Notices of intention to refer to adjudication: M Hart Construction Limited & Anor v Ideal Response Group Limited

How accurate must a notice of intention to refer a dispute to adjudication be, before its inaccuracy can give rise to a jurisdictional challenge? The TCC has recently given helpful guidance to construction practitioners on the matter.

The case concerned carrying out works at the old Olympic Athletes Village. The Defendant was engaged to repair water damage at the village, and the Defendant subcontracted the First Claimant (‘Hart’) to carry out the works. The informal agreement was that Hart would carry out the works, the Defendant and Hart would deduct their costs from the sums paid to the Defendant and split the profit equally.

The scope of the work then expanded to retrofitting the village for residential use. Once the works were complete, some remedial works were required. The Defendant was again engaged, and Hart subcontracted to do the works. But because the remedial works to defects were different from any previous works undertaken by either the Defendant or Hart, they engaged the Second Claimant (‘PKM’) to help. The agreement was otherwise the same, except that profit was to be shared three ways.

When the initial contracts were formed, Mr Hart was acting as an individual. He later incorporated a company, the First Claimant, and contended the contracts were novated to it.

Under the retrofitting contract, Hart submitted invoices of £750,000 and £1m. A pay less notice was issued by the Defendant in respect of the second invoice.

Under the defects contract, Hart submitted invoices of £150,000 and £300,000. Again, a pay less notice was issued in respect of the second invoice.

Also under the defects contract, PKM submitted invoices for £150,000 and £300,000, and two invoices as to costs (£6,400 and £20,220). A pay less notice was issued in respect of all these invoices.

Both claimants disputed the validity of the pay less notices and referred the disputes to adjudication. There were three adjudications, the Hart Retrofit Adjudication, the Hart Defects Adjudication and the PKM Defects Adjudication.

The Defendant brought a jurisdictional challenge on the basis that the contracts, as described by the claimants, did not exist. The Defendant had never entered into a contract with the First Claimant, only Mr Hart the individual, and there had never been novation. In each adjudication, the adjudicator decided that novation had occurred and ordered the Defendant to pay sums to the claimants (albeit lesser sums than claimed).

The claimants sought to enforce the adjudicators’ decisions. The Defendant resisted summary judgment on the basis that each adjudicator lacked jurisdiction on the basis that there had been no novation. The referring party, the First Claimant as opposed to Mr Hart as an individual, had never had a contract with the Defendant and therefore there was no jurisdiction to decide any contractual dispute between them.

There was a clear dispute of facts (as to whether a phone conversation had taken place, paras 31-33) and Mrs Justice Jefford DBE therefore noted ‘it would be difficult to see how I could decide on a summary basis that there was no realistic prospect of [the Defendant] succeeding in its case that there was no novation’ (para 35). Further evidence did not further clarify the issue and only demonstrated ‘the difficulty in rejecting [the Defendant’s] case on a summary basis’ (para 48).

The Defendant therefore had a real prospect of defending Hart’s claims on the adjudicators’ decisions, on the basis that there was no novation (para 52).

However, had there been sufficient evidence of novation, the fact that the notices of intention to refer expressly stated that the original contracts were formed with Hart (the company), a point which is clearly untrue, would not have been a bar to jurisdiction (para 64). Quoting Stuart-Smith J in Purton v Kilker Projects Ltd [2015] EWHC 2624 (TCC), para 23, Jefford J stated: ‘The jurisdiction to refer is dependent upon the existence of a construction contract and a dispute arising under it. It is not dependent upon identifying each and every term with complete accuracy’.

This meant that in relation to PKM, there was never any issue of novation. The fact that the notice of intention to refer potentially misidentifies the contract as being with Hart (the company) and not Mr Hart (the individual) is a minor error that has no bearing on the dispute (para 68). Jefford J therefore gave summary judgment for the sums awarded by the adjudicator in the PKM adjudications, with interest.

What this case helpfully shows is that inaccuracies in the notice of an intention to refer can give rise to a jurisdictional challenge, but only if they have any actual relevance to the substantive dispute. The fact that a contract may not have been novated to Hart is relevant to the dispute – no contractual dispute can arise between parties that do not have a contract. But the fact that a contracting party is potentially misidentified in a dispute that does not involve that contracting party is simply a factual error, and does not ground valid jurisdictional challenges. Otherwise, ‘the process of referral becomes a formalistic obstacle course akin to 18^th century forms of action where one slip may put a party literally out of court’ (Stuart-Smith J in Purton v Kilker Projects Ltd [2015] EWHC 2624 (TCC), para 23).