CRJ Services Limited v Lanstar Limited [2011] EWHC 972 (TCC)

This summary was provided by CMS Cameron McKenna LLP.

For more information visit http://www.cms-lawnow.com/adjudication

Judgment Date: 19.04.2011

SUMMARY

(1) Where a document relevant to the question of whether an adjudicator has jurisdiction is served on an adjudicator but not the other party to the adjudication, this will not necessarily amount to a material breach of the rules of natural justice. (2) A material breach of the rules of natural justice relating to an adjudicator’s investigation as to his jurisdiction will not necessarily render the overall decision invalid. The investigation as to jurisdiction is separate from the substantive decision, not forming part of the enforceable decision. Generally speaking the substantive decision will only be rendered invalid by a material breach of the rules of natural justice relating to the substantive decision. (3) However, there may be circumstances in which an adjudicator’s conduct in investigating his or her jurisdiction is in such serious breach of the rules of natural justice, that a court considers the adjudicator to be incapable of conducting an adjudication fairly and therefore the substantive decision to be invalid.

Technology and Construction Court, Akenhead J

BACKGROUND

Lanstar Ltd (“Lanstar”) ran an environmental waste management and recycling business at a site known as the Pound Bottom site (“the Site”), and since 2007 had hired plant and equipment from CRJ Services Ltd (“CRJ”). In 2007 most of the contracts were for hire periods of 1-3 days. Between 2008 and mid 2009, a number of contracts were entered into for varying hire periods (ranging between a day and a year). These were signed by one Mr Vaughan, who was engaged by Lanstar to run the Site. Mr Vaughan was not a Lanstar employee but was engaged on a consultancy basis. However, in dealings with CRJ he was identified as Lanstar’s “Landfill Materials and Recycling Facilities Manager”. In late 2009 / early 2010 three further contracts

were entered into, signed by Mr Vaughan. These were notable for their duration (2 or 3 years each) and the fact that they stated that if the machinery was returned prior to the end of the hire

term, 60% of the hire charge for the remainder of the hire period was payable.

In March 2010, Lanstar terminated Mr Vaughan’s engagement and in April 2010 Lanstar told CRJ that he hadn’t had authority to sign the contracts and they did not consider themselves to be bound by them. However, Lanstar continued to use the machinery and pay CRJ’s invoices. In September 2010 Lanstar closed the Site and terminated the three long term hire contracts.

CRJ commenced adjudication proceedings in respect of one of the long term hire contracts, seeking 60% of the hire charge for the duration of the hire term. Lanstar objected to the jurisdiction of the Adjudicator on the basis that there was no contract between it and CRJ, as Mr Vaughan did not have authority to enter into the hire contract.

During the adjudication CRJ served a witness statement from Mr Vaughan, which stated that he had express authority from Lanstar to enter into the contracts. There was evidence that this was dispatched to both the Adjudicator and Lanstar’s solicitors. However, Lanstar’ solicitors denied that they had received it.

The Adjudicator’s decision dealt with both the jurisdictional challenge and the substantive issue, which was whether the 60% charge for the remainder of the hire term was a penalty, and therefore unenforceable, or not. The adjudicator formed the view that whilst Mr Vaughan had no actual authority, he did have apparent authority. That decision was influenced by the fact that Mr Vaughan was allowed to use the title “Landfill Materials and Recycling Facilities Manager” and the nature of his role at Lanstar. With regard to the 60% charge, the adjudicator decided that this was a genuine pre-estimate of loss and was therefore enforceable.

CRJ sought to enforce the Adjudicator’s decision by way of summary judgement. Lanstar challenged the enforcement on the basis that 1) Mr Vaughan had no authority to enter into the hire contract, therefore there was not an agreement to adjudicate and the Adjudicator did not have jurisdiction; and 2) there was a breach of the rules of natural justice because the Adjudicator decided the jurisdictional issue on the basis of Mr Vaughan’s witness statement, which Lanstar had not seen nor had an opportunity to respond to.

ISSUES

The Court considered the following questions:

Did Lanstar have a realistic prospect of showing that Mr Vaughan had no authority to enter into the relevant contract (and therefore that the Adjudicator had no jurisdiction)?
Had there been a material breach of the rules of natural justice so as to invalidate the Adjudicator’s decision?

DECISION

The Court held that:

There was no reasonable prospect of it being established that Mr Vaughan did not have authority to enter into the relevant hire contracts. In assessing the evidence, the court noted that Mr Vaughan had been engaged by Lanstar as the Landfill Materials and Recycling Facilities Manager at the Site and certainly had authority to hire plant, as evidenced by the fact that the hire charges under the contracts were paid by Lanstar up to termination (at the end of 2009 these amounted to over £7,250 a week). There was no evidence that Lanstar had indicated to CRJ that Mr Vaughan’s authority was limited to contracts for short hire periods and no evidence that would have alerted CRJ to Mr Vaughan not having authority at the time of contract or indeed for some time after. Therefore, whilst there was some evidence to suggest that Mr Vaughan did not have actual authority to enter into the long-term contracts, there was strong evidence pointing to him having implied or apparent authority.
There was no material breach of the rules of natural justice. In coming to this conclusion, the court noted that:

The Adjudicator acted innocently and had no reason to believe that the witness statement had not been served on Lanstar.

The Adjudicator didn’t accept the contents of Mr Vaughan’s witness statement, finding that he had apparent authority to enter into the contracts but not express authority, as asserted in the witness statement. The Adjudicator reached this conclusion by reference to various independently supported facts and not on the basis of what was said in Mr Vaughan’s witness statement.

The Adjudicator didn’t have jurisdiction to decide his own jurisdiction and therefore the decision, so far as it was enforceable, was limited to dealing with the question of the 60% hire charge. In expressing his views on the question of agency, the Adjudicator was simply stating what the outcome of his investigation into his jurisdiction was. This didn’t form part of the decision on the dispute referred to him.

Whilst there might be instances in which an adjudicator’s conduct in deciding upon his or her jurisdiction is in such serious breach of the rules of natural justice as to suggest to the courts that he or she is unfit to conduct an adjudication fairly, this was not the case in this instance.
The Adjudicator’s decision should be enforced.

This summary was provided by CMS Cameron McKenna LLP.

For more information visit http://www.cms-lawnow.com/adjudication

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