107473.001 SH Construction Case Booklet FIN[1]

Contents 1. Introduction 

page 3

10.Procedure—use of CPR Part 8 in adjudication cases  Merit Holdings Ltd v Michael J Lonsdale Ltd 11.Stay—Company Voluntary Arrangement—moratorium  Rossair Ltd v Primus Build Ltd 12.Withdrawal of referral—right to refer same dispute to adjudication— power of court to grant injunction to Jacobs UK Ltd v Skanska Construction UK Ltd 13.Summary  Legislation The Act means the Housing Grants, Construction and Regeneration Act 1996, as amended by the Local Democracy, Economic Development and Construction Act 2009 Pt 8. The “new” provisions apply to contracts entered into on or after 01 October 2011. The main regulations are contained in the Scheme for Construction Contracts (England & Wales) Regulations 1998 (the “Principal Regulations 1 ”). They have been amended by the Scheme for Construction Contracts (England & Wales) (Amendment) (England) Regulations 2011 2 . The new Scheme applies only to contracts for construction operations in England entered into, on or after 01 October 2011. For earlier contracts the Principal Regulations apply. There are separate regulations for contracts for work in Scotland applicable to contracts made on or after 01 November 2011 3 . The new regulations apply only to contracts for work in Scotland entered into, on or after this date. For earlier contracts the Scheme for Construction Contracts (Scotland) Regulations 1998 4 applies. There are new separate regulations for Wales, applicable to contracts for construction operations in Wales entered into, on or after 01 October 2011 5 . A reference to “the Scheme” is to the Principal Regulations for England and Wales, or the Scheme for Scotland, as the context so requires. page 12 page 8 page 10 restrain second adjudication— whether second adjudication unreasonable or oppressive— award of wasted costs  page 11

2. Adjudicator’s agreement — binding by conduct 

page 3

(1) Christopher Linnett Ltd and (2) Christopher Linnett v Matthew J Harding t/a M J Harding Contractors 3. Adjudicator’s fees — whether fees must be reasonable and how is reasonableness resolved  page 4 The Vinden Partnership Ltd v Orca LGS Solutions Ltd and another 4. Award—character of award— recovery of sums overpaid  page 4 Imperial Chemical Industries Ltd v Merit Merrell Technology Ltd 5. Costs—jurisdiction—severance  page 6 Enviroflow Management Ltd v Redhill Works (Nottingham) Ltd 6. Enforcement—threat of insolvency  page 6 Bernards Sports Surfaces Ltd v Astrosoccer4u Ltd 7. Jurisdiction—disputed contract terms  page 7 Rossair Ltd v Primus Build Ltd under Stay—Company

Voluntary Arrangement—moratorium (below) 8. Jurisdiction—disputed right to interest—effect of second award on enforcement of first award when validity disputed  Actavo UK Ltd v Doosan Babcock Ltd 9. Payment—validity of successive payment notices and pay less notice—whether adjudication on successive payment notices amounted to the same dispute 

page 7

page 7

Jonjohnson Construction Ltd v Eagle Building Services Ltd

2

1. Introduction This series of articles continues the reporting and review of cases on the enforcement of adjudicators awards begun in the Journal of the Chartered Institute of Arbitrators. The law is stated at 23 October, 2017. There has been a flurry of decisions about adjudication in the past three months, which continue to excite interest and contribute to the law on the subject. Two of the cases deal with payment, one a final decision after trial about finality and nature of an adjudicator’s award. There have been decisions on the application of the adjudicator’s terms, and the reasonableness of fees, on the power to award ‘debt recovery costs’, together with other decisions on jurisdictional issues. We round off with cases on the use of Part 8 procedure, enforcement and stay in cases of claimed insolvency, and the right to withdraw a referral and start afresh. 2. Adjudicator’s agreement — binding by conduct See (1) Christopher Linnett Ltd and (2) Christopher Linnett v Matthew J Harding t/a M J Harding Contractors 6 Mr Linnett claimed payment of his fees as adjudicator from Mr Harding who was party to a series of adjudications with Gary Paice and Kim Springall (the employers) who had engaged Mr Harding to undertake construction works for them. Following enforcement of the last decision in the round of disputes, Mr Harding was ordered to pay the employers’ share of Mr. Linnett’s fees. (£1,721.60 including VAT). The fees were eventually paid but Mr Linnett and his company brought an action to recover interest for the late payment of the fees under the Late Payment of Commercial Debts (Interest) Act 1998 ( “LPA” ). Amongst the issues to be tried between the parties, three questions were of wider interest: 1. WasMr Harding party to the adjudicator’s agreement? 2. If so between whom was the agreement concluded? 3. Does the LPA apply to the late payment of the fees and what sum if any was the Claimant entitled to for interest, statutory compensation and debt recovery costs? After setting out the facts, the terms of the adjudicator agreement, and the rival contentions, the court concluded as follows

