Adjudication Matters: February 2023

What is the limitation period to refer a dispute to adjudication?

In LJR Interiors v Cooper Construction [1] the Technology and Construction Court held that a claim for payment was time-barred because the limitation period to bring such a claim had expired.

Practical completion was in October 2014 and LJR referred a payment dispute to adjudication in September 2022. Cooper argued in the adjudication that the limitation period to bring this claim had expired. The adjudicator rejected this defence and found in favour of LJR. Cooper didn’t pay and LJR issued enforcement proceedings. Cooper then made a Part 8 application in defence to the enforcement proceedings seeking a declaration that the limitation period had expired.

The TCC found that the time limit set out in section 5 of the Limitation Act 1980 for actions founded on simple contract of six years from breach also applied to disputes referred to adjudication.

The adjudicator had concluded that the cause of action only accrued when Cooper hadn’t paid by the final date for payment of the final account which was 28 August 2022. But the TCC held that limitation in fact began to run at the payment due date of 28 November 2014. This meant that any action must be referred to adjudication within six years from 28 November 2014.

The TCC also confirmed that a party can’t restart the limitation period by including the same claim for payment within a later application.

This case confirms that parties shouldn’t delay in referring a dispute to adjudication. The power to launch statutory adjudication ‘at any time’ under the Construction Act [2] is in fact time limited and adjudicators should consider limitation as a substantive defence in any relevant claim referred to them.

Is a court bound by an arbitrator’s decision?

The TCC in Ravestein v Trant Engineering [3] refused the claimant’s application to appeal an arbitrator’s decision on jurisdiction under section 69 of the Arbitration Act on the basis that they’d failed to comply with a contractual provision to give a valid Notice of Dissatisfaction, as prescribed in the NEC3 form of contract. This builds on the guidance provided by the 2021 case of Transport for Greater Manchester v Kier Construction [4].

A dispute over defective works was referred to adjudication and the adjudicator found in Trant’s favour and directed that Ravestein make payment to Trant. Ravestein didn’t pay.

Under Option W2 of the NEC3 contract an adjudicator’s decision is final and binding unless one party provides a Notice of Dissatisfaction to the other, within four weeks of notification of the adjudicator’s decision.

Six months after the adjudicator’s decision Trant served a notice to refer the dispute to arbitration. It relied on an email it sent as a Notice of Dissatisfaction. The arbitrator determined that Trant had not served a valid Notice of Dissatisfaction, so the adjudicator’s decision was final and binding and the arbitrator didn’t have jurisdiction to consider liability for the defects.

This matter was then referred to the TCC. The TCC decided that given the agreement of the parties to resolve the dispute by arbitration pursuant to the provisions of the contract, it wouldn’t be proper for the court to instead determine the question which was in the arbitrator’s powers.

Accordingly, the arbitrator’s conclusion that there was no valid Notice of Dissatisfaction was upheld and the adjudicator’s decision was binding.

This case serves as a reminder of the importance of complying strictly with contractual notice provisions. It also shows that the TCC won’t undermine an arbitrator’s conclusions in circumstances where arbitration has been selected as the dispute resolution mechanism under the contract.

Can a dispute crystallise under a draft contract?

In Bravejoin v Prosperity Moseley Street [5] the TCC found that a dispute had crystallised before it was referred to adjudication, meaning that the adjudicator had jurisdiction and their decision could be enforced.

The statutory right to adjudicate only arises if a dispute has crystallised in accordance with section 108 of the Construction Act. Bravejoin was originally engaged as steelwork and cladding subcontractor by JA Ball, a main contractor. Prosperity was then set up as a special purpose vehicle for the development. A draft contract between Prosperity and Bravejoin was prepared by Prosperity but was never signed. JA Ball subsequently entered administration.

Bravejoin sent six invoices to Prosperity, and several payment notices and pay less notices were issued by Prosperity. Bravejoin commenced adjudication proceedings against Prosperity to recover £37,000 it claimed was owed by Prosperity in unpaid invoices. Prosperity argued the adjudicator didn’t have jurisdiction due to the dispute not having crystallised. Prosperity noted that some of the invoices were not addressed correctly and the contractual relationship between the parties was not clear or finalised as the contract had never been signed.

The adjudicator found that there was a binding contract and ordered Prosperity to pay the £37,000 claimed.

The TCC enforced the adjudicator’s decision. The TCC noted it was relevant that a) Prosperity had treated the invoices as having been issued to it and these invoices were not then paid, b) the pay less notices had been signed by Prosperity, and c) the payment notice stated the date for payment.

The TCC held that where a date for payment has passed, this is a clear indication that a dispute has crystallised. Prosperity’s argument that there was no contract acted as a denial of its liability for payment which again showed a dispute had crystallised. Bravejoin was awarded costs on an indemnity basis.

Ultimately the decision as to whether a dispute has crystallised will depend on the facts of the particular case and the parties’ actions. This case illustrates that a court will be cautious regarding arguments that no dispute has crystallised. In some cases, where a claim has been made and the other party has failed to respond to it, that will be enough to show crystallisation.

Does the ‘pay now, argue later’ principle apply when both parties owe monies to each other

In RHP Merchants and Construction v Treforest Property [6] the TCC stayed court proceedings brought to finally determine the parties’ dispute until the outstanding payments from two adjudication decisions were made.

Two adjudications took place, resulting in the contractor RHP being ordered to pay around £300,000 and the employer Treforest being ordered to pay around £243,000. Both amounts remained unpaid, leaving a balance owed to Treforest of around £36,000 when taking into account the amounts due in both adjudications. RHP then brought Part 7 court proceedings to finally determine the dispute.

Treforest then applied for a stay and strike out of the Part 7 claim on the basis that RHP had failed to comply with the adjudicator’s decision against RHP. Treforest argued that RHP had acted in bad faith by attempting to issue different forms of dispute resolution and disregarding the well-established ‘pay now, argue later’ regime in accordance with the Construction Act.

The TCC held the Part 7 proceedings should be stayed pending payment of the net sum owed from RHP to Treforest. If payment was not made within 28 days, then the claim would be struck out. RHP owed Treforest at least the net balance due and had shown no clear reason as to why it had not paid this already. RHP’s right to ‘argue later’ was preserved though, as the court refused to order an indefinite stay of proceedings as this would have fettered RHP’s right to access justice through court proceedings.

This case demonstrates that although an adjudication decision will be binding until final determination (argue later) the payment process under section 11 of the Construction Act will ultimately take priority over this (pay now).

Please contact Carly Thorpe if you have any queries about the points covered in this edition or would like to know more about adjudication.

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[1] LJR Interiors Limited v Cooper Construction Limited [2023] EWHC 3339 (TCC)

[2] Housing Grants, Construction and Regeneration Act 1996 (as amended)

[3] Ravestein B.V. v Trant Engineering Limited [2023] EWHC 11 (TCC)

[4] Transport for Greater Manchester v Kier Construction Limited [2021] EWHC 804 (TCC)

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

[6] RHP Merchants and Construction Limited v Treforest Property Company Limited [2021] EWHC B40 (TCC)