IN THE HIGH COURT OF JUSTICE Claim No: 9BM50117

QUEEN’S BENCH DIVISION

BIRMINGHAM DISTRICT REGISTRY

TECHNOLOGY AND CONSTRUCTION COURT

B E T W E E N

NAYLOR CONSTRUCTION SERVICES LIMITED Claimant/Applicant

And

ACOUSTAFOAM LIMITED Defendant/Respondent

JUDGMENT

1. The Application

This is an application for summary judgment to enforce the decision of an Adjudicator, Mr Christopher Dancaster, dated 15 August 2009. The claim form was issued on 24 September 2009, as was the application notice. Directions were given on 25 September 2009, and the application was heard on 28 October 2009.

2. The Background

The case concerns the re-building of a factory unit and office block at Unit D, Halesfield 10, Telford, Shropshire TF7 4QR (“the premises”), which had been damaged by fire.

3. The premises adjoined and abutted another factory unit. The Claimant described the position in paragraphs 2 and 3 of the section of its referral notice entitled “project background” as follows (page A 27): -

“Acoustafoam occupied part of a building which was a pair of steel portal framed buildings sat side by side sharing a common central row of columns. Acoustafoam occupied one half of the building which was separated from the occupier of the other half by a full height block wall. Both Acoustafoam and the other occupier had single storey offices attached to their half of the main building. The fire destroyed this section occupied by Acoustafoam including their offices but left the other unit virtually unaffected. The occupiers [of] the un-fire damaged unit also relocated to other premises as a result of Health and Safety concerns until the reconstruction work was complete.”

It does not appear that that account is controversial.

4. The History

By letter dated 13 December 2007, Mr Denis Naylor, the Claimant’s Managing Director, wrote to Mr Mike Tranter, Managing Director of the Defendant. This was a three page letter, enclosing a further two pages entitled “Clarifications” (pages A 34 - 38). In the Claimant’s referral notice, Mr Naylor described this letter and its enclosure as a tender.

5. Mr Naylor of the Claimant also stated in paragraph 5 of the “project background” section of the referral notice (at page A 27) that he sent Mr Tranter a tender programme (page A 39); Mr Naylor was however not sure if he also sent Mr Tranter the cost breakdown dated December 2009 (page A 40).

6. At paragraph 7 of the “project background” section of the referral notice, Mr Naylor stated “financial negotiations ... continued during January and part of February 2008”. That resonates with paragraph 6 of the response, where Mr Tranter stated “we agree negotiations were ongoing through December 2007 and into early 2008”.

7. Then at paragraph 8 of the “project background” section of the referral notice, Mr Naylor stated: “By mid-February 2008 a financial agreement had been reached and a cost breakdown agreed” (page A 27). In paragraph 5 of his witness statement in these proceedings, Mr Tranter stated that “… Indeed the final agreement for the commencement of the project was given verbally on 22nd February 2008. Discussions continued after 22nd February 2008 and included changes to the cost of breakdown dated February 2008, which the Defendant received on 5th March 2008”.

8. On 22 February 2008 Mr Naylor of the Claimant wrote to Mr Tranter of the Defendant as follows:-

“Dear Mike

Reconstruction of Fire Damaged Property - Halesfield 10.

Further to our recent meeting we have pleasure in confirming our tender of £386,000 plus VAT to reconstruct the above mentioned premises.

The above figure assumes we can replace the existing high level glazing with composite cladding. We have spoken to the Planning department of Wrekin and Telford District Council who inform that a planning application in this respect would likely to be successful and that the planning fee would be £185.00. We can give no guarantees that amendment to the current planning permission will be granted.

We also understand that Building Regulations will also not be required and this is assumed in our tender. However we propose to clad the factory elevations in 60mm composite cladding which will be a significant improvement on the existing cladding.

The tender includes providing two gas fired blow heaters to the factory areas and full heating to the office areas.

At your request we have deleted the external doors and windows from the tender as we understand you will provide them through an associate company. We have included a single roller shutter door to the factory.

We have assumed you require us to undertake the architectural design, engineering design, project management and Planning Supervisor. Our fee for carrying out this work is £22,000 plus vat. Please note we are currently undertaking the architectural design. The fee for this component is £5000 plus vat and is included in the composite fee of £22,000. For clarification the design and project management fee is not included in the construction figure of £386,000.

We have assumed that the existing floor slab and foundations are satisfactory and can be reused without modification.

We have assumed that we can reuse the existing buried drainage and that they will run freely when connected.

We have included high level lighting to the warehouse.

We have not included any power to the warehouse.

We have included the following to the office areas, heating, lighting power, emergency lights and fire alarms. We have not included security, data and computer installations.

We have included to fit out the offices to a reasonable standard. We have not included office furniture.

We have not included any work to upgrade any external yards or slabs and assume that during construction we can use the existing fencing and portacabin on site. We have not included any permanent fencing on completion of the project.

