Neutral Citation Number: [2010] EWHC 56 (TCC)

Case No: HT-09-483

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

TECHNOLOGY AND CONSTRUCTION COURT

Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 21 ^st January 2010

Before:

Mr Justice Akenhead

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Between:

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Lynne McCafferty (instructed by Wragge & Co LLP) for the Claimant

Steven Walker (instructed by Dickinson Dees LLP) for the Defendant

Hearing dates: 14 January 2010

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JUDGMENT

Mr Justice Akenhead :

Introduction

1. This case raises interesting jurisdictional issues in the context of adjudication decision enforcement proceedings where there are or may be disputes arising under two contracts between the parties which are referred to a single adjudicator.

The Factual Background

2. Story Rail Ltd ("Story") was engaged by Network Rail in 2008 to carry out substantial refurbishment works to a railway bridge known as Carr Mill Viaduct in St Helens, Merseyside. In 2007, Story approached Supablast (Nationwide) Ltd (“Supablast”) with a view to engaging them as potential subcontractors for parts of the project.

3. By letter dated 18 September 2007, Story invited Supablast to tender for grit blasting and painting work on this project. Story sent to Supablast a compact disc which contained details of the grit blasting and painting work as well as other works including the scaffolding and encapsulation works together with steelwork repairs. On 2 October 2007, Supablast provided their quotation in the sum of £270,209.82 to Story but also took the opportunity to provide a fully priced Bill of Quantities in relation to amongst other things the steelwork repairs, scaffolding and encapsulation works. In November 2007 Story asked Supablast to quote for these further works again.

4. There were discussions between the parties in relation to the grit blasting and painting works together with the scaffolding and encapsulation works. By letter dated 17 December 2007, Supablast sent to Story a letter stating as follows:

“Further to our recent quotation for the grit blasting, painting and scaffolding works for the above named tender we have pleasure in confirming our subsequent agreed prices:

1. Grit Blasting and Painting for the fixed price of £222,000.00

2. Scaffolding and Encapsulation for the fixed price of £158,459.60”

They looked forward to receiving Story’s "official order".

5. By letter dated 18 December 2007, Story wrote to Supablast as follows:

“Further your quotation…dated 17^th December 2007 for grit blasting, painting and scaffolding works on the above contract. We confirm our acceptance of your price in the sum of £380,459.60 nett plus VAT.

Please treat this letter as our order to carry out the works. Our sub contract order amended in line with the main contract will follow in due course. The terms and conditions of subcontract shall be the ICE sixth edition form of subcontract. The sub contract reference number that should be quoted on all correspondence is SUB0000232/SR12960…

Please note that it is a condition of the sub-contract that you have the requisite insurance cover as required under the Main Contract. We would be obliged if you would send a copy of your certificate(s) of insurance to our head office…”

This letter is headed "Letter on [sic] Intent”

6. The ICE sixth edition form of subcontract contained the following clauses:

“8(1) The Sub-Contractor shall make such variations of the Sub-Contract Works, whether by way of addition, modification or omission, as may be:

(a) ordered by the Engineer under the Main Contract and confirmed in writing the Sub-Contractor by the Contractor; or

(b) agreed to be made by the Employer and the Contractor and confirmed in writing to the Sub-Contractor by the Contractor; or

(c) ordered in writing by the Contractor…

(9) (1) All authorised variations of the Sub-Contract Works shall be valued in the manner provided by this Clause and the value thereof shall be added to or deducted from the price specified in the Third Schedule hereto or as the case may require.

(2) The value of all authorised variations shall be ascertained by reference to the rates and prices (if any), specified in the Sub-Contract for the like or analogous work, but if there are no such rates and prices, or if they are not applicable, then such values shall be such as is a fair and reasonable [sic] in all the circumstances. In determining what is fair and reasonable valuation, regard shall be had to any valuation made under the Main Contract in respect of the same variation…

18(1) If any dispute or difference shall arise between the Contractor and the Sub-Contractor in connection with or arising out of the Sub-Contract, or carrying out of the Sub-Contract Works…whether arising during the progress of the Sub-Contract Works or after their completion it shall be settled in accordance with the following provisions…

(4) (a) The Contractor and the Sub-Contractor each has the right to refer any dispute under the Sub-Contract for adjudication and either party may at any time give notice in writing (hereinafter called the Notice of Adjudication) to the other of his intention to refer the dispute to adjudication. The Notice of Adjudication and the appointment of the adjudicator shall…be as provided at paragraphs 2 and 3 of the Institution of Civil Engineers’ Adjudication Procedure (1997). Any dispute referred to adjudication shall be conducted in accordance with the Institution of Civil Engineers’ Adjudication Procedure (1997)…”

7. On 20 December 2007, Supablast finalised its quotation for the steelworks, it having been provided by Story with revised steelwork quantities; the quote was for £562,571.40. There is an immaterial factual issue between the parties as to when Story received this; Story says that it was on 3 January 2008. It seems beyond doubt that between the receipt of this finalised steelwork quotation and 16 January 2008 agreement was reached between Story and Supablast on a price for the steelwork.

