107772.001 SH Construction Case Booklet

107772.001 SH Construction Case Booklet

Cases The Enforcement of Adjudicators’ Awards under the Housing Grants, Construction and Regeneration Act 1996: Part 3 of 2019 Kenneth T. Salmon and Katy Ormston

Construction & Engineering

Contents 1. Introduction 

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 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. There are separate regulations for contracts for work in Scotland applicable to contracts made on 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, as the context so requires.

page 3

2. Decision – Correction of Errors 

page 3

Axis M&E UK Ltd and Axis Plumbing NSW PTY Ltd v Multiplex Construction Europe Ltd 3. Enforcement – True value decision as  page 4 defence or set-off before payment M Davenport Builders v Greer 4. Jurisdiction – Oral contract – Scheme  page 6 – Reservation – Waiver Donald Insall Associates Limited v Kew Holdings Ltd

2

1. Introduction The Enforcement of Adjudicators’ Awards under the Housing Grants, Construction and Regeneration Act 1996: Part 3 of 2019. Kenneth T. Salmon, Consultant Solicitor and Katy Ormston, Trainee Solicitor at Slater Heelis LLP. The law is stated at 31 March 2019. 2. Decision – Correction of Errors Axis M&E UK Ltd and Axis Plumbing NSW PTY Ltd v Multiplex Construction Europe Ltd 6 Claimant Axis applied to enforce a corrected decision of the adjudicator in its favour. The Defendant Multiplex contended the adjudicator had no jurisdiction to correct an error his decision as it did not amount to a correction “ to remove a clerical or typographical error arising by accident or omission ” under paragraph 22A (1) of the Scheme. The admitted error arose out of the adjudicator’s treatment of the Defendant’s entitlement to a deduction of contra charges from sums otherwise due to the Claimant. The decision entailed the adjudicator in doing two things: considering and determining the value of variations (which he did at more than the defendant’s valuation) and the value of contra charges (which he did at less than the Defendant’s valuation). In his calculation the adjudicator erroneously deducted the sum he had determined as the total value of the contra charges (£246,886) from the sum certified to the Claimant by the Defendant which already included a deduction for contra charges of £783,924. Thus the amount he now determined as being the correct amount of contra charges was in error. This resulted in his original decision on 18 October 2018 in the claim having “failed” and the Claimant being entitled to nothing. On 22 October 2018 (the day his decision was due) the adjudicator issued a corrected decision removing the error which resulted in a sum due to the Claimant of £643,072. In light of this, he also made consequential changes to his decision ordering the Defendants to pay £11,000 odd for interest and to pay his fees. The adjudicator acknowledged that he could not decide whether he had jurisdiction to do what he proposed to do, and that it would be for “ the parties or others to decide which decision shall apply ”. That was now the question before the Court. The Court considered a number of previous authorities decided before the Act and Scheme were amended to include the present express power to correct errors 7 and cases decided since the Scheme was amended. 8

The Court also looked at the decision of Ramsey J on the jurisdictional aspects of the implied power to correct an earlier decision 9 in which it was held that the Court could not interfere with the exercise of the adjudicator’s power within his jurisdiction and that included the adjudicator’s application of the slip rule. The Court concluded: 1. On one view, it was an answer to the application that if the adjudicator was wrong in deciding the error was one which he could correct under the Scheme slip rule, that was an error of law of the type which an adjudicator could make without rendering the decision unenforceable. The Court was asked to go further and was prepared to do so. 2. The starting position was that decisions were to be enforced save in very exceptional cases. In interpreting the decision one should consider the context of the dispute referred. 3. The principle elements of the dispute were as recited above: consider and determine value of variations and consider and determine the value of contra charges. What if anything was then due “should follow as a matter of arithmetic mechanics.” 4. That the adjudicator so understood his task was apparent from the structure of his decision which dealt only with those two topics in detail. 5. Once the contra charges were decided, the arithmetic had to be carried out to give effect to that part of the decision. 6. The error in incorrectly over-deducting for contra charges was the sort of error falling that fell within the slip rule as construed by Lady Wolffe in NKT (see footnote) namely “an arithmetical error in adding or subtracting sums [or]… a slip in carrying over a calculation from one part of the decision to another.” In the judgment of the Court there was no relevant distinction between the circumstances in which consequential corrections could be made to an arbitral award 10 and an adjudicator’s decision. Moreover once one element had been corrected any other changes consequential upon that correction should be made so the decision was not internally inconsistent. Accordingly the adjudicator acted within his jurisdiction in awarding interest.

