Adjudication Case Law Update 2023: Part 4
Set off against adjudicator ’ s decision
FK Construction Limited v ISG Retail Ltd
[2023] EWHC 1042 (TCC) Justice Joanna
Smith DBE judgment 5 May 2023
In the fourth edition of our 2023 Court Decision Summaries, Kenneth Salmon MCIArb, consultant solicitor at Slater Heelis LLP, summarises four court decisions relating to the enforcement of adjudicators' Awards under the Housing Grants, Construction and Regeneration Act 1996.
Repayment following final
determination
ISG Retail Limited v FK Construction
Limited [2023] EWHC 2012 (TCC) Adrian
Williamson KC judgment 2 August 2023
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
In Part 4
apply to contracts entered into on or after 1 October
Jurisdiction – Commencement of true
2011. The Act applies to England and Wales,
Scotland and Northern Ireland.
value adjudication before payment of
notified sum
The main regulations are contained in the Scheme
Henry Construction Projects Limited v Alu-
for Construction Contracts (England & Wales) Regulations 1998 (the ‘Principal Regulations’). 1
Fix (UK) Limited [2023] EWHC 2010
(TCC) District Judge Baldwin judgment 23
They have been amended by the Scheme for
May 2023
Construction Contracts (England & Wales) (Amendment) (England) Regulations 2011 2 (the ‘new Regulations’). The new Regulations apply
Natural Justice – Amount of material
only to contracts for construction operations in
and lack of time
England entered into on or after 1 October 2011. For
Home Group Limited v MPS Housing
earlier contracts, the Principal Regulations apply.
Limited [2023] EWHC 1946 (TCC) Mr
Northern Ireland has its own scheme: the Scheme for
Justice Constable judgment 25 July 2023
Construction Contracts in Northern Ireland 1999 as
2 Scheme for Construction Contracts (England & Wales)
1 Scheme for Construction Contracts (England & Wales)
(Amendment) (England) Regulations 2011 (SI
Regulations 1998 (SI 1998/649).
2011/2333).
1
1998 4 applies. There are new separate regulations
amended by the Scheme for Construction Contracts
in Northern Ireland (Amendment) Regulations
for Wales, applicable to contracts for construction
(Northern Ireland) 2012. The Northern Ireland
operations in Wales entered into on or after 1 October 2011. 5
Scheme is broadly similar to that in force in England
and Wales.
A reference to “the Scheme” is to the Principal Regulations for England and Wales, or the Scheme
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
for Scotland, Wales, or Northern Ireland, as the
context requires.
to contracts for work in Scotland entered into on or
after this date. For earlier contracts the Scheme for
Construction Contracts (Scotland) Regulations
Summary
Jurisdiction – Commencement of true value adjudication before payment of notified
sum
Henry Construction Projects Limited v Alu-Fix (UK) Limited [2023] EWHC 2010 (TCC)
District Judge Baldwin judgment 23 May 2023
The obligation to make immediate payment arises when there is a notified sum under s111 of
the Act, not when an adjudicator later awards payment. A true value adjudication may not be
commenced or continued and the adjudicator will not have jurisdiction to determine a true
value adjudication until payment of a notified sum has been made. Where there is a genuine
dispute as to whether or not a notified sum exists, a true value adjudication may be allowed
pending a decision as to that issue.
Natural Justice – Amount of material and lack of time
Home Group Limited v MPS Housing Limited [2023] EWHC 1946 (TCC) Mr Justice Constable
judgment 25 July 2023
3 Scheme for Construction Contracts (Scotland)
5 Scheme for Construction Contracts (England and
Amendment Regulations 2011 (SI 2011/371).
Wales) Regulations 1998 (Amendment) (Wales)
Regulations 2011 (SI 2011/1715) (W.194).
4 Scheme for Construction Contracts (Scotland)
Regulations 1998 (SI 1998/687) (S.34).
2
Complexity and/or volume of material and consequent constraint of time in which to respond
were inherent in the process and of themselves no bar to enforcement. Cases involving
significant amounts of data entitled the adjudicator to proceed by way of spot checks and/or
sampling in such manner as s/he should determinate.