8. On 16 January 2008, Story convened a meeting, the minutes of which were to read "Minutes of Subcontractors Preliminary Meeting”. Although the minutes were apparently produced several weeks later, there is no issue that the minutes record what was said and agreed. The minutes are on a pro forma document where various boxes are filled in. The material boxes were as follows:

There was an "Any Other Business" box to be filled in as required. Mr Smithson of Story says in his witness statement of 8 January 2010 that, at the end of 16 January 2008 meeting, he "anticipated that Supablast would be carrying out the steelwork repairs"

9. There appears to be no issue that broadly works started on or about 21 or 23 January 2008, although there is an issue which is probably immaterial as to whether steelwork started. It was common ground at the hearing that the scaffolding had to go up first in any event to enable steel work and other works to be done.

10. It seems likely that Supablast submitted its first application for payment on or before the end of January 2008; I say that because Application No 2 was submitted on 25 February 2008.

11. On 29 January 2008, Story sent a letter to Supablast also headed "Letter on [sic] Intent” like the letter of 18 December 2007. It was in identical terms to the earlier letter, save for the first paragraph:

“Further your revised quotation dated 3^rd January 2008 for steelwork repair works on the above contract. We confirm our acceptance of your price in the sum of £552,203.40 nett plus VAT.”

Thus this letter specifically also said that the "subcontractor reference number that should be quoted on all correspondence is SUB0000232/SR12960” which was the same reference given in the earlier letter.

12. It is accepted that all applications for payment included for all the works including the steel work, albeit that the works were broken down, as is usual, in to the different types of work being claimed for. Each of the applications was processed by Story on the basis that all work was to be certified and paid as one. From exhibited documents, Story upon a monthly basis used what was called a "Self Billing Sub Contractor Payment Certificate" which simply allowed to Supablast a sum for "measured work" without differentiating between steel work or any other work. A single payment was made against each such certificate. Indeed, until September 2009 the final accounting process was dealt with on a single composite basis.

13. It was accepted in argument that (apart from the letter dated 29 January 2008) at no time and in no document did Story ever say or do anything which indicated objectively or otherwise to Supablast that there were two Sub-Contracts. Thus, although Story’s witness evidence suggests that payment applications and payments were processed together to cover both steelworks and the other works as a matter of administrative convenience, it is not suggested that this motivation was ever communicated to Supablast.

14. It is clear that on any count substantial additional works were done. In its final account, Supablast claimed nearly £3.4 million whilst Story had paid some £1.8 million. Thus, the value of the works Supablast had done was between about two to four times the original agreed value(s). There is no evidence that any differentiation was made or communicated by Story with regard to the variations ordered in relation to the steel work and the other works on the basis that the variations were being issued pursuant to anything other than the one Sub-Contract.

15. It is also common ground that there were delays both to the main contract overall and to the sub contract works programme. It is accepted that applications for extension of time by Supablast for factors which affected both steel works and the other works were addressed and processed together. Extensions of time were notified by Story on 19 September and 25 November 2008 in these terms:

“In accordance with Clause 6(5) of the Sub-Contract Agreement, we hereby formally confirm that we have been issued with an Extension of Time under the Main Contract revising the Completion Date as the [21^st September 2008/1^st May 2009 respectively]”

16. It was only after disputes arose between the parties on Supablast’s final account in early September 2009 and the service on 3 September 2009 by claims consultants acting on behalf of Supablast of a Notice of Adjudication that for the first time Story suggested that there were two Sub-Contracts, one relating to the steelworks and one to all other works and that no single adjudicator would have jurisdiction to deal with disputes arising under each such Sub-Contract.

The Adjudication

17. The Notice of Adjudication dated 3 September 2009 simply sought to initiate adjudication in respect of the whole sub contract final account in the sum of £3,398,508.35 plus VAT and proceeded upon the basis in effect that there was simply one sub contract. Mr Allan Wood, a Chartered Engineer and barrister, was appointed as adjudicator. On 8 September 2009, Story through solicitors asserted that the adjudicator did not have jurisdiction on three separate grounds, one of which was that there were two separate Sub-Contracts. The Referral Notice (two adjudication) was served by Supablast on 9 September 2009.

