KNN Coburn LLP v GD City Holdings Limited [2013] EWHC 2879 (TCC)

This summary was provided by CMS Cameron McKenna LLP.

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

summary

(1) In an adjudication under the Scheme for Construction Contracts, the time for the adjudicator to reach his/her decision runs from the date of the referral notice not the date when the supporting documents are received, except where the nature of the dispute cannot be identified without reference to the supporting documents. (2) A responding party who participates without protest in an adjudication in accordance with a timetable that does not comply with the Scheme may lose any right to object that the adjudicator’s decision has not been reached in time. A referring party who so participates may be taken to have consented to the adjudicator having further time to reach his/her decision under the Scheme. (3) On the facts of this case an adjudicator had not been asked to decide an issue already decided in a previous adjudication and he therefore had jurisdiction. (4) The inadvertent failure by an adjudicator to consider one of a number of issues will ordinarily not render his/her decision unenforceable. The touchstone should be whether the inadvertent failure meant that the adjudicator had not effectively addressed the major issues raised on either side.

Technology and Construction Court, Mr Justice Stuart-Smith

background

In January 2013, KNN Coburn LLP (“KNN”) commenced an adjudication in which it sought payment of liquidated damages alleged to be due to it from GD City Holdings Limited (“GD”). This was the third adjudication arising out of a contract that had ended acrimoniously, the previous two, having been decided by a different adjudicator (“the Previous Adjudicator”).

In one of the previous adjudications GD had claimed the balance due under its final account. KNN had asked the Previous Adjudicator to decide that GD should pay KNN liquidated damages for delay. GD replied that it was entitled to a full extension of time but that in any event KNN was not entitled to recover because it had not given a withholding notice. In his decision the Previous Adjudicator held that GD was entitled to a partial extension of time and that if KNN’s project managers were correct about the period of overall delay KNN had a putative claim for liquidated damages of £20,000. However the lack of a valid withholding notice meant that he could not take into account such a claim in calculating whether payment was to be made to GD.

In the January 2013 adjudication, KNN’s solicitors emailed a soft copy of the referral notice to the Adjudicator on 31 January 2013 and explained that the hard copy with supporting documentation had been sent to him by guaranteed next day delivery. On 1 February 2013, following receipt of the supporting documentation that day, the Adjudicator wrote to the parties stating that the Scheme for Construction Contracts applied and setting out a timetable. He explained that he was taking 1 February 2013 as day zero and that day 28 (the date for a decision) would be 1 March 2013.

GD’s solicitors raised a jurisdictional objection that the previous adjudications had already addressed the issue being referred to him and requested that the Adjudicator resign. The Adjudicator rejected this challenge. On 7 February 2013, GD’s solicitors wrote to the Adjudicator stating that GD’s participation in the adjudication was without prejudice to GD’s position with regard to his jurisdiction. They indicated that they would serve a response but that this would be a day later than the date set out in the Adjudicator’s timetable.

The adjudication then proceeded. In a rejoinder GD relied upon clause 2.17.4 of the contract which provided that the Contractor’s liability in respect of any Employer’s Claim would be limited to the amount actually recovered from any Consultant or Sub-Contractor who had carried out work in connection with the Employer’s Claim. The Adjudicator issued his decision on 1 March 2013. The decision was in favour of KNN. It did not refer to the clause 2.17.4 defence.

On receipt of the decision, GD’s solicitors wrote to the Adjudicator asserting that the decision was late and that the proper date of the referral notice was 31 January 2013 (not 1 February).

KNN issued legal proceedings in which it sought summary judgment enforcing the Adjudicator’s decision.

Issues:

The Court was asked to decide:

  • Whether the Adjudicator’s decision had been given in time.
  • Whether the Adjudicator had jurisdiction to determine the amount of liquidated damages payable to KNN.
  • Whether the Adjudicator had acted in material breach of the rules of natural justice in regard to GD’s reliance on clause 2.17.4 of the contract.

Decision:

The Court held that:

  • Paragraph 19(1) of the Scheme makes the referral notice the document by reference to which the process is to be commenced and the running of time is to be measured. The Court must keep in mind the distinction in the Scheme between the referral notice on the one hand and the supporting documents the other. In this case the nature of the dispute could be identified without reference to the supporting documents. On this basis, the date for reaching the decision was to be measured from the date of the referral notice, 31 January 2013, not the date of receipt of the supporting documents. It therefore followed that the Adjudicator’s decision was issued a day late.
  • However, GD’s full participation in the adjudication process in accordance with the Adjudicator’s timetable should be taken as acquiescence in the timeline he had laid down, including the issuing of his decision on 1 March 2013. The fact that such participation was said to be without prejudice to GD’s jurisdictional objection did not mean that there had been no acquiescence in the timetable. It was not open to GD to do nothing until 1 March 2013 and then to attempt to spring a procedural trap without any warning.
  • KNN’s conduct as referring party in complying with the Adjudicator’s timetable signified its consent to it such that the decision was within time by virtue of paragraph 19(1)(b) of the Scheme, which allows the adjudicator to reach his decision within 42 days of the referral notice with the consent of the referring party.
  • The decision of the Previous Adjudicator was that KNN was not entitled to withhold any monies from the final account payment because of the absence of a valid withholding notice. He did not decide what the correct amount of liquidated damages was. Therefore, it was open to the Adjudicator to decide as he did.
  • The omission of any reference to clause 2.17.4 appeared to be inadvertent. An inadvertent failure to consider one of a number of issues will not ordinarily render a decision unenforceable. The touchstone should be whether the inadvertent failure meant that the adjudicator had not effectively addressed the major issues raised on either side. The failure must be material in the sense of having had a potentially significant effect on the overall effect of the adjudication.
  • Clause 2.17.4 was generally inapplicable to a claim for liquidated damages and was inapplicable on the facts of this case where GD had not attempted to show that any consultant or subcontractor carried out work in connection with the claim for liquidated damages that was being advanced by KNN in the adjudication.
  • On the facts of this case, the grounds of challenge raised by GD were rejected and KNN was entitled to enforce the Adjudicator’s decision made on 1 March 2013.

This summary was provided by CMS Cameron McKenna LLP.

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

 

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