Welcome to the December 2023 Christmas Quiz Special Edition of Adjudication Matters, where we discuss the key developments in adjudication and adjudication enforcement and look back on 2023. Please contact Construction & Engineering Partner Carly Thorpe if you need any advice or assistance.

In a change from the usual format, this edition comprises 6 fictional scenarios featuring multiple choice questions and answers based on real cases discussed in previous editions of Adjudication Matters from 2023. (Who said a Christmas quiz couldn’t be educational and fun?!)

1. Santa Claus Plc v Xmas Elves Limited: Does a payment application need to be received within site working hours to be valid?
2. Ebenezer Scrooge Limited v Jacob Marley Limited: Is a company’s poor financial position grounds for seeking a stay of enforcement?
3. George Bailey Limited v Clarence Odbody LLP: Can a dispute crystallise under a draft contract?
4. Rudolph Limited v Dasher & Dancer Ltd: Is the notice period for termination under the JCT clear days?
5. K McCallister Ltd v Harry and Marv LLP: Can without prejudice communications render an adjudicator’s decision unenforceable?
6. Whoville Limited v The Grinch Plc: When will a court grant an injunction to restrain ongoing and future adjudications?

Does a payment application need to be received within site working hours to be valid?

Scenario

Santa Claus Plc (“Santa Claus”) has appointed Xmas Elves Limited (“Xmas Elves”) to carry out internal refurbishment works at Santa Claus’ commercial headquarters.

The parties enter into a standard form building contract which confirms that site working hours will be between 07.30 to 18:00 from Monday to Friday.

Under the contract, Xmas Elves are required to submit payment applications “no later than 2 days prior to the Interim Valuation Date“.

Xmas Elves submit a payment application on 23 December 2023 at 23:00 in the evening. The relevant Interim Valuation Date is 25 December 2023.

Santa Claus fails to serve either a payment notice or pay less notice in response to the application, and refuses to make payment to Xmas Elves on the basis that the application has been issued late and so is invalid. Xmas Elves take the matter to adjudication.

Options

The Adjudicator considers three possible ways to resolve the dispute:

• Refuse to award payment as the application was submitted outside of site working hours. Whilst the contract does not expressly set this out, a possible reading of the parties’ agreement is that payment applications must be submitted both 2 days prior to Interim Valuation Dates and within site working hours. Xmas Elves’ application was submitted outside site working hours and is therefore invalid.
• Award payment to Xmas Elves, on the basis that the only contractual requirement regarding the timing of payment applications was to issue 2 days prior to the relevant Interim Valuation Date. The provision regarding site working hours is irrelevant to the question of when payment applications should be submitted. Xmas’ Elves’ application was therefore submitted in time and is valid.
• Resign on grounds of natural justice, on the basis that the Adjudicator once received a terrible Christmas present from Santa Claus giving rise to a potential for bias.

Answer

Notwithstanding potentially interesting arguments regarding option 3), the Adjudicator should go for option 2) and award payment to Xmas Elves. Whilst the parties are free to agree bespoke amendments to contractual provisions regarding payment, in this case the only express timing requirement is for Xmas Elves to issue applications 2 days prior to the relevant Interim Valuation Date. Absent any clear wording to the contrary in the contract, this means that Xmas Elves would have been permitted to issue its application until 23:59 on 23 December 2023. Option 1) is therefore incorrect.

Please see the April 2023 edition of Adjudication Matters for discussion of the real case of Elements (Europe) Limited v FK Building Limited [1].

Is a company’s poor financial position grounds for seeking a stay of enforcement?

Scenario

Ebenezer Scrooge Limited (“Scrooge“) appoints Jacob Marley Limited (“Marley“) to manufacture, supply and install a tasteful artistic exhibition consisting of heavy-weight chains and money boxes at Scrooge’s new business premises. The parties enter into a standard form construction contract in respect of the works. At the time of the parties entering into contract, Marley is a dormant company holding virtually no assets of its own.

During the course of the works, Scrooge and Marley fall out over payments claimed by Marley. This leads to an adjudication in which Scrooge is ordered to make payment of over £100,000 to Marley. Scrooge is furious and refuses to pay. Marley subsequently commences enforcement proceedings against Scrooge to enforce the adjudicator’s decision. Scrooge argues that it has potential cross-claims against Marley, and that it should not therefore be forced to comply with the adjudicator’s decision, given Marley’s likely inability to repay the sums awarded (as a dormant company).