Set off against adjudicator ’ s decision
FK Construction Limited v ISG Retail Ltd [2023] EWHC 1042 (TCC) Justice Joanna Smith
DBE judgment 5 May 2023
A court would have discretion to permit the set off of one adjudicator’s decision against another, as an exception to the pay now argue later principle where:
a) There was a statutory right of set off which did not offend the Act.
b) The set off was a consequence of the decision itself.
c) In its discretion where there were two (or more) valid and enforceable decisions between the
same parties, and proceedings to enforce each decision, the effect of which was that money was
due to each party.
In this case the principles were not satisfied and the decision was enforced in full without set off.
Repayment following final determination
ISG Retail Limited v FK Construction Limited [2023] EWHC 2012 (TCC) Adrian Williamson
KC judgment 2 August 2023
Following the case of Aspect and Higgins. This is the sequel to the earlier case in which repayment was
now ordered.
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Court decision summaries in full Click on the options below to read a full summary and analysis.
Jurisdiction – Commencement of true value adjudication before payment of notified
sum
Henry Construction Projects Limited v Alu-Fix (UK) Limited [2023] EWHC 2010
(TCC) District Judge Baldwin judgment 23 May 2023
Henry applied for summary judgment to enforce the "true value" adjudication decision of Mr
M.T. Molloy dated 6 March 2023 ("TVA") awarding them £191,753.88 plus interest. Alu-Fix
resisted on the basis that Mr Molloy lacked jurisdiction because the TVA had been commenced
prior to Henry having paid them the notified sum due to them under the JCT Contract between
the parties.
Alu-Fix had made a payment application. Henry failed to make payment or to issue a payment notice or (as it was later found) serve an effective pay less notice ( “ PLN ” ). Alu-Fix commenced a smash and grab adjudication before Mr Rayner (“SGA”). At that point, without making payment of the application, Henry commenced the TVA. Alu-Fix asked Mr Molloy to resign
because Henry had commenced the TVA before making payment of the notified sum. Mr
Molloy found he had jurisdiction because at that time Mr Rayner had not yet made any decision
and it remained to be seen whether the sum claimed in the SGA (and disputed by Henry) was
or was not due. Mr Molloy stayed the TVA pending the outcome and payment of any sum
found due by Mr Rayner.
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Mr Rayner decided there was no PLN and found Henry liable to pay the sum claimed. They
made payment to Alu-Fix, whereupon Mr Molloy proceeded with the TVA, finding in favour
of Henry.
The issue before the court was one on which there was no direct authority: could a paying party
commence a TVA where the question of its liability to make the payment claimed due was
genuinely disputed and had yet to be determined in an existing SGA?
The court referred to the decisions of • O'Farrell J in the recent case of Bexheat v Essex Services Group 6 , • Jackson LJ in Grove Developments Ltd v S&T (UK) Ltd 7 , and • Stuart-Smith J (as he then was) in M Davenport Builders Ltd v Greer 8
from which it derived the following principles:
- Where a valid payment application was made, and no payment application or PLN was
given, the payer was obliged to pay the notified sum by the final date for payment (s111
of the Act).
- If payment was not made, the payee was entitled to seek an adjudication award in its
favour.
- Where a party was required to pay the notified sum by reason of its failure to serve a
payment notice or PLN, it was entitled to embark upon a 'true value' adjudication in
respect of that sum but only after it had complied with its immediate payment obligation
under s111 of the Act.
- It was clear that the payer became free to commence a true value adjudication when
(and only when) he had paid the sum ordered to be paid by the earlier adjudication.
Henry’s case Henry argued that this case differed from those previously decided, in that at the time of
commencement of the TVA there was an ongoing "genuine dispute" as to the validity of the
PLN. Thus, unless and until there was an adjudication decision that there was no valid PLN,
no "immediate payment obligation" arose or subsisted. The embargo upon launching a TVA
6 [2022] EWHC 936 (TCC).
7 [2018] EWCA Civ 2448, (2018) 181 ConLR 66, [2019] Bus LR 1847 . 8 [2019]EWHC 318 (TCC), [2019] Bus LR 1273, [2019] BLR 241.
