The pitfalls of assigning your contract prior to adjudication

21st April 2017

Mailbox (Birmingham) Ltd v Galliford Try Construction Ltd [2017] EWHC 67 (TCC)

Background

Mailbox (Birmingham) Ltd (“Mailbox“) is a special purpose vehicle that was set up as the developer in relation to a mixed use retail and office space at 61-63 Wharfside Street, Birmingham (the “Property“). On 23 December 2013 Mailbox entered into a contract with Galliford Try Construction Ltd (“Galliford“), the contractor, for Galliford to carry out refurbishment works at the Property (“the Contract“).

Galliford proceeded to carry out most of the refurbishment works but in March 2016, Mailbox purported to determine Galliford’s employment under the Contract. Disputes arose between the parties relating to delay, liability for liquidated damages, the proper valuation of the final account and the lawfulness of the termination by Mailbox.

On 19 August 2016 Mailbox commenced adjudication proceedings against Galliford seeking liquidated damages for delay. On the 6^th November the Adjudicator, awarded Mailbox the sum of £2,477,152.86 plus interest at 8% above the Bank of England base rate and also ordered that Galliford  pay 75% of the Adjudicator’s fees and expenses in the sum of £22,183.50.

Galliford did not pay so Mailbox commenced enforcement proceedings. Galliford argued that, at the time of the commencement of the adjudication, Mailbox had assigned the benefit of the Contract to a third party, Aareal Bank AG (“the Security Trustee“). As a result, Galliford claimed that Mailbox had no right to adjudicate under the Contract (because this right had been transferred to the Security Trustee) and that the Adjudicator therefore did not have jurisdiction to determine the dispute.

The Decision

On 10 May 2011, Mailbox executed a debenture in favour of the Security Trustee as security for a loan facility, which assigned the benefit of the Contract to the Security Trustee.

The Technology and Construction Court (“TCC“), found that the Security Trustee had re-assigned all rights, title and interest in the Contract back to Mailbox on or before the date that this dispute was referred to adjudication (19 August 2016), which meant that, all rights and benefits under the Contract had been re-assigned back to Mailbox. Accordingly, Mailbox had a right to adjudicate under the Contract and the Adjudicator has jurisdiction to determine the dispute.

However, the TCC declined to enforce the Adjudicator’s findings regarding interest.

The Adjudicator decided that Mailbox was entitled to interest on the liquidated damages awarded to Maybrook  at 8% above the Bank of England base rate in accordance with the Late Payment of Commercial Debts (Interest) Act 1998 (“the Late Payment Act“)

It was common ground between the parties that Mailbox’s entitlement to liquidated damages was not a qualifying debt for the purposes of the Late Payment Act. Therefore the Adjudicator did not have jurisdiction to decide that Mailbox was entitled to interest under the provisions of the Late Payment Act.

The TCC therefore held that the appropriate rate of interest was 2% above the Bank of England base rate (which is the usual commercial court rate).

Comment

In this case, the court made clear that the Adjudicator’s decision would not have been enforced if the re-assignment back to Mailbox had taken place after the notice of adjudication had been served. As such, it is important to check the precise timings of any assignment or re-assignment of benefits under a contract before issuing a notice of adjudication.

This case also serves as a reminder of the importance of ensuring thorough document preparation in adjudication as the judge criticised the lack of documentary evidence that was initially made available to the court.