Adjudication Watch - analysis of key 2019 judgments: part 3

23 janvier 2020

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



LJH Paving Ltd v Meeres Civil Engineering Ltd [2019]

Background

  • LJH and Meeres were involved in works under several contracts.
  • Disputes arose resulting in four adjudications - only one adjudication decision was challenged; that related to the Westfield Works final account. The adjudicator's decision had been that Meeres should pay approximately £132,400 plus VAT and also the adjudicator's fees of around £11,400.
  • Meeres resisted enforcement on two grounds:
    • that the dispute had not crystallised at the time that the Notice of intention to refer a dispute to adjudication had been served; and
    • that in the Westfield final account adjudication, LJH claimed around £2,000 related to works on a different site that were arguably carried out under a different contract.
  • LJH's arguments included contentions that any jurisdictional challenges had been waived in any event and that ultimately, if necessary, the sum ordered by the adjudicator could be severed and the decision enforced save for the disputed sum.

TCC Decision

Had a dispute crystallised?

Reviewing previous case law, Mr Adam Constable QC confirmed that the crystallisation (or not) of a dispute will be a question of fact in each case. Meeres' contentions that a dispute had not arisen were swiftly dismissed by the Judge who concluded that there was unarguably a clear dispute, part of which centred on the need for and existence of supporting documents.

Multiple contracts?

The TCC rejected LJH's contention as the Notice of Adjudication was clearly limited to claims under the Westfield contract - this allegation was right or wrong, and was a matter of substantive merit.

On an obiter basis (i.e not essential and therefore not having the potential to create a binding precedent), the Judge's view was that even if the Adjudicator had not had jurisdiction in respect of this particular sum (around £2,000), it would have been appropriate for the TCC simply to deduct this sum from the amount ordered to be paid, by way of severance.

Jurisdiction: was LJH's general reservation of rights effective?

On an obiter basis, the Judge stated that Meeres had in any event waived the right to a jurisdictional defence on this basis for various reasons including the fact that the general reservations made (eg "reserves its rights to maintain its position both on the matters submitted below and on further matters which either may have arisen and are not addressed herein") were "so vague as to be ineffective".

Commentary

Although on an obiter basis, the TCC's clear indication that if necessary, the offending amount flowing from any decision made without jurisdiction would have been severed is helpful - in this case, it was key that the sum in question was (1) specific and (2) only a small part of the total sum awarded by the adjudicator. The Judge, Mr Adam Constable QC stated: " [i]t would be an affront to common sense if a flawed decision relating to a readily identifiable sum representing less than 2% of the total amount awarded could undermine the enforceability of the Award as a whole".

The case also gives a further note of caution about seeking to rely on general reservations relating to jurisdiction - it will depend on the wording and approach in each case but wherever possible, reservations should be specific.

Meadowside Building Developments Ltd (in liquidation) v 12-18 Hill Street Management Company Ltd [2019]

This judgment follows on from the Court of Appeal (CA) decision in Bresco Electrical Services Ltd v Michael J Lonsdale (Electrical) Ltd [2019] (reviewed in our alert of 29 January 2019).

Background

  • In 2014, Meadowside was appointed by 12-18 Hill Street Management Company (HSMC) under a contract based on the JCT 2011 Minor Works wording to carry out repair works - practical completion (PC) was certified in March 2015.
  • In July 2015, Meadowside went into liquidation and liquidators were appointed (the Liquidators).
  • In September 2017, Pythagoras Capital Ltd (PCL) was appointed by the Liquidators to pursue payment of debts. Having identified itself as agent for the Liquidators, PCL began correspondence with HSMC over monies allegedly due pursuant to disputes that had arisen prior to PC.
  • An adjudication was then commenced in February 2018. HSMC did not take part substantively in the adjudication on the basis that it contended that the adjudicator did not have jurisdiction, as Meadowside was in liquidation.
  • In short, in a decision dated 3 April 2018, the Adjudicator found that a net balance of £26,629.63 was due to Meadowside. HSMC did not pay, and these TCC proceedings were commenced seeking enforcement of the adjudicator's decision.

The Bresco effect

Prior to the hearing of the Meadowside enforcement proceedings, the Bresco CA decision (referred to above) was handed down. At first instance, in Bresco, the TCC had granted an injunction to prevent an adjudication continuing as the referring party was in liquidation.

The Bresco decision was upheld by the Court of Appeal (CA) - with the Leading Judgment given by Lord Justice Coulson, the CA decided that whilst the adjudicator did have theoretical jurisdiction (here overruling the first instance decision on that point), there was no practical utility in allowing the adjudication to continue. "…Bresco's right to refer a dispute to adjudication was not automatically lost when [it] went into liquidation" but where a company in liquidation sought to enforce an adjudicator's decision, it "could only be enforced in exceptional circumstances".

Meadowside Decision

In the Meadowside judgment, Mr Adam Constable QC in the TCC identified when those "exceptional circumstances" are likely to arise - where:

  • the adjudication determines the final net position between the parties;
  • "satisfactory security" is provided in respect both of the adjudication award and any adverse costs award in relation to enforcement proceedings and/or subsequent legal proceedings;
  • what is satisfactory as security is a matter of fact;
  • any agreement to provide funding or security does not amount to an abuse of process.

In Meadowside, the funding agreement was governed by the Damages-based Agreements Regulations 2013 but appeared to be non-compliant, which made it unenforceable. As a result, the TCC held that the issue of abuse of process point (referred to above) could not be satisfactorily disposed of and the adjudicator's decision was not enforced.

Commentary

The clarification provided by the TCC in this case is undoubtedly helpful but the prospects of success for an insolvent party in seeking to enforce a favourable adjudicator's decision remain slight.