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prior to the payment of any immediate payment obligation was not engaged and no question of
jurisdiction could arise. The payment obligation only became immediate upon Mr Rayner
finding the PLN invalid and was discharged within the timeframe set down by him. They also
drew the Court's attention to Stuart Smith J's analysis of Harding (t/a MJ Harding Contractors)
v Paice in the case of Davenport in which it was said the Court of Appeal implied that it was
not an essential prerequisite to relying upon a later true value adjudication decision that the
earlier immediate obligation should be discharged before launching the later true value
adjudication. Paice did not pay its immediate obligation under the third adjudication before
launching the fourth, and they were not precluded from proceeding with or relying upon the
fourth adjudication for that reason. This suggested that the critical time would be when the
court was deciding whether to enforce the immediate obligation.
Alu-Fix submitted that the authorities were clear: you could not commence a TVA until the
existing liability had been discharged.
What is the date of the immediate payment obligation in this case?
The court held that the resolution of the issue lay in determining the commencement date of
the immediate payment obligation: was it the final date for payment under s111 of the Act? Or
in the case of a genuine dispute as to entitlement, the date of the decision of the adjudicator?
Section 111(1) of the Act provided that the notified sum must be paid by the final date for
payment. This created the immediate payment obligation ( Bexheat para. 76(ii)). And that is
what Mr Rayner decided in the SGA.
The existence of a genuine dispute as to the existence of an immediate payment obligation did
not alter the position. For it to be allowed to do so would be to undermine the right to payment
and to tip the balance in favour of the disputing party. And it might also require the court to
decide whether a dispute was genuine or not. The payer could protect itself by serving a PLN.
In what circumstances might a genuine dispute as to the existence of a PLN entitle the
payer to commence a TVA before payment?
Recognising there could be a tension between an apparently premature TVA being a nullity or
surviving for the purposes of reliance, the court suggested the following solution. If an adjudicator in Mr Rayner’s position upheld a "zero" PLN, or the validity of a payment application was successfully challenged, there would have been no ‘notified sum’ within the
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meaning of the Act and therefore no immediate payment obligation. As such a TVA may well
not, on the facts, be found to be premature and reliance upon it might well be permitted.
In dismissing the summary judgment application the learned Judge concluded thus:
“Overall, in my view, the outcome in this case, whilst not closing the door on commencing a
TVA prior to the outcome of an SGA and later relying upon the outcome, ought to discourage
such a course in areas of spurious SGA dispute, but not deter those who have a sufficient level
of confidence that any dispute raised should result in a finding of no immediate payment obligation having b een established.”
Comment
As before (see Paice), the door is not completely closed on commencing a TVA whilst a SGA
is anticipated or in progress and before making payment. The question of jurisdiction in the
TVA may yet turn upon the outcome of the SGA. If it is later established that the payment
application in question is invalid, or an effective payment or pay less notice has been given,
there will have been no notified sum due and payable under s111 of the Act and therefore
nothing to prevent the TVA from having been properly commenced and continued. The
circumstances in which such a course proves worthwhile, may be limited. If the SGA decides
no notified sum, there will be no payment obligation and no need for a TVA. On the other hand,
if those questions arise and can be dealt with on enforcement (under part 7 or part 8), then the
TVA may well have utility.
Natural Justice – Amount of material and lack of time
Home Group Limited v MPS Housing Limited [2023] EWHC 1946 (TCC) Mr Justice
Constable judgment 25 July 2023
Home Group applied to enforce the decision of Mr Derek Pye awarding them some £6.5m in
what was the second of two adjudications between the parties. In the first adjudication it was
held that MPS had wrongfully determined a contract under which they had engaged Home
Group to perform property maintenance and repair work. The second adjudication concerned
assessment of the termination losses. MPS opposed enforcement on the grounds of breach of
the rules of natural justice, submitting that:
(i)
the sheer volume of material comprising the referral, coupled with
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(ii) Home Group’ s unreasonable refusal to provide MPS with data or access to the underlying documents until the last moment, and
(iii) a lack of sufficient time for MPS and its experts to interrogate and fairly respond to
the referral.
Volume of materials
MPS said that if the electronic data comprising and supporting the referral was reduced to paper
it filled 127 double-sided lever arch files, equivalent to 32 standard boxes. Home Group pointed
out that the hard copy documents delivered to the adjudicator filled 7 boxes. The court held
that irrespective of whether the correct number was 7 boxes or 32 boxes, the quantity of
information of itself did not present a valid basis for challenging enforcement.
