What amendments to the JCT adjudication provisions can be permissible and what approach will the court take on how adjudicators are nominated?

Bellway Homes Limited v Surgo Construction Limited [1] is the second reported judgment between these 2 parties.

Previous Judgment

We discussed the first judgment we first discussed in our February 2024 Adjudication Matters bulletin where the court held that a request that an adjudicator determine a dispute on a smash and grab basis or alternatively on a true valuation basis was not a referral of multiple disputes.

Latest Judgment

An adjudicator will lack jurisdiction if they are appointed incorrectly. Once the notice of adjudication is given, the adjudicator should be appointed, and the dispute referred to them within seven days.

Here the Surgo argued that an amendment to the JCT which said that the adjudicator should be selected from a specified panel chosen by Bellway contravened the requirements of s108 of the Housing Grants, Construction and Regeneration Act 1996 (“HGCRA”).

The court rejected Surgo’s argument and held that there was no evidence of bias on the part of any of the adjudicators named on Bellway’s panel, nor on an interpretation of the provisions of s108 HGCRA, were there grounds to replace the amended provisions in whole or in part with the provisions of the Scheme for Construction Contracts (England and Wales) Regulations 1998 (“the Scheme”).

The key issues that arose were:

• Whether or not the adjudicator was validly appointed under the contractual adjudication terms. Surgo argued that the terms which permitted Bellway to select a particular adjudicator from a panel of three named adjudicators, contravened the HGCRA and so the Scheme should apply instead.
• Whether or not there was a proper legal basis for the adjudicator to decide, in a true value adjudication in respect of the current interim payment cycle, that Surgo has been overpaid on a previous payment cycle and should repay Bellway the amount of the overpayment.

In respect of the first point, Clause 9.2.1 of the Contract Particulars had been amended to the effect that the adjudicator was to be chosen from Bellway’s panel of adjudicators and in the event that none of the adjudicators were able to act, the nominating body should be the RICS. The provision was also amended so that rather than Surgo having seven days to secure am appointment, it had “as soon as reasonably practicable after” the notice was served. Bellway referred the matter to adjudication on 13 March 2023 and sought to appoint a specific adjudicator under the amended contract provisions but Surgo objected arguing that the Contract Particulars did not comply with HGCRA. The adjudicator disagreed. In due course the adjudicator rejected Bellway’s claim on the notified sum basis but, having accepted that he could and should undertake a true valuation exercise, made the decision that Surgo should pay the £1,076,220.82 sum to Bellway.

Surgo contended in its Part 8 claim that the fact that a referring party was first obliged to choose from Bellway’s panel introduced a perception of bias which went against the policy of HGCRA of having actually and ostensibly impartial adjudicators. The Judge rejected this argument stating:

“The panel of adjudicators were identified at the point of contracting and were all well-respected adjudicators, with no links to either Bellway specifically or to the employer or property developer organisations more generally, and no other characteristic which might dissuade a contractor such as Surgo from appointing them. There is no basis for any suggestion that any informed person would have considered that any of them would be inclined to depart from their well-known duty of impartiality when acting as adjudicator”.

On the second point, the Judge interpreted the applicable test as being whether or not the identification of the correct contractual provisions makes a substantial difference as regards to the proper contractual basis of appointment and the proper contractual procedure for the conduct of the adjudication. If it does not, then a defence on these grounds should be rejected as inconsistent with the policy of the HGCRA to provide quick, effective and accessible remedies. In this case, the Judge held that this made little material difference and alternative approach for referring the dispute would have resulted in the adjudicator having jurisdiction.

The parties made an amendment to the payment terms by including “at any time” in clause 4.9A. This meant that Bellway could recover any overpayments from the Surgo “at any time” and it was not limited to recovering them only at the final account stage.

Takeaway Points

This case illustrates the court’s reluctance to interfere with the adjudication process. The parties are free to agree to amendments to the JCT adjudication provisions and the courts will take a flexible approach when determining whether they are valid.

