Construction Adjudication Cases: Part 1 of 2020

The Enforcement of Adjudicators’ Awards under the HousingGrants, Construction and Regeneration Act Adjudication Cases

1996: Part 1 of 2020 Kenneth T. Salmon Consultant Solicitor at Slater Heelis LLP



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1... .Introduction ............................................................................................................

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2. Fraud – Need to Plead.................................................................................... PBS Energo AS v Bester Generacion UK Ltd [2020] EWCA Civ 404

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3. Jurisdiction and Natural Justice................................................................. Flexidig Ltd v M&M Contractors (Europe) Ltd [2020] EWHC 847

4. Natural Justice - Quantity surveying assistance without notice to parties................................................................................................................... Babcock Marine (Clyde) Ltd v HS Barrier Coatings Ltd [2019] CSOH 110 5. Part 8 Proceedings – Utility of..................................................................... I SG Construction Ltd v English architectural Glazing Ltd [2019] EWHC 3482 (16 December 2019

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6. Payment Notices – Hybrid Contracts........................................................ C Spencer v MW High Tech [2020] EWCA Civ 331

Introduction The Enforcement of Adjudicators’ Awards under the Housing Grants, Construction and Regeneration Act 1996: Part 1 of 2020. Kenneth T. Salmon, Consultant Solicitor, Slater Heelis LLP. The law is stated at March 31, 2020. This part examines two decisions of the court of appeal addressing the need to plead fraud, and the application of the payment provisions of the Act to hybrid contracts. Two other cases, deal with the utility of Part 8 proceedings and the perennial issue of natural justice.

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 s o 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 (SI 2011/1715) (W.194).

1) Fraud - Need to Plead - PBS Energo AS v Bester Generacion UK Ltd [2020] EWCA Civ 404 This was an appeal against the decision of Pepperall J (“the judge”) dated 17 April 2019[6] in which he dismissed the appellant's claim for summary judgment in the sum of £1.7 million odd, together with interest. The claim had been made to enforce the decision of an adjudicator, Mr Douglas Judkins, dated 7 December 2018. The judge had found that the respondent could properly argue that the adjudicator's decision had been procured by fraud. Although permission to appeal was granted on two limited grounds only, the case provided a further opportunity, following the decision in Gosvenor London Ltd v Aygun Aluminium UK Ltd[2] to address the interface between the 'pay now, argue later' philosophy of construction adjudication, and allegations of fraud raised on enforcement applications. Gosvenor was a case where the allegations of fraud could and should have been raised in the underlying adjudication. In this case, on the judge's findings, that would not have been possible. There was a further relevant consideration. Mr Judkins' decision was properly based on an earlier adjudicator's decision that the appellant had been entitled to terminate the relevant sub-contract. In the meantime, in a TCC judgment concerned with all the disputes between the appellant and the respondent, Cockerill J found the appellant had not been entitled to terminate but that the respondent had lawfully terminated the sub-contract.That alone was a sufficient ground to refuse to enforce the decision of Mr Judkins; i n effect the appeal was principally about costs.

There had been two adjudications. In the first, Mr Simon Tolson decided that the appellant had been entitled to terminate the subcontract between the parties. In the second, Mr Judkins valued the works prior to termination. In a parallel set of proceedings in the TCC, the appellant had claimed a final valuation of the works based on the wrongful termination by the respondent, and the latter counterclaimed seeking a declaration that it had lawfully terminated the subcontract. Cockerill J found for the respondent on all issues[1]. The appellant now sought enforcement of Mr Judkins award and the respondent resisted on the ground that the award had been procured by fraud. The Judge declined to enforce the award and that gave rise to this appeal. The law as to fraud in adjudication was summarised as follows: " 23 a) If the allegations of fraud were made in the adjudication then they were considered (or will be deemed to have been considered) by the adjudicator in reaching his decision, and cannot subsequently amount to a reason not to enforce the decision. 23 b) The same principle applies if the allegations of fraud were not made in the adjudication but could and should have been made there. 23 c) If the adjudicator's decision was arguably procured by fraud, or where the evidence on which the adjudicator relied is shown to be both material and arguably fraudulent (as here) then, on the assumption that the allegations of fraud could not have been raised in the adjudication itself, such allegations can be a proper ground for resisting enforcement.”

