Construction case law update - Top 5 adjudication cases of 2018

This two-part webinar series explores the top construction court cases from 2018, to provide an understanding of the key developments in construction law and adjudication practice and how these might affect your construction projects and disputes in 2019.

Read or watch the second in the series below: the top five adjuducation cases of 2018.

Grove employed S&T to design and build a new hotel at Heathrow Airport under a JCT Design and Build Contract. In response to an interim payment application by S&T, Grove issued a payment notice which had clearly set out the basis of the valuation, however it was issued late. Grove then issued a pay-less notice which, although issued on time, did not provide the detailed calculation of the basis of the valuation. S&T disputed that it was a valid pay-less notice because they said it did not set out the basis for the sum due, a requirement for a pay-less notice. The dispute was referred to adjudication, where the adjudicator decided that it was not a valid pay-less notice as the calculation detail was insufficient. The case was then referred to the TCC, which found that Grove had complied with the requirement to specify the basis of the calculation, therefore the pay-less notice was valid.

The Court also held that, upon payment, Grove was entitled to pursue a further adjudication to determine the ‘true value’ of the works. This was an important development in ‘smash and grab’ adjudications as it meant that even in the absence of a valid payment or pay-less notice, a payer can raise a counter-adjudication on the true value of an interim payment application. S&T appealed.

The Court of Appeal upheld the decision of the TCC and dismissed the appeal by S&T, finding that Grove was entitled to bring a counter-adjudication on the ’true value‘ of the work. However, the Court of Appeal stressed that payment of the ‘smash and grab’ adjudication award must be made before a dispute on the true value of the application can be adjudicated on.

While this appeal decision has confirmed that a payer can raise a ‘true value’ adjudication for an interim application even in the absence of a payment or pay-less notice, it does not make it any less important for payers to ensure that payment notices and pay-less notices are served correctly and on time, as payment must still be made of the (often inflated) sum sought by the payee. Therefore, whilst the threat and consequences of a ‘smash and grab’ claim have been diminished, they remain a useful tool for payees to recover swift payment and a strong incentive for payers to ensure that they administer payment processes properly.

Beumer employed Vinci to carry out the design, manufacture and supply of Gatwick Airport’s baggage handling system. The parties’ disputes regarding extension of time were referred to adjudication seven times and, in the seventh, the adjudicator found in favour of Vinci and awarded £9,671,500 of liquidated damages as a result of the delay by Beumer. After payment was not made, Vinci commenced enforcement proceedings and applied for summary judgement. Beumer challenged the enforcement, arguing that the adjudicator did not keep the requirements of natural justice in mind when writing his decision, arguing that the adjudicator:

1. included findings that were not consistent with findings from the previous adjudications;
2. did not give adequate reasons; and
3. failed to order Vinci to disclose material from a previous adjudication between Vinci and another party which Beumer wished to use to aid their position.

The Court rejected Beumer’s challenge. On the first point, the Court found that the adjudicator’s decision was not inconsistent with previous findings because earlier adjudications had only dealt with the monetary value of certain compensation events, and not Beumer’s claims for extensions of time in respect of those compensation events. On the second argument, the Court held that there was “no difficulty in discerning the adjudicator’s reasoning”. Finally, the Court held that the adjudicator could not have been expected to order disclosure when he was not requested to do so and nothing was put before him that would have required him to make such an order. The Court reiterated that an adjudicator’s decision does not need to be the standard of a typical court judgement, but rather needs to be sufficiently clear so as the reasoning can be understood, regardless of whether the reasoning is right or wrong. The Court therefore found no breach of natural justice in this case.

This decision demonstrates the Court’s ongoing commitment to upholding adjudication decisions by summary judgement to maintain the efficacy of the adjudication process. It also highlights that a breach of natural justice argument will not be viewed lightly by the Courts and will be scrutinised closely.

Equitix engaged Bester to design and build the Wrexham Biomass Fired Energy Generating Plant. In a dispute  referred to adjudication, the adjudicator decided that the termination of Bester’s contract by Equitix was valid, and ordered payment by Bester of around £9.8 million. Equitix raised an action to enforce this second decision against Bester.

