CN ASSOCIATES V HOLBETON LTD
Technology and Construction Court
Akenhead J
26 January 2011
THE FULL TEXT OF THE JUDGMENT OF AKENHEAD J
1. By these proceedings, the Claimant, CN Associates ("CNA"), seeks summarily to enforce the
decision of an adjudicator dated 15 October 2010. There are issues between the parties as to whether
the parties agreed to give the adjudicator jurisdiction to decide whether there was an effective
construction contract in writing between the parties and, if not, as to whether there was such a contract
between the parties.
The History and Background
2. The Defendant, Holbeton Ltd ("Holbeton") is a company registered in the Isle of Man, which, in
2004, wished to embark upon the refurbishment and extension of a substantial house at 17, The
Bishops Avenue, London, N2 ("the Property") which it had purchased. CNA is a firm of quantity
surveyors, one of whose two partners is Mr Nash.
3. The following facts and history are not intended to give rise to any issue estoppel or res judicata but
the findings are made solely as necessary for the purposes of this summary judgement application.
4. Holbeton purchased the Property from a Mr Ahmed who was, apparently, also a director (but not a
shareholder) of a company called Bright Services Ltd ("Bright"). It remains unclear whether Mr
Ahmed ever had at any time any proprietorial or directorial link with Holbeton. Bright was said to be a
company which specialised in managing high-value construction projects that required to be completed
to a high standard of finish.
5. By letter dated 3 March 2004 to Bright, CNA proposed terms for its engagement:
"Further to our recent meeting we understand that you would like to procure and construct the
above project using our services as construction managers/quantity surveyors and propose the
following fees as indicated in the budget costings previously forwarded to you.
We would require a fee of 6% of the construction value of the elements under our control…
The fee will cover our management services but any site based staff would form part of the
prime cost for the works.
We set out below an outline of the services we will provide as part of our Construction
Management duties and would request your confirmation to our appointment and seek your
authority to place orders on your behalf.
Duties
Our proposal assumes that we are part of the Construction Team and report directly to the
Client. We will act on instructions issued by the Client/Architect who is deemed to be the lead
consultant for the project…
Our specific duties will broadly include the following functions:[There are then set out 21 particular services]
Payment terms for our services will be £3000.00 per month with payment commencing after
the first month on-site and any balance due adjusted in the last payment at completion of the
works…
We would like to thank you for this opportunity and look forwards [sic] to receiving your
confirmation and authority to fulfil the role outlined above."
6. That was responded to by Mr Ahmed on behalf of Bright on 19 March 2004:
"I refer to your letter of 3 March 2004 outlining the terms are acting as Construction
Manager/Quantity Surveyor for the above refurbishment programme.
Further to our meeting yesterday and our discussions, I write to confirm that we would like
you to act as Construction Manager for the above project on the terms contained in your
letter…"
It is rightly accepted by the parties that this created a contract between Bright and CNA.
7. It seems that CNA did not commence work immediately because its first re-drawn invoice was dated
12 November 2004 and was addressed to Holbeton Ltd "c/o Bright Services Ltd". It was re-issued
because the initial invoice was apparently simply addressed to Bright, which asked CNA by letter dated
17 November 2004 to reissue the invoice "addressed to Bright…reference Holbeton…". There is
possibly some issue between the parties as to why invoices were addressed to Holbeton. CNA says that
this evidences an agency arrangement whereby Bright was simply acting at all times as an agent for
Holbeton whilst Holbeton says that this was simply a VAT avoidance measure whereby VAT which
Bright would otherwise have had to pay would not have to be paid because Holbeton was not as such a
British company.
8. The next four invoices up to and including the 10 June 2005 were similarly addressed, for the
attention of Mr Ahmed. Typically, each invoice claimed £3000 as an "installment [sic] of Construction
Management fees in accordance with the fee agreement dated 3rd March 2004".
9. By letter dated 15 June 2005, solicitors acting for Holbeton, Bevan Brittan, wrote to CNA saying:
"I act for Holbeton…who have asked me to send you the enclosed Appointment in respect of
your services for works to be undertaken at 17, The Bishop's Avenue. I should be grateful if
you would read through this document to ensure that it meets with your understanding and
approval and let me have any comments you may have.
In particular I shall be grateful if you would confirm/provide the following information:
1 A copy of your current professional indemnity insurance certificate;
2 Confirmation as to who can execute this appointment on behalf of the partnership together
with an extract authorising the signatory from the partnership deed;
3 A list of your services for incorporation into Schedule 1;
4 Your agreed fees together with the dates of any instalments for incorporation into Schedule
2.
I look forward to hearing from you in the meantime if you have any queries please do not
hesitate to contact me."
10. The "Appointment" enclosed was in the form of a letter to CNA but it was to be executed and
signed as a deed by both parties. Various clauses were in relatively normal form for quantity surveying
and project management services. For instance CNA was to use reasonable skill care and diligence and
to provide the services set out in Schedule 1 (albeit this schedule was largely blank). Clause 8 required
CNA to maintain professional indemnity insurance cover of £5 million. A collateral warranty in an
attached form was to be provided to any funder. Clause 11 contained an adjudication scheme with an
adjudicator to be nominated by the Chairman of the Institute of Arbitrators. The attached collateral
warranty (Schedule 3) required the provision of £5 million professional indemnity insurance cover for
12 years from the date on which CNA last performed any of the services.