18. Having received written submissions from Story dated 8 and 10 September 2009 and dated 10 September 2009 from Supablast, Mr Wood wrote to the parties on 10 September 2009 to the effect that he believed that he did have jurisdiction. With regard to the two separate Sub-Contracts assertion, he reviewed each party’s submissions concluding that there was in effect a single Sub-Contract. He stated:

“I noted that at 16 January 2008 (the date of the Preliminary Meeting) the Responding Party was dealing with the works of grit blasting, painting, scaffolding and steel repair works as one body of work and I was of the view that the said minutes were evidence of this position. I noted that the Subcontract Price included the steel works sum; the sub contract period related to all work; the client’s particular specification requirements included a steel and bolt specification (i.e. for the steel repair works); the name and contact details for the Responding Party’s steelwork Contracts Manager was to be advised; and the number of men the Referring Party proposed to have on the steel repair works was minuted.

I also noted that the Referring Party’s applications for interim payments sought monies for all works, including steel repair works and I noted that the Responding Party’s payments and payment notices dealt with the sums applied for on an all encompassing basis and payments were not separated out on a "two contracts" basis, as now alleged.

Also, it appeared to me that the argument now raised regarding "two contracts", was a new argument raised in resistance of the adjudication proceedings…I noted the Responding Party’s email dated 25 March 2009 in respect of the Referring Party’s “fully substantiated Final Account” and was again not appraised by the Responding Party that two separate "final accounts" were being sought or required at that time.

I am of the view that whilst the Responding Party issued two similar "standard form" orders of the works of (1) grit blasting, painting and scaffolding and (2) steel repair works, the true intent for the Parties was that these works were to be carried out as one sub contract and as a fact they were administered as such during the period (and after) the subcontract works…”

19. The adjudication proceeded with Story serving a Response and Rejoinder and Supablast serving a Reply and Surrejoinder. The parties agreed that Mr Wood have until 2 November to issue his Decision which he did on that date. The Decision is split for convenience between the Decision and the Reasons with the latter running to some 32 pages and the former to 7. So far as the two Sub-Contracts issue was concerned, he added little:

“The Contract

5. There was a dispute (and a jurisdictional challenge) as to whether the works, the subject of the adjudication reference, comprised one or two contracts. Further to the provision of my view that the works were the subject of a single contract, the adjudication proceedings continued (with the Responding Party reserving its position) on the basis that the works were subject to one contract.

Jurisdictional Issues

13. The Responding Party, in its representative’s letter dated 8 September 2009, set out three (separate) jurisdictional challenges. I received submissions from the Parties on these challenges and I set out my views in my letter dated 10 September 2009 and I do not add to my view except to note that the Responding Party stated in the Response (paragraph 6.4) it had granted the Referring Party an extension of time of 58 weeks from 21 March 2008 and it appeared to me that such statement which was not caveated/caught by any contractual issue and thereby any reservation to my jurisdiction, constituted an admission on the Responding Party’s part as to a defined Contract period for all elements of the Works."

20. In his Decision, he reviewed in detail the differences between, and the evidence of, the parties and decided that the value of Supablast’s final account was £2,117,741.34 which, allowing for retention, previous payments and interest, left the sum of £262,366.09 to be paid by Story to Supablast together with VAT and the adjudicator's fees and expenses of £19,651 plus VAT to be paid by Story. He referred at several places in his Reasons to his view that the steelworks "constituted a variation to the originally contracted work and that all steelwork repair works were the subject of a variation as well as a re-measure” (see Paragraphs 52 and 74).

These Proceedings

21. Story having not paid out on the Decision of Mr Wood, Supablast issued proceedings on 3 December 2009 to seek to enforce it. The Particulars of Claim in effect pleaded that the Sub-Contract was contained in or evidenced by the letters of 17 and 18 December 2007. It did not separately seek to identify any later document or event as particularly material but was however primarily seeking to identify that there was a valid adjudicator's decision which had not been honoured. Witness evidence was exchanged and a substantial if incomplete amount of contemporaneous documentation exhibited. For instance, there is e-mail and letter correspondence from Story which refers to "subcontract works", "the Sub-Contract”, "the Sub-Contract Conditions”, "the Agreement" between the parties, the “agreed programme” for all the works and to the single and composite accounting process for all works which the parties were following.

