“If language is not correct, Then what is said is not what is meant; If what is said is not what is meant, then what ought to be done remains undone.” Confucius.
Charles Edwards, high performing Construction Barrister and Head of Chambers reviews the Technology and Construction Court case of Bell Building Limited v T Clarke Contracting Limited [2024] EWHC 1929 (TCC). This is a case involving the enforcement of an adjudicator’s decision where the adjudicator awarded more than the Referring Party, Bell Building Limited (the “Subcontractor”) was seeking in adjudication from T Clarke Contracting Limited (the “Contractor”).
In the adjudication proceedings concerning a project to supply substructure and superstructure for a Data Centre at Greenwich Point, London, the Subcontractor was seeking amongst other things £1,443,981.51 plus applicable VAT as a debt. The adjudicator awarded amongst other things £2,129,672.69 plus VAT. The adjudication as described by the Contractor was a true smash and grab where the sum payable was due because of an invalid Pay Less Notice and not as a result of any accurate valuation by the Contractor.
The Subcontractor in enforcement of the adjudicator’s decision in the Technology and Construction Court (“TCC”) was seeking:
“(i) The sum of £2,129,672.69 plus VAT as a debt due under Payment Application No. 18 in the absence of a valid Pay Less Notice;
(ii) Contractual interest on that sum to the date of the Decision of £37,487.84 plus £437.60 per day thereafter which at the date of the Hearing was £170,080.64 in total;
(iii) The Adjudicator’s costs in the sum of £21, 000.00 plus VAT.”
The key issue between the parties in the enforcement proceedings involved whether the adjudicator was correct in awarding the Subcontractor more than the Subcontractor was seeking from the Contractor in the adjudication.
The Subcontractor and the Contractor entered into a Sub-Contract incorporating the JCT Design and Build Sub-contract Conditions 2016 with a Schedule of Modifications by a Deed dated 4th November 2021 (“the Sub-Contract”). The Subcontractor in their Notice of Adjudication stated at paras 4.7, 5.2, 5.49 to 5.51 and 6.14 as follows:
Paragraph 4.7
“It is common ground that [TCL] has paid Bell the sum of £710,120.62 received on 21st June 2023 and £685,591.18 received on 17th July 2023. It is also common ground that amounts totalling £18,084,322.36 (excluding VAT and inclusive of the two amounts separately described) have been received as at the date of this Notice.”
Paragraph 5.2:
“For the avoidance of doubt, Bell does not give the Adjudicator jurisdiction to decide the “true value” of the Payment Claim and reserves the right to bring such a claim in any subsequent adjudication.”
Paragraph 6.1 under the heading “Remedy and Redress sought by Bell” provided at sub-paragraph 6.14:
“[TCL] should pay Bell the Payment Claim in the outstanding sum of £1,443,981.51 plus applicable VAT as a debt”.
The Subcontractor in their Referral stated at paragraphs 5.49 to 5.51 and 7.14 as follows:
“5.49 Bell is therefore entitled to be paid the outstanding sum of £1,443,981.51 (excluding VAT) as a result of (TCL’s) breach of the sub-contract payment provisions.
5.50 For the avoidance of doubt, Bell does not give the Adjudicator jurisdiction to decide the “true value” of the Payment Claim and reserves the right to bring such a claim in any subsequent adjudication.
5.51 For the avoidance of doubt, Bell does not give the Adjudicator jurisdiction to decide the value, true or otherwise in respect of any other Payment Claim and reserves the right to bring such a claim in any subsequent adjudication.”
Paragraph 7.14 under the heading “Remedy and Redress Sought by Bell” provides “(TCL) should pay Bell the Payment Claim in the sum of £1,443,981.51 plus applicable VAT as a debt.”
At paragraph 90 of the adjudicator’s decision, the adjudicator stated:
“This is a technical adjudication concerning an Application for a Payment and the associated service of any Pay Less Notice leading to the payment of any Notified Sum colloquially known as a “smash and grab” adjudication and does not concern the true value of the works at the relevant time.“
The adjudicator decided at paragraph 189 of his decision that the purported Pay Less Notice issued by the Contractor on 6th June 2023 was not a valid Pay Less Notice and had no standing.
The Adjudicator decided that the Contractor should pay the Payment Claim in the sum of £1443,981.51 plus applicable VAT as a debt. However, adjudicator then went on and said at paragraphs 228 and 229 as a result of submissions made and the information presented:
“228. The Respondent [the Contractor] has challenged the Claimant’s [Subcontractor’s] calculation of the amount to be paid on the basis that it includes the Respondent’s [Contractor’s] payment regarding Application No. 19. I understand this challenge to mean that I am only dealing with the Claimant’s [the Subcontractor’s] Application No. 18 in this adjudication. It is the Respondent’s position that I cannot take into account a payment made under Application No. 19 as that will be outside my jurisdiction.