1. The relevant authority to consider was Linnett v Halliwells LLP. 7 The employers as referring party had entered into the adjudicator’s agreement. Mr Harding as the responding party had not done so, but had participated in the adjudication, albeit without prejudice to his jurisdictional objections. He had by his conduct requested the adjudicator to adjudicate on the dispute. An email sent on behalf of Mr Harding to the adjudicator had said “we look forward to working with you” . There was no other sensible conclusion but that he had agreed to the appointment. 2. The agreement was with Mr Linnett personally. It was Mr Linnett who was nominated by the nominating body, RICS. It was consistent with the use of the first person in the terms. The role of adjudicator can only be performed by an individual. There was no reason in principle why the appointment could not provide for payment to be made to a third person firm or limited company. Equally, a firm or limited company could enter into an agreement to provide an individual as adjudicator. It would simply be a question of fact in each case whether the contract was made with the individual or the firm or company. 3. The LPA applied because it was expressly so provided in the adjudicator’s agreement. It would have applied if the parties were acting in the course of a business. Here Mr Harding contended that the three disputes in which Mr Linnett was appointed, arising under one building contract, could not amount to a business. It was true that the use of adjudication services by Mr Harding was not integral to his business as a builder, but incidental to it. It was necessary to decide whether a degree of regularity was required for it to be said the parties were acting in the course of a business. When set against the purpose of the LPA which was to provide business with a right to interest for late payment (not to protect or enhance consumer rights), the adjudicator’s agreement could properly be regarded as a commercial contract between two parties for the supply of services. It was not necessary to import a degree of regularity. It made practical sense not to have to enquire of a purchaser whether and if so how often he might have entered into similar contracts on previous occasions. Thus, having already found Mr Harding was acting in a business capacity, the court also decided the adjudicator agreement was concluded in the course of a business. The fee claimed was a qualifying debt under section 3, LPA. The applicable rate was 8.5%. the statutory compensation for this debt was fixed by the LPA at £100. Mr Linnett was also entitled to debt recovery costs based on 7.3 hours of time at Mr Linnett’s hourly rate of £215, amounting to £1,569.50 less the £100 compensation already allowed.

3

Comment The findings at (2) and (3) appear to be just and unsurprising though they may cause some adjudicators to review their terms. The more interesting question surrounds finding (1). Is it possible for a responding party who raises jurisdictional issues but wishes to take part under a reservation of rights, to protect himself from liability for the adjudicator’s fees and if so how? He would, as a minimum, have to make it clear to the adjudicator that he does not accept the adjudicator’s agreement or terms or liability for his fees, whatever the outcome. He will also need to be careful that he says and does nothing to imply that he is looking to the adjudicator to do anything other than resign. If the adjudicator does not resign and he continues to participate and to address the adjudicator on say the underlying merits, it is difficult to see how he can later say that he did not require the adjudicator to heed, take into account and act on his communications or submissions or to make a determination. The question is then whether the implied liability for fees by reason of the strong fact of participation trumps the express denial of the existence of a contract or liability for payment. Despite the conflicting considerations, policy might dictate that a party that participates cannot absolve himself of responsibility for the cost to the adjudicator of dealing with the issues he has raised. 3. Adjudicator’s fees — whether fees must be reasonable and how is reasonableness resolved See The Vinden Partnership Ltd v Orca LGS Solutions Ltd and another 8 An adjudicator is not entitled to payment of his fees without consideration of their reasonableness, following the decision of HHJ Waksman in a similar case. An express obligation to pay charge without qualification by reference to their reasonableness was not sufficient to exclude the implied obligation that the fees should be reasonable in all the circumstances. The requirement could not be negated except by very clear words in the contract (appointing the adjudicator). Where reasonableness was an issue, and insofar as the adjudicator has provided details of the time spent, the evidential burden to make out a prima facie case of unreasonableness was on the party challenging the fees. The Court should adopt a robust approach to the question and allow the adjudicator a considerable margin of appreciation given the speed at which and the pressure under which the adjudicator was expected to work. The Court should be careful against considering only the bare bones of the decision rather than the process which led to the result with the generous benefit of hindsight.

His Honour agreed with the views expressed in Fenice 9 that regard should be had to the test for summary judgment – whether there was a reasonable prospect of showing the fees were unreasonable. Even if summary judgment was not appropriate the court would be expected to adopt a time and cost-effective way to resolve the dispute. The Court was in a position to determine a reasonable fee from the adjudicator’s time records and the underlying documentation without the need for additional disclosure. This was a multifaceted dispute, starting off with jurisdictional issues and then involving issues of law, fact and quantum, over a substantial sum. The total time spent of 114.5 hours was not obviously unreasonable taking into account the number and size of the submission, (from referral to surrejoinder) the need for a site visit and an eight hour hearing, in an adjudication lasting some 58 days. Individual objections to particular records of time spent were addressed and dismissed and the court concluded both that the time claimed to have been spent was reasonable and that if it had carried out its own assessment of the fees it would have assessed the fees as claimed at £32,842.50 plus VAT. Judgment was given for the fees claimed together with interest and costs. 4. Award —character of award— recovery of sums overpaid See Imperial Chemical Industries Ltd v Merit Merrell Technology Ltd 10 This was the trial of liability issues between ICI as Claimant seeking to recover what it alleged were over-payments, from its contractor MMT following awards of some £20.93m in two adjudications. To enable the legal issues to be resolved, the parties had agreed to the assumption that the eventual financial exercise would show that the amounts paid to MMT were in excess of the correct contractual valuation of its works. ICI claimed it was entitled to the recovery of any assumed overpayment either under the contract terms or the equitable doctrine of restitution. MMT challenged this, claiming that the interim valuations of the account in the sums awarded and paid was “deemed to be the value of the works” and any alleged over-payment could not be recovered. MMT went further: it said the value of the account had already been determined in a finally binding adjudicator’s decisions and in a court judgment in MMT’s favour.