We anticipate commencing the project on March 1 with the preliminary design completed to enable the steelwork to be ordered. We anticipate the steelwork lead time to be approximately 6 weeks from time of order. It is normal in these circumstances to pay a deposit to the steelwork contractor. We have not negotiated the amount but are often in the order of 25%.

We are currently working on a programme of works and as soon as this is complete we will produce a cash flow forecast for the project.

We trust the foregoing is to your satisfaction and look forward to receiving a confirmation of order at your earliest convenience.”

9. At paragraph 8 of the “project background” section of the referral notice Mr Naylor stated further:

“As part of the final financial discussions Acoustafoam requested to be advised of the likely cash flow assuming a start date on site of the end of February 2008. A cash flow was drafted ... and issued ...”. It is to be noted that the price for the construction work in the (February) project cost breakdown (at page A 41) and the cash flow forecast (at page A 42) is £398,000.90 and not the figure of £386,000 stated in the letter at 22 February 2008.

10. Mr Naylor of the Claimant also stated at paragraph 9 as follows:-

“During the discussions which took place during February 2008 Acoustafoam stated that it was crucial that the work on site commence before the end of February 2008 and Naylor ... advised that this would be possible but after the initial building operations work would need to be suspended whilst delivery of the main steel frame was awaited. Naylor Construction drafted a programme to indicate this ...”. That is the construction programme dated February 2008 at page A 43.”

11. It is common ground that the works commenced on or about 25 February 2008: see paragraph 10 of the “project background” section of the referral notice and paragraph 6 of Mr Tranter’s witness statement (page B 2). It is also common ground that the works were finished in or about January 2009: see paragraph 1 of the “description of the dispute” section of the referral notice (page A 29) and paragraph 7 of Mr Tranter’s witness statement (page B 3).

12. The Underlying Dispute and the Adjudication

At paragraph 49 of his decision (page A 14) the Adjudicator set out what he understood to be the matters in dispute which had been referred to him. He stated:-

“The issues that arise from the Parties’ submissions are as follows:

1. What is the precise nature of the Parties’ agreement?

2. What variations were there to the Contract and what is their value?

3. How much if anything is due to Naylor in respect of the contract works and variations? What is the net amount payable?

4. Is Naylor entitled to the payment of interest?

5. Who pays all fees and charges?”

13. It is not necessary for present purposes to consider issues 4 and 5.

14. The Adjudicator dealt with the first issue between paragraphs 52 and 59 of his decision. On the issue of price, at paragraph 53 he referred to a letter apparently written on behalf of the Claimant dated 10 June 2009 which “appears to suggest a contract sum of £405,976.00 exclusive of VAT”; and at paragraph 54 he noted that:-

“Acoustafoam states in the Response that a price of £387,000 was agreed in March 2008. (This figure excludes the £22,000.00 for design etc). That would suggest agreement to a contract sum of £409,000.00 excluding VAT”.

He then reached his conclusion at paragraph 55:-

“Both of those figures were produced long after the event. Naylor’s letter of 22 ^nd February 2008 is quite clear. I find that contract sum is £386,000.00 plus a fee of £22,000.00 for design, project management etc giving a total of £408,000.00 exclusive of VAT.”

15. The Adjudicator then went on to consider the second issue, namely what variations were there to the contract works, and what was their value? He dealt with these matters in detail between paragraphs 60 and 65 of his decision, dealing in paragraph 65 with forty-one individual items which were in issue as either additions or omissions to the contract sum. He came to his summary at paragraph 66, where he concluded that there were total additions of £105,759.41; total omissions of £55,845.00; and thus a balance value of items of varied work of £49,914.41.

16. Thus, the Adjudicator added that balance value to the contract sum as already found, and arrived at a total entitlement of the Claimant of £457,914.41, from which he deducted the agreed total sum of payments already made of £44,297.57, leaving a final net amount due to the Claimant of £33,616.84 exclusive of VAT.

17. The Points Taken by the Defendant to Resist Enforcement of the Adjudicator’s Decision

The Defendant takes two points or category of point, in order to avoid enforcement of the Adjudicator’s decision. The first point, or category of point, which has occupied the substantial majority of the submissions, both those made in writing and particularly those made orally, go to jurisdiction: the essential point is that there was not “an agreement in writing” within the meaning of Section 107 of the Housing Grants Construction and Regeneration Act 1996 (“the Act”). The second point is that the Defendant is entitled to set off a sum or sums against the amount the Adjudicator has decided the Defendant should pay the Claimant.

18. The Defendant in fact takes three points as to jurisdiction. They are:

(1) That there was not, in fact, “an agreement in writing” within the meaning of Section 107 (2) (c) of the Act, so as to found jurisdiction in the Adjudicator;

(2) If (contrary to the Defendant’s primary submission) there was in fact an agreement in writing concluded initially as between the parties, there were thereafter oral variations, with the consequence that the agreement between the parties no longer was “an agreement in writing” within the meaning of Section 107 of the Act, again with the consequence that the Adjudicator did not have jurisdiction in the matter.