229. Following this logic taking into account the payment made by the Respondent [the Contractor] to the Claimant [the Subcontractor] in relation to Application No. 18 the outstanding amount remaining to be paid is in the sum of £2,839,793.31 less £710,120.62 being the amount of £2,129,672.69.”
As a result of the Contractor’s challenge on the calculation of the amount to be paid to the Subcontractor, the adjudicator corrected the arithmetic taking into account Application for Payment No. 18 only and decided amongst other things that £2,129,672.69 plus VAT was due for payment from the Contractor to the Subcontractor and not the the sum of £1,443,981.51 plus applicable VAT as a debt as set out in the Notice of Adjudication or the Referral.
In the enforcement proceedings in the TCC, where the Subcontractor was seeking to enforce amongst other things £2,129,672.69 plus VAT and not the original substantive sum of £1,443,981.51 plus applicable VAT as a debt it was seeking in its Notice of Adjudication or Referral, the Contractor’s argued amongst other things that:
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- The reference was a true smash and grab adjudication where the sum payable was due because of an invalid Pay Less Notice, not because of any accurate valuation by the Contractor.
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- The adjudicator purported to award more than the sum claimed. He considered the “calculation” of the claim which was outside his jurisdiction.
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- The adjudicator carried out a valuation exercise which was likewise outside his jurisdiction and purported to award more than the sum claimed by the Subcontractor.
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- There was no prior suggestion from the adjudicator that he was minded to award more than the sum claimed by the Subcontractor in the Notice/Referral. Therefore, this amounted to a breach of natural justice which was material since he relied upon it in reaching his decision in addition to his acting in excess of jurisdiction. Thus the Decision is unenforceable.
In summary, it was argued by the Contractor that the adjudicator’s decision should not be enforced due to a lack of jurisdiction and/or a breach of natural justice because, in particular, it is said, the adjudicator took it upon himself to (1) value the work done in Interim Application 18 and (2) to award a sum higher than that sought in the Referral by the Subcontractor. Therefore, the adjudicator’s jurisdiction did not extend to doing either of those tasks in (1) or (2) above and/or in so doing, the adjudicator failed to act fairly and in accordance with natural justice and that this failure has caused material prejudice to the Contractor.
The Subcontractor pointed out that although the dispute referred to the adjudicator concerned the sum due under Application No. 18, the Subcontractor’s claim also included the common caveat giving the adjudicator license to grant “such other relief as is necessary, just and equitable to resolve the dispute” (paragraph 7.1.8 of the Referral).
The TCC at paragraph 19 of the judgment considered the relevant legal principles as to jurisdiction set out in the Judgment of Akenhead J in Cantillon Limited v. Urvasco Limited [2008] EWHC 282 (TCC) and in particular, paragraph 55:
“There has been substantial authority based in arbitration and in adjudication about what the meaning of the expression “dispute is” and what disputes or differences may arise on the facts of any given case… I draw from such cases as those the following proposition:
(a) Courts (and indeed Adjudicators and Arbitrators) should not adopt an over legalistic analysis of what the dispute between the parties is;
(b) One does need to determine in broad terms what the disputed claim or assertion (being referred to adjudication or arbitration as the case may be) is;
(c) One cannot say that the disputed claim or assertion is necessarily defined or limited by the evidence or arguments submitted by either party to each other before the referral to adjudication or arbitration;
(d) The ambit of the reference to arbitration or adjudication may unavoidably be widened by the nature of the defence or defences put forward by the defending party in adjudication or arbitration.”
At paragraph 19(d) of the judgment, it makes it clear that the ambit of a reference to adjudication may (see paragraph 55(d) of Cantillon) unavoidably be widened by the nature of the defence or defences put forward by the defending party, i.e. the Contractor in the adjudication proceedings in this case matter.
