IMPERIAL CHEMICAL INDUSTRIES LTD v MERIT MERRELL TECHNOLOGY LTD (No 6)

A party seeking in court proceedings to overturn an adjudicator’s decision and to demonstrate an entitlement to be repaid money awarded by the adjudicator must make good that case and therefore bears the burden of proof in those proceedings
 

IMPERIAL CHEMICAL INDUSTRIES LTD v MERIT MERRELL TECHNOLOGY LTD (No 6)

Technology and Construction Court

Fraser J

21 June 2018

A party seeking in court proceedings to overturn an adjudicator’s decision and to demonstrate an entitlement to be repaid money awarded by the adjudicator must make good that case and therefore bears the burden of proof in those proceedings

 

Fraser J in giving his reasons for holding based on case law and first principles that the claimant (and not the defendant) in court proceedings to overturn an adjudicator’s decision has the burden of proof began by stating that (i) The courts are naturally reluctant to determine cases on the burden of proof and (ii) It is an unsatisfactory resolution of any dispute to determine in that way.

 

He went on to state that the first principles are those governing adjudication in that (i) Adjudication is a means whereby a party can recover money said to be due to it as a matter of interim finality (ii) The "finality" in that phrase is achieved by a decision in litigation or arbitration that the contractor has been overpaid and (iii) If an employer seeks to demonstrate that the contractor has been overpaid, the employer has the burden of demonstrating that. It does not matter whether a party holds the money as a result of (i) A decision by an adjudicator on the substantive value of an interim application or (ii) The absence of a payless notice (what used to be called a withholding notice). The same principles must apply for all adjudicators' decisions, regardless of how they have been reached. There can be little doubt that if a party is seeking to demonstrate an entitlement to be repaid money, it must make good that case. Jacob LJ stated in Rupert Morgan Building Services v Jervis (2004) that it does not preclude the client who has paid from subsequently showing he has overpaid.

 

He further stated that if the employer’s position were to be correct, it would lead to a rather strange procedural situation in that (i) The contractor would effectively have to obtain a decision from the court justifying that it could keep the sums which the adjudicator has decided it should have been paid (ii) The employer could commence proceedings seeking to recover sums held by a contractor as a result of a properly obtained adjudicator's decision and, simply by issuing the claim form, transfer to the defendant the burden of demonstrating that it, the defendant, is entitled to those sums under the substantive dispute (iii) The lack of a payless or payment notice would not be of any particular advantage to such a contractor and (iv) Immediate service of a claim form by the employer would instantly put the burden on the receiving party.

 

THE RELEVANT PASSAGE IN THE JUDGMENT OF FRASER J

 

  1. There is one other difference in principle, and it arises as a result of ICI's approach to the question of valuation (and inherent within that, MMT "proving" its entitlement to payment for works said to have been performed). This is which party has the burden of proof in respect of the final valuation of MMT's works.

 

  1. The issue – if it is an issue – arises in this way. MMT has the benefit of two adjudications decisions in its favour. The first was referred to as Adjudication No.1, was made in relation to Interim Application No.22 in November 2014, and was in the sum of £7.9 million approximately. This decision was made in March 2015 and paid shortly after MMT issued enforcement proceedings in the TCC. Three other adjudications followed, Adjudication No.2 initiated by ICI in relation to delivery up of documents, and Adjudication No.3 initiated by MMT in relation to which party repudiated the contract. Adjudication No.4 was then initiated by MMT, and this decision related to the amount said to be due under Interim Application No.23, which was made in December 2014. The amount recovered by MMT under the decision in this adjudication was £816,000, and this decision was dated 11 September 2016.

 

  1. However, both of the decisions under Adjudications No.1 and No.4 were made on the basis of the lack of any payless notices being served by or on behalf of ICI. ICI submits that it is for MMT to establish the final value of its works, and any inability to do so counts against MMT as it will have failed to satisfy the burden of proof.

 

  1. MMT on the contrary submits that it is for ICI to show that it has overpaid MMT. The relevant authorities upon which the parties relied on this point are as follows:

 

(1) Jacob LJ in Rupert Morgan Building Services (LLC) Ltd v Jervis [2004] 1 WLR 1867, 1872 where, in the context of considering interim certificates and whether they can be corrected, he stated at [14](2)

 

"(d) It does not preclude the client who has paid from subsequently showing he has overpaid. If he has overpaid on an interim certificate the matter can be put right in subsequent certificates. Otherwise he can raise the matter by way of adjudication or if necessary arbitration or legal proceedings".

 

(2) Lord Mance JSC in Aspect Contracts (Asbestos) Ltd v Higgins Construction plc [2015] UKSC 38. That case concerned the correct categorisation of any cause of action for repayment of monies paid as a result of an adjudicator's decision. The point was relevant due to issues of limitation, and the central question was the nature of the cause of action, as that resolved the date when time would start to run for limitation purposes. At [23] and [24] Lord Mance stated:

 

"[23]….I agree with the Court of Appeal that the obvious basis for recognition of this right is by way of implication arising from the Scheme provisions which are themselves implied into the construction contract. I prefer to express the implication in the way I have, because it focuses on the core element of Aspect's claim which is to recover an alleged overpayment….

