The Enforcement of Adjudicators’ Awards under the HousingGrants, Construction and Regeneration Act Adjudication Cases
1996: Part 5 of 2021 Kenneth T. Salmon Consultant Solicitor at Slater Heelis
Construction&Engineering
Contents
1.. . .Introduction .......................................................................................................................................
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2. Payment application – Validity..................................................................................................... Michael Duthie Wilson in the Cause of Graeme Cheyne (Builders ) Ltd v Michael Duthie Wilson [2021] ScotSAC Civ 24 (03 August 2021) 3. Set off of counterclaim at enforcement .................................................................................. Davis Construction (South East) Ltd v Sanzen Investments Ltd [2021] EWHC 2216 (TCC) HHJ Stephen Eyre QC 4. Jurisdiction – payment of sum due to responding party.................................................. KPR Mechanical Ltd v Kevin Watson Group Ltd and KPR Mechanical Ltd v Kevin Watson Construction Ltd [2021] NIQB 34 Humphreys J 5. Set off of counterclaim at enforcement................................................................................... KPR Mechanical Ltd v Kevin Watson Group Ltd and KPR Mechanical Ltd v Kevin Watson Construction Ltd [2021] NIQB 34 Humphreys J 6. Set off – failure to consider defence – validity of payment notice – severance.......... Downs Road Developments LLP v Laxmanbhai Construction (UK) Ltd [2021] EWHC 2441 (TCC) 7 September 2021 (HHJ Eyre QC)
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Introduction The Enforcement of Adjudicators’ Awards under the Housing Grants, Construction and Regeneration Act 1996: Part 5 of 2021, by Kenneth T. Salmon, Consultant Solicitor, Slater Heelis.
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 Act applies to Northern Ireland.
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. Northern Ireland has its own scheme: the Scheme for Construction Contracts in Northern Ireland 1999 as amended by the Scheme for Construction Contracts in Northern Ireland (Amendment) Regulations (Northern Ireland) 2012. The Northern Ireland Scheme is broadly similar to that in force in England and Wales. 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, or Northern Ireland, as the context requires.
[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 (SI2011/1715) (W.194).
Payment application – Validity: Michael Duthie Wilson in the Cause of Graeme Cheyne (Builders ) Ltd v Michael Duthie Wilson [2021] ScotSAC Civ 24 (03 August 2021) This was an appeal by Mr Wilson against the Sheriff’s finding that his defence and counterclaim raised in answer to an application to enforce an adjudicator’s decision in favour of Cheyne had no real prospect of success and the Sheriff’s enforcement of the adjudicator’s award. In 2016 Cheyne as contractor agreed to build a dwelling house for Mr Wilson as employer at Cults Aberdeen using a standard form of building contract “Scottish Building Contracts Committee: Minor Works Building Contract with Contractor’s Design for use in Scotland (MWD/Scot 2016)”. Article 3 identified the Architect/Contract Administrator for the purposes of the contract as “WCP Architects (the William Cowie Partnership Ltd)” and went on to provide at Section 5 that interim payment applications by Cheyne were to be served on WCP, who should then issue interim payment certificates. If WCP did not issue an interim payment certificate, then Cheyne’s application would become the ‘payment notice’ and Mr Wilson would be obliged to pay the sum in that notice unless he gave a timely payless notice. In the period to December 2018 Cheyne submitted 13 interim payment applications to WCP. Interim payment application no 14 (“IPA14”) was duly sent to WCP.