The relevant test for the TCC to consider for a breach of natural justice is as defined in the Judgment of Akenhead J in Cantillon Limited v. Urvasco Limited [2008] EWHC 282 (TCC) at paragraph 57. This was considered by the TCC at paragraph 21 of the judgment:
(a) “It must first be established that the Adjudicator failed to apply the rules of natural justice;
(b) Any breach of the rules must be more than peripheral; there must be material breaches;
(c) Breaches of the rules will be material in cases where the Adjudicator has failed to bring to the attention of the Parties a point or issue which they ought to be given the opportunity to comment upon if it is one which is either decisive or of considerable potential importance to the outcome of the resolution of the dispute and is not peripheral or irrelevant;
(d) Whether the issue is decisive or of considerable potential importance or is peripheral or irrelevant obviously involves a question of degree which must be assessed by any Judge in a case such as this;
(e) It is only if the Adjudicator goes off on a frolic of his own, that is wishing to decide a case upon a factual or legal basis which has not been argued or put forward by either side without giving the parties an opportunity to comment or, where relevant put in further evidence, that the type of breach of the rules of natural justice with which the case of Balfour Beatty Construction Company Limited v. The Camden Borough of Lambeth was concerned comes into play. It follows that, if either party has argued a particular 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 TCC further reviewed commentary on this aspect of natural justice in Coulson on Construction Adjudication 4th Edition including references to relevant authorities.
The TCC at paragraph 24 considered the authority of Roe Brickwork Limited v. Wates Construction Limited [2013] EWHC 3417 (TCC) where Edwards-Stuart J cited paragraphs 24 and 25 from the extract below (other paragraphs included below to assist the reader with the background context on the law):
“The law
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- It is now well understood that the court will not interfere with the decision of an adjudicator who has answered the question referred to him (I shall use “him” throughout since this adjudicator was a man), even though the court takes the view that the answer is wrong or that the adjudicator has made an obvious mistake (I leave aside those rare cases where the resisting party brings on concurrent Part 8 proceedings for a declaration to be heard at the same time as the application for summary judgment to enforce the award).
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- It is also well understood that an adjudicator must observe the rules of natural justice. In this context, that means that he should not decide a point on a factual or legal basis that has not been argued or put forward in the submissions made to him: see Balfour Beatty Construction v London Borough of Lambeth [2002] BLR 288. However, this rule is often easier to state than to apply.
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- If an adjudicator has it in mind to determine a point wholly or partly on the basis of material that has not been put before him by the parties, he must give them an opportunity to make submissions on it. For example, he should not arrive at a rate for particular work using a pricing guide to which no reference had been made during the course of the referral without giving the parties an opportunity to comment on it.
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- By contrast, there is no rule that a judge, arbitrator or adjudicator must decide a case only by accepting the submissions of one party or the other. An adjudicator can reach a decision on a point of importance on the material before him on a basis for which neither party has contended, provided that the parties were aware of the relevant material and that the issues to which it gave rise had been fairly canvassed before the adjudicator. It is not unknown for a party to avoid raising an argument on one aspect of its case if that would involve making an assertion or a concession that could be very damaging to another aspect of its case.
Conclusion
The court in enforcing the adjudicator’s decision decided that there was no arguable defence to the enforcement of the decision by the Subcontractor. The Subcontractor was entitled to summary judgment. The court noted that
“…It simply cannot be said that this Adjudicator went off on a frolic of his own, deciding a case upon a factual or legal basis which had not been argued or put forward by either side…Both parties were aware of the relevant material, the issues were canvassed before the Adjudicator in correspondence. He was not in breach of natural justice in reaching a decision on a point of importance on the material before him on a basis for which neither party had contended. His Decision was a product of responding to and accepting the case advanced by Contractor…”.
Contrary to what was argued by the Contractor, the adjudicator did not carry out a valuation: he corrected the arithmetic. The Contractor presented a series of defences to the quantum of the Subcontractor’s claims. The Adjudicator reached the conclusion that he had been invited by the Contractor to ignore payments made under Application No. 19. The Contractor’s submissions therefore opened up the possibility of a different, greater assessment of the sum due than claimed (see paragraph 55(d) of Cantillon). The adjudicator was therefore acting within his jurisdiction to determine the sum due as he saw fit in response to the submissions made by the Contractor.
The above is for general information only and to encourage discussion and does not constitute legal advice. The author does not assume any responsibility for the accuracy of any statements made and appropriate legal advice should be taken in each instance and relied upon before taking or omitting to take any action in respect of any specific matter
For further information with regard to the resolution of any construction dispute and payment related issues as set out above, please do not hesitate to contact, Charles Edwards, high performing Construction Barrister and Head of Chambers at New Temple Chambers on: [email protected] to see find out how chambers can assist you or your organisation with any construction and engineering dispute.
Charles Edwin Edwards MSt(Cantab) MSc(Lond) MRICS FCInstCES Barrister
New Temple Chambers
30 St Mary Axe
London EC3A 8BF
Tel: +44(0)203 289 8000
18th November 2024
For further information with regard to the resolution of any construction dispute and payment related issues as set out above, please do not hesitate to contact, Charles Edwards, High performing Construction Barrister and Head of Chambers at New Temple Chambers on: c[email protected] to see how chambers can assist you or your organisation.
