Adjudication Case Law Update 2024: Part 1

In the first edition of our 2024 Court Decision Summaries, Kenneth Salmon MCIArb, consultant solicitor at Slater Heelis LLP, summarises recent court decisions relating to the enforcement of adjudicators' Awards under the Housing Grants, Construction and Regeneration Act 1996.

In Part 1

• No Decision susceptible to enforcement: Level 1 Raised Flooring Ltd v JM Construction (SW) Ltd [2023] EWHC 2841 (TCC) DJ Baldwin judgment 12 September 2023

• Jurisdiction – Contractual adjudication – sufficiency of notice of adjudication: Iluminesia Ltd (T/a AlterEgo Facades) v RFL Facades Ltd [2023] EWHC 3122 (TCC) HHJ Davis-White KC

• Jurisdiction – Offshore works in England and on land: Van Elle Ltd v Keynvor Morlift Ltd [2023] EWHC 3137 (TCC)
• Enforcement – Principle to be applied (in Northern Ireland): Historic Royal Palaces v Piperhill Construction Ltd [2023] NIKB 30

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 madeon 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

No Decision susceptible to enforcement

Level 1 Raised Flooring Ltd v JM Construction (SW) Ltd [2023] EWHC 2841 (TCC) DJ Baldwin judgment 12 September 2023

 In a rare example of the court declining to enforce an award, it was that the adjudicator had not reached a decision that any sum was due to the claimant. His findings as to potential overpayment were subject to yet to be performed executory provisions of the contract and were, in any event, conditional upon the lawfulness of the purported termination which had yet to be decided. In the event there was nothing to enforce.

Jurisdiction – Contractual adjudication – sufficiency of notice of adjudication

Iluminesia Ltd (T/a AlterEgo Facades) v RFL Facades Ltd [2023] EWHC 3122 (TCC) HHJ Davis-White KC

The court found that the notice of intention to adjudicate did contain the necessary details to commence the adjudication. There was no excess of, or failure to, exhaust jurisdiction. The parties had adequate time and opportunity to, and did, address the adjudicator on all issues and there was no unfairness. This was not a case of blowing hot and cold.

Jurisdiction – Offshore works in England and on land

Van Elle Ltd v Keynvor Morlift Ltd [2023] EWHC 3137 (TCC)

Works in the harbour mouth of the river Fowey in Cornwall, on the landward side of the harbour, were works in England and works on land within the meaning of s 105(1) of the Act.

Enforcement – Principle to be applied (in Northern Ireland)

Historic Royal Palaces v Piperhill Construction Ltd [2023] NIKB 30

The court followed English authority as to the grounds on which enforcement might be opposed. Court decision summaries in full Click on the options below to read a full summary and analysis.

No Decision susceptible to enforcement

Level 1 Raised Flooring Ltd v JM Construction (SW) Ltd [2023] EWHC 2841 (TCC) DJ Baldwin judgment 12 September 2023

The claimant (Level 1) had engaged the defendant JM under a JCT Minor Works Contract to carry out construction work in London. The parties fell into dispute and Level 1 purported to determine JM’s employment, contending that as a result of the architect’s payment notice it had overpaid JM some £180,000. The adjudicator was asked to decide the value of work at the date of termination; that Level 1 was entitled to deduct £6,618 for correctives works; and that there had been an overpayment of £180,000 or such other sum as the adjudicator might determine.

The adjudicator concluded that:

(i) The value of work at the date of alleged determination was £163,415;

(ii) Level 1 was entitled to deduct £6,618 for corrective works; and
(iii) There had been an overpayment of £180,000.

As regards termination of the contract, the adjudicator found that the termination provisions did not provide for any payment to be made at the time of the adjudication. If the termination was valid, Level 1 was entitled to follow the procedure set down in clause 6.7 of the contract which would remove any requirement for a further payment to be made to JM and allow it to prepare an account as to the amount due to either party. He added that if the termination was valid, “in the absence of an express provision which requires a valuation of the Works and entitles (the claimant) to payment at the date of termination, there is no current entitlement to payment.” There being no immediate entitlement to payment, it was not necessary to address the defendant’s points as to cross claims or alleged invalidity of the termination.

