Specialist Insulation Ltd V Pro-Duct (Fife) Ltd

SPECIALIST INSULATION LTD V PRO-DUCT (FIFE) LTD

Scotland, Outer House, Court of Session

Lord Malcolm

10th May 2012

THE FULL TEXT OF THE OPINION OF LORD MALCOLM

[1] In this action the pursuer seeks to enforce an adjudicator's decision dated 30 August 2011. The adjudicator found that, in accordance with the terms of a sub-contract agreement, the sum of £85,389.46, plus any VAT properly chargeable, is payable by the defender to the pursuer. The defender has refused to make payment on the basis that the parties' contract did not provide for the dispute to be referred to adjudication. The defender asks the court to quash the decision on the ground that the adjudicator had no jurisdiction.

[2] The defender was a sub-contractor in relation to a project at Edgbaston Cricket Ground, Birmingham. The defender invited the pursuer to submit a quotation for the supply of ductwork. Having received the quotation the defender issued a purchase order dated 22 November 2010. Thereafter the pursuer supplied the ductwork to the defender. By July 2011 a dispute had emerged in relation to payments said to be due by the defender to the pursuer. The pursuer gave notice that an application was being made for the appointment of an adjudicator. Mr JD Smith was appointed as adjudicator by the RICS on 28 July 2011. Thereafter an adjudication process took place. Throughout that process the defender insisted that Mr Smith had no jurisdiction to act as adjudicator.

[3] That position was maintained at a debate. Mr McColl submitted that, in light of the subject matter of the parties' contract (being the supply of certain goods), the statutory adjudication provisions within part II of the Housing Grants, Construction and Regeneration Act 1996 (the 1996 Act) do not apply. Accordingly an adjudicator would only have jurisdiction in the event that there had been agreement between the parties that the dispute could be referred to adjudication. In Mr McColl's submission there was no such agreement between the parties, therefore the reference was ultra vires, did not confer any jurisdiction upon the purported adjudicator, and resulted in an unenforceable decision. For the pursuer Mr Maciver submitted that the parties' agreement did include an agreement to refer any dispute under the contract to adjudication. Other issues do arise, but in the first instance it is necessary to resolve the question as to the terms of the parties' contract.

The contract

[4] On 29 October 2010 the pursuer sent a quotation for the supply of ductwork in the sum of £216,819.40. The quotation stated that it was "subject to our standard terms and conditions of trading (available on request)." The pursuer's standard terms provide:

"1 The company accepts orders subject to these conditions of sale to the exclusion of any conditions of the buyer, unless otherwise agreed in writing by the company. These conditions shall prevail in the event of any inconsistency with any other terms"

"20 (v) Any dispute arising under or in connection with these conditions or the sale of the goods shall be referred to arbitration by a single arbitrator appointed by agreement or (in default) nominated on the application of either party by the President for the time being of The Chartered Institute of Arbitrators in accordance with the rules of that Institute"

"(vi) The contract between the company and the buyer shall be governed by English Law. Uniform Laws on Internal Sales are hereby excluded. No action or proceedings of any nature shall be initiated against the company except in the English Courts."

[5] The pursuer's quotation was met by a purchase order issued by the defender. Along with the purchase order, although not referred to in it, the defender forwarded a document headed "Pro-Duct (Fife) Ltd - Material Supply only Sub-contract Agreement". That document indicated that the agreement was between "the contractor", namely Pro-Duct (Fife) Ltd, and Spirolite Insulation Ltd, "the subcontractor". It specified that the contractor was carrying out works under a contract on a project at Edgbaston Cricket Ground and the contractor wished to engage the sub-contractor to carry out certain work ("the sub-contract works") on a "labour only basis". The price of works to be undertaken was £211,469.12 with a commencement date of 22 November 2010, and an anticipated completion date of 30 May 2011. Retention (if applicable) was to be five per cent of the value of the work carried out. There would be a defects liability period of 12 months from the date of practical completion of the subcontract works.

[6] This document was executed on behalf of the defender by Brian Dempster, its managing director. Immediately below this was the heading "Executed on behalf of the sub-contractor", and then space for the name, signature and date of signature on behalf of the sub-contractor. This document was never executed on behalf of the pursuer. Furthermore it is difficult to reconcile all of its terms with the purchase order, which relates to an order for the supply of movable goods, as opposed to an agreement to carry out sub-contract works on a labour only basis. Amongst other things it provided that the "subcontract works" were to be "in accordance with the following schedule and conditions". It appears that this was a reference to the other forwarded document headed "Conditions of Sub-contract Agreement". It is clear that these conditions were intended to relate to construction or engineering works, or something of that nature. Reference is made to the 1996 Act; a defects liability period; interim payments; deduction of retention amounts from the value of work carried out; failures to proceed regularly and diligently with the subcontract work, etc.

[7] Clause 16 of the conditions is an important provision so far as the present dispute is concerned. It provides:

"(a) Either party may refer such disputes as may arise under this contract to adjudication at any time.