(3) That there was not, in fact, any “exchange of written submissions in adjudication proceedings or in arbitral or legal proceedings” within the meaning of Section 107 (5) of the Act, again so as to found jurisdiction in the Adjudicator.

19. An Agreement in Writing

Section 107 (1) provides as follows:-

“The provisions of this Part apply only where the construction contract is in writing, and any other agreement between the parties as to any matter is effective for the purposes of this Part only if in writing. The expressions “agreement”, “agree” and “agreed” shall be construed accordingly.

Section 107 (2) of the Act provides as follows:-

“There is an agreement in writing –

(a) If the agreement is made in writing (whether or not it is signed by the parties),

(b) If the agreement is made by exchange of communications in writing, or

It is common ground that this case concerns the provisions of Section 107 (2) (c).

20. At the outset of the adjudication process the Defendant took the point that there was not in this case an agreement in writing, and disputed the Adjudicator’s jurisdiction. The relevant exchanges are contained in the series of emails exhibited to Mr Tranter’s Witness Statement between pages B8 and B15 of the Application Bundle. They include in particular the detailed letter from Mr Tranter to the Adjudicator dated 30 July 2009 where Mr Tranter made specific reference to the provisions of Section 107 of the Act.

21. The Adjudicator resolved this matter by deciding on 31 July 2009 that there was an agreement in writing; see paragraph 12 of his decision (pages A9 to A10).

22. Both parties have referred to the decision of the Court of Appeal in R J T Consulting Engineers Limited -v- D M Engineering (Northern Ireland) Limited [2002] 1WLR 2344; [2002] EWCA Civ 270. In that case, Ward LJ held at paragraph 17:-

“In my judgment the judge was wrong to conclude as a matter of law that it was sufficient to give the jurisdiction to entertain an adjudication that there was evidence in writing capable of supporting merely the existence of the agreement, or its substance, being the parties to it, the nature of the work and the price.”

At paragraph 18 he held that:-

“Even if that were all that was required, the documents relied on in this case are wholly insufficient” and then went on to explain why on the facts of that case that was the conclusion to be drawn.

He then continued at paragraph 19:-

“On the point of construction of section 107, what has to be evidenced in writing is, literally, the agreement, which means all of it, not part of it. A record of the agreement also suggests a complete agreement, not a partial one ... It must be remembered that by virtue of section 107 (1) the need for an agreement in writing is the precondition for the application of the other provisions of Part II of the Act, not just the jurisdiction or threshold for a reference to adjudication.”

A little earlier in his Judgment, where he was considering the separate issues that arose in connection with Section 107 (5), Ward LJ had held at paragraph 16:-

“Subsection (5) is a specific provision. Where there has been an exchange of written submissions in the adjudication proceedings in which the existence of an agreement otherwise than in writing is alleged by one party and not denied by the other, then that exchange constitute “an agreement in writing to the effect alleged”. The last few words are important. The exchange constitutes an agreement in writing which does more than evidence the existence of the agreement. It also evidences the effect of the agreement alleged, and that must mean such terms which it may be material to allege for the purpose of that particular adjudication. It is not necessary for me to form a view about Grovedeck Limited -v- Capital Demolition Limited [2000] BLR 181.

Dealing with section 107 (5) Judge Peter Bowsher QC ... said at page 185:-

“Disputes as to the terms, expressed and implied, of oral construction agreements are surprisingly common and are not readily susceptible of resolution by a summary procedure such as adjudication. It is not surprising that Parliament should have intended that such disputes should not be determined by adjudicators under the Act ...” (emphasis added).

I agree. That is why a record in writing is so essential. The written record of the agreement is the foundation from which a dispute may spring but the least the adjudicator has to be certain about is the terms of the agreement which is giving rise to the dispute.”

23. Robert Walker LJ held at paragraph 20:-

“I agree that this appeal should be allowed for the reasons set out in the judgment of Ward LJ. It is the terms, and not merely the existence, of a construction contract which must be evidenced in writing. The judge aimed at a purposive approach but he did not in my view correctly identify the purpose of section 107. No doubt the general purpose of Part II of the 1996 Act is to facilitate and encourage the process of adjudication. But it is intended to be a swift and summary process, as is apparent from the time limits on Section 108 (2). Parliament evidently decided (as Judge Peter Bowsher QC noted in the passage in Grovedeck Limited v Capital Demolition Limited [2000] BLR 181, 185, para 30, cited at paragraph 16 by Ward LJ) that it was inappropriate for an adjudicator to have to deal with the disputes which often arise as to the terms of an oral contract.”

24. Auld LJ held at paragraph 21:-

“I also agree that the appeal should be allowed. I do so, not because the whole agreement was not in writing in any of the forms for which section 107 of the 1996 Act makes provision, but because the material terms of the agreement were insufficiently recorded in writing in any of those forms.”

