Neutral Citation Number: [2010] EWHC 840 (TCC)
Case No: HT-1O-78
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Date: 03/05/2010
Before:
THE HON MR JUSTICE EDWARDS-STUART
Between:
(1) Balfour Beatty Construction Northern Ltd
(2) Balfour Beatty Engineering Services Ltd
(trading as Knowsley Schools Joint Venture)
Claimant
- and -
Speedwell Roofing and Cladding Ltd
Defendant
Nerys Jefford QC (instructed by McGrigors LLP ) for the Claimants
Jessica Stephens (instructed by Speechly Bircham LLP ) for the Defendant
Hearing dates: 16/04/2010
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Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
THE HON MR JUSTICE EDWARDS-STUART
Mr Justice Edwards-Stuart:
Introduction
1. This is an application by the Claimants ("KSJV") for summary judgment, and/or an interim payment in respect of part of its claim, together with an application to strike out the Defendant's counterclaim.
2. The Defendant ("Speedwell") seeks an adjournment of the hearing in order to enable it to serve an Amended Defence and Counterclaim.
3. The application arises out of five adjudications brought by Speedwell at the end of 2009. The adjudicator who was appointed in all five referrals, heard and determined the first two referrals, in each case deciding (in Decisions issued on 18 and 28 January 2010, respectively) that Speedwell was entitled to nothing and determining that his fees, which he assessed, should be paid by Speedwell. Part of KSJV's application relates to those fees because Speedwell has not paid them and they have in fact been paid by KSJV pursuant to its obligations under the contract. In addition, the adjudication clause in the contract provides that if a referring party recovers less than 50% of its claim in a referral, it must pay the other party's costs of the adjudication. Speedwell has declined to pay KSJV's costs.
4. In the light of these two decisions, that were disastrous from its point of view, Speedwell abandoned the remaining three referrals and, by a letter dated 2 February 2010, notified the adjudicator of this and asked him to cease all work on the remaining referrals and to submit a note of his fees to Speedwell. The adjudicator did so but Speedwell did not pay the fees, which have again been paid by KSJV. KSJV seeks to recover these fees also in this application.
5. Speedwell accepts that it has no real answer to the claim for the adjudicator's fees in respect of the first two referrals, but it contends that it has no liability in respect of the adjudicator's fees for the remaining three referrals or in respect of the costs incurred by KSJV.
The relevant provisions of the contract
6. The relevant provisions of clause 33A of the contract relating to adjudication included the following:
"33A.5.7 Save in the circumstances provided for in clauses 33A.5.7.1 and 33A.5.7.2 below, the parties shall each bear their own legal costs and other expenses incurred in the adjudication:
33A.5.7.1 where the referring party is awarded in the aggregate a sum less than 50% of the amount claimed he shall reimburse the other party the legal costs and other expenses which the non-referring party incurred in the adjudication;
33A.6
33A.6.1 The Adjudicator in his decision shall state how payment of his fee and reasonable expenses is to be apportioned as between the parties. In default of such statement the parties shall bear the cost of the Adjudicator's fee and reasonable expenses in equal proportions.
33A.6.2 The parties shall be jointly and severally liable to the Adjudicator for his fee and all expenses reasonably incurred by the Adjudicator pursuant to the Adjudication. "
7. Clause 33A.7.2 provided that:
"The parties shall, without prejudice to their other rights under the Contract, comply with the decisions of the Adjudicator; and the Contractor and the Sub-Contractor shall ensure that the decisions of the Adjudicator are given effect."
The course of the hearing and the parties' submissions
8. It was accepted during the course of argument before me that the claims by KSJV fell into three categories:
(1) The fees and expenses of the adjudicator for the first two referrals which he directed were to be paid by Speedwell.
(2) The fees of the adjudicator for the remaining three referrals, in respect of which he made no order.
(3) KSJV's costs and expenses of the five referrals.
