CLAIM NO: HT-14-206

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

TECHNOLOGY AND CONSTRUCTION COURT

Rolls Building

Fetter Lane

London EC4A 1NL

Date: 31 July2014

BEFORE:

MR JUSTICE EDWARDS-STUART

BETWEEN:

MORPHUSE FRAMING SOLUTIONS LIMITED

Claimant

-and-

BRACKNELL PROPERTY LIMITED

Defendant

MR W WEBB (instructed by Birketts LLP) appeared on behalf of the Claimant.

MR J BOWLING (instructed by Mills & Co Solicitors) appeared on behalf of the Defendant.

Transcribed from audio by W B Gurney & Sons LLP,

10 Greycoat Place, London SW1P 1SB

Telephone Number: 020 7960 6089 Fax Number: 020 7960 6100

NB: No documents were provided to assist with the transcription

MR JUSTICE EDWARDS-STUART:

1. This is an application by the claimant for summary judgment to enforce an adjudicator's decision. The decision was that of Mr Lorne Alway dated 1 May 2014 by which he decided that £126,145 excluding VAT should be paid to the claimant (whom I shall refer to as "Morphuse") plus interest of £2,242 within seven days. That sum was not paid. Instead the defendant (whom I shall refer to as "Bracknell") commenced its own adjudication on 13 May 2014 for a declaration as to the value of the works that it had carried out by 7 February 2014, which was the date on which the contract was terminated. The adjudicator, Mr Ames, gave his decision on 4 July 2014 by which he declared that the net balance due to Morphuse in respect of its work was £95,316. In all figures I win exclude pence. Bracknell paid that sum on about 16 July 2014 and has said that it is willing to pay any applicable VAT on receipt of an appropriate VAT invoice. Morphuse's application for summary judgment was made on 23 June 2014, but in fact it was not supported by a witness statement when the application was filed and the witness statement in support was filed a few days later, on 26 June 2014. In accordance with its usual practice, this court ordered an expedited hearing of the application by order dated 2 July 2014 and the application was listed for 30 July. Mr James Bowling, instructed by Mills & Company, appeared for Morphuse. Mr William Webb, instructed by Birketts, appeared for Bracknell.

2. A rather surprising feature of the application is that Morphuse maintains that it is still entitled to summary judgment for the full amount of the decision in the first adjudication, notwithstanding the fact that Bracknell has since paid £95,000-odd, as I have already mentioned.

The facts

3. This claim arises out of a contract dated 14 February 2013 by which Bracknell engaged Morphuse to carry out the conversion of a six-storey building on High Street, Bracknell. The work started in March 2013, but the contract was subsequently terminated on about 7 February 2014. It seems that the total progress by the time of the termination was relatively limited, in that the total contract value was about £2.6 million, whereas the value of the work carried out up to that point was of the order of £250,000. I say "of the order" because the precise amount is the subject of the two decisions in the adjudications.

4. At this point, I need to say a bit more about the first adjudication. The notice of intention to refer the dispute to adjudication dated 14 March 2014 said this at paragraph 3:

"The subject matter of this dispute, which the Referring Party [that is Morphuse] intends to refer to adjudication, concerns how much the Referring Party is entitled to be paid pursuant to works executed under, or in connection with, the said contract and, in particular, how much the Referring Party is entitled to be paid pursuant to its application for payment issued under cover of an e-mail sent on 17 December 2013 ..."

At paragraph 6, the relief sought was described as follows:

"[6.1] A declaration that the gross value of the Referring Party's contracted works (before deductions for retention amounts paid) is £264,812.16 plus VAT or such other sum as the adjudicator shall decide.

"[6.2] That the sum of £126,145 plus VAT is due and payable to the Referring Party from the Responding Party or such other sum as the adjudicator shall decide ..."

