M HART CONSTRUCTION LTD v IDEAL RESPONSE GROUP LTD
M HART CONSTRUCTION LTD v IDEAL RESPONSE GROUP LTD
Technology and Construction Court
7 March 2018
The fact that the referring party company made the error in its notices of adjudication that it had entered into the contracts under which the disputes arose when in fact the party to those contracts was its owner who was did not deprive the adjudicators of jurisdiction
The notices of adjudication stated that the referring party company had entered into the contracts under which the disputes arose when in fact it was common ground that that company’s owner was the party to those contracts. However, the referring party’s case that there had been novations of those contracts to it was only set out in the notices of referral. The responding party in opposing enforcement contended that the alleged novations had not taken place with the result that the referring party should have been the company’s owner. Jefford J in refusing to order summary judgment held that the responding party had a real prospect of defending the claims on the adjudicators' decisions on the basis that there was no novation of the underlying contracts to the referring party.
The judge went on to consider the responding party’s submissions on which it would have relied even if she had concluded that there had been valid novations ab initio. These submissions were that (i) The effect of a novation is as a matter of law to extinguish the original contract and replace it with a new contract between the new parties and (ii) Therefore the adjudicators could have no jurisdiction because the contracts relied on in the notices of adjudication did not exist, the notices failed to comply with the Scheme for Construction Contracts and the adjudicators purported to made decisions under new and different contracts under which they had not been appointed.
Jefford J rejected these submissions. If there had been novations of the contracts ab initio such that the referring party was party to each of the contracts, contracts did exist between the referring party and the responding party under which there was a dispute which was referred to adjudication. The description of the contract formation in the notices of adjudication was factually inaccurate but captured the legal effect of the alleged novation. The responding party’s proposition that the dispute had to be characterised as one about payment under a contract precisely as particularised in the notice of adjudication was an overly technical approach to the identification of the dispute referred which was not in accordance with the spirit of the Construction Act and could lead to absurd results. The adjudicators did not, as the responding party submitted, in fact act under contracts different from those described in the notices of adjudication because (i) They decided the disputes referred to them and (ii) The referring party set out the basis of its claims more fully in the notices of referral and in the course of the adjudications.
THE FULL TEXT OF THE JUDGMENT OF JEFFORD J
- This is an application by two Claimants to enforce three adjudicators' decisions by way of summary judgment.
- The Claimants are both companies, M Hart Construction Ltd. (of which the driving force is a Mr Michael Hart) and PK Maintenance Ltd. (of which the driving force is a Mr Paul Leaver). To try to avoid the confusion potentially caused by references to Hart Construction, I will refer to the First Claimant as MHCL. I will refer to the Second Claimant as PKM and to the Defendant as Ideal. The leading light of Ideal is Mr Javid Ibrahim.
- Much of the background is common ground and is set out in the Particulars of Claim in this action. The matter involves the carrying out of work at the old Olympic Athletes Village. In 2012, Ideal was engaged by Lend Lease Developments Ltd. ("Lend Lease") to repair water damage at the village. Ideal engaged Mr Hart to carry out that work. There is no dispute about that and no dispute that there was an oral contract with Mr Hart, the individual, entered into on 16 June 2012. On that date, Mr Hart and Mr Ibrahim visited the site to look at the work required to remedy the leak. The agreement between them was entered into in the car driving back from the site. As pleaded, it was an agreement to the effect that Mr Hart would carry out the works, Mr Hart and Ideal would deduct their costs from the sums paid to Ideal, and the parties would split any profit equally.
- This contract has been dubbed the Retrofit Contract because the scope of the work then expanded to what has been referred to as the retrofitting of the village as part of its conversion to residential use. Whilst Mr Hart was on site, there were firstly further leaks that required repair and then elements of retrofitting fitting work which Lend Lease engaged Ideal to carry out and Ideal sub-contracted to Mr Hart, all under the same contractual arrangements.
- The contractual arrangements between Ideal and Mr Hart were to say the least informal. I have seen nothing that was reduced to writing. There was a family relationship between Mr Hart and Mr Ibrahim and that may go some way to explain the lack of formality. The informality of the arrangements is of some relevance to the Claimants' claims.
- Once the works were complete, Lend Lease came under an obligation to remedy any defects that appeared. Lend Lease again engaged Ideal to carry out these remedial works and Ideal wanted to engage Mr Hart. A meeting was held on 4 September 2013 and Mr Ibrahim and Mr Hart left the meeting to discuss whether they could undertake that work (which was different from what they had carried out before). Mr Hart suggested that PKM could assist. Mr Ibrahim agreed that, if PKM could do so, the profits would be split equally three ways. Mr Hart phoned Mr Leaver who agreed to this proposal. The following day, Mr Hart conveyed that to Mr Ibrahim by phone. The Particulars of Claim, then say this:
"Mr Ibrahim agreed at this point that Ideal, Mr Hart and PKM would work on the snagging and defects works, as previously discussed, including that Ideal, Mr Hart and PKM would split any profit equally, once each party's costs directly associated with the works had been accounted for."
