In Croda europe LTD v Optimus Services LTD (Technology and Construction Court, Roger Ter Haar QC, 19 February 2021) several conclusions were drawn from the payment provisions of the NEC3 Professional Services Contract.
The consultant submitted that the following conclusions could be drawn from the payment provisions of the NEC3 Professional Services Contract (i) The employer had no obligation to overpay so that if the contractual mechanism was operated correctly, the employer was not obliged to pay on an interim basis any sum to the consultant that it did not consider due (ii) The contract provided the opportunity to correct an overpayment in subsequent interim payments by setting out a reduced sum in a payment reduction notice, which sum could be zero but not less and (iii) There is no express negative interim payment right and the express words the parties used cannot be interpreted in this way so that when the adjudicator amended its invoice and thereby created a negative interim payment due from it to the employer, he fundamentally re-wrote the bargain struck by the parties and therefore exceeded his power and jurisdiction.
Roger ter Haar QC in rejecting these submissions stated that these were arguments of construction of the contract rather than jurisdictional arguments so that the challenge is to a matter of law for determination by the adjudicator and is not a proper ground for resistance to enforcement because (i) The adjudicator decided that the contract does allow for payments by the consultant to the employer (ii) This ground for resisting enforcement is a submission that the adjudicator's decision is wrong in that he has wrongly applied the contract and (iii) It is trite law that it is not a defence to enforcement to challenge whether the decision was correct save in very limited circumstances and only where such challenge was made in accordance with the proper procedure provided for in that judgment and (iii) The consultant's challenge to the merits of the decision do not fall within the circumstances provided for in the Hutton case and the consultant has not sought to have the merits finally decided by the court by way of Part 8 claim or counterclaim in these proceedings.
The adjudicator's decision which ordered the consultant to make a repayment of the overpayment by the employer was therefore enforced summarily.
The full text of the judgement of Roger Ter Haar QC
There is before me an application on the part of the Claimant (Croda) to enforce an Adjudication Decision issued in corrected form by Mr Allan Wood on 28 July 2020 in which he ordered the Defendant (OSL) to pay Croda £343,513.20 plus VAT and interest.
This application is resisted by OSL on the basis that for two separate reasons the Adjudicator did not have jurisdiction to make the Decision which he made.
Croda not only seeks to uphold the Adjudicator's Decision that he did have jurisdiction to make that Decision, but contends that even if he did not have jurisdiction, OSL has elected to treat the Decision as binding.
Background
Croda is a company which manufactures and sells speciality chemical products. OSL is an engineering and design company with specialist expertise in gas and oil processing.
The Contract between Croda and OSL is dated 2 November 2017 and incorporates the NEC3 Professional Services Contract 2013 (as amended) with Main Option E and Secondary Options W1, X1, X2, X5, X9, X11, Y(UK)2, Y(UK)3 and Option Z.
Under the Contract OSL have been engaged in relation to Engineering, Production and Construction Management (EPCM) services for expansion works at Croda's Hull facility. The expansion works include works to increase the capacity of Croda's Hull facility through the provision of two new reactors, new ammonia storage facilities, the replacement of an existing reactor and the provision of a new weak liquor store. The project is known as the PACE Project (i.e. the Polymer Additives Capacity Extension Project).
By Clause 2 of the Form of Agreement it was provided that
The Consultant will Provide the Services in accordance with the conditions of contract.
By Clause 3 of the Form of Agreement it is stated that:
- The Employer will pay the Consultant for the services and carry out his other duties in relation to them in accordance with the conditions of contract
- The Adjudicator, Mr Wood, was appointed in two separate adjudications. The first adjudication was commenced by OSL. OSL claimed £1,480,004.04 plus VAT on the basis of an assessment of the value of its services in the sum of £7,403,946.47 plus VAT set out in an invoice dated 31 July 2019. Croda served a Pay Less Notice on 8 August 2019 assessing the amount due to OSL in a total sum of £3,519,389.98.
- In his Decision in the first adjudication, the Adjudicator decided that the gross amount due to OSL was £5,580,429.23. As OSL had been paid £5,923,942.43, the Adjudicator found that OSL had been overpaid by Croda in the sum of £343,513.20.
