Adjudication Matters: March 2023

A&V Building Solutions v J&B Hopkins

What were the facts of this case?

JBH sub-contracted AVB to carry out mechanical and electrical works on a university project in Sussex. AVB was engaged on JBH’s standard terms, clause 9.2 of which specified a date for submission of an application for payment as Sunday 21 March 2021, 10 days before the Valuation Date.

But Appendix 6 of the terms also stated “if applications are not received from the Sub-Contractor 7 days prior to the Valuation Date then the Sub-Contractor shall not be entitled to any payment”.

AVB issued the payment application on Monday 22 March 2021 (which it had also done on a previous occasion when the date for issue fell on a Sunday).

The parties disputed the sum due for this payment application.

Some 7 months later, as the matter was progressing to adjudication, JBH claimed for the first time that the payment application was invalid due to being issued 1 day late.

During the adjudication JBH started a Part 8 claim seeking various declarations, several of which related to matters that were already being considered by the adjudicator.

The TCC in the Part 8 application said that the date set out at clause 9.2 was a condition precedent to payment and if missed under any circumstance AVB had no entitlement to payment. AVB appealed.

What did the Court of Appeal say?

What approach will the court take where there are conflicting contract terms regarding a payment notice?  

The Court of Appeal considered whether the condition precedent at clause 9.2 rendered the payment application invalid or if the wording at Appendix 6 provided contractual flexibility which made the payment application valid.

The court decided that the wording in Appendix 6 did indeed provide flexibility with the date in clause 9.2 being a target date 10 days before month end but the hard stop date for validity being 7 days before month end under Appendix 6. It therefore ruled that the payment application was valid.

Its rational for this decision was based on two “canons of construction” [2]:

• “When interpreting a contract, all parts of the contract must be given effect where possible, and no part of it should be treated as inoperative or surplus”.

Using the date at clause 9.2 of 21 March 2021 would mean ignoring the subsequent wording of Appendix 6.

• “Where a contract contains general provisions and specific provisions which potentially contradict each other, the specific provisions will be given greater weight”.

Appendix 6 being a specific provision had greater weight than clause 9.2 which was a general provision.

Is a Part 8 application seeking a declaration on a matter still being considered by an adjudicator an abuse of process?  

The Court of Appeal was clear that court proceedings could be started by the parties even in an ongoing adjudication [3]. But the court was clear that caution should be exercised when approaching this type of case, to avoid any attempts to undermine the “pay now, argue later” principle of adjudication.

Does previous acceptance of a late payment application act as a waiver or estop the accepting party from refusing further late payment applications? 

JHB had previously accepted as valid a payment application submitted on a Monday where the contract required submission on a Sunday. AVB argued that this estopped JBH from arguing that this payment application was late because it was also submitted on a Monday.

The court dismissed this argument and said that one instance of paying a late payment application is not generally sufficient to amount to a waiver in respect of future applications [4].

Does treating a payment application as validly submitted estop the receiving party from claiming it’s not valid in later proceedings? 

JBH treated the payment application as valid for over 6 months between submission and the beginning of the adjudication process. It then argued for the first time in the adjudication that the application wasn’t valid. The fact that JBH had treated the payment application as valid meant that AVB didn’t repeat its claim for payment in any subsequent monthly payment cycle. This meant JBH was estopped for claiming at this late stage that the payment application wasn’t valid.

What practical points arise?

This case gives those involved in adjudication a lot to consider and is a reminder that:

• Parties should make sure that contract provisions don’t conflict with one another.
• Part 8 proceedings can run parallel to adjudication proceedings but courts will be wary of parties using those proceedings to try to avoid the “pay now, argue later” principle of adjudication.
• Showing flexibility over payments won’t prevent a party from enforcing their rights over later payments.
• Issues over invalidity of payment applications should be raised at the earliest opportunity. Failure to do so may prevent parties from raising these sorts of issues later on.

Is the fact that a company is highly unlikely to repay an adjudication award due to its poor financial position a ground for seeking a stay of enforcement?

In WRG v Henry Construction Projects [5] Henry contracted with WRG, a dormant company at the time of contracting.

The parties fell into dispute and ended up in adjudication with WRG being awarded £120,655.35.

Henry refused to pay and went to court seeking a stay of execution while it formulated a cross claim of some £750,000. Its basis for doing this was that, should its cross claim be successful, it was highly likely any sums paid to WRG wouldn’t be recovered because WRG was a dormant company.

WRG in response offered a group company guarantee for the payment for 6 months.

The court dismissed the application for a stay. The court agreed with Henry that WRG would be highly unlikely to repay any monies paid to them now. But this was a situation of Henry’s own making. It chose to sub-contract with a dormant company and there had been no material change to WRG’s financial position. Henry could hardly ague now that this was a basis for avoiding payment.

Parties should consider the financial state of the counterparties carefully. Unless there’s a material change between the time of contracting and the time of the dispute, it’s unlikely to be a valid basis for resisting payment of an enforcement decision.

What constitutes a valid payment notice?

The Scottish case of Tierney v Bisset [6] concerned the validity of a payment notice for works carried out by Bisset on the construction of a luxury dog hotel in Aberdeenshire.

