Construction Adjudication Part 4 of 2021

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

1996: Part 4 of 2021 Kenneth T. Salmon Consultant Solicitor at Slater Heelis

Construction&Engineering

Contents

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

4. Stay – Wimbledon v Vago criteria .................................................................................................... Quadro Services Ltd v FP McCann Ltd [2021] EWHC 1490 (TCC) 19 April 2021 (Veronique Buehrlen QC) 2. Injunction to restrain adjudication............................................................................................ Marbank Construction Ltd v G&D Brickwork Contractors Ltd [2021] EWHC 1985 (TCC) 28 June 2021 O’Farrell J 3. Natural justice – references to without prejudice materials............................................ Transform Schools (North Lanarkshire) Ltd v Balfour Beatty Construction Ltd and Anor. [2020] CSOH 19 5. Right to Adjudicate – whether collateral warranty is construction contract............ Toppan Holdings Ltd and Abbey Health Care (Mill Hill) Ltd v Simply Construct (UK) LLP [2021] EWHC 2110 (TCC) 27 July 2021 Martin Bowdery QC

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Introduction The Enforcement of Adjudicators’ Awards under the Housing Grants, Construction and Regeneration Act 1996: Part 4 of 2021, 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)

Injunction

to

restrain Marbank

In dismissing the application for an injunction, O’Farrell J noted that the first respondent had a right to commence adjudication proceedings at any time. It was not for the applicant to dictate when that might be. Whilst it was accepted that the adjudication proceedings would entail irrecoverable costs, this was simply a feature of the process. The court was alive to the tactical nature of the first respondents’ conduct (in commencing three sets of adjudication proceedings) but this again was a common part of adjudication. Taken together these features did not amount to unreasonable or oppressive behaviour. The court considered and distinguished Mentmore Towers Ltd v Packman Lucas Ltd[6] as the adjudications had not been enforced and the first respondent was not in breach of any court order. However and significantly, Her Ladyship accepted that if the subject matter of the adjudications were to trespass on a court decision, that could prevent the adjudicator from having jurisdiction and it would follow, the court from enforcing any decision. The court was reluctant following the reasoning of Lord Briggs in Bresco Electrical Services Ltd v Michael J Lonsdale (Electrical) Ltd[7] to interfere in adjudication.

adjudication Construction

–

Ltd G&D Brickwork Contractors Ltd [2021] EWHC 1985 (TCC) 28 June 2021 O’Farrell J v In the exercise of its discretion a court may grant an injunction to restrain a party from pursuing an adjudication pursuant to s37 of the Senior Courts Act 1981 applying American Cyanamid principles. It was now well-established that in the context of the Act, the court would only interfere with an ongoing or threatened adjudication in limited circumstance. Here it was alleged the referrals to adjudication had been brought unreasonably and oppressively. The background was that the first respondent sub-contractor had taken proceedings in the County Court for sums it claimed it was owed by the applicant contractor over three construction projects it had contracted to work on for the applicant. The County Court proceedings were struck out, and this lead the respondent to refer the three disputes to adjudication. The second respondent in this application was the adjudicator in all three adjudications. Further adjudications were also intimated. The applicant argued that the adjudications were unreasonable and oppressive in that they raised the same or substantially the same issues as the County Court proceedings which had been struck out. It intended to pursue Part 8 proceedings to deal with these jurisdictional points and needed an injunction to give it time to do so.

The question of jurisdiction was a matter that could and should be dealt with at the enforcement stage.

[6] [2010] EWHC 457 (TCC) [7] UKSC 25

2) Natural justice – references to without prejudice materials – Transform Schools (North Lanarkshire) Ltd v Balfour Beatty Construction Ltd and Anor. [2020] CSOH 19 This case did not receive our attention when judgment was handed down in February 2020 and is now reviewed. The pursuers engaged the defenders for construction work in various schools known as the Stepps Project. The work was carried out in 2006 and 2007. In 2015 pursuers complained of drain blockages. In 2015 and 2017 surveys were conducted. In June 2019 a drain collapsed. From 2016 to 2018 the parties corresponded and defenders sent a number of letters in which they agreed to undertake specified remedial works on a “without prejudice” basis and “without admission of liability”. Some letter were actually headed “without prejudice” whereas others were not. They also carried out various remedial works. In July 2019 pursuers referred a claim for the cost of remedial works to adjudication. The adjudicator found for the pursuers and ordered the defenders to pay them £4,029,574. In reaching his decision he had regard to the correspondence in order to determine whether the claim had “prescribed” (that is to say had become statute barred under “the 1973 Act”[8]). The correspondence from 2016 – 2018 was referred to in witness statements and the parties’ submissions and put before the adjudicator.

