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Construction Case Update - Adjudication - Part 2 of 2018

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Adjudication Cases The Enforcement of Adjudicators’ Awards under the Housing Grants, Construction and Regeneration Act 1996: Part 2 of 2018 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.

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2. Award-enforceability-use of part 8 proceedings-error of law See Seadown Developments Ltd v SMCC Construction Ltd

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3. Costs-jurisdiction

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See PFG Design Ltd v Masma Ltd (and below)

4. Jurisdiction-adjudicator entitled to decide date and terms of oral contract See PFG Design Ltd v Masma Ltd 5. Jurisdiction-adjudicator did not fail to exhaust his

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jurisdiction or deal with more than one dispute page 4 Morgan Sindall Construction and Infrastructure Ltd v Westcrowns Contracting Services Ltd 6. Jurisdiction-excluded operation- reservation of rights page 4 Equitix ESI CHP (Wrexham) v Bester Generacion UK Ltd 7. Natural Justice page 6 Victory House General Partner Ltd v RGB P&C Ltd 8. Payment-contractual requirement for pay less notice-effect of Act page 6 Adam Architecture Ltd v Halsbury Homes Ltd 9. Payment notice-form and requirements page 7 Systems Pipework Ltd v Rotary Building Services Ltd 10. Pay less notice-form and requirements- effect of failure to give notice page 8 Grove Developments Ltd v S&T (UK) Ltd 11. Summary page 9

1. Introduction The law is stated at February 2018 and covers cases about the use of Part 8 proceedings, costs, jurisdiction, natural justice, payment and payment/pay less notices. 2. Award-enforceability-use of Part 8 proceedings-error of law Seadown Developments Ltd v SMCC Construction Ltd 6 The Claimant engaged the Defendant under an amended JCT 2011 Intermediate Form of Building Contract with Contractor’s Design to build a block of flats. A dispute over the final account went to adjudication, in which the adjudicator awarded the Defendant £277,374 payable within 7 days. In reaching his decision the adjudicator had held that clause 2.24.5 of the contract applied only to the Contractor’s Design Portion and not the whole of the works. The Claimant brought Part 8 proceedings for a declaration firstly that the finding was in error and secondly the decision should not be enforced. The Defendant sought judgment on the award. Held by Jefford J: 1. As long as the decision was within the adjudicator’s jurisdiction and not made in breach of natural justice it would be enforced. 2. The increasing use of Part 8 proceedings was recognised in the TCC guide 9.34 and could be used to determine fundamental points of principle in the circumstances set out in Hutton . 7 3. This case was nowhere near those circumstances. Even if the adjudicator had been wrong in his interpretation of clause 2.24.5 of the contract, the claim did not turn on that finding; in fact the vast majority of the claim had nothing to do with it. Summary judgment granted to the Defendant. Comment Jefford J adopted examples from Hutton and reaffirmed the principle that in order for a Defendant to be able to resist summary judgment on the basis of its Part 8 claim, it must be able to show that the point at issue was short and self- contained; required no oral evidence or other elaboration; and was on which on a summary judgment application it would be unconscionable for the court to ignore. Although the first declaration regarding the interpretation of the contract was suitable for Part 8 proceedings, it was not appropriate for the court to declare that the whole of the adjudicator’s decision was unenforceable. Even if the court were to find on a Part 8 that an adjudicator had made an error in their decision, that declaration would not mean that the adjudicator’s decision was unenforceable where the decision rested on additional issues and findings.

