Adjudication Matters: July 2023

When will the court issue a stay of execution of an adjudication decision based on the defendant’s inability to pay?

In J&B Hopkins v A&V Building Solutions [1] Hopkins was engaged as a mechanical and electrical contractor on a project at the University of Sussex. They sub-contracted A&V.

There have been multiple adjudication and court proceedings between the parties, one of which was in the Court of Appeal which we discussed in our March 2023 edition of Adjudication Matters.

These recent proceedings related to the following matters:

• “Action 444”: Summary judgment to enforce an adjudicator’s decision had previously been awarded in Hopkins’ favour. The matters of interest, costs, and a stay of execution were still to be determined.
• “Action 6”: A&V sought various sums from Hopkins and requested judgment in default. In response Hopkins asked that Action 6:
  • be stayed until A&V paid the sum awarded in Action 444;
  • be struck out; and/or
  • that the court award security for costs.

In this hearing A&V argued they were entitled to a stay of execution in Action 444 on the basis that they couldn’t afford to pay the sum ordered by the adjudicator. They claimed that if ordered to pay, they would be forced to cease trading and enter insolvency and would therefore not be able to continue Action 6.

The financial evidence provided to the court showed that A&V were highly unlikely to be able to pay the sum due. However, case law had made it clear that where a stay of execution is sought, the court requires information not only as to the company’s financial health, but also as to the financial health of the owners of the company. Such information hadn’t been provided.

This meant A&V had failed to provide sufficient evidence and the court declined to grant a stay. Unusually, the court instead granted an adjournment of the hearing to enable A&V to provide further evidence of the financial position of its owners. The court gave the following reasons for this adjournment:

• Current evidence suggested that the owners wouldn’t be able to satisfy the debt owed;
• In previous proceedings Hopkins had highlighted concerns about A&V’s financial standing; and
• A&V were not legally represented.

Practical implications

To succeed in an application to stay an adjudicator’s decision based on inability to pay, a defendant must prove that neither the company nor its owners could pay the judgment sum.

Whilst A&V had failed to provide enough evidence to support its application, the court has allowed it a second opportunity to serve further evidence. This decision was made due to the defendant’s lack of legal representation and the strength of the current evidence.

It’s therefore probable that this is an unusual case and this second opportunity to provide evidence won’t be provided in other circumstances. This highlights the importance of providing all available financial information to the court in a timely manner.

The Adjudication Society regional ‘Meet the Adjudicator’ panel event

The Adjudication Society has recently launched its Women in Adjudication initiative which is tasked with the promotion of women in adjudication, training and collecting qualitative data to understand why their participation is currently so low. Further information on the initiative is available here.

On 5 July, Walker Morris was delighted to host a Meet the Adjudicator event on behalf of the Adjudication Society Women in Adjudication initiative. This event featured a stellar panel of female adjudicators sharing stories of their journey to qualifying as an adjudicator, getting on to a panel and their thoughts on how diversity in adjudication might be improved.

The evening’s chair, Morwenna Crichton of Yelland Savage, led the discussion amongst the panellists:

• Chantelle Vermeulen, Senior Legal Counsel at Equans UK & Ireland
• Bernadette Barker of Barker Consultants
• Amy Bonzyck, Associate Director at J.S. Held
• Caroline McDermott, Associate Director at Turner & Townsend
• Sue Kim, Director at HKA

The first topic up for discussion was the panellists’ route to becoming adjudicators. Despite differing qualifications, backgrounds, and countries of origin some common themes emerged. The first was that exposure to the adjudication process sparked the desire to become an adjudicator. It was this goal that kept the panellists going despite some significant obstacles on their journey. Another theme that emerged was the support of a mentor encouraging and directing the panellists along the way.

In terms of “blockers” that the panellists had faced, a key point was made that there’s an undue amount of opacity within the practices of the Adjudicator Nominating Bodies (ANBs). It’s difficult to understand the process to become an adjudicator, the qualifications required and whether or not ANBs had or were likely to have vacancies for newly qualified adjudicators. We heard one panellist had checked online before this meeting and couldn’t find clear information on this, demonstrating that work needed to be done in this area.

This opacity will mean that some talented people may not pursue adjudication as a career if they can’t see a clear route for them. This will hinder the diversity.

There was general agreement that a single source of information for the ANBs would be beneficial. “Tell us how” was the message.

Another panellist had spent significant time obtaining an unnecessary qualification, and a number felt that when taking an ANB’s training course they were required to complete modules in which they were already eminently qualified.

Morwenna highlighted that with women generally taking the lion’s share of child and elder care, adding unnecessary complexity or study to the process was likely to disincentivise women.

The panel agreed that opportunities to shadow an adjudicator and draft decisions were in chronic short supply, acting as a barrier to appointment. The development by some ANBs of pupillages was warmly welcomed with a clear message that more of this was needed.

Some panellists felt that there was a more general bias hindering the increase of women in adjudication; that women are seen as “lacking gravitas” in the industry. It was suggested that this may be an area where the construction industry has work to do in order match the progress of other sectors.

The following figures were raised by way of comparison:

• Female adjudicators – 7%
• Female judiciary – 35%
• Female arbitrators – 25%

Numbers alone can be a difficult measuring stick as the data isn’t clear. For example, 7% female adjudicators may at first glance appear not too bad when set against the number of females in construction at around 11%. However, the 11% includes everyone employed in construction including those “on the tools”. When compared against the number of women in professional roles the comparison is likely to be much worse.