He noticed that a number of communications were marked “without prejudice” and or contained offers of settlement by way of carrying out work on a without prejudice basis. Without further reading the affected documents, he asked the parties for permission to do so. Pursuers agreed; defenders objected. The adjudicator who was a barrister, decided that like a judge, he was entitled to consider the letters to determine if they were or were not privileged and if admissible, to take them into account in deciding whether the claim was prescribed. Taking them into account he decided: (i) that the carrying out of work under an express reservation as to liability did not amount to a relevant acknowledgement that would extend time under s 10(1)(b) of the 1973 Act, but (ii) that the contents of the correspondence had extended the prescriptive period under s6(4) of the 1973 Act.

Upon pursuer’s application to enforce the award, defenders raised the following challenges:

(1) The adjudicator had erred in considering the without prejudice communications the contents of which were privileged; (2) This was unfair and gave rise to unconscious bias and amounted to a breach of the rules of natural justice. Lord Ericht, giving judgment, said this was not a case where the adjudicator was improperly made aware of an irrelevant and collateral without prejudice offer to settle which he ought to put out of his mind. The admissibility of the letters was a question the adjudicator had to decide as one of the central issues in the case. It was a matter he himself identified and he gave both parties the opportunity to make submissions on the question. He considered the submissions, and the case law to which he was referred and gave a reasoned decision.

[8] Under the Prescription and Limitation (Scotland) Act 1973

3) Stay – Wimbledon v Vago criteria – Quadro Services Ltd v FP McCann Ltd [2021] EWHC 1490 (TCC) 19 April 2021 (Veronique Buehrlen QC)

In the opinion of the court the adjudicator was entitled to find the letters in question were not privileged and were admissible. A court would be entitled to look at the documents to decide admissibility and so was the adjudicator.

He may or may not have been right to decide they were admissible.

Judgment not yet available.

The claimant Quadro applied to enforce the decision of the adjudicator in its favour. McCann the defendant did not oppose enforcement but applied for a stay of execution pursuant to CPR 83.7(4) and in doing so argued that the court should take into account the merits or lack of them in the underlying claim. The court began by restating the now well- established principles that the decision of an adjudicator would be enforced unless there had been either a jurisdictional error or a material breach of the rules of natural justice. Not even a manifest error of law could prevent enforcement. The criteria on which the court might in its discretion order a stay were set down in the leading case of Wimbledon v Vago [9]. The court was not prepared to consider the merits of the underlying claim as the basis for a stay. The court accepted that McCann’s financial position had deteriorated since January 2020 when the sub contract between the parties has been entered into, due to the Covid-19 pandemic. Although the full impact of that event was not yet known, it appeared that McCann was a still going concern and able to meet its liabilities and likely to be able to repay any judgment sum, after a trial of the substantive issues in 12 -18 months’ time. Although it was not necessary to decide the point, the court indicated that that Quadro was not responsible for McCann’s financial decline.

But even if he was wrong, that was an error of law which did not justify the court in refusing enforcement. The court looked at the law on privilege. The label used was not conclusive. The adjudicator had found that the few letters actually headed “without prejudice were not in fact privileged; and in the letters containing offers to carry out work “without prejudice”, the words were used to indicate that liability was not being admitted. In any case the adjudicator had placed little weight on such letters and instead had relied on the correspondence as a whole over a period of 23 months in deciding that the claim was not prescribed. It could not be said that the submission of the letters to the adjudicator, or the way in which he dealt with them, was in any way improper or involved any breach of natural justice or apparent bias.

Comment

This case is a reminder that heading a letter “without prejudice” does not of itself make it privileged. It is the content and substance which will determine that question. An adjudicator, just like a judge, is entitled to look at the materials to decide whether they are admissible.

The court refused to order a stay. An application for indemnity costs failed.

[9] Wimbledon Construction Co 2000 Ltd v Derek Vago [2005] EWHC 1086 (TCC) Coulson J

4) Right to Adjudicate– whether collateral warranty is construction contract – Toppan Holdings Ltd and Abbey Health Care (Mill Hill) Ltd v Simply Construct (UK) LLP [2021] EWHC 2110 (TCC) 27 July 2021 Martin Bowdery QC A Company called Sapphire contracted with Simply to design and build a residential care home in 2015. There was provision in the building contract for a collateral warranty to be provided to a future tenant. Completion took place after which defects were discovered and remedied pursuant to a settlement agreement in 2017. Thereafter, Sapphire novated the building contract to Toppan as the new owner. Toppan granted a lease to Abbey who then operated the care home. After being compelled to do so by court action, Simply executed a collateral warranty in favour of Abbey. In 2019 significant fire safety defects were discovered and subsequently rectified at considerable expense. Toppan claimed damages for the remedial costs and Abbey claimed damages for loss of income and the claims proceeded by way of two separate adjudications: the Toppan adjudication was brought under the provisions of the novated building contract and the Abbey adjudication pursuant to the Act on the basis that the collateral warranty was a construction contract. The same adjudicator was appointed in each case.

