Construction Case Update - Adjudication - Part 5 of 2018

Construction Case Update - Adjudication - Part 5 of 2018

Cases The Enforcement of Adjudicators’ Awards under the Housing Grants, Construction and Regeneration Act 1996: Part 5 of 2018 Kenneth T. Salmon and Katy Ormston

Construction & Engineering

Contents 1. Introduction 2. Enforcement—permission to continue proceedings under s.252 Insolvency Act 1986  page 3 Raymond Jeffrey (t/a Premier Construction Services) v David Steene 3. Jurisdiction—more than one contract— adjudicator’s power to determine own jurisdiction  page 3 Maelor Foods Ltd v Rawlings Consulting (UK) Ltd 4. Stay to Arbitration—whether ‘dispute’ was “in connection with” enforcement  page 3 Maelor Foods Ltd v Rawlings Consulting (UK) Ltd 5. Stay of execution—pending provision of guarantee bond  page 4 BN Rendering Ltd v Everwarm Ltd 6. Stay of execution—relevance of fraud not raised in adjudication  page 4 Assesmont Ltd v Brookvex IMS Ltd

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.

7. Summary 

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1. Introduction The Enforcement of Adjudicators’ Awards under the Housing Grants, Construction and Regeneration Act 1996: Part 5 of 2018. Kenneth T. Salmon Consultant Solicitor and Katy Ormston Trainee Solicitor at Slater Heelis LLP. The law is stated at 30 September, 2018 and covers two cases on stay of execution, stay to arbitration, continuing enforcement after insolvency, and the power of an adjudicator to determine his own jurisdiction. 2. Enforcement—permission to continue proceedings under s.252 Insolvency Act 1986 Raymond Jeffrey (t/a Premier Construction Services) v David Steene 6 The Claimant contractor referred a dispute over its final account to adjudication and was awarded £109,000 against the Defendant employer. The Defendant failed to pay and the Claimant took enforcement proceedings. The Defendant acknowledged service of the claim form indicating an intention to defend and to contest jurisdiction. Directions were given and a hearing date allocated. A day before it was due to serve its evidence, the Defendant notified the Claimant it was proposing to enter into an individual voluntary arrangement. The Defendant proposed to distribute its available assets to unsecured creditors (including the Claimant) whose debts it agreed and decided were due. The Defendant also obtained an interim County Court order under s.252 of the Insolvency Act 1986 preventing any execution or other legal proceedings being commenced or continued without the permission of the Court. The Claimant now applied for such permission under the same section, in order to enforce an adjudicator’s award. The Defendant argued that permission should be refused. The adjudicator had decided the claim and what was due and there was no need for any further proceedings. In addition the Claimant had been aware of the Defendant’s financial position and the medical condition that was the reason for it. If the Claimant was granted summary judgment he would be in a better position than the other unsecured creditors as the proposal was yet to be approved. The question for the High Court was whether it should exercise the discretion it possessed to allow the proceedings to continue. It appeared that whilst the Claimant was identified as a creditor there was no clear acceptance that the sum awarded was due. The adjudicator’s award had been obtained and the enforcement commenced before notice was given of the proposed IVA and before the County Court proceedings. The Claimant had incurred the costs of the enforcement proceedings and unless summary judgment was given, the sum awarded was still a matter of dispute. Summary judgment would not make the Claimant a secured creditor, or give it an unfair advantage over other creditors. Therefore it was just to give permission to proceed and to grant summary judgment, but not to be enforced without the Court’s permission.

3. Jurisdiction—more than one contract—adjudicator’s power to determine own jurisdiction Maelor Foods Ltd v Rawlings Consulting (UK) Ltd 7 Following on from their success in staying Maelor’s Part 8 proceedings (see under ‘Stay to Arbitration’, below), Rawlings sought summary judgment. Maelor resisted enforcement on grounds that the dispute arose under more than one contract, and the adjudicator could not make a binding decision on that issue as it amounted to his ruling on his own jurisdiction, which they said he had no power to do unless the parties had so agreed. HHJ Judge Stephen Davies decided the adjudicator had to determine the point about the two contracts, as part of the dispute before him. The learned judge would have followed Akenhead’s decision in Air Design 8 in which it was held that an adjudicator can deal with matters “when substance and jurisdiction overlap.” An issue arose as to whether Rawlings could afford to repay the amount of the judgment if later required to do so. Its net assets were better than when it entered into the contract but still modest. In addition it was important that the paying party knew or ought to have known when it entered into the contract that keeping the receiving party out of its money would lead to cash flow problems. It could not be said there was no prospect of it being able to repay the judgment sum. A stay would undermine the principle behind the Act (pay now, argue later) and was refused. 4. Stay to Arbitration—whether ‘dispute’ was “in connection with” enforcement Maelor Foods Ltd v Rawlings Consulting (UK) Ltd 9 The parties’ contract was based on a JCT Standard Form of Building Contract with approximate quantities, 2011 edition. Article 8 of which provided for disputes “arising out of or in connection with” the contract to be referred to arbitration except if the dispute was “in connection with” the enforcement of an adjudicator’s decision. The Claimant Maelor Foods Limited (“Maelor”), wanted to challenge an adjudicator’s decision in favour of Rawlings Consulting (UK) Ltd (“Rawlings”) and brought CPR Part 8 proceedings seeking declarations as to issues of law which had arisen in the adjudication, as to the validity of a payment notice and what sums were due to Rawlings. Rawlings applied to stay Maelor’s application to arbitration under section 9 of the Arbitration Act 1996, on the basis that the claim was not in connection with the enforcement of the decision and did not fall within the exception. The Court agreed. Whilst Part 8 could be used as a pre-emptive strike in anticipation of enforcement proceedings, if made and heard in time, that did not mean that such Part 8 proceedings were in connection with enforcement. The wording of the claim was held to be highly significant. Ultimately the dispute here was one about the parties’ actions under the contract and that dispute had to be stayed to arbitration.