3. Costs-jurisdiction See PFG Design Ltd v Masma Ltd PFG Design Ltd v Masma Ltd (below) This case is reported more fully under Jurisdiction. Despite the decision in Enviroflow 8 the Court declined to determine whether the adjudicator had been entitled to award a fixed sum of £100 under section 5A of the Late Payment of Commercial Debts (Interest) Act 1998 (“LPA”). The point was not fully argued and the amount was small. 4. Jurisdiction-adjudicator entitled to decide date and terms of oral contract See PFG Design Ltd v Masma Ltd 9 A number of issues arose for decision and were pursued as jurisdictional matters whereas in reality a number of them were challenges to the adjudicator’s findings. The facts were simple enough. PFG provided design services to Masma based on an oral contract, the date and terms of which were in dispute. As part of its remuneration it claimed a ‘success fee’ and submitted an invoice for £48,500. The first issue for the adjudicator was whether there was a contract and whether it was entered into before or after October 2011. If before that date, the adjudicator had no jurisdiction to determine the dispute based on a contract that was not in writing. The adjudicator concluded there was a contract made in January 2012: there was ample material for that conclusion. Once he had so decided, jurisdiction was founded and he was entitled to go on to decide upon the particular terms of the contract and to determine the dispute.There was plainly a contract that post dated October 2011 and that was an end of Masma’s jurisdictional argument. The adjudicator decided as a matter of fact, contrary to Masma’s case, that the claimed success fee was not dependent upon the sale of the site to which the services related. He further concluded that the amount of the success fee was agreed at a meeting in October 2016 in the sum of £20,000. The Court held that the fact that PFG had invoiced a greater sum did not prevent him from making that finding. Masma argued there was more than one dispute. The Court disagreed finding it was clear there was single dispute regarding the success fee. Masma also argued that the adjudicator’s finding that the success fee was £20,000, when Masma’s invoice was for more than twice that amount, and neither party had contended that the success fee was £20,000, was a breach of natural justice. The Court held that where the parties contended for different figures the adjudicator was entitled to decide the amount and there was written material on which he could base his conclusion. He did not engage on ‘a frolic of his own’ where a point had been argued, including where one party argued a point and the other did not come back

on it. It was not uncommon for an adjudicator to decide on a figure that neither party had put forward. Masma had referred to the figure of £20,000 in correspondence. The adjudicator was not limited to awarding only the figure claimed in an invoice. That would stretch the concept of natural justice. An argument that no dispute had crystallised also failed. That left the question of the recovery of a small amount for fixed costs which is dealt with at section 3. 5. Jurisdiction-adjudicator did not fail to exhaust his jurisdiction or deal with more than one dispute Morgan Sindall Construction and Infrastructure Ltd v Westcrowns Contracting Services Ltd 10 This was a case which contained a number of broad challenges to the adjudicator’s decision. Lord Clark held that these criticisms were not well-founded. Morgan Sindall obtained an adjudicator’s decision in its favour of the payment of £430,654.44 plus VAT. Westcrowns sought to avoid payment on a variety of grounds: 1. The adjudicator acted outside his jurisdiction because he decided two disputes. The dispute referred was whether there was a Defect in the floor (from either of two possible causes), the Defect being described as “bubbling and blistering” and if so, who was responsible for it. A review of the pre-action correspondence and the adjudication documents, lead to the conclusion that this was the dispute that was referred to adjudication. Westcrowns nevertheless argued there was not one dispute but two because the claim concerned both “notified” and “non-notified” defects, different areas of the floor, and there were claims for damages for breach of contract and in the alternative damages at common law. Lord Clark concluded that the dispute that was referred to adjudication, referred to the whole floor, and a claim for damages for breach of contract on that basis and it would be artificial to characterise it as two disputes. 2. Second, did the adjudicator leave out of account a relevant consideration? It was said by Westcrowns that the adjudicator failed to consider important parts of its submissions and relevant materials, including not giving sufficient weight to “unchallenged” witness statement evidence and failing to take account of observations made on inspection and written submissions. It could not be said that the absence of separate consideration of three particular points in the adjudicator’s decision was material or caused substantial prejudice to the Defendant.

