William Verry Limited v North West London Communal Mikvah
Case reference:
[2004] EWHC 1300 (TCC)
Friday, 11 June 2004
Key terms: Summary enforcement - CPR Part 8 - CPR Part 7 - JCT98 Private with Quantities - late delivery of referral - no dispute - failure to decide all issues referred - retention release - interim certificates - Section 108(1)(b) - Section 108(1)(c).
William Verry Limited agreed to construct for the North West London Communal Mikvah a Jewish ritual Bath in Golders Green, London for approximately ?2.4 million. Several disputes arose and there were three consecutive adjudications in respect of interim valuations. This application related to the third adjudication by which the adjudicator decided that Verry should be paid ?67,055.97 plus interest in respect of retention.
The second adjudicator’s decision dealt with an interim valuation. A further interim valuation (No. 34) was then issued. No further work had been carried out, but half of the retention was due for release. However, the interim certificate showed that no amount was to be paid because of an allegation of defects. Verry referred to the adjudicator the issue of whether retention should be paid. The adjudicator decided that Verry should be paid the half release of retention.
Mikvah refused to pay on three jurisdictional grounds. First, that the referral was one day late, out of time and therefore the adjudicator did not have the jurisdiction to consider it. Second, that there was no dispute because Verry had not challenged Mikvah’s non-payment of the retention, such that a claim had not been made which had then been rejected in order to crystallise the dispute. Finally, that the adjudicator had failed to decide all of the critical issues referred.
Proceedings started pursuant to CPR Part 8, but were transformed into a Part 7 proceedings in order that the Judge could consider the factual issues as well as strictly legal issues.
HHJ Thornton QC considered the three jurisdictional challenges. He decided that the 7 day period for service of the referral notice ran from the date that the adjudication notice was issued and not from the date that it was served. The referral was therefore as a matter of fact served one day late. However, the language of Section 108(1)(b) was not rigid, and there was nothing in that sub-section to preclude a contract from allowing an adjudicator to extend the timescale for issue of the referring document. Clause 41A.5.6 of the JCT Contract provided that a failure by any party to comply with the contract would not invalidate the decision of an adjudicator. The adjudicator once appointed asked that the referral be faxed to him by 11 December 2003. Verry complied with this direction and therefore HHJ Thornton QC decided that the referral notice was served within time.
In respect of the no dispute point, HHJ Thornton QC made it clear that Verry’s adjudication notice referring to the release and payment of the first half of retention was to be considered against the background that was known to the parties at the time or shortly before the issue of the notice. It was clear that the subject matter of the dispute required an adjudicator to consider the interim valuation machinery of the contract, to open up review and revise the last certificate therefore carrying out a full revaluation in order to determine whether retention should or should not be released. While Verry had not specifically challenged the release of retention with Mikvah, they had taken issue with the allegation of defects which impacted upon the financial calculation of the interim certificate, which in turn determined whether retention would be released. Consideration of the defects was therefore an integral part of the adjudication even though it was not specifically mentioned in the adjudication notice.
The adjudicator had decided that he could not revalue the work nor consider any defects. This was based on his incorrect understanding of Ferson Contractors Limited v Levolux A.T. Limited [2003] TCLR 5. The adjudicator felt that he was bound by his previous gross valuation of the work in the second adjudication. However, this rationale failed to consider the contractual interim valuation machinery of the contract which provided him with the ability to revalue the works on a gross basis. The adjudicator’s error in failing to value the works afresh and failure to consider the defects was an error of law, and was also unfair to Mikvah.
HHJ Thornton QC considered whether these jurisdictional errors were so fundamental as to transform the third adjudication decision into a decision in respect of a different question or dispute to that which was actually referred. On balance he decided that the adjudicator had answered the right question albeit incorrectly. However, he wanted to provide Mikvah with an opportunity to refer their defects dispute to adjudication and therefore propose that the judgment would not be drawn up for 6 weeks in order to provide Mikvah with an opportunity to refer the defects issue to adjudication and receive a decision which could then be considered against the enforcement of this decision in order to arrive at balance to be paid to one or the other party.
The second adjudicator’s decision dealt with an interim valuation. A further interim valuation (No. 34) was then issued. No further work had been carried out, but half of the retention was due for release. However, the interim certificate showed that no amount was to be paid because of an allegation of defects. Verry referred to the adjudicator the issue of whether retention should be paid. The adjudicator decided that Verry should be paid the half release of retention.
Mikvah refused to pay on three jurisdictional grounds. First, that the referral was one day late, out of time and therefore the adjudicator did not have the jurisdiction to consider it. Second, that there was no dispute because Verry had not challenged Mikvah’s non-payment of the retention, such that a claim had not been made which had then been rejected in order to crystallise the dispute. Finally, that the adjudicator had failed to decide all of the critical issues referred.
Proceedings started pursuant to CPR Part 8, but were transformed into a Part 7 proceedings in order that the Judge could consider the factual issues as well as strictly legal issues.
HHJ Thornton QC considered the three jurisdictional challenges. He decided that the 7 day period for service of the referral notice ran from the date that the adjudication notice was issued and not from the date that it was served. The referral was therefore as a matter of fact served one day late. However, the language of Section 108(1)(b) was not rigid, and there was nothing in that sub-section to preclude a contract from allowing an adjudicator to extend the timescale for issue of the referring document. Clause 41A.5.6 of the JCT Contract provided that a failure by any party to comply with the contract would not invalidate the decision of an adjudicator. The adjudicator once appointed asked that the referral be faxed to him by 11 December 2003. Verry complied with this direction and therefore HHJ Thornton QC decided that the referral notice was served within time.
In respect of the no dispute point, HHJ Thornton QC made it clear that Verry’s adjudication notice referring to the release and payment of the first half of retention was to be considered against the background that was known to the parties at the time or shortly before the issue of the notice. It was clear that the subject matter of the dispute required an adjudicator to consider the interim valuation machinery of the contract, to open up review and revise the last certificate therefore carrying out a full revaluation in order to determine whether retention should or should not be released. While Verry had not specifically challenged the release of retention with Mikvah, they had taken issue with the allegation of defects which impacted upon the financial calculation of the interim certificate, which in turn determined whether retention would be released. Consideration of the defects was therefore an integral part of the adjudication even though it was not specifically mentioned in the adjudication notice.
The adjudicator had decided that he could not revalue the work nor consider any defects. This was based on his incorrect understanding of Ferson Contractors Limited v Levolux A.T. Limited [2003] TCLR 5. The adjudicator felt that he was bound by his previous gross valuation of the work in the second adjudication. However, this rationale failed to consider the contractual interim valuation machinery of the contract which provided him with the ability to revalue the works on a gross basis. The adjudicator’s error in failing to value the works afresh and failure to consider the defects was an error of law, and was also unfair to Mikvah.
HHJ Thornton QC considered whether these jurisdictional errors were so fundamental as to transform the third adjudication decision into a decision in respect of a different question or dispute to that which was actually referred. On balance he decided that the adjudicator had answered the right question albeit incorrectly. However, he wanted to provide Mikvah with an opportunity to refer their defects dispute to adjudication and therefore propose that the judgment would not be drawn up for 6 weeks in order to provide Mikvah with an opportunity to refer the defects issue to adjudication and receive a decision which could then be considered against the enforcement of this decision in order to arrive at balance to be paid to one or the other party.