REUTERS | Jean-Paul Pelissier

Adjudication matures as it gets the key to the door

On 1 May 2019, the statutory adjudication procedure introduced by the Construction Act 1996 will have been in force for 21 years. At the risk of over-egging an analogy, its life so far has followed a pattern familiar to parents:

  • In its infancy it had a devastating effect on many relationships.
  • As a toddler it thought it could do no wrong (see Macob v Morrison).
  • As it approached its teens it had an alarming and confusing growth spurt (particularly following the amendments in the LDEDC 2009).
  • Now, as it reaches maturity, it appears to be trying to shed some of its less attractive features (for example, see S&T v Grove Developments).

Grove was the first case in which a real fetter was recognised on the statutory right to refer a dispute to adjudication at any time. In that case, the Court of Appeal upheld Coulson J’s first instance decision, confirming that the employer could start an adjudication to dispute the true value of the works for which the contractor had claimed an interim application for payment, even though the employer had not served a valid pay less notice. However, the employer could not do so until after it had paid the notified sum due as a result of the failure to serve the notice.

The meaning and effect of Grove was considered recently in M Davenport Builders Ltd v Greer, where Stuart-Smith J was asked to enforce a “smash and grab” adjudication decision in connection with a building in Stockport.

M Davenport Builders Ltd v Greer

The contractor had been awarded £106,160 in the first adjudication between the parties based on the employers’ failure to issue either a valid payment or pay less notice.

Six days after the first adjudicator’s decision, the employers had commenced a second adjudication seeking a true valuation of the final account. The second adjudicator proceeded (apparently after expressing some doubts on his jurisdiction) to make a decision on the true value of the final account. He found that the gross value of the final account was £867,557.64, which meant that no further sum was payable by the employers to the contractor.

Stuart-Smith J held that the contractor was entitled to summary judgment enforcing payment of the first adjudicator’s decision but that the employers were not entitled to rely upon the second adjudicator’s decision by way of set off or counterclaim even though it had found that the true valuation of the final account did not justify the further payment.

In reaching that decision, the judge relied on both Grove (some of it admittedly obiter) and the Court of Appeal’s decision in Harding v Paice. He concluded that those authorities permitted a policy-based construction of the adjudication regime. It meant that a defendant who has discharged his immediate obligation should generally be entitled to rely upon a subsequent true value adjudication but that a defendant who has not done so should not.

Balancing conflicting statutory rights

Stuart-Smith J’s approach strikes a sensible balance between statutory rights that appear to conflict with one another, namely on the one hand the right to recover quick payments in the absence of a pay less notice and, on the other, the right to adjudicate disputes at any time.

Section 108(2)(a) introduced the fundamental right to give notice of an intention to refer a dispute to adjudication at any time. There appear to be no words to qualify that entitlement and it has been upheld as a key principle underpinning the Act (for example, see Dyson LJ’s judgment in Connex South Eastern v MJ Building Services Group plc).

However, that right has lost out on policy grounds when being weighed against the obligation for a paying party to pay the notified sum under section 111. This appears from Stuart-Smith J’s reference with approval to the statement by Coulson J in Grove that:

“… the second adjudication cannot act as some sort of Trojan horse to avoid paying the sum stated as due.”

As Stuart-Smith J recognised, it leaves open a number of outstanding questions.

A feature of Harding v Paice was that, when they launched the true valuation adjudication, the employers had not paid the sum due pursuant to the previous adjudication. That this was not made more of at the time may have been because their solicitors had given a written undertaking to make the payment by a fixed date before the true valuation adjudication would be completed. On that basis, rather than reject this ground of the application for an injunction altogether, Edwards-Stuart J had agreed at first instance to stay it in case the notified sum was not paid as promised. The employers had in fact paid the sum by the time of the Court of Appeal hearing.

The views expressed in Grove differed from what happened in Harding v Paice. At first instance, Coulson J stated that the rule was that the employer must make payment in accordance with the contract or in accordance with section 111 of the amended Construction Act 1996 before it could commence a true valuation adjudication. That view was upheld on appeal but it was obiter.

As Stuart-Smith J noted, the apparent conflict suggests that there is not an absolute bar to commencing a true valuation adjudication without first satisfying payment under a notice adjudication. He declined to speculate on examples or criteria that might permit a party to do so.

However, the following seem to be potential candidates:

  • Based on Harding v Paice, it may be enough to have given a firm undertaking to pay the sum by a certain date. But this begs the question how long can one delay the obligation to pay by such an undertaking? Also, what happens if that date is missed? Would it invalidate the enforceability of the true valuation adjudication? Is it an absolute deadline or would it be ok if it was, for example, one day late?
  • It may be enough that payment is made in satisfaction of the first adjudication after the referral of the true valuation dispute to a second adjudication but before the second adjudicator delivers his decision (or perhaps before an enforcement hearing). This has some support from the wording of section 108(2)(a) of the Act because, as noted above, it protects the right to refer the dispute “at any time”, not necessarily to have it decided or enforced “at any time”. But, given the strict time constraints on adjudications and the need for a decision to be binding, this may be a distinction without a difference.

The result in each case is likely to be substantially fact-dependent, particularly as the question is likely to arise most often in applications for injunctions to restrain the second adjudication. As stated in Twintec v Volkerfitzpatrick, such injunctions are granted only in exceptional circumstances but, as was recognised in Mentmore Towers v Packman Lucas, those circumstances include an application to restrain a claimant from pursuing an adjudication when he has failed to comply with an earlier adjudication decision. Whether the claimant could have prevented the application of the injunction in Mentmore Towers by making an undertaking to pay the outstanding funds and, if so, how long it could have postponed doing so remain matters to be decided as the Act reaches maturity.

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