17 Jul 2023
In the third 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.
In Part 3
Enforcement of award – advisory award - Interaction with Part 8 claim:
Sleaford Building Services Ltd v Isoplus Piping Systems Ltd [2023] EWHC 969 (TCC) Mr Alexander Nissen KC (28 April 2023)
Jurisdiction – Failure to exhaust by not expressly considering line of defence:
AGB Scotland v Darren McDermott [2023] CSOH 31, 17 May 2023, Lord Sandison
Natural Justice – Failure to answer the right question; Challenge to enforcement of award arising from validity of final account statement – Broad Justice at high speed:
Atalian Servant AMK Ltd v B W (Electrical Contractors) Ltd [2023] CSIH 18 Lord President Carloway, Lords Woolman and Pentland (18 April 2023)
Payment application – Validity – ‘days’ not ‘clear days’:
Elements Europe Ltd v FK Buildings Ltd [2023] EWHC 726 (TCC) Mr Justice Constable judgment 30 March 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 apply to contracts entered into on or after 1 October 2011. The Act applies to England and Wales, Scotland and 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, Wales, or Northern Ireland, as the context requires.
Summary
Enforcement of award – advisory award - Interaction with Part 8 claim
Sleaford Building Services Ltd v Isoplus Piping Systems Ltd [2023] EWHC 969 (TCC) Mr Alexander Nissen KC (28 April 2023)
The proper approach when dealing with a Part 7 claim for enforcement of an adjudication decision and Part 8 claim for a final determination of any short self-contained issues was for the two sets of proceedings to be heard together, the Part 7 application first. Usually, judgment should be given on the Part 7 claim, and then – to the extent possible – the court would endeavour to sort out the Part 8 claim and see what effect, if any, that had on the enforcement.
The three-stage test in Hutton was to be applied when looking at the suitability of the Part 8 proceedings to be determined at the same time as the Part 7 claim.
Here the court had also to address a question as to whether there was any distinction properly to be made between that part of the adjudicator’s decision which was specifically framed as ‘advice’ on the one hand and the ‘decision’ on the other. The court concluded the adjudicator regarded the ‘advice’ as non-binding but without deciding whether that was right or wrong. In the event, the court found that there were a substantial number of sub-issues requiring proper particularisation, argument, and evidence that were not suitable for summary determination.
Jurisdiction – Failure to exhaust by not expressly considering line of defence
AGB Scotland v Darren McDermott [2023] CSOH 31, 17 May 2023, Lord Sandison
Where the adjudicator did not consider a line of defence, the decision may (though not necessarily would) be unenforceable for failure to exhaust jurisdiction. It was not necessary for the adjudicator to have expressly referred in his decision to every issue considered if it was plain on reading the decision that he must have considered the particular line of defence in question.
Natural Justice – Failure to answer the right question; Challenge to enforcement of award arising from validity of final account statement – Broad Justice at high speed
Atalian Servant AMK Ltd v B W (Electrical Contractors) Ltd [2023] CSIH 18 Lord President Carloway, Lords Woolman and Pentland (18 April, 2023)
A contract provided that a final account statement (FAS) was ‘final and binding’ on the payee unless the parties agreed to modify it or the payee commenced adjudication or court proceedings within 20 working days. Adjudication (and court) proceedings were commenced within that time. The adjudicator resigned and a second adjudication notice was served. The appellate court found that the adjudication proceedings did not come to an end on the resignation of the first adjudicator, and BWE had followed the correct procedure in serving a new notice. The essential question in both adjudications was: what sum was properly due? The first notice meant BWE had “their foot firmly in the door, as permitted by clause 33.4, by virtue of both the adjudication and the timeous, and still pending, litigation.” The challenge on that ground failed, the court agreeing with the dictum of Lord Briggs in Bresco: “pay now, argue later.”