5. The referral notice itself, issued on 20 March 2014, referred at paragraph 2.8 to Morphuse's most recent application dated 7 December 2013. It asserted that no valid payment notices had been issued by Bracknell and that the application was in the gross sum of £264,812.17. It then went on to say this:

"Accounting for the recent payment (made on 17 January 2014 that does not relate to the December application) the total sum outstanding and sought in this reference is £126,145, i.e. £264,812.16 less retention of £7,944.36, less the previously paid sum of £130,722.80. As no valid payment notices have been issued relating to that application, the entire sum falls due for payment, as explained further in section 3 below... "

Then under the heading of "Absence of payment notices and the default sums due", the referral notice went on to say this:

"[3.1] The due date for payment is the date of Morphuse's application pursuant to clause 4.8.3 (all clauses referred to are as the contract referred to in paragraph 2.2 above) of the contract, i.e. on or about 17 December2013. The final date for payment, as per clause 4.9.1, is 14 days after the due date (or the date of the application). Therefore the payment in relation to Morphuse's December application should have been made on or before 3 January 2014 (allowing for statutory holidays). No payment has been received at all relating to that application.

"[3.2] Clause 4.9.2 requires Bracknell to issue a payment notice five days after the due date, i.e. by a date on or about 23 December 2013. No such notice has been received. Further, that clause states if no payment notice has been issued then the sum included in Morphuse' s application becomes the sum due, but that is subject to any clause 4.9.4 payment notice.

"[3.3] Clause 4.9.4 states that if Bracknell intend to pay less than the sum due then there is a requirement to issue a pay less notice five days before the final date for payment, i.e. by a date on or about 27 December 2013.

"[3.4] As no payment notice or valid pay less notices have been issued pursuant to clauses 4.9.2 or 4.9.4, Morphuse are entitled to be paid the sum applied for in the application dated 17 December 2013 (accounting for sums previously paid) viz. £126,145.

"[3.5] Therefore, Bracknell are required to pay the sum in the 17 December 2013 application without any deduction, abatement, withholding or set-off... "

Finally, at paragraph 4.1 the notice said this:

''Notwithstanding and without prejudice to section 3 above, in the alternative, if the adjudicator decides that Morphuse are not entitled to payment pursuant to the default payment mechanism and that instead it is appropriate to value and calculate the appropriate sum that falls due (in lieu of the default payment) that position is set down below ... "

So that was in effect an alternative claim for a valuation of the works that Morphuse had carried out.

6. In that notice, there was a tension between the request for a gross valuation of Morphuse's work in the notice to refer and the same claim that was put in the alternative in the referral notice. This was a point that the adjudicator appreciated and he dealt with it in this way. At paragraph 16 of his decision, he said this:

"In this adjudication, one of the issues that the Responding Party relies on is that the scope of adjudication, they say, as framed by the said notice of adjudication, is such that it is not limited only to the application (number 6) submitted on and dated 17 December 2013 but rather is much wider in that it includes a decision on the value of the works (not just that due in respect of the said application) and as such concerns all relevant questions going to the value of the works, not just those relating to the application of 17 December 2013 (i.e. payment notice, pay less notices, due date, etc) ... "

Then at paragraph 18, he went on to say this:

"[18] To support its case on the scope of the dispute referred, the Responding Party points out that the notice of intention to adjudicate, repeated almost in full in paragraphs 7 and 8 above, describes the dispute as how much the Referring Party is entitled to be paid pursuant to the works executed under, or in connection with, this contract (see page 3 response) and a declaration that the gross value of the works is £264,812.16 and the sum of £126,145 is due and payable. All references, the Responding Party says, to 'value' and 'payment' are not linked with the application of 17 December 2013 and as such they can bring all other (value and payment) relevant issues.

"[19] The Referring Party, on the other hand, says that the scope of the adjudication is limited to the said application of 17 December 20 13 and they say that is clear from the notice of intention itself in that the value of the works sum referred to in the notice is exactly the same as the amounts set out in the application of 17 December 2013 and they say that the notice, when read as a whole, relates- and can only relate- to the said application."

