Secret Agent

CNA Associates were appointed as quantity surveyors and project managers by Holbeton for the redevelopment of a property in London, which had been bought from a Mr. Ahmed, a director of a company called Bright Services Ltd. 

Bright was said to be a company which specialised in managing high-value construction projects that required to be completed to a high standard of finish. On 3 March 2004, CNA sent Holbeton a letter setting out its proposed terms of engagement, which included an outline of fees and services. In March 2004, Mr. Ahmed responded on behalf of Bright, confirming that they wanted CNA to act as quantity surveyor and construction manager on the project.

CNA’s first invoice in November 2004 was addressed to Holbeton Ltd. “c/o Bright Services Ltd.”. CNA was asked to re-issue this “addressed to Bright…reference Holbeton…”. CNA alleged that this evidenced an agency arrangement under which Bright was acting as Holbeton’s agent. Holbeton said that it was simply a VAT avoidance measure so that the VAT which Bright would otherwise have had to pay would not have to be paid because Holbeton was not as such a British company.

The next four invoices were also addressed to Mr. Ahmed. Each claimed £3,000 as an instalment of the Construction Management fee in accordance with the “agreement dated 3 March 2004”. In June 2005, CNA was contacted by Holbeton’s solicitors, Bevan Brittain, who enclosed a letter of appointment and asking for information about CNA’s indemnity insurance and the services to be provided. This letter of “Appointment” was to be executed and signed as a deed by both parties. There were a number of standard clauses relating to the requirements to use reasonable skill and care, such as were normally found in such professional agreements. A collateral warranty was included and clause 11 contained an adjudication scheme with an adjudicator to be nominated by the Chairman of the Institute of Arbitrators.

CNA responded to the letter by asking for a number of clauses to be amended. CNA’s letter also purportedly included a copy of additional clauses which its insurers required. There was no evidence that any further action was taken in respect of this 2005 letter, except that the matter was taken over by a new solicitor at Bevan Brittain who wrote to CNA to introduce herself. There was no evidence of further negotiation.
The project was completed in 2007, and CNA wrote to Mr. Ahmed seeking payment of the balance of its fees. The letter suggested that payment was due based on 6% of the total construction cost less what had been paid. An invoice was raised in mid-May 2010, with the total sum inclusive of VAT said to be outstanding was £155,177.33. As no agreement was reached, CNA commenced an adjudication.

Mr. Stephen Lelliott was appointed as adjudicator. The Referral proceeded on the basis that at all material times Bright acted as agent of Holbeton with authority to negotiate the terms of the appointment of CNA, and referred to the fact that all invoices were in fact paid by Holbeton. CNA asserted that the correspondence in June 2005 in effect varied the agreement between the parties, the alterations being those set out in CNA’s letter dated 23 June 2005, which were said to have been accepted by Holbeton “by conduct in committing CNA to continue to provide the services and by paying CNA for those services”. Estoppels were also asserted.

Holbeton’s response took the point that this was an adjudication under section 108 of the Housing Grants Construction and Regeneration Act 1996, and not under clause 11 of the draft agreement. They argued that the adjudicator lacked jurisdiction because the contract which CNA was relying was said to be contained in the exchange of letters between CNA and Bright Services Ltd. Holbeton claimed it was not a party to the contract and that Bright had not had the authority to conclude a contract on its behalf. Holbeton continued make the points that not all the terms of the contract were recorded in those two letters, that there were various variations also not recorded and that the adjudicator’s appointment was wrongly made by the Chartered Institute of Arbitrators. Holbeton maintained that the March 2004 agreement (if there were one) was conditional or subject to the cost budget being acceptable, and the budget had never been acceptable. Further, the amendments proposed in CNA’s letter in 2005 were never agreed by conduct or otherwise and they could not amount to a counter offer. Holbeton’s argument was that since there was no jurisdiction to refer the dispute, CNA would have to seek satisfaction in the courts.

The adjudicator continued with the referral whilst finding that he could not make a binding ruling on jurisdiction. He decided that Bright had acted as agent for Holbeton , that the contract had been evidenced in writing, with the essential terms being agreed around 23 June 2005, with the parties proceeding on the basis of those terms evidenced in writing notwithstanding that the appointment was not executed as a Deed. He concluded that CNA should be paid £104,315.81. Holbeton failed to pay, and CNA commenced the present enforcement proceedings.
There were issues about whether Holbeton had effectively reserved its reservation about the adjudicator’s jurisdiction, whether there was a contract in writing and whether Bright had acted as Holbeton’s agent. On the evidence before the court on CNA’s summary judgment application, the court was unable to determine whether Bright had acted as Holbeton’s agent, and whether there had been a contract in writing.
However, the judge found there had been an unequivocal reservation as to the adjudicator’s jurisdiction by Holbeton. Although no express words had been used in the Response and Rejoinder, judge objectively, the words used in those two documents had made it clear that Holbeton had reserved its position and that should have been understood.

The adjudicator made it clear that he did not consider that the parties had agreed that he could make a binding ruling on jurisdiction, because he said so in terms. Everything which followed in relation to jurisdiction must be looked at in the context of his understanding on this. He did not actually decide, as such, the jurisdictional issue but found enough to satisfy himself that he had jurisdiction. The very fact that he did not include in the decisive part of his decision any declaration about the jurisdiction issue also pointed to him not addressing the jurisdictional issue as part of his decision. The wording which he used simply expressed his rationalisation as to why he previously thought that he had jurisdiction. Even if the parties had agreed to give him jurisdiction to decide his own jurisdiction, he did not exercise that jurisdiction, although that he made certain “findings” following his investigation into his jurisdiction. It followed, therefore, he had made no decision on his own jurisdiction, leaving the Court to review that aspect of the matter.

Holbeton had just managed to establish a real prospect of defending CNA’s claim, and it was given Holbeton was given permission to defend, subject to a payment into court of the full amount of CNA's claim.

CNA Associates (A Firm) v Holbeton Ltd.,  [2011] EWHC 43 (TCC)

Also in this week’s subscription bulletin

• Three new Society of Construction Law Papers published.
• Challenges to public procurement awards;
• Conditional Fee Agreements (CFAs), mark-ups and whether costs were proportionate to the damages awarded;
• Quantity Surveyor's Breach of Contract in the Preparation of Bills of Quantities;
• Limitation and Negligent Valuation Reports. 

Save £10.00, plus Free UK Postage on the forthcoming edition of “Coulson on Adjudication”, the new edition of the best selling book on adjudication. Click Here to Read More. 

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