Hortimax Limited -v- Hedon Salads Limited

Hortimax Limited -v- Hedon Salads Limited

The decision of the Technology and Construction Court in the case of Hortimax –V- Hedon Salads [2004] Adj. L R 10/15, illustrates the pitfalls facing a respondent who wishes to participate in an adjudication “under protest”. Matthew Fletcher, who represented the successful party, Hortimax, explains…

The parties
Hortimax Limited (“Hortimax”) (represented by Gosschalks Solicitors) specialise in installing mechanical equipment in commercial greenhouses.  Hedon Salads Limited (“Hedon”) are a commercial grower of cucumbers and other vegetables.

The Dispute
Hedon contracted Hortimax to install artificial lighting, irrigation and reservoir systems at Hedon’s Burstwick site.  Following practical completion Hedon alleged that the systems installed required remedial works.  They refused to pay Hortimax’s final accounts.  Hortimax vehemently denied these allegations and contended that, as a result of Hedon’s failure to serve a valid Notice of Withholding Payment pursuant to Section 111 of the Housing Grants, Construction and Regeneration Act 1996 (“the 1996 Act”), Hedon were obliged to immediately pay Hortimax’s final accounts in full.  Hortimax referred the dispute to Adjudication.

The Adjudication
The Royal Institution of Chartered Surveyors appointed Mr K L Scott to act as the Adjudicator. Hedon immediately argued that Mr Scott did not have jurisdiction to deal with the dispute because the nature of the works carried out by Hortimax fell outside the ambit of the 1996 Act.

Hedon expressly reserved their position and made it clear to Hortimax and the Adjudicator that they would only participate in the Adjudication “under protest” and that they would not be bound by any decision made by the Adjudicator.

The Adjudicator subsequently wrote to both parties and correctly pointed out that unless they vested power in him to do so he could not make a binding decision upon the extent of his own jurisdiction.  He explained that he was however entitled to make a non-binding inquiry into whether or not he did have jurisdiction. He confirmed that in the event that he concluded he did have jurisdiction, he would continue with the Adjudication and then it would be up to Hedon to decide later on whether or not they wanted to resist enforcement of any decision he made. 

Upon receiving the Adjudicator’s letter and having previously expressly reserved their position Hedon’s Solicitors wrote to the Adjudicator and, to Gosschalks’ surprise, stated that Hedon was now prepared to vest in the Adjudicator the power to decide upon the extent of his own jurisdiction.

Following receipt of that letter the Adjudicator did proceed to make a preliminary decision on whether or not he had jurisdiction.  By virtue of the fact that his decision was expressed to be “non-binding” the Adjudicator was clearly unaware that Hedon had vested in him the power to make a binding decision.  In his preliminary decision he commented that the jurisdictional challenge raised by Hedon was a very difficult one to resolve but nevertheless it was in the “interests of the parties” for him to proceed with the Adjudication and to consider the merits of the case. 

Following a further exchange of detailed evidence from both parties the Adjudicator made a final decision. 

He decided that in light of Hedon’s failure to serve a Notice of Withholding Payment, Hortimax were entitled to immediately be paid, on an interim basis,  the majority of the the sums claimed under their final accounts.  Accordingly he ordered that Hedon must pay Hortimax the sum of £442,802.15 plus interest of £12,621.29 and his fees in the sum of £16,661.64. 


The Court Case
Hortimax issued proceedings in the Technology & Construction Court seeking to enforce the decision made by the Adjudicator. The case was heard by His Honour Judge Gilliland QC.  Hortimax submitted that by Hedon’s Solicitors letter of 1st July 2004 Hedon had clearly vested power in the Adjudicator to make a binding decision as to whether or not he had jurisdiction to deal with the Adjudication and Hedon had therefore waived their right to resist enforcement of his award on jurisdictional grounds. 

Hedon submitted that there was in fact no concluded agreement to give the Adjudicator jurisdiction because, in the absence of a letter from Hortimax’s Solicitors also agreeing to submit to the Adjudicator making a binding decision upon his own jurisdiction, the power to do so had not been vested in him.  Hedon further submitted that their Solicitors letter of 1st July 2004 was merely a reference to Hedon being content that the Adjudicator should inquire into his own jurisdiction and that by that letter Hedon was not in fact agreeing to be bound by the Adjudicator’s final decision.

The Judgment of the Court
The Judge decided that Hedon’s Solicitors letter dated 1st July 2004 was a perfectly clear and an explicit consent to the Adjudicator having the power to decide upon his own jurisdiction.  The Judge acknowledged that the Adjudicator appeared to have some doubt as to what power had been conferred upon him and ruled that he was in error when suggesting that he hadn’t been given the power to make a binding decision upon his own jurisdiction.  Whilst the Adjudicator did not appear to reach a firm conclusion on the jurisdictional issue he nevertheless made a judgment to proceed and having agreed to the Adjudicator making a binding decision on jurisdiction it was not now open to Hedon having received the preliminary decision to once again seek to reserve their position on the issue.

Rather ironically the Judge concluded that in actual fact Hedon’s jurisdictional challenge was valid so that in the event that Hedon had properly reserved their position they would have been entitled to resist enforcement. As they had waived their rights the Judge gave judgment against Hedon and also made them pay Hortimax’s legal costs.

Conclusions
The decision in this case follows a previous line of judicial authority to the effect that a party disputing whether or not an Adjudicator has jurisdiction can waive their right to resist enforcement of the Adjudicator’s decision by acting in such a way so as to confer ad hoc jurisdiction on the Adjudicator to make a binding decision as to the extent of his jurisdiction. 

What was unusual about this case was firstly that having been given the power to decide upon his own jurisdiction the Adjudicator did not appear to realise that he had the requisite power and secondly that when deciding to continue with the Adjudication he never made a firm decision as to the merits of the jurisdictional challenge.  The Court’s robust decision that Hedon were nevertheless bound to honour the Adjudicator’s decision to continue is to be welcomed.  Far too many Adjudications are bogged down with jurisdictional objections. 

Where a party vests power in the Adjudicator to decide upon their jurisdictional challenge they should not be allowed to resile from that vesting of power once their challenge has been rejected.  The ironic factor in this case is that had Hedon’s Solicitors not sent their letter to the Adjudicator of 1st July 2004 and had Hedon instead continued to “participate under protest” then Hedon would have been able to resist enforcement of the Adjudicator’s decision.

Key Points:
This case raises two key issues that construction professionals and their advisors should be aware of…

1. The perennial importance of serving a Notice of Intention to Withhold Payment where, for whatever reason, a main contractor wants to dispute a sub-contractor’s account.  Even where the contractor does not believe that the contract comes within the ambit of the 1996 Act they should still serve a Notice at least on a “without prejudice” basis so as to protect their position in any subsequent Adjudication.

2.  If a party wishes to raise a jurisdictional challenge but participate in an Adjudication “under protest” they must make sure that they are incredibly careful in ensuring that they reserve their position at all times so as to avoid inadvertently vesting power in an Adjudicator to make a binding decision upon their jurisdictional challenge.  Participation under protest is normally the best option as it allows them to effectively have two bites of the cherry but they must be very careful to ensure that they do not waive their right to take that “second bite”.

 

Author: Matthew Fletcher
 

Return to the updates archive »