Linnett v Halliwells LLP [2009] EWHC 319

This summary was provided by CMS Cameron McKenna LLP.

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

[2009] EWHC 319

Declining to accept the Adjudicator’s terms of engagement and challenging his jurisdiction will not usually save a party from contractual liability for the Adjudicator’s fees where that party still participates in the proceedings notwithstanding that it does so on a without prejudice basis.  Where there has been a failure to comply with the detailed procedural aspects of the JCT 1998 adjudication clause, the Court should be slow to find that this renders the relevant part of the process a nullity so as to deprive the Adjudicator of jurisdiction.   Where there is an express adjudication provision which complies with s.108 of the Housing Grants, Construction and Regeneration Act 1996 (“the Construction Act”), that provision is not undermined by an oral variation to the contract.

Technology and Construction Court, Mr Justice Ramsey

Judgment Date: 24.02.09

Background

Halliwells engaged ISG InteriorExterior Plc (“ISG”) to fit out their new Manchester offices.  ISG commenced adjudication proceedings (“the first adjudication”) in which Christopher Linnett (“the Adjudicator”) was appointed as adjudicator.  Halliwells challenged the Adjudicator’s jurisdiction, claiming (a) the contract had been varied orally and therefore was not “in writing” under the Construction Act, and (b) the Referral had been served out of time because the Adjudicator’s copy of the attachments had been lost in the post and was not received within 7 days of the Notice of Adjudication.  The Adjudicator sent terms of engagement to both parties which Halliwells refused to sign on the basis of their jurisdictional challenge.  They invited the Adjudicator to resign or alternatively to extend the date for service of their Response as a result of the late Referral.  The Adjudicator decided he had jurisdiction and Halliwells participated in the proceedings, without prejudice to their jurisdictional objection.

The Adjudicator decided in favour of ISG and apportioned his fees and expenses entirely to Halliwells.  The Adjudicator sent an invoice to Halliwells, which they refused to pay, claiming that they had never agreed to the Adjudicator’s appointment nor accepted the Adjudicator’s terms.  The Adjudicator brought a claim against Halliwells for recovery of his fees. 

ISG subsequently commenced a second adjudication with a different adjudicator which Halliwells successfully defended in part by reference to the decision in the first adjudication.   

Issues

The central issue for the Court was the effect of a jurisdictional challenge on the liability of a party to pay the Adjudicator’s fees and expenses.  The Court also considered whether the Adjudicator did in fact have jurisdiction in the present case, and the effect of Halliwells’ reliance on the first adjudication in the second. 

Decision

The Court held as follows:

  • The ability of an adjudicator to obtain fees depends on there being a contractual right to payment under the adjudicator's agreement with one or both of the parties.  Where a party does not accept the adjudicator’s proposed terms of engagement but nevertheless participates in the adjudication, it thereby requests the adjudicator to act and there is a contract made by conduct with the adjudicator who acts in that capacity as a result of that request.  Such contract would contain an implied term that the party will be jointly and severally liable with the other party for the adjudicator’s reasonable fees and expenses. 

 

  • Where a party objects to the adjudicator’s jurisdiction and withdraws from the proceedings altogether, there is no request to act and thus no contract.  However, where a party objects to the adjudicator’s jurisdiction (validly or not) but participates in the proceedings (albeit without prejudice to that objection), this does constitute a request to act which, if accepted by the adjudicator, gives rise to a contract by conduct. 

  • In this case, Halliwells had asked the Adjudicator to withdraw but, in the alternative, asked him to adjudicate the merits, albeit reserving their position on jurisdiction.  In doing so, they asked the Adjudicator to proceed and carry out work and, whatever the correct position on jurisdiction, there was an acceptance by Halliwells that, if the Adjudicator rejected the jurisdictional argument, he would carry out work in dealing with the merits.  The request from Halliwells and the fact that the Adjudicator proceeded with the adjudication gave rise to a contract formed by conduct with an obligation by Halliwells to pay the Adjudicator's reasonable fees and expenses. 

  • Even if this was wrong, the Court held that Halliwells had been unjustly enriched by the Adjudicator’s decision and were therefore liable for his fees in restitution. 

  • Although not strictly necessary to decide, the Court held that the Adjudicator did in fact have jurisdiction.  

  • The adjudication was brought under the provisions of clause 41A of the 1998 JCT Standard Form of Building Contract.  Previous authority stated that the timetable set out in those provisions was mandatory but must be operated in a “sensible and businesslike way”.  This meant that where there has been a failure to comply with the detailed procedural aspects of the JCT clause, the Court should be slow to find that this renders the relevant part of the process a nullity so as to deprive the adjudicator of jurisdiction.  In the present case, the Court did not think the late service of the Referral attachments was a sufficient breach to render the Adjudicator’s decision a nullity.  Further, clause 41A.5.6, properly construed, meant  that procedural non-compliances within a validly constituted adjudication would not invalidate the decision.  The clause was apt to cover the failure to serve the Referral attachments on the Adjudicator within seven days, as occurred in this case.
  • As to the “writing” requirement under the Construction Act, where – as in this case - there was an express adjudication provision which complied with s.108 of the Construction Act, this was not affected by an oral variation to the contract.

  • Finally the Court held that Halliwells would in any event have been precluded from arguing that the Adjudicator had no jurisdiction.  They had elected to treat the decision in the first adjudication as binding in order to defend ISG’s claim in the second adjudication and could not “blow hot and cold” by now claiming the first decision was invalid for want of jurisdiction.

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