11. CNA responded to this by letter dated 23 June 2005 to Bevan Brittan, material parts of which were
as follows:
"We are in receipt of your letter dated 15th June enclosing a draft appointment letter in respect
of our services on the above project and have referred the matter to our insurers for their
comments.
We are now in receipt of their response and comment as follows
With regards to the level of insurance, we have spoken with Fahim [Mr Ahmed] regarding the
level stated in your schedule 3 clause 3. We carry insurance of £1,000,000 for any one
event…The problem is that fees do not cover for the increased levels requested and the
required run of costs for twelve years. We understand that this is a common problem for all
the professional team and that Fahim will be talking to you about agreeing to the lower level
current in force for the respective Consultants.
Under the definition of our insurance we would prefer it if our appointment refers to us as
'Construction Manager'…"
It went on to refer to a number of specific clauses upon which it wished to have certain amendments,
both in the body of the Appointment letter as well as in the collateral warranty. It also purportedly
enclosed "a copy of additional clauses that our insurers have recommended should be included in the
agreement and warranty" and also a copy of its letter of 3 March 2004 (see above).
12. All further invoices between June 2005 and March 2007 (comprising at least 16 invoices) were in
identical form to the earlier invoices, being addressed to Holbeton "c/o Bright", addressed to the
attention of Mr Ahmed and referring to the fee agreement dated 3 March 2004. CNA continued to
provide the services.
13. There is no direct evidence that anything happened in relation to the proposed appointment as being
discussed in correspondence in June 2005. However, it seems not unlikely that a new solicitor at Bevan
Brittan, a Ms Sinar, contacted Mr Nash on or about 7 September 2005 to introduce herself as having
taken over the conduct of the discussions about the appointment. There is no evidence that there was
any negotiation in this discussion. Ms Sinar prepared a draft letter dated 7 September 2005 addressed to
Mr Nash referring to CNA's letter 23 June 2005 said in the draft to have been received on 17 August
2005 and coming back with detailed comments about the clauses in the appointment addressed by
CNA, agreeing with some and disagreeing with others. There is no evidence that this was sent to or
received by CNA. There seems to be no evidence of any further negotiations during the currency of the
project.
14. The project was completed in the spring of 2007. In August and September 2007, there was further
discussion between CNA and Holbeton's current solicitors about the terms of the Appointment. This is
said to have been in the context of CNA providing a collateral warranty to facilitate the sale of the
Property, although the actual sale contemplated may not have taken place because the Property was
eventually sold in July 2009.
15. Nearly three years after the project was completed, CNA wrote to Holbeton seeking payment of the
balance of fees. The letter, dated 3 February 2010, was addressed for the attention of Mr Ahmed, who
seems to have "flitted" (as Holbeton's Counsel put it in argument) between Bright and Holbeton. The
letter suggested that payment was due based on 6% of the total construction cost less what had been
paid. An invoice was raised in mid-May 2010, with the total sum inclusive of VAT said to be
outstanding was £155,177.33. Again the invoice referred to the application being made "in accordance
with the Agreement dated 3rd March 2004 and letter of appointment dated 19 March 2004".
16. No agreement having been being reached, CNA served a Notice of Adjudication dated 23 August
2010 upon Holbeton.
The Adjudication
17. Mr Stephen Lelliott was appointed adjudicator through the Chartered Institute of Arbitrators.
CNA's Referral was dated 25 August 2010. The Adjudicator gave directions for Holbeton to serve its
Response by 6 September 2010. The parties agreed that Holbeton should have an extension to 20
September 2010. Although the Adjudicator sent to the parties a form of appointment for him, it does
not appear to have been signed by either or both parties.
18. The Referral proceeded on the basis that at all material times Bright acted as agent of Holbeton
with authority to negotiate the terms of the appointment of CNA (see Paragraph 3). It refers to the fact
that all invoices were in fact paid by Holbeton. It was then asserted that the correspondence in June
2005 in effect varied the agreement between the parties, the alterations being those set out in CNA's
letter dated 23 June 2005 which were said to have been accepted by Holbeton "by conduct in
committing CNA to continue to provide the services and by paying CNA for those services" (see
Paragraph 12). Estoppels were also asserted.
19. On 20 September 2010, Holbeton's solicitors served its Response. The point was taken in Paragraph
1 that this was "an adjudication under s.108 of the Housing Grants Construction and Regeneration At
1996 and not under clause 11 of the draft agreement sent to the referring party by solicitors' letter dated
23 June 2005". Paragraph 2 was headed "Jurisdiction":
"The Responding Party submits that the adjudicator has no jurisdiction to determine this
dispute. This is because:
(1) The construction contract relied upon is said to be contained in the exchange of letters
between the Referring Party dated 3 March 2004 and Bright Services Ltd dated 19 March
2004. The Responding Party is not a party to this contract."
It goes on in this paragraph to make the points that not all the terms of the contract were recorded in
those two letters, that there were various variations also not recorded and that the adjudicator's
appointment was wrongly made by the Chartered Institute of Arbitrators. It went on expressly to
develop its jurisdiction point later in the Response.