Options

At enforcement, the Court considers 3 potential options:

• Enforce the adjudicator’s decision and award payment of £100,000 from Scrooge to Marley. There has been no material change in Marley’s financial circumstances since the time of the parties entering into contract. By choosing to contract with Marley, Scrooge accepted the risks associated with dealing with dormant/impecunious companies. The adjudicator’s decision should therefore be complied with.
• Refuse to enforce the decision, and award a stay. Scrooge should be allowed time to work out the nature and value of its cross-claims. Where appropriate, the parties can then engage in a further adjudication which considers the true value of Marley’s final account, taking into account all claims and cross-claims between the parties. It would be unfair to force Scrooge to pay sums to Marley now which it was unlikely to ever recover due to Marley’s financial state.
• Swiftly dismiss the enforcement proceedings as an abuse of process. It’s clear that the parties have a number of unresolved disputes arising out of the project, and no enforcement proceedings should be permitted until each of these have been properly addressed. Additionally it’s nearly Christmas, and while sitting in court is obviously lots of fun, the judge has just remembered that they still have a significant amount of Christmas shopping to get through.

Answer

The Court should select option 1) and award payment of the £100,000 to Marley. Despite Marley’s precarious financial position, Scrooge is unlikely to succeed in defending the enforcement proceedings unless it can demonstrate that Marley’s position has materially changed (i.e. worsened) after the parties entered into contract.

Please see the March 2023 edition of Adjudication Matters for discussion of the real case of WRG v Henry Construction Projects [2].

Can a dispute crystallise under a draft contract?

George Bailey LLP (“George Bailey“) and Clarence Odbody Limited (“Clarence Odbody“) enter into a building contract in respect of recladding works at George Bailey’s commercial headquarters.

In a rush to get the works finished in time for Christmas, the parties negotiate the building contract themselves, without the involvement of solicitors. Unfortunately, the building contract is never signed or completed, and the works proceed on the basis of various drafts circulated between the parties during the negotiation stage.

Clarence Odbody initially made good progress, and submitted a number of payment applications to George Bailey during the first 6 months of the project, all of which were agreed and paid.

However, the parties subsequently fell into dispute regarding the valuation of several subsequent payment applications issued by Clarence Odbody. George Bailey issued pay less notices in respect of those applications, but subsequently refused to make payment on the basis that the contract had never been finally agreed or signed. Clarence Odbody took the dispute regarding the unpaid invoices to adjudication. George Bailey argued that no dispute had crystallised as there was no completed contract in place between the parties.

Options

The adjudicator considers two possible ways to resolve the dispute:

• Refuse to award payment of the invoices, on the basis that the contractual relationship between the parties is insufficiently certain. Where there is no signed contract, there can be no certainty as to a party’s entitlement to interim payment. As such, perhaps George Bailey’s argument that no dispute has crystallised is right?
• Award payment of the invoices. George Bailey had previously certified and paid payment applications issued by Clarence Odbody and had issued pay less notices in respect of the unpaid invoices forming the basis of this dispute. A dispute has clearly crystallised as George Bailey has failed to make payment of the disputed invoices by the final date for payment. While it is regrettable that the parties did not complete the contract, this is not fatal to Clarence Odbody’s claim, particularly given George Bailey’s prior acceptance and payment of payment applications.

Answer

The adjudicator should reach a decision in line with option 2), and award payment of the disputed invoices to Clarence Odbody. Option 1) is unpersuasive in light of George Bailey having previously certified and paid Clarence Odbody’s applications. The parties should however note that the time and cost of these proceedings might well have been avoided had the contract been finalised and signed by the parties.

Please see the February 2023 edition of Adjudication Matters for discussion of the real case of Bravejoin v Prosperity Moseley Street [3].

Is the notice period for termination under the JCT clear days?

Scenario

Rudolph Limited (“Rudolph“) brought a Part 8 claim against Dasher & Dancer Ltd (“Dasher & Dancer“) to challenge an earlier decision in a previous adjudication between the two parties.

The following clauses were found in the Contract (JCT Minor Works Building Contract, 2016 Edition):

• Clause 6.4.1 gave the employer the right to serve a warning notice on the contractor specifying default.
• Clause 6.4.2 allowed the employer to serve a termination notice if the default continued for seven days from receipt of the warning notice which specified it.
• Clause 1.4 provided that, “where under this Contract an act is required to be done within a specified period of days after or from a specified date, the period shall begin immediately after that date”.

Rudolph had served the warning notice on 16 December 2020 and then served the termination notice on 23 December 2020. The adjudicator had determined that Clause 1.4 applied to Clauses 6.4.1 and 6.4.2. Therefore, day 1 was 17 December 2020 and the seven clear days ended on 24 December 2020. Therefore, Rudolph had served a day too early.

Rudolph claimed that the adjudicator erroneously concluded that it had served its notice to terminate prematurely. Rudolph argued that as it had not terminated its contract with Dasher & Dancer before it was contractually entitled to, it had not repudiated the Contract.

Options

Under the Part 8 claim Rudolph brought, which approach should the court take:

• Conclude that the adjudicator’s interpretation of the Contract was correct. This would mean that Rudolph’s early service of the termination notice amounted to a repudiatory breach of the Contract.
• Conclude that the adjudicator was erroneous in its judgment. Was Rudolph correct in determining that it could serve the termination notice on 23 December?

