MAELOR FOODS LTD v RAWLINGS CONSULTING (UK) LTD

 

MAELOR FOODS LTD v RAWLINGS CONSULTING (UK) LTD

Technology and Construction Court

His Honour Judge Stephen Eyre QC

6 July 2018

No declaration should be made as to whether the adjudicator was wrong to have found that the contractor’s payment notice was valid and his decision based on that finding should therefore be enforced

 

A JCT standard building contract with approximate quantities in the 2011 edition was entered into with a widely worded arbitration clause. The clause did, however, contain an exception to what disputes were to be referred to arbitration, namely a dispute “in connection with the enforcement of any decision of an adjudicator”.

 

The adjudicator awarded the contractor the sum it applied for in its interim payment application on the basis that it was a valid application, that the employer's failure to issue a pay less notice was relevant and that there was therefore an obligation to pay the sum set out in that notice. The employer issued Part 8 proceedings in which it sought declarations that the contractor’s interim payment notice was invalid, the adjudicator's decision to the contrary was wrong in law and that no sums were due to the contractor pursuant to the notice. The employer contended that the dispute articulated in the Part 8 claim was a dispute or difference in connection with the enforcement of a decision of an adjudicator.

 

Judge Eyre rejected the employer’s contention and held that the contractor succeeded in its application that there should be a stay of the employer’s Part 8 proceedings.

 

The judge stated that the matters raised in the Part 8 claim (i) were not disputes or differences in connection with the enforcement of the adjudicator’s decision when viewed in the context of adjudication proceedings and in the context of the nature of the claim or dispute being made in the Part 8 proceedings and constituted instead a challenge to the correctness of the adjudicator’s decision. Whilst it would have been possible to have an exception to the arbitration clause which provided that any disputes or differences in connection with any decision of an adjudicator were outside the scope of the arbitration provision, that was not the language used. The language used in article 8 instead was to exclude "any disputes or differences in connection with the enforcement of any decision of an adjudicator." The fact that a challenge by way of Part 8 claim to the correctness of an adjudicator's decision might legitimately be made as a pre-emptive strike, if made and determined in time, and might at the end of the day render nugatory the relief awarded by way of enforcement of an adjudicator's decision did not mean that it was a dispute or difference in connection with enforcement.

 

THE FULL TEXT OF JUDGE EYRE’S JUDGMENT

 

  1. This is the defendant's application for the stay of a Part 8 claim issued by the claimant on 26th June 2018. The defendant contends that the claim should be stayed because it is the subject matter of an arbitration agreement.

 

  1. In very short terms, the relevant history is as follows. The claimant, Maelor Foods Limited ("the employer") engaged the defendant, Rawlings Consulting (UK) Limited ("the contractor"), to perform sundry works at the claimant's meat processing premises in Pickhill Lane in Wrexham. On any view, there was a contract entered in August 2016. That was a JCT standard building contract with approximate quantities in the 2011 edition. There were a series of other exchanges between the parties preceding and following the entry into that contract. There is an issue in respect of the subsequent exchanges and whether they resulted in variations of that contract or in separate agreements or, indeed, ended up having no contractual effect.

 

  1. On 29th March 2018, the contractor sent interim application number 6, which was in the total sum of £720,300 plus VAT. That had a schedule of 22 items attached to it. The 22 items relate in some instances to works avowedly done under the pre-August 2016 agreements; in some instances to work avowedly done under the August 2016 contract and accepted by the employer as having been related to that contract; and in other instances to works done pursuant to the other exchanges, which, as I have said, might or might not have resulted in variations of the contract.

 

  1. It is not disputed that that interim application was invalid. On 17th April 2018, the contractor sent an interim payment notice in the same sum and with the same schedule annexed. The employer disputed its liability to pay in respect of that interim payment notice and the contractor referred the matter to adjudication. Mr Cope was appointed as adjudicator and the reference was made under the August 2016 contract.