The court also found there was no procedural unfairness. The adjudicator gave due notice to the parties of his line of thinking on what was termed ‘beck and call’ and the number of man hours worked and invited comment. AMK responded in detail and repeatedly on these matters. The Lord President noted the adjudicator took on “a nigh impossible task” having to consider an enormous volume of written materials in such a short time such that the decision was bound to involve “broad justice at high speed”. This was no frolic of the adjudicator’s own and the natural justice challenge failed.
Payment application – Validity – ‘days’ not ‘clear days’
Elements Europe Ltd v FK Buildings Ltd [2023] EWHC 726 (TCC) Mr Justice Constable judgment 30 March 2023
This was another case where the successful party in adjudication (Elements) sought to enforce the adjudicator’s award in its favour and the losing party (FK) brought Part 8 proceedings to decide a short point of construction which, if upheld, would mean the award was wrongly made. The point at issue was the construction of a payment provision in a JCT standard form (not previously the subject of judicial consideration). Although the parties settled their dispute after a full hearing, judgment was given by agreement as it dealt with a point of some importance concerning the date and time of the making of payment applications. On this point, the court held that the requirement in clause 4.6.3.1 to make a payment application “so as to be received not later than 4 days prior to the Interim Valuation Date for the relevant payment …" did not mean 4 ‘clear days’ before that date, but 4 days before the date, meaning it could be done on the fourth day before that date. The payment application in question was sent in the evening outside site working hours but received by at least one recipient on the evening of the fourth day and had therefore been validly made. The law did not deal in parts of a day.
It is also noteworthy that Elements argued that Coulson J in Hutton Construction Limited v Wilson had set a higher test than that in the TCC Guide i.e. that the adjudicator’s decision must be ‘obviously wrong’ or one to be taken ‘on any view’ before the question would be suitable for Part 8. The court disagreed. The test was that set out in Hutton and A&V Building Solutions and the TCC Guide. Applying that test, the question was suitable for summary determination as there was no factual dispute and no argument based on waiver.
Court decision summaries in full
Click on the options below to read a full summary and analysis.
Sleaford commenced an adjudication in which it sought various findings that its subcontractor, IPS, was not entitled to any further milestone payments by reason of its failure to comply with various ‘prerequisites’ (or preconditions) to payment for a true valuation of the subcontract works and ‘advice’ that IPS had been negligent in its pipelaying, and that the payment prerequisites had not been complied with. It concluded that IPS had been overpaid and sought repayment.
IPS denied it had been negligent, contended that the prerequisites were not conditions precedent to payment, or that the payment terms failed to comply with section 110 (1A) of the Act so that the Scheme applied, and claimed it was entitled to a final milestone payment.
It was accepted that the adjudicator could make an award of money in favour of either party.
The adjudicator found that clause 21.4 of the subcontract did require production of certified copies of the sub-subcontracts entered into by IPS, with evidence of the sub-subcontractors’ insurances as pre-conditions of payment, within a stipulated time of 7 days. She ‘confirmed’ that IPS had installed a compliant installation that was in accordance with the subcontract and that milestones 1-17 should be certified as accepted. She ‘advised’ (as per the relief claimed) that (i) there was no proof that IPS had been negligent in supplying incorrect and unsuitable fittings and (ii) she was unable to determine whether or not there had been compliance with all pre-requisites. She valued the works in the sum of £838,400 and found that Sleaford should make payment to IPS in the sum of £323,502 and directed payment to be made accordingly.
Sleaford declined to pay and issued Part 8 proceedings in London for declarations as to the meaning of clause 21.4 and that, in consequence, no further payment was due, and the award should not be enforced. IPS issued Part 7 proceedings to enforce the award in Manchester.
