REUTERS | Vasily Fedosenko

Getting your payment ducks in a row will avoid adjudication

As an adjudicator you don’t often get involved with what happens between the parties after you have issued your decision (unless they appoint you again), although you are always on the look-out to see whether you’ve been enforced or whether your decision has been successfully challenged. Irrespective of whether you are kept in the loop by the parties, the heart rate still rises when you click on the BAILII link for the first time.

I’m sure the second adjudicator in Actavo UK Ltd v Doosan Babcock Ltd had that feeling recently, and will probably again, if the Part 8 hearing judgment is made available. 

Actavo UK Ltd v Doosan Babcock Ltd

This was a dispute about work carried out by Actavo at a project near Grangemouth, Scotland. The parties’ sub-contract was for scaffolding, pipe and steel work, and some painting. It was originally priced at £367,500 but, by the time of the parties’ dispute over Actavo’s interim application for payment 10 (IA 10), that sum had been exceeded (IA 10 claimed a sum in excess of £630,000).

The parties’ dispute over IA 10 was referred to adjudication and Mr Nash was appointed (the first adjudicator). He decided that since Doosan had not served a valid payment or pay less notice, the sum claimed in IA 10 was the sum due. With VAT and other things, over £780,000 was awarded to Actavo in his decision, which was issued on 11 August 2017. One aspect the first adjudicator had to deal with was interest, which I will come back to shortly.

It is not clear from the judgment when Actavo issued its final account but Doosan said there was a dispute over it, which it decided to refer to adjudication. This time Mr Bunton was appointed (the second adjudicator). That referral took place on 31 August, the same day as Actavo issued its enforcement proceedings in relation to the first adjudicator’s decision.

The second adjudicator’s decision was issued on 5 October and it determined the true value of Actavo’s works at just under £587,000 (Doosan had already paid some £526,000, which left a balance of some £60,000).

When Actavo’s enforcement proceedings came before the court, not only did O’Farrell J have to deal with the enforcement of the first adjudicator’s decision, but she also had to consider whether Doosan was entitled to the declaratory relief it sought in its Part 8 application. In part, this involved looking at Coulson J’s guidelines in Hutton Construction Ltd v Wilson Properties (London) Ltd to see whether it was appropriate to use the Part 8 procedure to make a final determination on an issue that was before the adjudicator. It also involved considering whether Doosan was entitled to set off the second adjudicator’s decision against the first adjudicator’s decision, leaving just the balance of £60,000 due to Actavo.

Interest

The question was whether the first adjudicator was wrong to award interest to Actavo based on the Late Payment of Commercial Debts (Interest) Act 1998 (Late Payment Act), rather than on the contractual rate of 1% over base.

I thought the arguments advanced on behalf of Doosan (1% was reasonable and had been the “product of genuine consensual agreement” arising out of a course of dealings between the parties) were interesting, to say the least. This is because I thought it was established (as Actavo argued) that since Yuanda UK Co Ltd v WW Gear Construction, a contract would not provide a substantial remedy if it contained a low rate of interest, but that 5% over base (like the JCT contracts) was fine (relying on Walter Lilly & Company Ltd v Mackay). I’m sure one of the parties in Yuanda would have argued that 0.5% was reasonable and something the parties had agreed.

O’Farrell J looked at the Hutton guidance, and concluded that those guidelines were not satisfied. She could not deal with the interest point without further evidence and there was a “reprobate and approbate” point that needed to be addressed.

Can’t reprobate and approbate

We don’t often see parties argue a point one way, and then argue it another way in a subsequent set of proceedings. Here, Doosan did just that:

  • In the enforcement proceedings, it argued that the first adjudicator was wrong to rely on the Late Payment Act and the contract rate should apply.
  • In the second adjudication, it had argued it was entitled to claim interest under the Late Payment Act.

It is something you can’t do. Having your cake and eating it springs to mind.

Was the second decision issued out of time?

This is a difficult one to comment on. Certainly, it was an issue that O’Farrell wasn’t going to deal with without further evidence (another reason the Hutton guidelines were not met).

The parties agreed that the second adjudicator’s decision was originally due on 3 October and that it was issued on 5 October. What is less clear is whether there was an agreement reached at a meeting between the parties and the adjudicator agreeing to that two-day extension of time.

Without wanting to sound wise after the event, this sort of “confusion” underlines the importance of confirming things in writing. If you think the parties have agreed something at a meeting (or in correspondence), it is always sensible to say so. Here it seems that is exactly what the adjudicator did, when he emailed on 26 September to say his decision would be issued on 5 October. If no-one responds negatively to that, I think it is fair to assume that you have been given the extension. In my experience, parties love to write to you (and each other) and argue about all sorts of things, big and small, and there is no way one party would leave an extension of time unchallenged if it disagreed with it.

If the Part 8 hearing goes ahead, I think it will be interesting to see the outcome of these issues. In addition, the court will have to deal with the question of whether the dispute referred to the second adjudicator had crystallised.

Key take away

For me, the key take away from this case is unrelated to the procedural issues in the two adjudications, it is the fact that it underlines the need for parties to understand the importance of issuing valid payment and pay less notices. It is over six years since the current payment regime was introduced. If parties got their paperwork in order, there would be far fewer smash and grab adjudications dealing with what is really just an administrative issue. If parties want to reduce the cost of adjudication (which we were told at the Adjudication Society conference is what they want to do), this is one way to achieve that.

MCMS Ltd Matt Molloy

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