Access to data Home Group’s offer of access to its data before the adjudication was conditional upon
agreement to a sampling exercise. The court said that had MPS reserved its position as to the
nature and extent of sampling but requested access it would have been difficult for Home Group
to have refused. Or had it refused, the complaint would then have had substance.
Time to respond
MPS and its experts would have had sufficient time to respond if they had acted immediately
instead of complaining at the lack of time and losing three weeks in tactical manoeuvring. The
court noted that the adjudicator was able to address the issues (including particularly the
allegations of quantum duplication) by undertaking a sampling exercise and that MPS did in
fact make considerable inroads into the quantum of the claim which was originally in excess
of £8m.
In reviewing the considerable body of case law on the subject, the court concluded:
(1) Adjudication decisions must be enforced even if they contained errors of procedure, fact or
law.
(2) A decision would not be enforced if it was reached in breach of natural justice and the
breach was material, i.e. led to a material difference in the outcome.
(3) Complexity and constraint of time to respond were inherent in the process and no bar in
themselves to enforcement.
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(4) In cases involving significant amounts of data, an adjudicator was entitled to proceed by
way of spot checks and/or sampling. How this should be carried out was a matter of substantive
determination by the adjudicator and an error in approach, in the absence of some particular
and material related transgression of natural justice, would not give rise to a valid challenge.
The decision was enforced.
Set off against adjudicator ’ s decision
FK Construction Limited v ISG Retail Ltd [2023] EWHC 1042 (TCC) Justice Joanna
Smith DBE judgment 5 May 2023
Background
When the instant proceedings came before the court, there had been 7 adjudications between
the parties arising from disputes under two projects (known as ‘Project Barberry’ and ‘Project Triathlon’, respectively) in which ISG had engaged FKC on similar bespoke sub -contracts. On Project Barberry there was the ‘Wood decision’, of February 2023, in which ISG was
found liable to pay FKC just under £1.7m (ISG having failed to serve a valid pay less notice
in response to FKC’s payment application). That was followed by the ‘Molloy decision’, of
April 2023, in which the adjudicator found that the gross value of the sub-contract works was
£3.7m (of which it was noted ISG had already paid around £2.8m leaving a balance of some
£900,000 ostensible due to FKC).
On Project Triathlon, there were three decisions dealing with various claims (the ‘Triathlon decisions’), the net effect of which was that FKC owed ISG some £67,000.
These proceedings were brought to enforce the Wood decision. Crucially no proceedings had
been commenced to enforce any of the other decisions.
ISG did not challenge the validity of the Wood decision but they argued that the court should
use its discretion to set off the sums due under the Wood decision against the net sum due to
ISG under the Triathlon decisions, and/or against the gross value of the works determined in
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the Molloy decision. ISG said the net effect was that FKC was entitled to no more than
£900,000 for Project Barberry, less £67,000 due to ISG for Project Triathlon.
The Law
It was well- established that a party ordered to make payment under an adjudicator’s decision must usually pay in full, without deduction or set-off 9 as this would be contrary to the ‘pay now argue later’ policy of the Act. However , there were three limited exceptions:
(1) Where there was a contractual right set off provision that did not offend the statutory
requirement for immediate enforcement of an adjudicator’s decision ( Thameside
Construction v Stevens 10 ; BexHeat v Essex 11 ).
(2) Where it followed logically from the decision itself that a set off was permitted, for
instance where it was found that an overall amount was due but there was no order
for payment.
(3) In ‘an appropriate case and at the discretion of the court’, where there were two valid
adjudication decisions involving the same parties, the effects of which was that
monies were owed by each party to the other ( HS Works v Enterprise Managed
Services 12 ).
ISG argued that this case fell within the third limited exception. The court therefore looked
at the decision in HS Works , where the judge formulated four steps to be considered in
determining whether to set off two adjudicators’ decisions : • Step1, was to determine whether both decisions were valid. • Step 2, if both decisions were valid, they were capable of being enforced.
