The allocation of liability for costs in complex litigation arising from adjudication – the A&V and J&B saga continues…

A & V Building Solution Limited v J & B Hopkins Limited [2024] EWHC 2914 (TCC)

A & V Building Solution (“A&V“) and J & B Hopkins Limited (“J&B“) have been before adjudicators and judges many times over the past couple of years, and they have been frequent stars of our past issues of Adjudication Matters with previous judgments having been discussed in our October 2024, March 2023, July 2023,  November 2023 and our July 2024 publications.

In this most recent judgment, the court decided on the liability for costs between the parties.

The primary issue concerned which party should bear the costs accrued after offers to settle (including under Part 36 of the Civil Procedure Rules (“Part 36“)), were made by both sides.

A&V argued that the J&B acted unreasonably and failed to settle appropriately in the earlier stages of litigation. Conversely, J&B contended that A&V exaggerated claims, and that its own offers, including a final offer made under Part 36, were reasonable and in-line with the merits of the case.

Judgment

The court ultimately concluded that J&B’s Part 36 offer, made in February 2024, was effective, shifting the burden of costs from that point forward to A&V, who had then failed to obtain a judgment more advantageous than the final settlement offer. A&V was entitled to recover some of its costs from before the February 2024 offer only.

The court also addressed a dispute over deductions for payments under the Construction Industry Scheme (“CIS“), concluding in favour of A&V that such deductions should not affect the assessment of whether they had beaten the Part 36 offer.

Takeaway Points

• When calculating sums payable under a judgment in the construction context, any CIS deductions owed to HMRC must be accounted for. The payer is required to remit 20% of the judgment sum to HMRC on behalf of the receiving party. This 20% remission cannot be taken into account when assessing whether the offer sum has been beaten.
• A valid Part 36 offer must comply with certain formalities, including being in writing, stating it is made pursuant to Part 36, setting out a clear period for acceptance and offering a settlement that includes all interest and costs unless explicitly indicated otherwise.
• Courts have limited discretion to depart from the cost consequences specified in Part 36. This discretion is confined to instances where applying the standard rule would be unjust, and the court must consider the circumstances surrounding the offer.
• If a claimant fails to obtain a judgment more advantageous than the defendant’s Part 36 offer, the court must, unless unjust, order the claimant to pay the defendant’s costs from the date of expiry of the relevant period for the offer, along with interest on costs.
• The court has discretion to allow for the set-off of judgments or costs liabilities between parties when equitable, even in separate proceedings. This jurisdiction seeks to prevent manifest injustice by ensuring one party does not receive a monetary award without offsetting liabilities it owes to the other.

Can an insolvent company enforce an adjudicator’s decision where there is also a cross claim?

Malin Industrial Concrete Floors Ltd v Volkerfitzpatrick Ltd [2024] EWHC 2890 (TCC)

Factual background

The Subcontractor, Malin Industrial Concrete Floors Ltd (“Malin“) was engaged by Volkerfitzpatrick Ltd (“Volkerfitzpatrick“) in connection with concrete flooring works in Doncaster. In an adjudication, Malin was awarded £59,950 plus interest, fees and VAT.

Volkerfitzpatrick failed to provide adequate evidence in the adjudication of its cross claims.

Following this, Malin entered into insolvency proceedings. Volkerfitzpatrick then raised a cross claim against Malin for defective flooring Malin had installed. The value of the cross claim was around £66,000, based on the cost of repairs Volkerfitzpatrick had to have carried out to the floor.

Malin sought summary judgment to have the adjudicator’s decision enforced. Malin argued that Volkerfitzpatrick had attempted to “subvert the purpose of adjudication by lightly trailing a cross-claim, without properly engaging in the issues within the adjudication”, in a tactical move against Malin. On this basis, Malin should be granted summary judgment subject to a stay to allow Volkerfitzpatrick to bring a Part 7 claim for any sums owing on the cross claim.

Volkerfitzpatrick argued that the cross claim was substantial due to the clear repair costs incurred. Volkerfitzpatrick claimed that summary judgment should not be enforced due to 1) Malin’s insolvency and 2) a lack of security for the cross claim or any related costs.

One of the questions for the judge to consider was whether Volkerfitzpatrick’s cross claim was substantial enough with “evidence of more than a bare cross-claim” for Volkerfitzpatrick’s objection to enforcement to be considered further. Volkerfitzpatrick provided two separate reports which it claimed demonstrated that there were defects in Malin’s works.

Judgment

The judge granted summary judgment in favour of Malin but stayed enforcement pending further order.

Volkerfitzpatrick was granted 3 months to provide evidence to show there was a prima facie case giving rise to a cross claim that could extinguish the amount granted by the adjudicator.

The Judge held that the reports provided by Volkerfitxpatrick, although they didn’t expressly state that the works were defective, did raise several points of substance including identifying wide cracks and their potential causes, in the floors. Therefore there was sufficient potential for a cross claim to merit Volkerfitzpatrick’s objections to the enforcement being considered further, in an insolvency context.

The Judge referenced the previous judgment of Bresco [1] which held that once any claims and cross claims have been properly determined, this gives rise to a claim for the net balance. Due to Malin’s insolvency and the lack of security around the cross claim, this put Volkerfitzpatrick at risk of not being able to recover the sums owed under the cross claim where summary judgment was awarded without limitation. Consequently, the 3 month stay was granted to allow Volkerfitzpatrick additional time to prove its case on the cross claim.

