Cases The Enforcement of Adjudicators’ Awards under the Housing Grants, Construction and Regeneration Act 1996: Part 6 of 2018 Kenneth T. Salmon and Katy Ormston
Construction & Engineering
Contents 1. Introduction 2. Enforcement – Enforcement of adjudicator’s decisions – Interim payments – Pay Less Notices – Liquidated Damages page 3 S&T(UK) Limited v Grove Developments Limited 3. Enforcement—Enforcement of adjudicator’s decision – Milestone payments page 4 Birmingham City Council v Amey Highways Ltd 4. Enforcement – Enforcement of Adjudicator’s Decisions – Declarations Sought – Stay of proceedings page 4 Ealing Care Alliance Ltd v London Borough of Ealing 5. Jurisdiction – Bias page 5 Charles David Hoyle v B.A.K. Building (Contracts) Limited 6. Natural Justice page 6 BSW Building Services Ltd v Adur District Council 7. Natural Justice – Setting off page 6 Synergy Gas Services Limited v Northern Gas Heating Limited 8. Transfer of Proceedings – Court’s powers to transfer hearings page 7 Dr Cyril Chern v (1)Apilosa Corporation (2) AR Architecture Limited
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 1 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 Regulations). The new Regulations apply only to contracts for construction operations in England entered into on or after 1 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 1 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 1 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.
9. Summary
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1. Introduction The Enforcement of Adjudicators’ Awards under the Housing Grants, Construction and Regeneration Act 1996: Part 6 of 2018. Kenneth T. Salmon, Consultant Solicitor and Katy Ormston, Trainee Solicitor at Slater Heelis LLP. The law is stated at November 2018 and covers enforcement, jurisdictional challenges, and a flurry of natural justice cases questioning whether adjudicators have decided questions not put to them. There is also a case dealing with when it is suitable to transfer proceedings to the TCC in the High Court. 2. Enforcement – Enforcement of adjudicator’s decisions – Interim payments – Pay Less Notices – Liquidated Damages S&T(UK) Limited v Grove Developments Limited 6 The contractor (“S&T”) appealed against a decision in the TCC that it could not recover an interim payment in full from the employer (“Grove”) under a construction contract. The facts of the case were reported in Part 2 of this Adjudication Cases Update. At first instance, the TCC held that the pay less notice in respect of S&T’s interim application was valid, Grove was entitled to commence adjudication to establish the true value of S&T’s interim application and Grove was entitled to recover liquidated damages for delay. With regards to the validity of Grove’s pay less notice, the Court of Appeal considered whether it was permissible to reference other documents in a pay less notice and concluded that it would be a question of fact and degree in each case as to whether a pay less notice achieved the requisite stipulations of section 111(4) of the Act. In this case, Grove’s pay less notice was sent to the same people who were dealing with the interim application and they would be familiar with the documents previously provided in respect of the application and any cross referencing in the pay less notice could not give rise to any doubt or misunderstanding in the mind of a reasonable recipient standing in S&T’s shoes. The pay less notice was valid. The Court of Appeal then considered Grove’s entitlement to pursue adjudication to determine the correct value of the works. This was an academic question due to the validity of the pay less notice. However, the Court observed that: 1. An employer’s immediate obligation under s111 of the Act at interim stage was to pay the sums stated in the relevant notice. This did not make sums payable at an interim stage conclusive as to the correct valuation of the works done. That could remain an issue between the parties if disputed.
