Adjudication Watch – 2019 case law review - Part 2

09 décembre 2019

In the second of our retrospective reviews of the approach of the Technology and Construction Court (TCC) to adjudication challenges in 2019, our construction team analyses significant decisions.



Same/substantially same dispute challenge - comparing 'referrals' incorrect

Hitachi Zosen Inova AG v John Sisk & Son Ltd [2019]

This decision centres on a challenge to an adjudicator's jurisdiction based on paragraph 9(2) of the Scheme for Construction Contracts 1998 as amended (the Scheme) which provides:

"An adjudicator must resign where the dispute is the same or substantially the same as one which has previously been referred to adjudication, and a decision has been taken in that adjudication."

Background

  • Sisk was appointed as sub-contractor by Hitachi to provide design and construction services in relation to a new power plant in Yorkshire for a price of over £44 million.
  • Disputes arose over payments due to Sisk and numerous adjudications were commenced over time.
  • In Adjudication 2, Sisk sought payment for works it claimed amounted to variations, including an item known (between the parties) as Event 1176. In his decision, the adjudicator decided that Event 1176 'was' a variation but stated he did not have sufficient details to value those works.
  • In Adjudication 8, Sisk then sought a valuation of Event 1176, claiming around £995k plus VAT. Hitachi raised a jurisdictional challenge arguing that the claim in Adjudication 8 was the same or substantially the same as in Adjudication 2. The adjudicator went on to value Event 1176 at around £826k plus VAT - Hitachi did not pay and these proceedings were commenced to enforce the decision in Adjudication 8.

Decision

The TCC enforced the decision in Adjudication 8.

Mr Justice Stuart-Smith emphasised the importance of comparing "what was referred in the eighth adjudication and what was decided in the second……It is only if one compares what was referred in each adjudication that a misleading and irrelevant similarity between the two referred disputes appears".

He went on to address 2 questions.

What did the adjudicator in Adjudication 2 'decide' about Event 1176?

The TCC held that the adjudicator in Adjudication 2 decided that Event 1176 was a variation that required valuation but that, as insufficient details had been provided, no sum was payable to Sisk pursuant to Payment Application 6 for Event 1176.

Is the dispute 'referred' in Adjudication 8 the same or substantially the same as the dispute 'decided' by the adjudicator in Adjudication 2 about Event 1176?

The TCC held that the referred dispute in Adjudication 8 was the valuation of Event 1176 - "precisely what the adjudicator declined to decide in the second adjudication for want of substantiating evidence at that time". Therefore the dispute referred in Adjudication 8 was 'not' the same as the dispute decided in Adjudication 2.

Commentary

Although not new law, this is an instructive decision as it is a good example of how 'not' to analyse a potential or contended jurisdictional challenge based on paragraph 9(2) of the Scheme ie the same/substantially the same dispute in adjudication. Referral should not be compared to referral - it is the earlier 'decision' which is to be compared to the current 'referral'.

As Mr Justice Stuart-Smith explained, this approach reflects the 'interim' nature of the adjudication process which is intended "for the protecting and promoting of cashflow in the construction industry rather than a system of litigation that is designed to ensure finality from the outset". Different principles apply.

Use of respondent's brand name on notice of adjudication did not affect validity

MG Scaffolding (Oxford) Ltd v Palmloch Ltd [2019]

Background

This dispute arises out of the provision of scaffolding services in 2018. By the time of these TCC proceedings, the parties were in agreement that the correct parties were MG Scaffolding (Oxford) Ltd (MGS) and Palmloch.

In December 2018, MGS commenced an adjudication alleging an entitlement to payment based upon the absence of a valid pay less notice following an application for payment. MGS' Notice of Adjudication was addressed to MCR Property Group.

Palmloch raised a jurisdictional challenge stating that MCR Property Group had no legal existence and was simply a brand name used by Palmloch - MCR had not entered into a contract with MGS.

Decision

The TCC stated that the approach must be to consider whether the Notice of Adjudication identified the correct Responding Party, by

  • objectively assessing the Notice;
  • construing the Notice as a whole against its contractual setting;
  • considering how it would have informed a reasonable recipient; and
  • concentrating on substance rather than form.