3

3. Enforcement – true value decision as a defence or set-off before payment M Davenport Builders v Greer 11 The Claimant applied to enforce an adjudication decision by Mr Sutcliffe dated 24 October 2018 awarding them £106,160.84 plus interest on a claim based on their final account. The Defendants put up then abandoned a raft of unmeritorious defences. Having accepted that Mr Sutcliffe’s award was valid and enforceable, they wished to rely by way of set-off or counterclaim upon the existence of a “true value” adjudication by another adjudicator, Mr Sliwinski. The central issue was whether the Defendant was obliged to pay the Sutcliffe award before commencing the Sliwinski adjudication. The contract between the parties was for construction works to a building in Stockport to which the relevant provisions of the Scheme applied. The case concerned an application for a payment of a final payment. The defendants having failed to give a payment or pay less notice, the claimant issued a payee’s notice in default pursuant to Section 110B of the Act. That adjusted the final date for payment but once again the Defendants failed to issue a Pay Less Notice. Nor did they pay the sum demanded either when due or thereafter. The Sliwinski adjudication was commenced 6 days after Mr Sutcliffe’s decision. He concluded that the gross value of the final account was £867,557.54 excluding VAT and that no sum was payable by the Claimant to the Defendants. What the Claimant did in the Sutcliffe adjudication was to take the ‘short route’ to a right to immediate payment of the sum claimed. It did not require the adjudicator to undertake a valuation exercise. 12 The Court said it was now established by the Court of Appeal in Harding and, more recently in Grove, 13 that where a party to an initial adjudication had successfully taken the short route to immediate payment, the fact of the initial decision did not necessarily preclude a further adjudication requiring the later adjudicator to undertake the valuation exercise that was not undertaken by the first adjudicator. The second adjudication (a “true value” adjudication) was not necessarily precluded by the first adjudication because the dispute in the true value adjudicationwas not the same or substantially the same dispute as the contractual issue resolved by the first adjudication: see Harding; and Grove at [95]. It was common ground (and the Court would accept) that a party required to make immediate payment because of an adjudication decision based upon the short or contractual route would be entitled to commence and rely upon the results of a true value adjudication if and when he had made the immediate payment required by the first adjudication. The question in the present case was whether he was entitled to commence and/ or rely upon a true value adjudication (such as the Sliwinski adjudication in the present case) without having first made the immediate payment. Resolution of that question required consideration of the Act, the Scheme, questions of policy, and the authority of Harding and Grove.

The starting point was s. 111(1) of the 1996 Act, which Jackson LJ characterised in Grove as creating an “immediate” payment obligation to promote cashflow and which it was since established applied equally to interim and final payments. 14 Further nothing theCourt could identify in the Act or the Scheme stated or implied that different policy considerations should apply to final applications rather than interim applications. Harding demanded closer attention as a case involving an application for payment of a final account the chronology of which lent some support to the defendant’s position that it was entitled to start the Sliwinski adjudication before paying the sum ordered by the Sutcliffe award. However having considered the Scope and Effect of [the adjudicator’s] decision in the third adjudication and in each passage of his judgment in Harding Jackson LJ included reference to the payer having paid the sums due under the first adjudication or to the payee being entitled to retain monies that had been paid to him; and he did so in terms suggesting that the payment had been made before (or the monies being retained until) the payer proceeded to a true value adjudication. The unresolved area of latent ambiguity in the decision of the Court of Appeal in Harding , was this:    Did the right to bring the fourth true value adjudication detract from Paice’s obligation to comply with the third adjudicator’s decision in the meantime by paying the sum ordered by the third adjudication? The decision of the Judge below and the Court of Appeal was that Paice should not be restrained from bringing the true value adjudication and that decision was given after Paice had in fact paid the sums ordered by the third adjudication. However, the decision of the Court of Appeal implied that it was not an essential prerequisite to relying upon a later true value adjudication decision that the earlier immediate obligation should be discharged before launching the later true value adjudication. Paice did not pay its immediate obligation under the third adjudication before launching the fourth, and they were not precluded from proceeding with or relying upon the fourth adjudication for that reason. This suggests that the critical time will be the time when the Court is deciding whether to enforce the immediate obligation. Pausing for air at that stage, it seemed to the Court consistent with the policy underlying the adjudication regime that a defendant who had discharged his immediate obligation should generally be entitled to rely upon a subsequent true value adjudication and that a defendant who had not done so should not be entitled to do so. Adopting a phrase from [141] of the judgment of Coulson J in Grove at first instance “the second adjudication cannot act as some sort of Trojan horse to avoid paying the sum stated as due”.

