Mr Alexander Nissen QC:
- Although the claim in this action is for a very small sum, it was transferred by Fraser J from the small claims court at Kingston County Court to the Technology and Construction Court because of the nature of the issues to which it gives rise.
- The First Claimant is a limited company of which Mr Linnett is a director and sole shareholder. Within the construction industry, Mr Linnett is a well known professional who provides services which include acting as an adjudicator. In the circumstances described below, Mr Linnett became the Second Claimant but, for convenience, I shall continue to refer to him as Mr Linnett.
- The Defendant is a building contractor acting as a sole trader.
- There have, in the past, been a series of adjudications between the Defendant and his employers under a building contract, namely Gary Paice and Kim Springall ("the employers"). The most recent round of litigation between the parties to the building contract was a claim by the employers against the Defendant to enforce an adjudication decision reached by Mr Linnett on 27 April 2016 in which he ordered the Defendant to pay a little under £300,000 to the employers. He also directed that the parties should be responsible for his fees in equal shares of £9,768.00 plus VAT. The Defendant had contended that the decision was unenforceable both because it was reached too late and on the grounds of apparent bias. In August 2016, Ms Finola O'Farrell QC, then acting as a Deputy High Court Judge, rejected these contentions and enforced the decision: see Paice and Another v Matthew J Harding [2016] EWHC 2495 and BLR 582. She ordered the Defendant to pay to the employers that part of the adjudicator's fees as he had been ordered to pay namely £11,721.60 (being £9,768 plus VAT).
- Following that decision, payment was made of the adjudicator's fees in the following way. The Defendant made payment of his half share to the employers on 19 August 2016 and, in turn, the employers paid both shares to the First Claimant on 26 August 2016.
- By this action, the First Claimant, alternatively in the circumstances set out below, the Second Claimant, seeks payment of statutory interest under the Late Payment of Commercial Debts (Interest) Act 1998 which accrued during the period of delay in settling the payment of the fees, statutory compensation and debt recovery costs.
- The trial of the claim in the action took the form of a one-day hearing at which both parties gave evidence and were subject to cross examination. There was a one lever arch trial bundle and a separate file of 28 authorities. Although the value of the claim was low, having regard to the complexity of the issues to which it gave rise I should particularly record my gratitude for the quality of the submissions which were made.
The Issues
- It was agreed that the following issues arise for consideration:
(1) Was the Defendant party to an adjudicator's agreement?
(2) If so, with which party was that adjudicator's agreement concluded?
(3) What are the terms of any such adjudicator's agreement?
(4) Did the Defendant have, and exercise, a right to cancel any such adjudicator's agreement?
(5) To what sum, if any, is either Claimant entitled in respect of interest?
(6) To what sum, if any, is either Claimant entitled by way of statutory compensation?
(7) To what sum, if any, is either Claimant entitled by way of debt recovery costs?
(8) What is the correct treatment of VAT?
The Application to Amend
- As is clear from Issue (2), a principal defence pleaded and maintained by the Defendant is that any contract into which he entered was not one made with the First Claimant, a limited company, but was with Mr Linnett personally.
- It was not until closing submissions that an oral application was made to amend the brief Particulars of Claim within the Claim Form to add Mr Linnett as a Second Claimant to meet the possibility that the Court might uphold the principal defence. Mr Eljadi of counsel, who made the application, pointed out that the issues arising as a result of the amendment were exactly the same as those which had already been canvassed. He also observed that there would be wasted costs if the consequence was that Mr Linnett would have to start fresh proceedings forcing the parties to re-argue all the remaining points in a separate action.
- The application was opposed. Mr Davies, solicitor for the Defendant, frankly conceded that, with one exception, he could not identify any particular respect in which the proceedings would have taken a different course had a change to add Mr Linnett's name been made much earlier. Mr Davies was given the opportunity to take more time to reflect on the application in order to address that question but he said he did not believe that his concession described above would change. The exception he did identify was that the Defendant would have wished to make a counterclaim against Mr Linnett for a return of fees based on his argument regarding the application of the Consumer Contracts Regulations, which is the subject of Issue (4).
- At the trial I indicated that I would reach my procedural decision on the amendment application at the outset of my deliberations but, for convenience, would provide my reasons as part of this reserved judgment. In terms of case management, I directed that an amended Claim Form should be lodged with the Court by a given date to reflect the application which had been made orally. Subsequently, the Defendant provided written submissions by email dated 30 June 2017 in which the Defendant took the opportunity to make a number of further points in opposition to the amendment, some of which were technical, but including reference to case law and an article. I had not made provision for such written submissions and it would not therefore be fair for me to take them into account now not least because the Claimants have not had the opportunity to respond to them. The application to amend must itself be dealt with in a proportionate way and the oral hearing was the occasion on which to make submissions. That said, one point to which the Defendant objected in writing was the breadth of the proposed draft amendment which was lodged. I deal with that question separately.
- I am conscious that this is a very late amendment. Indeed, it could scarcely have been later. Moreover, no explanation was given for its lateness. That is because the only explanation that could realistically have been given was a belated recognition during the course of the trial that the First Claimant's primary case was less than certain to succeed. That is obviously an unacceptable reason. Set against that is the feature that the application came so late that the trial process itself was not disrupted. If a contract was concluded, it was the Defendant's own case that it was with Mr Linnett. I must also have regard to the overriding objective and proportionality. This is a very small claim indeed. The number of issues that arise in relation to it and the costs that have been incurred are already hugely disproportionate to the sum at stake. The case had been fully argued. It would make no sense at all to have those matters debated again in new proceedings between Mr Linnett and the Defendant. Notwithstanding the obvious lateness of the application and the lack of a satisfactory explanation for it, it seems to me that this is one of those rare cases in which would be appropriate to allow an amendment at a late stage. The compass of the amendment which I am prepared to allow is very short, namely to add Mr Linnett as a Second Claimant. Although a lack of prejudice is no longer the test, it is relevant to record my finding there is no such prejudice in this case. The Defendant can (and did) raise all the same remaining points he has already raised by way of defence against the First Claimant. If I come to the conclusion that Mr Linnett's claim succeeds but there is a tenable counterclaim which either arises from the application of the Consumer Contracts Regulations or which may be made on any other basis, then, subject to further submissions from the parties, I could stay execution of the judgment pending the hearing of that counterclaim.
- For those reasons, I grant permission to amend simply to allow Mr Linnett to be joined as a Second Claimant on the Claim Form. For the remainder of this Judgment, I will continue refer to the Second Claimant as Mr Linnett.
- I should also add that in the draft amendment filed with the Court it was primarily contended that, if the contract was made with Mr Linnett, it was on terms that, on a proper construction of that contract, payment was to be made to the First Claimant. The alternative case was that the contract was made on terms that payment was to be made to Mr Linnett as the Second Claimant. I do not give permission to make the amendment so far as it reflects the primary contention. Although it was briefly mentioned orally by Mr Eljadi as part of the amendment application, it is a step too far to expect that issue to be substantively determined at this stage. At the stage of trial when this application was made, there was no opportunity for the Defendant to put forward any substantive argument as to whether any contract made with Mr Linnett personally would be on terms that the fees must be paid to the First Claimant. Whereas the Defendant accepted that any contract that was concluded was made with Mr Linnett, I do not believe the primary case would have been accepted. The result is that, if I determine that Mr Linnett is the appropriate contracting party, then, on the issues arising in this case, he will be the party to whom payment is to be made.
- I make clear at this stage that if I conclude that the claim in this action only succeeds by reason of the amendment which I have allowed, I am very likely to take that into account on the question of costs of the action.