A misdescription of a party in a Notice of Adjudication does not of itself affect the validity of the Notice, although it may be different if there is a genuine lack of clarity as to the proper parties. Here, there was no lack of clarity and no ambiguity. The TCC rejected Palmloch's contentions and enforced the adjudicator's decision. Using the Responding Party's trading name did not invalidate the Notice of Adjudication.

In terms of preserving its jurisdictional challenge, this was done successfully by Palmloch as "…[a]t no time was a step in the Adjudication…… taken without reservation".

Commentary

Whilst parties should take every care when preparing adjudication notices and related documents, this decision restates the principle of substance over form and an objective assessment by a "reasonable recipient".

A pragmatic approach is always recommended in adjudication as in all dispute resolution processes - "we may be technically right on this point but ultimately, are the time and costs justified?" In most cases, concentrating on the substance of the dispute leads to more favourable outcomes overall.

Severance of an adjudication decision - part only enforced

Willow Corp S.À.R.L. v MTD Contractors Ltd [2019]

Background

In 2015, Willow appointed MTD Contractors to design and build the Nobu Hotel in Shoreditch; works were to be completed by 3 February 2017. The project was delayed and in June 2017, the parties entered into a supplemental agreement (the SA) which referred to a revised date for Practical Completion (PC) of 28 July 2017.

After further disputes relating to delay, various adjudications took place.

Adjudication - Mr Cope

Mr Cope (the adjudicator) decided that the SA "did not deem Practical Completion to have been achieved on 21 (sic) July 2017, but rather imposed an amended obligation on MTD to complete the works in order to achieve Practical Completion by that date".

Adjudication - Mr Molloy

In a further adjudication, Mr Molloy (the adjudicator) was bound by Mr Cope's finding on the SA but indicated that he agreed with Mr Cope in any event.

Mr Molloy decided that on the true construction of the SA, the Employer's Agent was required to certify PC regardless of the extent of any outstanding works provided that there was an agreed list of such work. Since there was such a list, he concluded that Willow was not entitled to claim liquidated damages of £715,000 for the period between 28 July and 13 October 2017.

Having rejected the claim for liquidated damages, Mr Molloy ordered that Willow, should pay £1,174,854.92 plus VAT and interest comprising the balance payable under the building contract less MTD's liability to Willow of £841,245.08 in respect of defects, professional fees and loss of profits.

No payment was made by Willow and these proceedings in the TCC followed.

Decision

  • The TCC held that the natural and ordinary meaning of the SA did not require Willow to accept that PC had been achieved simply upon agreement of a list of outstanding works. Rather, MTD was required in fact to achieve PC by 28 July 2017, save only in respect of scheduled works.

    Mr Molloy was therefore in error in dismissing Willow's claim for liquidated damages of £715,000 for the period 28 July to 13 October 2017.
  • Willow also challenged Mr Molloy's decision on the basis of natural justice - this challenge failed.
  • The important question then arose of the severability (or not) of Mr Molloy's decision. The TCC considered previous case law, emphasizing that the key issue was whether or not "one can clearly identify a core nucleus of the decision that can be safely enforced".
  • In this case, the TCC held that "Mr Molloy's [error in his] dismissal of the claim for liquidated damages .....did not infect the balance of the decision". The balance of the decision was therefore enforced.

Commentary

This decision again reflects the TCC's repeated emphasis on ensuring that the intentions of the Housing Grants, Construction and Regeneration Act 1996 as amended are facilitated by the courts, wherever possible. Mr Justice Pepperall in fact stated that " [i]t would…… further the statutory aim of supporting the enforcement of adjudication decisions pending final resolution …. if the TCC were rather more willing to order severance where one can clearly identify a core nucleus of the decision that can be safely enforced". [emphasis added]

This case (as a clear example of severance in practice) may work to dissuade some challenges to adjudication decisions if the challenging party risks a partial enforcement in any event (plus delay and wasted costs). Mr Justice Pepperall was entirely clear in this judgment: "the good can and should be severed from the bad" to allow enforcement of the balance of the adjudicator's decision.

If you have any queries on these cases or any construction issue, please contact Ashley Pigott.


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