Adjudication Case Law Update 2023: Part 5

Andrew Bellis v Sky House Construction Ltd [2023] EWHC 1473 (TCC) Jason Coppell KC

The claimant AB sought the final determination of a finding by the adjudicator that it had wrongly terminated the contractor’s (Sky) employment under clause 6.4 of a JCT Minor Works 2016 Building Contract, as a result of serving notice of termination prematurely.

The court had first to decide whether it was a challenge to an award which could be entertained on a Part 8 application. In the usual case, the adjudicator’s findings of fact or law were not open to challenge on enforcement and were binding right or wrong. This case however was unlike Global Switch [6] where the challenge took place against enforcement by the successful party. Nor was it like Hutton [7], where the Part 8 application was by way of defence to enforcement of the adjudicator’s award. The award in question was not concerned with the payment of money and there were no enforcement proceedings in respect of it. The award had led to a second adjudication in which a money award had been made in favour of Sky but those enforcement proceedings were some way off. By its Part 8 application, AB claimed the final determination of a question decided by the adjudicator. This meant the court was not bound by the adjudicator’s finding in respect of the matter under challenge.

The question was a short one of construction of the contract and required no evidence and so was suitable for summary determination.  

The court took the view, and the parties ultimately agreed, that the only finding which was suitable for final determination on the Part 8 challenge was as to the meaning of clause 6.4 of the JCT form: was the notice of termination served under clause 6.4.2 given the required number of days after the ‘warning notice’ under clause 6.4.1 or was it premature?

The first (‘warning’) notice was given by email on Wednesday 1 September, and assumed (as claimed) to have also been given by hand later the same evening requiring Sky to take steps to remedy alleged breaches. The second notice terminating Sky’s employment was given by email on Wednesday 8 September, by email and again assumed as claimed to have been delivered by hand on the same evening after working hours.

Clause 6.4.2 read

“6.4.2 If the Contractor continues a specified default for seven days from receipt of the notice under clause 6.4.1, the Employer may on, or within 10 days from, the expiry of that seven day period by a further notice to the Contractor terminate the Contractor's employment under this Contract."

Clause 1.4 read:

"Where under this Contract an act is required to be done within a specified period of days after or from a specified date, the period shall begin immediately after that date. Where the period would include a day which is a Public Holiday that day shall be excluded."

The court held that in accordance with clause 1.4 but in any event (even without it), the 7 days had to be clear or whole days after the giving of the warning notice. Any other meaning would either leave the contractor with less than the already short period of 7 days in which to remedy default and avoid termination, or, if it depended upon the actual timing of receipt, lead to uncertainty. The second notice (under clause 6.4.2) could not have been given sooner than 9 September. The adjudicator had reached the correct conclusion on that issue.    

John E. Griggs and Sons Limited v High Firs Penthouses Limited[2023] EWHC 2231 (TCC)

The Court refused an application (made without notice) by Griggs for a freezing order, in relation to an adjudication enforcement claim. The adjudicator had found that Griggs, the contractor, was entitled to payment from High Firs, the employer, of around £120,000. In the enforcement proceedings, High Firs consented to judgment being granted against them. They later indicated that they did not intend to pay the judgment sum and would instead set that sum off against their own claims for defective works. Griggs now sought to prevent High Firs from selling or disposing of their interest in the final unsold unit in the development, the subject of the contract works. Griggs argued any such sale or disposal would amount to an unjust dissipation of High Firs’ ‘only valuable asset’, made to frustrate enforcement of the judgment.

The court considered that, absent evidence to the contrary, the purpose of High Firs’ attempts to market the property for sale would be to realise its investment in the development, rather than evade the judgment sum. Further, it would not have been ‘just and convenient’ to grant a freezing order, when this may have caused High Firs to lose a sale, and in circumstances where Griggs had ‘ample time’ to seek less draconian relief against High Firs such as a charging order. It was noteworthy there was no evidence before the court as to the manner of sale or market price being asked, nor the amount of any charges. The court was bound to assume that the sale was taking place openly and for full value. 

