JON JOHNSTONE CONSTRUCTION LTD v EAGLE BUILDING SERVICES LTD

JON JOHNSTONE CONSTRUCTION LTD v EAGLE BUILDING SERVICES LTD

The dispute referred by the sub-contractor in the third adjudication claiming the sum it applied for based on its original payment notice was not the same as the dispute in the first adjudication when it unsuccessfully claimed that sum based on its second such notice
 

JON JOHNSTONE CONSTRUCTION LTD v EAGLE BUILDING SERVICES LTD

Technology and Construction Court


The dispute referred by the sub-contractor in the third adjudication claiming the sum it applied for based on its original payment notice was not the same as the dispute in the first adjudication when it unsuccessfully claimed that sum based on its second such notice

 

The sub-contractor made an application for payment in March 2016 in the sum of £52,336 plus VAT. The contractor disputed the amount and made no payment. The sub-contractor sent a further notice seeking the same amount in April 2016 and commenced an adjudication seeking payment of that sum. The adjudicator's decision was that the April notice was invalid in light of the March notice. The sub-contractor commenced a second adjudication seeking payment of the sum claimed in the March application. The same adjudicator as in the first adjudication was appointed but she resigned on the ground of possible bias.The sub-contractor commenced a third adjudication making the same claim and a different adjudicator was appointed. The adjudicator in the third adjudication decided that it followed from the decision in the first adjudication that (i) The March notice was a valid and effective notice (ii) The contractor’s response was not a valid payment or pay less notice and (iii) The sub-contractor was entitled to payment of the amount stated as due in the March 2016 application.

 

The contractor contended that the adjudicator in the third adjudication lacked jurisdiction because (i) The reference in the third adjudication was of the same or substantially the same dispute as had already been referred. Jefford J rejected this contention and held that the adjudicator in the third adjudication had jurisdiction to decide that the sum applied for by the sub-contractor in the March 2016 payment notice should be paid by the contractor.

 

The judge stated that in advancing this contention the contractor submitted that (i) There were, prior to the first adjudication, only two disputes between the parties, namely as to the final amount payable in the sense of the proper value of the final amount payable and the sub-contractor’s entitlement on a notice based final payment and (ii) Thus the same dispute, that is the latter notice-based final payment dispute, was referred to both adjudicators. She went on to say that that argument involved imposing the contractor’s characterisation of the dispute on what the sub-contractor actually referred. In the first instance, in the first adjudication the claim was on the basis of the April notice and, once that claim had been rejected, the second claim was based on the March notice.

 

THE FULL TEXT OF THE JUDGMENT OF JEFFORD J

 

Background

 

  1. This is an application for summary judgment to enforce the decision of the adjudicator, Mr Judkins. That decision was made on 21 March of this year and was that the respondent, the defendant on this application, EBS, should pay the claimant, being also the claimant on this application, JJC, the sum of £52,336.84 plus VAT.

 

  1. The parties, and this much is uncontroversial, entered into a contact on or about 15 May 2015 for on-site prefabrication of steel bar reinforcement cages for foundations and other associated works for a project known as the Westonbirt Arboretum Treetops Walkways. The contract provided no adjudication or payment provisions in accordance with the Housing Grants Construction and Regeneration Act 1996 (as amended) and the provisions of the scheme therefore apply.

 

  1. Works, including remedial works, were completed in October 2015. On 21 March 2016 JJC submitted a claim for payment. I will refer to this variously as the March claim or notice. EBS responded by n email:

 

”Don’t agree with your application. Phase 2 had to be redone due to your steel not to drawing. Our costs for breaking out and re-concrete phase 2 was in excess of £20k. Take the £20k from the £38k for phase 1 leaves £18,843 ….”

 

No payment was made and on 15 April 2016 JJC submitted a payment notice, which it is said was made pursuant to s.110B2 of the Act, as EBS had failed to give a valid and effective payment notice. That notice was in the same terms as the March notice.

