Universal Piling & Construction Ltd v VG Clements Ltd
UNIVERSAL PILING & CONSTRUCTION LTD v VG CLEMENTS LTD
UNIVERSAL PILING & CONSTRUCTION LTD v VG CLEMENTS LTD
Technology and Construction Court
1st November 2016
The sub-contractor was wrong to contend that the contractor’s notice of adjudication in the second adjudication sought to refer the same dispute that was referred to and determined by the adjudicator in the first adjudication.
A dispute was referred to adjudication in respect of the sub-contractor's application for payment submitted on completion of its works. The adjudicator found that (i) The contractor had failed to serve any valid payment notice or pay less notice in respect of the application and (ii) The sum due was therefore the sum claimed by the sub-contractor in the application. The sub-contractor issued no further applications for payment or assessment of sums due. Some months later the contractor issued an application comprising a purported payment notice and pay less notice, which showed a negative valuation of the sub-contractor’s works up to the date of the notices. The payment notice purported to measure the works up to that time and to release retention. The contractor commenced a second adjudication to ascertain the proper sum due under the sub-contract by reference to its application. The sub-contractor applied for a declaration that the adjudicator lacked jurisdiction on the ground that the reference amounted to a referral of the same dispute in respect of which an adjudicator's decision had already been obtained in the first adjudication.
O’Farrell J in rejecting the sub-contractor’s application held that the contractor was entitled to proceed with its reference in the second adjudication. The substance of what the adjudicator was being asked to do in the second adjudication was to carry out a proper valuation of the work carried out at a different point in time to when the adjudicator in the first adjudication was asked to carry out such a valuation. The dispute referred by the contractor in the second adjudication also included a claim for the release of retention, which was not the subject of the claim advanced by the sub-contractor in its payment application which formed the subject matter of the first adjudication. It was not clear from the contractor’s notice of adjudication in the second adjudication on what basis it required the adjudicator to carry out such valuation of its work. There might well be an issue as between the parties in the second adjudication as to whether the contractor (i) was entitled under clause 50 to issue a separate assessment and application (ii) had as its remedy a claim for damages for breach of contract or (iii) should be seeking some other form of declaration so as to obtain the relief it required. Those matters were properly matters left to the adjudicator.
THE FULL TEXT OF THE JUDGMENT OF O’FARRELL J
- This matter concerns the claimant's Part 8 claim for:
(i) a declaration that the adjudicator, appointed by the Royal Institution of Chartered Surveyors pursuant to a notice of adjudication dated 7 October 2016 issued by the defendant, lacks jurisdiction to act as adjudicator on the ground that the reference amounts to a referral of the same dispute in respect of which an adjudicator's decision has already been obtained;
(ii) alternatively, such further order as the court may deem appropriate in order to enforce compliance with the earlier decision of Mr Silver, acting as an adjudicator in what I will refer to as the first adjudication, dated 5 July 2016.
- The background to the case is that Universal Piling and Construction Limited (“UPAC”) and VG Clements Limited (“VGC”), entered into a written contract dated 14 January 2014, incorporating the terms of the NEC short form contract, including Contract Data, Parts 1 and 2 and the documents they refer to, under which UPAC was engaged as subcontractor to undertake civil engineering works and re-signalling works for the railway system on the Victoria to Ramsgate lines.
- Clause 93 of the contract provides for the parties to refer any dispute or difference arising out of the contract to adjudication. Clause 93.3(8) provides that the adjudicator's decision is binding on the parties, unless and until revised by “the tribunal”, and is enforceable as a matter of contractual obligation between the parties, not as an arbitral award.
- On completion of the claimant's works a dispute arose in respect of UPAC's application for payment dated 18 September 2015 (“the September Application”). On 9 May 2016 UPAC served on VGC a notice of intention to refer the dispute to adjudication. Richard Silver of Shemmings LLP was appointed as the adjudicator. On 5 July 2016 he produced his decision, in which he found that VGC had failed to serve any valid payment notice or pay less notice, and therefore the sum due was the sum claimed by UPAC in the September Application.
- Initially VGC commenced a further adjudication seeking determination of the proper valuation of the works under the September Application, but eventually that was settled by agreement and Mr Silver's first adjudication decision was enforced.
- Thereafter, UPAC issued no further applications for payment or assessment of sums due. On 28 July 2016 VGC issued a defects certificate confirming that there were no defects in UPAC's works. On 26 August 2016 VGC issued a purported payment notice and pay less notice, valuing the subcontract works and showing a negative valuation (“the August Application”). The August Application is stated to be the value of the works up to August 2016.