3. Third, did the adjudicator act in a way which was procedurally unfair? Held for the same reasons as in (2) above, the adjudicator did not act in a way which was procedurally unfair. 4. Fourth, did the adjudicator fail to exhaust his jurisdiction and to give reasons or intelligible reasons for his decision? It was suggested by Westcrowns that the adjudicator had failed to give any reasons for rejecting their submissions over the sum of £72,000 said to have been wrongly withheld. The adjudicator did not refer to this issue in his decision. The sum consisted of four components. The Court decided it was clear from other conclusions that the adjudicator did not consider the first component to have fallen due for payment. Components two, three and four were not within the adjudicator’s jurisdiction or were not sufficiently ventilated anyway. No proper case was made out. In reality all that was omitted from the decision was a comment that the adjudicator could not decide upon these issues. A failure to give effect to a deduction to a lesser sum of £983.06 was not material and caused no substantial prejudice. There was no failure to exhaust his jurisdiction or a failure to give reasons on that matter. Lord Clark also found that a reservation of jurisdictional rights made during the adjudication by Westcrowns (after the rejoinder was served) was different to the issue raised before the Court. As the point had not been raised in the adjudication, when it could have been, it could not now be raised before the Court. 6. Jurisdiction-excluded operation- reservation of rights Equitix ESI CHP (Wrexham) v Bester Generacion UK Ltd 11 There were two adjudications between the parties. The first concerned the validity of the Claimant employer’s termination of its contract with the Defendant contractor (and any entitlement to an extension of time) and the second adjudication, the basis/accuracy of the Claimant’s interim account. The bespoke contract was for the design and construction of the Wrexham Biomas Fired Energy Plant (“the Project”). Following termination the Claimant was at liberty to elect whether or not to proceed with the Project. The final accounting was to be by way of a Net Loss Statement, pending which the Claimant was entitled to payment by way of an Interim Account. Any dispute about the Interim Account was subject to adjudication which would be final and binding. The contract’s bespoke adjudication provisions did not comply with the Act and it was common ground that the Scheme applied. Both adjudications were conducted under the Scheme.

In the first adjudication the Claimant sought a declaration that the Defendant was not entitled to an extension of time. The Defendant reserved its position regarding jurisdiction. The reservation arose out of concern about the potentially short timetable in circumstances in which new materials were being relied on by the Claimant. Eventually all timetabling matters were agreed. The adjudicator, Mr Blackburne, decided the Defendant was not entitled to an extension of time. In the second adjudication, Mr Blackburne was again appointed, a timetable and directions were agreed which mirrored those in the first adjudication. There was no express reservation as to jurisdiction. The Claimant sought payment of its Interim Account for £11.59m which was based on repayment from four previous Milestones payments of £8m together with some £3m for other claims. There was an issue about whether the Claimant had lawfully terminated the contract. Mr Blackburne found the Claimant’s termination was not unlawful. He found the sum of £9.8m was due from the Defendant to the Claimant on the Interim Account, plus interest of £4,948 per day. The Claimant sought to enforce the second decision. Issue 1: Construction operations Section 104(5) of the Act envisaged there could be hybrid contracts which covered the carrying out of construction operation and operations which were defined in the Act as not being construction operations. In such a case the adjudication provisions of the Act only applied to that part of the contract which related to construction operations. The Court considered a number of previous decisions on the topic from which the following points could be derived: Minute analysis was not to be used to defeat the purpose of giving or excluding the rights of the Act to what on a straightforward and common sense analysis was a contract for construction operations (North Midland 12 ) . Only specific operations were excluded (Cleveland Bridge 13 ) and section 105(2)(c) was narrowly construed (Severfield 14 ) . In the result, in the case of a hybrid contract, only some operations were excluded. Excluded operations did not also exclude prior activities such as preparation of drawings and off site fabrication of steelwork (Cleveland Bridge) . The Defendant’s focus was on the contract, which when viewed as whole, involved some excluded operations. On that basis, it was said, the adjudicator had no jurisdiction. The Claimant said that even on the Defendant’s evidence no part of the four Milestone payments, the subject of the Interim Account, was anything to do with excluded operations. Coulson J found that the Defendant’s focus involved a misreading of section 104(5) of the Act. Although that section referred to the agreement that was just to emphasis that it was only that part of the agreement which related to construction operations which would engage the rights and obligations of adjudication. Thereafter, as North Midland, Cleveland Bridge and Severfield all made plain, what mattered for the purpose