IPS’s position was that the adjudicator's decision in its favour should be enforced pursuant to its Part 7 claim unless Sleaford succeeded at the concurrent hearing on the substance of its Part 8 declarations. As to that, it said Sleaford could not succeed at the concurrent hearing as its claims were unsuitable for summary determination by Part 8 because the complaints of non-compliance with clause 21.4 had not been properly particularised, and its defence to any breach depended on the resolution of factual issues, including waiver. Sleaford accepted that the decision was valid and unless it succeeded on its Part 8 claim, it was enforceable. It said its Part 8 claim involved a short point of construction, and there was no need for evidence as it was ‘incontrovertible that the sub-subcontracts had not been provided to it within 7 days and no evidence of insurance provided. Payment of (3) previous milestones could not amount to waiver. It also pointed out that the fact that the milestones were for lump sums stated in the subcontract meant IPS could not demonstrate the sums included for sub-subcontractors, so nothing was due.
The proper approach to combined Part 7 and Part 8 claims
As a matter of procedure, the court said that as the Part 8 claim had already been issued in London, the Part 7 proceedings for enforcement should also have been issued there to avoid the waste of court administrative resources in transferring the same, as required by the TCC Guide and case law.
The proper approach to these two sets of proceedings was identified in A&V Building Solutions Ltd v J&B Hopkins Ltd.[6]
"The proper approach to parallel proceedings was outlined by O'Farrell J in Structure Consulting Limited v Maroush Food Production Limited [2017] EWHC 962 (TCC). The judge should usually give judgment on the claim based on the adjudicator's decision and then – to the extent possible – endeavour to sort out the Part 8 proceedings. The same point was made in Hutton Construction Limited v Wilson Properties (London) Ltd [2017] EWHC 517 (TCC); [2017] BLR 344, where the judge said that the Part 8 claim should be dealt with after the enforcement unless the point raised was straightforward and self-contained, and the parties were agreed that it could be dealt with at the enforcement application without adding to the time estimate.”
The court also took the view that as regards the question ‘Is there any defence to the Part claim?’ the three-stage test in Hutton was not applicable in this instance. It only arose in the context of the suitability of the Part 8 proceedings.
At this point, the court felt it convenient to address the question of whether there was any distinction properly to be made between the ‘advice’ of the adjudicator on the one hand and the ‘decision’ on the other. The adjudicator referred to the potential distinction in the relief claimed by Sleaford, drawing it to the attention of the parties and inviting comment on it. She ultimately construed the request that she "advise" the parties literally and distinctly from those matters upon which she was called to decide, as was clear from her approach and comment that "any such advice may not be enforceable" and later, when she contrasted her decision from her advice. She clearly did decide that clause 21.4 contained pre-requisites to payment. Pending trial, that element of her decision was binding. However, viewed objectively, she did not intend her ‘advice’ to be binding. In practical terms, this turned out to be a distinction without a difference because it was common ground that she either advised or decided that she was unable to reach any conclusion whether or not all pre-requisites to payment had, in fact, been met. However, what was abundantly clear was that she did not consider that that inability was such as to shut out IPS from its entitlement to payment. She clearly decided that payment was to be made. Accordingly, the award was to be enforced and summary judgment granted to IPS unless any final determination in the Part 8 claim impacted upon it.
Part 8
For the reasons summarised below, the court found that the issues arising in the Part 8 proceedings were unsuitable for summary determination.
The question of construction of clause 21.4 involved the prior question: whether it was ever capable of being operated in the case of milestone payments where there was no mechanism for determining what sum related to the work of sub-subcontractors. It was thus likely that evidence of content and value of work would be needed.
If the condition was operable, the next question was whether the condition’s precedents were satisfied. There were multiple sub-elements. There was the question of timing. It was in dispute whether the requirement of clause 21.4 that the sub-subcontracts be provided within 7 days was part of the condition precedent; that would be a matter of pleading and argument. What would happen if compliance was one day late? Did that mean no payment was due for any work at all?
The various elements required properly particularised claims and responses.
Then there was the question as to whether IPS had actually complied with the conditions. Some of the material before the court suggested that professional indemnity insurances were not required from at least two sub-subcontractors who had no design responsibility.
The allegations made in the adjudication were not all the same as those advanced before the court. A properly particularised claim was required.
The question of compatibility between the subcontract and sub-subcontracts would, if pursued, require factual analysis.