 

Adjudication no. 1

 

  1. In June 2016 JJC commenced an adjudication in which Ms Janey Milligan was appointed as adjudicator. In the notice of adjudication dated 6 June 2016, JJC as the Referring Party said this under the heading “Dispute”:

 

”The dispute concerns the failure of EBS to make payment to JJC pursuant to the Contract and the Act.” (Quote unchecked)

 

JJC then set out the March claim and said that, absent a payment notice from EBS, they had on 15 April, pursuant to s.110B(2), given a payee notice in default. Since EBS had given no pay less notice, JJC claimed the sum in that April notice.

 

  1. Under the heading “Redress sought” they sought the adjudicator’s decision that “EBS should make payment to JJC in the amount of £52,336.84 or such other sum as the adjudicator shall so decide.”

 

  1. That paragraph then continued:

 

“In this adjudication the adjudicator is not required to decide as to the substantive valuation of either the claim made by JJC or the merit or otherwise of any purported contra-charge brought by EBS. This adjudication goes only to the question of whether, absent a payment or pay less notice from EBS, EBS must pay the notified sum specified in JJC’s payee notice in default.”

 

EBS, as respondent in the adjudication, relied on these terms of the notice to adopt a position that the claimant’s claim and Ms Milligan’s jurisdiction were strictly confined to a claim based on the notice of 15 April 2016. In due course Ms Milligan decided that her jurisdiction was so confined and that as a result she was not entitled to consider an alternative claim arising out of the March 2016 notice.

 

  1. As Ms Milligan recites in her decision, the defendants advanced three free-standing defences, which I quote:

 

”Defence 1:

 

  1. a)  The referring party has strictly confined its claim and the adjudicator’s jurisdiction to a claim based on a notice of 15 April 2016 and the respondent’s alleged obligation to pay the notified sums set out in that notice;

 

  1. b)  The referring party had no contractual entitlement to issue such a notice and it is of no effect and gives rise to no obligations.

  

Defence 2:

 

  1. a)  The referring party alleges its entitlement to issue such notice arose by the making of a claim by the payee, which triggered a due date and the respondent’s obligation to give a payer’s notice;

 

  1. b)  There was however, no valid “claim by the payee” and so the referring party does not even get out of the starting blocks.

  

Defence 3:

 

  1. a)  Any obligation on the respondent’s part to pay the notified sum in the 15 April notice would be subject to the giving of a notice of intention to pay less;

 

  1. b)  The respondent gave such notice and the referring party recognised it as such.

 

In all it is the respondent’s position that defence 1 alone is sufficient to require the claim to be dismissed.”

 

  1. On this application Mr Kearney argued that defence 1 did not as such require Ms Milligan to determine whether the March claim was a “claim by the payee.” I quote in that respect from paragraphs 38 and 39 of EBS’s submissions in the adjudication:

 

“38.  But on JJC’s own case

 

38.1  JJC completed its works in October 2015.

 

38.2  JJC made a claim by the payee on 21 March 2016 notifying the sum claimed to be due.

 

38.3  EBS failed to give a payer’s payment notice.

 

38.4  Consequently, JJC gave a second notification on 15 April 2016.

 

  1. If the facts alleged by JJC and referred to above are not true then JJC did not have a right to give a notice on 15 April 2016. … But, if the facts JJC alleges [are] correct, JJC’s purported 15 April 2016 notice is one which can simply never be validly given.”

 

In other words, EBS’s position was not that JJC’s case was right on the facts, but that, whether or not it was, JJC was not entitled to payment. EBS’s defence 2 then dealt in any event with whether the March claim was a “claim by the payee” if its defence 1 was rejected. About three pages of EBS’s response was then devoted to inadequacies and inconsistencies in the claim.

 

  1. In her decision Ms Milligan summarised defence 1 as follows.

 

“In summary, it is the Respondent’s position that if the Referring Party makes an application which is a valid claim by the payee, then either the Respondent issues a payment notice, or the Respondent does not issue such notice, and by virtue of s.110B(4), the earlier “claim by the payee” is treated as a payee’s payment notice. The Respondent asserts that what cannot happen under this Contract, which relies on the Scheme provisions, is that the Referring Party becomes entitled to issue any later payment notice following the Respondent’s failure to give a Scheme Part II paragraph 9 payment notice. The Respondent asserts that the Referring Party’s entire case is premised upon it having such a right.”