22. Mr Henderson, Story’s solicitor, in his statement denies on his client's behalf that steelwork repair was or could have been a variation issued pursuant to the contract created by the letters of 17 and 18 December 2007; he was instructed by Mr Johnston of Story that the reason that a single payment mechanism for all works was used was because “it was convenient to deal with all of Supablast’s works in one certification” and that the works were valued on the basis that the steel works and the other works were valued on the basis of there being two prices. Mr Prowse of Supablast in his statement in effect suggests that the factual matrix in the context of which the December 2007 Sub-Contract was negotiated was that Supablast was envisaged as being the subcontractor which would be engaged to carry out the steel work as well as the other works, it having been asked beforehand to quote for the steel work; he refers to the steel work as being from a practical standpoint sensibly carried out by one subcontractor under one sub contract. He considered it "incredible that anyone can seriously argue that there were two contracts" and that on "no occasion before, during or after our works were finished up until the adjudication is there any scrap of paper to suggest that our works would be carried out under two contracts".

23. Mr Smithson of Story responded to this accepting that he had agreed a price on the steelwork after 3 January 2008. He does not suggest that the minutes of the meeting of 16 January 2008 were anything other than an accurate summary record of what was said and agreed. He says that Story in effect did not accept that the steelwork repairs should be considered to be a variation. He does not accept that Supablast was instructed at the 16 January 2008 meeting to commence the steel works; the instruction to commence related only to the scaffolding. However he does not go on to say when or how any of the other works (such as grit blasting and painting) were instructed to be commenced. He "would be surprised if Supablast considered that it was obliged to undertake the steelwork repairs as a result of the meeting on 16 January 2008”. He accepts however that “this may have been the expectation of all parties" but he would "not expect [Supablast] to consider that it was obliged to carry out the steelwork repairs without a written order or letter from Story" and he believes "that Supablast did not consider itself bound to carry out the steelworks repairs until after receipt of our letter dated 29 January 2008”.

24. In essence, Supablast argues that there was one sub contract, the parties effectively agreed that there was one sub contract and the parties effectively proceeded throughout the project upon the basis that there was only one sub contract. In the partial alternative, it argues that the steelwork repair works were instructed as a variation or were treated as having been instructed as a variation to the December 2007 Sub-Contract. Story argues that there were two Sub-Contracts, that the steelwork repair works were not, and could not be, as a matter of law instructed as a variation to the December 2007 Sub-Contract and that there was no estoppel whereby the parties can be treated as having agreed that there was a single Sub-Contract relating to all works. At the very least, Mr Walker argues that Story has a sufficiently arguable defence on these points and that, accordingly, the application for summary judgement must fail.

The Law

25. CPR 24.2 lays down that the court may give summary judgement against a defendant if it considers that the defendant "has no real prospect of successfully defending the claim" and "there is no other compelling reason why the case… should not be disposed of at a trial". At Paragraph 158 of the opinions in the House of Lords in Three Rivers DC v Bank of England (No 3) [2001] UKHL 16, Lord Hobhouse put the test in another way to the effect that “the criterion which the judge has to apply under Part 24 is not one of probability; it is absence of reality”.

26. It is, broadly, uncontroversial between the parties that, if there were two Sub-Contracts, the single adjudicator would not have had jurisdiction to decide all the issues between the parties because the disputed final account contained substantial elements both in relation to the steel works and the other works. At Paragraph 7.63 of his book "Construction Adjudication", Mr Justice Coulson says:

“In practical terms, it is thought likely that a notice to refer will usually fall foul of the stipulation that it must contain a reference to only one dispute only where, as in Grovedeck, there is an attempt to refer disputes under more than one contract in a single notice of adjudication…”

It might well be the case that the adjudicator in this case did have jurisdiction in any event to address the disputed claims arising under the works which were specifically the subject matter of the December 2007 Sub-Contract. However, neither party has sought to argue that and I take the point no further.