Following the adjudication, Level 1 carried out the procedure envisaged by clause 6.7 and prepared an account showing it had overpaid JM and now sought to recover the alleged overpayment of £67,000 pursuant to the award. It now sought summary judgment there being, so it said, no valid cross claim. 4 JM argued that an adjudicator had no independent or inherent power to make an award; the scope to do so came from the contract. This contract made no provision for the making of a payment on termination. There was no current entitlement to payment, even if there had been a lawful termination (which JM contested). Payment was not “a logical consequence of a decision actually made”, the applicable phraseology or test being a “necessary and indispensable result of the … overall decision”, or an “inevitable and logical” consequence of a valuation (see Coulson J in Workspace Management v YJL London Ltd [6] at paras 16-19), described as a ‘night follows day’ test. Nor was it clear that the adjudicated sum was owing as had been the case in WRW Construction v Dathlgau Davies Developments. [7]

District Judge Baldwin was “singularly unpersuaded” that it was an inevitable consequence of the award, whether directly or logically, that the sum claimed was adjudicated as enforceable as long as the clause 6.7 procedure was completed. That was not a question posed of the adjudicator, nor did it inevitably follow from what he decided. The decision was contingent upon an imponderable, namely the lawfulness of the termination. In other words, only if the termination was lawful was any such sum valued as owing at any point, i.e. currently or later. That conditionality was not required to be, and was not in fact addressed, in the adjudication as a consequence of the clause 6.7 point.

This was one of those rare cases in which an award made within the adjudicator’s jurisdiction and without unfairness, did not result in an enforceable decision. Neither the utility of the decision, the imperative of cash flow, nor the need to later revisit old ground in a later adjudication justified giving effect to an inchoate decision.

Jurisdiction – Contractual adjudication – sufficiency of notice of adjudication

Iluminesia Ltd (T/a AlterEgo Facades) v RFL Facades Ltd [2023] EWHC 3122 (TCC) HHJ Davis-White K

The claimant (AlterEgo) applied for summary judgment to enforce an adjudicator’s award. The application was opposed by the defendant (RFL) on five jurisdictional grounds including an excess of and / or failure to exhaust jurisdiction resulting in a breach of natural justice. They also made a Part 8 application to overturn the award for error of law and applied for a stay of execution of any judgment pending the consideration of the Part 8 application.

The adjudication

RFL raised five jurisdictional challenges:

(1) The Notice of Intention (NOI) to refer (the dispute) to adjudication did not comply with the Scheme in that it failed to identify the relevant contract or identified the incorrect one: this being 6 [2009] EWHC 2017 (TCC). 7 [2020] Bus LR (QBD). 5 a case where the formation of the contract depended upon an analysis of relevant correspondence between the parties.

(2) The NOI and Referral failed to particularise breach of an "Order Acceptance" which was said by RFL to be the only contract identified in the NOI.

(3) That a common law claim (of a repudiatory breach of contract), as opposed to breach of contract claim, said to be raised as an alternative claim, was not a dispute arising under a contract for the purposes of s108 of the relevant Act.

(4) The nature of the dispute and details of where and when it arose were included in the NOI, but a brief description of the dispute was not. AlterEgo contested each of these challenges.

(5) The contract in question was not a "construction contract" for the purposes of s104 of the Act, such that a right of adjudication could only apply if AlterEgo's terms and conditions were incorporated into the contract which, said RFL, they were not.

AlterEgo contended that the NOI did comply with the Act and Scheme and that either this was a construction contract within the meaning of s104 of the Act or, in any event, there was stand-alone express contractual right of adjudication.

The adjudicator gave his non-binding views on jurisdiction, concluding that there was a contract with a right of adjudication and nothing was raised that would lawfully deprive him of jurisdiction.

The adjudicator went on to consider the substantive claims for payment of several invoices for payment of a withheld deposit, unpaid contract works, loss of profit for repudiatory breach, delay damages (and interest), under the contract for the supply of various materials for works on a site at Eastbourne Terrace, London.

By his decision dated 28 July 2023, the adjudicator - Mr Pugh - ordered RFL to pay AlterEgo £776,920.32 plus applicable VAT, interest and 80% of the adjudicator's fee, within 7 days of the decision.

The summary judgment application

RFL raised four defences to the claim:

(1) There was no agreement to adjudicate and therefore no jurisdiction.

(2) The NOI was defective in not complying with the applicable Scheme rules, again meaning the adjudicator lacked jurisdiction.

(3) The adjudicator decided the dispute on a basis that was not within his jurisdiction to decide. (I.e. he found a contract existed on a basis that neither party had contended for. Accordingly, (a) he lacked jurisdiction, and (b) the award fell away for breach of the principles of natural justice.) 6

(4) The claimant was seeking to approbate the adjudicator's award by taking the sum awarded under the contract that he found had come into being, whilst at the same time, reprobating the award, by seeking to assert to the court that the relevant contract was a different contract.

In a long and careful judgment His Honour reviewed the NOI, the Referral, Response and Rejoinder, the Award, the extensive contractual correspondence, and witness statements relied on. The key findings are as follows.

The contract

Although he disagreed with the adjudicator as to the precise offer and acceptance, the judge agreed that that there was clearly a binding contract. In His Honour’s view, this was formed on the terms of a revised offer of 31 January 2022 accepted by conduct. This acceptance of the terms offered on 31 January 2022 incorporated the terms of a quotation of 15 December 2021 as to the specification for the goods to be supplied (although at that stage ‘the sub-frame’ was excluded) and the contractual prices initially agreed. Though there were gaps in the documentation before the court, RFL was unable to point to any other document or witness statement (not then before the court) that might throw light on the question of contract formation or terms.

