Construction Adjudication Case Update: Part 1 of 2022

Construction Adjudication Case Update: Part 1 of 2022

Construction Adjudication Case Law The Enforcement of Adjudicators’ Awards under the HousingGrants, Construction and Regeneration Act 1996: Part 1 of 2022

Kenneth T. Salmon Consultant Solicitor at Slater Heelis

Construction&Engineering

Contents

Page 4

Case 1 : Stay of legal proceedings pending adjudication........................................................... Greater Glasgow health Board v Multiplex Construction Europe Ltd and others [2021] CSOH 115 (5 November 2021) Lord Tyre

Case 2: Effect of Final Certificate – effect of adjudicator’s decision after final certificate..................................................................................................................................... D McLaughlin & Sone v East Ayrshire Council [2021] CSOH 122

Page 5

Case 3: Jurisdiction – existence of contract – estoppel by convention – natural justice – reversing burden of proof.................................................................................... Changing Climates Ltd v Warmaway Ltd [2021] EWHC 3117 Sarah Watson QC (judgment 6 September 2021) Case 4: Jurisdiction – construction contract – existence of contract – natural justice – delay in enforcement............................................................................................................ Cubex (UK) Ltd v Balfour Beatty Group Ltd [2021] EWHC 3445 (TCC) Simon Lofthouse QC sitting as deputy judge (Judgment 4 November 2021)

Page 7

Page 8

Introduction The Enforcement of Adjudicators’ Awards under the Housing Grants, Construction and Regeneration Act 1996: Part 1 of 2022, by Kenneth T. Salmon, Consultant Solicitor, Slater Heelis.

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 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 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, or Northern Ireland, as the context requires.

[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 (SI2011/1715) (W.194).

1) Stay of legal proceedings pending adjudication – Greater Glasgow health Board v Multiplex Construction Europe Ltd and others [2021] CSOH 115 (5 November 2021) Lord Tyre The defenders built the Queen Elizabeth University Hospital in Glasgow, under an NEC3 Engineering and Construction Contract (ECC), Option C. The pursuers alleged there were defects in the building and to avoid limitation issues, commenced proceedings in court claiming £72.8 million. NEC3 contains at W2 a tiered dispute resolution clause and provides that a dispute cannot be referred to “the tribunal” without first having been referred to adjudication. The defenders said that the bringing of an adjudication was a condition precedent to any court proceedings and thus the court action was incompetent. The pursuers claimed the dispute fell outside the scope of clause W2 in that it was a complex matter with a multitude of “disputes” which could lead to as many as 22 adjudications. They also disputed the claim that adjudication was a condition precedent to the bringing of court proceedings and averred that the court retained jurisdiction despite clause W2. Lord Tyre giving judgment, confirmed the principle that a tiered dispute resolution clause was to be upheld[6]. In reaching his conclusion, the judge considered that the dispute fell within the scope of clause W2. There was no general proposition that some disputes were too large, too complicated or raised too late to be suitable for adjudication. In any event, clause W2.4 envisaged that the parties could fall back on the tribunal (in this case the court) if necessary to

obtain a final resolution of the matter. Furthermore, as Lord Briggs said in Bresco [7] adjudication is now a mainstream dispute resolution process in its own right and often achieves a final resolution because the adjudicator's decision is not challenged. The judge accepted that clause W2 acted as a contractual bar to referring a dispute to the tribunal without first adjudicating but rejected the submission that the action was incompetent. The case was indistinguishable from a situation where parties had agreed to arbitrate their disputes, where the court's jurisdiction was not totally ousted though it was unable to deal with the merits of the dispute. Therefore it was inaccurate to describe the referral of a dispute to adjudication under clause W2 as a condition precedent to raising a court action. However, in the absence of a waiver from the defenders, it was something the court could not entertain until the adjudication process had concluded. The correct course was to sist (stay) the court action pending the outcome of the adjudication process.

Comment

This case rested on Scottish law and procedure, but given that Option W2 is widely used throughout the UK, it will be of wider value. The conclusion that clause W2 is not a condition precedent to arbitration or court proceedings is interesting, although it seems unlikely to make any difference in practice.

[6] Applying Lord Carloway's reasoning in The Fraserburgh Harbour Commissioners v McLaughlin & Harvey Ltd [2021] CSIH 58. [7] Bresco Electrical Services Ltd (In Liquidation) v Michael J Lonsdale (Electrical) Ltd [2020] UKSC

2) Effect of Final Certificate – effect of adjudicator’s decision after final certificate – D McLaughlin & Sone v East Ayrshire Council [2021] CSOH 122 The Court of Session found that, under a Standard Building Contract with Quantities for use in Scotland, (SBC), the Final Certificate was not conclusive evidence for the purpose of a counterclaim raised by the employer in an adjudication enforcement action. Separate court proceedings challenging the Final Certificate were already underway, and the employer could not rely on the alleged conclusivity of the Final Certificate in relation to its counterclaim, to obtain interim payment pending resolution of those original proceedings. Further, the counterclaim related to matters decided in the adjudication, and the employer had failed to challenge the adjudicator’s decision within the time limit specified in the contract meaning the decision was final. Following the issue of the FC on 17 July 2019, the Contractor, DMS, raised proceedings in the Sheriff’s court on 19 September 2019 (within the 60-day time limit) as to the sums payable to them. In March 2020 DMS commenced adjudication proceedings claiming entitlement to an interim payment pursuant to its payment notice issued in August 2017. In the absence of a pay less notice the adjudicator awarded them some £500,000 finding that the issue of the FC after the interim payment notice did not affect the dispute over the interim payment. DMS raised an action to enforce that decision which was heard in December 2020 and the decision was enforced and payment made by the Council.