 

  1. There were a number of issues which Mr Cope had to determine. One was as to his jurisdiction: the employer was contending that Mr. Cope had no jurisdiction because the sums claimed arose under a number of different contracts, rather than one contract. In addition to that jurisdiction argument the employer contended that the interim payment notice was invalid because it related to amounts arising under different contracts. It also said that the notice was invalid as having been served after a non-compliant and deficient interim application.

 

  1. There were a number of submissions made to Mr Jonathan Cope and his decision was reached on 21st June 2018. It is important to refer in some detail to parts of his decision, so as to be clear what he decided and what the issues before him were. At [5] Mr. Cope summarised the employer's contention that he did not have jurisdiction, because there were disputes under multiple contracts which had been referred in the adjudication, and that, even if the employer was wrong on that, the 17th April interim payment notice was invalid. That was set up as the contention of the employer. At [18] Mr Cope summarised the contention that there were claims arising out of different contracts. At [26] he accepted that if more than one dispute had been referred to him, or rather if disputes arising under more than one contract had been referred to him, then he would not have had jurisdiction to determine them. Mr Cope did, at [28], explain that, in his view, he had jurisdiction to determine the question of whether the matters referred to him had arisen under separate contracts. At [32] he set out the contentions as to whether the various items arose pursuant to variations of the August 2016 contract or pursuant to separate contracts. He then set out at some length his reasons for concluding that they arose pursuant to variations of the August 2016 contract rather than to separate contracts. At [33] Mr Cope concluded that he, therefore, had jurisdiction. He said that he agreed with the contractor that he did have jurisdiction. Mr Cope then turned to deal with the contention as to the validity of the interim payment notice and addressed the arguments that were put forward as to its validity. He concluded, at [42], that it was a valid interim payment notice; that the employer's failure to issue a pay less notice was relevant; and that there was an obligation to pay the sum set out in that interim payment notice of £720,300. That is the amount in which the award was made.

 

  1. The Part 8 claim followed hard on the heels of that award. It was issued, as I said, on 26th June. The terms of the Part 8 claim again are relevant for these purposes. Paragraph 1 recites the parties and the making of the award. Paragraph 2 sets out the fact that the employer disputed the adjudicator's jurisdiction. Then it says:

 

"The employer's objections to the adjudicator's jurisdiction will be relied upon in defence of any enforcement proceedings."

 

At paragraph 3 the claim form says:

 

"In these proceedings, the employer seeks the court's determination of issues of law which arose in the adjudication."

 

Paragraph 4 says:

 

"The referral was brought pursuant to a JCT standard building contract with approximate quantities (2011 edition) and appended document, entered into on or about 16 August 2016."

 

It defines that as "the contract". The earlier contracts are referred to at paragraph 5. The nature of the case in general terms in respect of the interim payment notice is then set out at paragraphs 6-10. At paragraph 13 the claimant employer says:

 

"In the adjudication, as well as disputing the adjudicator's jurisdiction the employer submitted that the IPN was invalid so that no pay less notice was required to be served and no sum was payable to the contractor."

 

Paragraph 14 says:

 

"The adjudicator rightly accepted that in order to succeed in a reference the IPN had to be contractually valid, but wrongly decided that the IPN was valid and purported to award the sum sought to the contractor."

 

Then at 15 it reads:

 

"The employer contends that the IPN was contractually invalid and, in respect of the jurisdiction issue, the sum sought, or any sum, should not have been awarded."

 

The reasons for that contention are set out at paragraph 16 and are twofold: first, the invalidity or alleged invalidity of the IA6 and, second, the claiming on the face of the IPN for items of work carried out, the employer says, pursuant to other contracts. The relief sought was set out at paragraph 17. The employer sought three declarations as a matter of law: first that the IPN was invalid; second, that the adjudicator's decision to the contrary was wrong in law; and, third, that no sums were due to the contractor pursuant to the IPN. Finally paragraph 19 was a prayer for further or other relief as is appropriate and for costs.