Comment

Examples of cases in which the courts have considered applications for freezing orders in the context of adjudication enforcement appear to be rare. This judgment sets out the principles on which the court will act, and the factors to be considered where the application is made after judgment has already been obtained against the defendant. Where there is risk of dissipation of assets with a view to evading payment, it is better to act as soon as possible, since delay will prejudice the chances of showing it is just and convenient to make the order. The less draconian relief available to High Firs was to seek a charging order in good time and otherwise to seek to freeze the proceeds of the sale. This case shows the difficulty of demonstrating that a disposal is not being made in the ordinary course of business.

Lidl Great Britain Ltd v Closed Circuit Cooling Ltd t/a 3CL [2023] EWHC 2243 (TCC) HH Judge Stephen Davies sitting as a High Court Judge judgment 11 September 2023

Lidl sought various declarations concerning the construction of the payment provisions of the framework agreement with 3CL, the validity of 3CL’s interim payment application, and as to the validity of what it claimed was its own ‘payment notice’ which, if granted, would have overturned the adjudicator’s decision in 3CL’s favour. 3CL applied to enforce the decision. By agreement of the parties and in accordance with the Technology and Construction Court (TCC) guidance, the applications were listed to be heard together, a full day being allowed. (Fortunately for the parties, the judge managed to find a separate full day for pre-reading.) Despite excellent written submissions, argument over the many issues took a further full day. In a reserved judgment, the judge granted 3CL’s summary judgment application and denied Lidl’s Part 8 application.

Findings

1. Disposition of Part 8 application. Issues as to jurisdiction and natural justice were potential defences to, and would (usually must) be heard at the same time as, enforcement. Part 8 proceedings relating to matters allegedly wrongly decided by the adjudicator would only be heard at the same time as Part 7 enforcement application if pre-reading and hearing time allowed, and disposal and the right to payment of the award would not be unduly delayed.

2. Final Date for Payment. There is a difference in the latitude allowed to contracting parties by the Act between calculating the due date for payment and fixing the final date for payment. The former requires “an adequate mechanism” and can be fixed by an act or event such as submitting a payment application or an invoice (110(1)(a)); the latter, the “final date for payment”, must be a period certain from the due date and cannot be set by reference to an event (such as the date of an employer inspection or submission of an invoice (110(1)(b)).

3. Additional requirements for a valid payment application including having to state milestones already achieved, providing photographs to show the stage of the works, evidence of insurances and ‘such information as may be required’, were not expressed as conditions precedent to payment and their absence did not mean the payment application was invalid though it might justify a reduction in the sum due.

4. Neither, on the terms of the contract, was the requirement for an invoice to be accompanied by a copy payment application, a condition precedent to payment.

5. Provisions requiring ‘notices’ and ‘requests’ to be given by email and in writing did not apply to payment applications, which were neither ‘notices’ nor, in the terms of the provisions used, ‘requests’.

6. In the alternative to the above findings (that the provisions in question were not conditions precedent to payment), the court would have found there was an estoppel by convention preventing Lidl from relying upon non-compliance (given that a previous application without such supporting material had been paid without demur). A ‘no waiver’ clause in the framework agreement did not apply to estoppel by convention so as to allow Lidl to refuse payment for non-compliance.

7. A payer’s notice entitled as a pay less notice (PLN) and purporting to deduct liquidated damages as well as sums for defective work was in form and intent a PLN not a payment notice. Since the amendment to the Act in 2011 it was no longer possible to have a hybrid combined payment and PLN - separate notices were required.

AZ v BY [2023] EWHC 2388 (TCC), Constable J.,  judgment 27 September 2023

The underlying dispute arose out of works to replace the core pressurisation systems to a Building. The contract for the works was intended to be let to AZ. An issue in the adjudication was whether a contract was finalised between the parties. In support of the contention, AZ introduced without prejudice (WP) materials to persuade the adjudicator (P) that there was a finalised contract. P so determined there was a finalised contract.

