Allied contracted with the Paradigm Housing Group (PHG) for the construction of houses in Bishop's Stortford. The contract provided for a monthly Notice of Payment to be issued by PHG's Employer's Agent, with payment to be made within 15 working days. The contract also permitted PHG to determine the contract for PHG's failure to proceed regularly and diligently upon serving a notice by either registered post or recorded delivery specifying the nature of the default. If the default persisted for nine working days after the receipt of the notice or there was any repetition of it, PHG was entitled to issue a notice of determination. This notice was not to be given "unreasonably or vexatiously". After this eventuality, PHG would not be obliged to make any further payments. The contract contained an adjudication clause.
The contract became delayed, and there were disputes between the parties as to the causes. On 29 January 2009, PHG's agent issued Notice of Interim Payment no. 15 for £2,418,727 which after allowing for retention of 5% and previous payments left a net sum to be paid of £30,229. Although this was payable in 15 days, no payment was made, and PHG issued a Notice of Withholding Payment on 1 May 2009, itemising a number of reasons why payment was being withheld. These included Allied's alleged failure to proceed regularly and diligently, plus 7 other alleged breaches. The notice required Allied to remedy these within 10 working days from the date of the service of the Notice of Withholding.
Allied's quantity surveyors responded on 8 May wrote to PHG stating that if Interim Payment 15 were not paid within five working days, it would consider itself free to determine the contract. Allied denied that it had been in breach. Allied's Mr. Morris e-mailed PHG's Mr. Main, complaining that the company had not been paid for nine months, and blaming the delay on the electricity company's failure to install supplies.
PHG then served the first notice which identified the same 7 complaints as in the Notice of Withholding and requiring Allied to remedy each of them within 9 working days or the contract would be terminated.
Allied's solicitors wrote back, again requiring payment, and pointing out that some of the alleged breaches were not within Allied's control, and, that PHG was not entitled to terminate. PHG responded that the defaults were Allied's fault and that, as a consequence, they were not liable for further payments. On 2 June 2009, PHG served the second notice, the Notice of Determination because of what they said were Allied's continuing breaches, and ejected it from the site.
Allied commenced an adjudication. The notice of adjudication alleged that PHG had wrongfully determine the contract and therefore repudiated it, and claimed payment of sums alleged to be due, plus damages.
Mr. Derek Pye was appointed as adjudicator. PHG challenged Mr. Pye's jurisdiction. In a letter dated 10 July 2009, PHG maintained that the since the parties' disputes were not technical in nature, the best person to act as adjudicator would be a legal adjudicator such as a barrister. PHG also reserved its rights in respect of an adjudicator's jurisdiction, pointing out that because they had received no letter of claim, a notice of adjudication was premature. In response to Allied's Referral Notice, PHG again raised its objections to the adjudicator's jurisdiction, arguing that no losses had yet crystallised, and since the contract had been terminated, the dispute was not one which could best be decided by adjudication, but either at arbitration or in the courts. It also reiterated its point about Allied's failure to send them a letter of claim.
In reply, Allied said it did not see how the lack of a letter affected the adjudicator's jurisdiction. Since PHG had determined the contract, presumably after having taken legal advice, it could hardly be surprised that adjudication proceedings had been commenced. Further, adjudication was not subject to the Civil Procedure Rules Construction Pre-Action Protocol.
The adjudicator rejected all PHG's arguments, principally because PHG had received the Notice of Adjudication prior to the Referral. He went on to find that PHG's first and second notices had been invalid, and that it had repudiated the contract by ejecting Allied from the site. Allied had accepted this repudiation by leaving. He made an award in Allied's favour.
PHG took the view that the adjudicator's decision was invalid because the dispute referred to had not crystallised and refused to pay.
There could be no doubt that before the issue of the Second Notice and Allied's ejection from the site, there had been a dispute between the parties about whether PHG's termination of the contract was justified. Allied had disputed the alleged breaches as early as the issue of the first notice. They had denied that there had been any breach at all. Therefore, by 3 June 2009, a referable dispute as to whether there had been any breaches of contract by Allied had existed. There was, however, nothing in the correspondence or witness evidence which had hinted at a potential financial claim by Allied because of the termination. There was of course a dispute about PHG's failure to pay Payment no. 15, but it would be a rare case that a claim or a party's position could be imputed from its silence. Whether PHG appreciated that there would be financial claim flowing from its termination of the contract or not was immaterial. The dispute which had crystallised between the parties was whether there had been any breaches which justified n termination of the contract. It did not include any entitlement to damages.
However, examining the language of PHG's correspondence and its response, it had failed to reserve its position to the adjudicator's jurisdiction as it had maintained.
The solicitor's letter 10 July 2009 had not reserved a jurisdictional objection in relation to quantum matters or on the grounds of non-crystallisation of any dispute. The fact that PHG had "not had a letter of claim from" Allied was not a jurisdictional point at all; it was rather a complaint or criticism that there has been no formal claim beforehand. Neither the adjudication clause nor the Housing Grants, Construction and Regeneration Act 1996 required such a formal claim beforehand. It followed that PHG's complaint that the issue of a Notice of Adjudication was premature was also unfounded. The language of the letter suggested that the solicitors were aware of the need to reserve their position in relation to jurisdictional matters because they went on to reserve "their position in respect of jurisdiction of the adjudicator" on a specific ground, even though it was one which was totally unjustified and was no longer being pursued. The fact that they did not use the language of reservation in relation to the "letter of claim" point supported the view that there was no intention to make a jurisdictional reservation in that respect.
In fact, instead of making an effective objection to jurisdiction, it had acceded to the adjudicator's jurisdiction. Consequently, the adjudicator's decision would be enforced.
Copyright: BLISS Books Ltd. 2009.
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