4

The contractual route to recovery The court had found on the facts that ICI had repudiated the contract. It was well-established that, if a contract came to an end through repudiation, the parties’ existing rights and obligations under that contract remained in existence. Accordingly, if ICI had an accrued right to recover overpayments under the contract, before the contract came to an end, that right remained notwithstanding a wrongful repudiation. This was an NEC3 contract. There were two payment components being Defined Cost, and the Fee, each to be assessed by the Project Manager at each assessment date. The resulting amount due comprised the Price for Works Done to Date, plus other amounts to be paid to the Contractor, less amounts to be paid by or retained from the Contractor. The court did not consider that such an interim assessment could be said to be a definitive or final valuation of the works for all purposes at that point. The contract made clear that “The Project Manager corrects any wrongly assessed amount due in a later payment certificate.” That later payment certificate could, potentially, be an interim assessment or the Final Assessment, as the Project Manager could at either stage correct any “wrongly assessed amount” If there was any doubt, clause 56 of the contract resolved it by providing: “The issue of any payment certificate or the payment of any amount by the Employer to the Contractor does not constitute or imply or be evidence of the Project Manager’s, the Supervisor’s or the Employer’s approval or acceptance of any design, work, Plant and Materials forming part of the works or relieve the Contractor of any of his obligations under this contract.” MMT relied on ISG Construction Ltd v Seevic College 11 where the contractor sought an adjudicator’s decision in relation to its payment application, in respect of which the employer had not served valid payless notices. The decision, in Adjudication No.1, was in the contractor’s favour in the sum of £1.097m. Some four days before the decision in that adjudication, the employer started Adjudication No.2, in relation to the actual value of the contractor’s works the subject of the application. The employer succeeded in that adjudication in that the adjudicator decided that the value of the works was only £315k, disallowing approximately £1m claimed as loss and expense. Edwards-Stuart J declared that there was no jurisdiction to conduct Adjudication No.2, even though in Adjudication No.1 the adjudicator had stated “For the avoidance of doubt I record that I have made no decision as to whether or not that is the correct value of work undertaken by ISG.” This was because, as he put it in [25] “as between contractor and employer, in the absence of any notices the amount stated in the contractor’s application as the value of the works executed is deemed to be the value of those works so that the employer must pay the sum applied for.” He considered that the question of the valuation of the works in Application No.13 had been decided in Adjudication No.1. Permission to appeal was granted in that

case by the Court of Appeal, but the appeal did not take place as the matter was compromised. ISG did not support MMT’s pleaded assertion that the amount of the interim application was “deemed to be the value of those works”. It was decided before the Court of Appeal judgment in MJ Harding Contractors v Paice and Springall 12 where the Court of Appeal found ISG difficult to reconcile with the ratio in Harding. A similar approach to defining the dispute was adopted by a differently constituted Court of Appeal in Brown v Complete Building Solutions Ltd. 13 The Court of Appeal held that the terms, scope and extent of the dispute previously referred, and the earlier decision, had to be analysed. The dispute that was referred for resolution in the earlier adjudication could not be considered in isolation. The latter adjudication dealt with a different dispute and the adjudicator had jurisdiction. In the judgment of the court, the ratio of the Court of Appeal authorities cast real doubt on whether ISG would be decided in the same way now. That led to similar doubts as to whether the reasoning was correct. In any event, upon analysis, the judgment in ISG was concerned with timing not substantive underlying rights. In Galliford Try Building Ltd v Estura Ltd 14 the judge himself had explained his view of what ISG had decided. “[18] I held that if an employer fails to serve the relevant notices under this form of contract it must be deemed to have agreed the valuation stated in the relevant interim application, right or wrong. Accordingly, the adjudicator must be taken to have decided the question of the value of the work carried out by the contractor for the purposes of the interim application in question. [19] However, I made it clear that this agreement as to the amount stated in a particular interim application (and hence as to the value of the work on the relevant valuation date) could not constitute any agreement as to the value of the work at some other date (see paragraph 31). [20] This means that the employer cannot bring a second adjudication to determine the value of the work at the valuation date of the interim application in question. But it does not mean any more. There is nothing to prevent the employer challenging the value of the work on the next application, even if he is contending for a figure that is lower than the (unchallenged) amount stated in the previous application.” Even if the first sentence of [20] remained correct, (and it was decided on 27 February 2015, before the Court of Appeal judgment in Harding on 01 December 2015) this meant that the value of the work remained something that could be challenged. In other words, the value of the works executed is not definitely determined by the figure in the interim assessment (or an adjudicator’s decision on that interim assessment). Nor could it sensibly be argued otherwise, given the nature of adjudication.

