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“Ingenious arguments” fail to topple “smash and grab” award

It’s been a while since I’ve blogged about a payment notice case, and so the case of Jonjohnson Construction Ltd v Eagle Building Services Ltd caught my eye. Unfortunately, it’s another one of those cases that isn’t on BAILII, so not all of you reading this will have access to it. It’s a great shame that an increasing amount of cases aren’t appearing on BAILII because it means that not all practitioners get to read them. Anyway, I’m digressing…

Jonjohnson Construction Ltd v Eagle Building Services Ltd

This was a dispute arising out of a contract for the steelwork for the foundations of the Westonbirt Arboretum Treetops Walkways. If you have a head for heights, and like being amongst the leaves, it looks like you’ll get a bird’s eye view of the Forestry Commission’s tree collection at Westonbirt. It seems apt that one party was called Eagle!

Despite the Construction Act 1996 being in force for almost 20 years, the parties’ contract did not include adjudication or payment provisions in accordance with the Act, and therefore the provisions of the Scheme for Construction Contracts 1998 applied.

The steelworks were completed in October 2015 and, in March 2016, Jonjohnson applied for (I assume) the balance of the sums it said were due to it. Eagle responded by email saying:

“Don’t agree with your application. Phase 2 had to be redone due to your steel not to drawing. Our costs for breaking out and re-concrete phase 2 was in excess of £20k. Take the £20k from the £38k for phase 1 leaves £18,843…”

Eagle did not pay anything, which prompted Jonjohnson to issue a payment notice in April 2016 under section 110B(2) of the Construction Act 1996 (the April default payment notice). Still no money was forthcoming from Eagle and so Jonjohnson referred the dispute to adjudication. Ms Janey Milligan was appointed (the first adjudication).

It is important to mention at this point that Jonjohnson had sought to limit the adjudicator’s jurisdiction so that she could only consider whether Eagle had to pay the sums set out in the April default payment notice. Eagle had accepted the adjudicator’s jurisdiction was limited in this way, as did the adjudicator.

Ms Milligan decided that the March 2016 application was an effective “claim by the payee” for the purposes of paragraph 12 of the Scheme. Therefore, Eagle had no obligation to pay against the April notice because of section 110B(4) of the Construction Act 1996, which says an unpaid party cannot issue a second payment notice if the contract permits or requires the payee to submit an application for payment, and an effective application has been given.

Following an aborted second adjudication, the third adjudication got underway. This time Mr Judkins was appointed as the adjudicator and the dispute was based on the March 2016 application for payment as Jonjohnson’s default payment notice. Mr Judkins decided that absent a payment or pay less notice from Eagle, the sums set out in the March application for payment were the sums that were due and payable.

Enforcement proceedings

Eagle did not pay and so Jonjohnson commenced enforcement proceedings, which were heard by Jefford J. Eagle raised a variety of defences to Jonjohnson’s claim, three of which were given relatively short shrift by the judge:

  • Eagle argued that Jonjohnson had not referred the issue of whether the March 2016 claim was “a claim by the payee” in the third adjudication. The judge did not agree and said that, having referred a dispute concerning a failure to pay a payee’s claim:

    “… it makes no sense to say that unless they expressly then ask the adjudicator to determine that it was ‘a valid claim’, he would not have had jurisdiction to decide that it was.”

  • Eagle argued that the dispute referred in the third adjudication was the same as that referred in the first adjudication. The judge said that was clearly not the case:

    “…in the first adjudication the claim was on the basis of the April notice and, once that claim had been rejected, the second claim was based on the March notice. That is simply not to my mind the same dispute.”

  • Eagle’s next argument was that the third adjudicator’s decision was unenforceable because it represented a “Henderson v. Henderson type impermissible bite of the cherry”. In other words, Eagle relied on the policy of the courts that, where possible, all claims arising out of the same factual background should be dealt with in one set of proceedings. Although the judge noted that in Benfield Construction v TrudsonCoulson J had said obiter that there had been an abuse of the process of adjudication, that was clearly not what had happened here. She noted that adjudication and litigation differ because only one dispute can be referred in adjudication, and having commenced the first adjudication on a limited basis, Jonjohnson could not amend its claim to add an alternative claim on the March notice. The judge therefore rejected Eagle’s contention that Jonjohnson was attempting to re-adjudicate the same dispute.

The judge then went on to consider Mr Judkins’ decision, and said that he was right to conclude that Ms Milligan had found that the March 2016 notice was effective under s.110B(4), and that he was bound to follow that finding. She also noted that he had prudently said that, even if he was wrong and he was not so bound, he would reach the same conclusion as Ms Milligan did.

Eagle argued that Jonjohnson’s case must fail because it was only relying on the decision in the third adjudication, and that in order to advance the claim both decisions must be relied upon to establish Eagle’s liability to make payment to Jonjohnson. The judge had no hesitation in rejecting Eagle’s proposition and stated:

“The claim is made to enforce not the decision in adjudication no. 1, but the decision in adjudication no. 3, that is quite simply the decision that a sum of money is to be paid by EBS to JJC. It is, with respect, no more complicated than that. Despite EBS’s ingenious arguments about what JJC needs to prove on its claim, all JJC needs to establish is that there is a decision that a sum is due and payable and that that decision itself is enforceable.

At the risk of over summarising a raft of case law in this court, it would only be unenforceable if the adjudicator lacked jurisdiction or had acted in breach of natural justice and/or was biased. The latter points do not arise and the former points as to jurisdiction I have already dealt with.”

Therefore, Mr Judkins’ decision was enforced.

Given the number of cases where the TCC has not enforced a decision where a sum has been awarded on the basis of a “smash and grab”, I can understand why Eagle thought that resisting enforcement of Mr Judkins’ decision might be worth a shot. However, despite its “ingenious arguments”, ultimately,  Eagle was unsuccessful.

Lack of a pay less notice

It is evident that Mr Judkins decided that Eagle’s email (which I set out above) was not an effective pay less notice. The judgment does not explain why Mr Judkins reached that conclusion, but it strikes me that another adjudicator on another day may have reached a different conclusion.

In Surrey and Sussex Healthcare, Alexander Nissen QC (sitting as a High Court judge) had to determine whether an email and its attachments were sufficient to amount to a pay less notice. On the facts, he concluded that they were. I discussed this case at the time.

In Surrey, the court said that it was wrong to focus on the “specific detail of the language used” in the email, rather one should look at the intention that would be conveyed to a reasonable recipient of the email. The email in that case was saying that if Mr Stone (who sent the email) was wrong about the contractual position, he was valuing the work on the same basis as he had set out in detail in the breakdown that accompanied the final certificate. This was the only sum that the contractor was entitled to, and that was the overall message.

If one adopts that approach here, it is at least arguable that Eagle was saying it would only pay £18,843 because that was the balance due after deducting the cost of the remedial works it had to carry out. The email certainly looks like a pay less notice and, if it is unnecessary for a pay less notice to have the title “pay less notice”, or to refer to the relevant contract clause concerning pay less notices, then it might, when objectively viewed, have:

“… the requisite intention to fulfil that function.”

It is possible that Mr Judkins considered that the reference to the cost of the remedial work being “in excess of £20k” was not sufficiently certain. It would be interesting to know, but I am not Desperado… 

MCMS Ltd Jonathan Cope

3 thoughts on ““Ingenious arguments” fail to topple “smash and grab” award

  1. Jonathan, I was pleased to see your commentary on this case, even if the court made the wrong decision! I acted for Eagle. Sean Campbell

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