20. Between Paragraphs 4 and 12 of the Response, Holbeton asserted facts which went to show
purportedly that there was no contract between it and CNA and that Bright had no actual or ostensible
authority to conclude a construction contract on its behalf with CNA. Paragraphs 13 to 39 dealt with
the agreement between the parties and addressed a number of matters including the extent to which the
March 2004 agreement (if there was one) was conditional or subject to the cost budget being
acceptable, it being argued that the budget was never acceptable. This is slightly surprising since the
project nonetheless proceeded albeit in a substantially enhanced state. It said however that there was an
oral agreement in the summer and autumn of 2004 between the parties which addressed the revised
project. Further assertions that there was no actual or ostensible authority on the part of Bright to enter
into contracts on behalf or Holbeton were made (example Paragraphs 26 to 28).
21. So far as the contract or variation said to have been entered into in relation to the June 2005
correspondence is concerned, Holbeton argued in effect that the discussions were provisional and by
way of invitation to treat, along the lines that, if in the future the parties were able to agree, these could
be appropriate terms. It was said that the proposed amendments contained in the letter of 23 June 2005
were never agreed by conduct or otherwise or that they could not amount to a counter offer. It was
argued that the draft a deed of appointment anticipated formalities such as the creation of a deed and
that none of these formalities were fulfilled. The post-June 2005 conduct was consistent with the 23
June 2005 letter not being accepted. The pleaded estoppels were denied.
22. Paragraph 41 stated:
"It is agreed that the referral to adjudication is purportedly made under s.108 of the Act… but
[Holbeton] avers that there was no jurisdiction to refer this dispute. [CNA's] remedy is to sue
for its fees in the courts."
Paragraphs of 42 to 47 are entitled "The jurisdiction argument in more detail". Although it was
accepted that the contract evidenced by the exchange of letters in March 2004 was a "construction
contract" in relation to "construction operations", the relevant letters did no more than identify the
parties, the nature of the work and the price and that much more was expected to be reduced to writing
and to be agreed. The contract was said to be incomplete and it followed that "not all of the terms of the
contract were in writing" and accordingly, "the adjudicator has no jurisdiction to determine this
dispute". The Response then turned to dealing with payment and the claim itself. No particular relief
was claimed as such.
23. The Adjudicator by letter dated 21 September 2010 to the parties acknowledged that issues had
been raised as to his jurisdiction to decide the dispute. On 30 September 2010, CNA served its Reply.
This challenged Holbeton's case on contract formation, particularly in relation to the June 2005
documents which was challenged in detail both on the facts and the law. It asserted that the Adjudicator
derived his jurisdiction from the contract created in effect by conduct following the submission of
CNA's "counter offer" of 23 June 2005. It asserted that in effect Holbeton existed for the benefit of Mr
Ahmed who in his capacity within Bright was effectively always acting for Holbeton.
24. The Adjudicator wrote to the parties on 4 October 2010 and indicated that having examined the
various submissions he was continuing with the adjudication. Holbeton served a Rejoinder on 8
October 2010. This also dealt in some detail with issues relating to contract formation both in relation
to March 2004 as well as June 2005. At Paragraph 60, Holbeton repeated its submissions on the
Adjudicator's jurisdiction set out in paragraphs 40 to 47 of the Response and in Paragraph 61 it
submitted that the "adjudicator has no jurisdiction". There was some argument that the County Court
was the proper forum for the determination of issues of agency and estoppel.
25. The Adjudicator issued his decision on 15 October 2010 within an agreed extended period. He
identified in paragraph 10 that the Response "included a submission, which I address in this Decision,
that I did not have jurisdiction to determine the Dispute". He went into the question of jurisdiction in
some detail at paragraphs 18 to 54, spread over some 11 pages. Materially, he said as follows:
"18. In addressing jurisdiction I deal at the same time with the parties' respective arguments as
to contract and contract formation; which were matters in the Notice of Adjudication and
formed the basis of Holbeton's submissions on jurisdiction.
19. In the Response Holbeton submitted that I did not have jurisdiction to determine the
Dispute. Holbeton listed four specific reasons. I invited CN to submit observations on
Holbeton' points with the Reply. Holbeton maintained its position in the Rejoinder.
20. I cannot make a binding ruling on my jurisdiction. However, I had to decide whether, or
not, I should continue with the Adjudication. After considering the parties' respective
submissions and the authorities they each referred me to I concluded that I should continue
with the reference. I wrote on 4th October 2010 informing the parties I was continuing with
the Adjudication. I set out below the parties' principal arguments and evidence which led me
to conclude that I had a valid appointment and should continue to adjudicate upon the
Dispute."
Over the next 26 paragraphs he sets out both parties' detailed assertions and then says:
"I find on balance from the parties' respective arguments summarised above, together with my
consideration of the detailed submissions, the documents and Exhibits, and having examined
the case authorities I was referred to, that…"
He then sets out in detail his view that Bright acted for and on behalf of Holbeton, that the contract was
evidenced in writing and that essential terms were agreed around 23 June 2005 with the parties
proceeding on the basis of those terms evidenced in writing notwithstanding that the appointment was
not executed as a Deed. At Paragraph 54 he said:
"It follows that I am satisfied I have a valid appointment to determine the Dispute set out in
the Notice of Adjudication and in accordance with the procedure there. I have proceeded on
that basis."