- That is how PKM became involved. There was therefore, somewhat unusually, a tri-partite contract involving Ideal, Hart and PKM. This contract has been referred to as the Defects Contract.
- There is a dispute between the parties as to when Works under the Retrofit Contract concluded, the Claimants contending that they continued by September 2015 whereas the Defendant says that they were complete by October 2014. Works under the Defects contract continued until about the end of August 2016.
- Sometime in 2013, Mr Hart formed a company, which is the First Claimant, MHCL, but that company did not trade until 2014. It is MHCL's case that on 26 January 2015, Mr Hart informed Mr Ibrahim that he would no longer be trading as a sole trader but through the company. The pleaded case is that on that date both the Retrofit and the Defects Contracts were novated, ab initio, so that MHCL was party to the contracts rather than Mr Hart personally.
- Thereafter, MHCL (rather than Mr Hart, the individual) submitted invoices to Ideal.
- So far as is relevant to the adjudications themselves, the following invoices were submitted but not paid:
(i) Under the Retrofit Contract, MHCL submitted invoices on account of its profit share being invoice 2589 for £750,000 dated 7 June 2016 and invoice 2822 for £1,000,000 dated 15 June 2017. A pay less notice dated 21 June 2017 was issued by Ideal in respect of this second invoice.
(ii) Under the Defects Contract, MHCL submitted invoices on account of profit, being invoice 2592 for £150,000 dated 13 June 2016 and invoice 2823 for £300k dated 15 June 2017. A pay less notice dated 21 June 2017 was also issued by Ideal in respect of this second invoice.
(iii) Under the Defects Contract, PKM submitted invoices on account of profit, being invoice 083 for £150k dated 20 April 2016 and invoice 094 for £300,000 dated 15 June 2017. PKM also issued two invoices for costs: invoice 092 in the sum of £6,400 dated 5 September 2016 and invoice 093 in the sum of £20,220 dated 5 September 2016. A pay less notice dated 21 June 2017 was issued in respect of these invoices.
- The Claimants contended that the pay less notices were invalid and further referred to the disputes as to the sums due to adjudications. There were in the event, 3 separate adjudications with 3 separate adjudicators: the Hart Retrofit adjudication; the Hart Defects adjudication; and the PKM Defects Adjudication.
The Hart Retrofit adjudication
- In the Hart Retrofit adjudication, the Referring Party was the company, MHCL. The Notice of Intention to Refer dated 17 July 2017 said that "On 16 June 2012 the Referring Party orally agreed (between Mr Hart of the Referring Party and Mr Ibrahim of the Responding Party) to carry out certain works at the Olympic Village for the Responding Party ("the Contract")." The Notice clearly used "Hart Construction" to refer to the Referring Party for example setting out the relief claimed by Hart Construction. The Contract relied upon was therefore said to be one entered into with the company but at a time when the company did not exist.
- The Referral Notice also referred to the Referring Party as "Hart Construction". It recited the formation of the contract with Hart Construction in the car. On the face of it, therefore, the Referring Party's case remained that a contract was entered into in September 2012 with the company at a time when the company did not exist. However the Referral Notice went on to contend that there had been a novation. It did so in the following terms:
"When the Contract was entered into Mr Hart traded as M Hart Construction. On 15 January 2013 Mr Hart incorporated Hart Construction (the Referring Party in this adjudication). Mr Hart did not use Hart Construction initially. However, on 26 January 2015 Mr Hart had a conversation with Mr Ibrahim and told him that he had established Hart Construction and that he was going to use Hart Construction, rather than trading himself. Hart Construction then started to carry out the works under the Contract."
- Hart Construction then set out four matters (which I will refer to in greater detail below) as evidencing the novation. They included:
(i) the terms on an e-mail sent on 2 June 2015 from Lyn Leaver (as administrator for MHCL) to Di Ward at Ideal.
(ii) The fact that MHCL issued invoices from 9 February 2015.
(iii) A list of invoices sent by Mrs Leaver to Ms Ward including MHCL invoices which Ms Ward agreed and allocated payments to.
(iv) The fact that Mr Ibrahim was aware that Mr Hart was operating through MHCL and still sent works "to Mr Hart".