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5. Stay of execution pending provision of guarantee bond BN Rendering Ltd v Everwarm Ltd 10 The Claimant was a small company with limited assets controlled by a sole director and shareholder. The Defendant employed the Claimant to carry out construction works and disputes arose over payment under two contracts. The disputes were referred to adjudication and the adjudicator found in favour of the Claimant who now applied to enforce the decisions. The Defendant resisted enforcement and alternatively sought a stay of execution on the basis of uncertainty over the Claimant’s cashflow and financial position. The evidence showed that the Claimant’s director used the Claimant as his personal bank, and that despite the Claimant’s financial position he borrowed money and took dividends, not all of which was repaid, thus moving money around regardless of the Claimant’s needs. The Defendant knew at the time of the contracts that the Claimant was a small company with limited assets under the control of a sole director; but it could not have known of the recent movements of large funds. These movements indicated that the Claimant might have no compunction about organising its affairs such as to prevent the Defendant from recovering any sums awarded to it, in related proceedings if the adjudicator’s decisions were later reversed. Accordingly, applying Wimbledon 11 principles, summary judgment was granted but execution stayed pending the provision by the director’s of a guarantee bond or similar security.

6. Stay of execution—relevance of fraud not raised in adjudication Assesmont Ltd v Brookvex IMS Ltd 12 The applicant Assesmont Limited (“Assesmont”) provided a quote to the respondent Brookvex IMS Limited (“Brookvex”) to carry out steelwork to four columns at an office block in Croydon and a contract was entered into between the parties based on that quote. Brookvex requested additional works which were carried out by Assesmont with Assesmont’s final account totalling £71,716.33. Brookvex requested documentation to support the final account. A dispute over the amount due was referred to adjudication where the adjudicator, a Mr. Nigel Dight gave a decision that Brookvex should pay Assesmont £59,763.61 plus VAT and the adjudicator’s fees in full. Brookvex failed to pay the sums found due and Assesmont applied for summary judgment to enforce the adjudicator’s decision. In its defence and counterclaim, Brookvex argued that the final account provided by Assesmont was fraudulent and relied on forged time sheets and argued that summary judgment should be refused or in the alternative a stay of execution granted as Assesmont had not shown it would be able to fund its counterclaim if Brookvex were ultimately successful. Jefford J. held that the issue of fraud could and should have been raised in the adjudication. Therefore, fraud was not relevant to the issue of enforcement; but it was relevant to whether the Court should stay the enforcement. Even if that view was wrong, Brookvex had not established clear and unambiguous evidence of fraud. Only 3 out of 21 timesheets showed discrepancies and these could have easily been caused by error as of fraud. Further it was for Brookvex to show that Assesmont could not afford to pay and it had not done so. A stay of execution was refused and summary judgment granted.

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7. Summary Enforcement—permission to continue proceedings under s.252 Insolvency Act 1986 Raymond Jeffrey (t/a Premier Construction Services) v David Steene Permission was given to continue enforcement and enter judgment, with a stay of execution, where the proposed IVA was only notified after the adjudication decision and the enforcement proceedings, the Claimant had incurred the costs of the enforcement, and the claim was not fully accepted by the IVA. The IVA had not by then been approved and the judgment would not put other creditors at an unfair disadvantage. Jurisdiction—more than one contract—adjudicator’s power to determine own jurisdiction Maelor Foods Ltd v Rawlings Consulting (UK) Ltd This case followed on from a stay to arbitration of an attempted part 8 challenge to an adjudicator’s award (see below). Whilst an adjudicator could not make a binding decision on an issue that amounted to his ruling on his own jurisdiction, where he had to decide the issue as part of the dispute before him, he was entitled to do so “when substance and jurisdiction overlap.” A stay of execution was refused. Stay to Arbitration—whether ‘dispute’ was “in connection with” enforcement Maelor Foods Ltd v Rawlings Consulting (UK) Ltd A challenge of an adjudicator’s decision under Part 8 based on issues of law, as to the validity of a payment notice and what sums were due, were not “in connection with” enforcement. The wording of the Part 8 claim was highly significant. Ultimately the dispute here was one about the parties’ actions under the contract and that dispute had to be stayed to arbitration.

Stay of execution pending provision of guarantee bond BN Rendering Ltd v Everwarm Ltd

Execution of a judgment was stayed in light of large movements of cash between the Claimant and its sole director pending the provision of suitable security. Stay of execution—relevance of fraud not raised in adjudication Assesmont Ltd v Brookvex IMS Ltd An issue of fraud which could and should have been raised in the adjudication was not relevant to enforcement. It could still be relevant to whether the Court should stay execution. However on the facts, there was no clear and unambiguous evidence of fraud so a stay of execution was refused.

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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. [2018] EWHC 2597 (TCC) judgment 30 August 2018. 7. [2018] EWHC 2277 (TCC) judgment 16 July 2018, HHJ Stephen Davies. 8. Air Design (Kent) Ltd v Deerglen (Jersey) Ltd [2008] EWHC 3047 (TCC). 9. [2018] EWHC 1878 (QB) judgment 6 July 2018, HHJ Eyre QC. 10. [2018] EWHC 2356 (TCC) judgment 16 August 2018, O’Farrell J. 11. Wimbledon Construction Company 2000 Ltd v Vago [2005] EWHC 1086 (TCC). 12. [2018] EWHC 2629 (TCC) judgment 29 August 2018, Jefford J.

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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

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