I’m pleased to say that I am too young to remember The Doors in their heyday, but I loved the biographical film that was released when I was a teenager. What, you may well ask, have The Doors got to do with jurisdictional reservations? Well, when I read the recent adjudication enforcement judgment in Lane End Developments Construction v Kingstone Civil Engineering, which concerns, among other things, jurisdictional reservations, the song that popped into my head was People Are Strange. I can only put this down to some of the facts.
Lane End v Kingstone – the facts
Lane End was the main contractor on a housing development in Cheshire and Kingstone was its enabling works contractor.
In March 2020, Kingstone issued an interim application for payment. It said that Lane End failed to issue a pay less notice and so, in an email timed at 07.46 on 20 March 2020, it asked RICS to appoint an adjudicator. At a meeting later that day Kingstone issued Lane End with its notice of adjudication.
Pausing there, the astute among you will have realised the problem with the timing of the notice of adjudication. More of that below, but it is worth mentioning that it later emerged that Kingstone’s representative, Mr Barker, had covertly recorded the meeting on 20 March 2020.
The adjudicator was appointed and wrote to the parties on 23 March 2020 advising them of his appointment. Lane End challenged the adjudicator’s jurisdiction on the ground that the notice of adjudication did not comply with the Scheme for Construction Contracts 1998, but made no mention of the timing of the notice. The adjudicator rejected this challenge and pressed on.
On 8 April 2020, the adjudicator received an automated “out of office” email from Lane End stating that they were closed for business due to the COVID-19 pandemic. He responded by email to Lane End (but not Kingstone) stating that “this effectively terminates the adjudication”, and he ordered Lane End to pay his fees to date, which they duly did.
It appears that Kingstone became aware of the termination around 15 April 2020 and, following various emails with the parties, on 16 April 2020 the adjudicator wrote to them saying that it was now apparent that Lane End was “not closed for business; I have not resigned and I will therefore continue”. He proceeded to make a decision in Kingstone’s favour, finding that no valid payment or pay less notice had been served.
Part 7 and Part 8 proceedings
Lane End did not pay and sought a Part 8 declaration from the TCC that the adjudicator’s decision should be set aside or not enforced, while Kingstone started a Part 7 claim to enforce the adjudicator’s decision.
The matter came before HHJ Halliwell who refused to enforce the decision on the ground that the adjudicator was not validly appointed because Kingstone submitted its request to RICS before giving its notice of adjudication, thereby breaching paragraph 2(1) of the Scheme. However, the case dealt with some other interesting issues, which I now want to talk about.
The covert recording
The covert recording of the meeting on 20 March 2020 struck me as interesting because it’s something that has cropped up in a number of my adjudications. I think that it is on the rise given that it is becoming easier to record using dictaphone apps on smartphones, as well as internet office phone systems allowing the recording of phone conversations at the touch of a button. Kingstone wanted to rely on the recording as it maintained that it demonstrated that Lane End was aware that the application was made to RICS prior to the meeting and service of the notice. In other words, it had knowledge of the adjudicator’s defective appointment and didn’t take the point.
Issues were raised as to whether the covert recording could amount to an unlawful interference with the ECHR Article 8 rights of privacy of at least those attending on behalf of Lane End, as well as whether Mr Barker processed “personal data” within the meaning of GDPR Article 4(1) without complying with the regulatory requirements of the GDPR and thus acted unlawfully.
Ultimately, because the covert recording had been served with a witness statement from Mr Barker shortly before the court hearing, the judge refused to admit it because it would result in procedural unfairness. As such, he didn’t have to decide whether there had been any breach of the ECHR or GDPR. However, it would be interesting to see these points developed in a future case.
The “termination” of the adjudication
Not unsurprisingly, Lane End argued that the adjudicator ceased to be in office when he sent his email referring to the termination of the adjudication.
The judge was satisfied that this email was intended to be a notice of resignation, but he held that the adjudicator had not validly terminated his appointment because paragraph 9(1) of the Scheme only allows the adjudicator to resign by giving notice to both parties, and the adjudicator’s email was only sent to Lane End.
The oddity of some of the facts of the adjudication aside, the really interesting part of this case concerns the question of whether Lane End elected to waive the defect in the adjudicator’s appointment. In my view those of you involved in adjudication on a regular basis should take heed of the judge’s findings.
