Wednesday, September 24, 2008

Rights and remedies: VGC Construction -v- Jackson Civil Engineering

What happens when there's a dispute prior to adjudication?

Summing up

The case: VGC Construction Limited -v- Jackson Civil Engineering Limited, TCC 15 August 2008.

The issue: The extent to which it is necessary to particularise claims in order to formulate a dispute capable of being referred to adjudication.

The implication: The courts will be reluctant to refuse enforcement of an adjudicator's decision solely on the basis that the claim lacked detailed particularisation prior to the adjudication, providing it can be said that a dispute was in existence.

The case

The recent case of VGC Construction -v- Jackson Civil Engineering examined the extent to which there needed to be sufficient evidence of a dispute for the matter to be referred to adjudication.
VGC was engaged by Jackson as subcontractor for the provision of ducts and cabling on the M3 motorway. The subcontract between the parties was based upon the ICE form of subcontract intended for use with the 6th edition of the main contract form. It was recognised by both parties that the design of various parts of the works was relatively incomplete at the outset and that there would be the need for variations to be instructed to the initial scope of works. In the event, however, matters did not proceed smoothly.

The initial subcontract period of 26 weeks overran by a further 26 weeks. By October 2007, almost one year after commencement, the parties disagreed on who was responsible for this delay and the resultant costs. In broad terms, VGC had applied for payment of ВЈ4.3m, against which Jackson had valued the works at approximately ВЈ3.6m, but deducted a further ВЈ750,000 for contra-charges.

Extensions of time

At this stage, Jackson's complaint was that VGC had failed to properly particularise and substantiate its claim for extensions of time and additional monies. By way of example, the application for payment contained, among numerous additional items, a one-line item buried within the variation account, which simply stated "delay and disruption ВЈ300,000".

VGC's extension of time claim was apparently no better. It had claimed an extension of time of 26 weeks calculated by reference to the date when the claimed additional works instructed by Jackson had been completed. This was supported by a four-page document that did little more than list the complaints that VGC considered were sufficient to justify an award of further time.

A number of meetings were held by the parties and progress was generally made in agreeing the measured work sections of the account, but the disputes concerning the extension of time, the delay and disruption claims, and the contra-charges remained unresolved. In May 2008, VGC commenced adjudication in respect of the entirety of the account.

In its response to the adjudication referral, Jackson contended that the claim for delay and disruption in the sum of ВЈ300,000 had been provided with no substantiation or prior notification. Jackson also complained that the claim for extension of time had been no more than a table of contents lacking supportive information and justification.

Despite the fact that six months had passed since those claims had first been made, Jackson maintained that the referral in the adjudication had hardly improved upon that situation and accordingly that the adjudicator had insufficient material to assess the validity of VGC's claim.

Overrun period

As if to confirm this, VGC clarified in its reply that the ВЈ300,000 claim for delay and disruption was in fact a Hudson formula overhead and profit claim calculated over the 26-week period of overrun. Unsurprisingly, Jackson responded to say that this calculation was totally new and that the adjudicator should treat this evidence as inadmissible in the adjudication.

The adjudicator was not asked to give reasons for his decision and did not do so. He concluded that the value of the final account should be ВЈ3.9m and that the value of the contra-charges levied by Jackson should be nil. He ordered that Jackson should pay to VGC this total less previous payments and retention, and that Jackson should be responsible for paying the adjudicator's fees. Jackson refused to pay and the matter came before the court for enforcement proceedings.

Jackson primarily opposed enforcement on the basis that the claim for ВЈ300,000 was of such a nebulous nature that there could be no dispute in respect of it. Jackson argued that the claim lacked contractual foundation, was unsupported by any form of detail or analysis, and was nothing more than a single-line demand for ВЈ300,000. Jackson also contended that during the course of the adjudication, this claim had become an entirely new claim with the consequence that the adjudicator had no jurisdiction to deal with it.

Unfounded complaints

Mr Justice Akenhead concluded that Jackson's complaints were unfounded. There was clearly a dispute between the parties on the value of the entirety of the account over which the adjudicator had jurisdiction to decide. The ВЈ300,000 claim for delay and disruption was contained within the variation account and, in the judge's view, this was not so nebulous or ill-defined as to be incapable of giving rise to a dispute.

Surprisingly, Justice Akenhead took the view that to any reasonable recipient in the circumstances, it was obvious that this claim was an overhead and profit type claim, even though prior to the adjudication the subcontractor had not described it as such.

In conclusion, there was no effective challenge to the jurisdiction of the adjudicator and accordingly the order for enforcement of the adjudicator's decision was upheld.