Construction Adjudication Cases: Part 3 of 2020

The Enforcement of Adjudicators’ Awards under the HousingGrants, Construction and Regeneration Act Adjudication Cases

1996: Part 3 of 2020 Kenneth T. Salmon Consultant Solicitor at Slater Heelis LLP

Construction&Engineering

Contents

Page 3

1.. . .Introduction .........................................................................................................................................

Page 4

2. Construction Operations........................................................................................................... Engie Fabricom v MW High Tech Projects [2020] EWHC 1626 (TCC) 3. Dispute - Crystallisation............................................................................................................. MW High Tech Projects UK Ltd v Balfour Beatty Kilpatrick Ltd – [2020] EWHC 1413 (TCC) (05 June 2020) 4. Payment Application - Validity - Grounds for resisting enforcement...................... J Tomlinson Ltd v Balfour Beatty Group Ltd [2020] EWHC 1438 (TCC) Fraser J. 5. Severance........................................................................................................................................ Dickie & Moore v Lauren McLeish Trust [2020] CSIH 38

Page 4

Page 5

Page 6

Introduction The Enforcement of Adjudicators’ Awards under the Housing Grants, Construction and Regeneration Act 1996: Part 3 of 2020. Kenneth T. Salmon, Consultant Solicitor, Slater Heelis LLP. The law is stated at 1 July, 2020. This part deals with cases on the meaning of construction operations, the crystallisation of a dispute, the validity of a payment application and severance.

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.

[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) Construction Operations: Engie Fabricom v MW High Tech Projects [2020] EWHC 1626 (TCC) The TCC held that the primary activity at a fluidised bed gasification plant was power generation rather than waste disposal. Therefore works carried out under a sub- contract between the parties to the dispute were not construction operations within the meaning of section 105(2)(c) of the Act.

[6] Jackson J in AMEC v Secretary of State for Transport [2004] EWHC 2339 (TCC), as refined in Cantillon v Urvasco [2008] EWHC 282 (TCC). [7] Walter Lilly v Mackay [2012] EWHC 1773 (TCC). The adjudicator rejected the challenge and proceeded with the reference and decided that BBK was entitled to the extension of time claimed. MWH then made an application under Part 8 CPR to determine, amongst other issues, whether the dispute decided by the adjudicator had crystallised. In July 2019 BBK sent MWH an expert’s report (the Goodman Report) that included a critical path analysis and demanded a response within 7 days. BBK referred its extension of time claims to adjudication. MWH challenged the adjudicator’s jurisdiction on the grounds that the claims and material set out in the Goodman report were new or different from those in the five notices meaning that the 16 week period had started again and the referral was premature. Looking at clauses 2.17 and 2.18 of the sub- contract, O’Farrell J. said that when a party provided additional and supplementary material that it was possible that it might restart the 16- week period in clause 2.18, but it was not inevitable. It depended whether the additional material made a material change to the claim as originally notified. In deciding that question it was important the court should construe the provisions in a sensible and commercial way. The Goodman report was not intended to be a fresh notification. It was not materially different to the claims previously advanced but was expert analysis in support of those claims. MWH had failed to notify BBK of its decision in respect of each delay notice within the 16-week period running from the last notice. The adjudicator had jurisdiction.

There was no statutory right of adjudication.

2) Dispute - Crystallisation: MW High Tech Projects UK Ltd v Balfour Beatty Kilpatrick LTD [2020] EWHC 1413, (TCC) O'Farrell J. Before a party can refer a claim to adjudication there must be a crystallised dispute. Whilst the question will be fact specific, the courts have laid down guidance as to when it can be said that crystallisation has occurred[6]. When the question is in the context of a claim based on contractual notices, the court is entitled to take into account the parties' knowledge and understanding of the material events giving rise to those notices[7]. In this case, the parties had entered into a JCT Design and Build Sub-contract, 2011 Edition. Between March 2018 and February 2019, the defendant, (BBK), sought extensions of time and served five notices of delay under clause 2.17 of the sub-contract. The claimant, (MWH), did not respond to those notices or request further particulars within the 16 weeks allowed by clause 2.18 of the sub-contract.