No interim payment certificate was issued and no payless notice was served so that IPA14 became payable on 15 March 2020. Unknown to Cheyne, WCP had resigned some 8 months before they sent them IPA14. Mr Wilson had not troubled to inform Cheyne of this fact not to appoint a new Architect/Contract Administrator as required by contract. Mr Wilson did not pay IPA14 and Cheyne took the claim for payment to adjudication. Mr Wilson contended that IPA14 was invalid because it could not be effectively served on WCP once they had vacated the office of Architect/Contract Administrator. Further, it was not in accordance with the contract in that it did not show how the sum claimed was calculated. The adjudicator found in favour of Cheyne and awarded them £263,357.53 with interest and ordered Mr Wilson to pay her fees. When Cheyne sought to enforce the award in the Sheriff’s court Mr Wilson raised a number of defences and counterclaimed for a declaration that the payment application was invalid. The defences were: i) That IPA14 was invalid and of no effect because it was sent to WCP who were no longer in office and it did not reach him;
ii) The adjudicator had failed to give adequate reasons for her decision;
iii) IPA14 was tainted by fraud in that it contained a request for payment for groundworks as part of which Cheyne had dumped contaminated materials in the garden.
The Sheriff considered the defences. He concluded that the question of the validity of IPA14 was a short self-contained point that could be summarily decided and having done so held that the defences had no real prospect of success and granted summary decree to Cheyne for payment of the award. Mr Wilson now appealed from that decision contending the sheriff erred in law and was plainly wrong to conclude that the question of the validity of IPA14 was suitable for summary determination; that IPA14 was validly served; and that his defence (to the contrary) had no real prospects of success.
He failed to do so through the following 8 months and thereby exposed himself to the risk that the application would be sent to WCP. The court said: “In the present case, clause 5.4.1 and Article 3 are clear in their terms. Absent a variation of the contract or the nomination of a replacement Architect/Contract Administrator, the party upon whom service of an interim application was required, was WCP. Interim application 14 was served upon WCP.” “…it is sufficient to observe that the decision not to replace WCP timeously was clearly a conscious and deliberate one. As a matter of general principle, a party is not entitled to take advantage of its own wrong in enforcing contractual obligations.” 2. There was no doubt from a reading of the submissions and award that the adjudicator had understood and considered the material lines of defence in reaching her decision. There was no question of a breach of the rules of natural justice or failure to exhaust her jurisdiction. 3. As to reasons the court said this: “On a fair reading of the decision as a whole, the reasonable reader can be left in no doubt that the adjudicator found that in the absence of any notice of WCP’s resignation, payment application 14 fell to be issued to WCP as the Architect/Contract Administrator in terms of the contract.” 3. Fraud. Mr Wilson was aware of the complaints about groundworks before the adjudication and could and should have raised his objection then that the application was tainted by fraud. Having failed to do so then, it was too late now.
Mr Wilson further contended that the Sheriff was wrong in enforcing the award to find that:
1. The adjudicator had exhausted her jurisdiction in dealing with a material line of defence advanced by him, namely that IPA14 was invalid;
2. The adjudicator had provided sufficient reasoning on this material line of defence;
3. The question of contamination was a factual issue and could not amount to fraud and thereby provide a basis for refusing to enforce the award.
The appeal court found that the Sheriff was entitled to find as he did.
On each of the issues they held as follows:
1. The question of the validity of IPA14 was a short self-contained point suitable for determination. IPA14 was validly served on WCP. They were the named Architect/Contract Administrator for the purposes of the contract including the receipt of applications for payment by Cheyne who could not have known of their resignation unless informed of the fact. Mr Wilson was in a position to appoint a replacement and should have done so within 14 days of their resignation.
Set off of counterclaim at enforcement: Davis Construction (South East) Ltd v Sanzen Investments Ltd [2021] EWHC 2216 (TCC) HHJ Stephen Eyre QC In adjudication enforcement proceedings the court applies the test set out in CPR 24, but having regard to the nature of the application being considered. There are limited grounds on which an application to enforce an adjudicator's decision can be resisted. The cases establish that with few limited exceptions, a party is not entitled to avoid the “pay now, argue later” mantra by seeking to exercise a right of set-off (see Squibb Group v Vertase FLI Ltd[6]). The claimant was engaged by the defendant under a JCT ICD 2016 contract to build 25 apartments. Two clauses were relevant: The first was Clause 1.13 which contained an express right of set off in favour of the defendant. The second was clause 9.2 which incorporated the adjudication provisions of the Scheme with two exceptions (not relevant to the issues in this case). The claimant referred a final account dispute to adjudication in which the adjudicator found the claimant was entitled to payment of £80,996 plus VAT plus his fees, a total of £162,000. It was of note that although an issue over the quality of work had arisen, and a pre-action protocol letter of claim sent on behalf of the defendant, the issue of quality of work was not raised in the adjudication. At the enforcement, the defendant argued the application should be adjourned or stayed to permit it to set-off a counterclaim for defective work.