(b) The adjudicator shall be a person appointed by an adjudicator nominating body.

(c) The adjudication provisions of the scheme for Construction Contracts (England and Wales) Regulations 1998 or such other equivalent as is applicable within the jurisdiction are deemed to be incorporated into this agreement and the parties agree to abide by them."

Clause 17 provides

"Unless otherwise agreed in the schedule, the law of Scotland shall be the law applicable to this agreement, and the parties shall submit to the jurisdiction of the Scottish courts."

Defender's submissions on the terms of the contract

[8] In support of his submission that the adjudication clause is not a term of the contract, Mr McColl noted that the document headed "Material Supply Only Sub-contract Agreement", which purports to incorporate the conditions, including the adjudication clause, had not been addressed to the pursuer, but rather to an entity called Spirolite Insulation Limited. Perhaps more importantly, while that document had been signed on behalf of the defender, it had not been signed on behalf of the pursuer. The pursuer quoted to provide goods to the defender, whereas the document relates to an engagement for "labour only." The pursuer's quotation was subject to the pursuer's terms and conditions, which exclude any conditions proffered by the defender (unless agreed in writing), and which are to prevail in the event of any inconsistency with any terms which the defender might seek to incorporate into the contract. The acceptance of the purchase order, which was demonstrated by the pursuer supplying the goods to the defender, was made on that basis. There is an inconsistency in the documents, in that clause 20(v) of the pursuer's standard terms provides that any dispute should be referred to arbitration, not to adjudication. The pursuer had not agreed to variation of its standard terms in writing. The pursuer rejected the mechanism which the defender put forward for acceptance of the defender's terms.

[9] For the pursuer Mr Maciver adopted the reasoning given by the adjudicator in paragraph 14 of his decision. This echoed his reasoning in a letter of 9 August 2011, in which he responded to the challenge to his jurisdiction. In that letter he said:

"While I do not have authority to decide my own jurisdiction, I am obliged to investigate the facts and form a view as to whether or not I have jurisdiction. In the event I form the view that I do not have jurisdiction, I must resign and take no further part in the reference. Having considered each parties' submissions, I have formed the view that I have jurisdiction and I will continue to act as adjudicator. Clause 16 of the responding party's 'Conditions of Sub-contract Agreement' is a contractual adjudication provision, which allows either party to refer a dispute under the contract to adjudication at any time and such an adjudication will be conducted under the procedure set out in the Scheme. This clause was put forward by the responding party in the full knowledge that the works were of a "supply only" nature and, as this is a contractual adjudication clause, there can be no reliance upon the provisions of the Act as to the fact that "supply only" contracts are not considered to be a 'construction contract.' My jurisdiction is therefore derived from the expressed terms of clause 16 of the Conditions."

The adjudicator was not faced with the same argument as presented by Mr McColl. It follows that his response is of little direct assistance. However it is clear that he derived his view on his own jurisdiction from an understanding that the adjudication clause in the defender's document headed "Conditions of Subcontract Agreement" was part of the contract.

[10] Mr Maciver submitted that the parties' contract should be analysed under the "normal battle of the forms analysis." The "Conditions of Subcontract Agreement" document forms part of the defender's counter-offer, which was accepted by the pursuer's conduct in supplying the goods. It follows that clause 16 applies and the adjudicator had jurisdiction. Counsel made reference to Butler Machine Co. Ltd. v Ex-cell-O Corporation (England) Ltd. [1979] 1WLR 401, and to Uniroyal Ltd. v Miller & Co. Ltd. 1985 SLT 101.

[11] Mr Maciver submitted that the key documents were forwarded to the pursuer with the purchase order. They all related to the same matter. They referred to the Edgbaston Cricket Ground Project. The price quoted in the purchase order was repeated. "Spirolite Insulation Ltd" was a reference to the trade mark of the pursuer, all as set out at the top of the pursuer's quotation. It was accepted that the pursuer had not signed the document headed "Material Supply only Sub-contract Agreement", however the contract was concluded by the pursuer making and supplying the ductwork. This was an acceptance by conduct of the terms and conditions enclosed with the defender's purchase order.

[12] Counsel for the pursuer also submitted that in the course of the adjudication process it became apparent that the parties were in agreement as to the terms of the contract. Reference was made to the defender's formal response to the referral notice (Production 6/10) at para 3.6 which stated:

"It is the responding party's position that the basis of the contract is per the terms of conditions of sub-contract which form part of the contract between the parties. If there is no consensus in idem that can be determined between the parties then it is submitted that there is no contract in writing, and therefore there is no facility of adjudication. Unless it is determined that there is a contract in writing, then the adjudicator has no legal jurisdiction to decide the matter."

