Viridis UK Ltd v Mulalley & Company Ltd [2014] EWHC 268 (TCC)

This summary was provided by CMS Cameron McKenna LLP.

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

summary

(a) An adjudicator did not have jurisdiction to decide a dispute which arose under more than one contract and his award could not therefore be enforced. (b) The decisions in Air Design v Deerglen, Camillin v Adelaide Jones and Supablast v Story Rail were authority for the proposition that an adjudicator can decide jurisdictional issues that are coincidentally part of the substantive dispute referred to him only if he is appointed under a contract as to the existence of which there can be no dispute. (c) An adjudicator had not breached the rules of natural justice in failing to deal with a discrete defence raised by the responding party. It was enough that in his award the adjudicator had made it clear that he had considered all of the documents and submissions provided. (d) An adjudicator had not exceeded his jurisdiction by including retention in this award where the claimant’s claim did not make any allowance for retention and the responding party did not raise any question as to retention in its reply. 

Technology and Construction Court, Judge Stephen Davies

background

Mulalley and Company Ltd (“Mulalley”) was appointed as the main contractor on a refurbishment project for a housing association in South-East London. Viridis UK Ltd, a specialist window sub-contractor (“Viridis”), tendered for the contract to replace the windows and doors.

After various negotiations and discussions, Mulalley issued a number of separate orders to Viridis for certain elements of the works:

  • Order 21 (works to a pilot property), dated 4 March 2011 for some £2,500.
  • Order 24 (which was said by Viridis to be the sub-contract order governing all the works), dated 21 March 2011 for some £1.76 million.
  • Order 28 (surveying works), dated 21 April 2011 for some £11,440.
  • Order 47 (pilot works to three properties), dated 27 July 2011.
  • Order 51 (replacement doors and windows at one of the properties), dated 22 August 2011 for some £164,000.
  • Orders 62 and 77, issued in September and November 2011. Both were substantial orders for the remainder of works within the scope of order 24.

In March 2013, Mulalley purported to terminate the sub-contract. Following the purported termination, Viridis referred a dispute over its final account to adjudication. Mulalley challenged the jurisdiction of the Adjudicator, arguing that the dispute arose under six contracts, not one (order 24), as Viridis alleged. The Adjudicator concluded that he had jurisdiction and, in his decision dated 6 June 2013, he awarded Viridis £213,844 plus VAT.

When Mulalley did not pay the sums the Adjudicator awarded, Viridis started legal proceedings to enforce the award and sought summary judgment under CPR Part 24. Mulalley argued that Viridis never accepted order 24, which is why the subsequent orders were issued. This meant there were six contracts, not one. As witness evidence was required to determine the issue, Viridis withdrew the summary judgment application and the parties proceeded to a full trial regarding the enforceablility of the Adjudicator’s award.

Mulalley maintained its multiple-contract argument. Viridis argued that order 24 represented the parties' sub-contract and that subsequent orders were either works orders placed under the "overarching contract formed by order 24" or were variations to order 24.

issues

The Court was asked to decide:

  • How many contracts there were?
  • The substantive jurisdiction issue i.e. did the Adjudicator have jurisdiction to decide how many contracts there were as part of his substantive jurisdiction, so that even if he was wrong, his decision should be enforced?
  • Whether the Adjudicator breached the rules of natural justice by failing to deal with Mulalley's defence that it was entitled to deduct 10% of the order value by reason of the failure of Viridis to produce certain certificates as required by the sub-contract?
  • Whether the Adjudicator exceeded his jurisdiction or breached the rules of natural justice in considering and deciding that Mulalley’s termination of the sub-contract was invalid and by awarding Viridis a sum that included retention?

decision

The Court held that:

  • The parties never reached agreement on payment terms, liquidated damages (LDs) and survey costs, which meant Viridis never accepted order 24, either expressly or by its conduct. The subsequent orders Mulalley issued were not variations or orders placed under an "overarching framework contract". Rather, Viridis undertook the substantive works under and by reference to contracts formed by its acceptance of orders 51, 62 and 77. On the current state of the law a referring party may refer only one dispute to adjudication, so that in the absence of express contractual provision or agreement to the contrary a party is precluded from referring a dispute arising under more than one contract to adjudication. The Adjudicator therefore had no jurisdiction to decide the dispute in this case, which arose under three separate contracts.
  • The judgments in Air Design v Deerglen [2008] EWHC 3047 (TCC), Camillin v Adelaide Jones [2009] EWHC 2110 (TCC) and Supablast v Story Rail [2010] EWHC 56 (TCC) are authority for the proposition that an adjudicator can decide jurisdictional issues that are coinicidentally part of the substantive dispute only if he is appointed under a contract about which there is no dispute. Here, the Court found that Viridis never accepted order 24. Therefore, the very contract under which the Adjudicator was allegedly appointed was in dispute.
  • Further, this was not a case where the Adjudicator was required, as part of the substantive dispute, to decide whether the subsequent orders were variations of the original order. Viridis advanced a simple final account claim under a sub-contract. The issue of whether there was more than one contract went to the Adjudicator's jurisdiction. The Adjudicator (wrongly) decided that he had jurisdiction. Mulalley never gave the Adjudicator jurisdiction to decide that question and should not be bound by his decision now.
  • The Adjudicator had not breached the rules of natural justice by disregarding Mulalley's certificate defence in his decision. It is well-established that an adjudicator must answer the question referred to him, including addressing all the defences raised to the claim. However, the Adjudicator was not obliged to state all of his reasons for rejecting each particular defence; it was enough that he had made it clear that he had considered all of the documents and submissions provided by Mulalley (including referring to the certificate defence as part of a contra charge claim). This was not a case where the Adjudicator had concluded he had no jurisdiction to deal with the certificate defence and had refused to address it.
  • The Adjudicator had jurisdiction when he addressed the issue of the validity of Mulalley’s purported termination, since Mulalley had chosen to rely upon its termination as a defence and Viridis had then disputed the validity of the termination. It was not open to a party to raise a particular issue and then seek to restrict the Adjudicator's ability to decide that issue.
  • The Adjudicator also had jurisdiction to award sums which Mulalley contended ought to have been deducted by way of retention. Viridis’ claim did not make any allowance for retention and Mulalley did not raise any question as to retention in its reply. Accordingly the Adjudicator had jurisdiction to decide the final account entitlement and to decide that Mulalley should pay that sum to Viridis.

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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