- On 7 October VGC commenced what I will describe as the second adjudication. Mr Jenson was appointed as adjudicator. In the second adjudication, VGC invites Mr Jenson to assess the proper sum due under the subcontract by reference to the August Application. Pending determination by this court of the jurisdictional issue raised by the claimant in its part 8 claim, the parties have agreed that those adjudication proceedings should be stayed.
- There are two limbs to UPAC's argument in relation to the jurisdictional dispute. The first is that there is no contractual basis on which VGC can issue an assessment and / or payment application under the terms of the subcontract; therefore, there is nothing that can be referred properly to adjudication. The second is that the substance of the dispute that VGC attempts to submit to Mr Jenson in the second adjudication, is the same, or substantially the same, as the dispute that has already been decided by Mr Silver in the first adjudication.
- Turning first to the contractual basis of the August Application, the payment provisions in the contract are set out in clause 50. Clause 50.1 provides that the subcontractor assesses the amounts due and, by each assessment day, applies to the contractor for payment. There is an assessment day each month until the month after the defect certificate has been issued.
- Clause 50.2 states:
“The subcontractor's application for payment includes details of how the amount has been assessed. The first application for payment is for the amount due. Other applications are for the change in the amount due since the previous payment.”
- Clause 50.3 states:
“The amount due is the price of the work done to date plus other amounts to be paid to the subcontractor, including any tax which the law requires a contractor to pay the subcontractor, less amounts to be paid by or retained from the subcontractor .”
- Clause 50.4 states:
“The contractor corrects any wrongly assessed amount due and notifies the subcontractor of the correction before paying the subcontractor .”
- An amount is retained from the subcontractor in the assessment of each amount due until completion. This amount is the retention applied to the Price for Work Done to Date. The amount retained is halved in the first assessment made after completion and remains at this amount until the assessment day after the Defects Certificate is issued. No amount is retained in the assessment made after the Defects Certificate has been issued.
- The Contractor pays within three weeks after the next assessment day which follows receipt of an application for payment by the Contractor.
- The price for work done to date is defined in clause 11.1(9) as:
“the total of the price by reference to the items on the price list which the subcontractor has completed and where a quantity is stated for an item in the price list an amount calculated by multiplying the quantity for which the subcontractor has completed by the rate.”
- Clause 10.1 provides that the contractor and the subcontractor shall act as stated in the subcontract and in the spirit of mutual trust and co-operation.
- On analysis, clause 50.1 imposes an obligation on the subcontractor, in this case UPAC, to assess the amounts due and to issue an application to the contractor for payment by each assessment day. I arrive at that conclusion by combining the obligation in clause 10.1 for the parties to act as stated in the subcontract with the provision in clause 50.1 that the subcontractor assesses the amount due and by each assessment day and applies to the contractor for payment.
- Mr Jinadu submits that this simply gives an option to the subcontractor to make an assessment and application, but in my view the words of the contract are tolerably clear (albeit expressed in the informal language of this form of contract) and it imposes an obligation on the subcontractor to make applications for payment in accordance with the subcontract.
- Clause 50.2 provides that the first application for payment is in respect of the value of work done and other applications are for the change in the amount due since the previous payment. This means that the first application is for the amount of work, material and equipment supplied by the date of that application, and subsequent applications are for any work done, materials and equipment supplied since the previous application up to the date of the subsequent application. It provides for a change in the amount due since the previous payment and it appears to be common ground between the parties that that change can be upwards or downwards, i.e. there can be negative assessments.
- Clause 50.3 sets out the way in which the amounts are to be ascertained, including the price of work done to date. In my view, what is contemplated is an objectively ascertainable sum due in respect of work carried out to the date of the application. Clause 50.4 provides for the contractor to correct any wrongly assessed amounts due. Mr Jinadu's submission is that it only entitles the contractor to correct an assessment when made by the subcontractor. Mr Selby's submission is that it could be construed so as to enable the contractor to issue its own assessment in relation to what it perceives to be an incorrect earlier assessment by the subcontractor.
- The thrust of UPAC's submission is that clause 50 provides a complete code and scheme under which payments may be claimed and become due to the subcontractor and that there is no provision for the contractor to issue any payment notices or assessments in the absence of an application from the subcontractor; that is, the contractual scheme depends on the subcontractor initiating the process.
- It is not suggested that the September Application, which has been determined by Mr Silver to be payable in full, not on a proper valuation but by reason of the absence of any pay less or payment notice, is conclusive. Mr Jinadu, rightly, accepts that a distinction can be drawn between the contractual procedure used to implement or give effect to interim payments and an agreement whereby such procedure conclusively determines the party's rights under the contract. UPAC's argument does not go so far as to suggest that, having failed to issue a payment or payless notice, VGC is without any remedy in the event that it considers that it has overpaid.