He continued at paragraph 22:-

“Although clarity of agreement is a necessary adjunct of a statutory scheme for speedy interim adjudication, comprehensiveness for its own sake may not be. What is important is that the terms of the agreement material to the issue or issues giving rise to the reference should be clearly recorded in writing, not that every term, however trivial or unrelated to those issues, should be expressly recorded or incorporated by reference. For example, it would be absurd if a prolongation issue arising out of a written contract were to be denied a reference to adjudication for want of sufficient written specification or scheduling of matters wholly unrelated to the stage or nature of the work giving rise to the reference.”

25. The first question to be considered is thus whether, on the facts of the present case, there was “an agreement in writing” within the meaning of Section 107 (2) (c) of the Act, so as to found the Adjudicator’s jurisdiction. That question is to be answered on the facts of the case. But it is also relevant to consider why it is necessary for there to be “an agreement in writing” in such circumstances i.e. to consider what is the purpose of this provision.

26. As both Ward LJ and Robert Walker LJ explained in RJT Consulting Engineers Limited, it is to ensure that there is certainty as to the relevant terms of the contract which forms the subject matter of the adjudication process. As Ward LJ pointed out at the end of paragraph 16 of his Judgment “the written record of the agreement is the foundation from which a dispute may spring, but the least the adjudicator has to be certain about is the terms of the agreement which has given rise to the dispute”, agreeing as he did with the view previously expressed by Judge Peter Bowsher QC in Grovedeck that it was not intended by Parliament that Adjudicators should decide disputes about the terms of oral construction contracts. In similar vein, Robert Walker LJ held at the end of paragraph 20 that “it was inappropriate for an adjudicator to have to deal with the disputes which often arise as to the terms of an oral contract”.

27. However, both Ward LJ and Robert Walker LJ sounded a note of caution, and an exhortation to the exercise of a practical common-sense approach by Adjudicators in this context. Ward LJ held at paragraph 19 (after the first passage of his Judgment in that paragraph already cited):-

“... The only exception to the generality of that construction is the instance falling within sub-section (5) where the material or relevant parts alleged and not denied in the written submissions and the adjudication proceedings are sufficient. Unfortunately I do not think subsection (5) can so dominate the interpretation of the section as a whole so as to limit what needs to be evidenced in writing simply to the material terms raised in the arbitration. It must be remembered that by virtue of section 107 (1) the need for an agreement in writing is the precondition for the application of the other provisions of Part II of the Act, not just the jurisdictional threshold for a reference to adjudication. I say “unfortunately” because, like Auld LJ whose judgment I have now read in draft, I would regard it as a pity if too much “jurisdictional wrangling” were to limit the opportunities for expeditious adjudication having an interim effect only. No doubt adjudicators will be robust in excluding the trivial from the ambit of the agreement and the matter must be entrusted to their common sense.”

28. I have already cited paragraphs 22 and 23 of the Judgment of Auld LJ the latter of which

would appear to bear directly on this aspect.

29. What therefore is the position, as is effectively the position here, where one party submits that all the material terms of the contract are in writing, but the other party submits that the contract was not made until after the conclusion of subsequent oral discussions? Is it open to an Adjudicator to decide that issue?

30. Against the background of those Judgments in the Court of Appeal in RJT Consulting Engineers, I have come to the conclusion that what is required is that an Adjudicator must be able to find, on the basis of the material placed before him, that all the material terms of the construction contract in question are in writing. So long as the Adjudicator is able to find that all the material terms of the construction contract in question are in writing, then there is certainty as to the terms of the contract which founds the adjudication process, and the Adjudicator will then be in a position to proceed with that process.

31. However, an Adjudicator has to be astute as to the realities of the case before him, and remind himself that the adjudication process is essentially a summary process. Unless he is

able to conclude that the position (namely that there was an agreement in writing) is clear cut, he should decline to continue with the adjudication, because otherwise he would be falling into the very trap identified by Judge Bowsher QC in Grovedeck, and Robert Walker LJ in RJT Consulting Engineers Limited i.e. of determining a dispute which had arisen as to the terms of a contract which at least one party contends was either made orally, or was made partly in writing and partly orally.

32. For the position to be clear cut, the Adjudicator should be able to conclude, from the material placed before him, that there is no real prospect of the other party (who will invariably be the responding party) successfully establishing that the agreement was an oral agreement, or an agreement made partly in writing and partly orally. There is a sound reason why this should be the approach of an Adjudicator in such circumstances: the entire adjudication process is a summary in nature, and this test reflects the provisions of CPR Rule 24.2, which sets out the grounds upon which a Court may grant Summary Judgment. A like approach should inform an Adjudicator’s function when faced with a point of this nature.

33. I therefore turn to consider whether the material before the Adjudicator established that all the material terms of the construction contract in question were in writing.

