REUTERS | David Mdzinarishvili

The composting case that’s proved to be fertile ground for disputes, but could this latest one have been avoided?

Some projects seem destined to generate disputes and a composting facility commissioned by Devon County Council seems to be one of them.

As far as I can tell, to date there have been nine adjudications, two hearings in the TCC and one arbitration between the Council and Celtic (the contractor), who, confusingly, is called Bioenergy Ltd in one judgment and Composting Systems Ltd in another. Previously, there were at least two adjudications between Celtic and ROK Building Ltd (its sub-contractor), together with enforcement hearings in the TCC (two of them).

As Stuart-Smith J said in his January judgment (which was concerned with Celtic Composting Systems Ltd), the dispute is “developing into a procedural war between the parties”. Fertile ground indeed (if you will pardon the pun).

Devon County Council v Celtic Composting Systems Ltd

This judgment is not on BAILLI and nor is the judgment following an injunction hearing that took place before Ramsey J on 20 December 2013 (although the February 2014 costs hearing is), so here are a few background facts:

  • In March 2007, Celtic was engaged to carry out the design and construction of a composting facility at Great Torrington, Devon. The parties used the New Engineering Contract, third edition (NEC3), Engineering and Construction Contract (ECC), Option C.
  • Celtic engaged ROK Building Ltd to carry out certain sub-contract works (the sub-contractor).
  • By April 2010, the works were complete and, in February 2011, the project manager issued his Final Assessment of the sums due to Celtic.
  • Celtic “did not think much of the Final Assessment”.
  • A total of nine adjudications were started. After adjudication number six (the decision was issued in May 2011), Celtic referred its dispute over payment to arbitration. Among other things, it sought the return of £196,000 in liquidated damages and a 319-day extension of time.
  • That arbitrator was the subject of a jurisdictional challenge and agreed that he was limited to dealing with only those matters that were included in the adjudicator’s decision in the sixth adjudication.

Adjudication, injunction and declaratory relief application

The judgment doesn’t say exactly what happened over the next two years or so. However, on 6 December 2013, Celtic issued another notice of adjudication (referred to in the judgment as adjudication eight, even though it is actually number nine). Following that notice, the Council sought:

  • An injunction restraining Celtic from taking any further steps in the adjudication, which Ramsey J refused.
  • declaration that the adjudicator (Mr Twine) did not have jurisdiction to conduct the adjudication. This is the application that Stuart-Smith J heard in January 2014 and I discuss here.

In the declaratory relief application:

  • The  Council argued that the adjudicator lacked jurisdiction because there was no crystallised dispute: the claims advanced in adjudication eight were different to those raised previously. Further, the Council was never required to comment on the extension of time claim in the arbitration because of the jurisdictional issues, so it could not be assumed there was a “dispute” about it.
  • Celtic argued that the extension of time claim was essentially the same as the one advanced in the arbitration: both claims sought 319 days and the financial consequences of that.

Stuart-Smith J concluded that with regard to the extension of time claim (including the money elements), the differences did not prevent Celtic from relying on the arbitration proceedings as notification of it. The claim was not wholly different and it was not unfair to allow it to proceed. The court rejected the Council’s submission that it could not be assumed that the extension of time was in dispute because it had not commented on it, saying “that is a submission that verges on the disingenuous” because an application for security for costs application was made which meant that there was, by implication, a claim that was being disputed (and was still in dispute in January 2014).

In reaching this conclusion, the court agreed with the adjudicator, who had also decided that he did have jurisdiction. The court said it hadn’t been influenced by the adjudicator’s decision, but it must be reassuring for Mr Twine to know he got that jurisdictional challenge right.

Could things have been different?

As Stuart-Smith J noted, these parties resorted to “every tactical step that they consider will give them proper advantage”, so perhaps it is unlikely that these particular parties would want to do things differently, if they could go back and do them again.

However, I think this latest dispute could have been avoided if both parties had behaved differently. Celtic’s representative, Knowles, may have had a good reason for not sending the revised claim to the Council prior to commencing the adjudication. However, given its involvement in various disputes over the last five years, it’s hard to see how a delay of, say, four more weeks (while the Council considered the revised claim), would have made a great deal of difference. That would have avoided any “no crystallised dispute” argument in its entirety. Further, given that a claim had previously been made and the differences appeared minimal, it was always going to be a difficult task for the Council to successfully argue that there was no crystallised dispute.

The Council’s claim that it had been “ambushed” over the Christmas period was also going to be difficult to make out. As Celtic pointed out, that is a matter of natural justice, which had not been raised in the pleadings. Interestingly, Stuart-Smith J noted that it would have been unpleasant for the Council to work hard “over what is meant to be (and is sometimes laughingly referred to as) a holiday period”, but that did not justify setting aside the whole process. Further, Celtic would just start the whole process again, if he did.

and finally, where should the money go?

One of the more unusual elements of this case was the fact that Celtic had entered into a “remarkable deed of assignment” with Knowles Ltd, whereby Celtic retained the right to enforce payment of money but the right to receive money had been assigned to Knowles. Although Stuart-Smith J noted that it was not for him to question why the assignment had been entered into or whether it was legitimate, it did cause him to question whether the adjudicator had exceeded his jurisdiction, as the Council alleged.

In essence, the Council argued that it should not have to pay to Knowles any money found by the adjudicator to be due to Celtic as that was not a dispute “arising under the contract“. Stuart-Smith J agreed, and he differentiated this from “the sort of dispute which is to be referred to adjudication”, like “matters arising as to entitlement under the contract… as a result of work carried out and any allegations of breach of obligation and so on”.

Given that the adjudicator was found to have jurisdiction, it is assumed that this part of the dispute can now be dealt with in arbitration, and consequently we might not hear anything more about it. However, many disputes have grown out of the fertile ground of this composting facility, and I suspect that this isn’t the last we’ve heard about it.

MCMS Ltd Jonathan Cope

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