27. In so far as it is the case that the steel works were instructed as a variation to the December 2007 Sub-Contract, it is argued by Ms McCafferty that the adjudicator had jurisdiction so to decide. She relies on Air Design (Kent) Ltd v Deerglen (Jersey) Ltd [2008] EWHC 2047 (TCC) as support for this proposition. That case involved a subcontract relationship in which it was argued that there were in effect one, two, three or four subcontracts between the parties and that therefore the adjudicator had no jurisdiction in a single adjudication to decide on disputes arising under these multiple sub-contracts. The so-called sub contracts were analysed in the judgement and, obiter, at Paragraph 21 it was found that the three later sub-contracts were effectively variations of the original ("Basebuild”) Sub-Contract. At Paragraphs 22 to 24, the following was stated:

“22. However, there are two further factors which effectively override considerations as to whether or not there were one, two, three or four contracts between the parties which establish that the Adjudicator was acting within his proper jurisdiction:

(a) The substantive decision-making process upon which the Adjudicator had to embark in relation to the disputed claim put before him necessarily involved a consideration of whether there was more than one contract. It was thus within his jurisdiction to decide in effect that there was one contract, albeit one that may have been varied by agreement.

(b) It was thus a part of his jurisdiction to decide whether or not and if so to what extent the Basebuild Contract had been varied by the CPA and BMS Arrangements and indeed whether there were yet further variations ordered to the Basebuild Contract. There may be cases, and this is clearly one, where substance and jurisdiction overlap so that it is within the Adjudicator's jurisdiction to decide as matters within his or her substantive jurisdiction whether there have been in effect variations to the contract pursuant to which he or she has properly been appointed Adjudicator. It cannot then in those circumstances be a valid challenge to his or her jurisdiction that upon analysis he or she may be wrong as a matter of fact or law in determining that such variations were made to the originating contract as opposed to a series of later legally unconnected contracts.

(c) The Supplementary Agreement is one which recognises in a way which has contractual effect that the parties were treating their contractual relationship as being in one "main contract". The total of the three sums agreed originally to be due with regard to the Basebuild, CPA and BMS Works are said to be a "contract sum"; the variations are being treated as a single variation list to be addressed; maintenance and defects liability obligations are being treated as arising in effect as a unified obligation. It is this one "main contract" which is effectively being varied. Thus, whatever the arrangement or arrangements contractually were before, as from the Supplementary Agreement the parties clearly agreed to treat their contractual relationship as stemming from one contract.

23. I have therefore formed the view that the Adjudicator did have jurisdiction to rule on all the matters which he did decide in his Decision. Whether he was right or wrong to find or make the assumption that there was effectively one contract which was varied and whether he was wrong as a matter of fact or law in any other part of his decision is immaterial. Any such errors do not mean that he does not have jurisdiction. Even if I was wrong about that conclusion, then my analysis that effectively the CPA and BMS Arrangements and the Supplementary Agreement were simply variations of the Basebuild Contract would apply.

24. Additionally, the adjudication clause is drawn widely and relates to "a dispute or difference [arising] under this Sub-Contract". In the Fiona Trust case [2007] UKHL 40, the House of Lords adopted a pragmatic and commercial approach to construing arbitration clauses. Lord Hoffmann said at Paragraph 13:

"In my opinion the construction of an arbitration clause should start from the assumption that the parties, as rational businessmen, are likely to have intended any dispute arising out of the relationship into which they have entered or purported to enter to be decided by the same tribunal. The clause should be construed in accordance with this presumption unless the language makes it clear that certain questions were intended to be excluded from the arbitrator's jurisdiction."

Whilst it could be argued that, if there were entirely separate contracts between the same parties which had obviously different dispute resolution clauses, there should be separate dispute resolution processes, in the current case all the disputes could properly be said to have arisen under the Basebuild Contract and the commercial parties could properly be said to have intended to have agreed to the adjudicator appointed under that contract to have jurisdiction to determine the value of sums due under that contract and any variations to that contract.”

28. At Paragraph 30 of the judgement in a later case, Camillin Denny Architects Ltd Adelaide Jones and Company Ltd [2009] EWHC 2110 (TCC), the same judge commented on the Air Design case as follows:

“That was a case in which there could be no doubt that the adjudicator was properly appointed under the first contract and there could be no argument that, in that capacity, he had jurisdiction to decide whether later "contracts" were simply variations of the first contract or stood on their own entirely separately as contracts in their own right. I am not convinced that this case is authority for any proposition other than that there may be cases in which adjudicators properly appointed have jurisdiction to resolve jurisdictional issues if and to the extent coincidentally those issues are part of the substantive dispute referred to adjudication.”