BY now sought a declaration that the WP material was inadmissible, and therefore the decision should not be enforced.

The court had to determine whether the material was WP and whether, contrary to the general rule that WP communications are inadmissible, it was, as an exception, admissible. The existence of one of the exceptions was reiterated in Unilever Plc v The Proctor & Gamble Co [8], in which Robert Walker LJ said:

Nevertheless, there are numerous occasions on which, despite the existence of without prejudice negotiations, the without prejudice rule does not prevent the admission into evidence of what one or both of the parties said or wrote. The following are among the most important instances.

• As Hoffmann L.J. noted in Muller's case, when the issue is whether without prejudice communications have resulted in a concluded compromise agreement, those communications are admissible….

BY argued this exception applied and this entitled the adjudicator to look at the WP material. But this gave rise to a practical issue on which neither counsel was aware of any authority: could the decision-maker having viewed the material to determine its admissibility, then fairly go on to decide the underlying issue or dispute to which the material was relevant or would the material create a bias one way or the other?   His Lordship said this:

“…it seems to me clear that the decision-maker must in these circumstances explicitly consider whether having had sight of the adverse documents means that they should no longer determine the dispute by reference to the test of apparent bias. If they consider the apparent bias test is met, they should decline to determine the remaining dispute. If they consider that, notwithstanding the sight of the communications, they can nevertheless fairly (judged by the test of apparent bias) proceed to consider the dispute, they should do so.”

The court concluded that the WP material was inadmissible and the adjudicator ought not to have considered it. The court went on to hold there was in any event no concluded agreement. Even if the deployment was legitimate, in circumstances as here where no such agreement was in fact concluded, it was incumbent upon the decision-maker thereafter to reflect upon their ability to resolve the extant dispute (which was not compromised as a result of without prejudice negotiations) fairly, having seen documents which contained material (such as explicit or implicit admissions) adverse to one party. 

It was then necessary to apply the ‘apparent bias’ test. Would a fair-minded and informed observer conclude that there was a real possibility that, having seen the WP material, the adjudicator was biased? The court concluded this was a case where there was apparent bias because:

(1) the without prejudice material was ‘front and centre’ within the adjudication and played a significant role in AZ's case.

(2) the material contained implicit admissions by BY that were plainly inconsistent with its open position and the contractual position it was arguing for in the adjudication.

(3) as such, the material was not just prejudicial and adverse to its interests but also related to central issues in dispute. It was like an adjudicator knowing not just that an offer had been made, but the amount of the offer. 

(4) there was, despite the way the decision was expressed, “an inevitable question mark” about whether the result of the adjudication, however inadvertently or sub-consciously, was shaped by the adjudicator's knowledge of the concessions as to key aspects of the open dispute made by BY in negotiations.

(5) the inevitable question mark was even more acute when the adjudicator had formed the view, also in error, that these matters had in fact been agreed (and not just put forward in a commercial offer which might be easier to put out of one's mind).

In consequence, this was one of the few cases in which a breach of the rules of natural justice, by reason of apparent bias, dictated that the Decision should not be enforced.

So as not to prejudice future proceedings between them, and in light of the general importance of the issues raised, the parties were thanked for their agreement to an anonymised and redacted version of the judgment being published.

Comment

The judgment repays careful reading. Where WP materials appear to be admissible and deployed, the adjudicator should consider whether, having read them, they can fairly go on to consider the dispute to which they relate. It may be the adjudicator would be wise to make clear at the outset, that once the materials have been considered, and whether admitted or not, the adjudicator must next apply the test of apparent bias and may feel prevented from going on to decide the dispute to which they relate. Despite the way this case unfolded, the materials having been considered and (as it turned out) wrongly admitted, the risk of unconscious bias would have remained to be evaluated either way.