Answer

The correct option is Option 1. The period specified in Clause 6.4.2 does indeed mean seven clear days, as Clause 1.4 applies. The original adjudicator’s decision would subsequently be upheld, and Rudolph’s premature serving of the termination notice on 23 December 2020 should, therefore, amount to a repudiatory breach. Rudolph should have taken more care to ensure it left a clear day gap (even if it meant that it would – rather distastefully – be serving the termination notice on Christmas Eve!).

Please see the July 2023 edition of Adjudication Matters for discussion of the real case of Bellis v Sky House Construction Ltd [4].

Can without prejudice communications render an adjudicator’s decision unenforceable?

Scenario

Harry and Marv LLP (“Harry and Marv“) issued a Part 7 claim in order to enforce an adjudicator’s decision. K McCallister Ltd (“K McCallister“) argued that, as the adjudicator had seen without prejudice communications, the decision was unenforceable. The without prejudice material contained admissions inconsistent with K McCallister’s open position.

The “without prejudice” rule prevents offers or statements made in the process of negotiations being brought before court on the question of liability. It acts to exclude all negotiations which are a genuine attempt at settlement from being given in evidence.

K McCallister sought a declaration, by way of a Part 8 claim, that the decision was unenforceable due to the adjudicator seeing inadmissible evidence.

Options

Should the court:

• Dismiss the Part 8 claim from K McCallister and grant Harry and Marv’s enforcement claim?
• Dismiss the Part 7 claim from Harry and Marv and make a Part 8 declarations in favour of K McCallister due the actual bias of the adjudicator, having seen the without prejudice material?
• Dismiss the Part 7 claim from Harry and Marv and make Part 8 declarations in favour of K McCallister due to the apparent bias of the adjudicator, having seen the without prejudice material?

Answer

The court should choose option 3 (if no exception to the without prejudice rule is established). The test for establishing whether or not without prejudice material has been deployed is not based on the inadmissible without prejudice material. Instead, having seen the without prejudice material, the adjudicator must consider whether they should no longer determine the dispute in question due to an apparent bias arising.

The test for apparent bias is whether a fair-minded and informed observer would conclude that there was a real possibility, or a real danger, that the adjudicator/tribunal was unconsciously biased. It is not necessary to establish actual bias.

As such, a fair-minded and informed observer would conclude that there was a real possibility that seeing the without prejudice material would lead create an inadvertent or unconscious bias for the adjudicator. The court should determine that the adjudicator, by reason of apparent bias, had breached the rules of natural justice. This should lead the court to hold that the decision should be rendered unenforceable.

Please see the October 2023 edition of Adjudication Matters for discussion of the real case of AZ v BY [5].

When will a court grant an injunction to restrain ongoing and future adjudications?

Scenario

The County Court struck out three sets of proceedings brought by The Grinch Plc (“The Grinch“) in respect of three separate projects it was engaged to work on by Whoville Limited (“Whoville“).

The Grinch proceeded to bring three separate adjudications against Whoville.

In limited circumstances, a court can exercise its discretion under section 37 of the Senior Courts Act 1981 by granting an injunction in order to restrain a party from pursing an adjudication if it appears to be just and convenient to do so. One such circumstance is where the adjudication referral was unreasonable and/or oppressive.

Whoville Limited applied for an injunction to prevent The Grinch from pursuing the three adjudications. It argued that the separate adjudications were unreasonable and oppressive as they were to cover substantially the same issues as in the proceedings issued in the County Court.

Options

Should the court:

• Grant the injunctions to restrain The Grinch from taking further steps in the on-going adjudications and any future adjudications relating to the same or substantially the same dispute as the proceedings struck out by the County Court?
• Refuse the injunction applications on the basis that the adjudications are not unreasonable and/or oppressive?

Answer

Parties should be able to refer their dispute to adjudication at any time. The fact that a claim has been struck out should not preclude a party from commencing an adjudication. In the absence of any evidence or submissions to demonstrate why the adjudications were unreasonable and/or oppressive, the court should choose option 2 and refuse to grant the injunction to Whoville.

Please see the May 2023 edition of Adjudication Matters for discussion of the real case of Marbank Construction v G & D Brickwork [6].

How we can support you

If you have any queries in respect of this bulletin or would like to know more about adjudication please contact Carly Thorpe, Seumas Cram or Inam Hasan.

[1] Elements (Europe) Limited v FK Building Limited [2023] EWHC 726 (TCC)

[2] WRG (NI) Limited v Henry Construction Projects Limited [2023] EWHC 278 (TCC)

[3] Bravejoin Company Limited v Prosperity Moseley Street Limited [2021] EWHC 3598 (TCC)

[4] Bellis v Sky House Construction Limited [2023] EWHC 1473 (TCC)

[5] AZ v BY [2023] EWHC 2388 (TCC)

[6] Marbank Construction Limited v G & D Brickwork Contractors Limited and another [2021] EWHC 1985 (TCC)