The payment provisions of the Scheme [7] applied to the contract, which required Tierney to give a payment notice in accordance with section 110A(2) of the Construction Act [8]. Tierney failed to do so, which meant that Bissett could give a payment notice under section 110A(3) of the Construction Act instead.

Tierney argued that Bisset’s valuation was ineffective as a payment notice for the purposes of section 110A(3), because the valuation didn’t specify how the notified sum had been calculated. Tierney said that the valuation was limited to a brief description of the work and the amount sought (stated as lump sums) and no breakdown was provided; not even between labour and materials. Bisset argued that its valuation was valid and that it set out an itemised breakdown of the works carried out or deducted from the original scope of works with a breakdown of the price charged for each line item.

The court held that a notice under section 110A(3) must specify the sum that the payee considers to be or to have been due at the payment due date, and the basis on which that sum is calculated. Here, there was no dispute that Bisset’s valuation specified the sum it considered due and the court held that the line items showed how the amount Bisset considered to be due was calculated. The court held that Bisset’s valuation was a payment notice in substance, form and intent and had Tierney been dissatisfied with the degree of specification provided in Bisset’s valuation, Tierney’s remedy was to serve a pay less notice (but they didn’t).

This case is a reminder that a paying party must issue a payment notice or pay less notice in accordance with the contract if it disagrees with the payee’s application. A party seeking payment must make sure that its payment application is as detailed as possible and includes all of the necessary supporting information described in the contract.

Does an adjudicator have jurisdiction to order payment if the redress sought by a party is a declaration that it’s “entitled to further payment”?

In Exyte v NG Bailey [9] Exyte applied to enforce 3 adjudication decisions made in its favour against NG Bailey.

In a previous adjudication between the parties the adjudicator (B) had decided that they didn’t have jurisdiction to award a payment because a pay less notice had created a negative balance due to the sub-contractor.

When determining whether to enforce these 3 later adjudication decisions the court considered the following questions.

Did each adjudicator make an order for payment?

NG Bailey argued that, as a result of the negative balance referred to in B’s decision, no payment was in fact being claimed and the sub-contractor was only seeking a valuation. HHJ Kelly rejected this and held that each adjudicator did make an order for payment. The redress sought in each of the notices of adjudication was identical. The wording “[the claimant] will ask the adjudicator to decide/declare” was enough to notify both the adjudicator and NG Bailey that Exyte was in fact seeking a decision/declaration, in respect of the various matters in the redress sought. That clearly included a claim to be “entitled to a further payment”.

Did the decision of B in respect of the rate of interest bind later adjudicators?

The court held that B’s decision was binding on the later adjudications if the dispute determined by B was the same or substantially the same dispute referred in the later adjudications. Here, the later adjudications concerned different disputed variations and the only matter in common was that the dispute was under the same subcontract.

In any event, the court held that if any of the adjudicators were wrong in deciding that B’s decision either did or didn’t bind them, then that was a question of law and not of jurisdiction so did not prevent the decisions from being enforced.

Did the adjudicators have jurisdiction to award payment?

NG Bailey argued that the adjudicators didn’t have jurisdiction to award payment because the adjudication notices concerned individual variation orders rather than the consideration of entire payment cycles. NG Bailey argued that it was entitled to set-off liquidated damages and other items against any decisions made in favour of Exyte by the adjudicators.

The court held that each adjudicator did have jurisdiction to award payment. The fact that each adjudicator was being asked to both decide value and award payment was clear from the notice of adjudication and from the parties’ various submissions. NG Bailey hadn’t raised during the adjudication its intention to set-off liquidated damages and other losses against the valuation and the court held that it was too late for NG Bailey to raise this issue for the first time in enforcement proceedings.

This case is a reminder that the redress sought in the notice of adjudication should be clearly set out to avoid any disputes as to the scope of the adjudicator’s jurisdiction. In particular, if an order for payment is sought, this should be expressly requested.

This case also makes clear that any issue on jurisdiction should be raised immediately and during the adjudication itself, rather than waiting to deploy such argument(s) at enforcement stage.

If you have any queries about any of the points covered or would like to know more about adjudication please contact Carly Thorpe.

More from Walker Morris

Want to maximise your prospects of success at adjudication and adjudication enforcement? Then join our experts at our upcoming event – Adjudication Matters: Tricky Topics & How to Overcome Them

You can sign up to receive next month’s edition of Adjudication Matters here

Check out our video nuggets on Adjudication Basics

[1] A&V Building Solutions Limited v J&B Hopkins Limited [2023] EWCA Civ 54

[2] Chapter 7 of The Interpretation of Contracts (7th edition) by Sir Kim Lewison

[3] Jarvis Facilities Limited v Alston Signalling Limited [2004] EWHC 1285 (TCC)

[4] Leeds City Council v Waco UK Limited [2015] EWHC 1400 (TCC), 160 Con LR 58 at [53]-[54]

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

[6] Laura Tierney v G F Bisset (Interbervie) Limited [2022] SAC (Civ 3)

[7] Scheme for Construction Contracts (Scotland) Regulations 1998

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

[9] Exyte Hargreaves Limited V Ng Bailey Limited [2023] EWHC 94 (TCC)