Parsons Plastics (Research and Development) Ltd v Purac Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice Mummery,Lord Justice Pill,Lord Justice Latham |
| Judgment Date | 12 April 2002 |
| Neutral Citation | [2002] EWCA Civ 459 |
| Year | 2002 |
| Date | 2002 |
| Docket Number | Case No: A1/2001/1957 |
| Court | Court of Appeal (Civil Division) |
[2002] EWCA Civ 459
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE TECHNOLOGY AND
CONSTRUCTION COURT
(HER HONOUR JUDGE KIRKHAM)
Royal Courts of Justice
Strand,
London, WC2A 2LL
Lord Justice Pill
Lord Justice Mummery and
Lord Justice Latham
Case No: A1/2001/1957
Paul Bleasdale QC and Peter Collie (instructed by Paris & Co) for the Appellants
Anthony Edwards-Stuart QC and Andrew Rigney (instructed by Masons) for the Respondents
This is an appeal from judgments of Her Honour Judge Kirkham given in the Technology and Construction Court, sitting in Birmingham, and dated 13 and 21 August 2001. Parsons Plastics (Research & Development) Ltd ("the appellants") were refused summary judgment in the sum of £222,765.75 (plus VAT and interest) against Purac Ltd ("the respondents") and a stay to arbitration of the respondents' Part 20 money claim. The judge granted the respondents summary judgment on their specific money claim. She ordered an interim payment of £12,000. The appellants were ordered to pay the respondents' costs.
The respondents were engaged by Anglian Water Service as main contractors for the design and construction of a sewage treatment works at Lowestoft. The respondents engaged the appellants as sub-contractors, under a written contract, for the supply of an odour control package at the works. Work under the sub-contract began in July 2000 although the sub-contract was not signed until 3 October 2000.
Concern was expressed about the appellants' lack of progress in the work and matters came to a head in December 2000. On 30 November 2000, at the request of the appellants, the respondents paid a sum of £30,963 direct to the appellants' steel supplier. By letter dated 11 December 2000 the appellants requested the respondents to make a further direct payment to their suppliers in the sum of about £100,000. That sum was not paid but the respondents agreed to some rescheduling. On 20 December 2000 the appellants applied for payment number 3 of a series of payments due when certain milestones, set out in the third schedule to the written agreement, had been reached. A total sum of £261,749.76 was claimed. The respondents declined to pay that sum claiming on 21 December that the sub-contract works had not reached the required stage. The respondents also claimed that the appellants had failed to meet delivery dates and, following warning letters, wrote to the appellants on 11 January 2001 purporting to give notice that they were taking over the remaining part of the sub-contract works (pursuant to Clause 20(c) of the sub-contract) on the ground that the appellants had failed to comply with their obligations under the contract. On 12 January 2001 the respondents ejected the appellants from the site. On 4 April 2001, the appellants referred the dispute as to whether they were entitled to payment under application number 3 to adjudication. Mr Daniel Atkinson FICE, FCIArb, accepted appointment as adjudicator on the following day.
An issue arose upon the jurisdiction of the adjudicator on the ground that the relevant work was not a "construction operation" as defined by the Housing Grants, Construction and Regeneration Act 1996 ("the Act"). During submissions about jurisdiction, the respondents' solicitor stated in writing, on 3 May 2001:
"… we confirm that our client is prepared to submit to your jurisdiction under the terms of the sub-contract only, in respect of the dispute referred to you.
It is our clients position that you would not have jurisdiction to conduct an adjudication in relation to this issue under the provisions of [the Act] for the reasons set out in our letter of 2 nd May notwithstanding this, our client is prepared to submit to your jurisdiction in respect of an adjudication of matters properly referred to you to be conducted under and in accordance with the provisions of the contract between the parties …"
Notwithstanding that form of acceptance, the adjudicator did rule on the question whether the work was a "construction operation" within the meaning of the Act and concluded on 4 May 2001 that it was not. It was common ground that the Act did not apply to the adjudication.