Can Part 8 be used to determine whether a cap on liability applies?

What are Part 8 Claims?

Part 8 of the Civil Procedure Rules (CPR) provides a simpler mechanism for the disposal of claims than under the usual court procedure set out in Part 7 of the CPR. Part 8 is intended to be used for the determination of claims that do not involve a substantial dispute as to fact. Part 8 is often used to resist enforcement of an adjudicator’s decision. However, a recent case has confirmed that Part 8 can also be used to determine other disputes, including those relating to contract interpretation.

Background

In CLS Civil Engineering v WJG Evans [2] the court held that the dispute relating to contract terms was suitable for Part 8 determination because there were no disputed issues of fact and the estoppel arguments that were raised by the Defendant had no real prospect of success.

CLS engaged WJGE to construct a library, retail unit and three apartments. Whilst the specific terms of the JCT building contract were still to be agreed between the parties, the parties entered into a Letter of Intent (“LoI”). The LoI initially included an overall liability cap of £150,000 but this was varied by agreement on several occasions over the course of 14 months to increase to £1.1million. During this time, the parties failed to agree the terms of the JCT contract.

The dispute

CLS terminated WJGE’s engagement in respect of the works and in response, WJGE brought a Part 8 claim against CLS for repudiatory breach of contract. WJGE also issued a final valuation for all work undertaken to date which totalled £1.4 million. WJGE sought the following declaratory relief:

• That there was no construction contract between the parties and that any legal relationship between the parties was solely governed by the agreed terms set out in the LoI (and its revisions).
• WJGE’s maximum liability under the LoI and its revisions was £1.1 million.

WJGE argued that the overall liability cap in the LoI was not applicable and that the terms of the standard JCT Intermediate Contract 2016 Edition applied to the works. WJGE also argued that CLS was estopped from relying on the overall liability cap in the LoI. WJGE argued that the proceedings involved substantial disputes of fact and so the matter was not suitable for Part 8 and that directions should be given under Part 7 instead.

Discussion

The court highlighted that the real dispute between the parties was as to the validity of WJGE’s valuation of £1,413,669 and whether WJGE should be held to the cap of £1.1m under the LoI. The Judge acknowledged that the dispute was therefore only around £300k and if the court could not determine the dispute of whether the cap was agreed Part 7 proceedings would likely be required. If so, having regard to the value of the claim the proceedings would likely have had to be transferred out of the TCC to the county court leading to delay and additional expense for the parties. The court therefore had to consider whether the dispute could be determined under Part 8 so as to save costs and court time in line with the overriding objective of dealing with disputes in a proportionate manner.

Decision

The court held that it could determine the claim under Part 8 because the key issue was whether the cap applied under the LoI, which was a straightforward, self-contained point. In particular:

1. There were no disputed issues of fact which make the proceedings unsuitable for Part 8.
2. WJGE’s arguments surrounding estoppel had no real prospect of success and so were not an impediment to Part 8 determination.
3. The parties had agreed that the Works would be subject to a cap on CLS’s liability as set out in the LoI.
4. The parties did not reach an agreement on JCT terms.

Takeaway Points

The case highlights the risk of starting works on a project under a LoI and the importance of concluding negotiations on contract terms as quickly as possible. Here both parties put themselves at risk by allowing the value of the Works carried out to exceed the cap under the LoI without the cap being increased or a formal JCT being entered into.

If an LoI cannot be avoided, the terms need to be clear, and the cap should not be exceeded.

The case also demonstrates the utility of Part 8 proceedings for resolving contract interpretation disputes in a quicker and more cost-effective manner than Part 7 proceedings. Although, caution should be exercised in using Part 8 proceedings appropriately as the court will not determine disputes of fact under Part 8.

Can an application for security for costs delay the enforcement of an adjudicator’s decision?