5

Support could also be drawn from the judgment of O’Farrell J in Kersfield Developments (Bridge Road) Ltd v Bray and Slaughter Ltd. 15 The accrued rights which ICI had under the contract before repudiation included a right to recover any over- payment already made to MMT. Such an analysis would not, however, be the same as a Final Assessment under the contract terms in accordance with the Termination Table, nor would it have been the same exercise as though MMT had repudiated the contract. The non contractual route - Restitution It was not necessary therefore to determine this alternative route given the above findings. Nor was it necessary to decide whether restitution might be granted where there had been a total failure of consideration for part only of the work. There was however another reason why ICI was entitled to be repaid any overpayment it had made to MMT, albeit it could be said to overlap (or more accurately perhaps, sit above) each of the two routes discussed above. This was because the total sum paid to MMT as at the date of the trial included sums paid pursuant to two adjudication decisions. MMT’s bullish approach was that no valid payment or pay less notice had been given so that MMT’s application became the notified sum for the purposes of section 111 of the Act. It was further contended that the question of what was due had been subject to “a judgment on the merits”. The only judgment was the order made in the enforcement proceedings. There was no “finally binding adjudicator’s decision” and there was no “judgment on the merits”. The nature of an adjudicators’ decision was one of “interim finality”. There were, sometimes, circumstances which changed the character of such decisions to ones that were finally binding. None of those circumstances pertained here. The nature of the cause of action a party had when seeking to recover sums paid to another under an adjudicator’s decision was considered by the Supreme Court in Aspect Contracts (Asbestos) Ltd v Higgins Construction plc 16 where the Court of Appeal found for Aspect and considered that the Scheme implied that any overpayment could be recovered 17 . Comment This case is reported at some length as it deals with several issues of importance when considering the nature of an adjudicator’s award and rights to payment and recovery of any overpayment. As to the very nature and character of an adjudicator’s award, in case there was any doubt, it is one of “interim finality” (previously commonly described in the reported cases as ‘temporarily binding’). It may in some circumstances become final as well as binding: essentially, if that is what the contract provides 18 , or the parties so agree. Otherwise the award of itself does not prevent either party from seeking a final determination from a court or arbitrator as to the sum properly due on the merits.

The adjudicator’s decision even on the merits and following a full valuation is not final except on a second adjudicator. Furthermore, any court order for the enforcement of the award is no more a judgment or a final decision on the merits than the award itself. The second point of note is that the question of valuation overall, can be looked at afresh at each subsequent interim or final valuation or at some other stage or event as the contract may direct (e.g. on termination). In this case the court found the party who had wrongfully repudiated the contract, retained the right to recover any overpayment made before the contract came to an end. It did not in the event have to resort to the equitable remedy of restitution. 5. Costs—jurisdiction—severance See Enviroflow Management Ltd v Redhill Works (Nottingham) Ltd 19 O’Farrell J held that an adjudicator did not have jurisdiction to award the unpaid party its “debt recovery costs” , claimed under the Late Payment of Commercial Debts (Interest) Act 1998 (“LPA”). As such, she severed those costs from the adjudicator’s decision and enforced the balance. The court considered the provisions of section 5A of the LPA 1998 (which provides that a successful party is entitled to its reasonable costs of recovering a debt) and section 108A of the Act, which, in contrast, provides that the costs of an adjudication can only be awarded where such a provision was made in writing after the notice of adjudication was given. The court held that the provision in section 5A of the LPA was caught by and subject to section 108 A (2) of the Act and was therefore ineffective. 6. Enforcement—threat of insolvency See Bernards Sports Surfaces Ltd v Astrosoccer4u Ltd 20 The claimant contractor Bernards, sought enforcement of an adjudicator’s award in its favour for £175,962.47. Because the defendant employer Astrococcer subsequently threatened to give and purported to file notice of intention to appoint an administrator, Bernards also applied for permission to continue the proceedings to enable them to obtain judgment. Had such a notice of intention been properly filed in court it would have imposed a five day moratorium on proceedings. The judge’s attention was drawn to his previous decision in South Coast Construction Ltd v Iverson Road Ltd 21 . In that case Coulson J had given permission for the proceedings to be continued applying the relevant principles including proprietary interests, questions of conduct, and the stage the proceedings had reached. Adjudication enforcement proceedings were also to be regarded as exceptional, as in the majority of cases, they were bound to succeed.

6

All those same reasons applied here; the administration process would not be frustrated; the proceedings were effectively at an end; there was no risk of unfair or unreasonable preference. Therefore the court granted permission to continue the proceedings in this case. The Court was at pains to point out that in this case the conduct of Astrosoccer was far more serious than the conduct of South Coast. Astrosoccer had sought to avoid paying the debt by a number of devices including the giving of an “entirely bogus” purported notice of intention to appoint an administrator. The court identified and enumerated eight separate particular points of conduct designed to avoid payment or thwart the enforcement process. Singularly, it also criticised Astrosoccer’s solicitors for their “connivance” in that conduct amounting to an “intention to misuse the insolvency proceedings”. There was no real justification for the threat to invoke the insolvency jurisdiction in order to avoid compliance with the adjudicator’s decision. Accordingly judgment was entered for Bernards. 7. Jurisdiction—disputed contract terms See Rossair Ltd v Primus Build Ltd under Stay— Company Voluntary Arrangement—moratorium (below) 8. Jurisdiction—disputed right to interest—effect of second award on enforcement of first award when validity disputed See Actavo UK Ltd v Doosan Babcock Ltd 22 The Claimant carried out scaffolding and painting works for the Defendant contractor. A dispute over payment of an interim payment application was referred to adjudication. The adjudicator awarded the Claimant £630,000 and held that the interest provisions of the Late Payment of Commercial Debts (Interest) Act 1998 (LPA) applied (the first award). A dispute arose over the final account and the Defendant commenced adjudication proceedings to determine its value. The same adjudicator awarded the Claimant £60,000 on the final account (the second award). Before the hearing of the Claimant’s application to enforce the first award, the Defendant amended its defence asserting a) the adjudicator had erred in making an award of interest under the LPA; and b) seeking to reduce the amount due to the Claimant to £60,000 in line with the second award. On interest the Defendant argued further that the point was short and self contained and could be determined without evidence at the hearing of the summary judgment application. The Court held that even if the adjudicator was

