Background and contentions

These interesting enforcement proceedings raised a number of different issues and a would-be novel point.

The dispute arose out of a project for the construction of a residential and extra care facility. ESG was engaged as sub-contractor for the MEP works and in turn engaged BHL as sub-sub- contractor to carry out the plumbing works (“the Contract”).

The claimant (“BHL”) applied for summary judgment to enforce the adjudication decision of Mr Silver dated 12 November 2021 (“the Second Adjudication”), directing the defendant (“ESG”) to pay to BHL £706,029.62 plus interest and the adjudicator’s fees. The Second Adjudication resulted from a payment application number 23 against which BHL contended and the adjudicator found there was no valid pay less notice. In the first adjudication between the parties BHL had applied for a true valuation of payment application number 22 and the adjudicator, Mr J Cope, decided that the true value of Interim Application 22 was £1,319,830.61 and BHL was entitled to payment of £141,646.35 plus VAT plus interest and fees (“the First Adjudication”). ESG paid all those sums in full.

There was then a third abortive adjudication before Mr Linnett.

ESG raised and the court had to decide each of the following issues.

i) whether the ‘true value’ of Interim Application 23 was determined in the First Adjudication, with the result that Mr Silver had no jurisdiction to determine the payment due under Interim Application 23 in the Second Adjudication Decision and/or ESG satisfied its payment obligations in respect of the same;

ii) whether ESG had an entitlement under clause 30.2 of the Contract to set off or make deductions against the Second Adjudication award in respect of any amounts which may at any time be due or have become due from BHL to Essex;

iii) whether ESG was entitled under clause 30.3 of the Contract to elect to have the ‘true value’ of the application payment in dispute determined at the same time by the same adjudicator as the ‘notified sum’ dispute;

iv) whether Mr Silver had jurisdiction to award to BHL £100 compensation pursuant to the 1998 Act; if not, whether that part of the award should be severed;

v) whether enforcement of any judgment should be stayed, having regard to any risk that any subsequent judgment requiring return of the sum paid would go unsatisfied, or to avoid any manifest injustice.

The decision

Issue 1: Jurisdiction – same dispute? The starting point was for the court to consider the scope of the First Adjudication; in particular, whether the dispute or difference the subject of the First Adjudication was the same or substantially the same as the dispute or difference in the Second Adjudication. Looking at the adjudication notice, the First Adjudication concerned the true value of Interim Application 22. In contrast, the dispute referred in the Second Adjudication was whether ESG had served a valid Pay Less Notice in response to Interim Application 23; if not, whether BHL was entitled to payment of the sum claimed as ‘the notified sum’.

Whilst the figures in each application were substantially the same, they covered different periods and the focus in the Second Adjudication was whether there was a valid Pay Less Notice as opposed to the true value of the application. Next the court looked at what was actually decided. The dispute determined by Mr Cope in the First Adjudication was the true value of Interim Application 22. In his decision, he expressly stated as much. He worked through the detailed argument, evidence and figures in respect of the measured works, preliminaries, variations and claims for additional costs but all with the intention of establishing the true value of Interim Application 22. The relief granted by the First Adjudication Award contained a declaration as to the true valuation of Interim Application 22.

In contrast, the dispute determined by Mr Silver in the Second Adjudication concerned the validity of what was relied by ESG as the Pay Less Notice in response to Interim Application 23; the key issue was the status of that document sent by ESG on 13 October 2021, one day after publication of the First Adjudication Decision.

Although the application in Interim Application 23 for the measured works, preliminaries and variations were identical to the figures in Interim Application 22, (save for certain credits for ESG’s payment of the First Adjudication Award), Mr Silver did not carry out an examination of the claims, evidence and argument in respect of the true valuation of Interim Application 23.

The relief granted by the Second Adjudication Award did not refer to the true valuation of Interim Application 23; it simply decided that BHL was entitled to payment in full by reason of ESG’s failure to serve a valid Pay Less Notice.

Thus, on analysis, the dispute or difference that was decided by Mr Cope in the First Adjudication was not the same or substantially the same as the dispute or difference decided by Mr Silver in the Second Adjudication.

