Ellis Building Contractors Limited v Vincent Goldstein [2011] EWHC 269 (TCC)

This summary was provided by CMS Cameron McKenna LLP.

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

Judgment date: 18 February 2011

SUMMARY


(1) Without prejudice communications should not be deployed in adjudication proceedings. (2) Although a "without prejudice" letter was deployed in the instant case, its deployment did not give rise to a legitimate fear that the adjudicator might not have been impartial. (3) Where an issue is clearly and properly before an adjudicator, the fact that a party to the adjudication chooses not to address that issue head-on does not entitle that party to challenge the enforceability of the decision on the ground that the adjudicator has, in breach of the rules of natural justice, decided the case on a basis that has not been argued by either side. 

Technology and Construction Court, Akenhead J

BACKGROUND


Mr Goldstein employed Ellis Building Contractors Limited (“Ellis”) to refurbish 12 commercial units in Brighton. Ellis commenced work under a Letter of Intent dated 18 June 2009 (“the First Letter of Intent”).  The Letter, stated, inter alia, that Mr Goldstein intended to enter into a contract with Ellis for the refurbishment works, that the letter was based on a contract sum of £472,197.31 + VAT, that Ellis was authorised to commence preconstruction works, and that these works would be carried out under the JCT 2005 Intermediate Building Contract (“the IBC”).  Work proceeded on site, but by April 2010, no contract had been signed and Mr Goldstein’s consultants were forecasting  an overspend of some £110,000 above the contract sum.  A second Letter of Intent was signed on 4 May 2010 (“the Second Letter of Intent”).  This Letter extended the authority of the First Letter of Intent to expire on the execution of the contract and stated that the works would be carried out under the IBC.  The letter contained an undertaking to pay the proper and reasonable costs incurred by Ellis for properly providing the services, works, goods and materials in accordance with the letter, providing that Mr Goldstein’s

 

liability would not exceed £580,000. In June 2010, Mr Goldstein’s consultants drew up contract documents based on the IBC  and gave them to Ellis for signature.  Ellis signed these documents and sent them to Mr Goldstein but they were not executed by Mr Goldstein.

Following completion, Ellis claimed that the total gross sum due in respect of the works was £650,224.46 and commenced an adjudication in which it claimed the amounts unpaid.  . Following Ellis’s notice of adjudication, Mr Goldstein’s solicitor wrote a “without prejudice” letter on 21 December 2010 to Ellis’s solicitor which argued that the First Letter of Intent was an agreed cap between the parties.
 
In its Notice of Adjudication, Ellis asserted that the contract was the IBC as identified in the two Letters of Intent and as detailed in the contract documents prepared by Mr Goldstein’s consultants.  In its Referral Notice, Ellis also asserted that the IBC was part of the contract.  It pointed out that the contract documents drawn up by Mr Goldstein’s consultants identified the original contract sum of £472,197.31 which was not subject to a cap but was subject to the normal adjustments.  In his Response, Mr Goldstein argued that the sum set out in the Second Letter of Intent was his maximum liability.  He accepted that the IBC was incorporated but this was subject to the terms of the Letters of Intent.  He specifically did not accept that the parties had conducted themselves as though the contract documents issued by Mr Goldstein’s consultants were in full effect.  In its Reply, Ellis referred to the without prejudice letter to show that Mr Goldstein had not previously sought to rely on the Second Letter of Intent. Ellis again referred to the fact that the contract documents issued by Mr Goldstein’s consultants did not contain any financial limit.  Mr Goldstein and his solicitors made no objection to the use of the without prejudice letter at that time.

The Adjudicator found in Ellis’s favour, deciding that the parties had firstly contracted on the First Letter of Intent, then on the Second Letter of Intent, and, finally, on the contract documents issued by Mr Goldstein’s consultants, which did not contain any financial limits. The Adjudicator ordered Mr Goldstein to pay the sums claimed by Ellis and his fees.

Ellis sought summary judgment to enforce the Adjudicator’s decision. Mr Goldstein opposed the

 

application on the basis that the Adjudicator had decided the case on a basis that had not been argued by either side in breach of the rules of natural justice and that there was apparent, as opposed to deliberate, bias on the part of the Adjudicator in allowing in and not raising with the parties the without prejudice letter.

ISSUES


The Court was asked to address the following issues:

  • Whether the Adjudicator, in breach of the rules of natural justice, had decided the case on a basis that had never been argued by either side, namely that the contract between the parties was in the contract documents which had been issued by Mr Goldstein’s consultants and signed and returned by Ellis,; and
  • Whether there was apparent, as opposed to deliberate, bias on the part of the Adjudicator in allowing in and not raising with the parties the without prejudice letter.

DECISION


The Court held:

  • The impact of the issue and the signing by Ellis after the Second Letter of Intent of contract documents that contained no financial limit was clearly and properly before the Adjudicator and it was open to him to find as he did.  There was no unfairness on the part of the Adjudicator in this respect.  The fact that Mr Goldstein chose not to address the point head-on in his submissions did not allow him to challenge the enforceability of the decision.
  • Without prejudice communications should not be put before an adjudicator. Lawyers who do so could face professional disciplinary action.
  • Where an adjudicator decides a case primarily upon the basis of wrongly received without prejudice material, his or her decision may well not be enforced. 
  • The test for apparent bias is whether, on an objective appraisal, the material facts give rise to a legitimate fear that the adjudicator might not have been impartial.  The Court in any enforcement

 

proceedings should look at all the facts which may support or undermine a charge of bias, whether such facts were known to the adjudicator or not.

  • The facts in this case did not give rise to a legitimate fear that the Adjudicator might not have been impartial. In reaching his decision, the Adjudicator did not expressly rely upon or need to rely upon the (at best) "jury" point made by Ellis that Mr Goldstein had not raised the Second Letter of Intent point before the adjudication. No objections was raised at the time by Mr Goldstein or his solicitors to the submission of the without prejudice letter.  The without prejudice letter did not raise anything other than a tangential point which was in any event supported by other "open" evidence. The very fact that the Adjudicator did not mention the without prejudice communication suggested very strongly that it was not part of and clearly did not and did not need to influence his reasoning.
  • As a result, Ellis was entitled to summary judgment for the sums claimed.

This summary was provided by CMS Cameron McKenna LLP.

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

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