[6] [2019] EWHC 996 (TCC) [7] [2018] EWCA Civ 2695 [8] [2020] EWHC 223 (TCC)

Originally the appellant appealed on four grounds. Permission to appeal on the first two grounds was refused. The third ground of appeal was procedural: that an allegation of fraud should have been pleaded in a defence served in answer to the summary judgment application. The court of appeal held there was no such requirement in the rules or the TCC procedure developed to deal with adjudication enforcement. The appellant had chosen to avail itself of the TCC accelerated procedure which was designed to enforce the adjudicator's decision as swiftly as possible. There was no warrant for imposing an additional procedural step and no inherent unfairness. The conclusion did not prejudice the appellant in this case or claimants generally. Ground 4 asserted that the Judge failed properly to distinguish between refusing summary judgment on the one hand, and granting summary judgment and then staying its execution, on the other. The suggestion being that the judge should have granted summary judgment and then, if he had been concerned about the allegations of fraud, stayed its execution, in whole or in part. The ground fell away with ground 1, but in any case it was not an assertion which was open to the appellant because it was not raised before the Judge. There was one further issue: the effect of the final determination on the question of the validity of the termination of the subcontract. That question had been finally determined in the respondent’s favour by Cockerill J. Her judgment superseded the decisions of both adjudicators. It would be wrong in principle now to enforce Mr Judkins' decision, even if the appellant had been successful on Grounds 3 and 4.

The court of appeal stated that a defendant to an adjudication enforcement claim might be well-advised to provide a pleaded defence setting out any allegations of fraud. However, there is no mandatory requirement to do so if the claimant was seeking summary judgment. CPR 24.4(2) provided to the contrary. In a case where substantial allegations of fraud were found to be arguable, the right course would usually be the one taken by the Judge, namely to refuse summary judgment, meaning no question of a stay of execution then arose. Comment In this case the allegations of fraud were sufficiently set out in the respondent’s skeleton arguments (in accordance with the Bar Council’s guidelines alleging fraud) and detailed in the supporting witness statements. This enabled the court to find there was no unfairness or prejudice to the appellant. It is also worth noting that this judgment supports previous case law that allegations of fraud that are made in the adjudication and dealt with by the adjudicator (or which could and should have so raised and dealt with), will not provide grounds for resisting enforcement.

2) Jurisdiction and Natural Justice [9] - Flexidig Ltd v M&M Contractors (Europe) Ltd M&M, a company incorporated in Northern Ireland but with a substantial business presence in England, engaged Flexidig under a subcontract to carry out works in connection with infrastructure for fibre optic broadband in Lincolnshire. There had already been two adjudications between the parties, in the second of which M&M claimed £1.5m damages for defects. The adjudicator, Mr Baldwin, awarded M&M £462,000, “on account of” the costs of remedy. Upon enforcement in Northern Ireland, Horner J granted judgment for £12,000 only having found there was no jurisdiction to award a payment on account. In the third adjudication, Flexidig claimed £673,374 + VAT said to be the balance owing on its application for payment number 70 (AFP), or such other sum as the adjudicator should find due. The claimwas put as one for ‘damages’, though it was in truth a debt. Flexidig contended that there was no pay less notice and that its later application was a payee payment/default notice entitling them to payment of the sum claimed. M&M disputed the validity of the payment notice, and in any event claimed that it had served a pay less notice, in time, which by virtue of its claim for £1.5m for defects reduced the sum due to zero. M&M argued that once it was accepted that there was a valid pay less notice, the technical (‘smash and grab’) claim failed and that was the end of the matter. Flexidig in reply said the pay less notice relied on was out of time, did not specify how the sum of £1.5m was calculated and bearing in mind the second adjudication and failed at enforcement, there was no merit in such a claim anyway.

They went on to suggest that the adjudicator had power to decide what sum if any was due for defects and contended it could not exceed £247,000 which was the sum that M&M claimed to have spent to date on putting right defects. M&M’s rejoinder was that the dispute referred was no more than the technical question whether there was a valid pay less notice and if the notice was valid, there was no jurisdiction to consider or award any other sum.