The judge said that the relevant questions he had to address were as follows:
- Did the defect in the adjudicator’s appointment present Lane End with the opportunity to make a relevant election?
- If so, did Lane End:
- know of the facts giving rise to its right of election and, indeed, of its right of election?
- elect to waive the defect or lose its right of election by participating in the adjudication without doing enough to reserve its rights?
Did the defective appointment present an opportunity to make an election?
The judge said that in order to successfully invoke the principle of waiver by election, Kingstone had to show that the issue in relation to the adjudicator’s appointment was the function of a defect that furnished Lane End with a relevant choice.
Lane End submitted that this principle could not apply here because the defect arose from Kingstone’s decision to request nomination of an adjudicator before serving its notice of adjudication on Lane End and that, since the whole process of adjudication cannot start until notice of adjudication has been served, any step taken before service of the notice is a nullity.
Interestingly, the judge agreed with this argument. He considered that there could be no adjudication until Kingstone had served the notice of adjudication, and until then no opportunity could have arisen for Lane End to choose between two alternative courses of action. He therefore concluded that the relevant defect was not and is not susceptible to waiver by election.
Pausing there for a moment, it appears to me that this case is authority for the proposition that, where an adjudicator’s appointment is invalid due to the application to the ANB being served prior to the notice of adjudication, this defect cannot be waived by a responding party. Parties and their representatives should take note of this because if, like me, you were working on the assumption that it is open to a responding party to waive such a defect and carry on, then you would apparently be mistaken.
Although it wasn’t strictly necessary for the judge to consider the second and third questions, he did so anyway to assist the parties.
Were the facts giving rise to right of election known?
The judge noted that no person can meaningfully make an election if they are unaware of their opportunity to do so.
The judge was satisfied that, even if the defect was capable of waiver, Lane End did not have sufficient knowledge to make an election at any time prior to the adjudicator’s decision. This was because, although RICS had emailed Lane End prior to the meeting on 20 March 2020 to state that they had received a request for an adjudicator to be appointed, that email had been sent to the general email address on Lane End’s website, not a specific address for any of Lane End’s employees. One of the directors of Lane End provided a witness statement to the effect that Lane End was unaware that the RICS email had been sent on the same day as the notice of adjudication until after they received the adjudicator’s decision. The judge went on to state that:
“…in any event, it was only at that stage that Lane End took legal advice about the effect of this.”
It is also apparent from the judgment that, following a request by Lane End’s external quantity surveyor (Mr Mason), RICS sent him a copy of Kingstone’s application and covering email of 07.46 on 20 March 2020. The judge said that:
“… he did not investigate and thus cannot have advised Lane End about the sequence in which they had been delivered.”
Although it is evident that Lane End did not identify the defect until after it had received the adjudicator’s decision, some might question whether it was enough that Lane End was in possession of the facts giving rise to the defect. In particular, RICS’s email had been sent to a general address on Lane End’s website, and the fact that this was not regularly monitored by Lane End was clearly its responsibility.
Matt blogged about the case of Lobo v Corich a few years ago and, in that case, it appears to me that the judge was satisfied that documents had been served once they had been received in the recipient’s inbox. The fact that he had not looked at them were irrelevant.
Was the defect waived or right of election lost by participating without reservation of rights?
The final question turned on the issue of whether Kingstone had done enough to reserve its rights, and the judge referred to what Coulson LJ had to say about jurisdictional reservations in Cannon Corporate Ltd v Primus Build Ltd, which I blogged about last year.
It is worth reminding ourselves of the principles set out by the Court of Appeal:
- A responding party wishing to challenge the adjudicator’s jurisdiction must do so “appropriately and clearly”. If it does not reserve its position effectively and participates in the adjudication, it will be taken to have waived any jurisdictional objection and will be unable to avoid enforcement on jurisdictional grounds (Allied P&L Ltd v Paradigm Housing Group Ltd).
- It will always be better for a party to rely on a specific objection or objections to reserve its position. Otherwise the adjudicator cannot investigate the point and, if appropriate, decide not to proceed, and the referring party cannot decide for itself whether the objection has merit (GPS Marine Contractors Ltd v Ringway Infrastructure Services Ltd).
- If the adjudicator rejects the specific jurisdictional objections raised (and the court, if the objections are renewed on enforcement), then the objector is precluded from raising other jurisdictional grounds that might otherwise have been available to it (GPS Marine).
