On the face of it, Jefford J’s judgment in Merit Holdings Ltd v Michael J Lonsdale Ltd is a fairly typical one about payment, arising as it does, out of the construction of a new development, One Angel Court, London. However, her comments about when parties should use Part 8 for “adjudication business”, as set out in the TCC Guide, make the judgment interesting because, she says:
“… there is a real risk of the Part 8 procedure being used too liberally and inappropriately with the risks both of prejudice to one or other of the parties in the presentation of their case and of the court being asked to reach ill-formulated and ill-informed decisions.”
Merit Holdings Ltd v Michael J Lonsdale Ltd
Lonsdale was engaged as a mechanical services sub-contractor and, in turn, Merit was employed as a “specialist contractor”.
It was the terms of Merit’s engagement that gave rise to the parties’ dispute. This was because the parties’ contract was based on three letters of intent. The first two letters were on the same terms but had different expiry dates. The third letter changed the expiry date and also raised the cap or maximum sum of work that could be carried out under the letter from £330,000 to £430,000.
The third letter expired on 29 April 2016, but Merit continued to work. Lonsdale issued payment notices and made payments that exceeded the cap. By the end of May 2016, the gross value of Merit’s work was in excess of £800,000.
The judgment doesn’t explain why, but in July 2016, Lonsdale terminated the parties’ arrangement, by which time Merit claimed it was due just over £1.128 million for its June application for payment number 7 (IA7).
In September 2016, Merit referred the dispute over IA7 to adjudication and Mr Matt Molloy was appointed. He decided that there was an agreement by conduct that applied after the letter of intent had expired that, ultimately, meant Lonsdale had to pay the sum set out in IA7.
In January 2017, Merit issued another application for payment, IA8, this time claiming a further £188,000 on the basis of costs allegedly incurred. Mr Molloy was again appointed in the adjudication that inevitably followed Merit’s non-payment. This time, he decided that Merit was not entitled to the sum claimed because any entitlement was based on “the agreed Contract Sum and the QSOR” and not Merit’s costs.
Following that decision, Lonsdale gave notice of its intention to refer to adjudication the value of IA8 and to ask the adjudicator to make declarations in relation to Merit’s final account. A few days later, Merit issued the Part 8 application that Jefford J heard.
This is not adjudication business
In what is quickly becoming her customary, no-nonsense approach, Jefford J set out in a few clear paragraphs a warning to parties that the use of Part 8 for declarations relating to “adjudication business” (as referred to in section 9 of the TCC Guide) is not appropriate for every dispute with an adjudication background. Merit’s application related to “the substance of the decision in the adjudication”, it did not relate directly to the commencement of an adjudication, as referred to in paragraph 9.4.1 of the TCC Guide.
While the court recognised that there are situations when it will be important for the court to act quickly (such as when the issue relates to the proper constitution of the adjudication or its commencement):
“It should not be assumed that some relationship to an adjudication and an adjudication label means that it is automatically appropriate for a case to be dealt with in this way.”
In other words, the “speedy resolution” of a dispute with an adjudication background is not always appropriate. However, Jefford J acknowledged that there will be exceptions to this rule:
“I recognise that there may be instances in which it makes no sense for there to be a series of adjudications on an erroneous basis such that the Court, if an appropriate application were made, might be minded to list a hearing promptly to avert unnecessary cost and expense.”
As I said at the start, I think these comments are interesting and it is another indication of the TCC clamping down on the inappropriate use of declaratory relief applications.
Other points arising
I don’t think I need to say much about the analysis that led to Jefford J dismissing Merit’s case, but it is worth mentioning the point that, having declined to give the declaration Merit sought, she also declined to find that any of Lonsdale’s alternative bases of payment applied because there were “multiple possible views of that position contractually” and the parties had not provided complete submissions on these points. She did not want to make a decision:
“… in a complete vacuum of information about the circumstances of this project and its progress.”
In my view, while it must have been tempting for her to reach a conclusion on an alternative basis, she was right not to do so in the context of a Part 8 application. Earlier, in her judgment, she had noted that
“Mr Hickey QC left me a number of options as to whether I gave declaratory relief and in what terms or whether I expressed views as to the true position without deciding it. The latter option seems to me largely unsatisfactory – any such views would be persuasive only and the court is there to make decisions not express non-binding opinions which may well store up trouble for later both as to their status and content.”
One point that did strike me is the extent to which adjudicators should follow the same course of action as the court did in this case. In other words, if the adjudicator does not accept the declaration sought by the referring party, should the adjudicator simply make a finding to that effect, or make an alternative finding as to what the declaration should be? Here, Jefford J noted that a defendant to Part 8 proceedings did not have to “proffer an alternative declaration” as that would amount to that party effectively seeking declaratory relief that it did not “in fact want to seek”.
As usual, it will depend on the wording of the notice of adjudication, what redress is sought and whether the responding party proposes alternative declarations. However, if an adjudicator is in doubt as to whether an alternative declaration can be made, then they should ask for comment from the parties and, if necessary, reach a non-binding conclusion prior to reaching their decision. Then, the course of action followed by the adjudicator will not come as a surprise to the parties.