On 17 May 2001 in the appellants' favour, the Adjudicator found that they aware entitled to payment under Clause 17(a) of the sub-contract in respect of individual tasks which had been completed rather than having to wait until the whole of the sub-contract works had been completed. The appellants were held to be entitled to payment of 40% of the value of the completed activities. The respondents were ordered to pay the sum claimed plus interest. The Adjudicator also held that the respondents' letter of 21 December 2000 was not a payment notice within the meaning of Clause 17(e) of the contract or a withholding notice within the meaning of Clause 17(g). He also held that he did not have jurisdiction to decide issues arising out of the respondents' letter of 11 January 2001. The Adjudicator's final decision was given on 17 May 2001.
On 23 May 2001, the respondents served notice, pursuant to Clause 17(g) of the contract, of intention to withhold payment of the sum awarded. They claimed that having taken over the sub-contract works pursuant to Clause 20(c), they were entitled to deduct from monies otherwise due to the appellants the reasonable cost of completing the works. The respondents had paid £303,000 plus VAT to Aderley Process Technologies Ltd ("APT") to complete the work. That was a larger sum than the sum awarded by the adjudicator and the appellants were not entitled to any payment, it was submitted.
The present proceedings were instituted by the appellants on 24 May 2001 to enforce the adjudicator's decision. The issue was whether the defence of set-off was available to the respondents. The appellants conceded that, if it was available, the respondents had an arguable counterclaim based on their allegations that the appellants were in breach of contract in failing to do the work in time and that, under the contract, the respondents were entitled to engage APT to complete the work at the sum agreed with them. It was also claimed by the respondents that the sum of over £30,000 paid to a third party on 30 November 2000 could be set off against the appellants' claim or form the basis for a counterclaim. The respondents sought summary judgment in respect of the sums of £303,000 paid or payable to APT and the £30,963 paid to the appellants' steel supplier. An interim payment was sought having regard to the excess of the respondents' claim over that of the appellants.
The appellants submit that the adjudication, while an ad hoc referral, was under the procedure set out in Clause 27 of the contract. The decision of the adjudicator was "final and binding" pursuant to Clause 27 of the contract and should be enforced by the Court as if the Act applied. Further, a set-off could only be taken into account if the procedure set out in Clause 17(g) of the sub-contract had been followed and the respondents had failed to serve a withholding notice in accordance with the Clause.
The relevant provisions of the sub-contract, as set out in the judgment of Judge Kirkham, and with the addition of the first paragraph of Clause 27a are:
"Clause 1 sets out various definitions, including
'1f. "Adjudicator" means the person referred to and so called in clause 27
1g. "Sub-Contract Dispute" means any disagreement or difference between [Parsons] and [Purac] arising under the Sub-Contract in relation to any matter in connection with a "construction operation" as defined in the [Act] including any dispute as to whether the matter referred to the Adjudicator is in connection with a Construction Operation. …
1m. "Final Date for Payment" means the date determined in accordance with Clause 17(h)(1).
17f. Subject to Clauses 11(e), 11(f), 20(c) and 31 and as hereinafter provided and without prejudice to any rights which exist [Purac] shall be entitled to withhold or defer payment of all or part of any sums otherwise due under the provisions hereof where:
i. any work done or Plant supplied by [Parsons] is not in accordance with the Sub-Contract then [Purac] may withhold the cost and expense of making good the defect in question. If without reasonable cause [Parsons'] performance of the Sub-Contract falls behind the approved programme of work then [Purac] may withhold the reasonable value of the Sub-Contract Works which ought to have been performed in accordance with the approved programme of work but which at the relevant stage in the programme of work remained undone.
ii. A dispute arises or has arisen between [Parsons] and/or [Purac] and the Purchaser involving any question of any matter included in any such application.
17 g. If [Purac] intends to withhold payment of a sum that has become due under the Sub-Contract in connection with a Construction Operation or otherwise then not later than one day before the Final Date For Payment of that sum [Purac] shall serve a notice specifying:
a) the amount proposed to be withheld and the ground for withholding...
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