The Adjudicator took the view that he did not have power to direct payment from OSL to Croda and, accordingly, did not so order.
Croda then commenced the second adjudication in order to obtain an order that certain invoices issued by OSL should be corrected to reflect the balance due from OSL to Croda and to obtain an order for payment to it of the amount of £343,513.20 (plus VAT) and interest.
OSL contested the Adjudicator's jurisdiction to make either of those orders.
On 23 July 2020 the Adjudicator issued his Decision in the second adjudication. The operative part of his Decision was as follows:
- Croda has succeeded in its case.
- OSL's Invoice 4775, dated 31 July 2019 is deemed corrected such that it states (shows) the amount due to Croda is £343,513.20 plus VAT in accordance with the Regulations.
- OSL shall pay Croda the sum of £343,513.20, plus VAT in accordance with the Regulations.
- Croda is entitled to interest on the sum of £343,513.20 at the rate of 3% above the Base Rate of the Bank of England, from 1 March 2020 to the date of this Decision, in the sum of £4,279.80 and on-going at the daily rate of £29.18 until OSL pay Croda the sum of £343,513.20.
- OSL shall pay my fees in the sum of £9,717.50 plus VAT. In the event Croda pay my fees then OSL shall immediately reimburse Croda such sum as is paid.
On 24 July 2020 Croda's solicitors wrote by email to the Adjudicator:
Thank you for your e-mail yesterday and the attached Decision. We acknowledge receipt on behalf of the Referring Party.
Clause W1.3(10) of the Contract provides that the adjudicator may, within two weeks of giving his decision to the Parties, correct any clerical mistake or ambiguity.
To that end, we set out below one proposed clerical/typographical [correction] for your review. Should you require any further information in respect of the proposed correction.
We also note that you have not included the relief sought at paragraph 7.1.5 of the Referral Notice, which related to the timing of the payment to be made by OSL. We believe that this is an inadvertent omission, on the basis of the reasons given in your Decision, and have included the wording of the declaration sought in the table for your review, and consideration whether to include it in your Decision.
If, contrary to our supposition, you have taken a deliberate decision not to include a declaration as to the timing of the payment to be made, we would be grateful if you would clarify that for completeness.
The email concluded with a table which proposed alternative wording to correct paragraph 35 of the Decision and suggested a further declaration as follows:
That OSL is to pay Croda the sums referred to above within 7 days of the Adjudicator's Decision (or such other period as the Adjudicator shall determine.
The Adjudicator invited OSL's comments on these proposed corrections. On 27 July 2020 Mr Robertson, OSL's Managing Director, responded by email:
"Dear Mr Wood
I acknowledge the decision and have expedited the payment of your invoice as presented.
I note your request for our response on the two points raised by DLA Piper.
In the first item, we agree with the proposed wording change to paragraph 35 as this should be made to reflect the wording in the contract as suggested.
On the second point, we note that you do not state a time for payment which has therefore not upheld the request from Croda for the amount to be paid in 7 days. Otherwise you would have stated that in the wording of your ruling.
That being said whilst the requirement for the amount to be paid in 7 days was not upheld, it is however ambiguous as to when payment should be made. We therefore suggest a payment date one month from the decision to be included within the ruling. That would avoid any ambiguity. Croda would of course be entitled to interest up until the date of payment.
We look forward to your response on this matter."
As the email suggested would be done, OSL paid the Adjudicator's fees.
On 28 July 2020 the Adjudicator issued a corrected Decision. This altered paragraph 35, but did not include any time for payment.
On 31 July 2020 Mr Robertson wrote a letter to Croda saying as follows:
"You will no doubt have received the second decision of Mr Wood dated 28 July 2020. Whilst reserving our position regarding that decision and the interpretation of the contract, we respect the adjudicator's decision and its binding nature.
Without prejudice to that, we are however conscious that the parties agree that the contract has come to an end and that an account needs to occur (whether under the contractual termination or by way of repudiation). By way of our letter of 15 May 2020 we wrote [to] you with a view to the parties opening a dialogue to reach an amicable resolution to that account, though we have had no response to that suggestion to date."