2. There was no express power in the Act or the Scheme for a contractor to challenge an employer’s payment notice or pay less notice in adjudication but it was accepted in the industry that such a power exists. Paragraph 20 of the Scheme was wide enough to enable adjudicators to review interim applications where there was an absence of a payment notice or a pay less notice. 3. The correct analysis under the form of contract before the Court of Appeal was that the interim application, the payment notice and the pay less notice are three documents, one of which will trigger the operation of s111 of the Act in every case. That section generates an obligation to pay the notified sum before the final date for payment but does not change the sum notified by one of these documents into a true valuation of the work. Either party can challenge the correctness of the notified sum through adjudication. 4. The distinction between the payment bargain (what had to be paid immediately) and the valuation bargain (the process for reviewing and adjusting payments made) was helpful. 5. Under the payment mechanism the employer has very little time to carry out a complex valuation and such a rushed process cannot sensibly lead to a definitive valuation of the work at any particular date. The mechanism intends to generate a provisional figure for immediate payment. The adjudication provisions stand behind the notice provisions to facilitate a more detailed valuation of the work at that date with arbitration or litigation in the background if either party is dissatisfied with the adjudicator’s evaluation. 6. The contract expressly provided for a negative final payment but there was no express provision for negative interim payments. The wording of section 111 of the Act applies to both interim and final certificates. It would be odd if the same form of words had a conclusive effect in relation to interim certificates which it did not have in relation to final certificates. As a result of these conclusions, the Court summarised that an employer which had failed to serve a payment notice or pay less notice was entitled to adjudicate to determine the true value of an interim application. However, the Act could not sensibly be construed to permit the adjudication regime to trump the prompt payment regime under s111 of the Act. Therefore, an employer cannot start an adjudication to obtain a revaluation of the work before it complies with its immediate payment obligations. With regards to the third question on whether Grove complied with the contractual requirements in order to continue its claim for liquidated damages, the Court of Appeal agreed with the first instance decision that Grove had complied and it was impossible to identify a specific period of time between a warning to deduct liquidated damages and a notice to deduct. If a specific period of time were required, it would be stipulated in the contract.
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4. Enforcement – Enforcement of Adjudicator’s Decisions – Declarations Sought – Stay of proceedings Ealing Care Alliance Ltd v London Borough of Ealing 8 The Claimant service provider Ealing Care Alliance Ltd (“ECA”) had contracted to provide care home services for the Defendant, London Borough of Ealing (“Ealing”). This PFI framework agreement provided for market testing of the cost of the services with a clause for mandatory adjudication where the parties did not agree the content of the market testing proposal. ECA referred a dispute regarding benchmarking to adjudication. The adjudicator found that the benchmarking exercise was validly undertaken and either party was entitled to require the services to be market tested. ECA started the market testing procedure but Ealing served a notice of dissatisfaction informing ECA that it intended to challenge the adjudicator’s decision and ask for market testing to be suspended. ECA continued with market testing and Ealing insisted that any invitations to tender stipulated that ECA’s right to market testing was the subject of a legal challenge by Ealing. ECA objected to this on the grounds that it would deter bidders and commenced proceedings seeking a declaration that the adjudicator’s decision was enforced and that ECA was entitled to proceed to market testing without any requirement to insert Ealing’s stipulations. Ealing did not commence proceedings to challenge the adjudicator’s decision. Ealing submitted that (1) There should be a stay for adjudication because the dispute before the court was about the market testing proposal which had to be adjudicated before proceedings could be taken. (2) The declaration sought by ECA should not be granted because it avoided the underlying dispute between the parties of whether the adjudicator’s decision was correct. The Court held: 1. It was not appropriate to order a stay. The dispute between the parties was not caught by the mandatory adjudication provisions. The effect of the stay would be to waste time and costs. Ealing’s delays in making its stay application and acting on its notice of dissatisfaction counted against it. 2. There was a difference between Ealing serving a notice of dissatisfaction and pursuing a legal challenge. The stipulation in any invitations to tender that market testing was subject to Ealing’s legal challenge was sufficient to deter bidders and may be misleading. The effect of such stipulations was for Ealing to frustrate ECA from having the benefit of the adjudicator’s decision. Granting the declaration sought by ECA would have the useful effect of allowing ECA to continue market testing and give effect to the adjudicator’s decision.
