Palmac Contracting Ltd v Park Lane Estates Ltd [2005] EWHC 919 (TCC)

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In considering a dispute regarding a payment application the issue of whether the application for payment has been validly served is not a question of whether a dispute has arisen and instead is a matter within the adjudicator's jurisdiction to decide. Under the JCT 98 with Contractor's Design form there is no requirement that a notice of adjudication be served on the responding party before an application is made to a nominating body for the appointment of an adjudicator – although it does have to be served on the responding party before the dispute is referred to the adjudicator.  

Her Honour Judge Frances Kirkham, Technology and Construction Court (Birmingham District Registry)

22 March 2005

The Claimant ("Palmac") contracted with the Defendant ("PLE") to carry out design and building work at a property owned by PLE. Work began in October 2003 and during the course of the works Palmac made various applications for payment which were paid by PLE. On 28 October 2004 Palmac issued a further application for payment, by email, to the Employer's Agent ("Nicol Thomas"). The amount claimed was the gross sum of £748,447.64. PLE declined to issue any notice in respect of the application and made no further payments.

Palmac considered that a dispute had arisen and, on 2 December 2004, sent PLE a notice of its intention to refer the dispute to an adjudication. An adjudicator was subsequently appointed but it transpired that PLE had not previously received the notice and the adjudicator declined to proceed. Palmac therefore prepared a second notice of adjudication, dated 15 December 2004. Palmac claimed that this notice was delivered by hand to PLE at approximately 1.00pm on the 15th December. At just before 2.00pm, Palmac faxed the notice to the RICS to request the appointment of an adjudicator, which duly took place on 17 December. PLE claimed that it did not, in fact, receive the (second) notice of adjudication until 16 December 2004 (the morning after Palmac claimed it was delivered to PLE's place of business). It was accepted that the adjudicator was appointed after the notice of adjudication had been served on PLE. The adjudicator found in favour of Palmac and decided that PLE should pay PLE £169,912 plus VAT, plus the adjudicator's fees. PLE refused to pay and Palmac applied for summary judgment to enforce the decision. 

PLE resisted enforcement on the various grounds. Firstly, it claimed that the service of the application for payment on 28 October 2004 was not in accordance with the contract since it was served by email. It claimed service by email was not permitted under the contract and the parties had in any case agreed to communicate by fax and letter rather than by email. As a consequence, PLE claimed, there was no dispute at the time of the reference to the adjudicator and therefore the adjudicator had acted without jurisdiction. 

The Judge rejected this argument. The adjudicator had been asked to decide a dispute regarding a payment application – in order to decide that dispute the adjudicator had to decide whether or not the application for payment had been validly made. It was within his jurisdiction to answer that question. The adjudicator expressly stated in his decision that he had decided that the application for payment had been validly made. It being a question he was entitled to decide, the court was not permitted to ask whether he had answered it correctly. 

The second ground upon which PLE relied was that the adjudicator had no jurisdiction because Palmac had failed to follow contractual provisions relating the appointment of an adjudicator, which required notice of adjudication to be given to the defendant before the claimant applied to the RICS for nomination. Palmac argued that the notice was served before it applied to the RICS (i.e. on 15 December) whilst PLE argued that the document had not been served until 16 December, which was after Palmac had applied to the RICS. 

The contract stated that "where either party has given notice of his intention to refer a dispute… to adjudication… then… any application to the nominator must be made with the object of securing the appointment… within 7 days of the date of the notice of intention to refer…" The Judge found that the clause "…does not mean that a party must first serve a notice then apply to a nominator. .. the purpose of that clause is to set out a procedure for appointment of an adjudicator. It does not stipulate that any application for nomination must be made after the notice of adjudication has been served". The judge noted that no prejudice was caused to PLE and there was no statutory requirement as to the timing of any nomination, only that the contract must aim to secure an appointment within 7 days of the adjudication notice. The court rejected the contention that this would make it easier for claimants to ambush defendants.

It is of note that the court rejected Palmac's reliance on the clause that stated "Any failure by either Party to comply with… any provision… shall not invalidate the decision of the adjudicator"; this clause, the court said, was relevant only to procedural steps within a validly constituted adjudication, and not relevant to the validity of an appointment.

PLE's third ground for resisting enforcement of the decision was that there was a breach of natural justice since the adjudicator had departed from a position that had been agreed between the two parties and had failed to allow the parties to comment on this departure. This ground was based upon the contention that the adjudicator had found that email delivery constituted effective notice despite the fact that the parties had agreed that it would not. In rejecting this, the court did not accept that the parties had agreed the position regarding service by email, and found that the adjudicator had in any case invited comment on the issue. The third ground therefore failed and the application for summary judgment was upheld.     

This summary was provided by CMS Cameron McKenna LLP.

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