 

Insofar as that may be construed as saying that EBS positively asserted the validity of the March claim, that does not seem to me to be right. Whether that matters or not is another issue, but I set it out, because it is still relevant to understanding the decision Ms Milligan then made.

 

  1. She decided that there was no obligation to pay against the April claim. At paragraph 9.44 she said this:

 

“In this connection I concur with the Respondent that the Referring Party has no entitlement under the express provisions of s.110B(4) to issue such a “payee notice in default”, having issued an earlier claim by the payee on 21 March 2016.”

  

  1. Without reciting the detail of that reasoning, it was in essence that the March claim was a payee notice complying with paragraph 5 of Part II of the Scheme and that s.110B(4) did not, therefore, permit the issue of a further notice under s.110B(2) . In that respect the adjudicator went down the route of the second limb of EBS’s defence number 1. In choosing that route she was not, on the face of it, deciding the dispute irrespective of the facts as EBS had invited her to do, but doing so on the basis that the March claim was a valid claim. As Mr Smith points out, she said at paragraph 9.41 that:

 

“Having considered the Referring Party’s claim dated 21 March 2016, I find that this specifies the amount the Referring Party considers to be due and the basis on which this is calculated. The claim sets out the value considered to be due for phase 1,2 and 3, before making deductions for previous payments and tax on labour payments. I also record that the claim makes reference to detailed spreadsheets provided to the Respondent on 10 November 2015, which set out in greater detail the sums claimed for each of the three phases of work. In all, I find that this claim satisfies paragraph 12 of Part II of the Scheme [that paragraph being the interpretation paragraph].”

 

She then said in consequence that she did not consider it necessary to set out and discuss the parties’ respective submissions with regard to Defences 2 and 3.

 

Adjudication no. 3

 

  1. In the light of that decision the claimant then, understandably, commenced a further adjudication based on the March application. There was an aborted attempt to start adjudication no. 2, in which Ms Milligan declined to act because she recognised that she may have a subconscious bias. The relevant adjudication is therefore adjudication no. 3.

 

The notice

 

  1. In the notice of adjudication and under the heading “Dispute,” the claimant identified the dispute as concerning:

 

“The failure of EBS to make payment to JJC of the notified sum that is the subject of JJC’s ‘Claim by the payee dated 21 March 2016.’”

 

The claimant said that it was its primary case that EBS had given no pay less notice and, as a consequence, EBS must pay to JJC the sum specified in JJC’s notice. In line with what had been said in adjudication no. 1 the claimant continued:

 

“For the avoidance of doubt the scope of this dispute and the adjudication does not encompass any difference that may exist between the parties as to the valuation of the work carried out by JJC or as the purported contra charges that had been referred to by EBS. The adjudicator’s jurisdiction is confined to a decision as to EBS’s failure to make payment absent a payment or pay less notice, of the notified sum in JJC’s claim by a payee dated 21 March 2016 being £52,336.84.”

 

Then it set out an alternative case. That was therefore the dispute referred to adjudication.

 

  1. The claimant put its position slightly differently under the heading “Redress sought.” Under this heading it set out its primary case as being that:

 

“A previous adjudicator in an adjudication between the parties hereto and under the same contract, having found that JJC’s claim dated 21 March 2016 in notifying the sum claimed to be due at £52,336.84 is a claim by the payee which satisfies paragraph 12 of Part II of the Scheme and which satisfies s.101B(4) of the Act and, having found that the due date for payment of that sum was 21 March 2016, and having found that EBS failed to give a payer’s payment notice in respect of that claim, EBS shall make payment to JJC in the amount of £52,336.84.”

 

I am not going to keep repeating £52,336.84 and will refer to that figure as £52,000 odd.