 

  1. The application for a stay, on the footing of an arbitration clause, was made on 2nd July. I have already said that the parties entered the standard building contract with approximate quantities in August 2016. The relevant clauses of that contract appear at Art.7 and Art.8. Article 7 is headed "Adjudication" and provides as follows:

 

"If any dispute or difference arises under this contract, either party may refer it to adjudication in accordance with clause 9.2."

 

Article 8 headed "Arbitration" reads:

 

"When Article 8 applies, then, subject to Article 7 and the exception set out below, any dispute or difference between the parties of any kind whatsoever arising out of or in connection with this contract should be referred to arbitration in accordance with clauses 9.3-9.8 and the JCT 2011 edition of the Construction Industry Model Arbitration Rules."

 

  1. Article 8 then sets out two exceptions to that arbitration provision. The first is not relevant, but the second is of crucial importance for the present purposes. It says:

 

"Any disputes or differences in connection with the enforcement of any decision of an adjudicator."

 

  1. So disputes between the parties are to be referred to arbitration, unless they are disputes or differences in connection with the enforcement of any decision of an adjudicator.

 

  1. The parties of course do not dispute that the position is governed by s.9 of the Arbitration Act. That provides at 9(1):

 

"A party to an arbitration agreement against whom legal proceedings are brought (whether by way of claim or counterclaim) in respect of a matter which under the agreement is to be referred to arbitration may (upon notice to the other parties to the proceedings) apply to the court in which the proceedings have been brought to stay the proceedings so far as they concern that matter."

 

Then, at 9(4):

 

"On an application under this section the court shall grant a stay unless satisfied that the arbitration agreement is null and void, inoperative, or incapable of being performed."

 

  1. The question I have to address is whether the dispute between the parties contained in the claim form is governed by the arbitration agreement. That issue has two elements.

 

  1. The first is whether this is a dispute within or without the terms of the exception - or carve out, as Mr. Mort QC referred to it - in the agreement. Is this a dispute or a difference in connection with the enforcement of any decision of an adjudicator? Mr. Singer QC says it is and that the dispute is, therefore, outside the scope of the arbitration agreement. Mr. Mort QC says it is not and that consequently the dispute is within the scope of the arbitration agreement.

 

  1. Both counsel are agreed that there is no authority directly on point on this wording. Both say that the decision as to construction and the application of that wording is to be reached as a matter of applying basic contractual principles: considering the context in which adjudications are enforced and challenged; and addressing the construction of the language on general principles. Both counsel say that. However, they each invite me to reach a diametrically opposed conclusion, applying those principles.

 

  1. If the dispute is within that exception, then there can be no stay, because in those circumstances the dispute is not covered by the arbitration agreement.

 

  1. The employer has a second line of argument, which is that even if the dispute is outside that exception, so as to be caught by the arbitration clause, the claim is in fact, the employer says, made under a number of contracts. In respect of some at least, there is, as the employer says, no arbitration clause. Thus, Mr. Singer QC says that the wording I have recited from the August 2016 contract does not govern all of the contracts under which a claim is made. Mr. Mort QC says that is an incorrect analysis and that the claim is a single claim made under the August 2016 contract and, therefore, if it falls outside the exception and is caught by the arbitration clause then the stay operates.

 

  1. I will deal first with the question of whether this dispute - the dispute articulated in the Part 8 claim - is a dispute or difference in connection with the enforcement of a decision of an adjudicator. If it is then it is not caught by the arbitration clause. If it is not then it is so caught.

 

  1. Mr. Mort QC relies on the language used and on the context of challenges to adjudication decisions. He says that a distinction is draw between matters which are challenges to the enforcement of an adjudicator's decision and those which are challenges to the correctness of such a decision. Matters falling into the latter category he says are, in essence, contentions that the decision was wrong in law or otherwise incorrect. Matters falling into the former category are contentions that the adjudicator acted contrary to the rules of natural justice; or acted in circumstances where there was no contract providing for reference to an adjudicator; or where there is no jurisdiction on the part of the adjudicator for some other reason.