The letter put forward on a without prejudice basis a proposed financial resolution which contained a credit for the sum of £343,513.20. The last two paragraphs of the letter said:
Fully respecting the sums due to you following the adjudicator's decision, we consider that a further £113,456.84 is payable to OSL. To avoid the double movement of money we suggest it is pragmatic to account for the sums due to each party. As a result, we humbly think it much more sensible to have a frank discussion between the parties, which will respect the adjudicator's decision, to agree a final account settlement with payment as appropriate.
We appreciate that you may value the account differently and consider that an alternate gross final account is more appropriate. That is why utilising the opportunity to explore the parties' positions with a view to reaching an amicable solution seems sensible, particularly in circumstances which will help avoid the further time, effort and cost which will inevitably flow from another adjudication.
The Grounds of Resistance to Enforcement
Initially before me, OSL resisted enforcement of the Decision on three grounds:
1. First, that the Contract only provided the Adjudicator with power to review and revise any action or inaction of the Employer related to the dispute (Clause W1.3(5)). The submission was that the Adjudicator therefore did not have power, and so did not have jurisdiction, to revise OSL's invoice 4775.
2. Second, that the Contract does not provide for negative interim payments. In the premises, the Adjudicator was not empowered, and therefore did not have jurisdiction, to award payment of a sum to Croda as he did in the Decision.
3. Third, the Adjudicator lacked jurisdiction to award the sum of £343,513.20 to Croda as damages for breach of contract (as he did at paragraphs 46 and 47 of the Second Adjudication Decision).
On behalf of Croda, Mr Clarke made it clear that he did not rely upon the Adjudicator's alternative foundation for his Decision based upon an award of damages. In those circumstances, it was agreed by the parties that I did not need to deal with the third of the grounds put forward.
Were the Adjudicator's Powers limited to those contained in Clause W1.3(5) of the Contract?
It was common ground between the parties that the statutory adjudication regime did not apply to the dispute referred to the Adjudicator. The second adjudication was therefore contractual.
The Contract contains two adjudication provisions. Option W1 applies where the Housing Grants, Construction and Regeneration Act 1996 does not apply (which is the case here). Under the standard NEC3 Contract, Option W2 applies where the Act does apply (here there was a separate modified adjudication provision for disputes falling within the Act).
It is OSL's case that where Option W1 applies, the Adjudicator's powers are those expressly set out at Clause W1.3(5) and only those powers. Clause W1.3(5) provides:
The Adjudicator may:
- review and revise any action or inaction of the Employer related to the dispute and alter a quotation which has been treated as having been accepted,
- take the initiative in ascertaining the facts and the law related to the dispute,
- instruct a Party to provide further information related to the dispute within a stated time and
- instruct a Party to take any other action which he considers necessary to reach his decision and to do so within a stated time.
OSL's submissions concentrate upon Option W1, upon the basis that Option W2 does not apply.
Croda submits that the proper construction of the Contract requires a consistent approach to be taken to similar or identical provisions which are to be found in the standard NEC3 form of contract in both Options W1 and W2.
I agree with Croda's approach in this respect.
Clause W2.3(4) of Option 2 is in identical terms to Clause W1.3(5) of Option 1.
It is clear that in Option 2 Clause W2.3(4) must be construed as not restricting the adjudicator's powers, since in order to comply with the 1996 Act it must be possible to refer any dispute to adjudication.
Thus, if OSL's construction is right, Clause W2.3(4) must be only a statement of specific powers available to an adjudicator, but not restricting the powers of the adjudicator, whilst Clause W1.3(5) is a closed list of powers. That seems to me to be an improbable and uncommercial interpretation of the Contract.
The Contract contemplates that any dispute may eventually be referred to arbitration. Clause W1.4 of Option 1 provides:
A Party does not refer any dispute under or in connection with this contract to the tribunal unless it has first been referred to the Adjudicator in accordance with this contract.
Clause W2.4(1) of Option 2 in the standard contract is in identical terms.
In Clause W2.4(1) the effect must be that any and every dispute caught by the Act must go through adjudication before going to arbitration.
