Contractual payment regime compliance is critical when it comes to adjudication

In this case, the Technology and Construction Court (TCC) granted a partial stay of execution, finding that enforcing the adjudicator’s decision in full would cause “manifest injustice” to the paying party (the employer, Estura Limited). The employer argued it should not have to pay because of its own lack of money, citing manifest injustice.

As far as we are aware, this is the first time this argument has been successful.

The relevant statutory framework is contained in the Housing Grants, Construction and Regeneration Act 1996 (the “Act”) as amended by the Local Democracy, Economic Development and Construction Act 2009.

The parties and the contract
In April 2012, Galliford Try Building Limited (the contractor) was engaged by Estura Limited (the employer) under a JCT Design and Build Contract, 2011 to design and build certain works at the Salcombe Harbour Hotel, Devon.

The dispute and the first and second adjudications
The contractor referred to adjudication a dispute over its interim application which anticipated a payment due of some £12.66 million, which was £5 million more than the contract sum. The employer argued the sum due was £147,000 plus VAT; however, they had not served a Payment or Payless Notice.

In light of this, in November 2014 the first adjudicator’s decision considered that in the absence of a Payment and Payless Notice, the contractor was entitled to the sum stated in its interim application and ordered the employer to pay £3,928,000 plus VAT.

In a subsequent adjudication started by the employer to determine the true value of the works, the adjudicator resigned for lack of jurisdiction on the basis that it was not possible to re-published the matter.

Enforcement proceedings
The contractor applied for Summary Judgment to enforce the first adjudicator’s decision. The contractor’s application cited the principles in ISG v Seevic (2014) EWHC 4007 (TCC), where it was held that an employer who fails to serve the relevant notices must be deemed to have agreed the valuation, right or wrong, and is thereby prevented from starting a second adjudication to have the true value of the works assessed.

The employer resisted this application, arguing that applying these principles would cause manifest injustice in this case. Furthermore, the employer argued that there should be a stay of enforcement and relied on another case, Hillview Industrial Developments (UK) Limited -v- Botes Building Limited [2006] EWHC 1365 (TCC), where HHJ Toulmin CMG QC said that the purpose of the Construction Act 1996 was to

“… provide a statutory framework which would enable justice to be done between parties to a dispute. It was not intended to cause injustice. This can, in appropriate cases, be dealt with by the grant of a stay. I am satisfied that the jurisdiction in Adjudication enforcement cases to grant a stay under the Civil Procedure Rules must be limited to cases where there is a risk of manifest injustice”.

Decision
It was held that the adjudicator clearly addressed the question referred to him and did not breach the rules of natural justice. However, the Court was persuaded by the employer’s “manifest injustice” arguments, and ordered a partial stay of execution.

Comment
This case and others like it cause uncertainty in the field of adjudication, which is likely to result in an increase in litigation.

This content is correct at time of publication