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Construction

TCC refuses enforcement of adjudicator’s decision

Earlier this year, in the case of OD Developments & Projects Limited v Oak Dry Lining Limited [2020] EWHC 2854 (TCC), Waksman J determined that because an adjudicator erroneously decided that the terms and conditions of the JCT Subcontract applied to a subcontract then the adjudicator’s decision which valued the subcontract works on that basis lacked jurisdiction and could not be enforced.

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The decision is a rare case in which an adjudicator’s decision is not enforced and is a good example of why it is important for parties to a construction contract to clarify the precise terms and conditions governing their contractual relations. Any ambiguity in the terms and conditions including how the construction works are to be valued and measured may lead to an adjudicator not valuing the works correctly in accordance with the provisions of the contract resulting in he/she acting without jurisdiction. This can have significant adverse consequences upon a party seeking to enforce an adjudicator’s decision.

The facts of this case also raised an interesting issue regarding the possible incompatibility between clause 1.8 of standard form JCT contracts which prescribe a conclusive effect of a final certificate against the timing provisions to issue payment notices in JCT contracts and the Housing Grants, Construction and Regeneration Act (the “Act”). Because the Court ruled that the conditions of the JCT Subcontract did not apply in this case, it was not necessary to make any ruling on the purported inconsistency despite Waksman J saying that it was a point of importance.

Facts

OD Developments & Projects Limited (“OD”) employed Oak Dry Lining Limited (“Oak”) under a Letter of Intent (“LOI”) to carry out dry lining works.

It was the parties’ intention that they would sign up to a JCT 2011 Design and Build Subcontract (“JCT Contract”). However, the JCT Contract was never formally executed and Oak carried out the subcontract works as referred to in the LOI. Both parties operated the interim payment process in line with the JCT Contract.

Practical completion occurred no later than 5 December 2017.

On 29 March 2019, Oak issued its interim application for payment 21 seeking a gross sum of £1.711 million and net payment of approximately £728,000. In response, OD issued a pay less notice stating that Oak’s works were overvalued and that there was a sum due to OD of £509,000.

On 22 July 2019, OD served a statement containing its calculation of final subcontract sum. This statement was not responded to by Oak.

On 26 September 2019, OD issued its final payment notice. Oak did not respond within 10 days of the final payment notice but issued a default final payment notice and pay less notice on 14 October 2019. On 16 October 2019, OD issued its own pay less notice in response to Oak’s default payment notice.

On 8 November 2019, Oak served a Notice of Adjudication to refer the dispute to the adjudication under the Scheme for Construction Contracts (England and Wales) Regulations (the “Scheme”) arising out of the differences in interim application for payment 21.

OD challenged the adjudicator’s jurisdiction on the basis that i) he was not appointed in accordance with the terms of the LOI and/or the JCT Contract and; ii) because Oak had not issued proceedings within 10 days as required per clause 1.8 of the JCT Contract, OD’s final payment notice had conclusive effect and there was no dispute to adjudicate and/or Oak was time barred in bringing its adjudication.

The adjudicator rejected both jurisdictional objections and made his decision on 19 December 2019. Relevantly he determined that the terms of the JCT Contract had been incorporated by the parties and applied and the true total value of the Oak’s works was £1.41 million which left a balance due to Oak of £431,291.81.

Because OD lost at adjudication, it commenced a Part 8 Claim reiterating its jurisdictional arguments which if successful would result in the adjudicator’s decision being a nullity and OD being entitled to payment from Oak of £625,000, being the amount certified in the final payment notice.

This left Oak with no choice but to defend the Part 8 Claim and make a cross-application for summary judgment to enforce the adjudicator’s decision where it argued that:

  • the terms of the JCT Contract were not incorporated and that the parties’ contractual relations were governed by the LOI and that the adjudicator was appointed correctly under the Scheme.
  • if the JCT Contract did apply, then OD’s final payment notice was not conclusive as such a reading of clause 1.8 would render it incompatible with issuing payment notices under clause 4.12 of the JCT Contract and/or section 111 of the Construction Act and paragraphs 9 and 10 of the Scheme.

Decision

Waksman J determined that the subcontract did not incorporate the terms of the JCT Contract and that the provisions of the LOI applied only. This was because the LOI contemplated two possibilities only. Either it applied by itself and on its own or the JCT contract was executed between the parties. There could be no adoption of the terms of the JCT Contract into the LOI.

In considering OD’s jurisdictional arguments, Waksman J found that the adjudicator was correctly appointed in accordance with the LOI as it was wholly consistent with the appointment provisions of the LOI. It was not necessary for Oak’s Notice of Adjudication to refer to the precise provisions of the LOI as this would place too much emphasis on form over substance.

Waksman J disagreed with OD’s interpretation that even if the terms of the JCT Contract was incorporated, that a final payment certificate cannot be conclusive in the sense that it deprives an adjudicator of jurisdiction at the outset. Such an interpretation would mean that not uncommon disputes would never go to adjudication.

However, the finding that the terms of the JCT Contract did not apply also had a fatal impact on Oak’s summary judgment application. The LOI specified that the Oak’s work should be evaluated and paid for on a fair and reasonable basis. As the adjudicator proceeded on the basis that the JCT Contract applied, which it did not, and the adjudication proceeded on the basis, then the adjudicator had no jurisdiction to do what he did and the adjudicator’s award in favour of Oak could not be enforced.

Therefore, despite OD’s part 8 claim failing in principle, because the JCT Contract did not apply, Oak’s application for summary judgment could not succeed. This also meant that the court was not required to consider the possible inconsistency point between clause 1.8 and clause 4.12. A takeaway from the case is that if a party to a construction contract is unsure of the terms and conditions of its construction contract including which terms and conditions apply, it should seek formal clarification with its contracting party.

Link to judgment here.

Authors

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Alexander Jullienne

Associate

alexander.jullienne@collyerbristow.com