Greentherm Mechanical Services Limited v KDJ Developments Limited [2012] EWHC 3525 (TCC)

This summary was provided by CMS Cameron McKenna LLP.

For more information visit http://www.cms-cmck.com/Construction/Construction-Disputes

summary

Where the parties’ submissions were not always consistent or easy to read, and ranged over a number of topics relating to the subcontract, the documents relied on as notices and the provisions of the Housing Grants, Construction and Regeneration Act 1996 as amended by the Local Democracy, Economic Development and Construction Act 2009 (the “Act”), the Adjudicator could not be said to have failed either to comply with natural justice or, in this context, to have exceeded his jurisdiction on the basis that there was a clear agreed position between the parties and that he had proceeded in a way contrary to that position. Additionally, to the extent that there was anything in his decision which was inconsistent with a case which had been put forward or not argued by a particular party, it came, in this case, within the principle set out by Jackson J and approved by Chadwick LJ in Carillion v Devonport Royal Dockyard[2005] EWCA Civ 1358, namely that it was an "intermediate position for which neither party was contending" and fell within the area where it was "not practicable for an adjudicator to put to the parties his provisional conclusions" rather than the "exceptional case" where there is a "frolic" by the adjudicator such as in Balfour Beatty v Lambeth[2002] EWHC 597 (TCC).

Technology and Construction Court, Mr Justice Ramsey

Background

On 27 October 2011, Greentherm Mechanical Services Limited (“Greentherm”) and KDJ Development Limited (“KDJ”) concluded a subcontract under which Greentherm was to carry out mechanical and electrical works at a residential development in Barking (the “Subcontract"). The Subcontract consisted of a letter signed by both parties, a five-page set of subcontract conditions, a valuation schedule and a set of pre-order meeting notes. The letter expressly incorporated and referred to the JCT Design and Build Subcontract Conditions (2005 edition, revision 2).

Various payment applications were made and paid in the period up to June 2012. On 2 June 2012, Greentherm submitted its payment application No 9 in the sum of just over £125,000. On 8 June 2012, KDJ submitted an undated payment sheet. On the face of it, it referred to application No 7 but a covering email stated that it was served in respect of application No 9. It stated that due to various listed contra-charges Greentherm has been overpaid by the sum of some £50,000. No further payment was made.

Greentherm then referred the claim to payment under the application of 2 June 2012 and the email of 8 June 2012 to adjudication by notice of adjudication dated 23 July 2012. The Adjudicator produced his written Decision on 4 September 2012 in which he ordered KDJ to pay Greentherm the sum of £73,637.10 plus VAT, together with interest and assessed costs.

KDJ did not pay and Greentherm therefore commenced court proceedings and applied for summary judgment under CPR Part 24.At the hearing both counsel for Greentherm and KDJ summarised the relevant payment  provisions in the Act in their submissions in similar terms, which in substance were as follows:

(1) Section 110A – Payment Notice

(a)        Every construction contract must make provision for a payment notice under either:

(i)          Section 110A(1)(a) from the payer or a specified person ("A Payer's Notice"); or   

(ii)        Section 110A(1)(b) from the payee ("A Payee's Notice").

(b)        In each instance, a notice complies if it specifies the sum which the "notifier" considers to be or have been due at the payment due date and the basis on which that sum is calculated (ss.110A(2) and (3)).

(2) Section 110B - Payee's Notice in Default

(a)        Section 110B of the Act permits the payee to serve his own payment notice in default if the payer or specified person under s.110A(1)(a) does not issue a notice ("A Payee's Notice in Default").

(b)        Section 110B(4) provides that where the contract permits or requires the payee to give a notice before the Payer's Notice under s.110A(1)(a) and the payee does so then the payee cannot give a Payee's Notice in Default.

(c)        The required content of a Payee's Notice in Default is the same as the required content of all the payment notices referred to in Section 110A.

(3) Section 111 -Requirement to Pay Notified Sum and Payer's Pay Less Notice

(a)        Sections 111(1) and (2) provide for the payer to pay the sum specified in the Payer Notice, Payee Notice or Payee Notice in Default as applicable.

(b)        However, Sections 111(3) to (6) allow the payer to serve a Pay Less Notice and in such circumstances to pay only the amount set out in that notice.

(c)        Again, the content of a Pay Less Notice is identical to all other notices referred to in the Act, specifying the amount which the person considers to be due and the basis upon which the sum is calculated (s.111(4)).

The Adjudicator found that this was a case where there should have been a Payer's Notice. He found that the document which was submitted by KDJ on 8 June 2012 was not a valid Payer's Notice and that, instead, there was a valid Payee's Notice in Default the form of the document of 2 June 2012. Finally, he found that there was no valid Pay Less Notice submitted by KDJ.

The Adjudicator's Decision was challenged by KDJ on a number of grounds.

Issues

The Court was asked to decide:

  • Whether in finding that this was a case where there should have been a Payer’s Notice the Adjudicator had departed from the agreed position between the parties that the case was one where there should have been a Payee’s Notice and had therefore exceeded his jurisdiction or failed to comply with natural justice?
  • Whether it was a breach of natural justice for the Adjudicator to find that the document submitted by KDJ on 8 June 2012 was not a valid Payer’s Notice even though this was not an express submission of either party?
  • Whether the Adjudicator failed to give reasons for his finding that the KDJ notice was not a valid Pay Less Notice?

Decision

The Court granted summary judgment in favour of Greentherm and held that:

  • This was not a simple case where both parties had said that there was to be a Payee’s Notice and only a Payee’s Notice, especially given that the parties’ submissions themselves were inconsistent and discussed alternative scenarios. The Adjudicator could not be said to have failed either to comply with natural justice or, in this context, to have exceeded his jurisdiction on the basis that there was a clear agreed position between the parties and he proceeded in a way contrary to that position.
  • The parties’ submissions put forward or at least left the door open for a number of alternatives. In those circumstances the Adjudicator was not required to provide any further provisional conclusions to the parties when he followed a possible alternative way which was open to him.
  • Whilst there were no submissions on the validity of the 8 June 2012 document as a Payer's Notice, there were submissions dealing with the position of that same document as a Pay Less Notice and the requirements of each of the notices in ss. 110A, 110B and 111 were the same. Equally, on the basis that the Payer's Notice was raised as a possibility by the submissions, the natural question which the Adjudicator had to ask was whether or not that notice was valid. This was therefore a case where the validity of the document of 8 June 2012 as a statutory notice was plainly raised, albeit in the context of it not being a valid Pay Less Notice. Having decided that it was a Payer’s Notice, the Adjudicator was not obliged to go back to the parties on the detail of its validity but was entitled to consider the provisions of the Act and the criticisms which had been made of the document as a Pay Less Notice.
  • The requirements for a valid notice under the provisions of the Act were the same whether the document was a Payer’s Notice or a Pay Less Notice; thus, the Adjudicator by making reference to his reasons for holding that the document of 8 June 2012 was not a valid Payment Notice had sufficiently given reasons for finding that it was not a valid Pay Less Notice.

This summary was provided by CMS Cameron McKenna LLP.

For more information visit http://www.cms-cmck.com/Construction/Construction-Disputes

 

Click here to read full-screen | Click here to print the case