9. I understood Miss Jessica Stephens, who appeared for Speedwell, to accept, realistically in my view, that there was little that she could say in relation to the first of the above categories. This was because it is well established that decisions of adjudicators must be complied with in the absence of exceptional circumstances, such as a want of jurisdiction.
10. In relation to the second category, Miss Stephens submitted that the obligation in clause 33A.6.1 of the contract requiring the parties to bear the cost of the adjudicator's fees in equal proportions if there was no statement by the adjudicator in his decision as to how his fees were to be apportioned only applied if there had been a decision. If there was no decision, then the obligation did not arise.
11. In relation to the third category, Miss Stephens submitted that KSJV could not recover their costs of the first two adjudications unless they had applied to the adjudicator for an award of those costs and he had awarded them, because as a matter of construction under clause 33A.5.7 there was no entitlement to such costs in the absence of an award by the adjudicator or, alternatively, because an application for summary judgment could only be made to enforce an adjudicator's decision. As to KSJV's costs of the remaining three adjudications, she submitted that if there was no award, the obligation to pay the other party's costs under clause 33A.5.7.1 could not be triggered.
12. Miss Nerys Jefford QC, who appeared for KSJV, accepts that her application was not in a strict technical sense an application to enforce an adjudicator's decision awarding KSJV money. But, she submitted, in a real sense it was an application to enforce an adjudicator's decision in that:
(1) To grant summary judgment in respect of the adjudicator's fees in adjudications nos. 1 and 2 gives direct effect to the adjudicator's decisions in those adjudications.
(2) To grant summary judgment in respect of the adjudicator's fees in adjudications nos. 3 to 5 gives effect to the terms of the contract in respect of adjudication and the agreed terms of the adjudicator's appointment.
(3) The agreed adjudication procedure includes the contractual provision as to costs that I have set out above, so that:
(a) Where the adjudicator has reached a decision, the operation of this clause is a direct consequence of the adjudicator's decision. So, submits Miss Jefford, to give summary judgment in respect of KSJV's costs in the first two referrals would give effect to the adjudicator's decisions.
(b) Where the claims were withdrawn, after referral to adjudication, to give summary judgment in respect of KSJV's costs would give effect to the agreed adjudication provisions.
13. In the light of the Court's approach to adjudication enforcement, Miss Jefford submitted that it would be inconsistent if, in circumstances such as these, the party who lost in adjudication could evade the consequences (both of the decision and the contract) by relying on a cross claim said to operate as an equitable set-off, all the more so if the cross-claim arose out of the very matters on which the adjudication was lost.
14. At the hearing Miss Stephens indicated that Speedwell wished to pursue a further argument that had been canvassed before the adjudicator, but seemingly not pursued during the referral, that clause 33A.5.7 was unreasonable within the meaning of the Unfair Contract Terms Act 1977 ("UCTA"). Speedwell's position will be that the contract was made on KSJV's standard written terms of business so that section 3 of UCTA applies.
15. Miss Jefford's response to this was to submit that this point could readily be argued and determined on the application because the answer was obvious. One difficulty with this approach is that the application of UCTA may well be affected by whether or not there is to be implied a term that the recoverable legal costs and expenses of the successful party under clause 33A.5.7.1 would be limited to its reasonable costs and expenses. If no such term is to be implied it might strengthen a case that the clause was unreasonable.
16. It seemed to me that the U CTA and implied term points were not ones that could fairly and properly be argued as matters stood before me because there was no evidence on questions such as whether or not the contract was made on KSJV's standard written terms of business or in relation to the various factors that might determine whether or not clause 33A.5.7 was unreasonable. In spite of Miss Jefford's submissions to the contrary, therefore, I indicated during the hearing that this aspect of the application should be adjourned to a separate hearing so that it could be properly argued in the light of the necessary evidence.