Takeaway points

This case demonstrates how the adjudication enforcement process can be affected by the insolvency of one party. Here the stay in execution was a compromise position to balance the conflicting principles of 1) the swift enforcement of adjudicator’s decisions, and 2) the ability to seek final determination of a dispute via the courts or arbitration. Where one party is insolvent forcing the other party to make payment could mean that there is no prospect of recovering the sums paid following a final determination.

The case also emphasises that parties should not use insolvency tactically in an attempt to avoid payment of adjudicator’s awards. Detailed evidence of any cross claim will be required in order to persuade a court to grant a stay of execution.

Is Sunday a day of rest for serving notices?

My Contracts Ltd v 74 Hamilton Terrace Freehold Ltd [2024] EWHC 2896 (TCC)

Factual background

The works related to a development at Hamilton Terrace, London NW8. The Employer, 74 Hamilton Terrace Freehold Ltd (“74 Hamilton Terrace Freehold“) engaged the Contractor, My Contracts Ltd (“My Contracts“) under a JCT Design and Build Contract 2016 with bespoke amendments dated 2 March 2023.

Article 12 of the Contract concerned the collapse of the original façade at the site and required My Contracts to accept liability for façade costs, and allowed for Hamilton Terrace Freehold to claim these costs where it gave notice to My Contracts “not later than 4 (four) months after the date of this Contract”.

Notice was served on 3 July 2023 which was a Sunday. My Contracts claimed that the notice was served late and initiated adjudication proceedings to determine whether the time limit in Article 12 had been complied with.

My Contracts argued that “the corresponding date rule” for interpreting time periods [2] applied and meant that the four month notice period under Article 12 expired on 2 July 2023.

The corresponding date rule is as follows:

“Where a contract provides for the performance of an act within a certain number of months, the period expires on the date of the month bearing the same number as the date on which the period begins or, if there is no such day, on the last day of the month.” [3]

On this basis, notice served on 3 July 2023 would have been too late.

Hamilton Terrace Freehold argued that the four month notice period should be calculated in line with clause 1.5 of the Contract which stated that where an act under the Contract was to be performed within a number of days after or from a specified date, the period shall begin immediately after that date. Where the period includes a Public Holiday, that day is excluded from the period.

The adjudicator decided against My Contracts, who then initiated part 8 proceedings to determine the issue.

Judgment

It was held that My Contracts was correct in its argument that the notice was served late. The Judge held:

• The Contract did not intend to exclude Public Holidays from the notice period in Article 12. Express wording was required for such an exclusion.
• Notice served by email on a Sunday could have constituted valid notice under the Contract.
• Clause 1.5 only applies where the notice period is expressed in days. In this Contract, the period was expressed in months.
• The judge noted that the court’s role was not to “make contracts for the parties” by adding in words into the Contract in its interpretation e.g. by inferring that notice should only be deemed received on a working day. The court’s role is “limited to interpreting what the parties have agreed” and not in re-writing the original wording of the contract.

A declaration was therefore granted in favour of My Contracts that the notice served on 3 July was out of time and not in accordance with the provisions of the contract.

Key Takeaways

The calculation of time periods for notices is a key issue which is repeatedly referred to the courts. Before service a notice the party should check the express terms of the Contract. If there are no express terms of the Contract which deal with the particular time period, then common law rules of interpretation will apply.

The key trends following the publication of the Kings College London third construction adjudication report

The report [4] from Kings College London examines the latest adjudication statistics in relation to referral trends, causes of disputes and costs, and highlights issues in relation to the diversity of adjudicators and equal representation.

The report analyses data drawn from two questionnaires: one addressed to Adjudicator Nominating Bodies (“ANBs“) and a second addressed to individuals involved with statutory adjudication.

Some of the headline trends from the report are as follows:

• The number of adjudication referrals received by ANBs has reached the highest level on record in the past year at 2,264;
• Almost 20% of adjudication referrals were adjudicated using the low value or fast-track adjudication procedure (or equivalent);
• The most common value of an adjudication claim in the past year was between £125,000 and £500,000
• The leading causes of disputes were inadequate contract administration and lack of competence of project participants;
• Smash-and-grab’ adjudications were the most common category of claim in the past year, according to 63% of individual respondents. They were followed by ‘true value’ (final account) adjudications (38%), ‘true value’ (interim payments) (35%), and loss and expense and/or damages for delay and/or disruption (35%);
• 48% of questionnaire respondents stated that adjudications in the past year were typically completed within 29 and 42 days from the date of the referral notice, whereas 16% of questionnaire respondents stated that the default 28-day period under the Construction Act was the typical length of proceedings; and
• Women account for only 8.9% of adjudicators on their panels/lists on average as of April 2024. TECBAR had the highest proportion of women on its adjudicator panel/list at 20%, followed by TECSA at 12%.

The report was launched at The Adjudication Society’s Annual Conference in Manchester on 20 November 2024.

Takeaway points

This case serves as a reminder that the courts will interpret contractual deadlines strictly and will not be willing to “make contracts for the parties”. Parties to contracts and those drafting those contracts should be aware of the deadlines set within the standard form contracts and any bespoke clauses they negotiate in this regard.

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[1] Bresco Electrical Services Ltd (in liquidation) v Michael J Lonsdale (Electrical) Ltd [2020] UKSC 25

[2] Lewison on The Interpretation of Contracts

[3] Lewison on The Interpretation of Contracts

[4] kcl-dpsl-construction-adjudication-report-3.0-2024-update-digital-aw1.pdf