- The next paragraph continued "In the premises the Contract was impliedly novated from Mr Hart trading as M Hart Construction to Hart Construction."
The Hart Defects adjudication
The Notice of Intention to Refer was also dated 17 June 2017 and the Referring Party was again MHCL. The Notice said that:
"On 5 September 2013 the Referring and Responding Party, along with PK Maintenance Ltd … agreed that they would together carry out work to remedy defects in relation to the conversion of the Olympic Village from athletic accommodation to residential accommodation. The parties all agreed that they would distribute the profits equally between the three of them."
The contract relied upon in the Notice of Intention to Refer was, therefore, similarly said to be one entered into with MHCL in September 2013. There was no reference to or reliance on any novation.
- The Referral Notice similarly set out the background to the contract as if, when the contract was originally entered into, Mr Hart had been acting on behalf of the company MHCL, asserting for example that Ideal had been working for Lend Lease at the Olympic Village from June 2012 "using Hart Construction as a subcontractor". The Referral Notice continued:
"On 5 September 2013, Mr Hart telephoned Mr Ibrahim and stated that Mr Leaver was willing to assist with and manage the defects and snagging works, on the basis as set out above. Mr Ibrahim agreed at this point that Ideal, Hart Construction and PKM Maintenance would work on the snagging and defects works, as previously discussed, including that Ideal, Hart Construction and PK Maintenance would split any profit equally, once each company's costs directly associated with the works had been taken into account.
This agreement is the contract … which is the subject matter of this adjudication."
- However, subsequent paragraphs set out and relied on the implied novation. Those paragraphs were in identical terms to the relevant paragraphs of the Referral Notice in the Retrofit adjudication except that, in this adjudication, there was an additional contention that "Mr Leaver of PK Maintenance is married to Mrs Leaver and was therefore fully aware of the change from Mr Hart trading as M Hart Construction to Hart Construction. On account of continuing to work under the contract, PK Maintenance also consented to the novation." Mr Leaver also signed a statement of truth at the end of the Referral Notice.
The PKM Defects adjudication
- The Notice of Intention to Refer also dated 17 July 2017, in common with the Notice in the Hart Defects adjudication, relied on the contract formed on 5 September 2013 between the Referring and the Responding Party and MHCL.
- The Referral Notice similarly set out the background to the contract as if, when the contract was originally entered into, Mr Hart had been acting on behalf of the company MHCL. The Referral Notice then contained the same paragraph as quoted at paragraph 18 above.
- On the face of the Notice of Intention to Refer and the Referral therefore it was PKM's case that there was a single tri-partite contract entered into in September 2013 to which MHCL was a party. There was no mention of any novation despite the Referral Notice being prepared on the same day and by the same solicitors as that in the Hart Defects adjudication. Mr Hart also signed a statement of truth at the end of this Referral. It may be the case that PKM (or its advisers) did not consider it necessary to refer to the novation since PKM had always been a party to the contract.
Ideal's jurisdictional challenge
- From the outset, Ideal disputed jurisdiction. They did so on a number of bases but primarily on the basis that there was no novation of any contract to MHCL and that any contracts were with Mr Hart in person. The same jurisdictional challenge was raised in the PKM adjudication because the contract relied on by PKM was one between PKM, MHCL and Ideal and on Ideal's case there was no such contract.
Outcome of the adjudications
- In each adjudication, the adjudicator decided that there had been a novation to MHCL and ordered Ideal to pay sums to Hart/PKM (albeit lesser sums than those claimed).
- The outcome of the adjudications was as follows:
(i) In the Hart Retrofit adjudication, the adjudicator decided that £750,000 was due to MHCL on invoice 2589 but not any other amounts claimed.
(ii) In the Hart Defects adjudication, the adjudicator ordered payment of £150,000 on invoice 2592 and £300,000 on invoice 2823.
(iii) In the PKM Defects adjudication, the adjudicator ordered payment of £150,000 plus VAT on invoice 083 and payment of the sums claimed in invoices 092 and 093 plus VAT.
- It is those decisions that the Claimants seeks to enforce.
- Having reserved its position in the adjudications, Ideal resists summary judgment on the grounds that each adjudicator lacked jurisdiction because in each case the contract under which the adjudicator was appointed (as referred to in the Notice of Intention to Refer) was a contract alleged to have been made with the company, MHCL, when it was common ground that it was Mr Hart who was initially party to the Retrofit and Defects Contracts. Further, and in any event, Ideal disputes that there had been any novation to MHCL. On Ideal's case, therefore, the Referring Party in the two Hart adjudications had no contractual relationship with Ideal. So far as PKM is concerned, Ideal argues that although PKM had a contractual relationship with Ideal, in the PKM Defects adjudication, PKM claimed under a contract to which MHCL was a party; there was no such contract; and it follows that the adjudicator lacked any jurisdiction.