The Adjudicator's Findings

The adjudicator:

1) Found Flexidig’s application for payment was a valid payment notice

2) Found M&M’s pay less notice was in time and valid to prevent the sum claimed being the notified sum

(3) Decided that Flexidig was not entitled to recover ‘damages’ of £673,000

4) Found that, without deciding the true value of the AFP, there was still jurisdiction to decide whether the amount to be paid should be greater than the sum specified in the pay less notice which here was zero 5) Went on to consider what sum if any M&M was entitled to withhold for defects and decided that M&M was entitled to withhold money for the estimated costs of making good defects and that the maximum sum was to be found by taking the figure of £462,000-odd (previously decided by Mr Baldwin in the second adjudication) and deducting that from the sum of £673,000 claimed by Flexidig leaving £223,000 which he awarded.

[9] [2020] EWHC 847 (TCC)

Flexidig brought proceedings in England to enforce the award and M&M resisted on a number of grounds. They applied to dismiss Flexidig’s claim altogether on the basis that (a) it had not been served correctly as a matter form, and (b) the court did not have substantive jurisdiction to hear the claim anyway as M&M was domiciled in Northern Ireland and the proceedings should have been brought there. That “Jurisdiction Application” was in its turn contested by Flexidig which, to the extent necessary, sought permission to serve M&M out of the jurisdiction or to dispense with the service altogether. On the substantive issue of enforcement, M&M said the adjudicator had no jurisdiction to decide any sum was due once he found the pay less notice was valid. This had not been a true value adjudication and that was what the adjudicator had wrongly entertained. Further he was in breach of the rules of natural justice in doing so as it was not a matter that could be or had been fully canvassed on the materials before him nor had he given the parties prior indication of his intention to look at awarding a sum between the full amount claimed by Flexidig and the zero sum contended for M&M. Service M&M first contended that the court proceedings had not been properly served on them. The matter fell to be considered under the Civil Jurisdiction and Judgments Act 1982 which governed intra-UK proceedings if it could show that the court had substantive jurisdiction. For those purposes, it was common ground that the English court would have substantive jurisdiction to hear the claim because England was the place of performance of the subcontract.

Flexidig could thus serve the proceedings on M&M without the permission of the court if it could avail itself of CPR 6.32. Otherwise it would need permission from the court to serve out and that is under CPR 6.37. M&M’s objection amounted to this: that there were proceedings extant in Northern Ireland to determine the very question decided by the adjudicator, challenging his award as unlawful, which meant that permission to serve out was necessary and that he English court could and should not assume jurisdiction. After considering all of the circumstances, the court was satisfied that the Northern Ireland proceedings were pending for the purposes of CPR 6.32, such that the gateway for service without permission was not available. The court then considered whether to grant permission to serve out (which could be done retrospectively). Given the stage the English proceedings had reached, the fact that the applicable substantive law was the same in England as Northern Ireland, the adjudication was conducted under the English Scheme, M&M had instructed English Lawyers, that it was in a substantial way of business in England with current contracts here (including the contract in Lincolnshire), and the wasted expenditure if the proceedings were now to be heard in Northern Ireland, the court had little hesitation in granting permission to serve out. M&M also objected to the manner of service by email. The court found that the proceedings had been properly served by post. Had it been necessary the court would have allowed the alternative of service by email.

The Enforcement Application Here there were two core jurisdictional objections to enforcement: i) The adjudicator had no power to act at all because the referral was out of time (the “Referral Obligation”); and ii) The adjudicator had, in any event, no jurisdiction to make a positive award in favour of Flexidig in the sense of deciding that £223,000 should be paid, once he had found there was a valid pay less notice (“the Positive Award Objection”). The “Referral Obligation” M&M said the true date of the notice of adjudication was the 20th because that was when it was sent out. As it was not disputed that the adjudicator received the reference on 29 November it was outside the 7 days for referral and out of time. The notice was received by M&M on 22 November. The court decided having regard to the provisions of the subcontract that the effective date of the notice was the date of actual receipt by M&M so that the subsequent referral to the adjudicator on 29 November was in time. This was in accordance with authority and accorded with section 108(2) of the Act. The Positive Award Objection M&M contended that it was impossible to understand what the adjudicator had been doing, that even if it could be understood, he had no jurisdiction to do what he did and that what he had done was a breach of natural justice. The court held that it was “very clear from the award what the adjudicator was doing”. Finding the pay less notice was valid, he had the power under section 111(8) of the Act to decide what the sum was that should be withheld.

