicator leading to Mr Farnell being appointed.
13. On 4th October, 2019, the plaintiff served a document called a referral notice which contended that application 13 was valid and, as no valid pay less notice had been issued under the terms of the Contract, a payment of £448,797.71 was sought by the plaintiff.
14. The defendant filed its response on 11th October, 2019, rejecting the validity of application 13 and asserting that the pay less notice was valid.
15. The plaintiff filed a reply on 16th October, 2019, with the defendant filing a rejoinder on 22nd October, 2019.
16. The adjudicator provided his decision on 24th October, 2019.
17. The adjudicator summarised the nature of the dispute at paragraphs 10 and 11 of his decision as follows:-
"The dispute concerns whether DCUK is entitled to be paid the sum of £448,797.71 (excluding VAT) as claimed in its application for payment no.13 dated 31st July, 2019 in the absence it is alleged of either a payment notice or a pay less notice being issued by FCJL, together with interest.
FCJL denies that DCUK is entitled to the relief that it is seeking on the grounds that DCUK's application for payment no.13 is invalid and in any event relies on the Architect/Contract Administrator's e-mail dated 14th August 2019 as being a pay less notice."
18. The adjudicator firstly ruled that application no.13 complied with the requirements of the Contract (see paragraphs 36 to 58 of the decision).
19. The adjudicator then considered whether the e-mail of 14th August, 2019, was a valid pay less notice. The adjudicator quoted the relevant provisions of the contract correctly and at paragraph 60 and 62 of the decision referred to the extracts I have cited at paragraphs 6 and 9 above.
20. This led the adjudicator to state the following paragraphs 63 to 67:-
"63. The 'reasons stated above' are matters which go to conduct of the Parties, variations, delays, quality and other matters which are outside the scope of this jurisdiction.
64. The Architect/CA knew and acknowledged that this (i.e. DCUK's application no.13 dated 31st July, 2019) was an application for payment, but other than 'rejecting' it, it does not appear that any other action was taken by the ~Architect/Contract Administrator on behalf of FCJL. This e-mail falls short of the requirements of the Contract and the Scheme in so far as it fails either to state a sum that the payer considers to be due and it does not attempt to set out the basis of how that sum has been calculated.
65. Although DCUK states that it does not accept that the email was intended to be a pay less notice the objective test is what the reasonable recipient would understand by the e-mail. I believe that it might be reasonable to infer (or 'construe' as FCJL contends in the Rejoinder) from Mr Gilpin's 'rejection' of application 13 that FCJL did not intend to make any payment in respect of it, the e-mail does not however specify either what sum (if any) is due for payment as at the date it is issued and the basis upon which that sum is calculated as required by the Contract, the Act and the Scheme.
66. Although Mr Gilpin's e-mail was issued within time it cannot be considered to be a valid pay less notice on the basis of its failure to set out the sum that is due to DCUK in respect of its application no.13 at the date of its issue and for the absence of any calculations.
67. I therefore find that the Architect/Contract Administrator's e-mail dated 14th August 2019 (Appendix B to the response) is not a valid pay less notice."
21. It is this adjudication that the plaintiff seeks to enforce by its summary judgment application.
22. In relation to how the Scheme for Construction Contracts (England and Wales) Regulations 1998 operate, the key provision for the purpose of the plaintiff 's application is Regulation 23(2) which provides that:-
23. It is also right to record that during the hearing Advocate Heywood accepted that under the terms of the Contract the parties had agreed that any disputes would be resolved by arbitration. The effect of this concession is that, following determination of the summary judgment application, any other disputes between the parties would have to be determined using the arbitration mechanism contained in the Contract, unless both parties agreed that matters should be determined by the Royal Court.
24. In addition to the usual skeleton arguments provided in advance of the hearing and the oral submissions made at the hearing, because the hearing overran Advocate Garrod for the plaintiff was firstly permitted to file written submissions in reply. Subsequent to the hearing I also asked both parties to file further submissions in writing on the decisions in Pilon Ltd v Breyer Group Plc [2010] EWHC 837 and Cantillon Limited v Urvasco Limited [2008] EWHC 282 which concern the approach to be taken where a party challenges an adjudicator's analysis decision as to jurisdiction. I wish to express my thanks to both counsel for their helpful written and oral submissions in respect of an area of law that does not appear to have been considered previously by the Royal Court.