Bexhill Construction Ltd v Kingsmead Homes Ltd [2023] EWHC 2344 (TCC) before Her Honour Judge Kelly

Bexhill claimed payment for extra work under a labour only subcontract for works on a project in Warrington. The dispute was referred to adjudication. One of Kingsmead’s defences was that there was no contractual basis for the claim as the written evidence of the subcontract referred to the use of a ‘JCT form’, but the parties had never agreed which of the JCT forms would apply. The adjudicator ordered Kingsmead to pay £49,664. They failed to pay and Bexhill sought enforcement. The parties did not ask the adjudicator to provide reasons for his decision but he gave brief reasons.

Before the court, Kingsmead contended the adjudicator had not considered its actual defence. They said that in effect there were two rounds of submissions (i.e. two claims and two defences) and that Bexhill did not nail its colours to the mast until the second round, i.e. by its Reply, saying that it was entitled to payment by virtue of doing the extra work. That was when Kingsmead, by its Rejoinder, set out its case that if the subcontract was relied upon rather than the JCT terms, the claim must fail because Bexhill had not received written approval for the extra works claimed for as required by the subcontract. They said the decision did not address the defence that no approval had been given.

The court noted the broad nature of the dispute: was Bexhill entitled to the sum claimed? The sub-issues were whether or not any JCT terms were incorporated, and whether or not Bexhill was entitled to any payment either under the subcontract, the Act or the Scheme.

The judge found that there were not two discrete rounds of submissions. The submissions were to be considered as a whole and as an evolving position of both parties. Moreover, the nub of the defence (that there was no contractual basis for the claim) was there in the Response to Referral. Further, when challenged post-decision, the adjudicator said he had considered everything. At paragraph 30 the judge made these important comments:

“30. It is further relevant to the issue of whether the adjudicator considered the defence that neither party asked the adjudicator to give any reasons whatsoever. Whilst the reasoning in the decision arguably could have been fuller, and the basis for all of the arguments set out more extensively, the adjudicator answered the question posed to him. In the absence of authority, I do not accept that having chosen to provide some reasons when none were requested, the adjudicator then obliges himself to provide reasons and a discussion on every point raised. It is a low bar for the adjudicator to negotiate in terms of reasons. If the adjudicator has answered the question posed to him and reached certain conclusions on the legal points raised and given reasons for those decisions which are comprehensible, that suffices even if the decision is wrong” [Emphasis supplied.]

The judge went on to decide that, looking at the decision itself, there was no real prospect of arguing the adjudicator had failed to consider everything. He said he had done so and specifically noted the Rejoinder. And, as he noted, not all of the submissions bore on the matters to be decided and despite the positions ‘evolving’ the dispute remained essentially the same. 

In applying the Act and the Scheme and deciding there was an entitlement under the Scheme, the adjudicator reached a decision he was entitled to make. There was no breach of natural justice.

The court also found there were no sufficient grounds for granting a stay.

Comment

It is commonplace for adjudicators to say they have read all the submissions and considered everything and there is no harm in doing so. But it is not sufficient – see AGB Scotland v Darren McDermott [9] where Lord Sandison said a general assertion could not be relied on. 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.

Alun Griffiths (Contractors) Ltd v Carmarthenshire County Council [2023] EWHC 2269 (TCC) judgement 14 September 2023

The defendant Council applied to stay execution of the judgment granted in favour of the claimant contractor AG for £3,316,487.55 to enforce an adjudicator’s award. The Council disputed that the adjudication award reflected the true state of the parties’ account.

The dispute arose from civil engineering and construction works carried out by the claimant AG for the Council. It was accepted that AG was entitled to summary judgment, but the Council asked for a stay pending the outcome of a true value adjudication (TVA) on the grounds that AG had been insolvent, and that the parent company guarantee it had provided was inadequate to safeguard its position. The most recent accounts showed it to be cashflow insolvent. The claimant offered a time-limited guarantee from its parent company, which did not itself trade but held over £1.5bn in assets through a large network of subsidiaries.