26. He then went on to deal with the issues in dispute and found that there was a net £104,315.81 due
to CNA and at the end stated as follows:
"DECISION
For the reasons set out above I decide and direct that:
1. Holbeton shall forthwith pay to CN the sum of £104,315.81.
2. Holbeton shall, upon receipt of an appropriate VAT invoice, also pay forthwith to CN any
VAT properly due on the above sum.
3. My fees and expenses total £12,075.00 exclusive of VAT, which I require CN to settle.
Holbeton is liable for and shall thereafter upon receipt of an invoice forthwith reimburse CN
the total of my fees and expenses."
27. This decision was not honoured and, thus, CNA issued proceedings to enforce the adjudication
decision on 9 November 2010.
These Proceedings
28. CNA seeks in these proceedings to enforce the Adjudicator's decision summarily, but initially it did
not issue such a summary judgement application. It obtained a freezing order first because it discovered
that Holbeton, with the proceeds from the Property, had purchased another property in this country
which was being developed and which was worth some millions of pounds. That freezing order
remains in place.
29. Evidence has been provided in the form of two witness statements from Mr Hough the second of
which, oddly, exhibits an unsigned witness statement from Mr Nash in the current proceedings; I was
assured that this had been signed. Apart from accepting that Ms Sinar may have contacted him in
September 2005 to introduce herself, Mr Nash says that there was no other contact of which he was
aware and no discussions about his letter of 23 June 2005 of the terms of appointment. There are three
statements from Mr ten Hove of Holbeton's solicitors, the first two of which largely referred to the
freezing order applications. Much of the evidence in all these statements has been summarised above.
30. CNA argues that the parties effectively agreed that the Adjudicator was to be given jurisdiction to
decide whether he had jurisdiction but that even if that was not the case it is clear that in fact he did
have jurisdiction. Holbeton argues that it did effectively reserve its position on jurisdiction in the
adjudication and that it did not by agreement or otherwise confer upon the Adjudicator jurisdiction to
decide his own jurisdiction and, if that is right, that there is a clear arguable defence which passes the
threshold for leave to defend being granted.
The Law
31. On the issue of reservation relating to jurisdiction, the position was at least generally summarised in
the judgment in Allied P & L Ltd v Paradigm Housing Group [2009] EWHC 2890 (TCC) at Paragraph
32:
"It has long been established in the relatively short period of time in which the Housing Grants
Construction and Regeneration Act 1996 ("HGCRA") has been in force that it is necessary for
a party challenging the jurisdiction of the adjudicator to reserve its position in relation to its
challenge; for instance, although not cited in argument, this issue was raised and commented
upon by Mr Justice Dyson as he then was in The Project Consultancy Group v The Trustees of
the Gray Trust [1999] BLR 377 at Paragraphs 14 and 15. Having reserved its position
appropriately and clearly, that party can safely continue to participate in the adjudication and
then, if the decision goes against it, to challenge its enforceability on jurisdictional grounds in
the Court. If it does not reserve its position effectively, generally it cannot avoid enforcement
on jurisdictional grounds. I say generally because there might be unusual circumstances in
which a jurisdictional challenge can be mounted when there has been no reservation; for
instance, if the party making the challenge did not know or could not reasonably have
ascertained the grounds of challenge before the decision was issued. It is however difficult to
envisage circumstances in which a jurisdictional challenge on the grounds that there is no
dispute should not and can not be the subject of a reservation of rights."
32. In Aedifice Partnership Ltd v Ashwin Shah [2010] EWHC 2106, the Court reviewed a number of
the relevant authorities:
"15. So far as jurisdictional objections that have been or could be taken during the
adjudication, one will need to ascertain whether the parties have expressly agreed to give the
adjudicator jurisdiction to resolve those objections or, even if they have not as such done so,
whether the objecting party has effectively reserved or waived its position on jurisdiction. For
instance in Pilon Ltd v Breyer Group Ltd [2010] EWHC 837 (TCC), Mr Justice Coulson said:
"12. The law on this topic is clear. Jurisdictional issues often arise during the course
of an adjudication, and it is usually sensible for the parties to ask the adjudicator to
investigate the issue and state his conclusion. But, unless the parties have also agreed
to be bound by the result of the adjudicator's investigation into his own jurisdiction,
his ruling on that issue will not be determinative, and the challenger can defeat any
subsequent enforcement proceedings by showing a respectable case that the
adjudicator had reached an erroneous conclusion as to jurisdiction: see, in particular,
paragraph 10 of the judgment of May LJ in Pegram Shopfitters Limited v Tally Weijl
(Uk) Limited [2003] EWCA Civ 1750.