Comment
It is worth setting out the stark reminder at the conclusion of the judgment.
“The various defences asserted by the appellant in his defence to the principal action and in the submissions before us represent, in our judgment, the very type of contrived or technical defences which the Court of Appeal in Carillion Construction Ltd has cautioned the courts to examine with a degree of scepticism. The sheriff was correct to so examine the defences and to conclude that they had no real prospects of success. We are not persuaded that in granting the respondent’s motion for summary decree the sheriff either erred in law or was plainly wrong.”
[6] [2012] EWHC 1958 (TCC)
The question for the court was whether the counterclaim operated as a set-off under clause 1.13 of the contract, and if so, whether that was sufficient to prevent summary judgment. The court had to consider the interrelationship between the two provisions. Previous case law established that there could be a set-off against an adjudication award and the existence of a potential set-off could be a defence warranting the court in declining summary judgment, but only in two sets of circumstances. First, where the effectof the relevant contract properly construed gave a right of set-off against an adjudication award. Second, where the matters sought to be set-off arose impliedly by virtue of the adjudicator's decision, such as where a decision indicated there is to be a payment but that the payment was to be subject to deductions in accordance with normal provisions of the contract. This latter potential defence was not relevant here. It was the first potential defence with which the court was concerned. Looking at the adjudicator's decision, there was nothing in it which gave rise to an entitlement to withhold sums from it. That brought the court back to the terms of the contract. In Squibb Coulson J said this: "The first possible exception to the general rule turns on the proper construction of the terms of the contract. There will be some cases, such as Parsons Plastics Ltd.…where the contractual right to set-off may trump the enforcement of an adjudicator's decision. However, such cases will be relatively rare and will depend upon the precise construction of the relevant set-off provision. Clear words permitting the set-off against a sum otherwise due will usually be required. The more common analysis is that set out by the Court of Appeal in Ferson Contractors Ltd v Levolux …where Mantell LJ said that the contract had to be construed so as to give effect
to the intention of Parliament, rather than to defeat it, and that if the set-off provision offended the requirement for immediate enforcement of the adjudicator's decision, it should be struck down. He distinguished Parsons on the basis that it was not concerned with section 108 of the 1996 Act and was instead concerned with a rather different ad hoc adjudication procedure." The court found that rationale equally applicable to a contractual provision for adjudication in this case, as to the statutory right governing the cases cited. Applying Squibb , and RWE Npower v Alstom Power Ltd [7], the court concluded that the operation of clause 1.13 of the contract, was subject to the operation of clause 9.2 and the provisions of the Scheme and the principle of "pay now, argue later”, and not the other way around. As it was, clause 9.2 set out to two exceptions to the provisions of the Scheme. As this was a contractual right of adjudication, the parties could have also included a further exception to provide a right to set-off against the award. They had chosen not to do so. Therefore, the existence of a counterclaim was not a defence to enforcement. That construction of the contract also precluded any possibility of an equitable set-off. Even if the counterclaim was "potentially meritorious", it was not unjust to allow summary judgment. For reasons similar to those given above, the court held it was inappropriate to stay execution as that would defeat the purpose of the Scheme which the parties had chosen to adopt. Equally there was no basis for ordering the judgment sum to be paid into court or into some other form of holding account pending trial of the counterclaim. That would also undermine the principle of “pay now argue later”. Judgment accordingly.