Bester resisted enforcement on the ground that, amongst other things, the adjudicator did not have jurisdiction to decide the dispute because the contract included works which were an “excluded operation” under s105 of the 1996 Act.

The TCC rejected this argument. The Court looked closely at the 1996 Act, in particular s104(5), which makes it clear that it is only the part of the agreement which relates to construction operations that will benefit from the right to refer a dispute to adjudication. In this case, it was held that the works undertaken which were “excluded operations” were simply preparatory works. These  therefore fell under s105(1)(e) of the 1996 Act, which provides that operations which are preparatory to construction operations are covered under the overall definition of construction operations. It was held that “it would make a nonsense of the Act if every preparatory/ancillary operation not expressly identified in s105(1) became an excluded operation”. 

The question of whether an adjudicator has jurisdiction or not cannot be answered based on a construction contract as a whole - it is the particular part of the contract in dispute that has been referred to adjudication that is relevant and the list of excluded operations will be interpreted narrowly.

Aygun appointed Gosvenor to install cladding for a new hotel in Southampton. The works were delayed and the matter was referred to adjudication. The adjudicator found in favour of Gosvenor and awarded them £553,958.47. Aygun resisted enforcement of the adjudicator’s decision, claiming that the sum awarded to Gosvenor was based on fraudulent invoices. The TCC had to determine: (1) whether Gosvenor was entitled to enforce the adjudicator’s decision; and (2) whether Aygun was entitled to a “stay of execution”, which prevents an adjudicator’s decision being enforced for a period of time (usually based on the financial position of the winning party).

For the first issue, the Court applied the principles set out in SG South Ltd v King’s Head Cirencester LLP and another, and held that Aygun could have relied upon the fraud issues raised as a defence during the adjudication. As such, Aygun could not then use fraud to resist enforcement, and Gosvenor was entitled to enforce the decision.

However, for the second issue, the Court granted Aygun a stay of execution. There were questionable disparities between Gosvenor’s 2016 and 2017 accounts, which Gosvenor provided no evidence to rebut in the hearing. The Court found that it was necessary to look into the fraud allegations further, and decided therefore not to enforce the adjudicator’s decision until that had been undertaken.

The Court stressed that this new ground will apply to very few cases and will be “extremely rare”; however, it will likely add a new avenue for parties seeking to avoid enforcement of an adjudicator’s decision. The decision also highlights the TCC’s willingness to grant a stay of execution if there is a risk that a party will not be able to recover an adjudication sum.

Everwarm entered into a subcontract with BN Rendering for the installation of external wall insulation in Kirkcaldy. When a dispute was referred to adjudication, the adjudicator found that BN Rendering was due £141,598.20 plus VAT from Everwarm. BN Rendering then sought to enforce this award in the Court of Session.

Everwarm argued that the Court of Session did not have jurisdiction to enforce the award as the contract gave the English courts exclusive jurisdiction to resolve all disputes arising from the subcontract, and so BN Rendering could not rely on the defender’s domicile in Scotland. ; and the clause did not identify which disputes arising out of the subcontract were subject to the exclusive jurisdiction of the English courts.

The Court of Session held it did not have jurisdiction to enforce the adjudicator’s award, and this must be done in the English courts. A signature was not required to demonstrate that the parties provided real consent to the exclusive jurisdiction clause – it was sufficient that the parties’ contract expressly referred to the terms and conditions. It was also held that there was no ambiguity in the exclusive jurisdiction clause, and that the reference to “exclusive” jurisdiction could not be construed in such a way that the English courts would have jurisdiction only in respect of certain disputes. The action was therefore dismissed.

The key lesson to take from this case is that, when seeking to enforce an adjudicator’s award, it is vital to ensure that it is clear which court or courts have jurisdiction, before raising an action. Further, given that a signature was not required for the exclusive jurisdiction clause to be effective, parties intending to include such a clause must clearly demonstrate that the jurisdiction clause was agreed, based on the construction of the contract.

Other webinars in the series

22 January 2019, 1pm - Top 5 construction cases of 2018