OSL's construction of Clause W1.3(5) and Clause W1.4 of Option 1 necessitates that there are two different contractual routes to arbitration: first, where a dispute falls within W1.3(5), Clause W1.4 requires adjudication to take place first; second, where the dispute falls outside W1.3(5), a party is free to go straight to arbitration, indeed, must go straight to arbitration since adjudication is not available.
That does not seem to me to be a sensible construction of Option 1, and it simply is not what it says. In my view Clause W1.1 of Option 1 is clear. That provides:
A dispute arising under or in connection with this contract is referred to and decided by the Adjudicator.
This provision is clear: it applies to all disputes under the Contract which are not caught by the 1996 Act.
This construction is supported by the terms of Clause W1.3(1) which provides notification periods for different classes of dispute, the last of which is wide any other matter.
This construction based upon the structure of Option 1 does not depend upon comparison between Options 1 and 2, but is strengthened by that comparison.
For these reasons, I reject the submission that Clause W1.3(5) is a closed list of powers. This is fatal to the first ground of resistance relied upon by OSL.
Does the Contract contemplate negative interim payments?
The argument put forward persuasively by Ms Healiss takes the following steps as set out in paragraphs 39 and 40 of her skeleton argument:
The Contract [A/92] provides for interim payments in the following way:
- Monthly invoice: Pursuant to Clause 50.1, Optimus was to submit an invoice at the end of each assessment interval (which the Contract Data provided was to be calendar monthly).
- Optimus's assessment of amount due: Optimus's invoice setting out its assessment of the amount due was to:
- Include the details stated in the Scope to show how the amount due has been assessed, pursuant to Clauses 50.2 and Y2.2;
- State the change in the amount due since the previous invoice, also pursuant to Clause 50.2 (The first invoice is for the amount due. Other invoices are for the change in the amount due since the previous invoice);
- Include: the Price for Services Provided to Date; expenses; any other amounts to be paid to, by, or retained from Optimus; and tax, pursuant to Clause 50.3; and
- Forecast the value of the previous week's worth of work in each month, pursuant to Clause Z3.
- Croda's assessment of amount due: If Croda did not accept Optimus's assessment of the amount due, Croda was obliged to notify Optimus of its reasons and the amount Croda assessed was due, pursuant to Clauses 51.3, A5 and Y2.3 (as amended, which included Y2.3, Y2.3A and Y2.3B).
- Croda's Payment Reduction Notice: Pursuant to Clause A5, Croda was required to issue a conforming Payment Reduction Notice pursuant to Clause Y2.3 (as amended) if it sought to deduct any sum due to Croda from a sum due to Optimus.
- Agreement or dispute as to amount due: On receipt of a conforming Payment Reduction Notice, Optimus could decide whether to correct its invoice or dispute Croda's valuation and provide further information to justify its invoice, pursuant to Clause 51.3.
- Payment amount: The amount to be paid was only the agreed amount of any invoice. In particular, if Croda did not agree to pay a sum claimed by Optimus and submitted a Payment Reduction Notice, it had no obligation to pay anything more than its Payment Reduction Notice.
- Payment date: In respect of the agreed part of any invoice (whether as originally submitted, or corrected pursuant to Clause 51.3), payment was due seven days after receipt (pursuant to Clause Y2.2) and the final date for payment as within two calendar months and six days of Croda receiving Optimus's invoice (pursuant to Clause 51.1). There was no provision in the Contract for an interim payment to be made by Optimus to Croda.
The following conclusions can be drawn from these provisions of the Contract:
1. First, Croda had no obligation to overpay. If the contractual mechanism was operated correctly, Croda was not obliged to pay, on an interim basis, any sum to Optimus that it did not consider due.
2. Second, the Contract provided the opportunity to correct an overpayment in subsequent interim payments by setting out a reduced sum in a Payment Reduction Notice. This sum could be zero (see Clause Y2.3(a) [A/180] ), but not less.
3. Third, there is no express negative interim payment right and the express words the parties used cannot be interpreted in this way. When the Adjudicator amended Optimus's invoice and thereby created a negative interim payment due from Optimus to Croda, he fundamentally re- wrote the bargain struck by the parties and therefore exceeded his power and jurisdiction.