It was common ground that the Act did not apply such that there was a statutory right of adjudication. His Honour found that the dispute resolution provision in the contract did give the parties a right of adjudication in accordance with the provisions of the Scheme. The adjudicator had jurisdiction to consider the dispute.

Therefore, the claimant had discharged the burden of showing that there was no real prospect of RFL successfully defending the claim on this ground.

Adequacy of NOI

Upon analysis, the NOI complied with three of the following four requirements of Paragraph 1(3) of the Scheme: the names of the parties, the nature and a brief description of the dispute, details of where and when the dispute arose and the nature of the redress that is sought. However, RFL argued that it did not identify the dispute since it relied on a different contract to that which was found by the adjudicator. The NOI referred to the refusal to pay the five heads of claim under the identified contract and that was sufficient to comply with the requirement to give the nature and a brief description of the dispute. Only if it was said the adjudicator had decided matters not raised in the NOI would it be necessary to consider the issue by reference to the actual decision made. In this case the adjudicator had not actually decided the matter, which RFL complained was not set out in the NOI.

Finally, His Honour said that if he was wrong with regard to the adequacy, as a general matter, of the NOI on the basis identified, and standing completely alone, then the NOI would have to be read together with the ‘Letter of Claim’, being a document referred to in the Notice of Adjudication and which, subject to one caveat, could be said to be incorporated in the NOI. The reservation was as to the length of the Letter of Claim and whether the inclusion of a lengthy document complied with the requirement of a ‘brief description’.

Excess of jurisdiction/breach of natural justice?

 In substance, RFL complained that the adjudicator decided a matter that had not been referred to him and was therefore outside his jurisdiction, and that he did so also in breach of the rules of natural justice. The answer to this question required a lengthy analysis of the facts.

The essential issue was whether the jurisdiction conferred on the adjudicator included:

(a) determining whether there was a contract and its terms, so far as relevant to the claims made arising from the attempted cancellation of the order for certain materials (GRC Fins);

(b) whether the terms of the contract, as found, permitted RFL to cancel the order for Fins without being in contract; and

(c) if they did not, whether either by way of debt/liquidated sum or by way of damages for breach of contract, AlterEgo was entitled to any and, if so, what payment. Although AlterEgo founded its case as to amount on the contractual provisions under its own ‘standard terms’, the court determined that did not, as a matter of jurisdiction, bind the adjudicator, subject to questions of natural justice.

As was plain from the adjudicator’s Decision, the parties were asked by the adjudicator to and did each make submissions which encompassed the question of any entitlement to loss of profit or payment, for omitted work, and/or unpaid contract works. Accordingly, this was part of the Decision and within the adjudicator’s jurisdiction. It was a claim to relief flowing from an alleged breach. The adjudicator neither exceeded nor failed to exhaust his jurisdiction.

As to natural justice the parties were given ample opportunity to address the points raised by the adjudicator. The judge was not impressed by suggestions that RFL ‘failed to appreciate the point being raised’ or that they did not have sufficient time to address it. They actually dealt with it and did not ask for more time.

Approbation / reprobation

There was no question here of AlterEgo ‘blowing hot and cold’. All that had happened was that consideration of the two alternative contractual arrangements had resulted in certainty as to the applicable contract and the determination that there was a right of adjudication.

AlterEgo was simply taking advantage of its right to adjudication and the applicable principles regarding summary enforcement of the same. Put more formally, in the language of Banque Des Marchands de Moscou v Kindersley [1952] Ch 112 (referred to in Purton (t/a Richwood Interiors) v Kilker Projects Limited [2015] EWHC 2624 (TCC) as set out in Stuart-Smith's judgment at [41]), AlterEgo had not made an election from which it could not resile. It had elected as to which contract it said applied to the issue of jurisdiction (which ultimately the adjudicator cannot rule on definitively). However, it had not elected that contract for the purposes of the decision of the adjudicator. It accepted the point that the adjudicator may make errors of law which will bind the parties on an interim basis as a result of the adjudication and relied on the decision as it was entitled to do. The adjudication is not a final determination of the rights of AlterEgo and RFL. AlterEgo accepts that, ultimately, liability (and quantum) will be determined finally under a separate process.

There was no real prospect at trial of RFL establishing a lack of jurisdiction, breach of natural justice or of enforcement amounting to an attempt to approbate and reprobate.

Accordingly, summary judgment would be granted.

The form of order, consequential matters (including permission to appeal) and the interrelationship between that decision and the outstanding Part 8 Claim brought by RFL were ordered to be dealt with at a further hearing.

