David McLean Housing Contractors Limited v Swansea Housing Association Limited
Case reference:
[2001] EWHC 830 (TCC)
Friday, 27 July 2001
Key terms: Summary judgement - jurisdiction - JCT 81 - Section 111 - matters in dispute - legal nature of adjudicator's decision - Section 9 of the Arbitration Act 1996
The main issue in this case was whether the contractor was to be paid a sum representing liquidated damaged withheld by the employer. The contractor, McLean, was employed under the JCT 81 with design by the Housing Association to redevelop a former post office in Swansea. Practical completion was certified on 31 July 2000, and the contractor's subsequent application for payment (number 19) claimed loss and expense, valuation of variations and measured work and adjustment of provisional sums. The works were late, and so there was also an issue over an extension of time. The contractor issued a notice of adjudication in respect of these matters. They did not refer the issue of liquidated damages in the notice. The adjudicator issued a decision. Both parties issued summary judgement applications, and the defendant applied for a stay under section 9 of the Arbitration Act 1996.
The applications raised several issues. Had the adjudicator been validly appointed by the RICS as the contract referred to the CIArb as the appointing body, whilst amendments appeared to delete the reference to the CIArb? Had more than one dispute been referred to the adjudicator making the notice invalid? If not, when the adjudicator considered the extension of time, and the resulting amount of loss and expense, should the adjudicator have decided on the amount of liquidated damages if any.
More interestingly, the legal nature of the adjudicator's decision was in issue. Did the decision create a debt (following VHE Construction plc v RBSTB Trust Co limited), or is the cause of action the right or obligation in dispute (see Glencoat Development and Design Co Limited v Ben Barrett & Son (Contractors) Limited)? HHJ Lloyd QC held, first, that the documents were imperfectly complied, but the reference to the CIArb was deleted so the Scheme applied. The adjudicator was therefore validly appointed. Second, one dispute was referred containing 6 separate matters, which were set out in the notice of adjudication, and so the notice was valid. In order to determine the amount of loss and expense the right to any extension of time needed to be considered. Third, when the adjudicator considered the extension of time and its impact on loss and expense, a natural consequence was the crystallisation of the amount of liquidated damages due to the employer. The claimant had no realistic prospect of resisting the counterclaim, and so the employer was entitled to keep the liquidated damages. In respect of the legal nature of the decision,
HHJ Lloyd QC held that the decision was not itself a cause of action. The decision is of temporary effect and should be enforced, but the claimant may at some future date have to establish its rights and cause of action. If the decision was in itself a cause of action, then it would supplant the original cause of action. Finally, the application for a stay to arbitration was dismissed.
The applications raised several issues. Had the adjudicator been validly appointed by the RICS as the contract referred to the CIArb as the appointing body, whilst amendments appeared to delete the reference to the CIArb? Had more than one dispute been referred to the adjudicator making the notice invalid? If not, when the adjudicator considered the extension of time, and the resulting amount of loss and expense, should the adjudicator have decided on the amount of liquidated damages if any.
More interestingly, the legal nature of the adjudicator's decision was in issue. Did the decision create a debt (following VHE Construction plc v RBSTB Trust Co limited), or is the cause of action the right or obligation in dispute (see Glencoat Development and Design Co Limited v Ben Barrett & Son (Contractors) Limited)? HHJ Lloyd QC held, first, that the documents were imperfectly complied, but the reference to the CIArb was deleted so the Scheme applied. The adjudicator was therefore validly appointed. Second, one dispute was referred containing 6 separate matters, which were set out in the notice of adjudication, and so the notice was valid. In order to determine the amount of loss and expense the right to any extension of time needed to be considered. Third, when the adjudicator considered the extension of time and its impact on loss and expense, a natural consequence was the crystallisation of the amount of liquidated damages due to the employer. The claimant had no realistic prospect of resisting the counterclaim, and so the employer was entitled to keep the liquidated damages. In respect of the legal nature of the decision,
HHJ Lloyd QC held that the decision was not itself a cause of action. The decision is of temporary effect and should be enforced, but the claimant may at some future date have to establish its rights and cause of action. If the decision was in itself a cause of action, then it would supplant the original cause of action. Finally, the application for a stay to arbitration was dismissed.