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Legal and equitable assignment arguments delivered through the mail

Gosh, O’Farrell J’s judgment in Mailbox (Birmingham) Ltd v Galliford Try Construction Ltd is enough to make your head hurt.

While the adjudication enforcement principles appeared relatively simple, the court had to grapple with the question of whether Mailbox had the right to refer a dispute to adjudication in the first place. That means there is a lot in the judgment about legal and equitable assignment (had Mailbox assigned the benefit of the building contract to its funder, and then taken a re-assignment of those rights, or not), so reading it was a bit like being back studying law!

Mailbox v Galliford Try

Mailbox (Birmingham) Ltd (the developer) is an SPV set up to develop a mixed use site in Birmingham. It looks rather swanky now, with its Malmaison hotel and high-end shops and restaurants. However, clearly there were issues on site because, in March 2016, Galliford Try’s (the contractor) employment under the contract was determined. It sounds like what followed was a rather typical construction dispute, with issues such as who was responsible for delay, liability for liquidated damages, lawfulness of the termination and the proper valuation of the contractor’s final account.

This all led to an adjudicator’s decision dated 6 November 2016. In it, Mr Curtis (the adjudicator), ordered the contractor to pay to the developer just under £2.5 million in liquidated damages. He also decided that the developer was entitled to interest on that sum. There is nothing unusual in that, except he awarded interest under the Late Payment of Commercial Debts (Interest) Act 1998 (Late Payments Act). I’ll come back to this point later.

Enforcement proceedings followed when the contractor failed to pay. In those proceedings, the contractor argued that the adjudicator’s decision should not be enforced because of its jurisdictional argument: the adjudicator did not have jurisdiction because the developer had assigned the benefit of the building contract to its funder. Therefore, it did not have the right to start an adjudication when it issued the notice on 19 August 2016.

Did the adjudicator have jurisdiction?

It seems to me that the court had to answer two distinct questions:

  • Was there an effective assignment to the funder of the rights under the building contract (a JCT Design and Build, 2011 Edition), which was entered into with the contractor in December 2013?
  • Was there an effective re-assignment of those rights in time for the notice of adjudication to be issued on 19 August 2016?

I guess if the answer to the first part was no (which is what the developer argued), then the re-assignment issue fell away.

To reach a conclusion on this, the court had to address the detail of the various documents that the parties had entered into and the notices that were served. It also looked at section 136(1) of the Law of Property Act 1925. As I’m sure it isn’t often than any of us need to consult that provision, it is perhaps worth setting out what it says:

“Any absolute assignment by writing under the hand of the assignor (not purporting to be by way of charge only) of any debt or other legal thing in action, of which express notice in writing has been given to the debtor, trustee or other person from whom the assignor would have been entitled to claim such debt or thing in action, is effectual in law (subject to equities having priority over the right of the assignee) to pass and transfer from the date of such notice –

(a) the legal right to such debt or thing in action;

(b) all legal and other remedies for the same; and

(c) the power to give a good discharge for the same without the concurrence of the assignor…”

What I found helpful from the judgment is how it identifies the conditions that need to be satisfied for there to be a legal assignment (which are set out in paragraph 19-008 of Chitty on Contracts), and then looked at three questions:

  • Were the rights under the building contract capable of being the subject of an assignment under clause 3.3 of the debenture (which the developer had executed in favour of the funder)?
  • What was the nature of any assignment under clause 3.3? (That is, was it an absolute assignment or an assignment by way of charge?)
  • Were the rights under the building contract the subject of an assignment under clause 3.3 and, if so, what was the nature of the assignment?

In turn, the court answered these questions yes, absolute and yes, there was a legal assignment because the contractor had been given notice of it by 2 January 2014.

To my mind, this is a really clear and helpful example of how to approach the analysis of this type of issue.

When it came to the re-assignment, the issue the court had to decide was much more straightforward. The evidence suggested that the re-assignment occurred when the funder executed the deed of assignment, which was “on or before 17 August 2016”. That meant there had been an equitable assignment before the notice of adjudication was given on 19 August. That assignment took effect as a legal assignment when notice was given to the contractor on 26 August. Consequently, the developer was the beneficial owner of all rights and benefits under the building contract and was in a position to refer the dispute to adjudication.

Pausing there, I think the assignment point is a good example of how complex identity issues can be in adjudication and how important it is for adjudicators to understand the law and relevant legal principles. Some might argue that this is reason enough why certain disputes should be referred to a lawyer-adjudicator, rather than a construction professional-adjudicator. All I would say in response to that is those of us who are dual-qualified are well placed to deal with these issues.

No Late Payment Act interest on liquidated damages

Although the adjudicator’s decision was held to be valid, it was not enforced in its entirety. That is because the parties agreed that liquidated damages are not a “qualifying debt” under the Late Payments Act, and therefore asked the court to determine the question of Mailbox’s entitlement to interest on the liquidated damages. After some discussion as to the appropriate interest rate to apply, the court opted for the Commercial Court rate of 2% over base from the date the cause of action accrued, which was when the adjudicator’s decision was not complied with (Lord Mance in Aspect v Higgins).

Two thoughts spring to mind about this:

  • I liked the way the court dealt with interest even though there was no formal Part 8 application before it. It was a pragmatic approach from all concerned.
  • It is a reminder that an adjudicator’s power to award interest are more limited than, say, an arbitrator or the court.
MCMS Ltd Matt Molloy

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