 

  1. Those matters, Mr. Mort QC says, would give rise to differences in connection with the enforcement of a decision, but matters in the other category, such as challenges to the correctness of the decision, would not. He refers to the principle enunciated in Carillion Construction Limited v Devonport Royal Dockyard Ltd [2005] EWCA Civ 1358, [2006] BLR 15, which I will turn to in a bit more detail shortly, but which can be summarised very shortly as the 'pay now, argue later' principle. Mr. Mort QC urges me to look to the substance of what is being sought in the Part 8 claim and says that that Part 8 claim challenges the correctness of the decision, not its enforceability.

 

  1. Mr. Singer QC, for his part, also urges me to look to the wording of the exception. He says that the wording is in wide terms, referring to any disputes or differences and using the words "in connection with". He referred me to a decision I will turn to shortly, where HHJ Raynor QC gave a wide meaning to similar, but not identical, words. Mr. Singer QC properly and correctly urged me not to engage in speculation about circumstances which might or might not be within or without the wording used. He urged me instead to focus on the current matter and assess whether the current dispute was a dispute or difference in connection with the enforcement of a decision. He says that if one does that and looks to the reality of the situation then what has happened here is that the Part 8 claim has been brought as a response to the adjudication award and as a way of forestalling enforcement and with the effect of operating as a defence to enforcement. The contention is that nothing was properly due under the IPN and that nothing, as a consequence, is properly due under the award and so, if the employer is correct, the true legal position is that there is nothing to enforce. Mr. Singer QC invites me to say that that means that the dispute here is a dispute in connection with the enforcement of the adjudicator's decision.

 

  1. I have reflected on both those competing contentions. I have concluded that the dispute here does not fall within the exception and that it is not a dispute or difference in connection with the enforcement of a decision of an adjudicator. I reach that conclusion for the following reasons.

 

  1. The first is that I have to have regard to the language actually used in the provision in the contract. That language includes the words "the enforcement of". It would have been possible to have an exception to the arbitration clause which provided that any disputes or differences in connection with any decision of an adjudicator were outside the scope of the arbitration provision, but that was not the language used. The language used was to exclude "any disputes or differences in connection with the enforcement of any decision of an adjudicator." Some meaning has to be given to the words "the enforcement of". Some effect has to be given to those words. The use of those words and the need to give effect to them is, I agree with Mr Mort QC, significant in the context where the underlying approach to adjudication awards is one of 'pay now, argue later', but where there are categories of challenge to an award which can operate as a defence to enforcement. One can see ample sense in the parties excluding from arbitration an application actually to enforce an adjudication award and a line of defence which relates closely and directly to enforceability of such an award.

 

  1. In that regard, the wording of the Part 8 claim is, in my judgment, highly significant. I already cited that wording, but it is of note that at paragraph 2 of the claim form the employer says:

 

"The objections to the adjudicator's jurisdiction will be relied upon in defence of any enforcement proceedings."

 

Then at paragraph 3 it says:

 

"In these proceedings, the employer seeks the court's determination of issues of law which arose in the adjudication."

 

  1. I must guard against taking any unduly narrow or pedantic point and against looking at a pleading with the benefit of hindsight. However, the distinction drawn between paragraphs 2 and 3 of the claim form does have some relevance, in my judgement. This is particularly so when one sees the relief sought at paragraph 17 of the Part 8 claim form, which seeks declarations said to be as a matter of law as to the invalidity of the IPN, the incorrectness in law of the adjudicator's decision and of whether sums were due pursuant to the IPN.