The alleged novation
- It is, I think, helpful to set out first some basic propositions as set out in Chitty on Contract, 32nd edition at paragraphs 19-087 to 19-089:
"Novation takes place where the two contracting parties agree that a third, who also agrees, shall stand in the relation of either of them to the other. There is a new contract and it is therefore essential that the consent of all parties shall be obtained: in this necessity for consent lies the most important difference between novation and assignment.
Most of the reported cases in English law have arisen either out of the amalgamation of companies or changes in partnership firms, the question being whether as a matter of fact the party contracting with the company or the firm accepted the new company or the new firm as his debtor in the place of the old company or the old firm. That acceptance may be inferred from acts and conduct, but ordinarily it is not to be inferred from conduct without some distinct request. …
The effect of a novation is not to assign or transfer a right or liability, but rather to extinguish the original contract and replace it by another. …"
- As I have set out above, the Claimants' position in the adjudications was (in the Notices of Intention to Refer) that there was a contract entered into initially to which M Hart Construction Ltd. was a party. That was plainly wrong. Subsequently in each adjudication, the Referring Party contended that the contract initially entered into by Mr Hart had been novated to MHCL. Further, in each adjudication the manner in which the contracts were said to have been novated was clearly set out as being the effect of a conversation between Mr Hart and Mr Ibrahim on 26 January 2015 and subsequent conduct giving rise to an implied novation.
- The very reference to an implied novation means that it was not and is not MHCL's case that novation was expressly discussed and agreed but rather that what was agreed can be inferred from what was said and how the parties conducted themselves thereafter. It seems to me that MHCL's case must be that the request to novate the contract was the product of the conversation between Mr Hart and Mr Ibrahim and that subsequent conduct evidences the acceptance of that request.
- The evidence in the adjudications about the conversation on 26 January 2015 emerged piecemeal:
(i) Firstly, in each of the adjudications, Mr Ibrahim made a statement dated 31 July 2017. Referring to the Referral Notice, he said that it was alleged that he had met Mr Hart on 26 January and that in the course of that meeting he was advised that Mr Hart would be utilizing M Hart Construction Ltd. as opposed to trading as a sole trader. He continued "This is the first time I have heard this allegation. I have absolutely no recollection of such a conversation and categorially deny that it took place". He commented that if he had been doing this he would have notified people in writing and he observed that there had been no change in VAT number as he might have expected.
(ii) His next statement was made on 15 August 2017 and in this he said that he had now realised that he was in the US on business on 26 January 2015. He produced copies of his passport and e-ticket as evidence, showing that he did not return to the UK until the morning of 27 January 2015.
(iii) Mr Hart responded in a statement dated 16 August 2017. Mr Hart's evidence was that the conversation had taken place by phone (and not in a meeting) and that he and Mr Ibrahim spoke regularly on their mobile phones. He remembered the conversation because they had discussed travel arrangements to a relative's funeral a couple of days later. He went on: "During our conversation we also discussed certain work projects including our work for Lend Lease (we had a meeting with Lend Lease the following day on 27 January 2015). It was during this part of the conversation that I told Mr Ibrahim that I had established Hart Construction and that I was going to use Hart Construction, rather than trading myself."
(iv) Mr Ibrahim responded in a statement dated 17 August 2017. He said that because of the time difference and his habit of turning his phone off when abroad to avoid data charges, he was certain that he had not received any call from Mr Hart on 26 January 2015. He also questioned why Mr Hart would phone him on a non-urgent matter in the United States in circumstances where he was to see Mr Hart the following day in any event.
- On this application, both Mr Ibrahim and Mr Hart have repeated their evidence and relied on other matters, of limited scope, as supporting their respective positions.
- There was and is, therefore, clearly a direct conflict of evidence as to whether an oral contract had been novated orally or whether there was anything that could amount to a request to novate the contract. It is one that arises in a context in which the parties' contractual dealings were informal to say the least and it is exactly the sort of conflict of evidence that it is difficult to resolve without an oral hearing. In any case, I find it difficult to see how what Mr Hart says he told Mr Ibrahim could have given rise to a novation ab initio of an existing contract. Although the words used might be interpreted as a request to deal with the company in some manner, the words would seem more consistent with Mr Hart telling Mr Ibrahim that he would be trading through a limited company in the future, either on future projects or on future works under existing contracts. That is exactly the sort of issue that would need to be explored in oral evidence.