34. The Claimant submits (in the course of Mr Darby’s oral submissions) that the following documents contained all the material terms of the contract:-

(a) As regards the nature and extent of the works: they are shown in the drawing at page A331, and in the text of the Claimant’s letter dated 22 February 2008 (page B23-4);

(b) As regards the price: it is the figure of £386,000 as the price for the contract works, together with the additional fee of £22,000 for architectural design, engineering design, project management and planning supervision: see paragraph 6 of the Claimant’s letter dated 22 February 2008 (page B23-4);

35. The essence of the Defendant’s case is set out in paragraph 5.6 of Mr Mantle’s written submissions, namely that even by reference to the Claimant’s letter dated 22 February 2008, “The architectural design remained incomplete”, and “no price for (engineering and architectural design, and project management) had been agreed” i.e. there remained uncertainty as to the nature and extent of the architectural design, and no price had been agreed for design and project management services.

36. As regards the first point: the dispute that was submitted to the Adjudicator did not concern or relate to the nature of the architectural design, either at all, or to any material extent. As regards the second point, at paragraph 6 of the Claimant’s letter dated 22 February 2008 states as follows:-

“We have assumed you require us to undertake the architectural design, engineering design, project managing and planning supervisor (sic). Our fee for carrying out this work is £22,000 plus vat.”

In my judgment that is a clear statement of what the fee was to be for those services.

37. I have come to the conclusion that the material terms of this construction contract were sufficiently set out or identified in the documents the Claimant has identified i.e. that the terms that were material to the dispute which was referred to the Adjudicator were sufficiently set out or identified in the documents which the Claimant has identified. 1 A full scale copy of that drawing has now been produced under cover of the Claimant’s solicitors letter to the Court

38. Whether Subsequent Oral Variations Rendered the Contract not an Agreement in Writing

In 2002, in Carillion Construction Limited -v- Devonport Royal Dockyard [2003] BLR 79 HH Judge Bowsher QC had to consider whether a subsequent oral agreement to vary the terms of a prior written contract came within the meaning of “an agreement in writing” for the purposes of the Act. The head note of that case records that:-

“DML, the owners of the Devonport Royal Dockyard, were engaged by the MOD ...as main contractors to upgrade the dockyard. DML sub-contracted the works to Carillion ... The sub-contract provided that [Carillion] was to be paid its “Actual Costs”, to be determined under the contract, plus accruals and a fee. Further, there was a “Gainshare” agreement whereby any overspend of the “Target Cost” was shared by DML and [Carillion]. An “Alliance Board” was set up with representatives of both parties who had full authority to act and power and authority to make decisions.

As [Carillion] proceeded with the work, the parties on several occasions increased the Target Cost, and discussion took place regarding the revision of payment provisions. A meeting of the Alliance Board took place on 30 October 1999. On [Carillion]’s case a binding agreement was reached at the meeting, revising the payment basis to cost reimbursable with no “Gainshare” restriction ...

The adjudicator decided a binding agreement had been reached varying the terms, such that the project would become cost reimbursable ...”

HH Judge Bowsher QC held that the agreement as found by the Adjudicator was not evidenced in writing, within the meaning of Section 107 (2) (c) of the Act. At paragraph 34 of his Judgment he held:-

“... I am not considering what in the construction industry would come under thenormal heading of “Variations made pursuant to a term in the contract”. What is in issue is an alleged oral agreement that radically changed the written agreement (if it was made).”

It is clear that HH Judge Bowsher drew a distinction between –

(a) A variation, made pursuant to the terms of the existing agreement in writing; and

(b) An agreement that radically changed (the nature of) the existing written contract.

39. Then, in 2006, HH Judge Thornton QC had to consider a like point in Management Solutions & Professional Consultants Limited -v- Bennett (Electrical) Services Limited [2006] EWHC 1720 (TCC). He held:-

“14. I also take account of the fact that, if Bennett’s contention is correct, this sub-subcontract was originally, once accepted, a contract in writing subject to the adjudication provisions of the HGCRA. However, once the first variation was instructed orally, subject only to a de minimis argument, the sub-sub-contract changed its nature to become one which was neither in writing nor subject to the adjudication provisions of the Act. Although such a result is possible, it is not one which makes business sense nor is one which gives full effect to the nature and purpose of the compulsory statutory adjudication scheme provided for by the HGCRA.

15. In my judgment, Management Solutions’ contentions are to be preferred. The entirety of this sub-sub-contract was in writing and took effect once Bennett’s written acceptance was sent off to Management Solutions. That written sub-sub-contract allowed the scope of the work to be changed within the limits provided for by the written contractual provisions. Within those limits, the sub-sub-contract works could be varied. Such variations were not varying the contract, they were merely instructions issued under the contact and with the authority of the contractual provisions that related to the carrying out of the contract.”

