ISG Retail Ltd v Castletech Construction Ltd [2015] EWHC 1443 (TCC)

Judgment date: 22 May 2015

(1) The court found that the adjudicator had jurisdiction to award restitution as a remedy following a breach of contract.

(2) Where money has been paid in advance on account of the contract price and the consideration has wholly failed as a result of the other party’s non-performance, the court will order repayment of the money.

(3) The adjudicator was entitled to grant the remedy of restitution specified in the Referral Notice, notwithstanding that this was not initially specified in the Notice of Adjudication, as the Notice of Adjudication had identified the central issue in dispute.

(4) Had there been no contract, the adjudicator could not have made an award by way of restitution even though it was the appropriate remedy in law, as he would not have been determining a dispute that had arisen under a contract.

Technology and Construction Court, His Honour Mr Justice Edwards-Stuart

Background

ISG Retail Limited (“ISG”) had entered into a building contract with Castletech Construction Ltd (“CC”). Pursuant to that contract, ISG made an advance payment of £35,000 plus VAT. In return, ISG received nothing of value from CC and claimed repayment of the money it had paid together with interest. The advance payment was not returned.

ISG began adjudication proceedings. In its Notice of Adjudication (dated 3 February 2015), it asserted that CC had failed to perform its obligations and that there had been a ‘complete failure of consideration’. In its subsequent Referral Notice, ISG asserted that, as a matter of law, if a defendant fails to fully perform its obligations it should follow that the claimant should be able to recover its advance payment by way of restitution. ISG had not referred to restitution in its Notice of Adjudication.

In its Response, CC argued that ISG was not entitled to restitution as the grant of the equitable remedy was not within the Adjudicator's jurisdiction or power; paragraph 1 of Part I of the Scheme of Construction Contracts allows a party to a construction contract to refer to adjudication “any dispute arising under the contract”.

The Adjudicator found that the CC had provided nothing of value to ISG and was in breach of its contract as there had been a complete failure of consideration on the part of CC. He ordered the advance payment to be repaid to ISG (but decided that ISG was not entitled to interest).

ISG applied for Summary Judgement. CC resisted enforcement on the grounds that the Adjudicator did not have jurisdiction to award restitution, because the claim for restitution was not made in the Notice of Adjudication from which the Adjudicator derived his jurisdiction, alternatively it did not arise under the contract.

Issues

The Court was asked to decide whether:

1. the Adjudicator lacked jurisdiction on the grounds that his decision was outside the scope of the dispute referred to him; and
2. the dispute was one which had arisen under the contract, given the equitable remedy granted and whether the Adjudicator had jurisdiction to decide the dispute.

Decision

The Court decided:

• Although a claim for restitution usually arises where there is no contract (and the cause of action is unjust enrichment), it may also be a contractual remedy and was an available remedy for the breach of contract in question (the total failure of consideration).
• The Notice of Adjudication made clear the fact that the central issue in dispute was whether there had been a failure of consideration. It was clear, on the facts, that the dispute had arisen under the contract and the Adjudicator had jurisdiction to hear it, notwithstanding the fact that the remedy of restitution was only specified in the Notice of Referral.
• The Adjudicator was entitled to order restitution given it was a remedy available for the breach of contract in question (total non-performance); there is clear precedent (Stocznia Gdynia SA v Gearbulk Holdings [2009] EWCA Civ 75) that restitution is a remedy that is available in respect of this type of breach of contract (paragraphs 17, 18 and 23). Although restitution is distinct from a remedy in damages, it was held that there is no reason why it should not be a remedy which an adjudicator should be entitled to award.
• Accordingly, ISG was entitled to Summary Judgement.

For the full judgment, click here.