- In light of my conclusion on the amendment application, I now turn to the substantive issues in the claim.
Issue (1): Was the Defendant party to an adjudicator's agreement?
- It is helpful to preface consideration of this issue by making reference to Linnett v Halliwells LLP [2009] EWHC 319 and [2009] BLR 312. In that case, Mr Linnett (as it happens, but before he formed the First Claimant limited company) sued a firm of solicitors, Halliwells LLP, for his fees for acting as an adjudicator. Halliwells LLP, an employer under a building contract, had been the responding party in an adjudication brought by ISG as contractor. Halliwells had taken a series of jurisdictional objections in the adjudication. Having lost the adjudication, they then refused to pay Mr Linnett's fees on the grounds that he had had no jurisdiction to make the decision. Ramsey J was therefore required to consider whether there was a legal basis upon which an adjudicator was entitled to claim payment of his fees and, if so, what it was. In the course of doing so, he distinguished between two types of agreement: the adjudication agreement which is made between the parties to a construction contract, either expressly or impliedly by virtue of s.108 of the 1996 Act, and the adjudicator's agreement which is made between the adjudicator and one or both of the parties.
- It is not in dispute that, in the present case, the adjudication agreement was contained in the building contract between the employers, Mr Paice and Miss Springall, on the one hand and the Defendant on the other. At Article 7 of the building contract, the parties agreed that either party could refer a dispute to adjudication in accordance with clause 9.2. Clause 9.2 contained standard provisions for adjudication which included, by express incorporation, the provisions of the Scheme. As between the parties to the adjudication agreement, paragraph 25 of the Scheme regulated the adjudicator's entitlement to fees and expenses. He is entitled to payment of such reasonable amount as he may determine by way of fees and expenses as reasonably incurred by him.
- It is also not in dispute that, in the present case, the employers entered into an adjudicator's agreement for payment of the adjudicator's fees. That agreement was on the standard terms of engagement for appointments to which I will shortly refer.
- The question posed in the first issue is whether the Defendant also entered into an adjudicator's agreement. The question posed in the second issue is whether, if so, the Defendant entered into an adjudicator's agreement with the First Claimant or with Mr Linnett now as the Second Claimant. The third issue concerns the terms of any such agreement.
- In order to determine those three issues, it is necessary to set out the brief facts.
The Facts
- On 7 March 2016 the RICS sent an email to Mr Davies of Davies & Davies Associates Ltd, solicitor acting on behalf of the Defendant, notifying him that an application had been received by the President of the RICS for the nomination of an adjudicator to determine a dispute between the employers and the Defendant.
- On 8 March 2016, the RICS sent an email which notified the parties that the RICS has nominated Mr Linnett as the adjudicator. The specific words used were as follows:
"Further to your application regarding the above matter, the RICS President has nominated the following adjudicator:
Mr C M Linnett BSc DipArb FRICS FCIArb
Christopher Linnett Limited
Level 17 Dashwood House
69 Old Broad Street
London
EC2M 1QS
United Kingdom
Mr C M Linnett BSc DipArb FRICS FCIArb has been nominated as adjudicator and will contact you shortly."
- On 8 March 2016, Mr Linnett sent an email to Mr Davies which attached a letter that had been jointly addressed to the employers on the one hand and to the Defendant on the other. The content of the letter was in the following terms:
"Earlier today, 8 March 2016, I was nominated by the RICS to act as adjudicator in the above matter.
…
I enclose herewith a copy of my current "Adjudication Policy & Procedure notes, in order to provide guidance as to how I am likely to approach this matter, insofar as the contract agreement is silent on the points noted.
I also enclose a copy of my standard Terms of Engagement and Questionnaire. I request that both parties complete the questionnaire and return it to me as soon as possible, but no later than Monday 14 March 2016 in any event."
- At the head of the letter paper is written the name "Christopher Linnett BSc Dip Arb FRICS FCI Arb". There is an email address of [email protected] and a web address of www.linnett.co.uk.
- The letter is signed "Chris Linnett" in manuscript and, below that, is printed "Christopher Linnett".
- Everything described above appears to be a reference to Mr Linnett as an individual.
- At the foot of the letter paper is a statement of fact which reads:
"Christopher M Linnett is a director of Christopher Linnett Limited. Registered in England & Wales. Company No 8789878.
Registered Office: Byways Barn, Gaulby Lane, Stoughton, Leicestershire LE2 2FL"
- The email which sent the letter, which was standard for all such emails that were later sent, ended as follows:
"Christopher Linnett
Christopher Linnett Limited, Level 17 Dashwood House, 69, Old Broad Street, London EC2M 1QS
Tel: 020 7256 4072
Christopher Linnett Limited is registered in England & Wales. Company No. 8789878"
- The Terms of Engagement referred to in the body of the letter is also printed on headed paper of the type described. It is headed:
"TERMS OF ENGAGEMENT FOR APPOINTMENTS AS ADJUDICATOR"
- Below that are ten numbered clauses. It is appropriate for me to set out a number of those clauses because, on the Claimants' case, these terms formed the basis of the agreement with the Defendant.
"Acceptance
2. Any objections to these Terms must be made in to me writing within 7 days of issue.
Charge Rate
3. The rate charged for time spent carrying out my duties as Adjudicator shall be £215.00 per hour plus VAT at the applicable rate.
…
Disbursements and Expenses
4. Disbursements and expenses, such as car parking, taxi fares, rail fares (including underground), photocopying, couriers, hire of meeting rooms, hotels and subsistence shall be charged separately at cost. Expenditure on such items shall be at my sole discretion. I reserve the right to decide the mode and standard of travel that I use and the location and standard of meeting rooms and hotels that I book. Travel by road shall be charged at £0.75 per mile.
My Liability
5. The Parties agree that, as Adjudicator, I shall not be liable for anything done or omitted to be done in the discharge or purported discharge of my function as Adjudicator, unless such act or omission is shown to have been in bad faith. I give no undertaking that my Decision will be enforced by a Court and payment of all or any part of my fees and expenses is not conditional upon the Decision being enforced.
Resignation
6. I shall be entitled to resign at any time. If I do resign for any reason, including doubts about my jurisdiction, I shall be entitled to payment for all the time worked up to the resignation on the basis of these terms.
Payment Terms
7. All fees and expenses shall be paid in full within 14 days of submission of my fee account to the parties. In adjudications lasting over 42 days I shall be entitled to issue interim invoices to each party for 50% of the cost of work carried out.
Parties' Liability for Payment
8. The Parties are to be jointly and severally liable for payment of my fees and expenses in any event.
Overdue Accounts
9. Any invoice that is not paid within the time limits specified above shall be subject to the addition of simple interest and compensation, in accordance with the Late Payment of Commercial Debts (Interest) Act 1998, the Late Payment of Commercial Debts Regulations 2002 and the Late Payment of Commercial Debts Regulations 2013. The reasonable costs of recovering the debt, in accordance with section 3 of the Late Payment of Commercial Debts Regulations 2013 shall include all time spent by me in pursuing recovery of overdue sums and shall be invoiced at the hourly rate quoted in part (3) above."
- I need not set out the Adjudicator's Questionnaire in any detail. One of the questions asked:
"Do you accept my Scale of Charges and Terms of Engagement?"
There was a box containing the option to select "Yes" or "No" by deleting the inappropriate option. As I have already mentioned, the employers replied "Yes" to this question when they returned the form on 14 March 2016. The Defendant did not complete the Questionnaire and did not expressly accept the Terms of Engagement (which I hereafter refer to as the "Terms"). I accept that is all that Mr Linnett meant in paragraph 13 of his witness statement.