[7] [2009] EWHC 1192 (QB)
Jurisdiction – payment of sum due to responding party and Set off of counterclaim at enforcement: KPR Mechanical Ltd v Kevin Watson Group Ltd and KPR Mechanical Ltd v Kevin Watson Construction Ltd [2021] NIQB 34 Humphreys J In each of two actions, the plaintiff, (“KPR”) applied for summary judgment[8] to enforce an adjudicator’s award in its favour. It had been appointed as mechanical subcontractor for two projects (i) a housing development in Northolt London by (“KWG”) and (ii) the Holiday Inn Express, Derry by (“KWC”). Each adjudication concerned the true value of KPR’s account. Contract (i) was governed by the Act and contract (ii) by the Construction Contracts 9NI) Order 1997. In respect of contract (i) KWG was the referring party. The adjudicator found that the true value of eh account was £368,242. The amount paid was £205,547 so the adjudicator found there was no sum due to be repaid by KPR to KWG. In respect of contract (ii) KWC as referring party sought a true valuation of the account. The adjudicator found the true value of the account was £795,979.08 which was £145,878.81 more than had been paid to KPR. In neither case was there an order for payment to KPR as the responding party, although the effect of the decision was that KPR was entitled to a further payment. KPR issued proceedings by way of writ of summons. In the second action, KWC issued a defence saying that KPR had no cause of action and a counterclaim exceeding the sum
Comment
The significance of this case is that the adjudication provision was imported by agreement, not imposed by the Act. Still, this made no difference to the principles to be applied. Though the previous cases referred to were not binding on the court, the judge chose to follow them. Once again we see that clear words are required to preserve a right of set off against an adjudicator’s decision and even then, they are unlikely to be upheld if they defeat the statutory purpose of preserving cash flow.
[8] Under Order 14 of the Rules of the Court of Judicature (NI) 1980
The adjudicator found that KWC was not entitled to the relied sought in the absence of satisfactory proof. An argument that the court should refuse to enforce the original award one year after it was made in light of intervening developments was held to be without substance. There was no basis for a stay on the grounds of manifest injustice. An argument that KPR was impecunious was not pursued and was described as being wholly without merit. There was no suggestion that either award was made without jurisdiction or that either adjudicator had acted contrary to the principles of natural justice. Or that the plaintiff KPR was impecunious and unable to pay any future award in favour of the defendant. None of the arguments available to the defendant amounted to a reasonably arguable defence. Judgment for the plaintiff on each award.
The court referred to the “pay now argue later” principle governing enforcement of adjudicators’ awards emphasising the robust approach taken by courts even where the defendant asserted a counterclaim. The court added that the power to grant a stay it was a fundamental principle that a stay would not be granted simply because the defendant had a claim which would be determined in the near future. Allowing a stay would have the same effect as allowing a set off of the counterclaim. The only basis for stay was financial impecuniosity of the plaintiff per Wimbledon[9]. The defendants argued that since neither adjudicator had made an award in favour of the KPR, there was nothing to enforce and thus no cause of action. The court was referred to the judgment of Mr Recorder Andrew Singer QC in WRW Construction[10] where as a matter of principle and authority the court found it could enforce the consequences of a valid and binding award even though it did not contain an express obligation to make payment. The court agreed. To hold otherwise would be to compel the parties to engage in further adjudication proceedings to which there would be no defence and undermine the intention of the legislation. The court dismissed a suggestion that relief should not be granted because KPR had waited for 8 months before bringing enforcement proceedings. There was no time limit for an application under Order 14. Both Covid-19 lockdown and the long vacation had intervened. There was no prejudice to the defendants. KWC raised what was called the “Insurance Point”. In contract (ii) KWC made a claim for damages caused by a water leak. The adjudicator had found KPR was responsible, but it was too early to assess the loss. KWC then entered into an agreement with its employer for the deduction of £100,000 for the damage and started fresh adjudication proceedings for that sum.