This provided that the adjudicator can decide that more than the sum specified in the pay less notice (which here was zero) should be paid. Further, as the adjudicator later on confirmed, this was not a valuation exercise of the defects claim. It was a decision as to what amount of the AFP claimed could be withheld. The reasoning was understandable and explicable. The court observed there was a wealth of case law to help to decide if an adjudicator’s decision was part of the dispute and whether by reference to principles of natural justice, he should have done so. It was necessary only to refer to the judgment of Fraser J in Aecom Design Build Ltd v Staptina Engineering Services Ltd[10] where he said that so far as the jurisdiction side was concerned that the court: "...should not adopt an overly legalistic analysis of what the dispute between the parties is. The ambit of the reference to adjudication can also, unavoidably, be widened by the nature of the defence or defences advanced by the responding party.” Here the notice of adjudication did actually refer to awarding such other sum as the adjudicator finds due. It was true that this was in the context of a claim for damages for breach of contract but one needed to read that realistically: it was a claim in debt. The only question was whether all or some of it was owing and whether M&M could set off any amount based on its defects claim. The court concluded that the adjudicator did have jurisdiction to go on to make a positive award for the following reasons:

[10] [2017] EWHC 723

Natural justice The parties had recognised and in fact debated the question as to what sum remained due if the pay less notice was valid. Enough was raised by the adjudicator and debated between the parties to allow him justly to decide on a position that was somewhere in between the entire £1.5 million defects claim, or the £462,000 awarded by the second adjudicator, or the £12,000 awarded by Horner J. That is all he did and could do and he decided on the £462,000 option. He was not, consistently with the approach taken in a number of cases, obliged to go back to the parties at the very end and say that he was thinking of taking such a course. In the judgment of the court, natural justice did not oblige him to do so. It was already on the parties’ radar. The decision would be enforced. Comment This point of interest and debate emerges. The court seems to have steered a narrow path in accepting that the adjudicator had not carried out a true value adjudication (which would have been outside his jurisdiction), yet finding he was entitled to determine by reference to deductions by M&M for set off, what sum in excess of zero remained due. Some might find this a fine distinction. Until now the choice for a payee might have appeared to be between seeking payment in full in a technical adjudication (smash & grab) or commencing a true value adjudication. Of course one could seek both remedies in the alternative in the same adjudication. This case highlights a possible hybrid, middle course. A claim for payment based in the absence of pay less notice or there is an effective pay less notice, a claim for payment of a greater sum than the notified sum in the pay less notice by reason of a challenge to any deductions in the pay less notice. In such a case it is no doubt advisable to plead reliance on s. 111(8) of the Act. This middle course would not see, to be available where the pay less notice is simply a downward valuation of the sum applied for. To challenge that it is suggested would require a claim for a true valuation.

(a) The notice of adjudication provided for some other figure which could, by definition, only arise if the pay less notice was held to be valid. If it was not valid, the entire sum would fall due.

(b) There was power under section 111(8) of the Act which he referred to.

(c) By the end, and by reason of all the submissions for and against, including emails, the position had been reached where the adjudicator knew, because the parties told him, that £1.5 million had been attributed to the costs of the defects by M&M, and that had been the subject of a prior breakdown previously produced and was the subject of the second adjudication. In that second adjudication, the adjudicator had decided the appropriate amount to award was the £462,000. To date, however, M&M had spent only £247,000 though it said another 2,000 defects had to be attended to. The Northern Ireland High Court had prevented an enforcement of the whole of the £462,000 and allowed enforcement only of £12,000. (d) The adjudicator was, on any view, facing argument from Flexidig that all of M&M’s figures were of little or no significance or weight such that the pay less was still invalid because here was no proper or genuine breakdown. (e) Finally, and this was what the dispute was or had become, M&M in particular had engaged in the debate about the true extent of its defects claim. It was a short, if any, step from that debate to what figure should be put on M&M’s defects claim simply for the purpose of any allowance against the sums claimed by Flexidig in the exercise of the adjudicator’s powers.

This was not a case where the adjudicator had strayed off course.