 

  1. I have reflected on Mr. Singer QC's argument that I must look to the reality of matters. He says that the reality here is that the employer is challenging the enforcement of the adjudication award. Whilst I do need to do that, I also need to take careful account of the language of the arbitration clause; the nature and enforcement of adjudications; and the substance of the declarations that are sought in this case.

 

  1. Mr. Mort QC and Mr. Singer QC both referred me to various authorities. They both accept that none of them are directly on point and that there is no authority giving a definitive ruling nor, indeed, any close guidance as to the interpretation of these words in this JCT contract.

 

  1. I have been referred to the decision of the Court of Appeal in Carillion Construction v Devonport Royal Dockyard. That is a classic enunciation of the 'pay now, argue later' principle in respect of adjudication. In particular, I have been referred to paragraph 26 of the judgment of Chadwick LJ, where the court quoted from the decision of Dyson J (as he then was) in Macob Civil Engineering Limited v Morrison Construction Limited [1999] BLR 93. Dyson J emphasised the change in approach brought about by the adjudication regime.

 

  1. At paragraph 87 Chadwick LJ said:

 

"In short, in the overwhelming majority of cases, the proper course for the party who is unsuccessful in an adjudication under the scheme must be to pay the amount that he has been ordered to pay by the adjudicator. If he does not accept the adjudicator's decision as correct (whether on the facts or in law), he can take legal or arbitration proceedings in order to establish the true position. To seek to challenge the adjudicator's decision on the ground that he has exceeded his jurisdiction or breached the rules of natural justice (save in the plainest cases) is likely to lead to a substantial waste of time and expense …"

 

  1. There has been some retreat from the high watermark of 'pay now, argue later' as set out in those words of Chadwick LJ, in that there is scope for resistance to enforcement on the grounds of breach of natural justice or clear excess of jurisdiction. However, the underlying principle of 'pay now, argue later' remains valid.

 

  1. Mr. Singer QC placed reliance on the decision of Edwards-Stuart J in Geoffrey Osborne v Atkins Rail [2009] EWHC 2425 (TCC), in particular the passage at paragraph 10 of Edwards-Stuart J's decision, where he said:

 

"Since the adjudicator's Decision is binding upon the parties until the matters decided by him have been finally determined by a court, ARL [the defendant in those proceedings] issued proceedings under Part 8 of the CPR in order to obtain a final determination in the form of an appropriate declaration to the effect that the Decision, or at least the relevant part of it relating to the order for the payment of money to GOL, was wrong and should be set aside. In effect, it amounts to a pre-emptive strike to defeat GOL's application to enforce the Decision."

 

31 Mr. Singer QC points out that what Edwards-Stuart J was saying there was that the Part 8 claim in those proceedings was seen as a pre-emptive strike to defeat enforcement of the decision. Mr. Singer QC says that that indicates that a Part 8 claim seeking a declaration, such as the declarations sought here, can be seen as a move to defeat enforcement of a decision. If that is so, he says it should be seen as giving rise to a dispute or difference in connection with the enforcement of a decision. There is indeed force in that point. The force in that point is not significantly weakened by the reference that Mr. Mort QC made to the decision in Pilon Limited v Breyer Group Plc [2010] EWHC 837 (TCC), a decision of Coulson J (as he then was), where His Lordship said at paragraphs.33 and 34:

 

"33. Osborne is, so it seems to me, a case on its own particular facts. First, the parties were expressly agreed that the issue that was the subject of the application under CPR Part 8 was a plain error by the adjudicator. Furthermore, in that case, there was no arbitration clause, and therefore the parties had agreed that the court could, if appropriate, give a final and binding decision on the matter that was the subject of the adjudicator's error. In those circumstances, the only dispute in Osborne was whether, in the light of the decision in Bouygues (UK), this was a course that was open to the court. Edwards- Stuart J decided that it was.

 

  1. …Secondly, as Edwards-Stuart J pointed out in his judgment in Osborne, it was only open to the court to grant a declaration because there was no arbitration clause, and the parties were therefore agreed that the court was the appropriate forum for the granting of a binding declaration."