40. I concur with the conclusions reached in those passages, namely that there is a distinction to be drawn between:-

(a) Variations made within or pursuant to an existing contractual machinery or regime; these are often referred to as “variations to the works”; and

(b) An amendment or alteration to the material terms of pre-existing written contract i.e. an amendment or alteration which radically changes the prior written agreement, to adopt the language of HH Judge Bowsher QC.

41. On behalf of the Defendant, Mr Mantle submitted that it was common ground that, following commencement of the works, there were a number of oral variations. Mr Mantle referred to paragraph 11 of the “project background” section of the referral notice, which provided:-

“From March 2008 the scope of the work was revised several times this affected the programme and sequence of the work. The financial adjustments for the revisions were agreed informally at meetings direct between Naylor .. and Acoustafoam. A copy of a Naylor ... cost advise sheet which was tabled at one of the financial meetings is attached .. This indicates the nature of the variations discussed, and the approximate value of some of the suggested works.”

That advice sheet is between pages A44-5.

42. However, neither Mr Darby nor Mr Mantle made specific reference, either in their written submissions or in oral submission, to the detail of what was comprised in each or any such subsequent variation to the works. I have come to the broad conclusion that there were, after the contract had been concluded in writing on or about 22 February 2008, a number of oral variations to the works, which carried cost consequences. However, I have not been taken to any evidence which indicates that such variations were other than the type of variation made within or pursuant to an existing contractual machinery or regime. Further, no such evidence appears to have been placed before the Adjudicator. In those circumstances, I have come to the conclusion that this is not a case where a pre-existing agreement in writing was subsequently amended or altered orally. As a result, in my judgment, such oral variation of the works that occurred did not translate this agreement in writing into an oral agreement, and thus divest the Adjudicator of jurisdiction.

43. Was there an Exchange in Written Submissions, Sufficient to Found Jurisdiction in the

Adjudicator?

There was first a dispute about what is meant by the expression “an exchange of written submissions in adjudication proceedings, or in arbitral or legal proceedings” in Section 107 (5) of the Act. Mr Darby for the Claimant submitted that this referred to an exchange within the current or instant adjudication proceedings; Mr Mantle for the Defendant submitted that this referred to an exchange within other prior proceedings.

44. In A & D Maintenance and Construction Limited -v Pagehurst Construction Services Limited, apparently a decision of HH Judge Wilcox in the TCC given on 23 June 1999, Judge Wilcox held at paragraph 15:-

“15. In the course of the lengthy submissions, both parties made reference to the sub-contract. Whilst the parties do not agree upon the precise terms evidenced by the sub-contract confirmation form, nonetheless there is sufficient, in my judgment to warrant finding that those exchanges in the reply and response complied with Section 107 (5) of the Act. In other words there was a further and alternative basis for holding that there was an agreement in writing under the Act to which the Scheme applied.”

It would thus appear that HH Judge Wilcox construed the expression as referring to an exchange within the current or instant adjudication proceedings.

45. The following year, in Grovedeck Limited -v- Capital Demolition Limited [2000] BLR 181 HH Judge Bowsher QC came to the opposite conclusion. He held at paragraphs 28 and 29 as follows:-

“28. On one reading of Section 107 (5), if one party to an adjudication alleges the existence of an oral agreement and the other does not deny the existence of an oral agreement, then there is an agreement in writing “to the effect alleged”, that is, in the terms alleged by the claimant, even though the other party hotly denies, as he did here, that the agreement was in the terms alleged. Parliament cannot have intended such an unjust result.

29. I think this is a case where it is permissible, following the decision of the House of Lords in Pepper -v Hart [1993] AC 593, to look at Hansard. It appears from the Hansard Report of the proceedings in the House of Lords for 23 July 1996 that Section 107 (5) originally contained no reference to adjudication proceedings. The House of Lords accepted a Commons amendment that after the word “submissions” there should be inserted the words “in adjudication proceedings or”. If one reads Section 107 (5) without the words “in adjudication proceedings or” it is clear that the intention of Parliament was that a contract should be treated as a contract in writing if in arbitral or litigation proceedings before the adjudication proceedings in question an oral contract had been alleged and admitted. I also would read the words “and not denied” as meaning that the alleged terms of the contract were not denied. By adding the words “in adjudication proceedings or”, Parliament intended to add a reference to other preceding adjudication proceedings. There was no intention by Parliament to provide that submissions made by a party to an unauthorised adjudication should give to the supposed adjudicator a jurisdiction which he did not have when he was appointed.”

46. I can well understand how HH Judge Bowsher QC came to his conclusion. But, in my judgment, this expression can equally be read as referring to written submissions, whether made in adjudication, arbitration or legal proceedings and whether made in the current or prior proceedings. It is to be recalled that the point of such written submissions is to enable the parties to state their respective cases. The important point here is whether, by reference to such written submissions, (whether made within the current or any prior proceedings) it is apparent to the Adjudicator that the parties are ad idem as to the material terms of the construction contract in question. This goes back to the overall need for certainty as regards such material terms, to which I have already referred.