 

  1. Although this passage, as I have just said, appeared under the heading “Redress sought”, it is my view that on a proper reading of the notice of adjudication as a whole, JJC was not purporting to refer to adjudication a dispute as to the scope or binding nature of the decision in adjudication no. 1. Nor was it constraining the adjudicator’s jurisdiction to deciding the case only on that basis. The dispute referred was as to JJC’s entitlement to be paid the sum in the March notice. The recitation of JJC’s case as to what had been decided in the prior adjudication was to explain and advance its primary argument as to why it was entitled to a decision that EBS should make payment of £52,000 odd.

 

  1. From the outset EBS disputed the adjudicator’s jurisdiction. On 13 March 2017 EBS submitted a document called “Preliminary response.” Neither party has referred to this document in the course of the hearing before me, but I intend to do so briefly, because it gives the background to EBS’s position. The preliminary response addressed EBS’s jurisdictional challenge and it reserved its position on jurisdiction. I note that as recorded in due course by the adjudicator, EBS did not in the event submit any further response under the protection of that reservation. In the preliminary response they said this by way of executive summary:

 

“JJC’s entire claim … in this current adjudication is premised on … the current Adjudicator being bound by the alleged findings of the First Adjudicator. EBS has never conceded that the first adjudicator made the alleged finding which JJC now rely upon. The … Adjudicator cannot make a finding as to the validity and effect of the decision of the First Adjudicator (and cannot determine if he is bound as JJC contends). That is a matter for the Court. JJC does not, in fact, ask the Adjudicator to determine if he is bound by the alleged findings, but makes a positive case that he is so bound.”

  

  1. Although as I have indicated the “redress sought” passage of the notice muddies the waters, this characterisation of the claimant’s case seems to me to confuse the dispute referred to adjudication and the claimant’s primary argument as to why that dispute should be resolved in its favour and I repeat what I have already said as to the scope of the jurisdiction of the adjudicator. The answer to the scope of that jurisdiction is to be found, as always, in the identification in the notice of adjudication of the dispute referred and that was:

 

“The failure of EBS to make payment to JJC of the notified sum that is the subject of JJC’s claim by the payee dated 21 March 2016.”

  

EBS’s arguments

 

  1. That brings me to three aspects of EBS’s argument on this application and I propose to deal with those first before I turn to the decision of the adjudicator as such.

 

  1. Firstly, it was suggested that JJC did not refer to the adjudicator the issue of whether the March 2016 claim was “a claim by the payee.” In my judgment, JJC having referred a dispute about failure to pay a claim by the payee, it makes no sense to say that unless they expressly then ask the adjudicator to determine that it was “a valid claim”, he would not have had jurisdiction to decide that it was. The same can be said for any issue as to whether EBS had failed to serve a payment notice. On the contrary, if, let us say, EBS wished to defend the claim on the basis that there was no claim by the payee dated 21 March 2016 which led to an entitlement to payment, they could plainly have run that defence and, equally plainly, the adjudicator would have had jurisdiction to decide it. I should add that that is essentially the same conclusion as reached by the adjudicator, Mr Judkins, and on which basis he continued with the adjudication. His reasoning in that respect was unimpeachable and I have no doubt that he was right to proceed.

 

  1. Secondly, Mr Kearney argues on behalf of EBS that the same or substantially the same dispute was being referred to Mr Judkins as had been referred to Ms Milligan. Mr Kearney submits that there were, prior to the first adjudication, only two disputes between the parties: one as to the final amount payable in the sense of the proper value of the final amount payable and the other as to JJC’s entitlement on a notice based final payment. Thus, he says, the same dispute, that is the latter notice-based final payment dispute, was referred to both adjudicators. I cannot accept that argument. It involves imposing EBS’s characterisation of the dispute on what JJC actually referred. In the first instance, in the first adjudication the claim was on the basis of the April notice and, once that claim had been rejected, the second claim was based on the March notice. That is simply not to my mind the same dispute.