of jurisdiction was whether or not some part of the dispute referred to the adjudicator related to or arose out of excluded operations (narrowly defined). The real issue for the Court was: what was done by the Defendant (because that was what the disputed Interim Account went to) and whether what was done amounted to excluded operations. The Court found that preliminary or ancillary works, including the preparing of bonds and business plans were of the same nature as the preparation of drawings in Cleveland Bridge and were not excluded operations. It was nothing to the point that these things were not site works. Section 105(1)(e) was not an exhaustive list of “preparatory works”. More broadly the dispute about the Interim Account could not have related to excluded operations. No site works were commenced and no plant was brought to site let alone installed. The fact that the Interim Account was based on milestone payments and a percentage of the contract price was immaterial as that was simply the agreed mechanism for payment. This issue became irrelevant but was dealt with in any event. As the Court pointed out it was an issue that all depended on the facts. However the Court made the following broader statements of principle. The Court will usually look with disfavour on an unspecified general reservation if it thinks it was worded to try and ensure that all options (including ones not yet even thought of) could be kept open. The express reservation in the first adjudication not repeated in the second adjudication did not apply to it by implication. This was a clear case of two ad hoc adjudication agreements. The first reservation was not a general reservation as to jurisdiction. It was very specific: ambush and timeframe. It was in any event inadequate to take effect as a general reservation. A general reservation had to be done in a clear and open way. A party who wants to reserve its position as to jurisdiction has to do so in each successive adjudication, because each adjudication is different and the limits of jurisdiction in each will be different. It might also have been the case here that the express agreement to the adjudicator’s terms of appointment when no issue was taken as to jurisdiction, was capable of amounting to a clear and unqualified acceptance of the jurisdiction in the second adjudication. Footnote The Court granted summary judgment but then heard an application for a stay of execution, which was granted in part, since there was insufficient satisfactory evidence as to the claimant’s financial position. There could be no jurisdictional issue. Issue 2: Reservation of position

7. Natural Justice Victory House General Partner Ltd v RGB P&C Ltd 15 The Claimant (“VH”) employed the Defendant (“RGB”) under a construction contract made in 2015, (the Contract) for the development and conversion of an existing office building into an 87 bed hotel in Leicester Square, London (the Project). RGB obtained an adjudicator’s award for the payment of its interim payment application 30 (the Decision). VH sought a declaration that the Decision was invalid for breach of natural justice and certain other declarations relating directly to the substance of the Decision. RGB by way of additional claim sought to enforce the Decision. At the outset the Court concluded that the claim by VH for a Part 8 declaration on the substantive claim was unsuitable for Part 8 determination. They included matters of disputed fact and could not be decided on the basis of assumed fact which might be challenged at later date. That left the issue of natural justice to be dealt with in the enforcement proceedings. The Project suffered from delays and the parties entered into amemorandumof understanding (MOU), executed as a deed, which provided for three future stage payments. The essential issue was whether these stage payments were in addition to or substitution for payment under the Contract. VH made the first two payments and then RGB made application 30 under the Contract which VH refused to pay. This dispute was referred to adjudication during which following exchange of written submission, the adjudicator said he would be assisted by “greater detail on the terms/effect of any binding [MOU] (on the assumption at this stage, but without deciding upon the existence of such)” . There was to have been a meeting to explore this enquiry but it proved abortive. The adjudicator emailed certain questions to the parties. Both parties responded. VH asked the adjudicator if there was anything in RGB’s responses that the adjudicator would like them to respond to. He did not reply. In the decision the adjudicator rejected RGB’s primary case that the MOU was not legally binding. However he also rejected VH’s case that the MOU superseded the Contract. He held that the true effect of Recital D of the MOU was to suspend payment of the interim payment obligations under the Contract until such time as one of the provisions (as to the transformer being installed and operational) was satisfied; it did not extinguish the contract payment obligations. Therefore he determined that interim payment application 30 was properly made and in the absence of a payment or pay less notice was payable. VH’s case on natural justice was simply that his conclusion as to the true effect of the MOU was not one advanced by either party.