The question of waiver was very likely to involve evidence of previous payments and practice. It did not follow that previously decided cases in which it was said payment was equivocal would apply. IPS contended those cases could be distinguished as being based on payment notices and payment practice, whereas here IPS relied on the fact of payment on previous occasions as unilateral waiver. Only once any breaches had been identified would it be possible to determine whether there was a waiver.
Valuation evidence would be required because, at present, there was no basis upon which the court could determine what part of any milestone payment related to the work of a given sub-subcontractor in respect of which a breach of clause 21.4 had been proven. This was also fatal to Sleaford’s contention that IPS was not entitled to summary judgment because it could not show what monies were due under clause 21.4 of the subcontract. IPS was seeking judgment on the sum awarded by the adjudicator not due under clause 21.4. The burden of showing for the purposes of a final determination what, if any, sums belonged to sub-subcontractors did not fall on IPS but on Sleaford and required evidence.
The issues were by no means short and self-contained and were not suitable for final determination under Part 8 at this stage. There would be summary judgment for IPS.
There was an issue about the ambit of s 110(1A) (on which there was little authority) and the exception at (1C) (on which there was no authority). IPS said that if the terms of clause 21.4 amounted to conditions precedent to payment, the terms were inoperable and / or did not comply with the Act, and the default provisions of the Scheme would apply. The court said that questions were for another day and not for the Part 8 proceedings.
The Part 8 proceedings were dismissed so as to enable Sleaford to start fresh proceedings based on the issues it now might choose to pursue.
Comment: Whilst the case decides nothing new, it is yet another example of an unsuccessful attempt to pre-empt enforcement of a valid award by asking for the final determination of a central underlying legal issue (in this case, the construction of a payment provision). That the attempt failed for a plethora of reasons is a reminder that the use of Part 8 is subject to restrictions and is only suitable for short, self-contained points requiring no evidence, as previous case law and the TCC Guide underline. One unusual feature was that the remedy sought in the adjudication included a request that the adjudicator “advises” the parties on two issues namely whether the subcontractor had been negligent in the way it had installed certain fittings and also whether the payment ‘prerequisites’ had been complied with. The adjudicator did as requested and gave ‘advice’ on those issues. The court took a pragmatic view and decided that the ‘advice’ was binding until there was a final determination, perhaps encouraged by the fact that the ‘advice’ did not impact the core findings as to valuation and payment or the validity of the decision. The referring party had drafted its own notice and referral and some of the language used was informal. The court might have found the matter more troublesome had the core issues been the subject of the ‘advice’.
The parties entered into a SBCC Standard Building Contract with Quantities for the carrying out of alterations and an extension at Mr McDermott’s home. AGB applied to the quantity surveyor for an interim payment of £367.8k (IPA). Upon being notified that the quantity surveyor was no longer instructed by Mr McDermott, AGB then resubmitted the IPA to the contract administrator (CRGP) who issued a pay less notice stating nothing was due.
The IPA referred and, AGB said, enclosed a copy of an earlier letter and its appendix which set out the basis on which the interim payment was calculated. AGB commenced adjudication proceedings in which the adjudicator had to decide several issues including whether the appendix was sent with the IPA. He found for AGB and awarded them the sum claimed. In proceedings to enforce the decision, Mr McDermott contended that the adjudicator had failed to exhaust his jurisdiction by failing to consider and make a finding on the defence that the appendix had not formed part of the IPA, with the result that there was no proper specification given of the sums claimed in the IPA. The adjudicator had noted in the decision that Mr McDermott had argued that AGB had not provided a basis for the calculation of the sum claimed but had not noted the specific ground was the absence of the appendix.
After reviewing the law as to the principles on which the court would approach an application to enforce an award, the court noted an adjudicator could not rely on a general assertion that s/he had considered all submissions and documents. There must be some effort to address the lines of defence advanced and to explain the basis upon which they were accepted or rejected, failing which the decision would be unenforceable.