Then the adjudicator expressed his conclusion in relation to this issue at paragraph 20 in the following terms:

"[20] On this, I agree with the Referring Party and whilst the notice of intention could have been drafted more clearly, I believe it is right to consider the notice as a whole, not to pick out parts of the notice in isolation, as I believe the Responding Party has done, and to give the words used their ordinary meaning ... "

7. The adjudicator then gave his reasons and concluded that the factors which he had identified were all:

" ... very persuasive in fixing the scope of this dispute to the value of the amount for payment and the payment mechanism in relation to the (interim) application of 17 December 2013 and no other application or any other gauge of the value of the works... "

Finally, at paragraph 21, it said this:

"Given then that I consider the adjudication concerns the said application of 17 December 2013 (only) then I also do not consider that previous applications; events not related to the value of the works due to the contractor or other events after the final date for payment in respect of the said application are relevant to this dispute .. "

It is therefore clear that the adjudicator resolved the issue about the scope of the referral and decided that it was limited to the application of 17 December 2013.

8. Turning now to his decision in that adjudication, he said this:

"[83] Given the other aspects of my decision above as to the contract payment mechanism and that there is no evidence or even case offered as to the timing of the payment mechanism or the existence of a payment notice or pay less notice, then I decide that the employer did not issue an effective payment or pay less notice in respect of the application of 17 December 2013. Accordingly, I find that the money due in respect of the said application is that stated in the application.

" [84] The Referring Party says that the sum due is the amount of its application number 6, copied at appendix 5 to the referral, given that there was no payment notice or pay less notice from the employer, and that the gross value of the works due for payment is (as per the application) £264,712.60 and the amount to be paid is £126,145 (net of VAT), being £264,812.16 less retention of £7,944.36 and previously paid sum of £130,722.80 ... "

Under the heading of "Decision", he then said at paragraph 86:

" [86] Given my decision on other issues in this adjudication, not least the absence of a payment notice (from the employer) and a pay less notice then by reference to the provisions of clause 4.9.3, when weighed with clauses 4.9.2, 4.9.4 and 4.10, then I agree with the Referring Party that the sum of £126,145 should have been paid by the Responding Party and, at the latest, by 3 January 2014. The gross value of the work referred to (which appears to be lp out, but that is not material to my decision) by the Referring Party is simply an understandable description of the gross amount applied for and I do not consider that it opens up the dispute for a valuation process aside from the payment mechanism relating to the application of 17 December 2013... "

By way of clarification he then said this:

"[87] To be helpful to the parties and for the avoidance of any doubt, having decided the value and amount of monies due to be paid pursuant to the application of 17 December 2013, this relates, in my decision, to an interim (not final) payment and does not involve an inquiry as to the correct value of the works by reference to the contract, but rather is correct by reference to the default mechanism at clause 4.9.3 and so an evaluation process may well produce a different figure... "

9. It is clear from this that, having determined that the dispute was about the validity of the application of 17 December 2013, the adjudicator did not determine the value of Morphuse's work at that or any other date and made it plain that he had not done so.

10. It is appropriate now to look briefly at the relevant clauses in the contract to which the adjudicator referred. Clause 4.8 comes under the heading "Contractor's interim applications and due dates". Clause 4.8.1 is as follows:

"In relation to each Interim Payment, the Contractor shall make an application to the Employer (an 'Interim Application') in accordance with the following provisions of [this] clause 4.8; stating that the sum that the Contractor considers to be due to him and the basis on which that sum has been calculated."

Clause 4.9, under the heading " Interim payments", says that:

"[4.9.1] The final date for payment of an Interim Payment shall be 14 days from its due date.

"[4.9.2] Not later than 5 days after the due date the Employer shall give a notice (a 'Payment Notice') to the Contractor in accordance with clause 4.10.1 and, subject to any Pay Less Notice given by the Employer under clause 4.9.4, the amount of the Interim Payment to be made by the Employer on or before the final date for payment shall be the sums stated as due in the Payment Notice.

"[4.9.3] If the Payment Notice is not given in accordance with clause 4.9.2, the amount of the Interim Payment to be made by the Employer shall, subject to any Pay Less Notice under clause 4.9.4, be the sum stated as due in the interim application.