- However, Mr Jinadu's position is that it is only open to VGC in this case to challenge the first adjudication decision by arbitration or litigation. It is not open to VGC to issue any further adjudication reference seeking to challenge the proper valuation of the works as determined in the earlier payment notice, which was held to be the notified sum for the purpose of payment in the first adjudication. Mr Jinadu accepts that in such arbitration or litigation UPAC will not be able to rely on the absence of a payment or payless notice. Therefore, it would be open to VGC to challenge, by reference to the proper valuation of the works, the sums finally due in respect of this subcontract. However, what is submitted it cannot do is to start a fresh adjudication seeking determination of the proper sums due, which inevitably impinges on the determination in the first adjudication.
- Mr Selby's response is that the court does not need to determine that matter because it is a matter that is properly before the second adjudicator, Mr Jenson, and a matter that properly he should decide. However, in any event, his submission is that an application and assessment by VGC can properly form the basis of an assessment under clause 50. Mr Selby submits that UPAC is in breach of clause 50.1 in failing to make any assessment of the amounts due and in failing to make an application in respect of such assessment after the September Application. In those circumstances, the remedy that is open to VGC is to issue its own assessment and payment notice by reference to clause 50.4, i.e. it is entitled to issue a further payment notice and assessment in order to correct what is said to be the incorrect assessment as at September 2015.
- Alternatively, VGC's argument is that the claimant cannot rely on its own breach. Having failed to issue an assessment and application notice, UPAC cannot prevent VGC from properly referring the up-to-date valuation of the work to adjudication by withholding the application that is clearly due under clause 50.1. As a further alternative, VGC's position is that it is entitled to claim damages for UPAC's failure to make an assessment and issue an application under clause 50.1, the value of such damages being the amount of overpayment that VGC is precluded from recovering by reference to a proper assessment.
- In my judgment, Clause 50 provides a code for payment in relation to the subcontract works. It does not make any of the payment applications and / or assessments conclusive as to the value of the work carried out. The value of the work carried out, to which the subcontractor is entitled to payment, is the price of work done to date. That is a sum that is ascertainable on an objective basis by reference to the proper valuation of all work, materials and equipment supplied. It appears that neither party is suggesting that clause 50 provides for a conclusive determination of the sum ultimately due to the subcontractor. The real issue between the parties is whether a proper valuation should be carried out by “the tribunal”, i.e. arbitration or litigation, or whether it is open to one of the parties to refer that determination to a further adjudication.
- That takes me to the second limb of UPAC's application, namely, whether the dispute that the defendant has sought to refer to Mr Jenson in the second adjudication is in truth an application to open up the decision by Mr Silver in the first adjudication, or whether it is an attempt to obtain a proper valuation of the work under a separate application and / or assessment made by VGC.
- In deciding whether or not the dispute that has been referred is the same or a different dispute my attention has been drawn to the decision of Akenhead J in Carillion Construction Limited v Stephen Andrew Smith  EWHC 2910 , in which he set out a number of factors that can be deployed in considering whether the same or substantially the same dispute has been referred to or resulted in another adjudication at paragraph 56 of this judgment (in particular sub-paragraph (7)):
“In my judgement, the following factors, amongst others, can be deployed in considering whether the same or substantially the same dispute has been referred to or resolved in an earlier adjudication:
1 One needs to consider what is and was the ambit and scope of the disputed claims which is being and was referred to adjudication. That of course will vary from dispute to dispute. One has however to take a reasonably broad brush approach in determining what the referred claims were. The reason for this is to avoid repeat references to adjudication of what is essentially the same dispute.
2 The fact that different or additional evidence, be it witness, expert or documentary, over and above what was relied upon in the earlier adjudication, is deployed in the later claim to be referred to a second or later adjudication, will not usually alter what the essential dispute is or has been. The reason is that evidence alone does not generally alter what is the essential dispute between the parties. One needs to differentiate between the essential dispute and the evidence required to support or undermine one party's or the other's case or defence.
3 The fact that different or additional arguments to support or enhance a claiming party's position are deployed in the later adjudication will not usually of itself mean that it is a different dispute to that which was referred earlier. Again, the reason is that different or even better arguments that are deployed in a later adjudication do not usually create an essentially different dispute.