- On 8 March 2016, in reply to the email enclosing these documents, Mr Davies wrote on behalf of Mr Harding to Mr Linnett to fully reserve all of his rights and his position as regards participation in the adjudication including with regard to the jurisdiction of the adjudicator. The email made clear it was not intended as a slight upon Mr Linnett's abilities and ended by saying:
"We look forward to working with you."
- Mr Davies send a further email later that same day which said:
"Further to our below e-mail of today timed 11.46hrs, we should also add that by reason of our client's position with regard to your jurisdiction, it is our client's position that the Parties are simply jointly and severally liable for your fees and expenses in equal measure, i.e. 50/50."
- On 14 March 2016 the adjudicator wrote to the parties. In his letter he said, amongst other things, that he did not follow the point made by Mr Davies regarding joint and several liability. That prompted an email reply from Mr Davies timed at 12:52 on that day. That reply included the following:
"Mr Harding fully reserves all of his rights and his position as regards his participation in this purported adjudication including with regard to your jurisdiction as Adjudicator….Mr Harding's rights and entitlements are expressly reserved in full, in particular with regards to your jurisdiction…By reason of our client's position with regard to your jurisdiction but in the context that he would like you to undertake an assessment of his account, it is our client's position that the Parties are simply jointly and severally liable for your fees and expenses in equal measure, i.e. 50/50."
- The adjudicator wrote a second letter on 14 March 2016 which responded to this email by saying:
"I still do not understand the point being made about joint and several liability and a 50/50 split of my fees and expenses but I suggest that this is left in abeyance for now."
- Mr Davies sent yet another email on 25 March 2016 which re-iterated the Defendant's position but did not explain it further.
- In the meantime, the adjudication had been proceeding. The Referral was sent on 10 March 2016. The Defendant served a Response on 24 March 2016. The employers served a Reply on 4 April 2016. There were other events including a meeting which took place on 20 April 2016. In short, notwithstanding his reservation as to jurisdiction, the Defendant fully participated in the adjudication process.
- The adjudicator issued his decision, signed in his own name, on 27 April 2016. In that decision he valued the works and identified a sum of £296,006.44 to be paid by the Defendant to the employers as Referring Party. Having regard to the outcome in which the employers were the net recipient but had not succeeded to a significant degree, he decided that primary liability for his fees and expenses should be split equally between the parties. At paragraphs 3.412 to 3.414 of his decision he said:
"3.412: I worked a total of 89.4 hours on this adjudication. My hourly rate is £215.00, excluding VAT. Therefore my total fee is £19,221.00 excluding VAT. I have also incurred expenses in connection with the hire of the room for the meeting on 20 April 2016 in the sum of £315.00 excluding VAT.
3.413: Therefore, I shall invoice both parties the sum of £9,768.00 ([£19,221.00+£315.00] ÷ 2) plus VAT.
3.414: This apportionment does not alter the fact that, by virtue of clause 8 of my Terms of Engagement and paragraph 25 of the Scheme, the parties are jointly and severally liable for my fees and expenses. In the event of default by one party I reserve the right to seek recovery of the entire amount due from the other party."
The rival contentions in brief
- The Claimants contend that by sending the emails, participating in the adjudication process and requesting the adjudicator to act, notwithstanding the reservations as to jurisdiction, an adjudicator's agreement was concluded by conduct. The Defendant asked Mr Linnett to carry out work and make a decision and Mr Linnett did so. Reliance was placed on Linnett v Halliwells LLP, cited above.
- The Defendant contended that he had not concluded an adjudicator's agreement and that the only relationship he had with Mr Linnett arose out of the obligation on the part of the adjudicator to comply with the Scheme.
Decision
- I agree with the Claimants that Linnett v Halliwells LLP is the relevant authority to consider. At paragraphs 60, 61, 65 and 68 of that case Ramsey J said this:
"60. In general terms, absent any jurisdictional objections, I consider that if an adjudicator is appointed and neither party makes a contract with the adjudicator, the parties by participating in the adjudication and thereby requesting the adjudicator to act, enter into a contract with the adjudicator who acts in that capacity as a result of that request. Such a contract would be formed by conduct. There would, I consider be implied terms that the party would be liable to pay the reasonable fees and expenses of the adjudicator and would be jointly and severally liable with the other party to do so. There would also, I consider be an implied term that the adjudicator would act in accordance with the terms of the Adjudication Agreement between those parties.
61. In principle, I can see no reason why the position should not be similar where only one party makes a contract with the adjudicator but the other one does not. In those circumstances, the party who does not make a contract but participates in the adjudication thereby requests the adjudicator to act and there is a contract made by conduct with the adjudicator who acts in that capacity as a result of that request. There would, similarly be implied terms that the party would be liable to pay the reasonable fees and expenses of the adjudicator, that the party would be jointly and severally liable with the other party to make payment and that the adjudicator would act in accordance with the terms of the Adjudication Agreement between those parties.
…
65. Secondly, it can make an assertion of lack of jurisdiction but continue to participate in the proceedings, without prejudice to that contention. It might seek to persuade the adjudicator to make an early non-binding decision on jurisdiction. If this is in favour of the party, the adjudicator would be obliged to withdraw and the adjudication would come to an end. If the adjudicator finds that he has jurisdiction that party might continue to participate in the adjudication, again without prejudice to its right to challenge any award on the basis of a lack of jurisdiction. By participating in this way, it seems to me that whilst the party is not giving the adjudicator jurisdiction to make a binding decision, it is requesting the adjudicator to carry out work and make a decision.
…
68. The fact that a party makes a jurisdictional challenge should not, in my judgment, in itself change the position where a party participates in the adjudication proceedings. If the adjudicator makes a decision which he did, in fact, have jurisdiction to make then I can see no reason why the mere fact of the erroneous jurisdictional challenge should change the position."
- At paragraph 70 he said:
"If, however, a party has participated in the adjudication process, albeit without prejudice to its contention that the adjudicator did not have jurisdiction, then in principle by participating and thereby requesting the adjudicator to adjudicate on the dispute I consider that the party will generally be liable for the reasonable fees and expenses of the adjudicator on the same basis as set out above."
- Those conclusions were adopted by HHJ Waksman QC in Fenice Investments Inc v Jerram Falkus Construction Ltd [2011] EWHC 1678. At paragraphs 16 to 21 he said:
"16. In Linnett v Halliwells LLP [2009]EWHC 319, Ramsey J considered a number of issues arising out of a claim brought by the adjudicator to recover his fees from the party he said should pay them.
17. First, so far as the parties themselves are concerned, there is an adjudication agreement between them which will contain expressly or impliedly the terms of the Scheme. See paragraphs 32 and 33 of the judgment. In this case, the parties have by reason of clause 9.2 of the Contract expressly agreed to contract on the basis of the Scheme in respect of any adjudication. One of the terms of their agreement is therefore that if the adjudicator states which of the parties should be liable to pay the fees, that party ("the paying party") agrees with the other that he will do so. This is independent of the fact that as against the adjudicator, they are both jointly and severally liable. It must follow that if the paying party refuses to pay the adjudicator, he is in breach of his agreement with the other party.
18. Second, so far as the parties and the adjudicator are concerned, there is a separate agreement or agreements. As to fees, a party may make an express agreement, as Fenice did here, in which case the adjudicator may claim pursuant to that express right. But in the absence of an express agreement, a party will nonetheless be taken to have made an agreement by conduct with the adjudicator if he participates in the adjudication, thereby requesting the adjudicator to act. It would be an implied term of that agreement that the party concerned would pay the adjudicator's reasonable fees. See paragraph 60 of the judgment. Such a position would obtain even where the relevant party made a jurisdictional challenge, provided that such party had participated in the adjudication. See paragraph 68 of the judgment.