“[4.9.4] If the Employer intends to pay less than the sum stated as due from him in the Payment Notice or interim application, as the case may be, he shall not later than 5 days before the final date for payment give the Contractor notice of that intention in accordance with clause 4.10.2 (a 'Pay Less Notice'). Where a Pay Less Notice is given, the payment to be made on or before the final date for payment shall not be less than the amount stated as due in the notice."

Those are the provisions that deal with interim applications and interim payments.

11. I should just mention that the final statement and final payment is dealt with by clause 4.12. I need only read out clause 4.12.1 , which provides as follows:

"[4.12.1] Following practical completion of the Works the Contractor shall submit the Final Statement to the Employer and supply him with such supporting documents as he may reasonably require."

12. It can be seen from this that the amount claimed in an interim application is the amount asserted by the contractor as the gross valuation of his works, less the amount paid, and any other relevant deductions required by the contract. It is not an amount that has been certified by an independent third party. The payment pursuant to any interim application is only a temporary measure because when the next application is made by the contractor the employer can exercise afresh his right to serve a payment notice or a pay less notice. It is only the final statement procedure, following practical completion, that results in a balance that will then become conclusive under the provisions of clause 4.12.

13. Leaving the contract aside, I will now turn to the second adjudication. This is the decision by Mr Robert Ames dated 4 July 2014. In his summary, under the heading "Dispute", the adjudicator set out the terms of the contract and the fact of its termination on 7 February 2014. Then at paragraph 5 of the decision he said this:

"That termination has been the subject of a separate adjudication, adjudication number 2, decided on 19 June 2014, during the currency of this adjudication. Morphuse was successful in that adjudication relating to the termination ..."

Then the adjudicator went on to refer to Mr Alway's decision and about that he said this:

"[9] In the event, Mr Alway did not find it necessary to decide the value of the works following termination.

"[10] That valuation of the works at termination is the subject of the dispute referred in this adjudication ..."

14. With that introduction, I can pass now to what the adjudicator decided. At paragraph 271, he said this under the heading "Decision": "I declare that Morphuse is entitled to a net payment from Bracknell of £95,316.04... " Then he gave his reasons. He then said:

"[272] 1 have decided above that the value of Morphuse's work at the date of the purported termination of employment by Bracknell was £226,038.84.

"[273] l have decided the amount paid by Bracknell to date Is £130,722.80. Accordingly, on those figures, there is a balance of £95,316.04 due to Morphuse.

"[274] This decision reflects the cash position. The indications arising from the amounts claimed as outstanding against adjudication number 1 is a matter for the parties..."

Under his reasons, a little later on, he said:

"[277] I further find that the gross value of the works at the date of the purported termination is less than the gross value previously applied for and on which Bracknell's liability to pay has been decided by Mr Alway.

"[278] There is no outstanding balance due to Morphuse and accordingly there is no entitlement to interest."

Of course that was on the basis that Mr Alway's decision had been honoured.

15. Finally, under the heading "Summary", he said this at paragraph 283:

"I declare that:

"(1) The value of the works carried out by Morphuse as at 7 February 2014, the date Bracknell ·purported to terminate Morphuse's employment, was £226,038.84.

"(2) The net amount paid by Bracknell m respect of the works is £130,722.80.

"(3) Morphuse is entitled to a net payment from Bracknell of £95,316.04."

16. I am satisfied from this that what Mr Ames was saying in that decision was: (i) that, assuming no money had changed hands since the issue of the notice to refer, his decision was that the balance due to Morphuse was £95,316; and (ii) he was not prepared to order Bracknell to pay that sum to Morphuse because he did not know what sum, if any, had been paid following the decision in the first adjudication.

17. I therefore now turn to the submissions of the parties. Mr Bowling's submission is that the first award is valid, not challenged and must be enforced, but he did say in his skeleton argument at paragraph 5(g) this:

"As per further notice of adjudication, the dispute referred was about 'the sum that falls due' and as such contained two strands: first, the claimant's primary case that pursuant to a payment application dated 1 7 December 2013 the claimant was entitled to payment of the sum claimed in full under 'the default position because of the absence of payment or pay less notices' from the defendant or, failing that, 'such other sum as the adjudicator shall decide' . In other words, the adjudicator was seised of a dispute which embraced both certification (the claimant's primary case) and valuation, secondary or alternative case."