My conclusions on the remaining issues raised
The adjudicator's fees and expenses - the first two referrals
17. I have no hesitation whatever in concluding that the adjudicator's fees and expenses in relation to the first two referrals are payable by Speedwell and I did not understand Miss Stephens to contend the contrary. The adjudicator made valid decisions as to how his fees should be apportioned and Speedwell is obliged, both contractually and by statute, to comply with those decisions. Accordingly, in the light of the well-known principles regarding the enforcement of decisions by adjudicators, KSJV is entitled to summary judgment on that part of its claim.
The adjudicator's fees and expenses - the remaining three referrals
18. In relation to the adjudicator's fees of the remaining three referrals, I consider that Speedwell has no real prospect of contending successfully that it is not liable for 50% of these fees. First, as a matter of construction, clause 33A.6.1 provides that the parties shall bear the adjudicator's fees and reasonable expenses in equal proportions unless the adjudicator in his decision has stated how his fees and expenses are to be apportioned. If there is no decision, then there will be no such statement, in which case the default provision will apply. In my judgment it does not follow that because there is no decision the second part of clause 33A.6.1 simply has no application. It seems to me that it is irrelevant how or why it is that there has been no statement apportioning the fees and expenses_ Implicit in these contractual arrangements is an obligation on either party to indemnify the other in the event of one party paying more than its share of the adjudicator's fees and expenses.
19. For these reasons, but subject to the point in relation to an overall right of set-off with which I deal below, I consider that Speedwell has no defence to the claim in respect of its share of 50% of the adjudicator's fees and expenses in relation to the remaining three referrals that have been paid by KSJV.
20. However, KSJV's claim is not limited to 50% of the adjudicator's fees and expenses but is for 100%, which is the amount that it has in fact paid to the adjudicator pursuant to its contractual (several) liability for the full amount of the adjudicator's fees and expenses. KSJV makes the claim for the remaining 50% on the basis that these form part of its costs of the adjudications and are therefore recoverable under clause 33A.5.7 since Speedwell recovered nothing in the adjudications that it abandoned.
21. On the assumption that reliance on clause 33A.5.7 is not precluded by UCTA, a question that will be determined at the adjourned hearing of this application, I can see no reason why KSJV's 50% share of the adjudicator's fees and expenses for the remaining 3 referrals should not form part of its costs and expenses of those referrals so that they are recoverable under clause 33A.5.7 if the requirements of that clause are met.
KSJV's fees and expenses
22. I now turn to KSJV's legal costs and other expenses of the adjudications. Again, on the assumption that clause 33A.5.7 does not fall foul of UCTA , the principal issue is whether or not Speedwell is entitled to resist the application for summary judgment by asserting cross claims that it contends greatly exceed the amount of KSJV's costs. So far as I can tell, those cross claims are substantially the same claims as were presented to the adjudicator in the five referrals. However, it may be that other claims are to be included as well.
23. There is a subsidiary issue, to which I have already alluded, which is whether or not KSJV is entitled to recover its costs of the three abandoned referrals in the absence of any awards. Miss Stephens contends that the obligation in clause 33A.5.7.1 is triggered only where the referring party is (a) awarded a sum and (b) that sum is less than 50% of the amount claimed.
24. In my judgment this argument is not well founded. If the referring party abandons its referral before the adjudicator is due to make or has made his decision, then it will be awarded nothing. It will therefore have been awarded less than 50% of the amount that it claimed. It strikes me as very artificial to suggest that the clause is triggered where the referring party pursues the referral to award and recovers, say, £1, but not where the referring party, perhaps seeing how badly the adjudication is going, decides to abandon the referral before a decision is made. I therefore consider that Speedwell's position in relation to KSJV's own costs and expenses is no different in relation to the three remaining referrals to its position in relation to the first two referrals.