19. It is therefore possible for one party to be bound to pay a particular fee or at a particular rate which was expressly agreed, while the other party must pay simply a reasonable fee as a matter of implication. In that case, the joint and several liability would apply only to the reasonable fee, whatever that was. See paragraph 62 of the judgment where Ramsey J also observed that in practice the agreed fee is likely to be the same as, or accepted to be, a reasonable fee.
…
21. Thus, although the Scheme is statutory in origin, the position of all parties in relation to the adjudicator's fees is contractual. s108 of the Housing Grants, Construction and Regeneration Act 1996 ("the Act") confers no statutory right to payment on the adjudicator. See paragraph 34 of the judgment in Linnett."
- In my judgment, this case falls squarely within the principles of the two cases set out above. This was a situation in which the employers as Referring Party had entered into an adjudicator's agreement. The Defendant, as Responding Party, had not done so but, as evidenced by the various communications and exchanges, agreed to and did in fact participate in the adjudication process albeit without prejudice to his jurisdictional objections and he had, by his conduct, thereby requested the adjudicator to adjudicate on the dispute. Indeed, given that Mr Davies had said in one of his emails that "we look forward to working with you" there can, in my judgment, be no other sensible conclusion.
- I therefore conclude that the Defendant was a party to an adjudicator's agreement.
(2) With which party was that adjudicator's agreement concluded?
- The relevant facts which arise in respect of this issue are set out above.
The rival contentions in brief
- The First Claimant contends that the adjudicator's agreement was reached between the Defendant and it. Alternatively, as Second Claimant, Mr Linnett contends that the adjudicator's agreement was reached with him. In support of the primary case, the First Claimant relies, principally, on the following: the email from the RICS which made specific reference to the First Claimant when appointing Mr Linnett; the letter dated 8 March 2016 which refers to the First Claimant at its foot; the same footer on the bottom of the Terms attached to the letter and the email signatures on all the emails to which I have already referred.
- On its behalf, Mr Eljadi submits that a reasonable observer would therefore have concluded that Mr Linnett was an employee of the First Claimant and was trading and providing services on its behalf so that any work undertaken by Mr Linnett as an individual was done on behalf of the First Claimant.
- If that is not correct, the inescapable conclusion is that the adjudicator's agreement that I have already found to have been made must have been concluded with Mr Linnett individually.
- The Defendant denies entering into an adjudicator's agreement with the First Claimant. On his case, any such agreement was concluded with Mr Linnett individually. Mr Davies pointed out that the Terms make no specific reference to the company and all the provisions within the Terms are expressed in the first person singular. He submitted that there was nothing which made clear that Mr Linnett was offering his services on behalf of the limited company. Mr Davies also points out that it is not in dispute that the nominated adjudicator was Mr Linnett himself. At paragraph 3 of his supplementary witness statement, Mr Linnett says:
"At paragraph 8, Mr Harding states that I was nominated personally to act as the adjudicator. I accept this to be the case; all the appointments I have received to act as adjudicator and arbitrator since 1997 have been personal appointments."
Decision
- The role of an adjudicator is one which can only be performed by an individual. It is not possible for "X and Co" or "Y Ltd" to act as an adjudicator. It is, in my view, a contract for the provision of personal professional services and must be undertaken by a person. The work to be done by that individual cannot be performed by someone else.
- In principle, there is no difficulty with an individual entering into an adjudicator's agreement with one or both of the parties on terms that payment for his services is to be made to a firm or limited company. In such a case, the adjudicator's agreement is with the individual.
- Equally, I see no difficulty in principle with an arrangement whereby a firm or limited company enters into an adjudicator's agreement with one or both of the parties in which it agrees to provide the individual to fulfil the role of adjudicator on its own terms and conditions. In such a case, the adjudicator's agreement is with the firm or limited company. I note that the same conclusion was also reached by HHJ Waksman QC in Fenice Investments Inc v Jerram Falkus Construction Ltd [2011] EWHC 1678, TCC. At paragraph 39 he said:
"JFC has taken the point that it never expressly agreed to pay HI [Hill International] as against Dr Mastrandrea. Since he was the appointed adjudicator, it has no obligation to pay anyone else. I reject that argument. I can see no difficulty with an individual adjudicator who carries on business through a firm or company seeking payment to that entity. Dr Mastrandrea made it known to JFC at the outset that he traded through HI."
- It therefore seems to me that it is simply a question of fact in any given case whether the adjudicator's agreement was made with an individual or with a firm or limited company. I would, however, say this. In circumstances where it is understood by all parties that the role of the adjudicator is to be personally performed by an individual, the natural starting point is likely to be that the adjudicator's agreement would also be with that same individual. It should therefore be made clear if the common intention is that the parties to the adjudication will enter into an adjudicator's agreement with a legal entity other than the individual. Whether that is the common intention depends on the words used and the background in which the contract was concluded.
- In this case, I have come to the clear view that the adjudicator's agreement was made with Mr Linnett himself. The nomination letter from the RICS named him personally and made a number of references to him fulfilling the role. It is true that there was a reference to his limited company in the nomination letter but that was merely given as part of his professional address. The only function of the RICS was to nominate the adjudicator which is a role which must be performed by an individual.
- The letter of 8 March 2016 sent to the parties was written in the first person singular. That is to say that Mr Linnett said he was enclosing a copy of "my" standard Terms of Engagement. He made no reference to the company at all. The Terms are replete with references to Mr Linnett personally. There is no hint whatsoever that the terms are to be applied to a limited company. Mr Eljadi suggested that I should not focus on the literal manner of expression and that, bearing in mind these terms were intended to be expressed in a simple manner that could be clearly understood, I could treat each of the references to "me" "my" and "I" as intended references to the Company. I cannot accept that submission. These words must be construed against a background in which the parties knew the role of adjudicator would be performed by an individual. In those circumstances it was necessary to make it clear that the adjudicator's agreement would be with a different entity if that is what was intended.
- Moreover, some of the Terms only make sense if they apply to Mr Linnett personally. For example, clause 5 states:
"The Parties agree that, as Adjudicator, I shall not be liable for anything done or omitted to be done in the discharge or purported discharge of my function as Adjudicator…" (my emphasis added)
- It is simply not possible to read "I" as a reference to the First Claimant when it is expressly aligned with "Adjudicator". I quite see that a limited company which is party to an adjudicator's agreement may wish to make sure that neither it nor the adjudicator is liable for anything done or not done by the adjudicator, but this provision is written on the basis that the two entities are one and the same.
- If clause 5 is an example of where "I" means Mr Linnett, it would be conventional to assume the same applies throughout. Mr Eljadi did not attempt to suggest that "me", "my" and "I" could mean Mr Linnett or the First Claimant as the context so admitted. That would be far from the simple manner of expression for which he contended.
- It is true that the foot of both the letters and the Terms say that Christopher Linnett is a director of the First Claimant but that is simply a statement of fact. Nothing is made of it either within the Terms or the letters. The Questionnaire makes no reference to the First Claimant at all.
- The email from Mr Davies sent on 14 March 2016 at 12:52, which is addressed to Mr Linnett personally, refers to "your terms document" and evidences the Defendant's understanding that the parties will be jointly and severally liable for "your fees and expenses". So, it is clear that the Defendant was also proceeding on the understanding that any liability for fees would be owed to Mr Linnett. There was no reference to the First Claimant. That was an email on which Mr Eljadi rightly relied as part of the evidence of a contract concluded by conduct. But, in my view, it also demonstrates that the intention was that that contract was with Mr Linnett.