Comment
It is of interest but unsurprising that the High Court of Northern Ireland followed the decision of Mr Recorder Andrew Singer QC in WRW. These two cases taken together are persuasive authority in support of the proposition that a ‘negative award’ in favour of a referring party which produces a balance due to the other party, is enforceable as to payment without an express order for payment. As things stand an express order for payment is unnecessary and probably undesirable unless the referral encompasses such relief. Whilst these propositions may yet be tested at a higher level, they are more likely than not to be followed at first instance.
[9] Wimbledon Construction v Derek Vago [2005] EWHC 1086 [10] WRW Construction v Datblygau Davies Developments [2020] EWHC 1965 (TCC)
Set off – failure to consider defence – Validity of payment notice – severance: Downs Road Developments LLP v Laxmanbhai Construction (UK) Ltd [2021] EWHC 2441 (TCC) 7 September 2021 (HHJ Eyre QC) The claimant Employer engaged the defendant Contractor to build 79 residential units in London on a JCT DB 2011 with amendments for a contract sum of £27.39m. The Employer served a “holding” notice relied on as a valid Payment Notice for £0.97p (i.e. a nominal £1 less 3% retention) within the requisite period (Payment Notice 34). It later served a detailed Payment Notice (34a) outside the requisite period. This process had been employed in previous payment applications 31-33. The Contractor’s interim payment 34 had been for a net sum of £1,888,660.70 whereas Payment Notice 34a was for the net sum of £657,218.50 which was duly paid. Instead of commencing a ‘smash and grab’ adjudication the Contractor referred the dispute over the (true) value of interim payment application 34 to adjudication. Its stated reason for doing so was to settle the manner in which future payment applications were to be dealt with and to avoid a further adjudication by the Employer for a true value if it succeeded on its smash and grab. In the adjudication the Employer relied on its Payment Notice 34. It also raised counterclaim for a defective capping beam said to result in a loss of future rental value of £149, 692. The adjudicator valued interim payment application No 34 at £103,826.98 after deducting £10,000 for the Contractor’s admitted failure to provide a warranty.
He decided the issue over the capping beam was not part of the dispute i.e. not part of the valuation of the payment application as referred to him and he had no jurisdiction to deal with it. The Employer applied under Part 8 CPR for declaration that the adjudicator’s decision was unenforceable because of his failure to address the defence based on the defective capping beam. It also sought a declaration that the Contractor was not entitled to suspend works because the Employer had failed to pay the amount said to be due under the Decision. In its Acknowledgement of Service the Contractor sought declarations that Payment Notices 34 and 34a were invalid and that the Decision was valid and enforceable.
The Issues
At the hearing, the Employer conceded that Payment Notice 34a was out of time and invalid. However they argued that Payment Notice 34 was valid: it provided an agenda for adjudication and thereby satisfied the requirements of section 110A (2)(a) of the HGCRA and clause 4.10.1 of the Contract. The Employer said the Decision itself was not binding as to the conclusion that £103,826.98 was due because the adjudicator had failed to consider its capping beam cross-claim. However, said the Employer, the Decision involved decisions on two separate issues: (1) that of the sum due in respect of Interim Application 34 and (2) the extent of the set-off available to the Employer. Although the adjudicator's conclusion as to the latter of those issues was not enforceable, the Decision was binding as to the former.
Judgment
The result said the Employer was that the Contractor was no longer able to rely on Interim Payment Application 34 as originally formulated (i.e. on a "smash and grab" basis) but only as to the amount identified by the adjudicator. The Contractor said Payment Notice 34 was invalid because it failed to satisfy the requirements of section 110A (2)(a) of the Act and clause 4.10.1 of the Contract. The Decision, it said, was enforceable in its entirety. Alternatively, if it was not enforceable, it was not enforceable in part as argued by the Employer. The effect of the Decision not being enforceable was that there was no valid Payment Notice and no enforceable adjudication Decision with the consequence that the notified sumwas the amount set out in Interim Application 34 and that the Employer was required by section 111 (1) of the Act to pay that sum. It even went so far as to say that the Employer was obliged to pay that sum even if the Decision was enforceable and that the Employer's redress after having paid that sum was then to seek to recover any overpayment.
