REUTERS | Heinz-Peter Bader

No manifest injustice so no stay of enforcement

Last March I wrote about Edwards-Stuart J’s judgment in Galliford Try v Estura and the implications, both in terms of a party’s ability to start a counter adjudication following a “smash and grab” adjudication, and also with regard to the “manifest injustice” arguments that were raised in the enforcement proceedings.

Almost a year on and we’ve had the second reported judgment where a party sought to rely on manifest injustice to support a stay of enforcement proceedings. I’m referring to RMC v UK Construction, another Edwards-Stuart J judgment.

RMC Building & Civil Engineering Ltd v UK Construction Ltd

RMC was a sub-contractor employed by UK Construction to supply labour, plant and materials for the drainage and ground works for a housing project in Arlesley, Bedfordshire.

It seems the terms of the parties’ sub-contract were in issue, but included the sub-contractor’s tender (which was revised in October 2014), and the contractor’s order, issued on 14 October 2014. The contract sum was £383,119, but some works (like the roads, foundations, storm drainage and foul water) were to be paid for on the basis of rates that had not been agreed. There was also an issue over whether the sub-contractor had completed most of its works by February 2015, or left site in April 2015 and was in repudiatory breach of contract.

Either way, the parties could not agree over the value of the sub-contractor’s interim application for payment 8 (IA 8), which it issued in May 2015. An amount of £216,000 remained outstanding when the matter was referred to adjudication in September 2015. As no payment or pay less notice had been issued, it was unsurprising that the adjudicator found in the sub-contractor’s favour. Cue enforcement proceedings.

Before Edwards-Stuart J

As Coulson J commented the other day, the topics raised in adjudication enforcement “seem to change with the seasons”. For my part, they also seem to have a lot in common with global or “kitchen sink” claims and the idea that if you throw everything in, you may get something out.

Here the contractor argued that:

  • There was no dispute that could be referred to adjudication. This submission relied on without prejudice correspondence between the parties when they were trying to negotiate over IA 8. Again, the point didn’t survive careful scrutiny of that correspondence, with the judge noting that it should not have been put before the adjudicator “in the first place”. There was also no evidence that the sub-contractor had withdrawn IA 8 during that process, rather to the contrary, that the dispute was “still live and unresolved” at the end of September 2015.
  • The adjudicator had been appointed by the wrong adjudicator nominating body (ANB). Interestingly, this point didn’t last long, since there was no evidence to show that a letter of appointment (which referred to TeCSA as the ANB) had ever been sent to the sub-contractor, so TeCSA was not the ANB and the adjudicator’s appointment was valid.
  • The adjudicator exceeded his jurisdiction when he awarded a sum in excess of the “cap” in the Scheme for Construction Contracts 1998. (The “cap” is essentially the difference between the contract sum and the amounts that have become due to date, with the “contract sum” being the “entire sum payable”.) This point also failed “on the very simple ground” that the contractor was unable to show what the contract price was.

So, that was three arguments about jurisdiction. A sort of start (no dispute), middle (wrongly appointed) and end (exceeded his jurisdiction) jurisdictional thing.

The contractor also pursued its repudiatory breach argument, but this was described as an “wholly unsustainable” submission, not least because it had issued payment certificates after the date of the alleged breach and had not raised the argument at the time. There was also evidence that the sub-contractor left site in August 2015.

No manifest injustice so no stay of enforcement

When it came to the contractor’s application for a stay of enforcement, I suspect that (reading between the lines) Edwards-Stuart J was feeling a little impatient with the contractor. Still, he listened to the reasons why the contractor would suffer more injustice than the sub-contractor if the adjudicator’s decision was enforced, which seemed to centre on the fact that:

  • The sub-contractor would receive a windfall that, because the sub-contractor had walked off site, could not be remedied in a subsequent interim certificate.
  • Paying the sub-contractor would adversely affect the contractor’s cash flow and “could potentially cause significant damage”.

Edwards-Stuart J noted the reliance that the contractor placed on Galliford Try v Estura, but he was quick to point out one major difference between the two cases:

  • In Galliford Try, the contractor’s application was for £4 million, just “slightly less” than its final account sum, and the contract contained provisions that would mean the final account process would be drawn out.
  • In RMC, the contractor would not be prevented from issuing proceedings to determine the true amount due under IA 8. The court acknowledged that Part 8 would not be appropriate for a final account dispute and thought the contractor would have little incentive to pursue litigation “diligently” if there was a complete stay.

Edwards-Stuart J also noted that “contractors do not usually understate the amounts claimed in their interim applications”, but could not comment on the strength of the argument that this would be a windfall and that the sub-contractor was actually entitled to less. He also reminded everyone that the Construction Act 1996 and the Scheme for Construction Act 1998 are:

“…all about maintaining cash flow. That purpose is not achieved by simply giving judgment for a sum and then staying its enforcement: interest is often no compensation for a lack of cash flow.”

For an application for a stay to succeed, the applicant had to show either that it would suffer “severe financial hardship”, or there was a real risk that it would be unable to recover any overpayment. Perhaps the final nail in the contractor’s coffin was the fact that it did not present any “credible evidence as to its [own] financial position”. There is no mention at all of the sub-contractor’s financial position.

The application for a complete or partial stay was rejected.

“…appropriate only in rare cases”

When I wrote about Galliford Try, I borrowed from Dyson J in Macob Civil Engineering Ltd v Morrison Construction Ltd, and suggested that Edwards-Stuart J had allowed a coach and horses to be driven through the Construction Act 1996 when he said:

“I have come to the conclusion that, in the very unusual circumstances of this case, that [refusing a stay] would not be fair to Estura. I should make it very clear that I regard the facts of this case as being exceptional, and those in the industry should take note that the course that I propose to adopt in this case will be appropriate only in rare cases.”

While Edwards-Stuart J acknowledged that RMC was not “one of those rare cases”, I think he has guided parties on how to better prepare next time. Just like when you look at the guidelines from Wimbledon v Vago, I suspect parties will also be looking to RMC and trying to establish precisely what “credible evidence” actually means.

I still think “rare” will not mean as rare as perhaps Edwards-Stuart J would like.

MCMS Ltd Matt Molloy

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