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Adjudication enforcement background to successful injunction application

Since the TCC in London started transferring some of its adjudication enforcement cases to the County Court, we haven’t had as much to write about on this blog. While there may be benefits to having the more routine cases dealt with there, rather than in the High Court, it does leave Jonathan and I with a few issues regarding content and leaves us casting our net wider and wider, looking for something to share with everyone. Today is no exception, although the case I’m going to discuss – Nicholas James Care Homes Ltd v Liberty Homes (Kent) Ltd – is connected to adjudication.

It is a matter than came before O’Farrell J last week, when she was asked to continue an interim freezing injunction that had been granted a month or so earlier. While I wouldn’t ordinarily be interested in an injunction application, it is the background to this particular application that I think is interesting. I wonder if you’ll agree with me.

Nicholas James Care Homes Ltd v Liberty Homes (Kent) Ltd

Nicholas James Care Homes Ltd (the employer) is a developer of care homes and had worked with Liberty Homes (Kent) Ltd (the contractor) for several years on a number of different projects, including Beacon Hill Lodge at Beacon Hill, Herne Bay. According to the judge, they had a “long commercial relationship and friendship dating back to 2002”.

Work started at Beacon Hill in about 2018. In March 2020, the employer indicated that there had been an overpayment to the contractor. It appears the parties exchanged correspondence about this overpayment, which started out at approximately £1.3 million before increasing to £1.49 million “across a number of projects”.

By July 2020, there had been a “breakdown of trust between the parties”. The contractor had stopped work at Beacon Hill Lodge and had instructed a firm of quantity surveyors to ascertain what sum it was owed. They concluded the contractor was due some £617,000. In September 2020, the employer was advised that the contractor was entitled to payment of interim applications for payment 23 (IA 23) and 24 (IA24), which were dated July and August 2020, totaling some £275,000. No payment was forthcoming and so, in November 2020, the contractor referred the dispute to adjudication. As no payment or pay less notices had been served, the first adjudicator concluded that the contractor was entitled to the sum claimed in respect of those applications for payment (essentially, it was a smash and grab adjudication). Although enforcement proceedings were issued, the matter settled in January 2021 with the employer making payment in full. This is important, as we will see shortly.

In July 2021, the contractor served a pre-action letter of claim on the employer. This claimed £1.15 million was due and owing to it. In response, the employer said it had overpaid the contractor to the tune of £2.6 million, including overpayments in respect of Beacon Hill Lodge. By October, the employer had started its own “true value” adjudication of work carried out at Beacon Hill Lodge as at the date of IA 24. It sought repayment of some £2.38 million.

The second adjudicator’s decision was issued in February 2022. The adjudicator decided that the total amount the employer had paid on account was some £5.17 million and the true value of the work done was £2.58 million, meaning the contractor should repay the employer just under £2.6 million. That sum was not paid and enforcement proceedings were issued, with a return date of 15 June 2022 (which is in just over three weeks’ time).

The initial, without notice freezing injunction was granted in April and, after hearing evidence, was continued by the judge until after that adjudication enforcement hearing. She was persuaded there was “sufficient evidence of a real risk of dissipation [of assets]” that it would be “just and convenient” to do so. The contractor did not have a “knock-out blow” and the employer has a good arguable case that it will succeed on the adjudication enforcement.

Are the contractor’s defences going to be enough?

I’m not going to look at the merits of the injunction application – those are well outside my comfort zone – but what did interest me were the judge’s comments at paragraph 36 of her judgment. She reminded us that the TCC’s approach to adjudication enforcement is a robust one and that, generally, the court will enforce an adjudicator’s decision unless there is a breach of the rules of natural justice or the adjudicator lacks jurisdiction. She then went on to mention the contractor’s defences to the enforcement:

  • The second adjudicator requested payment of his fees as a pre-condition to issuing his decision.
  • The payments allocated to Beacon Hill Lodge had already been determined in the first adjudication.
  • The second adjudicator failed to take into account material evidence the contractor relied on.

On the face of it, any one of these arguments might be sufficient to allow the contractor to defend the enforcement proceedings. Certainly, when it comes to liens, we all know that an adjudicator may not impose a lien on their decision. I learnt that lesson in Cubitt Building & Interiors v Fleetglade before HHJ Coulson QC (as he was back in 2006) before it was confirmed again by HHJ Thornton QC in Mott MacDonald Ltd v  v London & Regional Properties Ltd, where he also held that the adjudicator had failed to act impartially and was in breach of his contractual obligations under the Scheme for Construction Contracts 1998 by imposing such a condition. Further, in failing to publish his decision as soon as it was reached, the adjudicator was in breach of paragraph 19(3) of the Scheme for Construction Contracts 1998. The adjudicator’s decision was therefore unenforceable on the grounds of procedural irregularity and breach of paragraph 19(3).

Interestingly, the CIArb’s lien guidance takes a slightly different approach:

“In Coulson on Construction Adjudication there is an inference that an Adjudicator could require payment of their fees in advance of reaching a decision, providing it did not delay the completion or communication of the decision. However, if payment of the fees was not made prior to the date upon which the decision was due then the Adjudicator would still be required to publish the decision in advance of being paid. Indeed there seems to be no difficulty in requiring payment ahead of publication of the Decision provided these criteria are met.”

Along these lines, I am aware that some adjudicators issue interim fee accounts, especially in “extended period” adjudications. I also know that some adjudicators always ask the referring party to pay their fees (even if they have won) and recover any proportion attributable to the responding party when it seeks payment of any sum awarded (I have done this in the past but not recently). The rationale is that it avoids having to chase a recalcitrant losing party. I know some argue that this approach raises “bias” arguments (relying on Mott MacDonald, where the judge also said that the adjudicator may not be, or appear to be, financially beholden to one party (particularly the referring party) or place themselves in a position that might make it look like the adjudicator is more partial to one side). I’m not sure what a court would make of it today, but perhaps we haven’t got long to wait.

However, until next month’s hearing, we will not know if the adjudicator exercised a lien incorrectly or did something (or did not do something) that falls into either the jurisdiction or natural justice camp, such that it warrants the court not enforcing his decision. I’m not going to try and second guess how any of this may work out, I just hope this is not one of those cases that has been transferred to the County Court!

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