ISG v English Architectural Glazing [2019]

The arguments in this case were wide-ranging - for the purposes of this review, we focus largely on issues relating to the extent to which an adjudicator's decision can be challenged in proceedings under Part 8 of the Civil Procedure Rules (rather than points relating to contractual interpretation).

Background

  • EAG was appointed as sub-contractor by ISG for the design, supply and installation of cladding on a project in London.
  • Under the terms of the sub-contract (SC), the works were intended to be commenced in March 2017, with a completion date of 11 September 2017.
  • In the event, ISG did not permit EAG to start on site until 11 September 2017. Subsequently, a dispute arose in relation to the revised completion date, and delays for which EAG was allegedly responsible. ISG's revised completion date was 6 April 2018, whilst EAG contended the correct date was 21 December 2018.
  • By December 2018, ISG had purported to deduct the sum of £3,183,000 against interim valuation 35, claiming this was its "bona fide estimate" of loss and damage, as stipulated under the terms of the SC. This was made up of £1,600,000 liquidated damages levied under the main contract and £1,583,000 in respect of its own delay related costs.
  • In January 2019, EAG commenced an adjudication, seeking declarations to resolve the disputes relating to time, set off, and compliance with the notice provisions in the contract.

Adjudication decision

In relation to completion of the SC works, the adjudicator found that "a fair and reasonable time" for completion was 22 October 2018.

He also decided that ISG was not entitled to make the deduction of £3,183,000 against interim valuation 35, as ISG had not "demonstrated and proved that EAG was responsible" for 20 weeks of delay to ISG's work under the main building contract. As a result, ISG should pay to EAG the balance due for interim valuation 35, being £137,435. ISG made this payment as directed by the adjudicator, but then commenced these proceedings in the TCC challenging the adjudicator's findings.

TCC proceedings

ISG's position

ISG sought numerous and varied declarations - including some relating to the ambit and effect of the adjudicator's decision as to the date by which the works should have been complete.

ISG's substantive position was in summary that:

  1. in relation to the extension of time sought by EAG, as a pre-condition to entitlement, the SC required EAG to give notification of delay. EAG had failed to give compliant notification, and so had lost any entitlement to an extension of time beyond 6 March 2018, ie that resulting from the delay to the start of the SC works on site;
  2. as a result, ISG's bona fide estimate was binding and conclusive until the final account was issued.

ISG also sought to limit the ambit of the adjudicator's decision relating both to the completion date of 22 October 2018 and as to responsibility for delay, including applying for declarations that these findings could only be determinative for application 35 or the limited context of ISG's bona fide estimate, and would be irrelevant for the final determination or in a subsequent adjudication.

EAG's position

EAG resisted all contentions made but its overarching defence was that most of the declarations sought by ISG required a consideration of fact and law and so were not suitable to be determined in these Part 8 proceedings.

TCC decision

In summary, His Honour Judge Stephen Davies concluded as follows.

  • Some of the contentions (such as the alleged failure by EAG to give the required notification) did involve mixed issues of fact and law and so were unsuitable for determination under Part 8 of the Civil Procedure Rules.
  • Some of the substantive issues raised by the parties in submissions on the estimate had not been raised in the declarations sought.
  • The adjudicator was entitled to make the determinations set out in his decision.
  • No declarations were appropriate, either as sought or otherwise. In terms of alternative declarations, whilst expressing ".. some sympathy for [ISG] in seeking to obtain clarity as to the nature and ambit of the adjudicator's decision", the Judge was not satisfied that he could make a fair determination at this stage and also, that there would be "practical utility" in any such declaration.

The Judge was not prepared to give declarations limiting the ambit and effect of the adjudicator's decision as sought by ISG. The Judge agreed that the TCC ought to be concerned only with the questions as to what was referred and what was decided, stating:

"…[the] court ought not to be too willing to cut down the scope of what was decided …….by undertaking too detailed and too fine an analysis of the reasons given by the adjudicator for his decision. That would be both wrong in principle and also unfair on the adjudicator, given the pressure of time under which he, like all adjudicators, operate. It cannot be assumed that the reasons actually given are exhaustive as to the actual reasons for the decision. This is not an appellate process akin to an appeal to the Court of Appeal from a decision after a trial at first instance."

Commentary

From his judgment, it is clear that the Judge considered that many of the issues raised were simply not appropriate for these Part 8 proceedings. This judgment highlights again the need carefully to consider the potentially wasted costs associated with a challenge to an adjudicator's decision.

In this case, after detailed submissions by Leading Counsel for both parties, no declarations at all were made by the TCC. As set out above, the Judge clearly expressed the TCC's protective approach towards adjudication decisions, although he did advise caution in relation to the practice of serial adjudications on one contract. We remain of the view that a high level of pragmatism is advisable when considering whether or not to challenge an adjudication decision.

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


CECI NE CONSTITUE PAS UN AVIS JURIDIQUE. L'information qui est présentée dans le site Web sous quelque forme que ce soit est fournie à titre informatif uniquement. Elle ne constitue pas un avis juridique et ne devrait pas être interprétée comme tel. Aucun utilisateur ne devrait prendre ou négliger de prendre des décisions en se fiant uniquement à ces renseignements, ni ignorer les conseils juridiques d'un professionnel ou tarder à consulter un professionnel sur la base de ce qu'il a lu dans ce site Web. Les professionnels de Gowling WLG seront heureux de discuter avec l'utilisateur des différentes options possibles concernant certaines questions juridiques précises.

Sujet(s) similaire(s)   Construction et génie, Construction