Comment This helpful judgment confirms the “pay now, argue later” doctrine which is in the spirit of the Act and clarifies the question posed in our previous analysis of the TCC judgement. Although an employer may in many instances be able to recover an overpayment by way of adjustment at the following interim payment stage it is not always practicable to do so. As a result, it may be that an adjudicator can order repayment of any excess payed as a result of a revaluation at adjudication to establish the correct valuation of the work. However, this right can only be exercised after the employer has paid the notified sum as required by s111 of the Act. The Act intends to promote cash flow, and this should allow for prompt payment followed by any financial adjustments. 3. Enforcement—Enforcement of adjudicator’s decision – Milestone payments Birmingham City Council v Amey Highways Ltd 7 The Claimant (“BCC”) and the Defendant (“Amey”) were parties to a 2010 Private Finance Initiative contract for the rehabilitation and maintenance of the road network in Birmingham for 25 years. The parties had been engaged in a dispute arising from Amey’s performance of the contract since 2015. Under the contract, the amount to be paid to Amey increased when milestones were certified. BCC referred the dispute to adjudication and the adjudicator set aside the certification of milestones 6–9. Amey successfully challenged the adjudicator’s decision in the High Court but the Court of Appeal reinstated the decision. BCC claimed that it followed from the setting aside of the milestone certificates that Amey had been overpaid by circa £55million. Amey refused to repay arguing that an analysis was necessary to determine when it could have achieved the milestones had it complied with its contractual obligations. The dispute regarding repayment was referred to adjudication and the adjudicator decided that the analysis was irrelevant and BCC was entitled to repayment of £55million. BCC sought summary judgment to enforce the adjudicator’s decision in addition to supplementary claims. The Court granted summary judgment on the repayment claim and reserved judgment on the supplementary claims. There was no dispute of fact in respect of the repayment claim. Under the contract, only certification gave the right to be paid and retain the money. Once the certification had been set aside, Amey had no right to be paid or to retain the money. The money had to be repaid to BCC pending valid certification in the future. There was good reason to enforce the adjudicator’s decision. In any event the money had been wrongly paid and there was no lawful justification for Amey to retain it. Any wrongly paid sums could be recovered by one party from another under the Contract. The application was granted.
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5. Jurisdiction – Bias Charles David Hoyle v B.A.K. Building (Contracts) Limited 9 This was an application by the Claimant, Mr Charles David Hoyle to enforce the award of an adjudicator’s decision in his favour. The Defendant (“B.A.K.”) who did not attend the hearing sent a letter to the court asking for an adjournment. In the judgment the learned judge noted that the parties entered into an oral contract in May 2017. In his notice of adjudication, Mr Hoyle claimed the sum of £3,850.96 for the provision of on-site carpentry works at Langdale Gardens and Clifton Court. The redress sought was the payment of that amount. Mr Hoyle was represented by his son, Andrew, who was a quantity surveyor. Mr Conway was appointed adjudicator on application to the Chartered Institute of Arbitrators. B.A.K sent Mr Conway a letter which said it did not recognise the adjudication nor agree to be responsible for any fees. Their reasons were: 1. Mr Charles David Hoyle had no written contract with them for the carrying out of works. 2. “The surveyor who was dealing with this matter on behalf of Mr Hoyle we understand is his son and therefore there is a clear conflict of interest and any analysed and valued work assessed by the claimant is not agreed.” B.A.K. also disputed the hours claimed and the standard of work. Mr Conway dealt with that letter as if it was an objection to his jurisdiction. He said: 1. Mr Hoyle’s entitlement to refer to Adjudication is not dependent upon Mr Hoyle having a written contract with B.A.K.. Such requirements for a written contract do not apply to the Housing Grants Construction and Regeneration Act 1996 as amended by the Local Democracy, Economic Development and Construction Act 2009. 2. The fact that Mr Charles David Hoyle was represented in these proceedings by his son, Andrew, was irrelevant. He saw no ‘conflict of interest’ as suggested by B.A.K. He was not aware of any requirement for impartiality between a party to adjudication and its representative. Jefford J held that was entirely right. The grounds of the application to adjourn were that both the claim form arrived when the responsible director was on annual leave and the need to serve a defence within the abridged time limits was appreciated. Since then the persons with personal knowledge of the matter had gone on annual leave and were not available at the hearing date. The Court found that the Claimant’s solicitors had notified the Defendant of the hearing date 2 weeks before the director had gone on leave. Nevertheless it would address the ‘skeleton argument’ filed in support of a request to be allowed to file evidence in opposition out of time.