3) Natural Justice – Use of quantity surveying: Babcock Marine (Clyde) Ltd v HS Barrier Coatings Ltd [2019] CSOH 110 In a first adjudication, the defenders sought and obtained an award for payment of the sums claimed in its Termination Application under an NEC3 contract, in respect of which the pursuer was held to have failed to give effective withholding notices. Following a second adjudication between the parties, to determine the ‘true’ value of the defender’s ‘Termination Application’, in which the values in the Determination Application were reduced, resulting in a payment due back to them, the pursuer sought payment of the sums awarded. The defender resisted on four grounds, failing on three and succeeding on one. Ground 1 – The value of base scope works. The complaint was that the adjudicator Mr Bunton had failed to give any or adequate reasons for preferring the pursuer’s valuation. The court held the reasonable reader of the decision would be able to discern from it and the submissions, why the adjudicator had reached his decision. The pursuers had alleged an overpayment for preliminaries before termination and the defenders denied any overpayment. The adjudicator accepted the pursuers’ figure. This was an instance where the acceptance of one position was sufficient reason for the rejection of the opposite position. That acceptance sufficiently disclosed the reasons for the decision. Ground 2 – Base scope works failure – failure to consider a ground of defence. The averment was that on a fair reading of paragraph 183 of the decision, the adjudicator had failed to have regard to an experts’ report (the Cookson report) relied on by the defenders.

The court decided that the defender’s reading of paragraph 183 of the decision was incorrect. This paragraph concerned Compensation Event no 8 rather than base scope works and in the context of the immediately preceding paragraph, was based on the absence of records to support Cookson’s figure. So there was no failure to consider the Cookson report in that context and no reason to suppose such failure impacted on the figure for the base scope works. The adjudicator criticised the absence of records to support the Cookson figure or any evidence (site records / actual costs) to support Cookson’s opinions. The adjudicator had not failed to exhaust his jurisdiction. Nor did the adjudicator regard himself as ‘capped’ by the Termination Application figures where the corresponding sum claimed in the adjudication was higher by reference to the Cookson report, it being the case that he awarded more than the Termination Application figure or another head of claim. Further there was no real difference between the Termination Application base scope works figure and the Cookson figure. Even if the adjudicator had considered himself capped by the Termination Application figures, the cap for the base scope works was far in excess of the value arrived at. The court rejected the contention that the adjudicator had failed to consider a material defence, or acted in breach of natural justice by not telling the parties that he proposed to cap his valuation by reference to the figures in the Termination Application. Ground 3 – Termination costs. Cookson had departed materially from the defender’s claim in the Termination Application and put in a higher figure. The adjudicator agreed with the pursuer’s figure. It was claimed that in so doing the adjudicator had failed to consider or give reasons for rejecting the defender’s and Cookson figure.

If one looked at clause 2.3 of NEC3 it was arguable such matters might be material to the decision making process. It was hard to see that fairness would not require disclosure of such material. The court inclined to the view that natural justice required:

It was implicit in the decision that in accepting the pursuer’s figures, the adjudicator was rejecting the defender’s figures. The adjudicator had obviously expected demobilisation costs to be vouched and based on actual costs incurred. It was not necessary for him to say more than he had about the various elements of the claim. The Scott Schedule with the decision showed the constituent elements of the amount awarded. Ground 4 – Breach of natural justice in employing a quantity surveyor to assist him without first telling the parties of such engagement and its purpose. The question to be answered was this: “Was there an opportunity afforded for injustice to be done?” The adjudicator’s terms allowed for him to employ a quantity surveyor to assist him if he thought fit. The defenders complained that he had not warned the parties that he intended do so or what the quantity surveyor was to assist himwith. The pursuers relied on the adjudicator’s terms as compliance with clause 2.3 of the NEC3; that the court should imply that the assistance was merely administrative or clerical and did not call for disclosure or comment, applying the presumption of propriety on the part of the adjudicator. The court did not find these arguments compelling. The adjudicator’s terms did not communicate an intention to employ quantity surveying assistance. It purported to make provision for what might happen if it subsequently transpired there was need for such input. It was going “too far too fast” to infer at this stage that the assistance provided was of a kind that did not require disclosure.

(i) that the adjudicator ought to have told the parties that a surveyor had been engaged and

(ii) that whilst detailed disclosure for comment would not have been necessary, the adjudicator ought to have indicated in brief, broad terms, what the surveyor was doing. Without further enquiry it could not be concluded on present material whether or not the breach of natural justice was material. It could not be said the defence was bound to fail.

The case was put out to order and for discussion of further procedure.