- I therefore conclude that the adjudicator's agreement was made between Mr Linnett and the Defendant.
(3) What are the terms of the adjudicator's agreement?
- Having established that there was a concluded adjudicator's agreement between Mr Linnett and the Defendant it is necessary to consider the terms of that agreement. Once again, I have set out the relevant facts above.
The rival contentions in brief
- Consistent with its case in respect of the first issue, the Claimants' submission is that the adjudicator's agreement was concluded by the Defendant's conduct in participating in the adjudication without objecting to the Terms which were provided to him by letter dated 8 March 2016. The Claimants submit that at no point did the Defendant ever object to the Terms. The Claimants do not suggest that clause 2 can create a contract by silence if nothing was said by the Defendant but they do rely on clause 2 as part of the background in which the Defendant's conduct must be construed.
- The Defendant submits that he never accepted the Terms and, in contrast to the employers, never sent back the Questionnaire agreeing to those Terms. In cross examination, he did accept that he would have read the Terms, together with his wife, and he presumed that he would have seen the rate quoted.
Decision
- On the facts in Linnett v Halliwells LLP, Mr Linnett had included within his terms a provision which was similar but not identical to clause 2. At paragraphs 44 and 45 of the judgment, Ramsey J had to consider the question as to whether an adjudicator's agreement had been concluded by silence because there had been no objection to the terms within the prescribed period of seven days. In line with established authority, he decided that an acceptance of an offer could not be inferred by silence.
- The adjudicator's agreement which I have found to exist was formed by conduct. It was based on the Defendant's participation in the adjudication, albeit on a without prejudice basis, and his request that services be provided by the adjudicator as evidenced by the emails. In my view, that conduct was effective against a background in which the Defendant also knew that those services were only being offered on the basis of the Terms. There were no other terms in play. The Defendant's conduct was to request the services on and subject to those Terms. In that context, it is relevant that he could have raised objection to the Terms within 7 days, as provided for in clause 2. He did nothing to dispel the impression that he was content with the application of those Terms. The Defendant's statement that the parties were to be jointly and severally liable for fees in equal measure was not inconsistent with the application of the Terms. Although the Defendant's written evidence was that he refused to sign the questionnaire, he does not suggest that he expressly refused to sign the Terms because he did not agree with them. His failure to object to the Terms does not, in itself, give rise to an agreement by silence as to the application of those Terms. But, in my view, silence is relevant to the question of whether the agreement concluded by conduct was on those Terms. In my view it was. Mr Davies submitted that the Defendant's conduct was consistent with the application of the Scheme, not only for the purposes of the adjudication agreement but also for the purposes of the adjudicator's agreement. Had nothing been said or done by anyone at the time, that submission would have been appropriate. But, as I have said, once the Terms had been sent out, it was for the Defendant to say that he did not accept those Terms. Otherwise the conduct which formed the basis of his acceptance of the offer would be conduct on those terms.
- It may be the case that an adjudicator, or an entity on his behalf, sends out terms which include a rate of payment to which one or both of the parties expressly objects. In that situation, such a party can still conclude an adjudicator's agreement by conduct but it would be on the basis that there was no agreement that the rate was applicable. In the absence of any further discussion, the entitlement would be to payment of a reasonable fee as an implied term as suggested by Fenice at paragraph 18.
- I therefore conclude that the adjudicator's agreement was concluded by conduct between the Defendant and Mr Linnett on the Terms sent by him on 8 March 2016.
(4) Did the Defendant have, and exercise, a right to cancel the adjudicator's agreement?
- This issue raises the novel proposition that the adjudicator's agreement was one which is subject to the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 ("the Regulations"). I remind myself that the contract in question is the adjudicator's agreement between Mr Linnett and the Defendant. The Regulations provide that contracts falling within its ambit can be cancelled upon the provision of notice. On 6 March 2017, the Defendant sent a notice to Mr Linnett purporting to cancel the contract and seeking a refund of the fees paid in the sum of £11,721.60. Mr Linnett replied by stating that the Regulations did not apply to the contract with the Defendant.
- The Regulations came into force on 13 June 2014. Their purpose was to bring into effect Directive 2011/83/EU of the European Parliament on consumer rights. The focus of the Directive was to provide certain rights to consumers in respect of contracts which had been concluded in a particular manner.
- The material definitions from the Regulations are as follows:
4. "Consumer" and "trader"
In these Regulations—
"consumer" means an individual acting for purposes which are wholly or mainly outside that individual's trade, business, craft or profession;
"trader" means a person acting for purposes relating to that person's trade, business, craft or profession, whether acting personally or through another person acting in the trader's name or on the trader's behalf.
5. Other definitions
In these Regulations—
"business premises" in relation to a trader means—
(a) any immovable retail premises where the activity of the trader is carried out on a permanent basis, or
(b) any movable retail premises where the activity of the trader is carried out on a usual basis;
"distance contract" means a contract concluded between a trader and a consumer under an organised distance sales or service-provision scheme without the simultaneous physical presence of the trader and the consumer, with the exclusive use of one or more means of distance communication up to and including the time at which the contract is concluded;
"off-premises contract" means a contract between a trader and a consumer which is any of these—
(a) a contract concluded in the simultaneous physical presence of the trader and the consumer, in a place which is not the business premises of the trader;
(b) a contract for which an offer was made by the consumer in the simultaneous physical presence of the trader and the consumer, in a place which is not the business premises of the trader;
(c) a contract concluded on the business premises of the trader or through any means of distance communication immediately after the consumer was personally and individually addressed in a place which is not the business premises of the trader in the simultaneous physical presence of the trader and the consumer;
(d) a contract concluded during an excursion organised by the trader with the aim or effect of promoting and selling goods or services to the consumer;
"on-premises contract" means a contract between a trader and a consumer which is neither a distance contract nor an off-premises contract;
"service contract" means a contract, other than a sales contract, under which a trader supplies or agrees to supply a service to a consumer and the consumer pays or agrees to pay the price.
- Part 2 of the Regulations sets out the information requirements for certain types of contract. Subject to exceptions, Part 2 applies to on-premises, off-premises and distance contracts. It is a criminal offence for a trader to enter into an off-premises contract without giving the consumer the relevant information which is listed.
- Part 3 of the Regulations contains the right to cancel distance and off-premises contracts between a trader and a consumer subject to other provisions. In particular, Regulation 27(1) of Part 3 states:
"This Part applies to distance and off-premises contracts between a trader and a consumer…"
- If applicable, the cancellation period is 14 days after the contract is entered into. However, the cancellation period is extended where there has been a breach of the information requirement in accordance with Part 2. In the present case, since no relevant information was provided to the Defendant, it is not in dispute that the purported cancellation notice given by the Defendant was in time if the Regulations applied.
- There is precious little guidance on the application of the Regulations. In disputing their application to this contract, the Claimants focussed their submissions on two points. First, that the Defendant was not a consumer. Second, that this was not a distance or off-premises contract.
The rival contentions in brief
- In support of the first submission, Mr Eljadi pointed out that Mr Harding was trading in the name of MJ Harding Contractors. He therefore entered into the building contract as a trader acting for purposes relating to his business and not as a consumer. The adjudication agreement was part of that building contract. The adjudicator's agreement was necessarily concluded with the Defendant on the same basis.