- Mr Wygas, for the Claimants, submitted that even if the company, MHCL, had taken over future works only, then it would have had a claim to some element of the profit share and, absent a valid pay less notice, the sums invoiced would have been payable in any event. That submission, however, illustrates the very difficulty in determining the consequences of what is alleged to have been said by Mr Hart and what is to be inferred from subsequent conduct, since MHCL's case has consistently been that there was a novation ab initio. In any event, on the Retrofit Contract, there is a dispute as to whether the works were complete so that there were no further works to be carried out and that is not a dispute which could be determined on this application.
- As Coulson J observed in RCS Contractors Ltd. v. Conway the repeal of s. 107 of the Housing Grants Construction and Regeneration Act 1996 has meant that "adjudicators now have to grapple with entirely oral contracts, with all the uncertainty and contention that such a situation can engender. In addition, in such cases, even if an adjudicator finds an oral contract, the responding party is likely (as again happened here) to obtain permission to defend a claimant's claim on enforcement, because only rarely will a disputed oral agreement be the subject of a successful summary judgment application." It seems to me that that neatly encapsulates the present case and that, without more, it would be difficult to see how I could decide on a summary basis that there was no realistic prospect of Ideal succeeding in its case that there was no novation.
- The Claimants, however, argued that the present case was closer to another decision of Coulson J.'s in Enterprise Managed Services Ltd. v Tony McFadden Utilities Ltd.  EWHC 3222 (TCC). It is unnecessary for me to set out the facts of that case but, in short, it involved Part 8 proceedings in connection with adjudication proceedings in which Enterprise contended that the adjudicator had no jurisdiction. One issue that arose was whether there had been a novation of a contract between TML (which had assigned its rights to the Defendant) and a company called Subterra as a result of an Asset Purchase Agreement under which Enterprise purchased the assets of Subterra. Coulson J. found primarily that there had been such a novation on the proper construction of that Agreement. In the alternative he found "a strong case for novation by conduct in any event". Having referred to what was said in Chitty on Contracts, Coulson J found that "it is very easy to infer a novation in the circumstances of this case". Those circumstances included that large sums of money had been paid by Enterprise to TML and that, in terminating the sub-contract with TML, Enterprise had referred to the existence of that sub-contract and its express clauses.
- In this case, Mr Wygas submits that there are circumstances from which it can similarly be inferred that there was a novation and which go beyond the contested conversation in January 2015. These matters were relied on by the adjudicators and he submits that I can and should reach the same conclusion as they did.
- Six points were set out by the adjudicator in the Hart Defects adjudication as follows:
(i) From 9 February 2015, invoices for works undertaken were from MHCL rather than Mr Hart trading as M Hart Construction.
(ii) Lyn Leaver (the administrator for Hart Construction) sent Di Ward (Ideal's purchase ledger manager) an e-mail on 2 June 2015 which stated that "I cannot send a full SAGE statement as we have now changed to a Limited Company and have credited back the old invoices."
(iii) On 8 June 2015 Lyn Leaver sent Ms Ward a list of invoices which included Hart Construction Ltd. invoices and invoices sent on behalf of Mr Hart trading as M Hart construction. Later on 8 June 2015, Ms Ward replied agreeing the list of invoices and allocated payments against invoices from Hart Construction and invoices sent on behalf of Mr Hart trading as M Hart Construction.
(iv) After Mr Ibrahim was aware that Mr Hart was operating through Hart Construction, Ideal still sent works to Mr Hart.
(v) Mr Leaver of PK Maintenance is married to Mrs Leaver and was therefore fully aware of the change from M Hart trading as M Hart Construction to M Hart Construction Ltd. On account of continuing to work under the Contract, PKM also consented to the novation.
(vi) Ideal confirmed in its pay less notice sent to MHCL that there was an application dated the 15th June 2017 which was a reference to invoices from MHCL. Ideal did not question why the invoice was from Hart Construction Ltd. and purported to serve a pay less notice.
Invoices and the e-mails between Di Ward and Lyn Leaver
- Following the alleged conversation in January 2015, there was nothing before me or the adjudicators which in terms either confirmed that conversation or its effect.
- It is right, however, that invoices were sent in the name of MHCL from February 2015 and no issue about this was raised by Ideal. Mr Ibrahim said that he simply did not notice or perhaps attach any significance to this. It was accepted that no payments were made to MHCL. The spreadsheet to which I refer below shows one "sales receipt" of £60,000 in March 2015 without further explanation. MHCL's invoice no. 2463 dated 26 October 2015 gave new bank details. There was no evidence of any payments to this account. The result, therefore, was that although Mr Hart and MHCL may have been acting as if MHCL had taken over the works (for the future or otherwise), there was nothing back from Ideal acknowledging that position and thus undermining Mr Ibrahim's evidence.