Mr McDermott contended that the only questions the adjudicator had directly addressed were (a) whether an earlier document could be incorporated by reference in an IPA and (b) whether the letter and appendix in question provided sufficient detail. AGB said it was clear from the terms of the decision that the question had been adequately addressed. They also argued that the decision should be enforced unless there was a failure to exhaust jurisdiction in a material respect and the court should intervene only in the plainest of cases.
The court quoted a number of paragraphs from the decision, which could only be read as deciding that the letter and appendix had been included in the IPA (at least in the earlier application to the quantity surveyor). Whether that could be criticised as an ill-founded conclusion in law or fact was of no consequence. The appendix itself was already in the hands of Mr McDermott’s agents and was both referenced in the IPA and contained adequate specification. Decree granted in favour of AGB.
Comment
The court’s approach mirrors the English authorities, which is to say that for policy reasons frequently restated, the court will be slow to refuse enforcement. It is common, if not universal, for adjudicators to say they have read and considered and taken account of all notices, submissions and documents placed before them. Such statements are unobjectionable, but the adjudicator must go further and attempt to show they have addressed all lines of defence and explain why they have accepted or rejected them.
The Reclaimers AMK raised an action asking the Inner House to set aside the order of the commercial judge granting judgment on an adjudicator’s award in favour of the Respondents BWE.[7]
AMK had engaged BWE as sub-subcontractor to provide what was essentially labour only for part of its electrical subcontract work at Lords Cricket Ground.
The sub-subcontract provided for BWE to submit its final account and for AMK to then provide a Final Account Statement (FAS), which was to become ‘final and binding’ unless BWE commenced adjudication or court proceedings within 20 working days. There was a massive difference in value between BWE’s final account (showing £1.9m due to them) and the FAS value - i.e. £2.384m gross versus £306k. BWE commenced adjudication and court proceedings within 20 days of the FAS. The first adjudicator resigned because the dispute was "absolutely incapable of proper resolution in the timescales set by the Construction Act" in light of the overwhelming amount of material sent to him – the referral alone was accompanied by 26,000 pages of material. BWE served a further notice in respect of the same dispute, essentially asking the second adjudicator to determine the sum properly due on the final account. Mr Tony Bingham was appointed. Following the Referral, Response, Reply, Rejoinder, and further submissions, Mr Bingham concluded that a sum of £1.4m was due to BWE (‘Award’). At a fairly late stage, he had said that the nature and extent of the multiple variations changed the complexion of the sub-subcontract into a beck-and-call arrangement, though not a new contract. He indicated his line of thinking saying he proposed to look at the number of hours worked and to select an appropriate contract rate and invited comments. The parties did respond and address him on this in detail.
In the commercial court, BWE sought enforcement of the Award, and AMK opposed and claimed that the Award was invalid on the grounds that Mr Bingham had not answered the question referred to him, namely “What was the sum due?”, but had embarked on a frolic of his own in breach of the rules of natural justice in assessing a fair price based on what he regarded as a new contract. Further, he had decided that the FAS was contractually invalid without this issue having been raised by either party. Separately, Mr Bingham had failed to address, and thus failed to exhaust, his jurisdiction in relation to various lines of defence advanced by AMK, including several items of cross-claim.
In the court below, the commercial judge had found:
On AMK’s action to finally determine the validity of the FAS, the judge held that it would undermine the valid decision of the adjudicator to allow AMK, in effect, to set off their FAS claims against the Award.
Before the Inner House, AMK contended that the adjudication was out of time and the FAS, therefore, final and binding. The first adjudication notice was not a ‘foot in the door’ allowing the second notice to be in time. The adjudicator had not answered the question posed but had devised his own questions and answers. He had failed to allow them a fair opportunity to address him on his proposed method of valuation. He had treated the sub-subcontract as ‘beck and call’ and not valued the works as required under the sub-subcontract. Indeed because of the weight of material, they had not had enough time to address the new evaluation. He had not addressed their various defences. All in breach of the rules of natural justice.