wrong in awarding interest under the LPA that was a matter of fact and or law as it went to the proper construction of the contract, the application of the LPA, and, on the facts, whether there was a previous course of dealing between the parties giving rise to an agreement to apply the LPA. Thus it clearly fell within the adjudicator’s jurisdiction. It was a case of pay now argue later and it was not appropriate for the court to determine that issue by way of Part 8 claim at the hearing of the summary judgment application as it required evidence about the previous course of dealing and could not be settled simply on the documents before the court. The effect of the second award depended on whether it was in time as the Defendant contended or out of time as the Claimant maintained. There was confusion over an extension of time for the second award in the absence of which the award was invalid. Evidence would be required to determine that issue and a further date had to be fixed for that. Judgement was entered for the full amount under the first award, with the undisputed part payable within a week and the disputed balance to be paid after the hearing of the Defendant’s Part 8 claim. 9. Payment—validity of successive payment notices and pay less notice—whether adjudication on successive payment notices amounted to the same dispute See Jonjohnson Construction Ltd v Eagle Building Services Ltd 23 Eagle employed Jonjohnson (JJC) to provide steelwork for the foundations of the Westonbirt Arboretum Treetops Walkways under a contract that did not contain either payment or adjudication provisions complying with the Act. These matters were therefore governed by the Scheme. The works were completed and in March 2016, JJC applied for the sums it claimed were then due. Eagle responded by email in these terms: “Don’t agree with your application. Phase 2 had to be redone due to your steel not to drawing. Our costs for breaking out and re-concrete phase 2 was in excess of £20k. Take the £20k from the £38k for phase 1 leaves £18,843…” In April 2016, JJC submitted a further payment notice evidently intended to act as default notice under section 110B(2) of the Act (the April notice). No payment was made and JJC referred the matter to adjudication before Ms Janey Milligan (Adjudication no. 1). JJC sought to limit the scope of the dispute and therefore the adjudicator’s jurisdiction to the sole question: whether Eagle was obliged to pay the sums set out in the April notice. That position was accepted by Eagle and the adjudicator.

7

Comment What is uncertain from the case reports so far available and in the absence of a transcript of the judgment, is why Mr Judkins evidently decided the JJC email was not an effective pay less notice. There is at least a respectable argument that it was responsive to the payment notice and would convey the necessary intention to act as such a notice to a reasonable recipient (see Surrey and Sussex Healthcare 24 ). Whilst peculiar to its facts, the decision illustrates again the complexities of the payment provisions of the Act and the differences of view that can arise in applying them to any given factual situation. 10. Procedure—use of CPR Part 8 in adjudication cases See Merit Holdings Ltd v Michael J Lonsdale Ltd 25 The Defendant (“MJL”) was engaged as mechanical services sub-contractors by the Claimant (“Merit”) for construction operations at One Angel Court, Copthall Avenue, London. Merit commenced two adjudications seeking payment of considerable sums for its work, and then MJL started a third adjudication which lead to the present Part 8 Claim in which Merit sought a declaration “as to the correct interpretation of the contract”. The parties’ initial contractual relationship was set out in a letter of intent dated 20 November 2015 sent by MJL to Merit and providing that MJL would “….reimburse [Merit] the costs wholly and necessarily incurred…pursuant to this letter up to a maximum sum of £330,000.00” A further letter of intent was sent on 16 February 2016 (incorrectly dated 2015). It was in the same terms as the first letter of intent except that the date of expiry was given as Thursday 29 February 2016. Yet a further letter of intent was sent on 6 April 2016, again in the same terms as the first letter of intent, except that (i) the capped value or maximum sum referred to was £430,000 and (ii) the date of expiry was Friday 29 April 2016. It was Merit’s case, that these letters of intent were the basis of the parties’ contractual relationship as varied by conduct after 29 April 2016. Work continued until 12 July 2016. Merit made seven applications for payment, roughly on a monthly basis. Each application was based on Merit’s Tender Summary and assessment of percentage complete against each item. The Tender Summary aligned with a Quantified Schedule of Rates (QSOR) which was provided by Merit under cover of an e-mail dated 3 May 2016. Thus applications were neither made nor paid on the basis of costs wholly and necessarily incurred and the amounts concerned were well in excess of the capped figure (as amended). In July 2016 MJL terminated the arrangement between the parties and a dispute arose about payment of Merit’s application no. 7 dated 22 June 2016. Merit commenced