The validity of Payment Notice 34
It was a requirement of the Act and the Contract that a Payment Notice set out the sum which the Employer considered due at the payment due date and the basis on which that figure was calculated. It could not be credibly contended that Payment Notice 34 provided ‘an agenda for adjudication’. It set out no basis for the assertion that the gross valuation was increased by £1; there was no material on which the validity of that assertion could be assessed. It was to be contrasted with Payment Notice 34a. Not only did that latter notice put forward a markedly larger figure but it was accompanied by detailed calculations showing how the figure was arrived at. It was significant that Payment Notice 34a in fact provided an agenda for the adjudication and that the adjudicator's approach to the figures involved an analysis of the sums advanced by the Contractor by reference to particular headings which were substantially those which appeared in the material accompanying Payment Notice 34a.
The issues thus were:
i) The validity or otherwise of Payment Notice 34.
That exercise would not have been possible using Payment Notice 34 alone.
ii) The enforceability of the adjudicator's decision that the sum payable was £103,836.98 with no account being taken of the capping beam cross- claim. iii) The effect of the adjudication on the parties' rights and obligations in respect of Interim Application 34.
Payment Notice No 34 did not set out the amount which the Employer actually considered to be due. It was not necessary to show the Employer was acting in bad faith but equally it could not be said that the notice stated the sum that Employer genuinely considered to be due. Payment Notice 34 was invalid and ineffective.
“The distinction between an adjudicator addressing a defence and concluding that it fails and an adjudicator deliberately declining to address a defence can be a narrow one but it is a real one. I am satisfied that by deliberately deciding not to address this defence the adjudicator was declining to address a defence which the Employer was entitled to advance and entitled to have considered by the adjudicator.” In light of that conclusion it was unnecessary for the court to consider an alternative argument that the adjudicator had been given “ad hoc” jurisdiction by reason of the parties having addressed the issue of the capping beam in the adjudication. Had it been necessary to do so the court would have held that it did not give the adjudicator jurisdiction. The capping beam claim was not part of the initial referral. It was put forward by way of a defence on the Employer's part and which the Contractor then addressed. It could not be said that it was matter which the parties had agreed the adjudicator should decide[11]. The adjudicator having failed to address a matter which was put before him, it was necessary to decide whether that failure was “material” breach of the rules of natural justice within the principles set out by Coulson J in Pilon[12]. The court had no difficulty in concluding that it was material. Apart from anything else it was worth more in claimed value that the amount actually awarded.
Failure to address the defence/cross claim of the defective capping beam related
The adjudicator took the narrow view that he could only look at the value of the Payment Application itself, at that point in time and that as the matter of the capping beam had not then been raised, he could not take it into account. In adopting that approach the adjudicator had taken an unduly narrow view of the dispute. The adjudicator was engaged in deciding the sum due in a particular payment cycle and on that he reached a conclusion as to the correct figure plus interest on the balance. The capping beam claim was put forward in reduction of the amount due in that cycle. It was, accordingly, raised as a defence in respect of the matter in issue in the adjudication and in respect of which the Adjudicator had jurisdiction. The Contractor’s arguments as to the effect of the provisions of the Contract relied on as meaning that the capping beam claim was not to be taken into account in calculating what was due, were, on proper analysis, not arguments as to jurisdiction. They were arguments as to why no deduction should be made – that the capping beam claim was not within the scope of the deductions from the gross valuation provided for in the contractual terms governing the calculation of an interim payment. That argument could have been advanced in the adjudication and “put on that footing they might have [had] considerable force.” But they did not mean the Employer's capping beam defence was not a matter to be addressed in the adjudication. Had the adjudicator considered the capping beam claim and concluded that the defence did not operate to reduce the amount due, his decision would have been unimpeachable (whether founded on either the interpretation of the Contract or on arguments as to the merits or quantum of the capping beam claim).