The Court decided there was no breach of natural justice as: a) The parties knew from the outset that a central question concerned the true and proper construction of the MOU and made detailed submissions on the issue; b) The adjudicator’s questions made clear he was inviting submissions on Recital D; c) RGB responded and grappled with the issue. The parties were not ad idem so the question of its construction remained in issue; d) VH did not respond directly to two of the adjudicator’s questions but reasserted the factual background relied on in its earlier submissions (i.e. its Response). It could not complain now it did not have the opportunity to address the point; e) It could have sought permission to respond to RBG’s answer to the adjudicator’s questions but chose not to do so; f) The circumstances fell within the guidance in earlier authority 16 namely if either party has argued a point and the other party does not come back on the point, there is no breach of the rules of natural justice in relation thereto. The adjudicator was not on a frolic of his own, and there was no breach of natural justice. Even if the Court was wrong about that, the point raised was one of contractual interpretation and the adjudicator was entitled to arrive at a conclusion that did not necessarily reflect the parties’ submissions. 8. Payment-contractual requirement The respondent employer (“Halsbury”) was a property developer and appointed the appellant architectural practice (“Adam”) to provide the design for 200 homes in Norfolk. The appointment incorporated the RIBA conditions of appointment and provided for interim payment notices and pay less notices. The appointment also provided that the employer could terminate on reasonable notice and for the architect to submit a termination account. A dispute arose and Halsbury ended the appointment. Adam submitted a termination account for the work done. Halsbury did not pay the account nor did it serve a pay less notice. In an adjudication claiming payment, the adjudicator decided that in the absence of a pay less notice Halsbury was obliged to pay the sum applied for by Adam. At first instance in Part 8 proceedings by Halsbury and upon application by Adam to enforce the adjudicator’s decision, Edwards-Stuart J in the TCC held there was no contractual requirement to serve a pay less notice against the termination account. Further, as the contract had been repudiated by Halsbury it had discharged itself from the obligation to serve a pay less notice. for pay less notice-effect of Act Adam Architecture Ltd v Halsbury Homes Ltd 17

The Court of Appeal decided that irrespective of the terms of the appointment, sections 110 and 111 of the Act attached to all payments which are “provided for by a construction contract”. The Court also considered previous authority and concluded that section 111 of the Act applied to both interim and final payment applications. Even assuming that a repudiatory breach occurred, there was no acceptance by Adam. The submission of a claim for payment was simply pursuing a contractual entitlement. Their claim was one for payment for work done, and not a claim for damages for breach of contract, it was subject to the provisions of section 111 of the Act and in the absence of a pay less notice Adam had “a cast iron case” to recover payment of both its invoices. 9. Payment notice-form and requirements Systems Pipework Ltd v Rotary Building Services Ltd 18 The Defendant Rotary Building Services (“Rotary”) as M&E contractor, engaged the Claimant Systems Pipework Ltd (“SPL”) as subcontractor, to supply and install various water systems at a creamery in Devon. The subcontract was on Rotary’s standard conditions which in turn were based loosely on industry standard terms. A dispute arose concerning the final account. The subcontract provided for SPL to submit “the Final Account” within 4 weeks of completion appending variation build ups, relevant instructions and all pertinent information. SPL was not entitled to add to or otherwise adjust its Final Account after submission. Rotary would assess the Final Account and notify SPL within 13 weeks by way of a Final Account Statement”, of the “value agreed in full and final settlement of all payments due…”. In the absence of a Final Account submission from SPL, Rotary would value the proper amount due for payment on a fair and reasonable basis and notify SPL accordingly. In either case, if such notification was not dissented from in writing by SPL in 14 days, the notified figure would be deemed to have been agreed and binding on the parties. The conditions provided that no payment would be due to SPL until it had been agreed and confirmed in accordance with the (aforementioned) relevant provisions. SPL applied for payment by way of “a revised final account” for what (for administrative convenience was called) “DC1 Works” and 5 days later it applied for an interim payment for “DC2 Works”. Rotary responded on 2 September 2016 with what was termed a “final account assessment” and which it contended was both an assessment of value for DC1 Works and a final account valuation of the DC2 Works (though it was not so identified or referenced at the time).