BWE argued the first adjudication was commenced in time, and upon the resignation of the adjudicator they had followed the correct procedure by serving a new notice. All that was required was that proceedings be commenced within 20 days, and this was done. The adjudicator had answered the right question, and the parties had been given and had taken every opportunity to deal with the matters he had raised.
The decision
Clause 33.4 provided that the FAS was final and binding on BWE, unless the parties agreed to modify it or BWE commenced an adjudication or court proceedings within 20 working days. Adjudication proceedings were commenced within that time and the FAS was therefore no longer final and binding. The adjudication proceedings did not come to an end on the resignation of the first adjudicator. BWE followed the correct procedure in serving a new notice. The two notices were very similar. The essential question was the same: what sum was properly due? “The resignation of the first adjudicator did not terminate BWE's right to challenge the FAS. BWE have their foot firmly in the door, as permitted by clause 33.4, by virtue of both the adjudication and the timeous, and still pending, litigation.” The challenge on that ground failed. The court agreed with the dictum of Lord Briggs in Bresco:[8] “pay now, argue later.”
The court also agreed with the principle of fairness as adopted by Lord Malcolm in J&A Construction from the English case of Absolute Rentals[9]. The court found no unfairness here. The adjudicator gave due notice to the parties of his line of thinking on ‘beck and call’ and the number of man hours worked and invited comment. AMK responded in detail, repeatedly setting out their case as to why the variations had to be valued under the sub-subcontract and that the number of man-hours worked was irrelevant and unreliable.
The Lord President noted the adjudicator took on “a nigh impossible task” having to consider an enormous volume of written materials. He said it was redolent of what was described by Turner J in Re Fundao Dam Disaster[10] as amounting to "a fractal pattern of progressively complex and ever-finer recursive detail of sharply declining significance," adding that it would have required a super-human effort to carry out a precise valuation exercise before the adjudication deadline. The decision was bound to involve “broad justice at high speed”. The court concluded that the Award was “an exemplary piece of work”, the adjudicator having cut down the issue to one of assessing roughly what he considered to be payable and doing so in accordance with the sub-subcontract. He selected a contractual rate and applied it to the hours worked. This was no frolic of his own and the natural justice challenge failed.
The court found no need to address the discrete question of whether the court could have considered, as a parallel question on enforcement, whether the FAS was binding on the adjudicator and reserved it to a future occasion.
The claimant (Elements) sought summary judgment pursuant to an adjudicator’s decision awarding them over £3.9m plus interest and fees. That dispute was only part of a wider dispute between the parties. The respondent FK did not dispute the validity of the decision. Instead, they made an application under Part 8 CPR asking the court to rule on two short points, which if upheld, meant the decision was wrong in law and should not therefore, in conscience, be enforced.
After a full hearing and following receipt of a draft judgment, the parties settled the wider dispute and the court made a consent order dealing with the entire dispute. It was not asked to and did not enter summary judgment. The two points the court had been asked to decide on the Part 8 application arose from an important payment provision of a JCT standard form of contract in common use, on which (so far as counsel were aware) there was no previous authority and, in its discretion and with the agreement of the parties, the court elected to give judgment recording its decision on those points.
FK as main contractor engaged Elements as sub-contractor under a Sub-Contract in writing incorporating the JCT Standard Building Sub-Contract Conditions SBCSub/C 2016 Edition with bespoke amendments (‘the Sub-Contract’) to carry out remediation works to 312 bi-split apartment modules as part of the design and construction of three buildings to comprise a 156 residential apartment scheme at Uptown Riverside, Springfield Lane, Salford.
The material terms
Clause 4.6 (page 68.30) of the Sub-Contract Conditions provided: "4.6.1. During the period up to the due date for the final payment fixed under Clause 4.22.1 … the monthly due dates for interim payments shall in each case be the date 12 days after the relevant Interim Valuation Date …"
4.6.3. Where Clause 4.6.2 does not apply, the Subcontractor may make a payment application in respect of an interim payment to the Contractor either:
4.6.3.1. so as to be received not later than 4 days prior to the Interim Valuation Date for the relevant payment …"
Sub-Contract Particulars Item 10 provided that:
"The first Interim Valuation Date is 25th June 2021 and thereafter the same date every fortnight [sic] for a period of two months, following which the date shall be the same in each month or the nearest business day in that month."