At para 2.7 of its response to this document the pursuer stated: "It is agreed in para 3.6 of the response that the responding party's terms and conditions form part of the contract between the parties." Reference was made to Ale Heavy Lift v MSD (Darlington) Ltd. [2006] EWHC 2080 (TCC) for the proposition that matters stated in the course of an adjudication can have an operative effect.

Discussion on the issue of the terms of the parties' contract

[13] It would be unrealistic to hold that the parties had not reached an agreement that the ductwork should be supplied at the specified price. The question is - did that agreement include the adjudication clause? Counsel for the pursuer argued for a "last shot" approach to the problem. The last terms and conditions before completion of the contract by supply of the goods were those of the defender. They contained the adjudication clause, therefore it was part of the agreement. On Mr Maciver's analysis the supply of the goods to the defender was a final and unqualified assent to the defender's schedule of conditions as sent along with the purchase order.

[14] Chitty on Contracts 30th ed, volume 1, at para 2-030 states:

"...conduct will amount to acceptance only if it is clear that the offeree did the act of alleged acceptance with the intention (ascertained in accordance with the objective principle) of accepting the offer. Thus a buyer's taking delivery of goods after the conclusion of an oral contract of sale will not amount to his acceptance of written terms which differ significantly from those orally agreed and which are sent to him by the seller after the making of the oral contract but before taking delivery".

This was under reference to Jayaar Impex Ltd. v The Toaken Group Ltd. [1996] 2 Lloyds Rep 437 (discussed below).

[15] In considering the application of this test to the circumstances of the present case, the following factors appear to me to be of significance.

(i) The pursuer's quotation specifically incorporated the pursuer's standard terms and conditions: the defender's purchase order made no reference to the accompanying documents, nor to any standard terms.

(ii) The pursuer's standard conditions provided that any dispute should be referred to arbitration (not adjudication), and that those conditions should prevail in the event of any inconsistency with any other terms.

(iii) The pursuer's standard terms stated that offers were accepted "subject to these Conditions of Sale to the exclusion of any conditions of the buyer, unless otherwise agreed in writing by the contractors." There was no such agreement in writing.

(iv) The document which sought to incorporate the defender's standard terms, including the adjudication clause, provided for execution by both parties. As in Jayaar (cited above), the form itself contemplated execution by the seller and, presumably, return to the purchaser - however neither occurred. The pursuer supplied and the defender accepted the goods in the absence of execution of that document by the pursuer.

(v) The terms of the defender's schedule of conditions related to a wholly different kind of contract from that embodied in the quotation and purchase order. The schedule related to a construction contract, into which an adjudication procedure in accordance with the 1996 Act would fit quite naturally.

[16] There are similarities between the present case and that of Jayaar, not least that Jayaar concerned a challenge to the jurisdiction of joint arbitrators and to the validity of their award on the ground that the arbitration clause was not part of the parties' contract. Mr Justice Rix had regard to the full facts and circumstances before concluding that the seller's terms and conditions were not part of the contract, therefore the arbitrators lacked jurisdiction and their award was void. At page 445 his Lordship said:

"It seems to me that if the sellers' contract form is to bind the buyers it can only be because it was accepted by the buyers as a variation of an existing contract...That is the second of Mr Hamblen's three alternatives. He seeks to support it by relying on the absence of any objection to any contract form upon its receipt; on the collection of goods without objection to the contract form; and on the reference to a contract number in the fax of Nov 11, 1994. The absence of objection is not, he submits, reliance on acceptance by silence, because the context is such as to create an expectation of objection, if any there be, especially where the parties had contemplated the reduction of their oral contract to written form. It is, he says, like a charter of a vessel, where the fixture is made orally, or in fixed telexes, the parties' contemplate that that binding contract will be ultimately contained in a charter, and that the charter may well add to or otherwise vary the original terms of the fixture: if in such a context one party sends out a signed charter for signature by the other party, and that other party commences performance of the charter without objecting to the terms of the charter, he will bound by the terms of the charter."

This argument is, in many respects, similar to that advanced by Mr Maciver in the present case. So far as relevant for present purposes, the learned judge continued as follows:

"In my judgment such an analogy is only helpful if the analogy is precise. I prefer to concentrate on the facts of this case...in the present there are the following features...Fifthly, the contract form itself contemplated that it would take effect on signature and return of the addressee: it was neither signed nor returned. Sixthly, the buyers' collection of goods was not something only referable to acceptance of the terms set out in the sellers' contract form. The sellers were perfectly willing, and bound, sellers on the terms of their oral contract. They may have wanted to improve their contractual position, but they could not do so unilaterally. If without more the buyers collect goods, that collection is as referable to the existing oral contract concluded between the parties as it is to some new contract to be found in an unexecuted written contract form. If it were otherwise, the sellers would be imposing on the buyers the obligation to negate the sellers' offer to vary fundamentally the parties' contract; whereas in principle the sellers, if in doubt about whether their offer to amend had been accepted in the absence of a signed and returned document, should have been querying the mater with the buyers expressly rather than relying on silence."