- In response, Mr Davies argued that Mr Harding was a consumer. He was a builder who, it was common ground, had never required the services of an adjudicator until disputes had arisen under this building contract. In his witness statement, the Defendant pithily expressed the point in this way:
"Adjudication has not ever formed any part of my course of trade or business over its 32 years. In all the years I have been building I have not regularly bought adjudication services…Adjudication is not my stock in trade of business. It does not form part of the building process I undertake. I build houses."
- Mr Davies also referred to a series of authorities in which the courts have considered expressions such as "in the course of a trade or business". He also relied on authorities arising under the Unfair Contract Terms Act 1977, section 6(2) of which uses the phrase "dealing as a consumer".
- As to the second point, it was common ground that the adjudicator's agreement was not an "off-premises contract". However, Mr Davies argued that it was a "distance contract" which therefore fell within the scope of Regulation 27(1). On his case, the fact that the nomination of Mr Linnett came from the RICS made it a "distance contract" because the RICS was an organisation which provided for distance sales. Mr Eljadi submitted that it was not a distance contract within the meaning of the definition.
Decision
- In my judgment, the Claimants are right in respect of both of these points.
- For the purposes of the Regulations, a consumer is an individual acting for purposes which are wholly or mainly outside that individual's trade or business. In this case, the services which were requested pursuant to the adjudicator's agreement were commissioned for purposes which were wholly (or at least mainly) inside the Defendant's trade or business. The Defendant entered into the building contract as part of his business. He is named in the recital to the building contract as "Matthew J Harding trading as MJ Harding Contractors". The adjudicator is paid to determine the rights and liabilities which the Defendant has under the building contract in that capacity. Mr Davies accepted that all the receipts and expenses relating to the building contract would have formed part of the Defendant's business accounts. It was very much part of the Defendant's trade or business to minimise his financial liability to the employers by requesting the provision of adjudication services so as to obtain a favourable decision in that regard. Although he was acting as an individual, he was not entering into the adjudicator's agreement in his private, personal capacity.
- In reaching this conclusion, I have merely applied the normal meaning of the words used in the definition. I was not assisted by any of the authorities relied on by Mr Davies since they were not concerned with the definition within the Regulation itself.
- Nor is this a distance contract. A distance contract is one which is "concluded" between a trader and consumer under an organised distance sales scheme. The adjudicator's agreement between the Defendant and Mr Linnett was not concluded under an organised distance sales scheme. There is apparently no authority on the expression "organised distance sales scheme". However, I am wholly unpersuaded that a scheme whereby, for a fee, the RICS nominates adjudicators as part of its statutory function as an adjudicator nomination body[1] could be described as an organised distance sales scheme. Moreover, the nomination of Mr Linnett by the RICS pre-dated the conclusion of the adjudicator's agreement. That adjudicator's agreement was concluded by an offer and acceptance which only occurred once Mr Linnett had already been nominated by the RICS. The RICS was not a party to the adjudicator's agreement. In no sense can it be said that that contract was concluded under an organised distance sales scheme.
- I am therefore satisfied that, for at least the two reasons described above, the Regulations did not apply to the adjudicator's agreement. It follows that the Defendant did not have a right to cancel it. His notice which purported to do so was ineffective. I should add, merely for completeness and without criticism, that the Claimants did not mount a full scale submission to the effect that the Regulations should not apply to a contract for the provision of dispute resolution services such as this. Any such point will have to be considered on another occasion.
- The postulated counterclaim for a return of fees which the Defendant would have wished to advance had he had a right to cancel the agreement he had made with Mr Linnett would therefore have failed.
(5) To what sum, if any, is either Claimant entitled in respect of interest?
- The claim is based on the asserted right to interest arising from the Late Payment of Commercial Debts (Interest) Act 1998 ("LPA") and subsequent Regulations applicable thereto. Section 2 of the LPA provides:
"This Act applies to a contract for the supply of goods or services where the purchaser and the supplier are each acting in the course of a business, other than an excepted contract."
- No point arises about an "excepted contract" under section 2(5).
- As set out above, the first sentence of clause 9 of the Terms provides:
"Any invoice that is not paid within the time limits specified above shall be subject to the addition of simple interest and compensation, in accordance with the Late Payment of Commercial Debts (Interest) Act 1998, the Late Payment of Commercial Debts Regulations 2002 and the Late Payment of Commercial Debts Regulations 2013."
- On the Claimant's case, the provisions of the LPA are applicable as a matter of contract because the first sentence of clause 9 of the Terms of the adjudicator's agreement so provided. On this submission, the Act applies even if it is not a contract where the purchaser and supplier are acting in the course of a business. But, on the alternative case, it is said that the LPA applies because those parties were in fact acting in the course of a business.
- The Defendant denies that clause 9 renders the Act applicable in circumstances where it would not otherwise be engaged. He also submits that, as purchaser, he was not acting in the course of a business.
- Clause 9 makes clear that any invoice which is not paid shall be the subject of interest "in accordance with" the LPA and the Regulations. It is a question of construction whether this means that the interest which shall be added will be the interest which is due subject to the proper application of the LPA or the interest which would be due in accordance with the LPA whether or not it applies.
- Mr Linnett is invariably supplying his services as adjudicator in the course of his own business. He may, occasionally, provide such services to a purchaser who is acting in a private capacity such as a residential owner of a property that is the subject of building works. More frequently, his services will be purchased by someone acting in the course of a business so that the LPA will apply anyway.
- Mr Eljadi's submission is that the purpose of the first sentence of clause 9 is to render the LPA applicable in circumstances where it would not otherwise be. He argued that a provision which rendered the LPA applicable when it was engaged anyway would add nothing.
- Whilst I see the attraction of that point, I do not agree with it for two reasons. The first reason is that, in my view, the only interest which is due in accordance with clause 9 is the interest which is due "in accordance with" the LPA. Interest which would be payable by someone not acting in the course of a business would not be interest "in accordance with" the LPA. Quite the reverse.
- The second reason is that the whole of clause 9 should be read together and, when that is done, the Defendant's construction is the more consistent one. The second sentence provides:
"The reasonable costs of recovering the debt, in accordance with section 3 of the Late Payment of Commercial Debts Regulations 2013 shall include all time spent by me in pursuing recovery of overdue sums and shall be invoiced at the hourly rate quoted in part (3) above."
- This sentence repeats the phrase "in accordance with". In this context it is clear that it assumes that the Act must actually apply rather than be rendered applicable as a matter of agreement. Section 3, to which the clause refers, provides:
"A debt created by virtue of an obligation under a contract to which this Act applies…"
- I therefore conclude that the LPA applies only if the statute itself is engaged. I do not agree that this means the first sentence has no purpose. It is there in order to make the position clear what the consequences of late payment will be and to act as means of introducing the purely contractual provision in the second sentence.
- In those circumstances, it is necessary to determine whether the Defendant was acting in the course of a business. In this context, the parties largely repeated the submissions they had made in the context of Issue (4). However, in this context Mr Davies relied particularly on R&B Customs Brokers Ltd v United Dominions Trust Ltd [1988] 1 WLR 321. Mr Eljadi again submitted that none of the authorities including that one were relevant to the LPA.
- I am satisfied that, in contracting with Mr Linnett pursuant to the adjudicator's agreement, the Defendant was acting in a business capacity rather than in his personal capacity. As I have already concluded, the role of the adjudicator was being performed at the Defendant's request so as to determine a dispute arising under a building contract into which the Defendant had entered as part of his business. The services which the adjudicator performed would determine whether the business operated by the Defendant would gain or lose to the extent of the claim made. As Mr Eljadi expressed it, a favourable decision from Mr Linnett would further the Defendant's business interests. The Defendant was not contracting with Mr Linnett in his private, personal capacity. He was contracting in a business capacity.