The basis of the skeleton was first, that the adjudicator acted “outside the matter being referred” that is outside his jurisdiction and did not answer the question which was referred to him. It was said that the adjudicator accepted instructions and dealt directly with Mr Andrew Hoyle who was the son of Mr Charles David Hoyle. B.A.K. argued that “we did not see any authority or any indication of an authority from CDH that authorised his son to deal with this matter, the adjudicator was not directly instructed.” The Court held the points were utterly ill-conceived. The Claimant could be represented by whomsoever he chose and therewas no need for a form of authority to be produced or for the Claimant to show he had enter into any other formal arrangement. The fact that the adjudicator received submissions direct from Mr Andrew Hoyle had no impact on jurisdiction whatsoever. Under the heading: “Adjudicator acted outside the matter being referred” were listed matters going to the terms of the contract between Mr Charles David Hoyle and B.A.K. and what, as a consequence, Mr Charles David Hoyle was entitled to be paid. They are all, therefore, matters that challenged the substantive decision of the adjudicator. It was well-established that the Court, on an application for summary judgment to enforce the decision of an adjudicator, was not concerned with whether the decision was right or wrong but merely with whether it was made within his jurisdiction (which in this case) it clearly was or whether there was, in some other respect, a breach of natural justice in the obtaining of the decision. Under the heading, “Adjudicator showed bias” it was said “As can be seen above, the adjudicator failed to take account of evidence sent to himand relied instead on the unevidenced allegations of CDH” . Four examples were given. They were all issues that went to whether the adjudicator’s decision was right or wrong. They did not come close to establishing bias on the part of the adjudicator. The learned judge observed that B.A.K. participated in the adjudication without either continuing to reserve their rights in respect of the jurisdictional argument or raising any argument that the adjudicator was acting in breach of natural justice and/or showing bias. The last point taken by B.A.K. was that Mr Andrew Hoyle, was the son of Mr Charles David Hoyle. It was believed that Mr Andrew Hoyle, a surveyor by profession, was consulted and relied upon by the adjudicator. This point was wholly unsubstantiated and appeared “in the vaguest possible way” to allege that the adjudicator, himself a qualified chartered surveyor, had somehow improperly relied on the representative of the referring party in reaching his decision. The learned judge could see absolutely nothing in the point and no evidence that could have been adduced had an adjournment been permitted, that could support any allegation that Mr Conway had acted in a way that was biased or otherwise improper so as to vitiate his decision. Adjournment was refused, and Judgment entered accordingly, with costs to be assessed.
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6. Natural Justice BSW Building Services Ltd v Adur District Council 10 The applicant BSW Building Services Ltd (“BSW”) sought summary judgment against Adur District Council (“Adur”) to enforce an adjudicator’s decision in its favour. Adur had engaged BSW to carry out installation, maintenance and servicing works to heating and plumbing systems in local authority properties pursuant to a JCT Measured Term Contract. The works undertaken by BSW were to be valued by reference to a schedule of rates in the contract. The contract stated that where the contract particulars set out that clause 5.6.1 did not apply the rates given in the schedule of rates, which were current at the commencement of the contract period, would remain fixed for all orders. Paragraph 11.3 of the contract particulars stated that clause 5.6.1 did not apply. BSW presented invoices and had been paid on the basis that it was entitled to annual incremental increases to reflect inflation. In 2017, BSW claimed that the annual increment had not been correctly calculated, and it was entitled to additional sums on the proper application of the RPI mechanism in the contract. BSW referred this issue to adjudication. At adjudication, it was Adur’s case that therewas no contractual entitlement to incremental increases and that the parties had agreed alternative rates. The adjudicator considered that the issues to be determined were BSW’s entitlement to annual incremental increases and whether the parties had agreed alternative rates so that BSW were estopped from claiming additional sums. The adjudicator decided that the contract terms meant that the prices were fixed for the duration of the contract but that Adur had recognised the principle of inflationary increases and had waived its right to fixed prices. He decided that BSW was entitled to the sums claimed by way of additional incremental increases. Adur argued that there had been a plain breach of natural justice since the adjudicator had reached his decision on a ground that had not been put forward by either party and which it had no opportunity to meet. It was held that BSW’s case was that it was entitled to the annual increments as a matter of construction of the contract, which had not been varied. Adur’s case was that BSW was not so entitled and that the parties had agreed alternative rates and that BSW were estopped from denying it had agreed to alternative rates. Those were the issues before the adjudicator and neither side had put forward or dealt with waiver. The basis of the decision had not been argued by either side. The adjudicator had gone on a frolic of his own. There was a clear beach of natural justice such that the adjudicator’s award would not be enforced ( Cantillon Ltd v Urvasco Ltd 11 applied). The application for enforcement of the adjudicator’s decision was refused.