Ms Milligan decided that since the March 2016 application was an effective “claim by the payee” for the purposes of paragraph 12 of the Scheme, JJC had no right to submit a default payment notice in April. Section 110B(4) of the Act provided that an unpaid party could not issue a second payment notice where the contract provided or allowed the payee to submit an application for payment, and such an application had already been made. There followed a second adjudication, which was aborted. JJC then began adjudication no. 3 in which Mr Judkins was appointed adjudicator. The dispute referred now was based on the premise that JJC’s March payment application was an effective payment notice in which case in the absence of a payment or pay less notice from Eagle, the sums set out in the March payment application became the sums due and payable. The three issues for Mr Judkins were: 1) Whether the decision of Ms Milligan (that the April notice was not a valid payment notice) was binding on him. He decided it was and even if it was not binding on him, he would have arrived at the same decision as she had. 2) Whether the earlier March payment notice was a valid payment notice, which he decided it was. 3) Whether Eagle’s email in response was a valid pay less notice which he decided it was not. Eagle did not pay the resulting award and JJC commenced enforcement proceedings. Eagle advanced several ‘ingenious’ arguments which Jefford J dismissed in short order, holding that a) JJC had sufficiently raised the issue whether the March 2016 claim was “a claim by the payee” in adjudication no. 3. b) The dispute referred in Adjudication no. 3 was not the same as that referred in Adjudication no.1 – the former having been based on the April notice and the latter on the March notice. c) This was not a “Henderson v. Henderson impermissible bite of the cherry”. There was no abuse of process. In adjudication, unlike litigation, only one dispute could be referred at the same time. Adjudication no. 1 was commenced on a limited basis and concerned only the April notice. Adjudication no. 3 concerned the March notice and was not an attempt to re-litigate the same dispute. The judge also considered that Mr Judkins was right to conclude that he was bound by Ms Milligan’s decision and finding that the March notice was an effective notice under section.110B(4) and noted, with apparent approval, that he agreed with finding. The judge also dismissed Eagle’s argument for JJC to succeed it had to rely on the decisions in both adjudications no. 1 and no. 3. The position was simple: it was an application to enforce the decision and the sum of money found due in adjudication no. 3.

8

an adjudication claiming the sum of £1,128,106.42 and the adjudicator, Mr Matt Molloy, decided that the parties’ conduct evidenced an agreement that Merit would make applications for payment valuing the work up to the end of each calendar month (amounting toapayee’snotice); that section.110B(4) of the Act was engaged; that MJLwas obliged to pay the notified sum as claimed. In January 2017 Merit made application for payment, no. 8, for £187,980.87 in which for the first time they claimed on the basis of costs allegedly incurred. That application was disputed and Merit commenced a second adjudication in which the adjudicator was again Mr Molloy. They sought payment or alternatively, a declaration as to the basis on which its entitlement to payment was to be calculated. Its case was that it was entitled to be reimbursed its costs wholly and necessarily incurred, in accordance with the terms of the letters of intent. Mr Molloy decided that Merit was not entitled to the sum claimed and that its entitlement to payment was based on the agreed Contract Sum and the QSOR not the costs incurred. MJL gave notice of intention to adjudicate on the value application no. 8 and make declarations in relation to “the final account”. On 27 April 2017, Merit issued a Part 8 Claim Form seeking a declaration later refined orally to this effect: The Claimant is entitled to be paid its costs wholly and necessarily incurred on the project”. The Court recorded concerns about the use of the Part 8 Procedure in this case, for two principle reasons. Firstly, under section 9 of the TCC Guide, dealing with Adjudication Business, paragraph 9.4.1 noted that the Court would deal with applications for declaratory relief arising out of the commencement of an adjudication (emphasis supplied) . Common examples were: • The adjudicator’s jurisdiction. • Whether there was a “construction contract” under the Act. • The scope of the adjudication, including whether there was a pre-existing dispute between the parties. Paragraph 9.4.2 contemplated directions leading to a “speedy resolution” of the proceedings (in common with the abridged directions that are given in adjudication enforcement cases). Despite the adjudication background to this Claim, and the way it was first presented, it was not one which directly related to the commencement of an adjudication, in the sense used in paragraph 9.4.1. Instead it related to the substance of the decision in the adjudication and the risk of the same error being “promulgated” in adjudication no. 3. That had consequently affected the directions, listing and time estimates, and allocation of Court resources. Directions were given leading to a hearing less than two months later.