In my judgment, Mr Clarke is right to respond that these are arguments of construction of the Contract rather than jurisdictional arguments. Accordingly the challenge is to a matter of law for determination by the Adjudicator, and is not a proper ground for resistance to enforcement. He submits in paragraphs 34 to 36 of his skeleton argument:
The adjudicator decided that the Contract does allow for payments by OSL to Croda. His reasoning is set out in particular paragraphs 32 to 38 of the Decision [5/A47-A48].
In truth, this ground for resisting enforcement is a submission that the adjudicator's decision is wrong in that he has wrongly applied the contract. It is trite law that it is not a defence to enforcement to challenge whether the Decision was correct, save in the very limited circumstances set out in the case of Hutton Construction Ltd v Wilson Properties (London) Ltd [2017] EWHC 517 (TCC); [2017] BLR 344 and only where such challenge was made in accordance with the proper procedure provided for in that judgment.
OSL's challenge to the merits of the Decision do not fall within the circumstances provided for in the Hutton case and OSL has not sought to have the merits finally decided by the court by way of Part 8 claim or counterclaim in these proceedings. In any event:
- In accordance with Clause W1.3(10) [9/A130] , the Decision is final and binding as OSL has not notified Croda of an intention to refer the matter to the tribunal within 4 weeks of the notification of the Decision; further or alternatively
- If OSL had sought to bring such a Part 8 claim or a counterclaim, Croda would have been entitled to apply for a stay of the same pursuant to Section 9 of the Arbitration Act 1996 as the Tribunal under the Contract is arbitration [9/A17] .
I accept those submissions.
Accordingly I reject the second ground of resistance.
Election
Mr Clarke argues that if I were to hold that either of the grounds of resistance is well founded, I should in any event enforce the award upon the basis that OSL has elected to treat the Decision as binding.
The general rule is well established, namely that if a party does not appropriately and clearly reserve its position to challenge the jurisdiction of an adjudicator it will be taken to have waived any jurisdictional objection and will be unable to avoid enforcement on jurisdictional grounds: see Bresco Electrical Services Ltd v Michael J Lonsdale (Electrical) Ltd [2019] EWCA Civ. 27; 182 ConLR 1.
It is Croda's case that OSL approbated the Decision on 27 July 2020 by:
1. Confirming it would pay the Adjudicator's fees;
2. Seeking to rely on and invoke the slip, or correction, rule or procedure and in doing so argued against a correction sought by Croda and sought to have the Decision corrected in OSL's favour; and
3. In so acting made no reservation of its position at all.
Further, Croda contends that there was approbation when in his letter of 31 July 2020 Mr Robertson sought to commence a negotiation of its further claims on the clear understanding that OSL respected the Decision and its binding nature and that as a result of the decision sums were due to Croda.
I accept Ms Healiss's submission that mere payment of an adjudicator's fees may well not be approbation of a Decision to which those fees relate. See in that regard Science and Technology Facilities Council v MW High tech Projects UK Limited [2015] EWHC 2889 (TCC).
However, in this case, reading Mr Robertson's email of 27 July in its entirety, there is in my judgment the clearest possible recognition that the Decision was binding. This is made clear not least by the reference to interest being payable as part of the justification for seeking an extended date for payment.
Further, in this case OSL was seeking to avail itself of the slip rule in order to gain an advantage, namely an extended date for payment. In those circumstances this case is similar to that considered by HHJ Seymour Q.C. in Shimizu Europe Limited v Automajor Limited [2002] BLR 113 at paragraph [30] and by HHJ McKenna in Dawnus Construction Holdings Limited v Marsh Life [2017] EWHC 1066 (TCC) at paragraph [18].
For those reasons, I hold that by the 27 July 2020 email OSL elected to treat the decision as valid and binding and waived any right to raise jurisdictional challenges to its enforceability.
On its own, the letter of 31 July 2020, which commences with a reservation, might not amount to an election. However, taken with the terms of the 27 July email, if that email on its own were not sufficient to amount to an election, in my judgment the email and the letter taken together were sufficient to have that effect.
Conclusion
For the above reasons there will be summary judgment for Croda against OSL as asked. I invite the parties to seek to agree the terms of the consequential order.