4 The fact that the quantum is different or is claimed on a different quantification basis in the later reference to adjudication from that claimed in the earlier adjudication is not necessarily a pointer to the referred disputes being in substance different. If for example in Adjudication A the referring party claims for the value of 100 m3 of supplying and installing concrete, £20,000, at a rate of £200 per cubic metre, a claim for the same concrete work on a time plus materials basis in Adjudication B is essentially the same claim, albeit put on a different basis. There is nothing to stop the referring party in the subsequent arbitration or litigation claiming on each alternate basis but the claim is a claim for payment for the supply and installation of concrete.
5 One should be particularly cautious about being over-awed in the exercise of comparison of two sets of documents purporting to set out the disputed claims for two adjudications by the amount or bulk of the detail, evidence, analysis, submissions or annexures attached to either.
6 It is legitimate to look at the expressed motivation by the party in the later adjudication for bringing it and the given reasons for the basis of formulation of the later adjudication claim.
7 One must bear in mind that Notices of Adjudication and Referral Notices are not required to be in any specific form; they may be more or less detailed and they may or may not be drafted by people with legal expertise. They do not need to be interpreted as if they were contracts, pleadings or statutes.
8 One strong pointer as to whether disputes are substantially the same is whether essentially the same causes of action are relied upon in the earlier and later Notices of Adjudication and Referral Notices. One must bear in mind that one dispute (like one Claim in Court proceedings) may encompass more than one cause of action.”
- Against those guidelines, I turn to the adjudication notice that has been served. It sets out the background to the dispute, and the payment application made by UPAC and determined by Mr Silver in the first adjudication. It then deals with the current application. At paragraph 13 it refers to the payment provisions in clause 50. At paragraph 15 it states that on 28 July 2016 the referring party issued the defect certificate and asserts that following this the respondent should have issued an assessment under clause 50.1 but failed to do so. Then at paragraph 16 it states: “As a result the referring party issued a payment notice on 24 August 2016.” The payment notice in question that is relied upon by VGC is dated 24 August 2016 and purports to measure the works up to the date of 19 August 2016. It purports to release retention and anticipated a final account value of just over £1.1 million.
- It is submitted by Mr Selby on behalf of VGC that this is a different application and a different payment notice to the one that was determined in the first adjudication. Firstly, it includes the release of retention. Secondly, the valuation is up to a different and subsequent date, namely August 2016 as opposed to September 2015. There is nothing to prevent VGC from seeking a determination of the proper valuation of UPAC's work. He relies on the earlier decision of this court in Kilker Projects Limited v Purton  EWHC 2616 , which applied a decision of the Court of Appeal in Harding v Paice and Springhall  EWCA Civ 1231 , in particular paragraphs 67 to 72. It is said that the adjudication notice in substance is seeking a proper valuation of all of UPAC's work as opposed to revisiting the validity or otherwise of the payment notice served in September 2015. Therefore, it is said that this notice of adjudication does not concern the payment notice determined in the first adjudication and the reference is dealing with a different issue to the issue determined in the first adjudication.
- Mr Jinadu's response to that is that in effect there is nothing to distinguish the issues that have been raised in the second adjudication from the issues that were dealt with in the first adjudication. There is an existing adjudicator's decision as to the value of the amounts due pursuant to UPAC's September Application, which is final and binding on both parties unless and until the matter is referred to the tribunal specified in the contract. As that has not yet been done, there is nothing further that can be referred in the second adjudication.
- In my judgment, the second adjudication notice is seeking to refer to adjudication a different dispute to the dispute that was before Mr Silver in the first adjudication. I accept the submission of Mr Selby that when one looks at the substance of what Mr Jenson is being asked to do, it is to carry out a proper valuation of the work carried out up to 19 August 2016; i.e. it is the value of the works as at a different point in time. It also includes a claim for the release of retention, which was not the subject of the September Application.
- It is not clear from the notice on what basis VGC requires Mr Jenson to carry out such valuation of its work. There may well be an issue as between the parties in the second adjudication as to whether under clause 50 VGC is entitled to issue a separate assessment and application, whether its remedy lies in a claim for damages for breach of contract, or whether in fact it should be seeking some other form of declaration so as to obtain the relief that it requires. Those matters, it seems to me, are properly matters left to the adjudicator to be determined by a proper construction of the notice of adjudication together with the referral notice and other submissions that are served during the course of the adjudication. I do not consider that it would be proper for this court to trespass on that exercise unless and until all of that material has been deployed before the adjudicator.
- For those reasons I reject UPAC's submission that the adjudication notice seeks to refer to Mr Jenson in the second adjudication the same dispute that was referred to and determined by Mr Silver in the first adjudication. Therefore, I dismiss the claimant's application for relief.