- However, according to Mr Davies that was not a sufficient basis for the application of the LPA. The question was not merely whether the Defendant was a business but whether he was "acting in the course of a business", that being the expression used in section 2 of the LPA. In this context, he again relied on a large number of authorities. With two notable exceptions, I did not derive any assistance from those authorities.
- The two exceptions were R&B Customs Brokers Ltd v United Dominions Trust Ltd [1988] 1 WLR 321 and Feldarol Foundry plc v Hermes Leasing (London) Ltd [2004] EWCA Civ 747. The first of these was a case in which the phrase "in the course of a business" was considered by the Court of Appeal. That phrase appears in section 12 of the Unfair Contract Terms Act 1977 ("UCTA") and provides a further definition of when someone is "dealing as a consumer" In that case, the question for the Court was whether the focus should be solely on the nature of the transaction or the degree of regularity with which that transaction had been undertaken. By way of example, a company might purchase a carpet for use in the office. It will do so as a business but that does not determine whether it was purchased "in the course of a business". In an earlier case under the Trades Descriptions Act 1968, Davies v Sumner, the Court had identified the need to establish a degree of regularity before a transaction had been concluded "in the course of a business". At p.329G, Dillon LJ said he would be reluctant to conclude that the words "in the course of a business" meant one thing in the UCTA and something significantly different in Trades Descriptions Act 1968. That is because both statutes had consumer protection as their primary purpose. Neill LJ reached a similar view: p.336E. The Court considered that no difficulty would arise when the transaction was clearly an integral part of the business concerned but where the transaction was incidental to the carrying on of the relevant business then a degree of regularity was required before it could be said that the contract had been entered into in the course of that business.
- Applying the degree of regularity test to the facts in R&B, evidence that a car was the second or third vehicle acquired on credit terms was not sufficient to show that it had been purchased in the course of a business.
- In Stevenson v Rogers [1999] QB 1029, the Court of Appeal said that the ratio of R&B was limited to its context, namely the application of section 12 of UCTA, and was not concerned with the question of whether the same words in section 14(2) of the Sale of Goods Act 1979 should be similarly construed. Whilst recognising the desirability of construing identical phrases in associated sections of a statute in the same way, it was not necessary to do so if the clear intent of the provision suggested otherwise: see p.1040E in which Potter LJ said:
"As to the proper construction of section 14(2), given the clear view which I have formed, I do not consider it right to displace that construction simply to achieve harmony with a decision upon the meaning of section 12 of the Act of 1977. Section 14(2) as amended by the Act of 1973 was itself a piece of consumer protection intended to afford wider protection to a buyer than that provided in the Act of 1893. Indeed, there is a sense in which the decision in the R & B case can be said to be in harmony with that intention. … To apply the reasoning in the R & B case … in the interests only of consistency, thereby undermining the wide protection for buyers which section 14(2) was intended to introduce, would in my view be an unacceptable example of the tail wagging the dog."
- In Feldarol Foundry plc, the question again arose as to whether a person was dealing as a consumer because he had not made a contract "in the course of a business" within the meaning of section 12 of UCTA. The Court of Appeal adopted the reasoning in Stevenson v Rogers. At paragraph 16, Tuckey LJ said:
"It is clear from this decision that the court felt bound by R & B. The fact that it was a decision of a two-man court is not to the point. It was and is a decision which is binding on this court. Secondly, the decision is not inconsistent with R & B. Lord Justice Potter explains in the passage I have cited at length how the two decisions can be reconciled. An interpretation of the words "deals as consumer" in the 1997 Act, which gave increased protection for consumer buyers, was consistent with the wide meaning which the court gave the words "seller in the course of a business" in the 1979 Act."
- Based on these authorities, Mr Davies submits that three adjudications arising out of only one building contract in 32 years does not provide a sufficient degree of regularity for the purposes of the LPA and that, for this reason, I should conclude that the Defendant was not acting "in the course of a business" when he concluded the adjudicator's agreement.
- The JCT Contract which the Defendant concluded with Mr Paice and Miss Springall would be an example of a contract that was integral to the business of acting as a building contractor. However, I agree that a contract for the provision of adjudicator's services is not an integral part of the business of acting as a building contractor. Rather, it is a contract which is incidental to the carrying on of the relevant business. It is therefore necessary to decide as a matter of principle whether a degree of regularity is required before it could be said to have been concluded in the course of the business for the purposes of the LPA. It is fair to say, without criticism, that the competing arguments on this specific point were not fully developed on either side.
- Based on the authorities set out above, it seems to me that before I take into account the fact that the same words have been used in other legislation I must consider the extent to which the intended purpose of both that and the subject legislation are the same or similar.
- In my view the shared purpose of consumer protection statutes such as UCTA and the Trades Description Act is quite different from the purpose of the LPA. Whereas their primary function in the case of the first two statutes is to enhance consumer rights and consumer protection, the purpose of the LPA is to provide businesses with a new right to statutory interest which they would not otherwise have had and which they will not acquire as against a consumer. The short title of the LPA includes the word "commercial" and its long title is:
"An Act to make provision with respect to interest on the late payment of certain debts arising under commercial contracts for the supply of goods or services"
- In my view, when set against that purpose, the adjudicator's agreement can properly be regarded a commercial contract between two parties for the supply of services. Accordingly, I have concluded that it is not necessary to import the "degree of regularity" test into the assessment of whether a contract was entered into in the course of a business for the purposes of the LPA. This also makes practical sense. It would be odd if the question of whether a commercial purchaser was liable to pay statutory interest to a supplier was dependent on the number of occasions on which the purchaser had entered into similar contracts – a matter which the supplier would not necessarily even know.
- On that basis, I conclude that the LPA does apply to the adjudicator's agreement not only because the Defendant was acting in a business capacity but also because he concluded it in the course of a business. It was a commercial transaction. Accordingly, it follows that the fees claimed by Mr Linnett are a qualifying debt for the purposes of s.3 of the LPA.
- In light of that conclusion I now turn to the question of quantification.
- In the skeleton arguments, an issue had arisen about the relevant period of interest. It was common ground that pursuant to section 2A, the relevant day for a debt was the agreed payment day unless a different day was given by subsection (2D), (2E) or (2G). Initially Mr Davies sought to argue that a different day was given by subsection (2E) but, by the end of the argument, Mr Davies had rightly abandoned this submission. Accordingly, the relevant day is determined by clause 7 of the Terms since this sets out the date for payment of the debt. In respect of the relevant invoice, the end of the 14 day period provided for in clause 7 of the Terms was 13 May 2016. Accordingly, pursuant to section 4(2), statutory interest began to run from 14 May 2016.
- The period for interest ends when payment was made. This occurred on 26 August 2016. That is the date when the employers paid the full amount which encompassed the share paid by the Defendant. This date is slightly earlier than the date which had been pleaded but at trial Mr Eljadi accepted that 26 August 2016 was the end of the period.
- The total period is therefore 104 days, from 14 May to 26 August 2016.
- The rate of interest is prescribed by Article 4 of the Late Payment of Commercial Debts (Rate of Interest) (No 3) Order 2002. Clause 9 of the Terms refers to the Regulations of 2002 but I assume it is intended as a reference to the Order of 2002. In any event, the Order applies as a matter of statutory law. Article 4 states that the rate is 8% per annum over the official dealing rate in force on 30 June or 31 December immediately before the interest period began to run. In this case the interest period ran from 14 May 2016 so the date to establish the interest rate is 31 December 2015. At that time the official dealing rate was 0.5%. Accordingly, the applicable rate of interest is 8.5%.