29. One must bear in mind that variations, that is additional, altered, substituted or omitted works, are very common and almost invariably feature in payment disputes between construction contract parties. Many of the adjudication decisions which come to be considered by the TCC involve rulings on whether particular work has been varied and if so what price is to be put on it. Generally, an adjudicator properly appointed under the original contract between the parties to the adjudication will have jurisdiction to determine whether or not particular work was or was to be treated as a variation under or pursuant to that original contract. Of course, it is open to either party to argue that, although the particular work was extra to the scope of works covered by the original contract, it was not a variation envisaged or permitted by that contract. That argument will or may in effect give rise both to a substantive defence under the original contract (“there is no entitlement to payment because there is no variation") as well as a jurisdictional challenge (“the adjudicator has no jurisdiction to decide because the extra work can not have been ordered under the original contract which gives the adjudicator jurisdiction in the first place"). This is where there will often be an overlap between jurisdiction and substance.

30. The Court of Appeal in Thomas-Fredric’s (Construction) Ltd v Keith Wilson [2004] BLR 23 confirmed broadly the uncontroversial view that an adjudicator does not have jurisdiction to decide his or her own jurisdiction unless the parties have effectively agreed or permitted him or her to do so. Simon Brown LJ (as he then was) said as follows:

“32. Let me now return briefly to the editors' commentary in the Building Law Reports. I readily recognise the concern lest this salutary new statutory power to promote early payment in construction contract cases be emasculated by jurisdictional challenges. The solution, however, seems to me not in finding defendants too readily to have, in the full sense, submitted to the adjudicator's jurisdiction, which if properly advised they plainly would not do. Rather, as Dyson J observed in paragraph 8 of his judgment in the Project Consultancy Group case, it is for courts (and adjudicators) to be "vigilant to examine the arguments critically." It is only if the defendant had advanced a properly arguable jurisdictional objection with a realistic prospect of succeeding upon it that he could hope to resist the summary enforcement of an adjudicator's award against him.

33. The position can I think be summarised in the following two propositions. (1) If a defendant to a Part 24(2) application has submitted to the adjudicator's jurisdiction in the full sense of having agreed not only that the adjudicator should rule on the issue of jurisdiction but also that he would then be bound by that ruling, then he is liable to enforcement in the short term, even if the adjudicator was plainly wrong on the issue. (2) Even if the defendant has not submitted to the adjudicator's jurisdiction in that sense, then he is still liable to a Part 24(2) summary judgment upon the award if the adjudicator's ruling on the jurisdictional issue was plainly right.

34. Applying those propositions in the instant case, I would hold that this appellant did not submit to the adjudicator's jurisdiction in the full sense and that the adjudicator's ruling was, on any view, not plainly right. Indeed, as already indicated, it seems to me that the adjudicator's ruling was, if anything, plainly wrong. I would accordingly allow the appeal, set aside the order made below and substitute for it an order dismissing the respondent's application for summary judgment.”

There is nothing controversial in these observations with which the other members of the Court of Appeal agreed.

31. There was a substantial argument before me as to the scope of the variation clause set out above. The parties can of course agree a wider or narrower variation clause. In Blue Circle Industries PLC v Holland Dredging Company (UK) Ltd (1987) 37 BLR 40, the Court of Appeal was concerned with a dredging contract in Lough Larne, Eire, which involved depositing the dredged material in places to be approved by the local authorities. Before the contract was entered into, the contractor was asked to quote additionally for works to form an artificial island to be constructed from the dredged material but this quote was not accepted before the dredging contract was entered into. One issue was whether or not the contractor would have been obliged to accept the works involved in constructing the island as a variation. The Court of Appeal agreed that this work could not have been instructed as a variation as it was “wholly outside the scope of the original dredging contract". Other than it being an example of work which was considered not to be a variation in an engineering contract, this case does not lay down, at least on this topic, any great point of principle. What one needs to do is to look at the variation clause in question and determine, depending on what the variation clause covers, whether the extra or altered work falls within it or not.

Discussion

32. One needs first to analyse the legal relationship between the parties up until the time that the final account dispute was referred to adjudication. My analysis is as follows:

(a) There undoubtedly was (as is accepted by both parties) a contract created by, contained in or evidenced by the letters of 17 and 18 December 2007. It is at the very least arguable that these letters simply confirm the offer and acceptance, given the references in both letters to each party “confirming” prices and acceptance of the price. This Sub-Contract related only to the grit blasting, painting and scaffolding works.

(b) The factual matrix however is that both parties knew that, albeit unsolicited, Supablast had quoted for the steel work back in October 2007 and had again been asked by Story in November 2007 to quote again for this work. It is an obvious inference that both Story and Supablast must have known, at the time that the December 2007 Sub-Contract was entered into, that there was a distinct possibility (albeit no commitment to that effect) that Supablast could well be engaged to carry out the steel work.