25. Advocate Garrood for the plaintiff therefore submitted that the parties had expressly contracted for dispute resolution by adjudication pursuant to the scheme. As the scheme was one created by legislation, the parties had therefore agreed that English jurisprudence relating to the scheme would apply. The purpose of adjudication was explained in summary at paragraph 76 of Carillion Construction Ltd v Devonport Royal Dockyard Ltd [2005] EWHC 778 (TCC) following Amec Capital Projects Limited v Whitefriars City Estates Limited [2004] EWCA Civ 1418. The plaintiff therefore argued that the matters raised by the defendant by way of its purported defence to the summary judgment application were not reasons not to enforce the adjudicator's decision. If the defendant wished to challenge the final amount due under the Contract its remedy was to refer any dispute to arbitration.
26. All the adjudicator was to decide was whether the application was in the proper form and whether or not there was a valid pay less notice which had occurred.
27. He reminded me that under the English regulations, adjudication was a much quicker process because there were narrow time limits contained in regulation 19 requiring the adjudicator to reach a decision. The starting point for this was 28 days.
28. The purpose of the scheme was summarised by Dyson J (as he then was) in Macob Civil Engineering v Morrison Construction Limited [1999] 1 TCLR 113 at paragraph 14 as follows:-
29. The reasoning in Macob was followed in Carillion referred to above. This led to the following statements in Carillion at paragraphs 63 to 65 as follows:-
30. It was therefore the plaintiff's position that while it considered the adjudicator approached matters correctly, even if I was of the view that he did not, such a view was not a basis to refuse summary judgment.
31. The only way in which an award of an adjudicator could not be enforced was if the party making such an allegation could prove that a breach of the rules of natural justice had occurred and that such breach was "substantial and relevant" (see paragraph 69 of Macob)
32. This led the court in Carillion to summarise four basic principles at paragraph 82 as follows:-
33. Advocate Garrood's contention was that the adjudicator in the present case had not acted in excess of his jurisdiction and was not in serious breach of the rules of natural justice. It was clear from the adjudicator's decision that he had gone through a process and reached a decision; he had also determined why the e-mail of 14th August, 2019, was not a valid pay less notice.
34. To the extent that there was a risk the defendant could not recover any sums due, the obligations of the plaintiff under its contract were guaranteed by a parent company and therefore any arbitration award could be enforced against the parent company which was a significant entity.
35. There was also no evidence of the defendant suffering any hardship i.e. it could not afford to pay the amounts the adjudicator had found were due. Allegations of overcharging were also a matter for arbitration and were outside the scope of the adjudication. Ultimately, the e-mail of 14th August, 2019, was no more than a letter of complaint and therefore the adjudicator was justified in reaching the conclusion he did.
36. In relation to Pilon, while the plaintiff did not dispute the principles in Pilon it contended that the principles in Pilon did not apply because the adjudicator had both addressed the questions he was asked to consider and he had not failed to consider any defence advanced. There was also no serious irregularity which was the only basis upon which an application for summary judgment could be refused.
37. Advocate Heywood for the defendant in relation to the e-mail of 14th August, 2019, asked rhetorically what else could any reasonable recipient of such an e-mail have understood the e-mail to mean, namely that it was an e-mail stating that payments were not due. It was quite clear from the e-mail that the defendant's position was that nothing was due and the e-mail set out why.
38. Advocate Heywood accepted that the scheme existed to ensure that contractors and sub-contractors were paid for work they had carried out leaving over other items of dispute for another day. If therefore a valid pay less notice is served then a contractor is entitled to payment and any developer/employer has to take the dispute to arbitration (if arbitration has been agreed) or otherwise issue proceedings before a relevant court.
39. The criticism of the adjudicator's approach was the adjudicator's statement at paragraph 63 of his decision that "the objections contained in the matter did not relate to payment and only related to other disputes". Therefore the adjudicator had decided deliberately not to take them into account because he had decided they were outside the scope of the adjudication (see paragraph 63).
40. Advocate Heywood accepted there was a distinction between giving reasons that were wrong and a failure to take into account material at all. He contended that in the present case paragraph 63 of the adjudicator's decision meant that the adjudicator had failed to take into account relevant matters at all because he wrongly concluded they were outside the scope of the adjudication. That was a substantial breach of natural justice and therefore the adjudication should not be enforced.