SPL referred the dispute over the value of the DC2 Works to adjudication and they stated the DC1 Works “do not form part of this Referral”. The adjudicator decided Rotary was liable to pay £249,217.43 and that sum was later paid by Rotary. Rotary then started a second adjudication seeking a declaration that SPL was bound by the 2 September final account assessment. By then it was Rotary’s case that the time for challenging its assessment had expired. The adjudicator found that SPL was not bound by the assessment in so far as he had already awarded a greater sum in the first adjudication but was bound by the remainder of the assessment. SPL now sought a declaration from the Court to the opposite effect. The Court had regard to the requirements of the subcontract. But it also took into account the now established principles relating to interim payments: namely the need for a payment application to be in form, substance and intent an interim payment application and free from ambiguity. On that score Rotary’s September notice fell short of what was required. A notice intended to have such a Draconian effect as Rotary’s notice must make clear what clause of the contract it was issued under, and must set out the sum due. In fact neither the notice nor the accompanying letter said it was a notification of the amount due. Instead it described itself as a Final Account assessment. Nowhere was there identified a particular sum that was said to be due and payable. It was no more than a purported assessment of the value of works carried out which was therefore only one half of the exercise. The relevant clause of the subcontract was nowhere referred to. It was also plain from Rotary’s own witness evidence, that the September documents were not the notification of “an amount due”, but a Final Account assessment only, valuing the whole of the works, without more. The fact that SPL might have been able by calculation to work out the amount due was nothing to the point because that was precisely what the provisions of the subcontract were there to obviate. Had the Court found the notice to have been effective then it would have gone on to decide that the act of commencement of adjudication proceedings by SPL satisfied the requirement to dissent by notice in writing within 14 days.

10. Pay less notice-form and requirements-effect of failure to give notice Grove Developments Ltd v S&T (UK) Ltd 19

In this case the Court concluded the pay less notice was valid. It did properly set out the basis of calculation by reference to a detailed calculation sent 5 days before the pay less notice with a purported payment notice. There were detailed figures for every element of the works and it satisfied the test of providing a detailed agenda for valuation. There could be no possible objection in principle to a notice referring to a detailed calculation set out in another, clearly- identified document. The fact that the document was not reattached to the pay less notice did not matter. There was nothing in the contract requiring it be re-sent. It was clear what was being referred to and it was incorporated by reference. The Court pointed out that a party who relies on incorporation by reference without re-sending the document takes certain risks that something may go wrong with technology or the mode of delivery of the first document. In this case there were no such practical difficulties. The pay less notice complied with the contract. Issue (2): Should the third decision be enforced anyway? Grove said not because it was served late on the assumption the Schedule of Amendments did not apply. The first adjudicator had decided that the Schedule of Amendments did not apply. That decision was and remained binding on the parties. Further, the Court having finally decided the issue as to validity of the pay less notice, there was nothing left to enforce. The Court decided that the second adjudicator’s decision in the third adjudication was wrong, it could not be enforced. Issue (3): Did the employer have the right to adjudicate the ‘true’ value? On first principles, the Court held the answer must be “yes”. Its starting point was a judgment of the Court of Appeal 21 where Dyson LJ (as he then was) said that if the decision of an engineer acting as contract certifier was not binding on the parties, it could be reviewed by an arbitrator or by the Court. The case was authority for the propositions that the Court could decide the ‘true’ value of any certificate, notice or application and as part of that process to open up review and revise the same. Thus the Court and an adjudicator has the same power to decide the true value of interim application 22. In addition the Act conferred a statutory power to refer any dispute to adjudication without limitation (section 108(1)). The same was true of paragraph 20 of the Scheme. The dispute as to the true value would be a different dispute from one about the absence of validity of a payment or pay less notice. In addition the contract terms were of the utmost importance. The words “the sum due” in Clause 4.7 arose from the application of the contractual mechanism designed to calculate the precise entitlement (the ‘true’ value). This was very different from the “sum stated to be due” or “stated as due” in Clause 4.9 which identified the sum payable under the notice in question.

The Claimant (“Grove”) employed the Defendant contractor (“S&T”) to design and build a Premier Inn at Heathrow T4 under a JCT Design and Build Contract 2011. There were three adjudications. The first decided that a Schedule of Amendments was part of the contract; the second decided that S&T were not entitled to a full extension of time; and the third decided that Grove’s pay less notice was invalid. This third decision meant that S&T were potentially entitled to be paid £14m pursuant to its application number 22. Grove anticipating this possible outcome had issued Part 8 proceedings whilst S&T sought enforcement of the third decision. The proceedings raised 4 issues. (1) Whether Grove’s pay less notice complied with the contract; (2) Whether even if the pay less notice complied with the contract, the third decision should still be enforced; (3) Whether in principle Grove was entitled to commence a separate adjudication as to the ‘true’ value of interim application 22; (4) Whether Grove’s notices in respect of liquidated damages were properly issued. This issue is not further addressed here. Issue (1) – The pay less notice All the authorities pointed the same way. The pay less notice was to be construed in a similar way to the underlying contract. It was to be approached objectively, taking into account the objective contextual scene: how would a reasonable recipient have understood it? One way of testing it was to ask whether the notice provide an adequate agenda for a dispute about valuation and to any cross claims available to the employer? A pay less notice was not to be construed more generously than a contractor’s application/payment notice. But the adverse consequences which follow a defective pay less notice were relevant to the test of the reasonable recipient: would that recipient have realised the document was an application or payment notice with force, and all the consequences that may entail? The guidelines applied equally to a payment notice and pay less notice; each must make plain what it is; clearly set out the sum said to be due and/or to be deducted, and the basis on which that sum is calculated. Finally the court looked at two recent cases where it was held notices were deficient. 20