(c) The steel work quotation having been submitted and received no later than 3 January 2008, the price for it was negotiated and agreed before 16 January 2008.

(d) The minutes of the meeting of the 16 January 2008 can properly, sensibly and realistically be taken to evidence what was said and agreed between the parties at that time.

(e) Those minutes unequivocally record, objectively, agreement that all the works, the grit blasting, painting, scaffolding and steel work repairs, were to be carried out under the umbrella of one single agreement. Apart from the fact that the references to the Sub-Contract or subcontract agreement are all in the singular, all the works are described as being "Sub-Let". The Sub-Contract Price is defined as including the prices for all the works including the steel work. The first date for applying for payment is the same, 26^th January 2008. There is apparently to be a single practical completion and making good defects certificate. There is a single date for "commencing… of the contract works on site”. There is one "overall period for carrying out and completing the subcontract works on site”; this is obviously 60 days from commencement, that is from 21 January 2008, the commencement date. There is to be “one continuous” visit, that is all the work is to be done in one continuous run. The specification requirements include steel specifications. There is to be one set of meetings. The whole tenor of these minutes is that there is to be one Sub-Contract and there is nothing which suggests that there is to be more than one.

(f) Since all the various works were part of a logical and continuous process (erect scaffold-grit blast-repair/replace steel work-paint-dismantle scaffolding), there is no commercially logical reason why having a single subcontract for all this work was anything other than a sensible idea.

(g) If the two sets of work were intended to be the subject matter of two subcontracts, one would have expected in the minutes, at least in the "Additional Issues" or "Any Other Business" boxes, to see some hint or reference to that. If the steel work quotation which would have been an offer in contractual terms was not being legally accepted, again, one would expect to see some hint of this in these minutes.

(h) The fact that the letter of 29 January 2008 was sent, albeit there is no evidence that it was in some way formally acknowledged, does not point to any pre-existing agreement or understanding that there was and could have been no earlier acceptance (in legal terms) of the steel work quotation. If anything, it merely “confirms” a previous "acceptance of [Supablast’s] price”. The fact that it requires the subcontract reference to be exactly the same as that which covered the December 2007 Sub-Contract points unequivocally to an established mutual intention to treat the steel work as covered by and within the earlier Sub-Contract.

(i) The fact that thereafter there is no hint or suggestion from either party that they were proceeding on the basis of there being two Sub-Contracts or indeed on any basis other than there being only one Sub-Contract covering all the work corroborates the fact that the parties had agreed that there would be one Sub-Contract covering all the work. At the very least these facts point very strongly indeed to there being an agreed convention, to which the parties were working, namely that there was only one Sub-Contract covering all the work. There would thus be an estoppel by convention on which the parties had relied throughout the course of the project, in terms of ordering their affairs (for instance in relation to payments and extensions of time) by reference in effect to there being one subcontract.

(j) The fact, if it really is the case, that Story believed that there were two Sub-Contracts which were really only being run together as a matter of administrative convenience is immaterial in circumstances where that belief was not expressed by words or conduct to Supablast. That is because one judges whether and if so what contract exists objectively primarily by considering what each party says, orally or in writing, to the other and by their conduct as manifested to each other.

33. Although the arguments that there were two Sub-Contracts were put professionally, this is a case in which, based on the evidence put before the court and upon what goes on in the real world of construction contracts, there is an absence of reality in those arguments. I have formed the view that there is no real prospect of it being established either that there were and were agreed to be two Sub-Contracts or that there was no conventional estoppel that there was only one Sub-Contract. On that basis, the jurisdictional challenge made by Story is bound to fail and there should be judgement upon a summary basis in favour of Supablast. It seems obvious and clear that the parties agreed no later than the Sub-Contractor’s Preliminary Meeting on 16 January 2008 that both the original (scaffolding, grit blasting and painting) works and the steel works should be dealt with under the umbrella of one Sub-Contract whose essential and indeed detailed terms were recorded in the minutes of that meeting. Even if that in some way was wrong, the parties’ behaviour thereafter was such that there would be an estoppel by convention whereby the parties proceeded on the basis that there was only one Sub-Contract for all the works in question.