41. Advocate Heywood, albeit with a degree of reticence, argued that I was not bound by the authorities in England even though the parties had agreed that Part 1 of the English regulations should apply; rather he suggested that the authorities were only persuasive and therefore I was free on a summary judgment application in this jurisdiction to reach my own view as to whether or not the application should be granted. Alternatively if I was persuaded to follow the relevant English authorities, he contended in any event that the threshold for not enforcing an adjudicator's award was met.
42. What the defendant was facing here was what in England had been described as a "smash and grab raid". He referred me to Grove Developments Limited v S&T (UK) Limited [2018] EWHC 123 (TCC) at paragraph 13. This was particularly so in this case because a fixed price had been agreed of £1,240,000. There had been no variations approved by the defendant through its architect which was the only way in which variations to price could occur. What the plaintiff was seeking was a payment significantly in excess of the contractual sum. This allowed me to be cautious where there was a valid counterclaim raised by the defendant. What was therefore taking place in this case was the plaintiff as the contractor putting undue pressure on the defendant as the employer under the Contract.
43. To the extent that the adjudicator had partially failed to take into account relevant matters, because he regarded them as being irrelevant to the adjudication, Advocate Heywood contended this corrupted the entire award and so I should refuse summary judgment and issue a declaration accordingly.
44. In the alternative I could stay enforcement of any summary judgment granted until determination of the final amount due pursuant to court proceedings or arbitration. This was clear by way of example in Hillview Industrial Developments (UK) Limited v Bates Building Limited [2006] EWHC 1365 (TCC) at paragraph 33. The power to grant a stay arises in a case of manifest injustice.
45. The present case was such a case because the plaintiff was asking for a payment significantly in excess of the fixed price agreed by the parties.
46. In his written submissions filed after the hearing, Advocate Heywood contended that the case of Pilon assisted him because he argued that the adjudicator had made a deliberate decision in paragraph 63 to ignore matters that were relevant to whether or not the e-mail 14th August, 2019, was a valid pay less notice. This deliberate decision therefore meant that the adjudicator's decision should not be enforced.
47. As is clear from the submissions noted above, the focus of the dispute between the parties was the effect of the adjudicator's decision. In that regard there was no dispute between counsel on the approach I should adopt when considering a summary judgment application. I have considered the required approach in a number of judgments and it is not necessary in this judgment to repeat the relevant principles the court adopts on such applications.
48. The starting point for my decision is therefore to what extent I should have regard to various English authorities, to which I was referred, about the effect of adjudications under Part 1 of the Schedule to the Scheme for Construction Contracts (England and Wales) Regulations 1998. In my judgment, as the parties have agreed by the Contract that these regulations should apply, I consider that I should follow the English jurisprudence interpreting such regulations. Although technically such authorities are not binding on me as a matter of precedent, given the parties have agreed that the relevant regulations are to bind them, it would be unusual, if not odd, to take a different approach to construction of those regulations in Jersey. Furthermore, the parties, having agreed that the regulations should apply, should be taken to have also agreed that those regulations should apply as interpreted by the courts in England.
49. The rationale for the regulations was set out at paragraph 14 of Macob cited at paragraph 28 above; that rationale applies just as much in this jurisdiction as it does in England.
50. Furthermore, I see no reason to adopt a different approach as to when the courts in Jersey should give effect to such decisions as applies in England. The approach was summarised at paragraphs 63 to 65 and 82 of Carillion set out in paragraphs 29 and 32 above.
51. The central question therefore for me to determine is whether a serious breach of natural justice has occurred. The approach to be taken where such an argument is raised was summarised at paragraph 22 of Pilon as follows:-
52. In the present case, the decision of the adjudicator was that matters raised by the architect's email of 13th August, 2009, on behalf of the defendant were outside the scope of the adjudicator's jurisdiction.
53. In my judgment, while the decision of the adjudicator was correct in relation to the other matters raised in the email of 14th August, 2019, I consider that he has fallen into error in respect of the argument raised by the defendant, that this was a fixed price contract for £1,240,000, and so no money was due in excess of the agreed contract price. The purpose of an adjudication process is to ensure a speedy mechanism for settlement disputes in construction contracts on a provisional interim basis. In particular, the purpose of the scheme was to prevent payment being withheld from contractors and remaining in the hands of the paying party at times on unjustified grounds. What the scheme now means is that a contractor is paid for work done leaving over issues about quality of work or delay to a subsequent arbitration process or resolution through the courts. To the extent that the adjudicator therefore rejected concerns about delay or the quality of work carried out as being outside its jurisdiction, he was entitled to reach that conclusion in respect of those arguments.