3) Payment Application - Validity - Grounds for resisting enforcement: J Tomlinson Ltd v Balfour Beatty Group Ltd [2020] EWHC 1438 (TCC)Fraser J Fraser J enforced an adjudicator’s decision for the amount due on an interim payment application. This was what is somewhat inelegantly termed a ‘smash and grab’ adjudication where there was no payment or payless notice from Balfour and the sum applied for (over £1.4m), became the notified sum due. Balfour had contended before the adjudicator that JTL’s payment application was not in accordance with the particular requirements of the subcontract for three reasons. They now sought to resist enforcement on the basis that the payment application was invalid. This was not a case where Balfour asserted that the adjudicator had acted without jurisdiction or in material breach of the rules of natural justice and therefore the “pay now argue later” principle applied unless they could bring themselves within one of the two exceptions in Hutton Construction Ltd v Wilson Properties (London) Ltd[8].

Balfour relied on three arguments in the adjudication. The first was that the application was not in fact received within or as part of several boxes of documents delivered by JTL by hand and which JTL claimed contained the application. That factual dispute was resolved by the adjudicator in JTL’s favour and could not be pursued by Balfour on enforcement. Second, Balfour said, that to be valid, the application had to be delivered by email to its Leeds office with copy to site, as stated in part 5 of the appendix to the subcontract. There was some force in this argument in that the subcontract provided that in the event of a conflict between them, the appendices would have primacy over the conditions. But as a matter of construction the court found that there was no conflict so the primacy clause did not come into play. Nor were the words relied on in part 5 expressed in mandatory terms so as to prevent an application delivered by hand from being a valid one. payment applications after the valuation dates that had been scheduled in the appendix, must, on the wording of the appendix, be made on the nearest date one month after the last valuation date and the application in question was sooner and thus premature and invalid. The subcontract conditions had provided that applications based on the valuation dates were to be not later than those dates. Balfour relied on the authority of Mr Justice Edwards-Stuart, namely Leeds City Council v Waco UK Ltd [10] where the interim application, as a result of not being submitted on a specific date, was found to be invalid. Third, Balfour argued that

The first exception, admitted error, did not apply. Balfour relied on the second exception namely:

“The second exception concerns the proper timing, categorisation or description of the relevant application for payment, payment notice or payless notice, and could be said to date from Caledonian Modular Limited v Mar City Developments Limited [9].” Though Balfour had not issued a part 8 claim, which was now the established way to determine such a self-contained point as in this case, the validity of the application for payment, the court elected to deal with the point.

[8] [2017] BLR 344 [9] [2015] EWHC 1855 (TCC) [10] [2015] EWHC 1400 (TCC)

The court determined as a matter of construction that the appendix wording in the subcontract did not rule out applications before the dates in question. Leeds City Council concerned a different contract on different terms and did not assist. In relation to both the second and third arguments, Fraser J said that very clear words would have been needed to make the requirements relied on by Balfour, conditions precedent to the validity of the application. The judgment is dated 29 April 2020 but was published in June 2020. 4) Severance - Dickie Moore Ltd v Lauren McLeish [2020] CSIH 38 (Lords Menzies, Drummond Young and Malcolm) The pursuer was the contractor and the defender employer under a JCT contract for the construction of a dwelling house. The pursuer claimed entitlement to additional payment for the works, additional extensions of time and loss and expense on two grounds (less a concessionary credit), repayment of liquidated damages levied for the periods of extension, and reduction of various deductions made from the final account. They referred the dispute to adjudication and Mr Len Bunton was appointed adjudicator. The defender challenged his jurisdiction. Mr Bunton ruled against them and went on to award the pursuer £324,492.60, with interest of £16,733.59. He further found the pursuer entitled to an additional extension of time of 11 weeks, and in relation to that he allowed £63,093.47 by way of loss and expense. He held that the works final account should be higher by £181,607.17, that deductions for an alleged defect, liquidated damages, ground