34. It is unnecessary to decide whether or not the steel works could have been ordered as a variation under the December 2007 Sub-Contract. Out of deference to the arguments of Counsel however, I would have formed the view that at the very least there was a reasonably arguable defence that they could not have been so instructed. It is difficult to form a final view about this without a detailed analysis of all the relevant sub-contractual documentation and without evidence. However, in broad terms, the Sub-Contract Works initially covered by the December 2007 Sub-Contract would have been the scaffolding, grit blasting and painting works. It would be difficult to argue that, absent such analysis or evidence, one could add very substantial steel remedial works which would appear to have been more than incidental to the grit blasting and painting works. It is of course variations to the “Sub-Contract Works” which can be instructed; it is not any “addition modification or omission” but only in effect an addition to, modification of or omission from the Sub-Contract Works (as defined) which can be instructed under the Variation clause in the ICE conditions agreed to in this case. It would of course be arguable that the parties agreed on an ad hoc but binding basis that the steel work was to be treated as if it was a variation.

35. It is not necessary to decide if the adjudicator had jurisdiction to decide whether or not there were one or two Sub-Contracts because it is clear that there was only one Sub-Contract, that the parties agreed that the two sets of works were to be treated as regulated by the one Sub-Contract and that the parties proceeded on the agreed assumption that there was only one Sub-Contract. Again, out of deference to the arguments of Counsel, I am of the view that this is a case where substance and jurisdiction overlapped and the adjudicator was acting within jurisdiction in deciding that the steel works were to be treated as having been instructed as a variation.

Decision

36. It follows that there will be a summary judgement for Supablast to enforce the Decision of the adjudicator in this case. The parties’ legal teams will make any further submissions on costs, interest and the like in writing and I will rule on that thereafter.

Costs

37. Following the transmission of the draft judgement in this case to Counsel, the parties have made submission on costs. Supablast claims a total of £24,127.31 on the basis of a three page breakdown. It argues that this is a case for indemnity costs on the basis that there really was no arguable defence to these enforcement proceedings; reliance is placed upon the case of Harris Calnan Construction Co Ltd v Ridgewood (Kensington) Ltd 2008 BLR132 in this context. This is challenged by Story on various grounds which I will deal with below.

38. I do not consider that this is a case for indemnity costs. Although I held (see above) that there was an absence of reality about the argument that the parties had not agreed to proceed upon the basis that there was only one Sub-Contract, I do not consider that it was put forward in bad faith, unprofessionally or wholly unreasonably. There had been a concentration by Supablast on the argument that the steel works were instructed as a variation to the existing December 2007 Sub Contract. As I held, the argument about whether there could be a variation was one which was arguable on the part of Story.

39. Story also argues that Supablast succeeded upon a basis different to that argued before the Adjudicator. That is a bad point, in my view, because the cost of these proceedings primarily depend on what is argued in these proceedings. I am also not satisfied that Supablast limited its argument before the Adjudicator to the variation basis. It is clear from the Adjudicator’s letter of 10 September 2009 that the argument before him encompassed much of the argument which was pursued in these proceedings.

40. A better point is made out by Story about the costs of and occasioned by the variation issue upon which Supablast effectively lost in these summary proceedings. It is clear that some time and cost was spent in pursuing this less arguable point. In my view, a reduction of 20% to reflect both parties’ costs spent addressing this issue and reasonably reflects an appropriate deduction for this point.

41. I now turn to the bill of costs put forward by Supablast. I consider that it is not reasonable that, subject to the 20% reduction, Story should be required to pay the full amount. 18 hours of partner time has been claimed whereas generally in a claim such as this the partner's role will be supervisory and client liaison. The rates claimed for both partner and associate seem high for a firm from central Birmingham against the guideline hourly rates. Taking into account all the matters raised, I am of the view that an allowance of £16,000 as costs would be reasonable and I summarily assess Supablast’s costs at that level on the following basis:

Total Bill £24,127.31

Less Summary reduction £4127.31

Sub total £20,000.00

Less 20% £4000.00

Total £16,000.00

Finally some issues were raised on the form of the Order in relation to what should happen in relation to the Adjudicator’s fees which he ordered should be paid by Story; this has not happened. There is no request by Story that there should be a formal application by Superblast to amend their Claim to deal with this point and the argument, such as it is, simply goes to the form of the Order. The parties are agreed that there should be an order that Story pays the Adjudicator his fees. I agree with the Claimant that there should be an order that Story shall indemnify the Claimant in respect of any claim made by the Adjudicator against the Claimant in respect of his fees and expenses. I do not consider that the Order need or should specify that Story shall pay interest to the Adjudicator; if interest is contractually or otherwise due to the Adjudicator, then it may be recovered by him from Story and, if it is not paid by Story, the form of the indemnity referred to earlier in this paragraph would suffice to protect Supablast.