18. However, Mr Bow ling told me in the course of his submissions that this did not mean what at first glance it appeared to be saying. In any event I have already concluded that in the first adjudication the adjudicator determined that the value of Morphuse's work was not within the scope of the dispute and so he did not determine it. There was therefore no determination of the value of Morphuse's work in the first adjudication.

19. Mr Bowling went on to point out - correctly - that the second adjudicator did not issue his decision until after the issue of these proceedings. In his skeleton argument, at paragraph 7, Mr Bowling said this:

"The general position is that adjudicators' decisions are to be enforced without any set-off, whether of sums due under other adjudicators' decisions or at all - see Jackson J (as he then was) in Interserve Industrial v Cleveland Bridge [2006] EWHC 741 (QB) at paragraphs 31 to 47 and Akenhead J in YCMS v Stephen and Miriam Grabiner [2009] BLR 211 at paragraphs 62 to 54 [sic]."

At paragraph 10(c), Mr Bowling submitted this:

"If of course the defendant wishes to say that the second adjudicator's ·decision must be given effect to by reducing the sum payable to the claimant then he has submitted: (i) that is simply not what the second adjudicator has decided; (ii) any such submission would in any event fail for the simple reason that one adjudicator's decision cannot supervene another in this way. Such an outcome would be to decide that the second adjudicator's decision was effective to open up review and revise the adjudicator's decision. If the defendant advances such a construction of the second adjudicator's decision should be adopted then the second adjudicator has in truth purported to decide the same issues as the first adjudicator, i.e. how much was due on payment application number 6. In such circumstances, the second decision would be void - see the decision of Ramsey J in HG Construction v Ashwell Homes [2007] BLR 175 at paragraph 38."

Finally, anticipating the submissions that would be made against him, Mr Bowling said this at paragraph 11:

"(a) It is of course right that, following enforcement of the adjudicator's decision, the net result would be that the claimant received £221,461.04 plus VAT and interest in respect of its works.

"(b) It is similarly right that the second adjudicator's decision decided that the claimant's works, prior to termination, were worth £95,3 16.04 plus VAT.

"(c) It is also right that, in taking any final account between the parties, those figures will give rise to a credit in the defendant's favour of £126,145 excluding VAT."

20. In his oral submissions, Mr Bowling stressed that in adjudication number 2 there was no order for payment of any money. He submitted that in effect there was no decision to enforce and therefore it did not change anything. Accordingly, in purporting to appropriate the payment of £95,000-odd to the decision of Mr Ames, Bracknell had appropriated, said Mr Bowling, to a non-existent liability, thus there was no valid appropriation and so Morphuse could appropriate it to any other liability, which it did by setting it off against Morphuse's claim for damages arising out of the termination.

21. I have to say that this argument, ingenious though it is, is in my view specious .Mr Ames did find that there was a liability. He found that there was a net balance in favour of Morphuse, subject to any subsequent transactions of which he was ignorant. There was clearly a dispute about the sum that Morphuse was entitled to be paid for its work, both as at 17 December 20 13 and at 7 February 2014. That was the dispute in respect of which the payment of £95,000-odd was paid. In my view, Morphuse's attempt to appropriate that sum to a damages claim was simply a sham. Accordingly, Morphuse's application on this application cannot in any event succeed in respect of the £95,000-odd. That leaves about £31,000 in issue.

22. Relying on his earlier point about Mr Ames' decision being one for declaratory relief only, Mr Bowling· said that it could not be enforced by Bracknell if it had applied for summary judgment. In my view, there is a very short answer to that submission. In the decision in HS Works Limited v Enterprise Managed Services Limited [2009] EWHC 729 (TCC) that is exactly what Aknhead J did. There had been two successful adjudications and each successful party made applications for summary judgment in its favour. These two applications were heard together. It is clear from paragraph 3 7 of the judgment that the decision of the second adjudicator was declaratory only insofar as it concerned the value of HSW's works and that the decisions ordering payment of money were confined to the adjudicator's fees and expenses. Mr Justice Akenhead expressly pointed this out at paragraph 58 of his judgment. At paragraphs 61 and 62, he held that, in spite of this, the parties still had to comply with it. He held that as soon as the money due to the contractor was paid pursuant to the first adjudication, there would then have to be a repayment to the employer to give effect to the decision in the second adjudication. In doing this, he relied on some observations of Jackson J (as he then was) in the case of Interserve v Cleveland Bridge, which I have already mentioned. In that case, Jackson J said at paragraph 43:

" [43] ... Where the parties to a construction contract engage in successive adjudications, each focused upon the parties' current rights and remedies, in my view the correct approach is as follows. At the end of each adjudication, absent special circumstances, the losing party must comply with the adjudicator's decision. He cannot withhold payment on the ground of his anticipated recovery in a future adjudication based upon different issues. I reach this conclusion both from the express terms of the Act, and also from the line of authority referred to earlier in this judgment... "

23. For these reasons, I consider that Mr Bowling's no order for payment point goes. However, that leaves his overarching submission about public policy. He says that the whole point of the 1996 Act would be undermined if a party could stave off the enforcement of an adjudication by starting another one and getting a decision before the other side's application for summary judgment comes on. In my view, this point puts theory above reality, but leaving that aside for a moment it does overlook the fact that any party has a statutory right to start an adjudication at any time and so the type of procedure suggested by Mr Bowling is one that is perfectly legitimate. But more to the point, the number of cases where a party is going to be in a position to mount a second referral to adjudication on a closely related subject and get a decision prior to the hearing of the summary judgment application in the first adjudication will, in my judgment, be fairly rare. Bracknell was only able to do so in the present case because Morphuse did not move very fast to enforce the first award. As I have already mentioned, it was made on 1 May 2014 and payment was ordered to be made within seven days, yet it was not until 26 June 2014 that this application was brought. Had Morphuse moved rather faster, it could have brought this application on by the end of June and before Mr Ames gave his decision. Whilst the scenario suggested by Mr Bowling is indeed theoretically possible, in my judgment the circumstances where a party will be able to do that will be fairly rare. Since there is an overriding right to bring an adjudication at any time, that is a legitimate procedure.

24. In my judgment, what the decision in Interserve shows is that the court must give effect to each decision when an application to enforce that decision is made. Mr Bowling concedes that the Ames decision is binding upon the parties. He accepts also, properly, that Mr Alway did not value Morphuse's work; he simply applied what is in effect a deeming provision which comes into play under this form of contract where the employer does not serve the relevant notices. Accordingly, in my judgment, I must give effect to Mr Ames' decision and that means that I must apply his decision as to the value of Morphuse's works and give effect to it. However, I must also give effect to Mr Alway's decision, but in the circumstances of this case I can only do this by recognising that Bracknell should have paid the sum he ordered within seven days – as Bracknell accepts - and therefore to order Bracknell to pay interest on the sum awarded by the first decision until Morphuse received the £95,000-odd is the way to give effect to that decision.

25. In my judgment, the correct way of disposing of this application is as follows: (i) Bracknell must pay interest on the £126,145 awarded in the first adjudication until the date of receipt by Morphuse of the £95,000-odd; (ii) Bracknell must pay any outstanding VAT within seven days of presentation of a VAT invoice by Morphuse. That is the order that I propose to make. I will hear the parties on the question of costs, but I should just indicate that my provisional view at the moment is that Bracknell should pay Morphuse's costs of issuing the application for summary judgment up until the date of receipt of the payment of £95,000-odd. Thereafter, I consider that Morphuse ought to pay Bracknell's costs because the amount of the interest that I have ordered to be paid will be, at the most, of the order of £200 or £300 and trivial by comparison with the sum claimed. However, I consider that Bracknell is entitled to defer payment of any VAT until presented with an appropriate VAT invoice.

26. Accordingly, Bracknell should pay Morphuse's costs up to the point of receiving the £95,000-odd. In my view, it was for Morphuse to recognise the reality of the situation and to analyse it as I have done. I therefore consider that the costs thereafter should be Bracknell's