7. Natural Justice – Setting off Synergy Gas Services Limited v Northern Gas Heating Limited 12 The Claimant (“Synergy”) applied for summary judgment against the Defendant (“Northern”) in respect of enforcing an adjudicator’s decision. Synergy and Northern had entered into a sub-contract and a dispute arose as to Northern’s alleged failures to pay invoices. Synergy referred the dispute to adjudication where Northern claimed a set-off as a result of Synergy’s alleged failure to rectify defects. Synergy denied the allegations and submitted Scott schedules responding to alleged defects and noting it had not been given the opportunity to make good the defects. The adjudicator considered the interpretation of the sub-contract and found that a notification of defects was a pre-condition to setting off. As Northern had not notified Synergy of the alleged defects, it could not claim a set-off. The adjudicator decided that Northern were to pay Synergy over £74,000. On the day of the trial, Synergy received a cheque for payment of £45,000 and so it continued with the application to enforce with respect to the balance. Northern argued that the adjudicator’s decision breached the rules of natural justice as Synergy had not argued that the sub-contract contained a pre-condition to set-off and the adjudicator had not raised it with the parties so that Northern had the opportunity to address it. The Court held that it was rare for it to intervene where breaches of natural justice arguments were raised unless it was plain that the adjudicator had decided a different question to that referred to him or had gone about the task in an obviously unfair manner. Although Synergy’s submissions to the adjudicator did not expressly plead that he should consider the pre-condition clause of the subcontract, the Scott schedule were full of references to Northern’s failure to give Synergy opportunity to inspect or rectify the alleged defects. Therefore the adjudicator’s decision was based on the arguments raised in the adjudication and there was no obvious unfairness and no breach of natural justice. Summary judgment was granted to enforce the unpaid part of the adjudicator’s decision.
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8. Transfer of Proceedings – Court’s powers to transfer hearings Enforcement—permission to continue proceedings under s.252 Insolvency Act 1986 Dr Cyril Chern v (1)Apilosa Corporation (2) AR Architecture Limited 13 The Claimant (“Dr Chern”) was an adjudicator who had conducted an adjudication in 2017 and gave a decision in favour of the Defendants. Dr Chern had received a substantial on account payment and brought proceedings against the Defendants for the balance of his fees on a joint and several basis. The second defendant (“AR”) said the total fee claimed of £168,000 was unreasonable given the straightforward nature of the adjudication. AR applied for the proceedings to be transferred to the High Court (Technology and Construction Court) from the Central London County Court. AR said that the characteristics of the case meant that it would be better dealt with in the High Court in accordance with the guidance in West Country Renovations 14 . Those characteristics included the sensitivity of the matter, the conduct of the Claimant, the provision of timesheets and the allegation of overcharging. Fraser J held that there was no reason in principle why a simple case about whether an adjudicator’s fees were reasonable should not be decided by a circuit judge in the TCC list of a county court. The dispute was purely factual and straightforward and did not require a High Court judge’s consideration. The application was refused. 9. Summary Enforcement – Enforcement of adjudicator’s decisions – Interim payments – Pay Less Notices – Liquidated Damages See S&T (UK) Limited v Grove Developments Limited An employer is entitled to seek adjudication under a construction contract to determine the correct value of the works under an interim application, even if it had failed to serve a payment notice or a pay less notice. In order to commence such an adjudication it had to have paid the interim application amount. Enforcement—Enforcement of adjudicator’s decision – milestone payments See Birmingham City Council v Amey Highways Ltd Where milestone certification had been set aside, there was no legal basis for the money wrongly paid as a result of the certification to be retained. The Court enforced the adjudicator’s decision for the money to be repaid pending a valid milestone certification process.