47. Then in 2002 the Court of Appeal gave its decision in RJT Consulting Engineers Limited -v- DM Engineering. In paragraph 16 of his Judgment Ward LJ held:-

“Sub-section (5) is a specific provision. Where there has been an exchange of written submissions in the adjudication proceedings in which the existence of an agreement otherwise than in writing is alleged by one party, and not denied by the other, then that exchange constitutes “an agreement in writing to the effect alleged ...”

I read that as a reference to an exchange within the current or instant adjudication proceedings. At paragraph 24 of his Judgment, Auld LJ held:-

“... as Ward LJ has observed, the exchange constitutes an agreement in such terms as it may be material to allege for the purpose of the particular adjudication ...”

I read that as indicating Auld LJ’s construction of this expression was consistent with that of Ward LJ.

48. Finally, in 2006, HH Judge Toulmin QC CMG had to consider the point in ALE Heavylift -v- MSD (Darlington) Limited [2006] EWHC 2080 (TCC). He held at paragraph 88:-

“If I had to disagree with His Honour Judge Bowsher QCs interpretation of section 107 (5) of the Act in Grovedeck I would do so, but I simply need to follow Ward LJ’s proposition in paragraph 19 of his judgment that where the material relevant parts of a contract alleged in the written submissions in the adjudication are not denied, that is sufficient. That applies both to submissions relating to an alleged written agreement as well as submissions relating to an alleged oral agreement. If I have to take this route I conclude that applying the Statue the Adjudicator had jurisdiction. The simple answer is that as a matter of contract where the jurisdiction of the Adjudicator is not challenged on a particular ground, a challenge of jurisdiction on that ground has been waived, and the parties have agreed to proceed with the adjudication despite the possibility of that challenge.”

49. I agree and, were it necessary, would hold that the reference to “an exchange of written submissions in adjudication proceedings or in arbitral or legal proceedings” in Section 107 (5) of the Act is a reference to written submissions made in either the current adjudication proceedings, or to any prior proceedings, whether they be adjudication, arbitral or legal proceedings.

50. The Claimant’s case on the facts is set out in paragraph 14 of Mr Darby’s written submissions:-

“C is also entitled to rely on the written submissions as to the agreement. C set out his case in the referral notice. In its response D did not deny the existence of the contract and specifically relied on C’s letter of 22 February 2008. D’s response and C’s reply showed agreement as to the variations.”

51. However, Mr Tranter had already taken the point in the prior email exchanges that the Defendant contended there was not an agreement in writing, which led to the Adjudicators preliminary ruling on 31 July 2009: see paragraph 12 of his decision. Further, the Defendants response, concluded with the final paragraph:-

“With all due respect to you Mr Dancaster I feel that we only have a verbal contract ...”: see page A85.

52. In those circumstances, I have concluded that the Defendant never abandoned its prior submission to the effect that there was not here an agreement in writing. In those circumstances I do not construe anything else stated in the response as being contrary to that main prior submission. Therefore I do not find, as a fact, that there was here an exchange of written submissions in which the Defendant “did not deny” the existence of an agreement, thus bringing into being an agreement in writing “to the effect alleged”.

53. Claim to Set Off

This part of the case occupied very little time in oral submission. Mr Mantle, in my judgment correctly, acknowledged that there is a strong line of authority to the effect that it is often difficult for a responding party to establish that something is capable of being set off against the sum which an Adjudicator has decided should be paid to a referring party.

54. The Defendant’s case is set out in paragraph 7.1 of Mr Mantle’s written submissions as follows:-

“As an alternative ... although not properly formulated at the time of the adjudication, the Respondent has a prima-facie substantial counterclaim exceeding the value of the adjudicator’s award ...”.

In his witness statement, Mr Tranter stated as follows:-

“21. In an attempt to provide further evidence in support of the Defendant’s position as to the quality of the Claimant’s workmanship on the project, I instructed Mr Colin Silk, Chartered Surveyor to carry out an inspection of the property with the express purpose of him commenting on the standard of construction. Mr Silk inspected the property on the 4th August 2009 and prepared a report dated 6th August 2009. I exhibit a copy of that report to this witness statement at “MGT4”.

22. At paragraph 7.0 of his report, Mr Silk concluded that, in his view, the quality of the workmanship carried out by the Claimant was “ below the standard which can be regarded as acceptable ”. Mr Silk identified a significant number of items that required remedial attention. On behalf of the Defendant, I approached several contractors to obtain quotations to carry out the required works. Pryce (Builders) Limited provided a quotation in the sum of £50,720.00 plus VAT to carry out the remedial works as set out in Mr Silk’s report. I exhibit a copy of their quotation to this witness statement at “MGT5”.”