In Melton Town Football Club Ltd v Hunts Contractors Ltd [3], the court considered whether it was appropriate to delay an adjudication enforcement hearing on the basis that Hunts had made an application for security for costs which, Hunts claimed, ought to be dealt with first.

Whilst on the facts, it was possible to have the cost hearing before the enforcement hearing in any event, the comments made in the judgment are useful to show the court’s reluctance to delay adjudication enforcement.

What is a security for costs?

A security for costs order requires a claimant to pay monies into court, or otherwise provide some form of security, to guarantee the opponent’s costs should the proceedings be successfully defended.

Security for costs orders can only be made in specific circumstances. It typically covers situations where there are concerns that the claimant is in financial difficulty, that the defendant has a reasonable chance of successfully defending the claim, and the claimant may not be able to pay the defendant’s legal costs if the Court subsequently determines that the claimant should do so.

A defendant would typically request that the proceedings are stayed until the security for costs are provided.

Background

Melton entered into a construction contract with Hunts for the design and construction of a new synthetic football pitch with a contract sum of circa £355,000.

After completion, Melton noticed a number of defects in the pitch and brought adjudication proceedings against Hunts in March 2023. The adjudicator found that there were defects and directed that Hunts make payment to Melton of over £900,000.

Hunts refused to comply with the decision and so, Melton commenced adjudication enforcement proceedings. Hunts applied for security for costs and requested that the enforcement proceedings be stayed until the security for costs order was given and Melton had provided the necessary security.

The Dispute

Directions had already been given that the adjudication enforcement hearing was to be on 14 August 2023. Hunts requested that the directions be varied so that the security for costs application be heard first, and the enforcement hearing be stayed pending the outcome of that application.

Hunts claimed that Melton were in financial difficulty. Melton’s accounts were showing a negative balance sheet. Further, Hunts claimed they had valid grounds to defend against enforcement of the adjudicator’s decision. On that basis, if Hunts successfully defended the claim, Melton would not be in a position to remedy the pitch meaning that Melton, as a community football club, may not be able to continue.

Accordingly, Hunts claimed, Melton must be in financial difficulty and would not be able to pay Hunts’ legal costs if Hunts were successful.

Melton argued that a stay would be contrary to the ethos of adjudication on the basis that adjudications are to be dealt with speedily and Hunts approach was causing delays and increased costs to enforcement. Melton suggested that the security for costs application was an exercise in incurring more costs and attempting to prevent or frustrate Melton from being able to enforce the adjudicator’s decision.

Decision and take home points

The court found that, on the specific facts of the case and availability of the parties, the security for costs application could be heard and dealt with before the enforcement hearing in any event. Accordingly, there was no need to stay the enforcement hearing and Hunts would still have opportunity to have its costs application heard.

However, the court did make comments which suggest that they may not have allowed the security for costs hearing if it would then have been necessary to delay or stay the enforcement hearing.

The court recognised that there can be an inherent “tension” between the security for costs process and the established principles of enforcing adjudication decisions. A security for costs application which impacts the enforcement hearing date, and therefore postpones payment, undermines the principle of adjudication.

Accordingly, whilst the court didn’t expressly decide the point, indicative comments suggest that a defendant cannot delay or stay an enforcement hearing by making an application for security for costs.

In light of this, if there are cost concerns when defending against enforcement of an adjudication decision, it would be sensible to make any application as soon as possible so that it can be dealt with in good time before the enforcement hearing.

How we can help

If you have any queries in respect of this bulletin or would like to know more about adjudication please contact Carly Thorpe, Sam Parkinson or Julia Bates.

Interested in receiving regular Adjudication Matters updates? Click here and sign up to our preference.

Explore our Adjudication Basics video series here.

[1] Bellway Homes Limited v Surgo Construction Limited [2024] EWHC 269 (TCC)
[2] CLS Civil Engineering v WJG Evans [2024] EWHC 194 (TCC)
[3] Melton Town Football Club Ltd v Hunts Contractors Ltd [2023] EWHC 3133 (TCC)