- Another issue which was raised at the trial concerned the quantification of the principal amount to which statutory interest was applicable. In particular, the question arose as to whether statutory interest was payable on the VAT element of the invoice. Section 4 of the LPA provides that statutory interest runs in relation to a "qualifying debt". Section 3 makes clear that a debt created by virtue of an obligation under a contract to which the LPA applies "to pay the whole or any part of the contract price" is a "qualifying debt". The "contract price" is defined in section 16(1) of the LPA as "…the price in a contract of sale of goods or the money consideration referred to in section 2(2)(b) in any other contract for the supply of goods or services".
- It is therefore a question of construction whether, under a given contract, the liability to pay VAT forms part of the obligation to pay the whole or any part of the contract price. If it does, then statutory interest is applicable to the VAT element thereof.
- In this case, clause 2 of the Terms provided that the rate for time spent on the adjudication was £215.00 per hour plus VAT at the applicable rate. There was a single obligation to pay the contract price comprised of the hourly rate and the applicable VAT. Accordingly, the qualifying debt includes the VAT element and statutory interest is applicable to it[2].
- I can now turn to the arithmetical computation. Based on the principles described, this quantification is not in issue. The principal debt was £11,721.60. The interest due is £283.88 being 104 days x (£11,721.60 x 0.085/365).
- I therefore decide that the amount of interest for which the Defendant is liable to Mr Linnett is £283.88.
(6) To what sum, if any, is either Claimant entitled by way of statutory compensation?
- Section 5A(1) of the LPA provides:
"Once statutory interest begins to run in relation to a qualifying debt, the supplier shall be entitled to a fixed sum (in addition to the statutory interest on the debt)."
- The fixed sum is prescribed by bands. For a debt of between £1,000 and £10,000, the fixed sum provided by section 5A(2)(b) is £70. For a debt of £10,000 or more, the fixed sum provided by section 5A(2)(c) is £100. On behalf of the Defendant, Mr Davies contended that the VAT exclusive sum of £9,768 took the Defendant into the band of fixed compensation of £70. However, the applicable band is determined by the amount of the qualifying debt. I have already determined that the qualifying debt includes the VAT element.
- I therefore conclude that the Defendant is liable to Mr Linnett for statutory compensation in the sum of £100.
(7) To what sum, if any, is either Claimant entitled by way of debt recovery costs?
- In this action, the Claimants claim the cost of time spent recovering payment of both Mr Linnett's fees and expenses (i.e. the principal sum) and payment of the statutory interest due either under the Terms or the Act.
- By virtue of the Regulation 3 of the Late Payment of Commercial Debts Regulations 2013, a new section 5A(2A) was introduced into the LPA as follows:
"If the reasonable costs of the supplier in recovering the debt are not met by the fixed sum, the supplier shall also be entitled to a sum equivalent to the difference between the fixed sum and those costs."
- The 2013 Regulations were referred to in clause 9 of the Terms but would otherwise be applicable as a matter of statutory law.
- Clause 9 of the Terms expressly provided that the reasonable costs of recovering the debt in accordance with the 2013 Regulations would include time spent in pursuing recovery of overdue sums and would be invoiced at the rate of £215 per hour plus VAT.
- Mr Linnett accepted that his rate was a market rate and not a cost, as such. On behalf of the Defendant, Mr Davies made two points. Firstly, he submitted that "reasonable costs" could not include any element of profit which would have been included within the rate claimed.
- Secondly, Mr Davies contended that the rate claimed was an unreasonable one when compared to a rate for solicitors who may be engaged for simple debt recovery work.
- In my view both of these points are answered by the Claimants' submission, with which I agree, that this was a contractual agreement to pay at the agreed set rate for the relevant time spent on the activity of recovering overdue sums. It is simply not open to the Defendant to challenge the rate on the grounds that it includes profit or is not reasonable. Had it been necessary for me to determine the reasonableness of the rate, I would have concluded on the facts that the hourly rate of £215 plus VAT for a busy professional person engaged in the provision of dispute resolution services was a reasonable rate.
- I do accept, however, that in order to recover payment, the time must be reasonably spent in the activity of recovering overdue sums.
- There was some cross examination of Mr Linnett in respect of the time spent by him in the activity of recovering the debt. He claimed 7 hours on the first invoice and 1.3 hours on the second invoice, making a total of 8.3 hours. Breakdowns of those times were provided in the witness statement. Mr Davies submitted that time spent reading letters, including letters from the solicitors of the employers, could not be regarded as part of the activity of recovering the debt. The same applied to drafting of letters to solicitors from the employers.
- A considerable element of the time spent was in corresponding with the Defendant, through his solicitors, about the enforcement challenges which the Defendant subsequently made. At paragraph 60 of her Judgment in Paice and Springall v Matthew J Harding, Ms Finola O'Farrell described this sequence of correspondence as:
"an unrelenting series of letters that went beyond reasonable questions designed to elicit information regarding his impartiality."
- In those circumstances, it is not surprising that the overall time spent was what it was. It was obviously necessary for Mr Linnett to read correspondence which had been written on behalf of the Defendant in order for him to respond to it. The issues that had been raised by these exchanges directly affected the enforceability of his decision as adjudicator and, thus, the right to payment in respect thereof. Mr Davies was right to concede that Mr Linnett had an interest in his decision being enforceable because of its affect on his entitlement to fees. In the round, I accept Mr Eljadi's submission that the correspondence was therefore referable to the aim of securing the debt.
- Having regard to the totality of the evidence and the submissions made, I determine that Mr Linnett reasonably spent 7.3 hours in the activity of recovering overdue sums from the Defendant. I have deducted one hour for the time spent corresponding with the solicitors for the employers. It seems to me that such work is unrelated to securing the debt from the Defendant.
- Accordingly, in respect of debt recovery costs the Defendant is liable to pay Mr Linnett for 7.3 hours at the rate of £215 excluding VAT. This is £1,569.50.
- From this total it is necessary to deduct the fixed sum for compensation which has already been allowed. The resulting balance is £1,469.50.
- Although the pleaded claim included time spent after 31 August 2016 until the sum claimed in these proceedings has been paid, that element of the claim was not pursued.
(8) What is the correct treatment of VAT?
- Another issue which arose was whether VAT should be added to the claim for interest and late payment compensation.
- In order to avoid a judicial determination of this issue, Mr Eljadi sensibly proposed a solution from which Mr Davies did not dissent. The order will be that the Defendant will pay any VAT which the successful claimant is required to pay in respect of such sums as are found to be due and payable by the Defendant in respect of interest and compensation.
Conclusions and postscript
- For the reasons set out above, I dismiss the claim made by the First Claimant. On the claim, there will be judgment against the Defendant in favour of the Second Claimant in the sum of £1,853.38 comprising the following amounts:
(a) £283.88 by way of interest;
(b) £100 by way of fixed statutory compensation;
(c) £1,469.50 by way of debt recovery costs
- I also order the Defendant to pay any VAT which is required to be paid in respect of those amounts or any part thereof.
- Subsequent to distribution of the draft judgment, the Defendant issued an application to amend its defence; to issue a counterclaim; and to stay execution of the judgment on the claim set out above. If, having heard that application, permission to amend the defence is refused, there is no good reason for not handing down the judgment on the claim. The application to issue a counterclaim and to stay execution pending its determination can be dealt with after handing down of the judgment on the claim.
- Subject to the outcome of those applications I will hear also the parties on the question of costs of the action and in respect of any issues arising out of the formulation of an appropriate order.