4) Part 8 Proceedings – Utility Of: ISG Construction Ltd v English Architectural Glazing Ltd [2019] EWHC 3482 [10] The claimant ISG sought various declarations in Part 8 proceedings arising from its dissatisfaction with the outcome of an adjudication, and asked the court to make a final determination of: (a) certain discrete substantive issues decided by the adjudicator; and/or (b) the ambit and effect of the adjudicator's decision. Discrete issues The claimant argued that it was a suitable case to invite the court to determine discrete substantive issues because they raised short points of contract interpretation and did not involve substantial issues of fact; and the adjudicator's decision on these points was wrong and could finally and conveniently be determined to be so in the Part 8 proceedings. Ambit and effect of the decision Here the claimant argued that if the court was not prepared to answer the discrete substantive issues, or did not answer them in its favour, then it was still important and would assist both of the parties or a future adjudicator, to know the ambit and effect of the adjudicator's decision. Argument This was not a case where the claimant was seeking to invoke Part 8 jurisdiction to avoid paying the sum awarded to the defendant. It had already paid that sum in full (being £137,434.53 for interim payment application number 35). Its real complaint was that the adjudicator decided that it could not rely upon what it contended was its contractually binding bona fide estimate in the sum of £3,183,000 for loss and damage it claimed to have suffered due to the defendant's breach in

failing to complete its subcontract works by the contract completion date (as extended). It argued that such decision would be shown to be demonstrably wrong; and in any event it needed to know the ambit and effect of that decision to decide whether to seek to enforce its claim in any further adjudication. The defendant's position was that the proper determination of the issues raised by the first three of the declarations required the resolution of issues of fact as well as law such that they could not be disposed of in Part 8 proceedings. Insofar as the issues raised in two other declarations did not require resolution of issues of fact, then they ought to be answered, if at all, in its favour. Finally, no sufficient reason had been shown for inviting the court to determine the ambit and effect of the adjudicator's decision at this stage. Decision The law on the use of Part 8 was not in dispute. The court should refrain from deciding issues unless satisfied it could make a fair determination at that stage and also that there was practical utility in doing so. The court declined to make any of the declarations sought, including (and despite the agreement of the parties) as to the ambit and effect of the decision. Although the decision was wholly dependent on the particular facts of the case, the following points are of noteworthy. The claimant had invited the court to rule on two issues which were before the adjudicator and which, if answered in its favour, demonstrated that the ultimate decision of the adjudicator was wrong. The first appeared at first blush, to be a question of interpretation of clause 9(8) of the subcontract. That claimant said that if the defendant failed to give notifications required under clauses 9(4)

[11] [HHJ Stephen Davies, judgment 16 December 2019

and/or 9(5), it lost any entitlement to an extension of time for delay which ought to have been notified. The claimant was then entitled to recover, or to deduct from any amount otherwise payable to the defendant, such amount of its loss and damage resulting from such delay as it should bona fide estimate. Further that such estimate was binding and conclusive upon the defendant until the amount of its loss or damage was finally determined or agreed between the parties. Finally, that ‘final determination’ meant final determination under the final account provisions of the subcontract, as opposed to final determination by the court or any adjudicator. The short answer to the first of these arguments was that this was not a point of contract construction. Instead the claimant was inviting the court to conclude that it was “unarguable on the evidence put before the adjudicator and now before the court that no required notifications were given”. Looking at the facts, at least one notification of several causes had been given in time and it was impossible to conclude that the claimant had given proper consideration or effect to all the causes notified. It could not be said that the timely notification “was wholly ineffective in relation to all of the causes of delay to which it referred.” Having thus determined the first issue, there was no need to decide the second issue namely that the claimant's bona fide estimate was binding and conclusive until determined at the final account stage of the subcontract, because success on that issue alone would not get the claimant home. However, the court was persuaded to give its view. The first problem for the claimant was that whilst it was clear what “final agreement” meant, it was not clear what was

intended by the words “final determination” i.e. by whom, at what stage, and indeed in relation to what matters? The final matter was whether the court should make any findings as to the ambit or scope of the decision and make alternative declarations to the specific declarations sought. The court looked at each of the specific declaration sought and whether it might make alternative declarations. The adjudicator had decided that "a fair and reasonable time" for completion of the subcontract works was 22 October 2018. That decision was not final in relation to the subcontract generally. However, as the adjudicator determined this not only in the limited context of the defendant's application number 35, but also in its own right, the decision was not irrelevant for the purposes of the final determination of the amount of the loss and damage suffered by the claimant, as that phrase was used in clause 9(8). It would be open to either party to refer a dispute as to such final determination to adjudication, notwithstanding the terms of the existing decision. In the meantime the adjudicator's decision was binding as to the date for completion until the court made a final determination of that issue. It was plain from the notice of adjudication and referral that the defendant was seeking the adjudicator's decision as to what extension of time the defendant was entitled to; and that the claimant chose to waive any argument that the adjudicator did not have jurisdiction to determine that issue. That issue was separate and distinct from the further and separate issue as to the validity and correctness of the bona fide estimate of loss and damage.