There was an issue as to adequacy of the guarantee and the question as to whether it was inexpedient to enforce the adjudication award. The court decided that there was no merit in the Council’s application to stay execution. AG’s parent company had a substantial positive cash position and there was no evidence that it would not continue to support AG’s own cash position should the Council succeed in its TVA.

J&B Hopkins v A&V Building Solution Limited [2023] EWHC 2475 (TCC)

This was the latest hearing in a long-running dispute between the parties. The court had several applications before it.  The first concerned the state of pleadings and Scott Schedule. The court ordered that it should be rewritten due to a lack of particularisation and concentration on the essential facts.

Next there were two applications for a stay of execution of two summary judgments following two adjudications. In the first, J&BH sought a stay of execution of a judgment in favour of A&V in Action 444 of 2022. In the second, A&V asked for a stay of proceedings in Action 6 of 2023 until the enforcement judgment in Action 444 of 2022 had been complied with.

There was also an application for security for costs by J&BH in Action 6 of 2023.

A&V’s financial position was relevant to all three applications. Based on information and evidence before the court from and since a previous hearing, it was, in the court’s judgment, clear beyond any doubt that A&V itself could not afford to pay any further sums at present. The corporate cupboard was for all practical purposes bare, and it seemed wildly improbable that any commercial lender would lend it any money now or in the foreseeable future. The court had also considered the means of those standing behind the company, the Paduraru family, and concluded that they could not be expected to be able to provide any significant further finance to A&V to satisfy even part of the judgment and the application for security for costs.

Application for stay in Action 444 of 2022

Deriving jurisdiction from CPR 83.7 the court had a discretion to order a stay of execution if it was satisfied that:

"(a) there are special circumstances which render it inexpedient to enforce the judgment or order, or

(b) the applicant is unable from any reason to pay the money."

From previous cases and well-known principles and the matters decided in the previous hearing, the court drew the following conclusions:  

“(1) In cases involving the enforcement of adjudicators' decisions, the Court should first decide whether to grant summary judgment;

(2) In reaching that conclusion, the Court should not be distracted by a view that the adjudicator got his or her decision wrong or that the adjudicator's decision was less satisfactory than might be desirable;

(3) It may seem obvious that until a judgment has been entered, there can be no question of a stay of execution, but it is important to note that the issues which are relevant to a stay application are different from those relevant to whether summary judgment should be granted. In the case of a stay, as the cases referred to above show, it may be relevant to the Court's deliberations to consider whether the adjudicator's decision is likely to be reversed or modified in later arbitration or liquidation. Such considerations are irrelevant to the grant of summary judgment, save in the rare cases where the Court will entertain a Part 8 claim at the same time as the claim for summary judgment: see Hutton Construction Ltd v Wilson Properties (London) Ltd [2017] EWHC 517 (TCC); [2017] Bus LR 908;

(4) Once summary judgment has been granted, there is a strong presumption against a stay of execution being granted, not only as a matter of general policy in all cases where judgment has been entered, but particularly in judgments enforcing adjudicators' decisions where the policy of the Courts, giving effect to the intention of Parliament, is to apply the principle "pay now, argue later";

(5) That presumption is, if anything, stronger where the disputing parties are commercial entities;

(6) However, the Court has a discretionary power to order a stay of execution of judgments enforcing adjudicators' decisions in cases falling within CPR 83.7 particularly where the enforcement of the summary judgment might or would cause manifest injustice.

(7) An applicant for a stay of execution relying upon its parlous financial situation so as to fall within CPR 83.7(b) does not have to establish that its financial situation is the result of any act or omission on the part of the judgment creditor, but, it seems to me, its position will be stronger if it does demonstrate that link, particularly if it can be shown that that act or omission was a breach of contract.”

There was another strand of policy applicable to adjudication which did not arise in litigation: adjudication was only temporarily binding and not final whereas in litigation the judgment was the last word.