4

Comment Put simply, this decision is authority for the following propositions. 1) A party cannot rely on a true value adjudication as a defence or set off to the enforcement of an earlier decision ordering immediate payment in a short or contractual adjudication unless and until he had made payment (pay now, argue later). 2) However the Court will not necessarily restrain a true value adjudication commenced before payment has been made if payment is made thereafter and (we hazard) before and certainly no later than the date of the true value decision. 3) The judgment support previous dicta to the effect that the risk of insolvency of the payee is one which rests with the paying party whose remedy is to be scrupulous in giving payment / pay less notices. 4) There is no distinction in the above circumstances between interim and final payments. 5) It remains the case that overpayment on a short or contractual adjudication (for which read “smash and grab”) can be corrected by a later contractual valuation or certificate but that will not detract from the obligation to comply with the earlier immediate payment obligation (pay now, put right later).

Coulson J had also said at [103]: “In my view, the Court of Appeal authorities all point the same way. An employer who has failed to serve its own payment notice or pay less notice has to pay the amount claimed by the contractor because that is “the sum stated as due”. But the employer is then free to commence its own adjudication proceedings in which the dispute as to the “true” value of the application can be determined.” [Emphasis added by the Court.] These (and other) statements seemed clear and unequivocal: the employer became free to commence his true value adjudication when (and only when) he had paid the sum ordered to be paid by the earlier adjudication. The Court recognised that the relevant sections of the judgment of the Court of Appeal in Grove was technically obiter. However, it was provided after full argument and was expressly intended to provide authoritative guidance on an issue that Coulson J had decided in the contractor’s favour. The Court felt obliged to follow and in fact agreed with it. The Court held, it should now be taken as established that an employer who was subject to an immediate payment obligation to discharge the order of an adjudicator based upon the failure of the employer to serve either a payment notice or a pay less notice must discharge that immediate obligation before he was entitled to rely upon a subsequent decision in a true value adjudication. Both policy and authority supported that conclusion and that it should apply equally to interim and final applications for payment. That was sufficient to dispose of the present application to rely upon Mr Sliwinski’s decision. The Defendant had not discharged its immediate obligation to pay the sums ordered by Mr Sutcliffe and was not entitled to rely upon the subsequent decision. Whilst the decisions of Coulson J and the Court of Appeal in Grove were clear and unequivocal (in stating that the employer must make payment in accordance with the contract or in accordance with section 111 of the Amended Act before it can commence a ‘true value’ adjudication) that did not mean that the Court would always restrain the commencement or progress of a true value adjudication commenced before the employer has discharged his immediate obligation: see Harding . It was unnecessary for the Court to decide whether or in what circumstances the Court might restrain the subsequent true value adjudication and suggesting examples or criteria would be positively unhelpful.

5

4. Jurisdiction – Oral contract – Scheme – Reservation – Waiver Donald Insall Associates Limited v Kew Holdings Ltd [2019] EWHC 364 TCC Mrs Justice O’Farrell judgment, 5 February 2019 In this case, a number of jurisdictional challenges were raised in the adjudication and reprised on enforcement. The case raised the issue of reservation and waiver considered by the Court of Appeal in Bresco . 15 The Claimant sought to enforce the decision of the adjudicator in its favour. The Defendant resisted on the grounds the adjudicator lacked jurisdiction. The Claimant (“DIA”) provided architectural services and the Defendant company (“Kew”) was the leasehold owner of the King’s Observatory in Kew, Richmond. Mr Brothers, resident in Hong Kong, was a director of Kew, a company based in the Cayman Islands. DIA was approached by Mr Brothers to provide architectural services for the conversation of the King’s House from commercial to residential use. DIA sent a fee proposal to Mr Brothers by letter 9 July 2010, on the basis that the contract would be based on RIBA Design Services standard form of agreement. Work commences just after the fee proposal. DIA sent Mr Brothers the RIBA standard suite of appointment documents on 3 September 2010. The documents identified the client at “RJF Brothers”. At a meeting on 14 October 2010 it was agreed works would be taken forward on the basis of the fee proposal letter which was signed by Mr Brothers “Confirmed: KEL Holdings Limited” and beneath that “RJF Brothers. Director” and the date. On 26 October 2010 DIA sent an email to Mr Brothers confirming the appointment in which it was clear that DIA believed in was contracting with the company Kew. There was no reply to that email. Invoices were sent by DIA to Mr Brothers via email in Hong Kong and paid either by Mr Brothers, or by Kew. There was a statutory change to the treatment of the works for VAT purposes. Mr Brothers having taken advice told DIA that invoices should now be addressed to him personally as they were. By 2018 a dispute had arisen as to the fees properly due to DIA which DIA referred to adjudication before Dr Chappell. By a letter dated 31 October 2018 Kew’s solicitors raised a number of ‘threshold’ jurisdictional challenges under a reservation “without prejudice” that there was “no construction contract between the referring party and the respondent.” The ii)   The purported contract was not in writing or evidenced in writing as then required by s 107 of the Housing Grants Construction and Regeneration Act 1996 (before it was amended) iii)   No crystalised dispute as the invoices relied on were all issued to Mr Brothers not Kew. following jurisdictional challenges were raised. i)   There was no contact between DIA and Kew