Jurisdiction – Offshore works in England and on land

Van Elle Ltd v Keynvor Morlift Ltd [2023] EWHC 3137 (TCC)

The case concerned works in the harbour mouth of the river Fowey in Cornwall, on the landward side of the harbour, and whether the works were in England and works on land within the meaning of s 105(1) of the Act. Claimant (VEL) sought summary judgment to enforce the decision of the adjudicator (Mr Riches) in its favour for £335,142 being his assessment of the true valuation of VEL’s entitlement under the contract between it and the defendant (KML) who opposed on the twin grounds of jurisdiction and breach of natural justice.

The jurisdiction issue concerned the territorial extent of Part 2 of the Act and the right to adjudicate disputes arising under contracts to which the Act applies. The natural justice defence raised two issues: (a) the adjudicator's decision-making process as regards the issue of jurisdiction; and (b) the substantive disputes.

As the adjudicator was not given jurisdiction to decide his own jurisdiction, it followed that the court’s decision on jurisdiction would supersede the adjudicator's own non-binding determination. Issues falling within (b) would only do so if it was determined that the adjudicator did have jurisdiction.

Jurisdiction

VEL agreed to undertake works to "replace the existing pontoon berthing and mooring piles including the installation of new piles” used by the Royal National Lifeboat Institute (RNLI) in the (inland) mouth of the River Fowey in Cornwall.

S.104(6) states: "This Part applies only to construction contracts which … (b) relate to the carrying out of construction operations in England, Wales or Scotland." The Act did not define “England” and the question was whether works in the mouth of the river were “in England”.

Following a lengthy analysis of what was described as “this tangle of Acts, OS maps (Ordnance Survey maps), supporting explanations, Conventions or Orders”, the court concluded none of it was determinative of the question of what was meant by England on a proper construction of the Act. This was because that could only be achieved by interpreting s.104(6) in the context of the whole of the Act and the relevant surrounding circumstances, including OS maps (Ordnance Survey maps), supporting explanations, Conventions or Orders to the extent relevant.

After considering lengthy submissions, the end result in the court’s judgment was that on a proper interpretation, the Act applies to construction contracts which relate to the carrying out of construction operations in England, where England ends on the baseline as established by the 1958 Convention and UNCLOS, and by the 1964 and the 2014 Orders [8], all of which are, on a proper analysis, mutually consistent. It also followed, that the references to "the land" in s.105(1) of the Act included land covered by water and, hence, land covered by inland waters up to the baseline which, in the case of rivers such as the river Fowey, extended to the mouth of such rivers.

Natural Justice

KML contended that the adjudicator failed to take into account its substantive defences in relation to four matters:

• Weather downtime
  The court held that the adjudicator clearly considered the issue and made a decision which was at least as consistent with his preferring VEL's case on the merits as opposed to his being erroneously – but genuinely – confused as to whether or not there was an issue as to the weather conditions.
• Rates There was a modest and unintentional oversight in the context of a fiercely contested final account dispute, where the adjudicator produced a detailed reasoned decision and where there was no evidence as to the materiality of the oversight assuming KML's best case.
• Ground conditions It was held that the challenge was misconceived, taking words used out of context in a spurious attempt to challenge the adjudicator's decision on the merit which, right or wrong, were to be enforced in accordance with settled principles.
• Deduction for equipment not included in valuation Even if the adjudicator did not make an abatement for this amount due to an oversight then, as with the rates issue, the court concluded that it was an unintentional oversight, where the adjudicator produced a detailed reasoned decision and where the amount involved was modest in the extreme.

There was no prospect of a defence succeeding at trial and summary judgment was granted.

Enforcement – Principle to be applied (in Northern Ireland)

Historic Royal Palaces v Piperhill Construction Ltd [2023] NIKB 30

The claimant (HRP) was awarded £350,000 in an adjudication under the Act in Northern Ireland. The defendant (Piperhill) opposed enforcement and alternatively sought a stay. The court, following English authority, held that there were only two possible bases on which enforcement might be opposed: one was jurisdiction; the other a serious breach of the rules of natural justice.

In addition, when the point at issue was short and self-contained, and could be finally determined without evidence, the court might deal with it upon enforcement. As to stay, summary judgment under Order 14 would not be stayed by reason of the existence of a future claim, bearing in mind the legislative intent.

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 11 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.

Footnotes

[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] [2009] EWHC 2017 (TCC).

[7] [2020] Bus LR (QBD)

[8] Territorial Waters Order in Council 1964 ("the 1964 Order") (revoked and replaced by the Territorial Sea (Baselines) Order 2014 ("the 2014 Order"), made under the Territorial Sea Act 1987); the United Nations Convention on the Law of the Sea (Cmnd 8941), ("UNCLOS") was replaced the Convention of the Territorial Sea and Contiguous Zone, 1958 ("the 1958 Convention").