In the adjudication enforcement the Council had raised a counterclaim to avoid enforcement and now sought final determination of issues as to (i) the effect of the FC on the Council’s counterclaim; (ii) the validity of the interim payment notice; (iii) repayment of interest awarded by the adjudicator if its counterclaimwas upheld.

This court had to resolve these main issues:

(1) The conclusive effect of the final certificate

The SBC provided at clause 1.9.1 that if adjudication or other proceedings were commenced by either party within 60 days after the Final Certificate (FC) had been issued, the FC was to have effect as conclusive evidence … save only in respect of the matters to which the proceedings related. Both the adjudication and the enforcement proceedings (in which the counterclaim was raised) were commenced more than 60 days after the FC was issued so that the exception did not apply to the dispute referred (the interim payment notice) or the counterclaim. Raising the same matters in later proceedings outside the 60 days, did not engage the exception. On the fact of it this finding supported the Council’s contention that the FC was conclusive as to the sum due upon its counterclaim. However two obstacles stood in the Council’s way.

(2) The effect of the adjudicator’s decision

Under clause 1.9.4 of the SBC where an adjudicator made a decision after the FC, that decision could only be challenged if proceedings were commenced within the time limit of 28 days. The Council’s failure to failure to bring proceedings to finally determine that dispute was fatal to the Council’s case. The adjudicator’s decision became final (Jerram Falkus v Fenice Investments) [8]. That alone was fatal to the counterclaim in the current proceedings.

[8] [2011] EWHC 1935 (TCC)

(3) The position pending future final determination

Comment

However the court went on to deal with a second difficulty arising from the existing Sheriff action which had been commenced in time and where the correctness of the FC would be determined. Given that the FC was under challenge in those proceedings it was not open to a party to take proceedings to recover payment outside the time limit and contend that the FC was conclusive in order seek relief in the meantime. The Council could not look to recover payment in reliance on the FC in the current proceedings, while the wider issue of the sum due under the FC was pending in the Sheriff Court. Nothing in clause 1.9 indicated that the FC had this effect. Coulson J had expressed a similar view in Trees Marc Gilbard 2009 Settlement Trust v OD Developments and Projects Ltd [9].

The court stated that in order to avoid the conclusive effect of the final certificate a party should not only commence adjudication proceedings but should also issue protective court or arbitration proceedings to ensure it preserved its rights of challenge.

(4) The validity of the interim payment notice

This issue had been decided by the adjudicator. The Council had failed to challenge that finding within 28 days of the decision and it was now final. Had the court the power to look at the issue it would have found that if the due date stated in the notice had been wrong, as the Council alleged, the notice would have been invalid. It was the duty of the party giving a payment notice to ensure it complied with the Contract in all its particulars.

(5) Interest

The question of interest was part of the decision. Had the counterclaim succeeded, it would have been wrong for DMS to retain the interest and the court would have allowed its recovery.

[9] [2015] ConLR 150

3) Jurisdiction – existence of contract – estoppel by convention – natural justice – reversing burden of proof – Changing Climates Ltd v Warmaway Ltd [2021] EWHC 3117 Sarah Watson QC (judgment 6 September 2021)

The defendant contended that there was a consortium between defendant (as lead), claimant and a third company (Dynamics), formed to make a composite tender bid for M&E and HVAC to a main contractor (Broadley) – thus one contract and it was between the consortium and Broadley. Alternatively the defendant contracted with Broadley as agent for both the claimant and Dynamics. After reviewing at length the contemporaneous documents and the witness evidence, the judge concluded there was no realistic prospect of the defendant proving at trial that a consortium had existed, beyond a loose agreement to form a consortium for future orders, nor of establishing an agency. On the contrary the evidence clearly pointed to a single contract between the defendant and Broadley for the whole of the M&E and HVEC works, and to agreement for and actual issue of separate ‘sub-contract’ order by the defendant to the claimant (and to Dynamics).

In an interesting but fact-specific case, HHJ Watson enforced the decision of the adjudicator and refused leave to appeal.

There were three issues.

(1) Was there a contract between claimant and defendant, it being agreed that if there was a contract then it was a construction contract? (2) Even if there was a contract, was the claimant estopped by convention from alleging its existence and relying upon it? (3) In contending for a reversal of the burden of proof on issue (1), had the claimant drawn the adjudicator into a breach of the rules of natural justice?