The Court took the opportunity to emphasise the guidance in the TCC Users’ Guide paragraph 9 and when it was applicable. It was not to be assumed that some relationship to an adjudication and an adjudication label means that it was automatically appropriate for a case to be dealt with in that way. Secondly, and more generally, subject to CPR Part 8.1(6), the Part 8 procedure was only to be used where the Claimant sought the Court’s decision on a question which was unlikely to involve a substantial dispute of fact 26 and by implication, that the question to be decided could be framed with some degree of precision and/or be capable of a precise answer. In the experience of the Court there was a real risk of the Part 8 procedure being used too liberally and inappropriately with the risks both of prejudice to one or other of the parties in the presentation of their case and of the court being asked to reach ill-formulated and ill-informed decisions. The question arose here whether the Claim involved substantial issues of fact, given that Merit’s pleaded case turned substantially on what it said were the consequences of or inferences to be drawn from the conduct of the parties (rather than, for example, from words used). The Court was being asked to determine the very nature of the contractual relationship between the parties, which was highly unusual, on documents only with a short hearing. The court remained concerned both about the scope of the enquiry to be made and whether it was right to make any and if so what declarations(s). Germane to this was the question whether the defendant who did not agree with the Claimant’s entitlement was himself obliged to formulate an alternative declaration. The court said he was not so obliged as otherwise he might be compelled to seek declaratory relief that he did not in fact want to seek. Although MJL were content for the Court to reach decisions that might assist the parties, there was no formulation of any declaration that MJL sought. Despite the flexibility of their approach, the court was reluctant to express non-binding opinions which might well store up trouble later for both parties as to their status and content. All these issues illustrated the care to be taken by the parties and the Court in the deployment of the Part 8 procedure. The April letter of intent clearly stated that it would expire on 29 April 2016. Equally it was clear that the works continued after that date. Neither party contended that this happened on anything other than the basis of a contract between the parties. On the agreed facts the Court concluded that the “far more obvious interpretation of the parties’ conduct” was that it had been agreed that Merit would continue to be paid (in excess of the cap) on the basis of the contract sum. Therefore Merit was not entitled to the declaration it sought. The question then was whether the court should make any alternative declaration, which at first blush might seem appropriate. The difficulty with the various available options was that the court would be making a positive declaration

9

as to the basis of payment without, unless it went further, deciding the underlying contractual relationship. Due to the number of possible contractual permutations, the court declined to make any further declarations as to the basis on which payment was to be made after the expiration of the last letter of intent. 11. Stay—Company Voluntary Primus was engaged as main contractor on the construction of a London hotel and employed Rossair as the mechanical installation sub-contractor on the project. The sub-contract documents provided for any dispute to be referred to adjudication and for the Scheme to apply, subject to a provision that the adjudicator should be nominated by the Royal Institute of Chartered Surveyors (RICS). A dispute arose between the parties in respect of two interim payment applications. Rossair referred the dispute to adjudication and Mr Peter Aberley was appointed adjudicator by RICS. On 21 June 2017, the adjudicator published his decision, subsequently corrected pursuant to paragraph 22a of the Scheme and re-issued on 26 June 2017. He directed that Primus should pay Rossair the sum of £353,726.02 in respect of the interim applications plus interest in the sum of £7,953.56. Additionally, the adjudicator directed Primus to pay 85% of his fees amounting to £6,768.13 plus VAT. Primus failed to pay any of the sums directed and on 6 July 2017 Rossair commenced proceedings, issuing an application to enforce the adjudication decision by way of summary judgment, under CPR 24. Primus submitted an acknowledgment of service, indicating that it wished to defend the application but failed to submit any evidence save for a letter to the court dated 8 August 2017 stating it would not be represented at the hearing of the application on 10 August 2017 but inviting the court to take into account the contents of the witness statement of Mr Neil Graham Sammes. The statement was not served on Rossair until 9 August 2017, the day before the hearing. In his statement Mr Sammes opposed the application for summary judgment on three grounds. (1) Jurisdiction O’Farrell J. found that the adjudicator was correct to hold that he did have jurisdiction to act. It was common ground that the sub-contract documents had been issued by Primus to Rossair on or around 15 October 2015, that they contained terms and conditions including a provision for adjudication (as described above). There was a dispute between the parties as to whether Rossair had made amendments to the sub-contract documents at a later date. The adjudicator was right to find that any disputed amendments to the sub- contract did not affect his jurisdiction as it was not alleged Arrangement—moratorium See Rossair Ltd v Primus Build Ltd 27

that any of the amendments would affect the adjudication agreement or the adjudication rules to be applied. (2) Stay The second question was whether the proceedings in the claim should be subject to a stay. Mr Sammes stated that Primus proposed to enter into a Company Voluntary Arrangement (CVA) and the relevant documents concerning the proposal had been filed in the Companies Court. The proposal for the CVA was not exhibited to the witness statement and there was no indication within the witness statement of the terms on which the CVA had been proposed. There was also a discrepancy between the letter dated 8 August 2017, which stated that Primus was in a CVA, and the witness statement of Mr Sammes, which merely proposed that it enter into a CVA. The court did not have an informed explanation as to the status of Primus. O’Farrell J. considered the Insolvency Act 1986 and the Insolvency Rules 2016. Section 1A of the Insolvency Act provided that “Where the directors of an eligible company intend to make a proposal for a voluntary arrangement, they may take steps to enforce a moratorium for the company.” Even assuming Primus was an eligible company, there was no evidence or indication that it had taken steps to obtain a moratorium. It followed that it was to be assumed by the court that no steps had been taken. The Insolvency Rules 2016 made provision for a company to provide in its proposal for a CVA the nature and demands of the company’s liabilities. Paragraph 2.15 of chapter 4 of the Insolvency Rules provided for notice of the beginning of any moratorium to be published in the Gazette and delivered to the nominee and to the company. There was no evidence before the court relating to publication of a moratorium. The court was satisfied that Primus Build had not taken any steps to bring into effect a moratorium in respect of the CVA. Therefore, and although the court had power to stay the proceedings, or any judgment in respect of an adjudicator’s award where the Defendant was unable to pay the judgment sum, it was only in very exceptional circumstances that such power would be exercised. There was no evidence before the court to justify the staying of the application or the Part 24 summary judgment itself. (3) Double payment It was suggested that a judgment against Primus would put it in danger of having to pay the interim applications twice, it being alleged the sums had already been paid to Rosssair by the Employer. There was evidence that the contract between the employer and Primus had been terminated, that the employer had supported Rossair by way of cash flow. However, the evidence of Rossair, not contradicted by Primus, showed that the support was by way of loan, which had been repaid. That removed any question of Rossair recovering the outstanding payments twice. The court ordered a summary judgment to be entered for Rossair in the sum claimed plus further interest and Primus was also ordered to pay Rossair their share of