25. This leaves the question of whether Speedwell can set off against its liability for any of these costs other cross claims which it has against KSJV under the contracts. One problem, of course, is that these cross claims are probably the same claims that have either been assessed as worth nothing by the adjudicator, or have been abandoned, or have yet to be quantified and formulated. For the purposes of this application I am content to assume that Speedwell has potential cross claims which it believes in good faith to be worth more than the claimed amount of KSJV's costs and expenses of the adjudications.
26. As the cases cited in chapter 10 of Construction Adjudication, by the Hon Mr Justice Coulson, show, the circumstances in which an unsuccessful responding party to an adjudication will be permitted to set off other claims against an adjudicator's award are rare. Whilst KSJV's costs cannot be said to be the subject of an award by an adjudicator, but are recoverable only as a contractual liability, I accept Miss Jefford's submission that because they are so closely connected with the adjudication process and are a contractual consequence of the adjudicator's decisions that they should be treated in the same way.
27. As has been stated in a number of decisions, to permit the enforcement of an adjudicator's award to be defeated by the existence of a bona fide cross claim for damages or delay arising under the contract would make a nonsense of the overall purpose of the statutory scheme under the Housing, Grants, Regeneration and Construction Act 1996: see, for example, David McLean Contractors v the Albany Building Ltd (unreported, 10 November 2005), HHJ Gilliland QC.
28. In my judgment, therefore, the existence of Speedwell's cross claims cannot provide a defence to KSJV's claims in respect of the adjudicator's fees and expenses or its own costs and expenses of the adjudications.
The Deeds of Variation
29. The Defence, which is a document drafted, with I suspect, some assistance, by Mr Durband, takes the point, although it is not pleaded in any detail, that the Deeds of Variation which the parties entered into in April 2009 are voidable for uncertainty on the ground that they were entered into on economic duress.
30. Leaving aside the fact that a defence of economic duress is seldom an easy one to establish on the facts, it has not been suggested that the Deeds of Variation affected the adjudication provisions in the contract - in which case the provisions of clause 33A would not be affected by the Deeds.
31. If, on the other hand, the Deeds of Variation are said to have replaced the original contract in their entirety (as opposed to merely varying them), then a defence of economic duress may not be open to Speedwell since, with knowledge of the potential defence of economic duress, it has started a fresh referral to adjudication, which I assume must be based on the contract made by or contained in the Deeds of Variation.
32. In these circumstances, on the material presently before me I consider that any defence to the claim for summary judgment based on the Deeds of Variation is too tenuous to justify the claimant having the judgment to which I find it would otherwise be entitled. Putting it another way, I consider that on the material presently before the court Speedwell has no real prospect of establishing a defence on the basis of economic duress. In saying this I must make it quite clear that I am not in any way pre-judging the merits of any defence that may be raised hereafter. This judgment is given only in the light of the material before the court: it is not intended to indicate any assessment of material that has yet to be put forward by Speedwell.
33. On this aspect of the case it is right to point out that Miss Stephens did not feel able to say anything more than that this was a point on which Speedwell currently "reserves its rights". I consider that this was a realistic and appropriate position to take.
Summary
34. On this part of the application I therefore reach the following conclusions:
(1) KSJV is entitled to summary judgment in respect of the adjudicator's fees and expenses in relation to the first two referrals, these being the sums of £25,471.06 and £10,939.25, respectively.
(2) KSJV is entitled to summary judgment in respect of 50% of the adjudicator's fees and expenses in relation to the remaining three referrals, being 50% of the sum of £27,368.69.
(3) Subject to the determination of the issues that had to be heard on the adjourned hearing of this application in relation to clause 33A.5.7, KSJV is in principle entitled to summary judgment in respect of the other 50% of the adjudicator's fees and expenses of the remaining three referrals and in respect of its own legal costs and expenses of the adjudications, subject to the amount of such costs and expenses being agreed or determined by the court.
35. The costs of the hearing of the application on 16 April 2010 will be reserved. The sums referred to in (1) and (2) are to be paid by Speedwell to KSJV within 21 days of 16 April 2010.