That however was not the end of the matter. ESG contended that the true value having been determined in the First Adjudication ESG was entitled to rely upon and enforce that true value against Interim Application 23 despite the absence of any payment or Pay Less Notice and that nothing in S&T v Grove prevented that reliance, where, as here, the true value was decided prior to not after the notified sum falling due as a result of failure to serve a Pay Less Notice.

The judge said that despite its superficial attraction the argument failed as the true value related to a different application and valuation period. Although it was argued that the true value of Interim Application 23 would not change, that question had not been adjudicated upon.
Second regardless of the true value, the defence had not been raised in the Second Adjudication and it was too late to raise it now.

It had failed to reserve its position in the Second Adjudication although it done o sin relation to another matter (the non-payment of the adjudicator’s fees in the First Adjudication)

Applying the principles set out by Coulson LJ in Bresco[6], following rejection by Mr Silver of the specific jurisdictional objection, ESG was precluded from raising other jurisdictional grounds which might otherwise have been available to it. Thirdly, ESG argument ignored the express provisions of section 111 of the Act. Had ESG wished to rely on the ‘true valuation’ adjudicated upon in the First Adjudication against any further payment sought in Interim Application 23, it could and should have raised this in a Pay Less Notice. Having failed to do so, the sum claimed in Interim Application 23 became the ‘notified sum’ due for the purpose of the section.

Issue 2: Right of set-off

ESG relied on an express contractual right of set-off against an adjudicator’s award. The problem with that provision was that it was contrary to section 8 of the Act and clause 30 of the Scheme (which applied here). The court of appeal had held that a right of set-off could not be relied on as defence to enforcement of an adjudicator’s decision[7].

The limited exceptions identified by Akenhead J in Thameside[8] did not apply here. The set-off relied on did not arise out of either of the adjudication decisions. An unqualified right of set-off offended the Act and Scheme and therefore had to be construed consistent with the Act and Scheme or be struck down as unenforceable.

Issue 3: Joinder of disputes

A provision in the Contract allowed the adjudicator to determine more than one dispute at the same time at the option of ESG. That unilateral right of joinder was inconsistent with paragraphs 8 and 20 of the Scheme which allowed multiple disputes with the consent of all parties. As the judge put it:

“A difficult task could become impossible if one party could unilaterally require the adjudicator to determine a raft of disputes within one adjudication. There is implicit recognition of this difficulty in clause 30.3 in that it does not compel the adjudicator to determine more than one dispute, even where such election has been made by ESG.”

Further in this case section 111 of the Act would preclude ESG from relying on clause 30.3 to refer the ‘true value’ dispute in respect of Interim Application 23 prior to satisfying its obligation to pay the ‘notified sum’ as explained in S&T v Grove. Applying the principles to be derived from the case, ESG’s exercise of any contractual right under clause 30.3 of the Contract to require the adjudicator to determine the ‘true value’ dispute together with the ‘notified sum’ dispute in the same adjudication would have to be subject to compliance with its immediate payment obligation of the ‘notified sum’.

As ESG failed to comply with its immediate payment obligation in respect of the ‘notified sum’, it was not entitled to adjudicate on the ‘true value’ dispute, whether pursuant to clause 30.3 or otherwise.

Issue 4: Severance

ESG sought an order that the part of the Second Adjudication Decision in which BHL was awarded £100 compensation pursuant to the Late Payment of Commercial Debts (Interest) Act 1998 be severed on the ground that the adjudicator had no jurisdiction to award this sum.

It said that BHL’s entitlement to claim compensation under the Act had already been decided (in the negative) in the First Adjudication. Where part of an adjudication award is held to be unenforceable, the court has power to sever that that part and enforce the remainder[9].

In this case, the compensation awarded is a fixed sum in respect of a discrete issue and of very modest value in comparison to the remainder of the award. Therefore, it would have been an appropriate case for the court to consider severance.

However, as was common ground, ESG had failed to raise this challenge to Mr Silver’s jurisdiction in the Second Adjudication, despite raising other such challenges. Therefore, any right to challenge jurisdiction in respect of the compensation issue was waived: Bresco (above).

Summary judgment was granted.

Stay

The alternative application for a stay of execution failed on the grounds that the evidence fell short of showing a probable inability to repay, where BHL was a going concern with no indication of insolvency or improper distributions.

This article was originally written and published on the internet by Ken Salmon of Slater Heelis.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.

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