13.Accordingly, there needs to be either an express agreement between the parties
that the adjudicator's decision on jurisdiction is to be binding or, at the very least, an
implied agreement to the same effect, which may arise where the objecting party fails
to reserve its position, or there has been a unilateral waiver of any jurisdictional
objection. In both JW Hughes Building Contractors Limited v GB Metal Work
Limited [2003] EWHC 2421 (TCC) and Nordot Engineering Limited v Siemens Plc
[2001] CILL 1778, the court found an ad hoc agreement between the parties that they
would be bound by the adjudicator's decision as to jurisdiction, but such cases are
rare. Generally speaking, as Dyson LJ put it in Amec Projects Limited v Whitefriars
City Estates Limited [2004] EWCA Civ 1418, "the 'decision' of an adjudicator as to
his jurisdiction is of no legal effect and cannot affect the rights of the parties….""
16. In Thomas-Fredric's (Construction) Ltd v Keith Wilson [2003] EWCA Civ 1494, Simon
Brown LJ (as he then was) said:
"33. The position can I think be summarised in the following two propositions. (1) If
a defendant to a Part 24(2) application has submitted to the adjudicator's jurisdiction
in the full sense of having agreed not only that the adjudicator should rule on the
issue of jurisdiction but also that he would then be bound by that ruling, then he is
liable to enforcement in the short term, even if the adjudicator was plainly wrong on
the issue. (2) Even if the defendant has not submitted to the adjudicator's jurisdiction
in that sense, then he is still liable to a Part 24(2) summary judgment upon the award
if the adjudicator's ruling on the jurisdictional issue was plainly right."
17. There is obviously no great difficulty about an express agreement made by both parties
with their eyes open that the adjudicator should have jurisdiction to produce a binding
decision that he has jurisdiction to resolve the particular dispute referred to adjudication. It is
with the implied agreement or waiver or abandonment of a jurisdictional objection that parties
and indeed adjudicators get into murkier waters. There is no doubt that, when one party raises
a jurisdictional objection, good or bad, adjudicators, like arbitrators, are entitled to enquire
into their own jurisdiction. In practice in adjudication, that will usually involve considering
the Referral, witness statements and other documents available to the adjudicator at the time
that he is making that enquiry. Even if no objection is made, an adjudicator who believed that
he had no jurisdiction could raise the issue with the parties and, unless persuaded otherwise or
the parties agreed to give him jurisdiction, he could stand down.
18. There have been a number of observations in various cases about what is needed for a
party making a jurisdictional objection during the course of the adjudication effectively to do
so. In Project Consultancy Group v Trustees of the Gray Trust (1999) 65 Con LR 146, Mr
Justice Dyson had to deal with an allegation that there had been an ad hoc agreement to refer a
jurisdictional issue to the adjudicator. He said dealing with the particular facts:
"In my view, the defendants' solicitor's letter of 9 March 1999 stated in the clearest
terms that the defendants protested the adjudicator's jurisdiction, and that they would
not recognise and comply with any decision to award money to the claimant. The
letter also made it clear that, if the adjudication proceeded, they reserved their rights
to participate, but without prejudice to their contention that there was no jurisdiction.
I do not consider that there can be any reasonable doubt as to the meaning of that
letter. The only real question is whether, by participating in the adjudication process,
the defendants waived the jurisdiction point, and agreed to submit to abide by the
decision of the adjudicator on that issue. The only material relied on by Ms Rawley
[Counsel] is the content of the defendants' response…But, in their response, the
defendants continued to assert that the adjudicator had no jurisdiction…It is a matter
of fact whether a parties submit to the jurisdiction of the third person…"
19. In Euro Construction Scaffolding Ltd v SLLB Construction Ltd [2008] EWHC 3160
(TCC), the judge said:
"So far as jurisdiction challenge to an adjudicator is concerned, it is necessary for the
party objecting to the adjudicator's jurisdiction to make a clear and full reservation".
The report of that case goes on to review whether an adequate reservation was made and
considers, amongst other things, whether the adjudicator proceeded on the basis that there had
been a reservation about jurisdiction. In that case, there had been an effective reservation but
in the event the jurisdictional challenge was not a good one.
20. In CJP Builders Ltd v William Verry Ltd [2008] EWHC 2025 (TCC), the following was
said at Paragraph 72:
"Various cases such as Thomas Frederic's (Construction) Limited v Keith Wilson
[2004] BLR 23 and The Project Consultancy Group v The Trustees of the Gray Trust
[1999] BLR 377 make it clear that if there is to be an objection to jurisdiction of the
arbitrator generally there should be a clear reservation of the objecting party's stance
on jurisdiction. Such a reservation will usually be done effectively by clear words but
it could also be done by unequivocal conduct."
21. I can draw these various strands together:
(a) An express agreement to give an adjudicator jurisdiction to decide in a binding
way whether he has jurisdiction will fall into the normal category of any agreement;
it simply has to be shown that there was an express agreement.
(b) For there to be an implied agreement giving the adjudicator such jurisdiction, one
needs to look at everything material that was done and said to determine whether one
can say with conviction that the parties must be taken to have agreed that the
adjudicator had such jurisdiction. It will have to be clear that some objection is being
taken in relation to the adjudicator's jurisdiction because otherwise one could not
imply that the adjudicator was being asked to decide a non-existent jurisdictional
issue which neither party had mentioned.