Enforcement – Enforcement of Adjudicator’s Decision – Stay of proceedings - Declarations Sought See Ealing Care Alliance Ltd v London Borough of Ealing The Court refused to stay enforcement proceedings of an adjudicator’s decision and the Claimant was able to proceed with its market testing without having to stipulated that its right to do so was subject to legal challenge as it would deter potential bidders and prevent it from having the benefit of the adjudicator’s decision that market testing should proceed. Jurisdiction – Bias See Charles David Hoyle v B.A.K. Building (Contracts) Limited A party cannot rely on not agreeing to adjudication to absolve them from any responsibilities for fees. Particularly where it partakes in the adjudication and does not maintain any jurisdictional or natural justice challenges or reserve its right to do so at a later date. The Court confirmed it would not deal with questions of whether an adjudicator was right or wrong on a summary judgment application. Natural Justice See BSW Building Services Ltd v Adur District Council An adjudicator’s decision would be in breach of natural justice and would not be enforced where he had made his decision on a basis not put forward by either party or which the Defendant had not had the opportunity to address. Natural Justice – Setting off See Synergy Gas Services Limited v Northern Gas Heating Limited It was rare for the courts to intervene where breaches of natural justice arguments were raised unless it was plain that the adjudicator had decided a different question to that referred to him or had gone about a task in an unfair manner. Here the adjudicator’s decision was sufficiently covered by arguments raised by way of a Scott schedule. Transfer of Proceedings – Court’s powers to transfer hearings See Dr Cyril Chern v (1)Apilosa Corporation (2) AR Architecture Limited Where a case of a straightforward and purely factual nature is brought before the TCC, it is suitable for it to be dealt with by the County Court in the TCC list. It is not always necessary for it to be transferred to the High Court.
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References: 1. Scheme for Construction Contracts (England & Wales) Regulations 1998 (SI 1998/649). 2. Scheme for Construction Contracts (England & Wales) (Amendment) (England) Regulations 2011 (SI 2011/2333). 3. Scheme for Construction Contracts (Scotland) Amendment Regulations 2011 (SI 2011/371). 4. Scheme for Construction Contracts (Scotland) Regulations 1998 (SI 1998/687) (S.34). 5. Scheme for Construction Contracts (England and Wales) Regulations 1998 (Amendment) (Wales) Regulations 2011 (SI 2011/1715) (W.194). 6. [2018] EWCA 2448. 7. TCC (unreported judgment 04 October 2018), Stuart-Smith J. 8. [2018] EWHC 2630 (TCC). 9. [2018] EWHC 2802 (TCC). 10. TCC (unreported judgment 30 October 2018), Roger Stewart QC. 11. [2008] EWHC 282 (TCC). 12. [2018] EWHC 2060 (TCC). 13. [2018] EWHC 3025 (TCC). 14 West Country Renovations Ltd v McDowell [2012] EWHC 307 (TCC).
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Get in touch with our team for more info: Matthew Grellier Head of Construction & Engineering matthew.grellier@slaterheelis.co.uk
Katy Ormston Trainee Solicitor katy.ormston@slaterheelis.co.uk
Kenneth Salmon Consultant Solicitor kenneth.salmon@slaterheelis.co.uk
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