55. The Claimant’s response is set out at paragraph 20 of Mr Darby’s written submissions as follows:-

“Although D claims that his counterclaim could not be formulated during the adjudication, it did assert a loss of £31,690 in its response. Had D acted promptly there is no reason why the necessary evidence to support its case could not have been obtained, nor why a withholding notice could not have been served, given that D asserts that it had always made clear to C its dissatisfaction with Cs work.”

56. In paragraph 65 of his decision the Adjudicator considered the various items of claim.

Dealing with item 25 he found as follows:-

“25. Work to existing floor slab. Naylor’s quotation of 13 December 2007 states that the price includes for reconstructing the premises to the appearance that they had prior to being fire damaged. The attached clarifications state that no work is included to the existing floor slab. I am satisfied that this work was additional to the contract. I note Acoustafoam’s comments on this matter and the allegations of inadequate workmanship. I have however reviewed the considerable detail supplied by Naylor in its Reply in response to these allegations and I am satisfied that Naylor is entitled to be paid the cost claimed. ADD £7,437.36.”

57. In paragraph 19 of his written submissions, Mr Darby referred to the cases of Ferson Construction -v- Levolux AT Limited [2003] BLR 118, and VHE Construction Plc -v- RBSTB Trust Company Limited [2000] BLR 187.

58. It is however also important to have regard to the decision of Jackson J (as he then was) in Balfour Beatty Construction -v- Serco Limited [2004] EWHC 3336, and of Ramsay J in Ledwood Mechanical Engineering Limited -v- Whessoe Oil and Gas Limited and another [2008] BLR 198. Adopting the language of those two judgments, a Defendant can only set off a sum against an amount an Adjudicator has decided will be paid to a referring party:

(a) If it “follows logically” from the Adjudicator’s decision that the Defendant is entitled to recover a specific sum in respect of the matters now raised by the Defendant; that is to adopt the language of Jackson J in Balfour Beatty -v- Serco ; and/or

(b) If it is “the natural corollary of the Adjudicator’s decision” that the Defendant is entitled to recover a specific sum in respect of the matters now raised by the Defendant; that is to adopt the language of Ramsay J in Ledwood v- Whessoe Oil.

59. The difficulty for the Defendant in this case is that it concedes that the head of claim it seeks to set off was “not properly formulated at the time of the adjudication”. It is thus at the very least difficult, if not in fact impossible, for a Defendant in such circumstances to set off an unparticularised cross claim against the amount which the Adjudicator has decided the Defendant should pay the Claimant.

60. In William Verry Limited -v- The Mayor and Burgesses of LB of Camden [2006] EWHC 761 (TCC), having referred to a number of authorities including the decisions in VHE Construction -v- RBSTB Trust Company and Ferson Construction -v- Levolux AT Limited, Ramsay J held:-

“The decision of His Honour Judge Hicks QC to which reference is made is the decision in VHE -v- RBSTB ... where Judge Hicks had regard to the overall purpose of Part II of (the Act), and concluded that the employer’s obligation to comply with the adjudicator’s decision meant:

“... comply without recourse to defences or cross claims not raised in the adjudication”. I respectfully agree with the principle set out in those decisions, which seem to me to effect the general position following the Court of Appeals decision in Levolux ..”

In my judgment, the same considerations apply to a claim which was not properly formulated at the time of the adjudication.

61. For those reasons, the Defendant’s claim to set off its cross claim, which it concedes was not properly formulated in the adjudication, fails.

62. In addition, Mr Mantle also referred to the decision of the Court of Appeal in Morgan & Son Limited -v- S Martin Johnson & Company Limited [1949] 1 KB 107, which summarises the general right of a Defendant to set off a sum by way of equitable set off against the sum claimed. Having reviewed various authorities, Tucker LJ held at page 113 as follows:-

“In view of those authorities, I think that the present case is one where, on the facts set out in the affidavit, the Court of Chancery would clearly have allowed the defendant’s claim as an equitable set-off against the plaintiff’s claim. In those circumstances, although I think the point perhaps rather academic, strictly speaking, the proper order in a case of this kind should be that the defendant should have unconditional leave to defend, and not that there should be judgment for the plaintiff with a stay of execution.”

63. However, where a claim is based on an amount an Adjudicator has decided should be paid by the Defendant to the Claimant, the position that would otherwise obtain as regards set off is modified, and unless the sum sought to be set off is something that “follows logically” from the Adjudicator’s decision, or is “the natural corollary of an Adjudicator’s decision, and/or unless the Defendant has served an effective notice of intention to withhold payment in accordance with the provisions of Section 111 of the Act where necessary, a Defendant will not be able to rely on a general right to set off which might otherwise obtain.

64. In my judgment the classification of the various types of set off and/or counterclaim made by the Court of Appeal in United Overseas Limited -v Peter Robinson Limited [unrep: 26 March 1991] does not alter that general position.

Conclusion

65. Therefore for all the reasons stated above, this application for Summary Judgment succeeds.

His Honour Judge Grant