Defining the scope of an adjudicator’s jurisdiction is at the heart of adjudication and it is the focus of many of the challenges to adjudicators’ decisions that we see in the courts. It is not a new topic to these pages either. Therefore it will come as no surprise to regular readers that I’m looking at Roland Horne v Magna Design Building Ltd this week.
Roland Horne v Magna Design Building Ltd
This case concerned building works at Mr Horne’s property, carried out by Magna Design Building Ltd. The parties entered into a contract based on the JCT minor building works contract and, it appears, did not amend it to reflect the fact that Mr Horne was a residential occupier. At least, I assume that’s what he was, since the judgment doesn’t make it entirely clear.
As the contract was (apparently) unamended, both parties had the right to refer a dispute to adjudication. When Mr Horne applied the contractual machinery in clause 6.4 and purported to terminate the contractor’s employment under the contract for lack of progress, it is probably inevitable that a dispute would end up before an adjudicator. Interestingly, the contractor’s claim was for an invoiced amount of £16,000 odd and payment of the adjudicator’s fees.
It is not entirely clear from the judgment what each party said about the termination, although the contractor did reject Mr Horne’s view that it was not proceeding with the works “regularly and diligently” and denied it failed to return to site within seven days, as the default notice required.
Mr Horne denied that the contractor was entitled to any additional money and claimed his additional costs of completing the works, which he said came to some £28,500. He put in a schedule detailing these costs and relied on the provisions in clause 6.7 of the contract (which allows the employer to employ and pay others to complete the contract works and claim the expense of doing so from the contractor).
The adjudicator’s jurisdiction
The judgment states that the parties agreed that the adjudicator had jurisdiction to decide:
- What, if any, payment was due to the contractor (that is, the £16,000 odd).
- Whether Mr Horne had lawfully terminated the contractor’s employment.
What the parties appeared to disagree over was whether the adjudicator also had jurisdiction to the decide whether Mr Horne was entitled to a net sum (based on his schedule claiming £28,500).
The adjudicator’s decision
This jurisdictional issue does not appear to have been addressed by the adjudicator prior to the release of his decision in July 2014. In that, he referred to Mr Horne’s reliance on Coulson J’s judgment in Workspace Management v YJL. He concluded that:
- His jurisdiction was limited to considering what, if any, of the £16,000 was due to the contractor.
- It was not appropriate for him to make any findings in relation to the amount claimed by Mr Horne under clause 6.7 and any balance that may be due to him.
Interestingly, as the judge noted, the adjudicator did not carry out any “detailed analysis of this cross claim”, but did go on to say that it represented:
“a close approximation of what, had the matter been referred to me for determination, I would have found to be [Mr Horne’s] proper entitlement.”
The adjudicator also concluded that the termination was properly done and that the contractor was not entitled to any of the £16,000 odd that it was claiming. He held the contractor liable for his fees.
Akenhead J’s reasoning and Workspace v YJL
The court looked at Coulson J’s judgment in Workspace in some detail. I also considered that judgment at the time (being the adjudicator involved). In Workspace, I decided that my jurisdiction was limited by the wording of the notice of adjudication to sums that should be “repaid” to the employer, whereas Coulson J said that I could have gone further. I should not have limited myself to the sums that were to be “repaid” to the employer because I was asked to look at the proper valuation of an architect’s certificate. I should not have stopped when I reached a nil valuation. However, even though the court decided the scope of my jurisdiction was wider than I’d concluded, my decision was enforced.
With that background, I can see why the parties would think it was relevant to refer to Workspace on this occasion. In his discussion (at paragraph 14), Akenhead J states (unsurprisingly) that:
- It is the notice of adjudication that determines the scope of what is being referred to adjudication.
- A dispute must have crystallised before the notice of adjudication and one can look at the “preceeding communications between the parties” to determine the scope of the dispute.
- A defending party can raise any matter in law or fact by way of a defence to the adjudication, whether “it has specifically been raised before or not”.
However, Akenhead J said that it was possible to distinguish between Workspace and the current case because the current case revolved around what was due to the contractor if Mr Horne had not terminated the contractor’s employment properly. That was the dispute identified in the notice of adjudication. At that time, Mr Horne’s defence was simply that he did not have to pay because he had terminated the contractor’s employment. As such:
“the dispute referred to adjudication did not as such encompass whether Mr Horne was entitled to a net sum.”
Further, Mr Horne’s schedule claiming £28,500 was only provided after the adjudication started and it was relevant that the adjudicator did not actually find that the account was proved.
I have to confess that I struggled a bit with the reasoning and distinction that Akenhead J was drawing. It feels a bit like splitting hairs to me.
Another thing that struck me was that in Workspace, Coulson J found that an adjudicator could award payment to a responding party even though, in that case, the responding party did not request payment during the adjudication but only after the decision had been handed down.
It seems to me that it is arguable that the adjudicator’s power to award payment is derived not only from the notice of adjudication (and the redress sought), but also from the adjudication rules (like the Scheme for Construction Contracts 1998) and this enables an adjudicator to find that an amount is due under a contract.
However, Horne v Magna suggests that, notwithstanding the fact that an adjudicator can award payment to a responding party, that power only arises if the matter referred encompasses the subject matter or issue giving rise to the responding party’s entitlement to payment. Following that logic, it seems that Mr Horne’s claim for a net sum was acceptable as a defence to payment but the entitlement to be paid a net sum arose from something that was not referred to the adjudicator. That seems even odder since Akenhead J accepted that the adjudicator had jurisdiction to determine whether the termination was lawful.
Confused? I am!