Thus, the prohibition on a party starting an adjudication in order to sidestep an adverse (and unpaid) prior adjudication decision was clear. However, the position where a party was seeking to proceed to a determination by the court as to the true state of the account between the parties whilst refusing to honour an adverse adjudicator's decision was more nuanced. In that situation, the victor in the adjudication might apply for a stay of any court proceedings by the losing party in the adjudication seeking a determination of the true state of accounts between the parties. The court's approach in such a case was set out in the judgment of Akenhead J. in Anglo Swiss Holdings Ltd v Packman Lucas Ltd [10]

“(i) The court undoubtedly has the power and discretion to stay any proceedings if justice requires it.

(ii) In exercising that power and discretion, the court must very much have in mind a party's right to access to justice and to issue and pursue proceedings.

(iii) The power is one that is to be used sparingly and in exceptional circumstances.

(iv) Those circumstances include bad faith and where the claimant has acted or is acting particularly oppressively or unreasonably.”

The court should exercise the power to stay execution sparingly and only in exceptional circumstances. It must have regard to all the circumstances and act so as to avoid injustice. In this case, the court was considering both an application by A&V to stay execution of the judgment entered against it and by J&BH to stay the proceedings commenced by A&V. It was, in the court’s judgment, one of those cases where the court should, exceptionally, grant a stay of execution of the judgment against A&V for the following reasons:

“117. (1) The Court of Appeal had ruled in paragraph [43] of its judgment [11] that as at April 2022 J&BH was in breach of contract because it had not paid the first adjudicator's decision "that should have been the first order of business";

(2) The same court held (at paragraph [17] that "the first adjudication was made more complicated than it needed to be, in particular because J&BH's solicitors raised a number of unmeritorious jurisdictional challenges and generally failed to provide the sort of assistance to a lay adjudicator that I would expect";

(3) J&BH launched Part 8 proceedings raising arguments which the Court of Appeal held to be wrong (overruling the decision of Eyre J.);

(4) Whilst these actions were not the sole cause of A&V's financial difficulties, I am satisfied on the evidence before me that the costs arising from these actions exacerbated A&V's financial difficulties;

(5) The Court cannot ignore that J&BH is seeking to insist upon the "pay now, argue later" principle which it itself refused to honour;

(6) There is no doubt in my mind that A&V's case that the second adjudicator's decision was wrong is arguable…;

(7) There is no prospect of execution of the judgment producing any financial reward for J&BH. The consequence of execution of the judgment would probably be an order winding up A&V, effectively preventing A&V from pursuing its claim which I have held to be arguable.

For the above reasons the court concluded that to refuse a stay of execution in the circumstances of the case would or might cause a manifest injustice to A&V.

Stay of Action 6 of 2023

The court held an underlying factor justifying a stay in cases where a claimant has failed to honour an adjudicator's decision by making payment before seeking a true valuation determination had been that such failure was deliberate [12].

Here, by the time the second adjudicator issued his decision, it would have been very difficult for A&V to honour the decision even if J&BH had not complicated the matter by the Part 8 proceedings, and impossible for A&V to do so whilst raising money to deal with those proceedings, weakened as it was by J&BH's conduct before that date as held by the Court of Appeal.

This case was distinguishable on its facts from the previous authorities. Further, it would have been inconsistent to order a stay of execution of the judgment against A&V on the grounds of the risk of manifest injustice, and then on the other hand to order a stay of the proceedings brought by A&V.

Accordingly, J&BH's application for a stay of Action 6 of 2023 was refused.

Comment

This is an unusual case on unique facts. Apart from the effect of the conduct of one party on the other’s financial position, this was a case where it was the court being asked to decide the final position following an adjudicator’s award, as opposed to a true value adjudication before another adjudicator. That allowed the discretion to be exercised in a different way than on Wimbledon v Vago principles . It also seems to have been crucial that the failure to pay was not “deliberate”.