- A general reservation of position on jurisdiction is undesirable but may be effective (GPS Marine, Aedifice Partnership Ltd v Shah). Much will turn on the wording of the reservation in each case. However, a general reservation may not be effective if:
- at the time it was provided, the objector knew or should have known of specific grounds for a jurisdictional objection but failed to articulate them (Aedifice, CN Associates (A Firm) v Holbeton Ltd); or
- the court concludes that the general reservation was worded in that way simply to try and ensure that all options (including ones not yet even thought of) could be kept open (Equitix ESI CHP (Wrexham) Ltd v Bester Generacion UK Ltd).
The judge set out the various jurisdictional reservations made by Mr Mason on Lane End’s behalf. Mr Mason had made a number of general reservations, but had also made the following specific reservations:
- In an email on 24 March 2020, Mr Mason advised the adjudicator that his nomination was invalid and he thus lacked jurisdiction on the basis that Kingstone had “failed to give the required notice of adjudication of its intention to refer the dispute to adjudication and has ‘jumped’ straight to the Referral”.
- In an email on 25 March 2020, Mr Mason observed that the notice of adjudication was labelled a “Notice of Referral” and did “not express any intention to refer a dispute to adjudication”. Later in the email, Mr Mason took the more general point that “any decision would be unenforceable due to the procedural irregularities which undermine the Adjudicator’s threshold jurisdiction”.
- In a further email on 25 March 2020, Mr Mason again reserved Lane End’s “position… as to the Adjudicator’s jurisdiction”, stating that the notice “does not express any intention to refer a dispute to adjudication as required by the scheme and as such is not a ‘Notice of Adjudication’”.
Broadly speaking, Mr Mason’s objections were that the adjudicator lacked jurisdiction because the notice of adjudication did not amount to a notice of adjudication within the meaning of the Scheme.
The judge decided that Mr Mason had successfully reserved Lane End’s right to challenge the adjudicator’s appointment as a result of Kingstone submitting its request to RICS before serving the Notice of Adjudication. The judge was satisfied that it was implicit that the reservations set out in Mr Mason’s emails of 25 March 2020 were based on the adjudicator not being appointed under a valid notice of adjudication, and he said that the arguments raised in the enforcement proceedings by Lane End fall:
“… within the scope of the reservation since it furnishes Lane End with a challenge on the ground that [the adjudicator] was not appointed under a statutory notice of adjudication.”
Some might not agree that a jurisdictional objection on the ground that a notice of adjudication does not comply with the requirements of the Scheme is sufficient to encompass an objection on the ground that an adjudicator has been invalidly appointed due to the incorrect sequence of the notice of adjudication and request for nomination to an ANB, particularly in circumstances where the responding party had been found not to know of the incorrect sequence. However, that will be a matter for the Court of Appeal to address, if the case ever gets that far.
It is also interesting to note what Coulson LJ said about general jurisdictional reservations, namely that they may not be effective if:
“… at the time it was provided, the objector knew or should have known of specific grounds for a jurisdictional objection but failed to articulate them.”
In my view, Lane End should have known about the specific grounds for the challenge, at the latest, when RICS provided Mr Mason with Kingstone’s application and covering email, but, arguably even earlier, when the email from RICS was sent to its general email address. Therefore, if Lane End had had to rely on its general reservation of jurisdiction, I consider that this would have been ineffective pursuant to the principles set out in Cannon v Primus.
It appears (and I stress “appears”) that this case is authority for a number of propositions, namely:
- If an adjudicator has been wrongly appointed as a result of the application to an ANB being served prior to the service of a notice of adjudication, this defect is not capable of being waived by the responding party. Therefore, it will be necessary to seek a new appointment.
- It may not be sufficient to send documents pertaining to an adjudication to a general email address on a company’s website, regardless of whether those documents were received at that email address. This highlights the need to serve documents in accordance with the relevant contractual procedures and, where serving by email, to use the correct email addresses, request delivery and read receipts, and so on.
- Provided a jurisdictional objection has been made on the ground that an adjudicator has been invalidly appointed, this might be sufficient to encompass a number of different arguments.
Finally, I apologise to all of you who now can’t get Jim Morrison singing People Are Strange out of your heads. For the few millennials who are yet to discover The Doors, I would recommend giving Riders on the Storm a listen.