54. However, in respect of the contract being a fixed price contract, I consider that the adjudicator should have considered this argument and therefore he fell into error by not doing so and by ruling that this issue was also was outside his jurisdiction. As noted above the objective of the scheme is to ensure contractors are paid for work carried out on a timely basis. However, I consider that because the parties have agreed a fixed price contract with only the defendant being able to agree fluctuations, the rationale for ensuring that a contractor is paid for the work carried out has to be qualified to reflect that the parties have agreed a fixed price contract. The flaw in the plaintiff's argument is that it is entitled to be paid for carrying out work even where the price claimed for such work goes beyond the terms of the contract agreed between the parties namely a fixed price. When the plaintiff entered into the Contract with the defendant, it knew it had agreed a fixed price contract. It had therefore decided to accept a commercial risk that in performing the Contract the plaintiff might suffer a loss. I do not consider that a contractor such as the plaintiff should be able to circumvent that risk by seeking payment using an adjudication process in excess of the total amount the plaintiff had agreed it would accept under the Contract. For the sake of completeness I should add that any dispute about whether additional works were agreed is also a matter for arbitration.
55. My conclusion is particularly important in Jersey where the courts have consistently recognised the sanctity of the contractual bargain reached between the parties reflected in the maxim la convention fait la loi des parties (even if that maxim is somewhat overused and at times is used inaccurately). In this case, the maxim is however apposite because it supports the conclusion that the adjudicator's decision goes beyond the contractual bargain reached between the parties and the commercial risks each agreed to bear. For the sake of clarification, while I have ruled that I should follow English jurisprudence construing the regulations, this is subject to the qualification that ultimately Jersey law governed the Contract. Therefore, to the extent that the award of the adjudicator ignores the contractual bargain reached between the parties, under the law of Jersey the contractual bargain reached between the parties should prevail.
56. Returning to the authority of Pilon, I therefore consider the adjudicator has taken an overly restrictive view of his jurisdiction and has failed to consider a fundamental element namely the fixed priced nature of the contract.
57. This decision on his part was deliberate as is clear from paragraph 63 of his adjudication. It was not an inadvertent failure to consider an issue but a conscious ruling that all the matters raised by the architect on behalf of the defendant were outside the adjudicator's jurisdiction.
58. Clearly the failure is material. This can be seen from the financial effect of the adjudication. As noted at paragraph 7 above, the total amount of costs claimed is £1,519,620.58 as against a fixed price of £1,240,000 i.e. a difference of £279,620.58 i.e. 21.73% over the Contract price.
59. I therefore consider that the plaintiff should not be entitled to enforce the award to the extent that it exceeds the fixed price agreed between the parties. What this means that the adjudicator's award should only be enforced to the following extent. The agreed fixed price under the Contract is £1,240,000. The Contract also permits a 5% retention i.e. £62,000. The price net of the retention is therefore £1,178,000. The plaintiff has already received £1,009,090.71 leaving a balance of £168,909.29. In respect of this issue, I consider that there was no defence to summary judgment in this amount and I ordered accordingly. The application in respect of the amount claimed in excess of this figure is accordingly refused.
60. For the sake of completeness, I consider that the adjudicator's decision is severable following the approach in Pilon at paragraph 39. Just it would be unfair to permit the plaintiff to enforce the entirety of the adjudicator's award, it would also be unfair and contrary to the purpose of the Scheme for the plaintiff not to enforce the adjudicator's award other than in respect of the argument where I have found that the adjudicator fell into error.
61. When this judgment is handed down I will hear from the defendant on what time period should be allowed to make payment. I do not consider in view of the guarantee of the parent company that there is any prejudice to the defendant in the plaintiff requiring payment at this stage.
62. At the same time I also want to be addressed by both parties on whether this matter should be stayed pursuant to the powers contained Rule 6/28 of the Royal Court Rules 2004, as amended for the matter to be referred to mediation before further costs are incurred.