Clause 4.7.1. provided that:
"Subject to Clause 4.7.4 the final date for payment of any payment shall be 21 days after the due date as fixed in accordance with Clause 4.6.1 …" The Specification provided:
"The site will be open for the Sub-Contractor to carry out the Sub-Contract Works from 7.30 a.m. to 6.00 p.m. Monday to Friday except on any dates stated in item 2.2. On Saturdays, the site will be open from 8.00 am to 1.00 pm"
Elements issued its Payment Application No. 16 by email on 21 October 2022, timed at 22.07 hours. It was sent on behalf of Elements by Base Quantum, who had been retained to prepare interim applications for payment, to a Mr Corns of FK and copied to four other FK employees. The email attached a link to a 17-page PDF valuation which stated that there was an amount due to Elements of £3,950,190.53. There was no dispute that the email and its attached payment application was received into the various recipients' email inboxes on the same date it was sent, between 22.07 and 22.08 hours.
In the adjudication, Elements adduced evidence of ‘usual’ and site-specific practice that the hours worked by quantity surveying and administrative staff were not confined to site or business hours but that they worked ‘late hours’. On 21 October 2022, at least some of the individual recipients of the email serving application 16 saw that the email had landed and opened the email and its attachments, and all understood that a payment application had been served. This evidence had been served in response to FK’s position in the adjudication that site-specific and usual site practice was relevant to the question of whether the recipients could reasonably have been expected to have read the email. By the time of the court hearing, counsel for FK had abandoned that argument as irrelevant and contended the question of receipt was to be decided by the proper construction of the terms of the Sub-Contract.
In the adjudication FK had disputed Elements’ entitlement to payment for five reasons, all of which the adjudicator rejected. Two of those reasons were the subject of the present Part 8 application.
The contentions<strong
FK contended that the application was submitted late and was therefore contractually invalid. Further, that in order to rely on the absence of a pay less notice to find its right to payment, Elements had to show that its payment application was valid since otherwise it would not constitute a payment notice entitling them to payment.
To find that proposition, FK relied on the correct construction of clause 4.6.3.1 of the Sub-Contract as meaning that application 16:
placing emphasis on the word ‘received’ in clause 4.6.3.1, which was to be contrasted with the word ‘give’ in clause 4.7.1.
In relation to its first argument, FK submitted that the effect of clause 4.6.3.1 was to require the application to be received no later than 4 days before the valuation date, and receipt on 20 October was less 4 days or at least between 3 and 4 days. Elements countered that this was tantamount to saying ‘days’ meant ‘clear’ days and the clause used no such language. Further, ‘day’ in English law was always treated as a full day, and fractions of a day were to be ignored.
FK’s alternative argument was that the clause should be construed such that the payment application needed to be received on or before the end of site working hours on whichever was the correct day (following the first argument) because that best met the reasonable commercial expectations of the parties. Elements’ response to this was to point out that the Sub-Contract imposed no restriction on the time of day in which a Payment Application might be made and received. They relied again on the 'fractions of a day' principle as equally applicable to defeat the second argument. The reference in the Specification to site opening times was irrelevant and drew attention to the fact that the provision, when read in full, related to the time during which the sub-contractor was entitled to carry out its work. Indeed, the absence of any cross-reference between 4.6.3.1 and this part of the Specification supported the argument that the parties had not intended it to be determinative of the times permitted for service of a payment application. FK's construction would lead to uncertainty: what was to define the hours within which a payment notice could be validly served? On the other hand, Elements' construction of the contract meant simply that, in the case of a Payment Application made by email, it was received when it arrived in the inbox of the intended recipient, which was to be determined as a matter of fact – as to which they relied on the accepted evidence of actual timed receipt. Finally, as to commercial expectation, Elements again relied on its uncontroverted evidence that at least two previous payment applications that had been sent in the late evening had been accepted as properly submitted.