The panel agreed that accurate and detailed information is needed to understand the scale of the problem and to help move forward. The audience was reassured to hear that the ANBs are receptive to collating and providing this information.

The final and significant point raised was that having overcome the difficulties of qualifying as an adjudicator, the panel were still experiencing a dearth of opportunities to actually adjudicate.

There was speculation that this may be down to institutionally embedded practices such as a lack of retirement age for adjudicators or a more discreet practice of sticking with those adjudicators that the ANBs already know.

It was suggested that the provision of detailed data by the ANBs may help to identify any unintentional bias and help to develop policies to counter this.

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

In Bellis v Sky House Construction Ltd [2], Bellis brought a Part 8 claim to challenge findings made in a previous adjudication between the parties.

Bellis argued that the adjudicator made an error in concluding that Bellis had wrongfully terminated the contract between the parties by serving a notice of termination before it was contractually entitled to do so.

The Contract (JCT Minor Works Building Contract, 2016 Edition) contained the following clauses:

• Clause 6.4.1 entitled the employer to serve a warning notice on the contractor specifying default.
• Clause 6.4.2 allowed the employer to serve a termination notice if that default continued for 7 days from receipt of the warning notice.
• 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“.

Bellis served a warning notice on 1 September 2021 and a subsequent termination notice was served on 8 September 2021.

The adjudicator found that Bellis had served its notice to terminate prematurely which amounted to a repudiation of the contract. The adjudicator calculated that the first date on which a notice of termination could be served was 7 clear days after the warning notice, as clause 1.4 applied to the requirements of clauses 6.4.1 and 6.4.2. So day 1 was 2 September 2021 and 7 clear days didn’t end until 9 September 2021. This meant Bellis had served notice a day early.

Bellis brought a Part 8 claim to challenge the adjudicator’s decision. The court concluded that the adjudicator’s interpretation of the contract was correct and Bellis had served the termination notice early which amounted to a repudiatory breach.

This judgment is a useful clarification of time periods across the JCT suite. The JCT Standard Building Contract, 2016 Edition and the JCT Design and Build Contract, 2016 Edition follow a similar regime to the Minor Works (albeit with a 14-day notice period rather than a 7-day notice period).

Parties to these JCT contracts should make sure they take care when calculating notice periods and leave a clear day gap so that they don’t inadvertently issue a notice early and risk repudiatory breach.

Part 36 offers in adjudication enforcement proceedings

We reported in our June 2023 edition of Adjudication Matters on the case of Sleaford v Isoplus [3] where the court dealt with a Part 8 declaratory relief application from Sleaford and a Part 7 enforcement application from Isoplus. At that hearing the court dismissed the Part 8 application and ordered payment of the sum awarded by the adjudicator to Isoplus.

A second judgment has now been issued dealing with interests and costs [4].

This second judgment is interesting because it considers the impact of Part 36 settlement offers on the costs of adjudication enforcement proceedings.

On the deadline for payment of the adjudicator’s decision (14 February 2023) Sleaford wrote to Isoplus stating its intention to issue Part 8 proceedings seeking declaratory relief that the adjudicator’s decision shouldn’t be enforced.

On 23 February 2023 Isoplus disputed Sleaford’s arguments and at the same time made a Part 36 offer to settle the claim for the sum of £323,502.32. The offer sum was the same sum that the adjudicator had awarded.

Sleaford didn’t respond. Isoplus was awarded the adjudication sum from its successful Part 7 application plus £3,084.28 in interest.

The court held that the Part 36 offer was a valid offer which Isoplus was entitled to rely on. However the court held that it would be unjust to award Isoplus the cost benefits set out in Part 36 of the Civil Procedure Rules for the Part 8 proceedings because the offer hadn’t been a genuine attempt to settle. In fact, it required payment of 100% of the adjudication sum and offered to forgo only a few hundred pounds in interest. The judgement notes that in some circumstances forgoing interest may constitute a genuine offer to settle, but it didn’t in this case. The court’s decision appears to be due to the very small amount of interest involved, amounting to only 0.1% of the amount sought.

Isoplus was awarded costs on an indemnity basis for the Part 7 proceedings. This was because Sleaford never had a realistic defence to the claim for enforcement. Its purpose in the Part 7 proceedings had been to delay payment for as long as it could whilst its Part 8 claim ran its course.

Practical considerations

The purpose of Part 36 regime is to allow parties to make and accept sensible offers thereby avoiding litigation. It has financial penalties of punitive interest and an additional lump sum payment where the losing party could have accepted an offer equal to or less than the court award.

Part 36 offers must be made after careful consideration. Parties must recognise that making an offer with a very low discount on the sum being claimed is a risky strategy. Even if they match or beat their offer, they may not be entitled to rely on it for the financial benefits that would normally follow, if the courts feel that it would be unjust to do so. This can result in the loss of substantial financial benefits for the successful party.

How we can help

If you have any questions on what we have spoken about in this month’s bulletin or need advice regarding adjudication, please do not hesitate to get in touch with Carly Thorpe, who will be happy to assist.

Sign up to receive next month’s edition.

Check out our video nuggets on Adjudication Basics

[1] J&B Hopkins Limited v A&V Building Solution Limited [2023] EWHC 1483 (TCC)

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

[3] Sleaford Building Services Limited v Isoplus Piping Systems Limited [2023] EWHC 969 (TCC)

[4] Sleaford Building Services Limited v Isoplus Piping Systems Limited [2023] EWHC 1643 (TCC)