11. Summary Award-enforceability-use of part 8 proceedings-error of law

Nothing in the Act, Scheme or contract prevented the employer doing what the contractor could do: attacking the sum stated as due in a notice. Finally, nothing in section 110A, section 110B and section 111 of the Act, drew any distinction between an interim and a final certificate. They applied to both. Thus whether what was in dispute was an interim or final payment, the employer had the right in principle to refer to adjudication a dispute about the ‘true’ value. It was then necessary to review existing authorities to see if they compelled a different conclusion. On the face of it the very question now raised was answered by Jacob LJ in Rupert Morgan 22 when he said that although in the absence of a withholding notice the employer had to pay the sum certified, that did not preclude the employer “from subsequently showing he was overpaid. If he is overpaid on an interim certificate the matter can be put right in subsequent certificates. Otherwise he can raise the matter by way of adjudication or if necessary arbitration of legal proceedings.” Rupert Morgan was binding and made good sense. The Court considered two previous decisions in ISG v Seevic 23 and Galliford Try v Estur 24 which Edwards-Stuart J “took a different line” and found itself unable to follow them. In so doing Coulson J observed that the value should not be deemed to be agreed merely by virtue of the absence of an effective payment or pay less notice. Thus an employer whose payment notice or pay less notice was deficient or non-existent could pay the contractor the sum stated to be due in the contractor’s interim application but was then free to commence adjudication proceedings to dispute that the sum paid was the “true” value of the works for which the contractor had claimed. Comment This decision limits the time effects of so called “smash and grab”. An employer who for lack of notice is found liable to pay a greater sum than his own valuation, can pay up and in principle immediately adjudicate the true value of an interim as well as a final payment application. In an appropriate case, he might even seek a stay of execution in the meanwhile. It may be that the effect of this decision will be to reduce the number of “smash and grab” adjudications. The reference to the judgment of Jacob LJ in Rupert Morgan is interesting for another reason. It will be recalled that Jacob LJ said an overpayment could (also) be put right in a subsequent certificate. The question which remains to be answered is whether, instead of adjudicating, a paying party can adjust the value in a subsequent certificate or valuation and effectively reclaim the overpayment?

See Seadown Developments Ltd v SMCC Construction Ltd The increasing use of part 8 proceedings was recognised so long as it was within the circumstances set out in TCC guide 9.34 and was being used to determine fundamental points of principle as set in the case of Hutton. Costs-jurisdiction See PFG Design Ltd v Masma Ltd (and below) The Court declined to determine whether the adjudicator had been entitled to award a small amount of fixed costs under the LPA. Enforcement-interest See Actavo UK Ltd v Doosan Babcock Ltd On the facts it could not be said a rate of interest of 1% above base was not a substantial remedy. The court could not determine the issue in the Part 8 proceedings without further evidence. Enforcement-set off of one decision against another See Actavo UK Ltd v Doosan Babcock Ltd The first decision was valid and enforceable. There were question marks over the validity of the second decision. Judgment was given on the first decision and payment of part of the judgment sum was ordered to be made in 7 days with the balance after 28 days to allow the Part 8 proceedings to be concluded. Jurisdiction—adjudicator entitled to decide date and terms of oral contract See PFG Design Ltd v Masma Ltd (and see above) The adjudicator was entitled to decide whether and if sowhen an oral contract was entered into and where it post dated October 2011 and it was clear jurisdiction was founded, he was entitled to proceed to determine the particular terms and therefore the dispute. Jurisdiction-excluded operation-reservation of rights See Equitix ESI CHP (Wrexham) v Bester Generacion UK Ltd Although section 104(5) referred to the agreement, what mattered for the purpose of jurisdiction was whether or not some part of the dispute referred to the adjudicator related to or arose out of excluded operations. A general reservation would be looked on with disfavour if its purpose was to try and cover every possible eventuality. In any case a general reservation must be made in a clear and open way. Successive adjudications required successive reservations.