 

[24] I emphasise that, on whatever basis the right arises, the same restitutionary considerations underlie it. If and to the extent that the basis on which the payment was made falls away as a result of the court's determination, an overpayment is, retrospectively, established."

 

Mr Mort accepts that each of these cases are not directly on the point, but he says that the language and analysis is consistent with ICI having to demonstrate that it has overpaid MMT, rather than MMT having to demonstrate the contrary.

 

(3) The third authority is a Scottish case called SGL Carbon Fibres Ltd v RBG Ltd [2012] CSOH 19, an opinion of Lord Glennie. This was an appeal under the Arbitration (Scotland) Act 2010 for legal error, and at [26] he stated:

 

"[26] When it comes to arbitration (and, in terms of Option W2, adjudication is no different), the arbitrator has power to review and revise any actions or inactions by the Project Manager. He can therefore correct mistakes in any assessment and payment certificate. It follows that he can open up the whole question of PWDD, Defined Cost and Disallowed Cost and reach conclusions different (perhaps very different) from those reached by the Project Manager. To do so he will require to see the accounts and records kept by the Contractor under clause 52.2. But unless and until he has corrected the Project Manager's payment certificate, that certificate stands. In those circumstances, it seems to me, in agreement with the findings of the arbitrator and the submissions of Mr Lake, that the onus must be on the party seeking to persuade the arbitrator to depart from the assessment of PWDD made by the Project Manager. In so far as the Contractor (RBG) seeks further payment, the burden is on him. In so far as the Employer (SGL) seeks to argue that the Project Manager's assessment is too high, it must shoulder the burden."

 

  1. The courts are naturally reluctant to determine cases on the burden of proof. It is an unsatisfactory resolution of any dispute, but particularly a complex one such as this, to determine it on the basis of the burden of proof. The extent to which my decision on this point will have an effect upon the overall position on the MMT final valuation remains to be seen. However, from the authorities to which I have referred and upon first principles, I conclude that ICI has the burden of proof of demonstrating that MMT has overpaid. The first principles to which I refer are those governing adjudication. Adjudication is a means whereby a party can recover money said to be due to it as a matter of interim finality. The "finality" in that phrase is achieved by a decision in litigation or arbitration that the contractor has been overpaid. If an employer seeks to demonstrate that the contractor has been overpaid, the employer has the burden of demonstrating that. In my judgment, it does not matter whether a party such as MMT holds the money as a result of a decision by an adjudicator on the substantive value of an interim application, or because of the absence of a payless notice (what used to be called a withholding notice). It is neither necessary nor desirable that adjudicator's decisions are analysed to see what the reasons for the payment in fact were. Apart from anything else, a decision might be on its face wrong (for example because an adjudicator has added up figures incorrectly). The same principles must apply for all adjudicators' decisions, regardless of how they have been reached.

 

  1. There can be little doubt that if a party (such as ICI) is seeking to demonstrate an entitlement to be repaid money (which is the case here) it must make good that case. Jacob LJ in Rupert Morgan expressly stated "It does not preclude the client who has paid from subsequently showing he has overpaid." Here, the party who is "the client" who wishes to show "he has overpaid" is ICI.

 

  1. If Mr Bowdery's position on this were to be correct, it would lead to a rather strange procedural situation. MMT would effectively have to obtain a decision from the court justifying that it could keep the sums which the adjudicator has decided it should have been paid. A party such as ICI could (as here) commence proceedings seeking to recover sums held by a contractor as a result of a properly obtained adjudicator's decision, yet simply by issuing the claim form, transfer to the defendant the burden of demonstrating that it, the defendant, is entitled to those sums under the substantive dispute. The lack of a payless or payment notice would not be of any particular advantage to such a contractor. Immediate service of a claim form by the employer would instantly put the burden on the receiving party. I do not consider that this is how the legislation can be interpreted in any respect, whether literally, or by a purposive construction.

 

  1. Mr Mort put the matter as follows in his oral submissions on the point.

 

"It is the determination of ICI's assertion that they have paid too much money against the value of the work that we did. So that requires them to identify where that overpayment arises rather than for us to show, no, we're entitled to keep this money."

 

  1. Nor does it make any difference, in my judgment, that this is a claim by ICI for valuation of the MMT works on the final assessment, rather than one seeking finality (say) on the value of Interim Valuation No.22 and/or No.23. On any analysis, the amount already paid to MMT comes into the equation as part of ICI's case that it has overpaid MMT. This is made crystal clear in the prayer to the Particulars of Claim which claims "(1) Payment of £10,906,213.14 in respect of the balance due from MMT to ICI…..(2) Alternatively, £10,906,213.14 by way of restitution for unjust enrichment by reason of the proper value of the works carried out by MMT." On neither analysis can it be correct to say that MMT's bears the burden of proof. ICI seeks to demonstrate that the valuation of MMT's works leads to a repayment to ICI of £10.9 million.

 

  1. On this point therefore, I prefer the submissions of MMT to those of ICI. ICI bears the burden of proof to demonstrate that it is entitled to be repaid £10.9 million from MMT.