Dr Chappell considered and rejected the objections and determined that DIA was due £173,573.20 plus interest and the adjudicator’s fees. DIA paid the fees. Kew failed to pay the sums awarded. Having rejected a submission on behalf of Kew that the claim form and particulars failed to plead a proper cause of action, the Court went on to consider the various jurisdictional challenges. The first and central (threshold) issue was whether there was a contract between the parties, or was it made with a director of the Defendant company, a Mr Brothers? And if there was a contract, was it a construction contract i.e. in writing or evidenced in wiring as required by s 107 of the Housing Grants Construction and Regeneration Act 1996 (before it was amended), Kew contending that if there was a contract it was made by an oral variation? The correct approach was to ask whether there was a real prospect of Kew persuading the Court that there was either no contract, or one subject to an oral variation; and whether it was appropriate to determine those issues now within the summary judgment application, or whether a trial was required. The Court was content to decide the issues upon the documents and the witness statements before the Court and found, as had the adjudicator, that there was a concluded contract between the parties in the proceedings. The following background facts were held not to be conclusive of the contractual arrangements. The fact that invoices were sent direct by DIA to Mr Brothers, as that fitted several explanations including the need reduce VAT liability. The issue of who paid the fees, since part was paid by Kew and part by Mr Brothers. Contract with others made by Mr Brothers in his personal capacity. The fact that Mr Brothers was to occupy the residence when completed. All such matters could not override the very clear effect of the written contract signed by Mr Brothers in his capacity as a director of Kew and the DIA confirmatory email which spelled out who was the client and was not responded to. Next, was there a crystalised dispute? The Court found there was. The sending of the invoices to Mr Brothers was found to have been done in his capacity as a director and as a convenience given Kew was registered in the Cayman Islands.

6

Kew had raised two new arguments on enforcement: a)   The existence of an oral variation and or new contract; and b)   Whether or not the adjudication was statutory or contractual. The Court now referred to the guidance in Bresco . Kew had raised three specific jurisdictional challenges in the adjudication. There was no general reservation. The oral variation point was however raised in the adjudication, albeit late, and the Court was obliged to deal with it. There was no evidence before the Court of a separate oral variation or agreement, to deprive the adjudicator of jurisdiction. The final challenge was unusual and fell within the description of ‘scraping the bottom of the barrel.’ The dispute was referred under the statutory scheme, without any challenge by Kew on that ground during the adjudication. In any event, whether the adjudication was submitted under the Scheme through a contractual provision, or under the Scheme through the statutory provision, made absolutely no difference. In the result, Kew had no defence to the application.

7

References: 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. [2019] EWHC 169 (TCC) Mr Roger Ter Haar QC judgment 15 January, 2019. 7. Bloor Construction v Bowmer & Kirkland [2000] BLR 314; CIB Properties v Birse Construction [2005] BLR 173 and YMCS v Grabiner [2009] EWHC 127. 8. NKT Cables A/S v SP Power Systems Ltd [2017] CSOH 38. 9. O’Donnell Developments Ltd v Build Ability Ltd [2009] EWHC 3388 (TCC). 10. Gannet Shipping Ltd v Eastrade Commodities Ltd [2001] All ER (D) 74 (Dec). 11. [2019] EWHC 318 (TCC) Stuart Smith J. judgment 20 February, 2019. 12. Harding v Paice [2016] 1 WLR 4068, [2015] EWCA Civ 1231 at [64]. 13. S&T(UK) Ltd v Grove Developments Ltd [2018] EWCA Civ 2448. 14. See Adam Architecture v Halsbury Homes Ltd [2017] EWCA Civ 1735. 15. Bresco Electrical Services Ltd v Michael J Lonsdale (Electrical) Ltd and Primus Build Ltd [2019] EWCA Civ 27.

8

Get in touch with our team for more info: Matthew Grellier Head of Construction & Engineering [email protected]

Katy Ormston Trainee Solicitor [email protected]

Kenneth Salmon Consultant Solicitor [email protected]

[email protected] 0161 672 1255 slaterheelis.co.uk

exceeding expectations

@SlaterHeelisLaw /slaterheelis