 

  1. The third point, and it is a related point, is this. In his written submissions for EBS and orally today, Mr Kearney takes the point that adjudication no. 3, if I may quote from his skeleton, is “unenforceable, since it represents a Henderson v. Henderson type impermissible bite of the cherry.” There is, in my view, no merit in that argument. The application of Henderson v. Henderson to adjudication is a difficult question. The Henderson v. Henderson point, if I can call it that, is a policy of the courts that insofar as possible all claims or disputes between parties arising out of the same factual background should be dealt with in one set of proceedings and not piecemeal. To commence multiple sets of proceedings is capable of being an abuse because of the inefficiency and waste of court time and resources. Adjudication is different. One dispute only may be referred to adjudication and a party may refer a dispute at any time.

 

  1. Nonetheless, the courts have expressed concern at the proliferation of serial adjudications and the difficulty that they can cause, particularly where the referring party has sought to re-adjudicate, and I underline re-adjudicate, a dispute, having sought to dress it up as a different dispute from one previously decided. These seem to me to be two aspects of the same point, with the difficulties where it sought to re-adjudicate a dispute being seen as a reason for the prohibition on adjudicating the same or substantially the same dispute.

 

  1. In the context, that is of serial adjudications, however, Coulson J in Benfield Construction Ltd. v Trudson (Haddon) Ltd. [2008] EWHC 2333 (TCC), citing Quietfield Ltd. v Vascroft Construction Ltd. [2006] EWCA Civ 1737, accepted that there was an analogy to be drawn, albeit not a perfect one with what I have called the Henderson v. Henderson point. In Benfield, having concluded that the dispute in issue was the same or substantially the same as that decided in prior adjudications, Coulson J went so far as to say albeit obiter, that if he was wrong about that, he would still not have enforced the decision because it amounted to an abuse of the process of adjudication.

 

  1. On the facts of that case what Coulson J baulked at was a further adjudication based on entirely the same facts and matters as prior adjudications but advancing a different legal argument. He said:

 

“Allowing one party to raise one legal issue at a time in serial adjudications extending over many months or even years until that party achieves a result that it likes would place an intolerable burden on the other party. It was not the purpose for which adjudication was designed.”

 

I bear that in mind, but it seems to me that that is not at all what has happened here. On the facts of this case JJC could have commenced an adjudication claiming on the April notice and advancing an alternative case on the March notice. What in fact happened illustrates the difference between litigation and adjudication. Having commenced an adjudication on a limited basis, once the argument had been raised that the April notice was not valid, JJC could not amend to add an alternative claim on the March notice. It appears from Ms Milligan’s decision that they made some attempt to achieve the same result by advancing an alternative claim in their Reply, but she rightly said that that would not expand the scope of her jurisdiction.

 

  1. Having not made a claim on the March notice in that adjudication and having received Ms Milligan’s decision, JJC then sought to claim on the March notice: that is, to claim on an entirely different factual basis from the one relied on in the claim previously made. That is quite different, in my judgment, from trying to make good a deficiency in the April notice by adducing further evidence or dressing up the same claim in different legal or factual garb. It does not therefore fall foul of being in truth an attempt to re-adjudicate the same dispute.

 

The Adjudicator’s decision

 

  1. Mr Judkins then proceeded to consider the dispute as he had correctly, in my judgment, characterised it, namely a dispute as to whether JJC was entitled to be paid the sum claim in the March notice. Under the heading “Discussion” in his decision he said this:

 

“Ms Milligan found that as the claimant had given a notice pursuant to s.110B(4), it was not permitted to give a later notice to s.110B(2). It follows from her finding that the notice given under s.110B(4) was a valid and effective notice, for if it were not it remained open to the claimant to give a notice under s.110B(2) and she decided it could not do so. I am bound to follow Ms Milligan’s finding that the application meets the criteria for “a claim by the payee.”

 

Then he said this:

 

“However, if I am wrong and, as the respondent contends, Ms Milligan made no such finding because she deemed it unnecessary to consider the respondent’s second defence in the first adjudication, then it is open to me to consider the validity and effectiveness of the 21 March Application. On the evidence and argument before me in this adjudication I am entirely satisfied that the claimant’s Application made by email attachment on 21 March 2016 is in form, substance and intent a valid and effective payment notice given pursuant to s.110B(4) of the Act.”