retention and render to the main house were not justified, and that certain other deductions that had been made were excessive. Before the commercial judge on enforcement the defender said a material part of the dispute (as to extension of time) had not crystallised such that the adjudicator had no jurisdiction to hear the dispute. The offending parts could not be severed from the remainder because the dispute should be considered as a whole. There were three other grounds of objection but these were not relevant to the main issue which was severance. The commercial judge decided the matter as one of principle having regards to the underlying purpose of the Act, and that severance was possible, the remaining parts were not tainted by the severed parts, and should be enforced. The defender appealed against the severance. The Inner House (Lord Drummond Young giving judgment) looked at the statutory and contractual context. In the case of an adjudicator’s award that is partially valid and partially invalid, the valid part should be enforced if that was realistically practicable. That would depend on whether the valid and invalid parts of the award could be severed from each other, but in approaching severance, the court should adopt a practical and flexible approach that sought to enforce the valid parts of the decision unless they were significantly tainted by the adjudicator’s reasoning in relation to the invalid parts. [11] For example, the decision of Ramsey J in Cleveland Bridge UK Ltd v WhessoeVolker Stevin Joint Venture [2010] BLR 415 as expressly inconsistent with the previous Scottish decision in Homer Burgess Ltd v Chirex (Annan) Ltd, 2000 SLT 277 (see Cleveland Bridge at aragraphs 117-118), and appeared to be inconsistent with the approach taken in other cases, for example Akenhead J in Working Environments Ltd v Greencoat Construction Ltd, [2012] EWHC 1039 (TCC), and Pepperall J in Willow Corp SARL v MTD Constructors Ltd, [2019] EWHC 1591 (TCC).

Having reviewed all the exiting case law, both sides of the border, the Inner House adopted the following as the reasonable test for severability: “In considering whether a decision which is partially ultra vires of the adjudicator can be severed and the valid part enforced, the correct approach in our opinion is that the court should make the assumption that the parts of the decision that are invalid, for example because the dispute had not crystallized, did not exist. On that basis, it should then consider whether the remainder of the decision can be enforced without its being tainted by the invalid part of the decision.” To the extent that there was some overlap, the court would consider whether the reasoning in the ultra vires part of the decision affected the adjudicator’s conclusions in the intra vires part to anymaterial extent. The greater the overlap, the more likely there will be an influence. The court also held that the parties to an adjudication had agreed to honour the award including the award as it might be revised by the court on enforcement. In this case severance was possible and appropriate and the Inner House upheld the commercial judge’s order as to the award as revised by the order of the court.

In considering case law on severance in England, the court noted there were marked differences of judicial opinion as to whether severance was possible where there was a single dispute [11] Further the Scottish courts had traditionally adopted the approach of basing legal reasoning on principle rather than mere adherence to precedent. On the critical question of the extent to which and the basis on which a court may enforce an adjudicator’s award where part of that award was outside the adjudicator’s jurisdiction because the dispute purportedly considered in that part had not crystallised, the Inner House was in agreement with both the commercial judge’s decision and his reasons. Looking at all the cases on severance, the courts had regard to the substance of the underlying dispute, rather than the question of whether, formally, it could be classified as a “single dispute” case or a case involving multiple disputes. In the opinion of the Inner House, this was clearly correct; indeed the distinction between a single dispute and more than one dispute frequently turned on how claims are classified rather than anything going to their underlying substance. There was no blanket ban on severance simply because there was a single dispute albeit it might well be more difficult to show that what remained was not tainted by the part that was without the adjudicator’s jurisdiction.

Construction&Engineering

Get in touchwith our team formore information:

MatthewGrellier Partner &Head of Construction [email protected] 07753 464 740

Kenneth Salmon Consultant Solicitor [email protected] 07786 702 140

@SlaterHeelisLaw /slaterheelis