Issue 2 - Estoppel

There was no evidence of a shared or assumed understanding or reliance on facts and matters sufficient to create an estoppel.

Issue 3 - Natural Justice

Although the referral notice invited the adjudicator to consider that the burden was on the defendant to prove there was no contract as alleged, rather than the burden of proof being on the claimant to prove the existence of the contract, there was nothing in the decision to indicate that the adjudicator had adopted the wrong approach.

Issue 1 – was there a contract?

The claimant said it had received a sub-contract order from the defendant pursuant to which it made payment applications, received payment certificates and interim payments from the defendant.

4) Jurisdiction – construction contract – existence of contract – natural justice – delay in enforcement – Cubex (UK) Ltd v Balfour Beatty Group Ltd [2021] EWHC 3445 (TCC) The claimant (Cubex) alleged that the defendant Balfour Beatty Group Ltd (BBGL) retained them to design and manufacture doors for installation at Woolwich station. Cubex claimed that BBGL had then repudiated the subcontract by placing the order for the doors with a third party and they took the claim to adjudication. The adjudicator found in favour of Cubex awarding then £400,000 in his decision February 2017. In September 2019, some two and half years after the decision, Cubex commended enforcement proceedings.

(c) The adjudicator was in material breach of the rules of natural justice having reached his decision on the basis of reasons that neither party had advanced and indeed on his finding as to a ‘version’ of the subcontract that was not that relied on by Cubex. (2) The court in its discretion should decline to enforce the award due to Cubex’s inordinate delay in raising the enforcement proceedings.

Issues and judgment

Was the design and supply of doors at a station a ‘construction contract for the purpose of the Act?

This in turn depended on whether the works were ‘construction operations’ within the meaning of s.105(2) of the Act. BBGL argued and the court accepted that the works amounted to the manufacture and delivery to site of doors which fell within the excluded operation in s.105(2)(i) or (ii), i.e. the manufacture or delivery to site of building or engineering components or equipment, or materials, plant or machinery. The adjudicator had found that the works included for design and were therefore construction operations. The court referred to s. 104(2) noting that contracts for design were construction contracts, provided the design services related to construction operations. The adjudicator was therefore incorrect as the supply of doors was not of itself a construction operation (s.105(2)). If the contract had been a hybrid contract such that the design was for construction operations but the supply was not, the decision would still have been made without jurisdiction as the decision encompassed all of the works.

BBGL resisted on two grounds:

(1) The adjudicator lacked jurisdiction

(a) Any subcontract was not one for “construction operations” within the meaning of the Act because although it was for design works, those works did not relate to construction operations; and/or (b) In any event no concluded subcontract had come into existence and in deciding the matter on the basis of two different versions of the subcontract the adjudicator had purported to decide more than one dispute; and/or

Did the adjudicator decide more than one dispute and had a subcontract ever come into existence? These linked arguments were dealt with as one. BBGL had argued that as the Referral proposed two different dates on which the subcontract came into existence, the adjudicator was being asked to decide two different disputes. The court found that this mere lack of precision did not give rise to a jurisdictional challenge. The adjudicator was in any case entitled to determine which of several contacts might give rise to the claim, if that was necessary to a decision on the merits of the dispute[10] always provided that he was appointed under an ‘initial concluded contract about which there was no dispute”[11]. The question remained whether there was a real prospect at trial of BBGL showing there was no concluded contract. The court found on the evidence that BBGL did have a real prospect of showing there was no concluded contract by the 23 February 2017, being the date on which the adjudicator had found a subcontract to have been concluded.

The court felt that omission amounted to a material breach.

Delay in bringing the enforcement proceedings.

Had the decision been enforceable, the alleged delay in bringing the enforcement proceedings in court would not have prevented enforcement. There was no obligation on a successful referring party to bring enforcement proceedings within any particular time before the expiry of the limitation period (normally 6 years from the date of the decision).

Nor had BBGL shown any legal or procedural basis for its contention.

Thus there was no subcontract under which the adjudicator had been properly appointed.

Was there a material breach of natural justice?

To be ‘material’ the breach must have been related to an issue of importance to the decision[12]. The adjudicator had failed to advise the parties of his ‘line of thinking’ about the formation of the subcontract, namely that the subcontract had been concluded on 23 February 2017, which was not a date for which either had contended; nor had he explained what terms he considered had been agreed on that date.

[10] Air Design v Deerglen [2008] EWHC 3047 (TCC) [11] Viridis v Mulalley [2014] EWHC 268 (TCC) [12] Cantillon v Urvesco [2008] EWHC 282 (TCC)

Construction&Engineering Get in touchwith our team formore information:

MatthewGrellier Partner &Head of Construction [email protected] 0161 672 1427 | 07753 464 740

Kenneth Salmon Consultant Solicitor [email protected] 0161 672 1436 | 07786 702 140

@SlaterHeelisLaw /slaterheelis