(c) One principal way of determining that there was no such implied agreement is if
at any material stage shortly before or, mainly, during the adjudication a clear
reservation was made by the party objecting to the jurisdiction of the adjudicator.
(d) A clear reservation can, and usually will, be made by words expressed by or on
behalf of the objecting party. Words such as "I fully reserve my position about your
jurisdiction" or "I am only participating in the adjudication under protest" will
usually suffice to make an effective reservation; these forms of words whilst
desirable are not absolutely essential. One can however look at every relevant thing
said and done during the course of the adjudication to see whether by words and
conduct what was clearly intended was a reservation as to the jurisdiction of the
adjudicator. It will be a matter of interpretation of what was said and done to
determine whether an effective reservation was made. A legitimate question to ask is:
was it or should it have been clear to all concerned that a reservation on jurisdiction
was being made?
(e) A waiver can be said to arise where a party, who knows or should have known of
grounds for a jurisdictional objection, participates in the adjudication without any
reservation of any sort; its conduct will be such as to demonstrate that its nonobjection on jurisdictional grounds and its active participation was intended to be and
was relied upon by the other party (and indeed the adjudicator) in proceeding with
the adjudication. It would be difficult to say that there was a waiver if the grounds for
objection on a jurisdictional basis were not known of or capable of being discovered
by that party."
33. There is little to add to these observations. If a party does not effectively reserve its position on a
given jurisdiction issue, of which it had actual or constructive knowledge, it can not raise it as an
effective objection to a claim for the enforcement of the relevant adjudication decision. It becomes a
somewhat different point if there arises an issue as to whether the parties have or are to be taken to
have agreed that the adjudicator is to have jurisdiction to decide his or her own jurisdiction. One then
needs to determine whether there was by words or conduct or both an agreement, express or implied, to
that effect. Even if there was agreement, however, the Adjudicator must adjudicate upon it; he or she
must go further than simply enquiring into his or her jurisdiction and reaching a provisional view. If he
or she does not adjudicate upon jurisdiction which the parties have by agreement conferred on him or
her, then there will be no binding decision on that issue and the Court may then have to resolve the
issue.
34. One needs also to consider the basic law relating to offer and acceptance by conduct in this case, in
relation to whether the June 2005 correspondence and the fact that nothing or little was said thereafter
during the currency of the project creates a contract. Counsel referred to the case of A E Yates
Trenchless Solutions v Black and Veatch [2008] EWHC 3183 (TCC) in which the Court addressed the
impact of conduct as acceptance of an offer:
"3. It is usually possible to establish by the conventional approach to contract formation what
the contract in any given case is. Thus there will be an offer, an acceptance, consideration and
an intention to create a legal relationship…It is trite to say that each case will depend on its
own facts as to whether, when and how any given offer or counter-offer has been accepted.
Many of the cases relied upon do not decide much beyond their own facts…
4. In G Percy Trentham Ltd v Archital Luxfer Ltd & Others [1993] 1 Lloyd's Rep 25, Lord
Justice Steyn, with whom the other members of the Court of Appeal agreed, said at Page 27 in
a case which necessarily turned on its own facts:
"Before I turn to the facts it is important to consider briefly the approach to be
adopted to the issue of contract formation in this case. It seems to me that four
matters are of importance. The first is the fact that English law generally adopts an
objective theory of contract formation. That means that in practice our law generally
ignores the subjective expectations and the unexpressed mental reservations of the
parties. Instead the governing criterion is the reasonable expectations of honest men.
And in the present case that means that the yardstick is the reasonable expectations of
sensible businessmen. Secondly, it is true that the coincidence of offer and
acceptance will in the vast majority of cases represent the mechanism of contract
formation. It is so in the case of a contract alleged to be made by an exchange of
correspondence. But it is not necessarily so in the case of a contract alleged to have
come into existence during and as a result of performance. See Brogden v
Metropolitan Railway (1877) 2 AC 666; New Zealand Shipping Co Ltd v A.M.
Satterthwaite & Co Ltd [1974] 1 Lloyd's Rep 534 at p.539, Col 1; [1975] AC 154 at
p.167 D-E; Gibson v Manchester City Council [1979] 1 WLR 294. The third matter
is the impact of the fact that the transaction is executed rather executory. It is a
consideration of the first importance on a number of levels. See British Bank for
Foreign Trade Ltd v Novinex [1949] 1 KB 628. at p 630. The fact that the transaction
was performed on both sides will often make it unrealistic to argue that there was no
intention to enter into legal relations. It will often make it difficult to submit that the
contract is void for vagueness or uncertainty. Specifically, the fact that the
transaction is executed makes it easier to imply a term resolving any uncertainty, or,
alternatively, it may make it possible to treat a matter not finalised in negotiations as
an inessential. In this case fully executed transactions are under consideration.
Clearly, similar considerations may sometimes be relevant in partly executed
transactions. Fourthly, if a contract only comes into existence during and as a result
of performance of the transaction it will frequently be possible to hold that the
contract impliedly and retrospectively covers pre-contractual performance. See
Trollope & Colls Ltd v Atomic Power Construction Ltd [1963] 1 WLR 333."
