Beck Interiors Ltd v UK Flooring Contractors Ltd

The parties entered into a subcontract whereby UK Flooring Contractors Ltd (UKFCL) agreed to install specified floor coverings for renovation work at a department store. The work had a completion date of 5 February 2012 and the carpets were to be obtained from specified suppliers. UKFCL was liable for liquidated damages under the contract and a down payment was made by Beck in early January 2012.

It appeared that, although the main specified supplier had the carpets in stock, UKFCL had not placed an order with them. There was also an issue as to whether the main specified supplier had the right quantity of carpet and whether a variation was issued in the last week of January 2012.

On 10 February 2012 Beck emailed UKFCL for immediate action to place an order with an alternative supplier and confirmed that the parties could allocate responsibility for the delay at a later date. UKFCL asked Beck for confirmation that no charges or fees would be levied against it.

By 13 February 2012 no carpet had been supplied, let alone laid by UKFCL. UKFCL said that it was withdrawing from the contract on the basis that the problems were due to the errors of Beck's named supplier. On the same day Beck asked UKFCL to return the down payment by 15 March 2012.

Beck identified its costs due to UKFCL's repudiatory breach in the sum of £30,826.15 but subsequently increased the total (without explanation) to £31,148.97. Beck informed UKFCL that unless Beck's costs were paid by 28 March 2012, proceedings would be commenced without further notice. On 5 April 2012 (by email sent after close of business on the last day before the Good Friday Bank Holiday), Beck informed UKFCL that it claimed liquidated damages for the first time in the sum of £20,000 per week from 6 February to date and continuing thereafter (that is, £160,000 plus).

The adjudication

Five days later, on 10 April 2012, Beck commenced adjudication proceedings, claiming its costs and £36,000 in respect of liquidated damages. The adjudicator was appointed and UKFCL challenged his jurisdiction on the basis that it had not had the chance to respond to Beck's claimed damages (in particular, the liquidated damages but also the increased costs claim sent on 27 March 2012).

The adjudicator issued a non-binding decision that he did have jurisdiction and awarded Beck £19,763.41 for its alleged losses and £33,600 for alleged liquidated damages (unbeknown to UKFCL the carpet work had been completed by an alternative contractor weeks before the letter of 5 April 2012). The adjudicator awarded interest and directed that UKFCL pay his fees.

Had the dispute crystallised?

The primary issue was whether the claim to liquidated damages either formed part of the crystallised dispute, referable to adjudication at the time of the Notice of Adjudication. Alternatively, did the substance and timing of the 5 April letter relating to liquidated damages significantly alter the dispute relating to the costs claimed so that there was no dispute by the time the Notice of Adjudication was served.

The judge reviewed the Notice of Adjudication and Adjudicator's decision together with case law on crystallisation of disputes. The judge found that the period of time from Beck's letter of 5 April to the Notice of Adjudication on 10 April "was not sufficient to give rise to an inference that whatever the letter of 5 April 2012 meant it was disputed". The judge also highlighted that there had been no real hint before the letter of 5 April that there was to be any significant claim for delay, let alone one which ran to £160,000 plus.

Beck must have realised that UKFCL would have had no real opportunity to consider the letter or to respond to it, by 10 April. Nor did the judge consider that the sum claimed in the letter of 5 April related sufficiently to what was put forward in the Notice of Adjudication. The judge decided that the adjudicator did not have jurisdiction in relation to the new claim for liquidated damages and therefore this part of the decision was unenforceable.

Was the decision severable?

Consequently, the adjudicator's lack of jurisdiction in relation to liquidated damages, led the judge to consider whether the adjudication decision could be severed. Could the court enforce the costs part of the decision. The judge said that it could and that "there was only one crystallised dispute which was referable to adjudication and that related only to the claim (as slightly adjusted) for £31,148.97 for the increased cost of completing the carpeting work".

It was clear from the Notice of Adjudication that Beck's presented claim consisted of two parts (costs and the new liquidated damages claim) which could be severed. They were two separate arguments with separate evidence, even though both losses flowed from delay to completion. Further, the adjudicator had clearly identified what he had awarded under each claim. In contrast, the adjudicator's fees could not be severed because they had not been apportioned for each claim.

Commentary

The issue of whether or not a dispute has crystallised is important because the Construction Act requires that the right to adjudicate is dependent on a dispute existing under the contract. If there is no dispute, there can be nothing to adjudicate and any adjudicator would consequently lack jurisdiction to make a decision. In short, there must a claim (which is not admitted) and the dispute referred to adjudication must largely mirror that claim.

The courts interpret the meaning of "dispute" broadly. It is important to provide sufficient detail in the claim and to await an appropriately long period of time for the respondent to reply - failing which a jurisdictional challenge could be successful.

It is good practice for claimants to give respondents sufficient time to consider and reply to the claim before adjudication proceedings are commenced. Claimants should also ensure, where possible and subject to the circumstances, that the claim which has crystallised is identical to that referred to adjudication. Also, it is advisable to carefully separate various claims in the adjudication proceedings with specific financial and evidential supporting documentation, so that any resulting decision can be severed if necessary.