Is Part 8 appropriate?
Elements argued that Part 8 was not appropriate as the questions did not fall within the exception set out in Hutton Construction Limited v Wilson[11]. They also contended that Coulson J in Hutton had set a higher test: that the adjudicator’s decision must be ‘obviously wrong’ or one to be taken ‘on any view’. The court did not agree that Coulson J intended to set a higher standard than the TCC Guide. Applying Hutton and A&V Building Solutions[12] and the TCC Guide, the court was satisfied that the point of construction before it was a short and straightforward one capable of determination by the court. It would have taken a different view had the evidence relied upon by Elements been disputed and/or had the issue of waiver or estoppel been raised based upon the factual evidence of site practice.
The proper construction of clause 4.6.3.1
Days or clear days? There was an important distinction between 4 ‘days’ and 4 ‘clear days’. If something had to be done 4 clear days before a certain date, then it must be done at the latest on the fifth day before that date. If it was to be done 4 days before the date, then it could be done on the fourth day prior to that date. The language used was clear and the words of clause 4.6.3.1 could not be construed as meaning ‘clear’ days.
FK placed significantly more emphasis on their second argument, that receipt timed at 22.08 was not received on or before the end of site working hours and was therefore late. The court had regard to a long line of established authority that the courts do not deal in fractions of a day[13].
Applying the established principles to the present case, and unless the Sub-Contract provided otherwise, a payment application required to be made so as to be received by FK no later than 21st October 2022 could be made so as to be received at any time on 21st October 2022, up to 23.59.59, “because the law does not count in fractions of a day”. The Sub-Contract could have but did not provide for ‘clear’ days or for an application to be received within certain hours. The Specification provision as to the hours the site was open for work could not be read as importing a restriction on the time by which an application had to be received. “Put simply, the site opening times within the Specification have nothing to do with the proper construction of the word 'days' within the payment and notice provisions required for compliance with the HCGRA”.
Payment Application No 16 was made so as to be received on 21st October 2022, which was not later than 4 days prior to the Interim Valuation date, and was therefore validly made. There was no error by the adjudicator in this respect, and the award should be enforced and the Part 8 Claim dismissed.
About the author:
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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[1]Scheme for Construction Contracts (England & Wales) Regulations 1998 (SI 1998/649).
[2]Scheme for Construction Contracts (England & Wales) (Amendment) (England) Regulations 2011 (SI 2011/2333).
[3]Scheme for Construction Contracts (Scotland) Amendment Regulations 2011 (SI 2011/371).
[4]Scheme for Construction Contracts (Scotland) Regulations 1998 (SI 1998/687) (S.34).
[5]Scheme for Construction Contracts (England and Wales) Regulations 1998 (Amendment) (Wales) Regulations 2011 (SI 2011/1715) (W.194).
[6][2023] EWCA Civ 54 by Coulson J at [38].
[7] Atalian Servant AMK Ltd v B W (Electrical Contractors) Ltd [2023] ScotCS CSOH 14 Lord Sandison (16 February 2023) [see Cases Part 2 of 2023].
[8]Bresco Electrical Services v Michael J Lonsdale (Electrical) [2020] Bus LR 1140 at paragraph 12.
[9]J & A Construction (Scotland) v Windex [2013] CSOH 170, Lord Malcolm adopted (at para [7]) a passage from Absolute Rentals v Gencor Enterprises, unreported, 16 July 2000.
[10][2020] EWHC 2471 (at para 11).
[11]Hutton Construction Limited v Wilson Properties (London) Ltd [2017] EWHC 517 (TCC).
[12]Court of Appeal in A&V Building Solutions Ltd v J&B Hopkins Ltd [2023] 2023 EWCA Civ 54.
[13]Lester v Garland (1808) 15 Ves 248; Boxxe v Secretary of State for Justice [2023] EWHC 533 (TCC).