5. It is important to appreciate that the reference in the first of Steyn LJ's four matters to "the
reasonable expectations of sensible businessmen" is in the context of confirming that the law
recognises only an "objective theory of contract formation". Thus, in the context of a
commercial contract such as that entered into in this case, one needs to have regard to an
objective interpretation of what the parties did and said in fact. When one couples the first
with the second matter, conduct in terms of possible acceptance is again construed upon an
objective basis. Thus, a contractor who commences work after receipt of an order to
commence may well have its conduct in commencing the work objectively construed as an
acceptance of the order, because objectively sensible business people would expect that
commencement without reservation suggested acceptance of the order.
6. The case of Brogden v Metropolitan Railway (1877) 2 AC 666 referred to by Steyn LJ
established or confirmed the proposition that conduct by a party to a contract can in
appropriate circumstances probably be considered as an implied acceptance…
7. Lord Hatherley said this:
"My Lord, Mr. Herschell, in his extremely able argument in this case, has given us
every assistance that we could wish to have for its determination, and has, at it
appears to me, put the case on a very proper foundation, when he says that he will not
contend that this agreement is not to be held to be a binding and firm agreement
between the parties, if it should be found that, although there has been no formal
recognition of the agreement in terms by the one side, yet the course of dealing in
conduct of the party to whom the agreement was propounded has been such as
legitimately lead to the inference that those with whom they were dealing were made
aware by that course of dealing, that the contract which they had propounded had
been in fact accepted by the persons who so dealt with them" (Page 686)
8. In this case, Brogden, is authority for the proposition that a course of dealing and conduct,
construed objectively, can amount to acceptance, in contractual terms of an offer made by a
party.
9. This Reliance has been placed on the case of Jayaar Impex Ltd v Toaken Group Ltd [1996]
2 Lloyd's Rep. 437. This was a decision of Mr. Justice Rix (as he then was) and was clearly
and expressly a decision upon its own facts. It is a case from which one can draw this
relatively obvious proposition: where there is an established contract between the parties, it is
difficult to infer that there has been an agreed variation to that contract by reason of conduct
which is referable only to the established contract. Thus, where commencement of the works
is consistent with and referable to an established contract, it is difficult and in many cases
impossible, without more for that commencement of works to be conduct which, objectively
construed, implies acceptance of some variation to that subsisting contract."
35. Again, there is little that one can add to this. Where there is an existing contract in place, and what
is being asserted in effect is that there was an agreed contractual variation thereafter, created by offer
and followed by acceptance by conduct, one needs to find conduct which is objectively referable only
to the variation offer as opposed to conduct which is consistent or not inconsistent with performance of
the original contract.
36. Finally, the test for summary judgement in this case, laid down by CPR Part 24, is that the
defendant "has no real prospect of successfully defending the claim". It is accepted in this case by
Counsel for both parties, properly in my judgement, that the Court has the power and discretion to
impose a financial condition on the giving of leave to defend in circumstances where, although the
defendant has established a realistic prospect of a successful defence that prospect is at the lower end of
expectations.
Discussion
37. So far as whether there was an effective reservation by Holbeton in relation to the jurisdiction of
the Adjudicator, there clearly was not an express reservation as such in the sense that Holbeton did not
use words such as "I fully reserve my position about your jurisdiction" or "I am only participating in
the adjudication under protest". However, what it did do unequivocally in its Response was to assert
that the Adjudicator did not have jurisdiction for a number of reasons including there not being any
relevant contract between it and CNA. This was re-asserted in its Rejoinder.
38. I have formed the view that, by the words that it used in its Response and Rejoinder, Holbeton did
reserve its position. One needs to judge objectively how the words used by Holbeton would or should
have been understood. There is no doubt that Holbeton unequivocally was saying to the Adjudicator
and to CNA that it believed, rightly or wrongly, that the Adjudicator did not have jurisdiction because
the original contract was between Bright and CNA, that Bright was not its actual, implied or ostensible
agent and that CNA's letter of 23 June 2005 was not an offer or counter-offer which was either capable
of acceptance or was in fact accepted by conduct or otherwise. That would have to be understood as
simply saying that Holbeton's position was that the Adjudicator did not have jurisdiction and that was
good enough, in my judgement, to make an effective reservation of its position on the point. It is clear
from the Response and the Rejoinder that, although the jurisdictional issues overlapped with some
contractual issues, Holbeton was differentiating between its jurisdictional challenges and it's taking
issue on legal and factual matters if it was wrong on the jurisdictional issues.
39. Given that this is the case, it is unnecessary to consider whether the parties agreed to give to the
Adjudicator jurisdiction to decide his own jurisdiction. It is not wholly irrelevant to consider how the
Adjudicator addressed the issue. At Paragraph 20 of his decision, he made it clear that he did not
consider that the parties had agreed that he could make a binding ruling on jurisdiction, because he said
so in terms. Everything which followed in relation to jurisdiction must be looked at in the context of his
understanding on this. He does not actually decide, as such, the jurisdictional issue but he finds enough
to satisfy himself that he has jurisdiction. The very fact that he does not include in the decisive part of
his decision (set out above) any declaration about the jurisdiction issue also points to him not
addressing the jurisdictional issue as part of his decision. The wording which he uses simply expresses
his rationalisation as to why he previously thought that he had jurisdiction. It is in the past tense (see
Paragraph 20: "I had to decide… I set out below the parties' principal arguments and evidence which
led me to conclude that I had a valid appointment…). Therefore, even if the parties had agreed to give
him jurisdiction to decide his own jurisdiction, he did not as such exercise that jurisdiction, albeit that
he made certain "findings" following his investigation into his jurisdiction. It would therefore follow
that, since there is no decision, as such, on jurisdiction the Court must now review that aspect of the
matter.