 

  1. Those dicta do not, as I said, detract from the force of Mr. Singer QC's reliance on the case of Osborne because the fact that there is an arbitration clause in abstract does not necessarily mean that the bringing of a Part 8 claim is illegitimate or to be stayed. The issue in every case, and in particular in this case, is whether the Part 8 claim is the subject of a matter that is caught by the arbitration clause. Mr. Singer QC's real point in reliance on Osborne is the reference to the fact that in that case the Part 8 claim was seen as a pre-emptive strike.

 

  1. I have had pause for thought because of the argument by analogy to Osborne, but, in my judgment, it cannot prevail against the wording of the arbitration clause here and the emphasis in that clause on disputes in connection with the enforcement of a decision. The fact that a challenge by way of Part 8 claim, or indeed otherwise, to the correctness of an adjudicator's decision might be a pre-emptive strike if made and determined in time, and might at the end of the day render nugatory the relief awarded by way of enforcement of an adjudicator's decision, does not mean that it is a dispute or difference in connection with enforcement. The pre-emptive strike that Edwards-Stuart J was referring to was a pre-emptive strike which would render enforcement of no value. It was not a matter relating to enforcement as such.

 

  1. As I intimated earlier, Mr. Singer QC referred me to the decision of HHJ Raynor QC in the case of Hillcrest Homes v Beresford and Curbishley Ltd [2014] EWHC 280 (TCC). At para.51, HHJ Raynor QC was dealing with a clause which said this:

 

"(… any dispute or difference….of any kind whatsoever arising out of or in connection with this contract") [was to be referred to arbitration]."

 

He drew a distinction between those words in Art.8 of the JCT contract he was considering and the words in Art.7 of that contract: "any dispute or difference arising under this contract". HHJ Raynor QC was, if I may respectfully say so, patently correct to say that the Art.8 words there were much wider than the Art.7 words.

 

  1. The Art.8 words there were also markedly wider than the Art.8 words I have to consider in this case. It is the particular words in the exception or carve out here that I have to consider. Looking at those words in the context of adjudication proceedings and in the context of the nature of the claim or dispute that is being made, which is a challenge to the correctness of Mr Cope's decision, I have concluded that the matters raised in the Part 8 claim are not disputes or differences in connection with the enforcement of the decision of Mr Cope.

 

  1. I turn then to Mr. Singer QC's second freestanding and separate line of argument. He said that the interim payment notice was in respect of amounts deriving from different exchanges and from different contracts. In respect of at least one of those, probably he would say rather more than one, there was no arbitration clause. Mr. Singer QC as a consequence of that invites me either to conclude that there should be no stay, because the claim is made pursuant to a contract where there is no arbitration clause, or to say that this is an issue which will have to be considered in the light of evidence and further argument in order to determine what the contracts were and whether there were arbitration clauses in respect of all the contracts under which the payments were sought and in respect of which he says there is a dispute.

 

  1. Mr. Mort QC says that is not the correct analysis. He says that this is a dispute about one contract and it is a dispute about a contract where there is an arbitration clause namely the clause which I recited earlier.

 

  1. I am driven to the conclusion that Mr Mort QC's analysis is correct. The position here is that the award made by Mr Cope was purportedly made under the August 2016 contract. The Part 8 claim defines that as "the contract" and that is the provision under which Mr Cope purported to act. The issue between the parties is whether Mr Cope's decision based on conclusion that he was able to make an award under that contract in respect of the sums set out in the schedule to the IPN was correct. That is the issue between the parties with the employer saying that that was not a course that was open to Mr Cope under that contract and with the contractor saying it was. Thus, the dispute is a dispute about the actions taken under the August 2016 contract. It follows that it is a dispute arising out of a contract in which there is an arbitration clause so the second line of argument also fails.

 

  1. In those circumstances, there must be a stay of the Part 8 claim.