  

  1. Having then considered whether there was a pay less notice, which formed equally in my view part of the dispute referred to him, and having decided that there was not, the end result was that Mr Judkins decided that JJC was entitled to be paid by EBS the sum claimed.

 

  1. It is that decision which forms the basis of the claimant’s claim and this application. Mr Kearney takes a point that the pleaded case does not establish liability, because it only refers to adjudication no. 3 and not to the prior adjudications. To make that argument he presents the claimant’s case as being that Ms Milligan decided that a valid application had been made and not met by “a payment notice” and that Mr Judkins decided simply that no valid pay less notice had been given. He says that in order to advance this claim, both of those decisions need to be relied upon to establish a liability by EBS to make payment to JJC.

 

  1. I do not agree with that proposition in the slightest. The claim is made to enforce not the decision in adjudication no. 1, but the decision in adjudication no. 3, that is quite simply the decision that a sum of money is to be paid by EBS to JJC. It is, with respect, no more complicated than that. Despite EBS’s ingenious arguments about what JJC needs to prove on its claim, all JJC needs to establish is that there is a decision that a sum is due and payable and that that decision itself is enforceable.

 

  1. At the risk of over summarising a raft of case law in this court, it would only be unenforceable if the adjudicator lacked jurisdiction or had acted in breach of natural justice and/or was biased. The latter points do not arise and the former points as to jurisdiction I have already dealt with.

 

  1. That brings me back to the status of adjudication no. 1 and what Ms Milligan decided. As I have said more than once, the dispute referred to adjudication no. 3 was about EBS’s failure to pay on the March application and the issue for the adjudicator to decide was whether payment was due. That seems to me to make it clear that what EBS is in reality complaining about in connection with adjudication no. 1, is the adjudicator’s non-binding reasoning in reaching that decision and not a jurisdictional issue.

 

  1. In reaching his decision the adjudicator had to consider the status or validity of the March application. In doing so he considered whether he was bound by the decision in a previous adjudication and the meaning of the decision in that adjudication. He concluded that he was bound and bound by a decision that the March 2016 claim was a valid notice. As Mr Smith rightly submits, that was not a binding decision as to the status of the prior decision and would not have been unless the parties had cloaked the adjudicator with jurisdiction to reach such a decision. It was, however, part of the reasoning that led to the adjudicator’s decision as to payment. Say the adjudicator had decided that there was no binding decision in the prior adjudication. Having addressed that issue, he would then have had to consider for himself whether or not the application was valid and if he decided that it was he would then have reached the decision that the sum claimed was payable. In other words, he would have reached exactly the same decision as he did in this instance. There could be no question of that not being a binding decision. In fact, and prudently perhaps, the adjudicator did consider what his position would have been if he had not concluded that Ms Milligan had reached a relevant and binding decision. I have already recited what he decided as to the effect of the claim or notice and that was that it was valid.

 

  1. Even if that argument on the substantive matter of the effect of Ms Milligan’s decision were open to the defendant on this application it would, in my view, fail for two reasons. Firstly and this will be apparent from what I have said about Ms Milligan’s decision, I cannot see that it is arguable that Mr Judkins was wrong to conclude that he was bound by Ms Milligan’s decision as to the status of the March notice. She clearly reached a decision and I do not consider there to be anything in the arguments advanced by EBS that she did so in breach of natural justice because she failed to consider the arguments in respect of Defence number 2. She put her decision under the heading of Defence number 1. That is simply how she expressed herself. It does not evidence a failure to address the issues raised by EBS.

 

  1. In any event, Mr Judkins would have reached the same conclusion in any event, because he concluded for himself, and he had jurisdiction to do so, that the March claim was a valid claim. He therefore, in my judgment, reached a decision that was well within the scope of his jurisdiction.

 

Conclusion

 

  1. I do not intend to recite again each of the arguments that have been raised on this application by way of summary. My judgment is simply that the sum awarded by Mr Judkins is to be paid in accordance with that decision and Mr Smith will assist me with precisely what figure it is should be recorded in my order.