40. It is simply not possible on this summary judgement application to determine whether or not
Bright, initially, acted as agent for Holbeton. Whilst I can see a compelling argument that there was a
contract created by the March 2004 correspondence as between Bright and Holbeton, one would need
to see such documentation as exists between Bright and Holbeton to see whether it supports any
argument that Bright was effectively acting as an independent contractor employed to sub-contract to
CNA professional services to be provided for the project or as agent for Holbeton. It is odd, to say the
least, that no such documentation has been put before the Court and it is also odd that all payments
were effectively made by Holbeton. What is asserted in this latter regard is that these direct payments
simply reflected a mechanism whereby VAT could be avoided by reason of Holbeton's extra territorial
status. There was no debate before the Court as to whether as a matter of law or practice this would be
avoidance or evasion; it is however at least arguable that such an arrangement could be an evasion,
attracting criminal and tax penalties, if Bright was the true contracting party. If that argument was
correct, that might point to the contract always having been between Holbeton and CNA, which would
then avoid the finding that Holbeton, Bright and possibly Mr Ahmed were involved in an illegal tax
arrangement. It seems clear, also, although I make no final findings about this, that Mr Ahmed's
involvement at different times for Holbeton and Bright could be considered equivocal. It also remains
unclear whether, in truth, Mr Ahmed has a beneficial interest in Holbeton.
41. I then turn to the consideration of whether or not the June 2005 correspondence either created a
contract between Holbeton and CNA (if there was not one before) or varied any contract between it and
CNA which existed beforehand. Before one becomes involved in any argument as to whether CNA's
letter of 23 June 2005 was accepted, the conduct relied upon by CNA is in effect on analysis the
continuation of the provision of services by CNA for the project, albeit without any apparently
expressed demur by Holbeton. However, what undoubtedly happened was the submission of invoices
by CNA after 23 June 2005 in identical terms to those submitted before to Holbeton "c/o Bright" which
sought payment of fees "in accordance with the fee agreement dated 3rd March 2004". The submission
of invoices in such terms is not obviously or logically consistent with there being a new contract or a
variation of an old contract entered into in late June 2005. One has to ask whether anything was done
post-June 2005 which was consistent simply and solely with acceptance of the contents of the letter of
23 June 2005 as opposed to a continuation of whatever the existing relationship or contract was. That is
an issue which the Court can not answer at the moment on the available evidence. Whilst there is no
evidence that anything was communicated by Holbeton or its solicitors for the time being after 23 June
2005 to challenge or reject the contents of the letter of that date, there is, currently, little if anything to
show that anything was done or said after 23 June 2005 which is exclusively consistent with
acceptance of its contents. There are also real issues, which it is not appropriate to resolve on a
summary judgement application, as to whether the letter of 23 June 2005 was in effect a counter offer
capable of acceptance or whether it was, more properly analysed, merely a statement of a negotiating
position. It is certainly reasonably arguable that the letter envisaged an amended appointment
document being drawn and prepared for signature and sealing.
42. I have formed the view that Holbeton has just established a realistic prospect of a successful
defence for the purposes of CPR Part 24. I have little doubt that a contract was created in March 2004
between Bright and CNA. However, there is a relatively strong case on the available information that
Bright acted as an agent on behalf of Holbeton in retaining CNA; that is supported by the facts that
payments were made by Holbeton to CNA, that, if the contract was not made by Bright as agent for
Holbeton, there may have been an illegal VAT tax evasion arrangement and that Holbeton has chosen
not to put before the Court on this application any documentary evidence as to Bright's retainer by
Holbeton or as to the extent to which Holbeton is beneficially owned by or on behalf of Mr Ahmed.
However, these points are not sufficiently conclusive because, nonetheless, it seems only to have been
in 2010 for the purposes of the adjudication (over three years after the project was finished) that CNA
took the point that Bright was the agent of Holbeton. However, even if the March 2004 agreement was
in reality between Holbeton and CNA, or, indeed whether or not that is the case, there remain issues (as
set out above) as to whether a binding variation or agreement was reached arising out of or in
connection with the June 2005 correspondence.
43. Because I have found that Holbeton have only just past the threshold for securing permission to
defend, I have decided that a condition for permission to defend should be Holbeton pays into court
within 14 days the full amount of the claim. Counsel for Holbeton, on instructions, accepted that in
these circumstances the full amount should and could be paid into court. That would have the effect of
enabling the court in any event to discharge the Freezing Order which has been made.
Decision
44. Permission to defend these proceedings will be given on terms that Holbeton pays into court the
sum of £136,759.21 within 14 days. I will give directions on the handing down of this judgement for
the expeditious trial of the issues which remain.