There are few ‘standard’ forms of warranty and the one in favour of Abbey was a bespoke form as provided for by the building contract in which Simply warranted as follows: the Contractor has performed and will continue to perform diligently its obligations under the Contract; “(a) (b) in carrying out and completing the Works the Contractor has exercised and will continue to exercise all the reasonable skill care and diligence to be expected of a, properly qualified competent and experienced contractor experienced in carrying out and completing works of a similar nature value complexity and timescale to the Works; (c) in carrying out and completing any design for the Works the Contractor has exercised and will continue to exercise all the reasonable skill care and diligence to be expected of a prudent, experienced competent and properly qualified architect or as the case may be other appropriate competent and qualified professional designer experienced in carrying out and completing the design for works of a similar nature value complexity and timescale to the Works.” On its claim, the adjudicator awarded Toppan £852,000 plus VAT plus interest of £16,668 plus his fees. In the Abbey adjudication, Simply challenged the adjudicator’s jurisdiction on the grounds that the collateral warranty was not a construction contract and there was no right to adjudicate the dispute arising under it. The adjudicator decided he had jurisdiction and awarded Abbey damages of £869,500 plus VAT and interest of over £17,000 plus his fees. Simply did not comply with the awards.

Enforcement by Toppan

“ (a) The fact that the construction contract (if it is one) is retrospective in effect is not a bar to it being a construction contract. It is common for contracts to be finalised after the works have started and to be retrospective in effect back to the date of or even before commencement. If that is what the effect of the parties' agreement is, then that cannot prevent it from being a construction contract for the carrying out of construction operations. Put another way, a construction contract does not have to be wholly or even partly prospective. One must be careful about adopting a peculiarly syntactical analysis of what words mean in this statute when it is clear that Parliament intended a wide definition. An agreement "for... the carrying out of construction operations" is a broad expression and one should be able, almost invariably at least, to determine from the contract in question whether it fits within those words, without what could be a straight-jacketed judicial interpretation. ( b) (c) Usually and possibly invariably, where one party to a contract agrees to carry out and complete construction operations, it will be an agreement “for the carrying out of construction operations”. The warranty in that case included the verbs “warrants, acknowledges and undertakes”. The Abbey warranty did not use the verbs “acknowledges and undertakes”. The time the warranty was entered into was also important. Simply entered into the warranty 4 years after practical completion of the original works, 3 years after the settlement agreement and 8 months after the remedial works had been carried out and at a time when no further work was in prospect.

Simply raised three issues:

(1) Whether the Adjudicator had power to award interest;

(2) Whether Toppan was entitled to recover VAT; and

(3) Whether Simply was entitled to a stay of execution on the basis that Toppan would most likely be unable to repay the sums awarded, if required to do so in later proceedings. The court found that the adjudicator was correct to award VAT. As to interest, Simply had not challenged the adjudicator’s jurisdiction and had taken a full part in arguing the issue, therefore the decision was binding, right or wrong. As to stay, the evidence showed Toppan to be in a healthy financial position and there was no reason to think it would not be able to repay the sum awarded if later ordered to do so. As a side issue the court held that it could consider as bona fide an intention to take legal proceedings for a final determination of the issues in the adjudication, even where no steps had yet been taken to pursue that claim. Enforcement by Abbey The real issue here was whether the collateral warranty was a construction contract. The question was one of fact to be answered by reference to what was being warranted. Some guidance was derived from three points of principle laid out in the case of Parkwood Leisure[10] where Akenhead J said:

[10] Parkwood Leisure v LaingO’Rourke [2013] B.L.R. 589

This was a strong pointer against it being an agreement for the “carrying out of construction operations” within section 104 of the Act. Rather it was a warranty as to a state of affairs past or future akin to a manufacturer’s warranty.

But in addition the time at which the warranty is given (before or during or after completion of works) is a factor which needs to be taken into account as likely to influence the construction of the warranty.

As the judge said:

“Whilst contractors and beneficiaries should negotiate the contents of their collateral warranties with some caution if they want them not to fall within the Act, the timing as to when they are executed is also important. On the facts of this case I cannot see how applying commercial common sense a collateral warranty executed four years after practical completion and months after the disputed remedial works had been remedied by another contractor can be construed as an agreement for carrying out of construction operations.” Therefore Abbey’s application to enforce the adjudicator’s decision was dismissed. Although then academic, an application by Simply for a stay of execution was refused based on the evidence of Abbey’s financial position. Comment Amongst other things care should be taken when drafting the terms of a warranty to give effect to an intention to provide for (or not to provide for) a right of adjudication. If the intention is to provide for such a right this is best done by introducing an express adjudication provision (which will result in a contractual right even if there is not a statutory right). If it is intended there be no such right, then the obligation being warranted needs to be drafted so as not to require the warrantor to carry out any constructions operations (essentially any work).

Construction&Engineering Get in touchwith our team formore information:

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

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