The defendant submitted that the court should be very cautious before undertaking a detailed dissection of the reasons given by the adjudicator and, instead, should focus on what was referred to him and what he decided. The question as to what extension of time the defendant was entitled to was clearly referred to him, and since he clearly had jurisdiction to decide it, and since his decision was clearly that a fair and reasonable extension of time should be granted to [22 October 2018], that was the end of the matter. The court ought not to be too willing to cut down the scope of what was decided from a consideration of the words used in the decision itself by undertaking too detailed and too fine an analysis of the reasons given by the adjudicator for his decision. That would be both wrong in principle and also unfair on the adjudicator, given the pressure of time under which he, like all adjudicators, operated. It could not be assumed that the reasons actually given were exhaustive as to the actual reasons for the decision. In the circumstances the court declined to make the declarations sought by the claimant in this respect. The claimant also sought a declaration that the adjudicator's finding that "ISG has not demonstrated and proved that EAG was responsible for causing 20 weeks delay" was to be understood in the context of the defendant's application for payment number 35 and did not prevent the claimant from now seeking to recover loss and expense in adjudication and/or limit any such claim. The defendant submitted that such claim was premature and served no useful purpose as the claimant had not identified what loss and expense it wished to claim nor any dispute in relation to any such claim that could be referred to adjudication.

The declarations sought were usually sought in the context of the enforcement of a decision. That did not apply here. It was particularly important not to anticipate future events where, as here, it appeared there might be a number of future adjudications. The declaration sought was in extremely wide terms. Whilst the adjudicator's decision was limited so that it related only to the issue as to whether or not the claimant was entitled to rely upon its bona fide estimate, the court was by no means clear what the impact of this was. The court concluded by observing in passing that whilst it was the policy of the TCC to support adjudication, it would not be proper to proceed on the basis that it was always in the best interests of the parties to engage in a diet of serial adjudications, supplemented as required by a series of applications to the TCC seeking enforcement or Part 8 declaratory relief. In appropriate cases the parties' interests might be better served by persuading the TCC to exercise its case and cost management powers to enable their disputes to be finally determined in an expeditious and cost-effective manner.

5) Payment Notices - Hybrid Contracts: C Spencer v MW High Tech [2020] EWCA Civ 331 The Court of Appeal upheld the ruling of O’Farrell J regarding the application of the payment provisions of the Act in relation to hybrid contracts, that is, contracts for the execution of both construction operations within the ambit of the Act, and non- construction operations falling outside the Act. The starting point was the Act and whether the contract contained compliant payment provisions. If the agreed terms complied with the Act, the conventional view was that the Act had no longer had any direct relevance to the rights and obligations of the parties. S. 104(5) of the Act expressly recognised that there would be hybrid contracts, but it did not provide that a hybrid contract had to contain a term requiring the separate or distinct notification and breakdown of sums due in respect of construction operations only. There was nothing in the terms of the sub- contract which had required either side to have differentiated in their payment notices or payless notices between the sums notified for construction operations and the sums notified for non-construction operation. The agreed terms showed it was the intention of the parties to do the opposite. The court of appeal was of the view that where the contract contained an Act compliant payment scheme that was intended to apply to both construction operations and non- construction operations, a payment notice need not identify separately the sums due in respect of the construction operations. It was sufficient that the notice complied with the terms of the contract.

Moreover, this being a contract for milestone payments, the need for separate notices for works subject to the Act and works not subject to the Act, would have created its own difficulties. In the circumstances of the present case, the payment provisions in the sub-contract had complied with the mandatory provisions of the Act and there was no requirement on either side to notify and break down sums due in respect of construction operations only[1].

[12] Cleveland Bridge (UK) Ltd v Whessoe-Volker Stevin Joint Venture [2010] EWHC 1076 (TCC) applied; Severfield (UK) Ltd v Duro Felguera UK Ltd [2015] EWHC 2975 (TCC) applied

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Construction&Engineering 0161 969 3131 @SlaterHeelisLaw


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