- The material going the other way arose out of an exchange of e-mails between Di Ward at Ideal and Lyn Leaver at MHCL. These were relied on, as I understand it, as evidence that supported Mr Hart's contention that there had been an agreed novation ab initio in January 2015. I put it this way because there was some discussion in argument about Ms Ward's ostensible authority. As I see it, that would only be a relevant issue if it were being suggested that what Ms Ward had done had itself effected the novation. That would be a surprising argument without any further evidence. Rather, it seems to me, the Claimants' argument must be that it can be inferred that Ms Ward from Ms Ward's role and actions that she knew about the conversation and/or the arrangements said to give rise to the implied novation.
- There was frankly very little evidence before me as to who Di Ward was or what her role or status was. On 28 May 2015, she e-mailed Lyn Leaver as follows:
"I am helping out in Purchase Ledger at the moment and in need of your help.
I know you have in the past given Sharon a lot of information but if I could ask you to send me an up to date statement ASAP it would be very much appreciated.
I don't think there is any cause for concern. I just need to ensure we have all your invoices and that all payments are allocated correctly."
- The response to that e-mail from Lyn Leaver sent on 2 June 2015 reads as follows:
"I cannot send a full SAGE statement as we have no changed to a Limited Company and have credited back the old invoices.
Please find a sheet attached which itemised all invoices and payments together with the three latest invoices sent to Javid."
The invoices attached were numbered 2399, 2400 and 2401 which were in the name of MHCL.
- Mrs Leaver's e-mail is consistent with a belief on Mr Hart's part that there had been a novation ab initio hence the reference to crediting back old invoices. However, at best, that amounts to no more than Mrs Leaver telling someone "helping out in Purchase Ledger at the moment" what she thought had happened. The "Historic Balance Sheet" attached was simply a list of dates (going back to 2011), invoice numbers, job references, debits and credits and a balance. What the spreadsheet demonstrates is that Ideal would on some occasions make payments in sums that matched invoiced amounts but on many occasions made lump sum payments that were not so obviously referable to an individual invoice. The balance column provided a running total of what was outstanding. The spreadsheet does not, so far as I can see, evidence any crediting back or give any indication as to what the intention behind that would be.
- There was then a further exchange of e-mails ending with one from Di Ward on 8 June 2015 which said this:
"I have been through the account …. and I came up with the same figure outstanding ….. after the little glitch.
I have attached a spreadsheet. What I intend to do is allocate everything apart from the invoices shown on the attached. ….
Going forward once inv. 2315 has been paid in full, we will make payments of whole invoices only, where possible. Making it easier to allocate."
- Mr Wygas submitted that these e-mails demonstrated that Ms Ward knew that she had a credit against invoices from Mr Hart; that Ideal wanted to know what its position was with MHCL; and that the agreed position was that Mr Hart's invoices would be credited back and now paid to MHCL. There was further an admission on the amount owed to MHCL. This seems to me to read a great deal into these e-mails without any supporting evidence. Given the lump sum payments that had been made in the past, the exercise would appear to have been principally a figures exercise to get to the final "Overall Total Invoiced and Paid to Date" leaving a sum outstanding. There is no reference on the spreadsheet at all to MHCL and no obvious reason why in undertaking this exercise Ms Ward would have paid any particular attention to whether the underlying invoices came from Mr Hart or MHCL or been admitting (if she had authority to do so) a sum due to MHCL. All she was told by Mrs Leaver, after she had asked for an updated statement, was that "we" have now changed to a limited company.
- It seems to me that the reliance placed by the Claimants on these e-mails and the activity between Ms Ward and Mrs Leaver may well be overstated and it does not in itself amount to such clear evidence of the alleged novation that I should not regard Ideal's case on this issue as having a real prospect of success.
- In any case, my attention was also drawn to one e-mail in August 2015, in which Mr Hart sent Mr Ibrahim what he considered a fair reflection of Ideal's costs for "water damage and retrofit" and suggested a meeting. The e-mail was signed "Mick" followed by "Hart Construction" with no reference to the company. The e-mail serves to demonstrate both a lack of consistency in Mr Hart's acting as an individual or through the company and the difficulty in rejecting Ideal's case on a summary basis.