9 Ferson Contractors Ltd v Levolux AT Ltd [2003] BLR 118 .
10 Thameside Construction Co Ltd v Stevens [2013] EWHC 2071.
11 BexHeat Ltd v Essex Services Group Ltd [2022] EWHC 936 (TCC).
12 HS Works Ltd v Enterprise Managed Services Ltd [2009] EWHC 729 (TCC).
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• Step 3, if both decisions were valid and enforceable, the court should enforce or give
effect to them both, provided that separate proceedings had been brought by each
party to enforce each decision.
• Step 4, the court should decide how each decision should be enforced. It might, for
example, be inappropriate to set off a second decision against the first, if the first
decision was made on the basis that there could be no set off.
The decision
The court found the facts of HS Works to be far removed from the present case. The court
had not been asked to determine the validity or enforceability of either the Molloy decision
or the Triathlon decisions and there were no separate proceedings to enforce those decisions.
The result was that the court had no discretion to permit set off in respect of any of those
decisions. Even if the court was wrong in that conclusion, there were other reasons why it
would not have exercised its discretion in favour of allowing a set off. These included the
fact that the Wood decision did not indicate that there could be set off or withholding against
the sum found due to FKC. And no actual payment had been found due under the Molloy
decision which was concerned with the gross value of the work. On the wider question of
whether an adjudicator’s decision relating to one project could be set off against a decision relating to another project, the court commented that this was ‘a point of some interest’,
which it was unnecessary to determine in the present case.
Accordingly, FKC was entitled to summary judgment for the full sum due under the Wood
decision.
Repayment following final determination
ISG Retail Limited v FK Construction Limited [2023] EWHC 2012 (TCC) Adrian
Williamson KC judgment 2 August 2023
11
This case is a sequel to the enforcement of the ‘Wood decision’ referred to above. Following the enforcement of the Wood decision, ISG commenced a further adjudication before Mr Molloy seeking a determination of the gross value of FKC ’s works. On 14 April 2023, Mr Molloy issued a Decision (the ‘ Molloy decision ’ ) in which he held, so far as relevant, that the
gross valuation of FKC's Works at 28 February 2023 was £3,736,679.72. On the same day,
ISG issued the present proceedings for a declaration that FKC was entitled to no more than the
sum found due by the Molloy decision and repayment of any sums paid in excess of that sum
and, by subsequent amendment, repayment of the sum of £1,751,063.70 paid to FKC by ISG on 16 May 2023 (the ‘ Wood Overpayment’ ).
ISG relied upon the decision of the Supreme Court in Aspect Contracts (Asbestos) Ltd v
Higgins Construction Plc 13 in which Lord Mance observed:
" 23. In my view, it is a necessary legal consequence of the Scheme implied by the 1996 Act into
the parties' contractual relationship that Aspect must have a directly enforceable right to
recover any overpayment to which the adjudicator's decision can be shown to have led, once there has been a final determination of the dispute…
It seemed to the learned judge that, where the dispute referred to an adjudicator had then been
referred to the Court or arbitration, and a different, final, outcome arrived at, it must follow that
any sums paid over pursuant to the decision of the adjudicator should be repaid. The
temporarily binding effect of the (incorrect) decision must yield to the final effect of the (ex
hypothesi) correct judgment. The effect of the earlier judgment on 14 June (in these
proceedings) was to undermine the basis on which Mr Wood proceeded and to reverse the
Wood decision, which could now be seen to be wrong.
In the result, ISG was entitled to the declarations sought in respect of, and summary judgment
for the repayment of, the sum of £1,751,063.70.
About the author:
13 [2015] 1 WLR 2961
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Kenneth Salmon MCIArb is a qualified solicitor in England, Wales and Eire.
He is a Ciarb qualified and CMC accredited Mediator and Chair of
Education at Ciarb North West Branch. Kenneth is a construction specialist
currently working as a consultant to Slater Heelis Limited. He has extensive
experience of all forms of dispute resolution including arbitration,
adjudication, expert determination and mediation He is the author of Cases
on the Enforcement of Construction Adjudication Awards (2012) and the series Cases (on adjudication enforcement) published in Ciarb’s journal Arbitration: The International Journal of Arbitration, Mediation and Dispute
Management 1999-2017.
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