REUTERS |

Questions over basis of parties’ contract no barrier to adjudication enforcement

In a rather lengthy judgment handed down just before Christmas, Stuart-Smith J has shown once again the TCC’s pragmatic approach to the enforcement of an adjudicator’s decision, and how the judges are not allowing overly technical challenges to defeat the purpose of the payment provisions of the Construction Act 1996.

In case you missed it amongst the festivities, I’m talking about the judgment in RMP Construction v Chalcroft.

RMP Construction Services v Chalcroft

This case was really all about the terms of the parties’ contract and there are many parallels with an earlier Stuart-Smith J judgment (Purton v Kilker, which Matt looked at last autumn).

In RMP v Chalcroft, the parties disagreed on the documents that formed the basis of their contract. This was important because it impacted on when a pay less notice had to be served and, more specifically, whether Chalcroft’s pay less notice of 26 August 2015 was served in time. Was it:

  • Chalcroft’s email of 5 December 2014, which accepted RMP’s offer? (The parties had exchanged priced bills of quantities and agreed a price of some £509,000 for the groundworks.)
  • Chalcroft’s letter of intent dated 8 December 2014?
  • The letter of intent plus an email exchange on 18 December 2014?
  • The placing of a sub-contract order on 13 April 2015, which RMP accepted by conduct?

RMP argued the case for the first contractual route, Chalcroft advanced the other three routes in the alternative. If RMP was right, the payment provisions of the Scheme for Construction Contracts 1998 applied and Chalcroft’s pay less notice was served late (and we all know the consequences of that). If Chalcroft was correct, it contended that the JCT’s payment provisions were incorporated (although there appears to be some doubt over which standard form was being referred to) and it was at least arguable that the pay less notice was served in time.

(In Purton v Kilker, it was agreed that the parties’ contract was oral, that it was for the joinery package at the Dorchester Grill and that substantial works were carried out during September and October 2014. The parties disagreed on who the contract was with, when it was entered into and the scope of works to be carried out.)

In RMP v Chalcroft, the adjudicator accepted RMP’s case that the contract was formed by Chalcroft’s email of 5 December 2014. In the absence of a valid pay less notice, the adjudicator awarded RMP some £260,000 and, when Chalcroft did not pay, RMP applied for summary judgment. The same thing happened in Purton v Kilker when the adjudicator decided that, due to the lack of a payment or pay less notice, Kilker should pay to Purton the £150,000 claimed.

In both cases, the defendants resisted enforcement of the adjudicator’s decision on the basis that the “contract giving the Adjudicator jurisdiction had been mis-described”.

Before Stuart-Smith J

I think there are a number of interesting features of the judgment in RMP v Chalcroft, not least that the judge noted early in the judgment (at paragraph 3) that, whichever contractual route applied, the adjudication provisions of the Scheme for Construction Contracts 1998 applied. He also noted that the parties had not specified an adjudicator nominating body (ANB). As the Scheme applied and the adjudicator was appointed under the Scheme, his appointment was therefore valid.

The judge considered at length the different contractual routes Chalcroft argued for. He concluded that it was reasonably arguable that the:

  • Parties proceeded on the basis of the letter of intent of 8 December 2014, but that the Scheme’s payment provisions would have applied in any event.
  • Contract was formed by the sub-contract order of 13 April 2015. In those circumstances different payment provisions would apply meaning that the adjudicator’s award of payment to RMP was wrong.

However, the judge concluded that, as it was agreed that each of the alternative contractual routes was sufficient to found the adjudicator’s jurisdiction under the Scheme for Construction Contracts 1998, to rule RMP out of court simply because it had misidentified the contractual provisions that gave the adjudicator jurisdiction would be to:

“…once again to return to the formalistic obstacle course against which I protested at [23] of Purton.”

In Purton v Kilker, Stuart-Smith J had stated at paragraph 23 that:

“The jurisdiction to refer is dependent upon the existence of a construction contract and a dispute arising under it. It is not dependent upon identifying each and every term with complete accuracy so that the process of referral becomes a formalistic obstacle course akin to 18th century forms of action, where one slip may put a party literally out of court. Bearing in mind the intention that the adjudication system should provide quick and effective remedies for contracting parties, equally accessible to those who are legally represented and to those who are not, an approach which deprived adjudicators of jurisdiction where a dispute has been referred that has arisen under a construction contract because of any error in its characterisation, would as a matter of legal policy be unacceptable.”

The judge therefore concluded that the adjudicator had jurisdiction. He recognised that there would be possible differences in the outcome depending on which contractual route applied, but characterised these differences as going not to jurisdiction, but rather to the substantive outcome. Even if the adjudicator had made an error as a result, that would not prevent enforcement:

“Once that approach is adopted, the present case is to be treated as one where the Adjudicator had jurisdiction to resolve the dispute that was referred to him (namely, how much was owing under interim application number 8) and addressed the correct question without bias, breach of natural justice or any other vice that would justify overturning his decision. If, which cannot be resolved now, he has made an error of law in referring to the wrong contractual provisions when deciding the substantive question that was referred to him, that falls within the category of errors of procedure, fact or law which the Court of Appeal has repeatedly emphasised should not prevent enforcement.”

Nature of the parties’ contract

It seems to me that Stuart-Smith J’s judgment is authority for the proposition that, provided the adjudicator is validly appointed under a construction contract, the adjudicator will not be deprived of jurisdiction if a court subsequently decides that the contract was formed on a different basis.

However, it is important to note that in RMP v Chalcroft, the Scheme’s adjudication provisions applied regardless of which contractual route was correct. It would appear from cases such as Twintec Ltd v Volkerfitzpatrick Ltd and, more recently, Science and Technology Facilities Council v MW High Tech Projects UK Ltd (which I considered at the time), that if different adjudication provisions apply then an adjudicator’s decision will not be enforceable.

Given Stuart-Smith J’s pragmatic approach it would be interesting to see if he would have reached the same conclusion in Twintec? (In Twintec, Edwards-Stuart J granted injunctive relief to prevent a party pursuing an adjudication as the adjudicator was invalidly appointed.)

Error goes to substance of dispute

Another interesting point is that despite the potentially differing outcomes (depending on which contractual route applied), the judge considered any resulting error would go to the substance of the dispute, and not the adjudicator’s jurisdiction. This means that deciding which contractual route applied was an error that the adjudicator could make. Getting that question wrong did not deprive the adjudicator of his jurisdiction.

The judge’s conclusion will be welcomed by referring parties seeking payment, but possibly not by responding parties trying to avoid payment due to a lack of payment and/or pay less notice who may see it as unduly allowing adjudicators to make mistakes for which responding parties have to pay. This is particularly so given the effect of such mistakes following ISG v Seevic (where Edwards-Stuart J held that lack of a pay less notice meant the employer had agreed the value of the works the contractor claimed in an interim certificate).

MCMS Ltd Jonathan Cope

Leave a Reply

Your email address will not be published. Required fields are marked *