Mr Ibrahim's knowledge
- One of the additional matters raised by Mr Hart in his witness statement on this application was Mr Ibrahim's knowledge of the company, MHCL. In his statement on this application, Mr Ibrahim asserted that he did not appreciate that MHCL had been incorporated until shortly after he received a letter from MHCL dated 12 May 2017. Mr Hart's evidence is that that cannot be right because Ideal, MHCL and two other parties had formed a joint venture company called Staybridge Developments to buy, develop and sell properties. That company ceased trading at the end of 2015. It is submitted that that should cast doubt on Mr Ibrahim's evidence in other respects. That argument may have merit but it is not a sufficiently strong reason to dismiss Mr Ibrahim's evidence about the alleged conversation in January 2015. Further, the letter dated 12 May 2017, despite being on MHCL headed paper, is one in which Mr Hart sets out the contract that he entered into with Ideal, with no reference to the novation, and asserts his claim for a share of profits.
The pay less notice
- In respect of MHCL's invoices, Ideal issued a pay less notice dated 21 June 2017. The notice referred twice to invoice no. 2823 but appears to have been intended to refer to invoice 2822 (under the Retrofit Contract) and 2823 (under the Hart Defects Contract). The notice was addressed to MHCL. This is relied upon by the Claimants as clear evidence that there was (and that Ideal accepted that there was) a contract with MHCL. In particular, the pay less notice contained no reservation that there was no such contract and made more than one reference to "your company". Ideal then argued vigorously in the adjudications that the pay less notices were valid.
- I am unable to accept that the pay less notice puts the issue of the novation beyond argument. It would obviously have been better, from Ideal's perspective, if its case that there was no contract with MHCL had been articulated in the pay less notice and the unquestioning references to the company provide some support for MHCL's case. But the invoices in respect of profit followed the letter dated 12 May 2017 which blurred the lines between the individual and the company and addressing the pay less notice to the party that had issued the invoice is the obvious reaction. Once the adjudication had been commenced, Ideal took its jurisdictional objection and its assertion that there was a valid pay less notice must be viewed in this light.
Conclusion on the First Claimant's claims
- So far as the Hart Retrofit and Hart Defects adjudications are concerned, in my judgment, Ideal has a real prospect of defending the claims on the adjudicators' decisions on the basis that there was no novation of the underlying contracts to MHCL. The present case does not seem to me to involve the kind of circumstances from which it is easy to infer a novation as it was in the Enterprise case. I do not, therefore, make the order that is sought by the First Claimant.
- Three further arguments were advanced by Ideal on which they would have relied even if I had concluded that there was no real prospect of success on the issue of the novation. I deal with them for completeness and because of their relevance to the position of PKM which I address separately below. The arguments were these:
(i) the adjudications were not brought under the alleged novated contract because the Notices of Intention to Refer each relied on specific contracts that did not exist.
(ii) The Scheme expressly or impliedly requires the identification of the contract under which the dispute arises and under which the adjudicator is appointed.
(iii) The adjudicators each acted under 2 contracts because they derived their jurisdiction from the contracts relied upon in the Notices of Intention to Refer but made their decisions on the basis of a novated contract.
- I draw these arguments together as follows. The Notices of Intention to Refer expressly stated that the original contracts were formed with MHCL (in distinction from Mr Hart) on dates in June and September 2012 - when that was clearly wrong in fact - and did not refer at all to the novation. Ideal argue that, as a matter of law, the effect of a novation is to extinguish the original contract and replace it with a new contract between the new parties. Therefore they say that the adjudicators could have no jurisdiction because the contracts relied on in the Notices did not exist; the Notices failed to comply with the Scheme; and the adjudicators purported to made decisions under a new and different contract under which they had not been appointed.
- Section 108 of the Housing Grants Construction and Regeneration Act 1996 gives a party to a construction contract the right to refer a dispute under the contract to adjudication. The first part of the Scheme deals with the Notice of Intention to seek adjudication. Paragraph 1(1) provides that any party to a construction contract may give written notice at any time of "his intention to refer any dispute arising under the contract, to adjudication". Sub-paragraph (3) provides that the notice shall set out briefly (a) the nature and a brief description of the dispute and of the parties involved, (b) details of where and when the dispute has arisen, (c) the nature of the redress which is sought, and (d) the names and addresses of the parties to the contract.
- The Scheme, reflecting the Act, necessarily assumes that the dispute that is referred to adjudication arises under a contract and in most cases, the Referring Party, in giving a brief description of the dispute, is likely to set out that contract but that is not a discrete procedural requirement. The requirement is to set out the dispute because that is what is referred to the adjudicator and what sets the parameters of the adjudicator's jurisdiction. The notices do set out the dispute in that they say that the Responding Party has not paid any sums to the Referring Party in relation to profit but is liable to do so.
- The Referral Notices (in the Hart adjudications) then go on to set out the Referring Party's case as to the contractual relationship relying on the alleged novation.
- Firstly, the absence of that particularity in the notices does not, in my judgment, either render them invalid or restrict the adjudicator's jurisdiction to determine the dispute.