Natural Justice See Victory House General Partner Ltd v RGB P&C Ltd The TCC re-examined the circumstances in which the adjudicator is entitled to make findings for which neither party has specifically contended, provided they have had the opportunity to address the relevant issues. Payment-contractual requirement for pay less notice- effect of Act See Adam Architecture Ltd v Halsbury Homes Ltd The Court of Appeal decided that irrespective of the terms of the appointment, the Act attached to any final payment as well as interim payments and whether or not the appointment had been repudiated there had been no acceptance by Adam who by submitting a claim for payment was simply pursuing a contractual entitlement. Payment notice-form and requirements See Systems Pipework Ltd v Rotary Building Services Ltd Having regard to the requirements of the subcontract and taking into account the now established principles relating to interim payments: namely the need for a payment application to be in form, substance and intent an interim payment application and free from ambiguity; the payment notice fell short of what was required. A notice intended to have a Draconian effect must make clear what clause of the contract it was issued under, and must set out the sum due. In fact neither the notice nor the accompanying letter said it was a notification of the amount due. Instead it described itself as a Final Account assessment. Nowhere was there identified a particular sum that was said to be due and payable. It was no more than a purported assessment of the value of works carried out which was therefore only one half of the exercise. The relevant clause of the subcontract was nowhere referred to. Pay less notice-form and requirements-effect of failure to give notice See Grove Developments Ltd v S&T (UK) Ltd Guidance was given on the form and requirements of pay less notices. In a dispute concerning a construction contract, an employer whose payment notice or pay less notice was deficient or non-existent could pay the contractor the sum stated to be due in the contractor’s interim application but was then free to commence adjudication proceedings to dispute that the sum paid was the “true” value of the works for which the contractor had claimed. The decisions in ISG Construction Ltd v Seevic College and Galliford Try Building Ltd v Estura Ltd should not be followed.

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. TCC (unreported 3 November 2017), Jefford J. 7. Hutton Construction Ltd v Wilson Properties (London) Ltd [2017] EWHC 517 (TCC). 8. Enviroflow Management Ltd v Redhill Works (Nottingham) Ltd [2017] EWHC 2159 (TCC), O’Farrell J, 16 August 2017 9. TCC (unreported, 15 November 2017), Fraser J (TCC). 10. [2017] CSOH 145 (30 November 2017). 11. [2018] EWHC 177 (TCC) Coulson J, 8 February 2018 12. North Midland v AE & E Lenjes [2009] EWHC 1371 (TCC). 13. Cleveland Bridge (UK) Ltd v Whessoe-Volker Stevin JV [2010] EWHC 1076 (TCC). 14. Severfield (UK) Ltd v Duro Felgeara UK Ltd [2015] EWHC 2975. 15. [2018] EWHC 102 (TCC) Deputy Judge Miss Joanna Smith QC 26, January 2018. 16. Cantillon v Urvasco [2008] WWHC 282 (TCC). 17. [2017] EWCA Civ 1735. 18. [2017] EWHC 3235 (TCC), Coulson J, 12 December 2017. 19. [2018] EWHC 123 (TCC) 27, February 2018, Coulson J. 20. Systems Pipework Ltd v Rotary Building Services Ltd [2017] EWHC 3235 (TCC); Muir Construction Ltd v Kapital Residential Ltd [2017] CSOH 132. 21. Henry Boot Construction Ltd v Asltom Combined Cycles Ltd [2005] 1 WLR 3850 at paragraph 23. 22. Rupert Morgan Building Services v Jervis [2003] EWHC Civ 1536. 23. ISG Construction Ltd v Seevic College [2014] EWHC 4007 (TCC), [2015] 2 All E.R. (Comm) 545. 24. Galliford Try Building Ltd v Estura Ltd [2015] EWHC 412 (TCC), [2015] B.L.R. 321.

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