10

the adjudicator’s fee and the costs of the action and the application. 12. Withdrawal of referral—right to refer same dispute to adjudication— power of court to grant injunction to restrain second adjudication—whether second adjudication unreasonable or oppressive—award of wasted costs See Jacobs UK Ltd v Skanska Construction UK Ltd 28 Jacobs claimed an injunction to restrain Skanska from proceeding with an adjudication, following Skanska’s withdrawal from an earlier adjudication in respect of the same or substantially the same dispute. The material question was whether a party to adjudication was entitled to withdraw a dispute from adjudication and then refer the same, or substantially the same, dispute to a second adjudication. Skanska had engaged Jacobs in around February 2011 to provide design services in respect of a PFI project for the design and replacement of street lighting in Lewisham and Croydon. There was a dispute about the adequacy of the services. The contract was a construction contract for the purposes of section 108 of the Act and contained an adjudication provision. On 8 February 2017 Skanska gave notice of an intention to refer the dispute to adjudication (Adjudication No.1). Concerns were raised as to whether the adjudication agreement complied with the Act and in face of jurisdictional challenges, the parties reached agreement to appoint Mr Patrick Waterhouse as adjudicator, that the Scheme would apply and as to a timetable and recorded it in writing. Mr Waterhouse was duly appointed. Referral and response documents were served in accordance with the agreed timetable. However, Skanska’s counsel became unavailable and it was unable to serve its reply by the due date (as agreed). Skanska requested an extension of time but Jacobs refused the request and the adjudicator declined to grant an extension of time unless both parties agreed. Skanska thereupon withdrew its reference to adjudication and invited the adjudicator to resign and eventually he did so. Ten days later on 21 June 2017 Skanska gave a fresh notice of intention to refer the dispute to adjudication. This second notice (Adjudication No.2) contained substantially the same claims as the first save that one of the claims was withdrawn, the scope of the dispute narrowed, and methodology and quantum of damages was revised.

On 4 July 2017 Jacobs commenced Part 8 proceedings seeking a declaration that Skanska was acting unlawfully in proceeding with Adjudication No.2; for an order restraining Skanska from taking any steps in furtherance of Adjudication No.2; and requiring Skanska to withdraw it. They also sought a declaration that Jacobs was entitled to its wasted costs of Adjudication No.1. Jacobs’ case was that Adjudication No.1 should have been conducted in accordance with the agreed timetable. It had a right to a resolution process fair to both parties and which did not confer an uncovenanted advantage on the referring party. It invited the court to protect its right to a procedurally fair process which was not unreasonable and oppressive. Skanska said there was no concept of abuse of process in adjudication and a referring party was free to obtain whatever tactical advantage it could. It also had the right to start adjudication in relation to a dispute “at any time” and with the unrestricted right to start, abandon and pursue ‘serial’ adjudications in respect of the same dispute. The court referred to sections 108(1), 108(2), 108(3) of the Act and the relevant provisions of the Scheme found at paragraphs 1(1), 7(1), 9(1), 9(3) 11(1), 13, 14 and 15. The court reiterated that the Act and the Scheme envisaged a rough and ready process. The referring party had the clear advantage of selecting the timing and scope of the dispute. The timetable was very tight. The inherent unfairness in the process was justified by the advantage of speed and efficiency, balanced by the temporary effect of any decision. Turning to the legal principles, there was no express or implied restriction in the Act or the Scheme precluding a party from withdrawing a disputed claim which had been referred to adjudication: Midland Expressway Ltd v Carillion Construction Ltd 29 per Jackson J., even after the referral notice had been served, regardless of the motive for the withdrawal, and nothing to preclude that party from pursuing the claim in a later adjudication: Lanes Group plc v Galliford Try Infrastructure Ltd 30 per Jackson LJ . The principle of abuse of process did not apply to adjudication: Connex South Eastern Ltd v MJ Building Services Group plc 31 per Dyson LJ. However, it did not follow that the courts would never intervene to prevent a party from pursuing a claim in adjudication. The court had power under section 37 of the Senior Courts Act 1981 to prevent an adjudication where (a) one party could show that the other party had invaded, or threatened to invade, a legal or equitable right of the former, amenable to the jurisdiction of the court, or (b) where one party to any action had behaved, or threatened to behave, in a manner which was unconscionable. The court thus had power to grant an injunction restraining a party from commencing or continuing an adjudication that was unreasonable and oppressive.

11

Page 1 Page 2 Page 3 Page 4 Page 5 Page 6 Page 7 Page 8 Page 9 Page 10 Page 11 Page 12 Page 13 Page 14 Page 15

Made with FlippingBook - professional solution for displaying marketing and sales documents online