- Secondly, I do not take the view that the adjudicators had no jurisdiction because the contracts particularised in the Notice of Intention to Refer did not exist – if there was a novation ab initio, such that MHCL was party to each of the contracts, then a contract did exist between Ideal and MHCL under which there was a dispute about entitlement to profits and that dispute was what was referred to adjudication. In any case, it is easy to see how the drafters of the Notices of Intention to Refer might have thought it accurate to say that the Retrofit and Defects Contracts had been entered into with MHCL from the original dates of the contracts since that was the practical effect of the novation. The description of the contract formation was factually inaccurate but captured the legal effect of the alleged novation.
- Ideal's argument involves, to my mind, the proposition that the dispute must be characterised as a dispute about entitlement to be paid a profit share under a contract precisely as particularised in the Notice of Intention to Refer. In my view that it an overly technical approach to the identification of the dispute referred which is not in accordance with the spirit of the Act and could lead to absurd results. The same point answers the submission that the adjudicators in fact acted under a second contract. They did not – what they did was decide the disputes referred to them, MHCL having set out more fully in the course of the adjudication the basis on which it claimed against Ideal.
- Although not a case cited to me in argument, I find support for this view in the judgment of Stuart-Smith J in Purton v Kilker Projects Limited  EWHC 2624 (TCC). In that case, Kilker argued both that there was no contract at all and that any contract was not with Mr Purton. Kilker also adopted what Stuart-Smith J described as a fall back position:
"that, it was necessary for the Court to be satisfied to the requisite standard for awarding summary judgment that, if a contract existed, it was the contract alleged by Mr Purton. The submission was that if the Court was not so satisfied then Mr Purton should not be permitted to rely upon a contract that was not pleaded in these proceedings and, furthermore, the adjudicator would have had no jurisdiction to decide the issue referred to him. …. The high point of [counsel's] submission was that if any element of the contract alleged by Mr Purton was not established to the summary judgment standard of certainty, then judgment should be denied."
Those elements included the date of the contract, the specific scope of works and the contract sum.
- Stuart-Smith J rejected that argument. He distinguished between (i) a case where a contract is relied upon but is incorrectly identified in one or more particular respects and (ii) a case where it can be said that the contract relied upon never existed or that the dispute being referred did not arise under the contract relied upon. In respect of the former, he colourfully said this:
"The first of these alternatives can be addressed shortly. 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." [at 23]
- In relation to the second alternative, he said unsurprisingly that where there was no contract there was no jurisdiction but he identified an intermediate position where there was a contract but it was misdescribed in some respect "so that it can be said that the contract as described is not the contract under which the dispute arose but is (or would be) another contract altogether". In that case, he concluded that, at least where there can be no doubt, that the adjudicator properly informed, would and should have concluded that he had jurisdiction and the proper basis of jurisdiction makes no difference to the substantive outcome, the Court should not shut out the Claimant.
- That, in my judgment would have been the position here. The Notices of Intention to Refer effectively elided the factual formation of the Retrofit and Defects Contracts with the effect of the alleged novation ab initio. In so doing there was an element of misdescription of the relevant contracts but, had I been satisfied to the requisite standard that there was a novation, there would have been no question that there was a contract between Ideal and MHCL and no dispute about its terms. The error in the Notices of Intention to Refer, which I accept were factually inaccurate, was just that – an error but not one that deprived the adjudicators of jurisdiction.
The PKM defects adjudication
- As I said, I have addressed these further arguments because it seems to me that there is a distinction to be drawn between the position of MHCL and PKM.
- In the case of PKM, there was never any issue that PKM was party to a contract with Ideal. It was a tri-partite contract initially with Mr Hart and subsequently, on the Claimants' cases, with MHCL.
- The Notice of Intention to Refer in the PKM Defects adjudication described the contract in the same way as in the Hart Defects adjudication. The novation was only addressed by PKM in its Reply in answer to Ideal's jurisdictional challenge.
- The dispute referred to adjudication was PKM's entitlement to its profit share. If there was no novation, then that dispute arose under the admitted contract between Ideal, PKM and Mr Hart. It is only the references to the contract as being with MHCL that provides Ideal with any defence to summary judgment. The Notice of Intention to Refer misdescribes that contract to the extent that misidentifies one of the parties - but not one of the parties to the adjudication – and that misdescription has no relevance to the substantive dispute.
- Equally, if I was satisfied that there was a novation, I would have given summary judgment for the reasons I have given in respect of the further arguments set out above.
- I will, therefore, give summary judgment for the sums awarded by the adjudicator in the PKM adjudications together with interest to be assessed.