[11] Carillion Construction Ltd v Devonport Royal Dockyard Ltd [2005] EWCA Civ 1358, distinguished [12] Pilon Ltd v Breyer Group Plc [2010] EWHC 837 (TCC).
That would amount to turning a single decision with an accompanying explanation of reasoning into a series of separate decisions. That was not an appropriate course. The Employer had succeeded in showing that the adjudicator's ultimate conclusion on the single dispute he was addressing was not enforceable. In the circumstances it could not be said that there was anything remaining which could be safely enforced.
Severance
The court had next to consider whether part of the decision i.e. as to the value of the Interim Payment Application 34, could be safely enforced. The starting point was that the court would enforce a decision whenever it was safe to do so; it would and could sever the good from the bad. The English authorities on the subject of severance were reviewed by the Inner House of the Court of Session in Dickie & Moore Ltd v McLeish[13]. Although not binding on the court, His Honour found the decision persuasive and helpful. The previous decisions reviewed were cases where the adjudicator’s decision was upheld in favour of the successful party in the adjudication but in a lesser amount. “Rather different considerations come into play when severance would lead not to enforcement of the adjudicator's award in a lesser amount but to enforcement of a particular part of the decision in question with that part having been a stage in the process prior to the ultimate decision.” Proceeding on the footing that severance was potentially available, it was necessary to consider whether a failure affecting one part of the Decision could be seen not to have tainted the remainder so as to leave the remainder intact. The creation of an artificial outcome was to be avoided. Here the adjudicator was not asked to make a series of separate decisions and still less did he regard himself as doing so. Rather he reached a single decision and set out his findings and conclusions as an explanation of the reasons for reaching that single decision. It would be artificial and inappropriate for the court to stop at any particular point in the chain of reasoning as set out and conclude that the decision was binding up to that stage but not as to the stages which followed.
The result in respect of Interim Payment Application 34
In light of the conclusion that no element of the Decision was enforceable, the question whether the Employer remained liable to pay the notified sum subject to subsequently seeking return of any overpayment notwithstanding the Decision, was academic (for the purposes of the court proceedings). That issue was not further addressed. The consequence of the finding that Payment Notice 34 was invalid was not so clear cut. Neither party had claimed any relief in respect of that issue. In addition matters had moved on to payment cycle 35 which would be a proper matter for any further dispute. On balance the court felt it was not appropriate to make any further declaration or grant any other relief.
[13] [2020] CSIH 38
O rder
1. The Employer was entitled to a declaration that the Decision was unenforceable. In consequence it was not open to the Contractor to threaten to suspend works by reason of a failure to pay the sum directed in the Decision. The court’s current view was that there was no need for a declaration to that effect. 2. The Contractor was entitled to a declaration that Payment Notice 34 was invalid. There was no issue as to the invalidity of Payment Notice 34a thus a declaration did not seem to be necessary in that regard. 3. The court declined to address other matters not currently in issue as to the entitlement which the Contractor might or might not retain in relation to Payment Application 34. Comment This case raises issues that may be encountered in practice though perhaps not in the form and circumstances they materialised here. If a payment notice is ineffective then the amount applied for in a valid payment application becomes the notified sum due for payment. If the contractor instead of pursuing that entitlement asks an adjudicator to value the application, a valid assessment will supercede the application and decide the sum due. Absent a valid decision, the notified sum remains the sum due and the contractor retains that entitlement pending a true value adjudication, and subject possibly to a later contractual valuation. The dispute based on the payment application could still be adjudicated. There is presumably little surprise in the finding that a Payment Notice setting an artificial nominal value is of no effect. The refinement of existing case law on the subject of severance is welcome and tends to bring the law in England and Wales and in Scotland into line in that regard.
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