Construction Brief: latest decisions November 2020
This article was co-authored by Tegan Johnson, Solicitor Apprentice, Sheffield.
This update includes a round-up of recent court decisions dealing with arguments of manifest injustice in enforcement proceedings, retention, adjudication procedure and further consideration of the interplay between the insolvency and adjudication regimes.
Adjudication enforcement – manifest injustice
JRT Developments Ltd v TW Dixon (Developments) Ltd [08.10.20]
The court in this case declined to enforce an adjudicator’s decision as to do so would have been “manifestly unjust”.
TW Dixon Developments Limited (“TWD”) was a company set up by a husband and wife, acting as developer, and JRT Developments Limited (“JRT”), the contractor, was controlled by their nephew. The development in question was JRT’s first project.
The parties entered into a JCT Minor Works Contract (With Design) 2011 Edition in June 2016, although communications between the parties were generally informal. By June of 2019, the relationship had soured and JRT terminated. JRT subsequently issued a payment notice for approximately £1 million. TWD did not respond and JRT commenced (and won) a smash and grab adjudication before instigating enforcement proceedings. TWD also issued Part 7 and Part 8 proceedings, seeking a true valuation of the sum due and a declaration that JRT’s payment notice was invalid.
The court granted a stay of execution in respect of the enforcement proceedings - it was satisfied that it would be manifestly unjust to enforce the adjudicator’s award due to unusual circumstances in the case, including:
- The relationship of the parties
- The JCT payment provisions had not been adhered to previously. In fact, the payment notice in question was the only payment request that had been made over and above the amount of funding that had been procured from third party sources
- The nature of the payment notice and TWD’s lack of understanding of it, in that TWD considered the notice was a means to resolve the issues between the parties
- The inflated nature of JRT’s claim
- If TWD was forced to pay, it would render TWD insolvent
- If TWD was to pay, it was highly probable that JRT would be unable to repay the sum, if required, following final account valuations.
Adjudication and insolvency
John Doyle Construction Limited (in liquidation) v Erith Contractors Limited [14.09.20]
In one of the first decisions applying Bresco Electrical Services Limited v Michael J Lonsdale (Electrical) Limited [17.06.20], the court provided additional guidance as to how it will deal with applications for summary judgment to enforce an adjudicator’s decision where one of the parties is insolvent.
It set out five principles to consider:
- Whether the adjudicator’s decision deals with a dispute encompassing the whole of the parties’ financial dealings under the construction contract, or simply one element of it.
- Whether there are mutual dealings between parties outside of the construction contract under which the adjudicator has resolved the particular dispute.
- Whether there are other defences available to the defendant that were not deployed in the adjudication.
- Whether the liquidator is prepared to offer appropriate undertakings, such as ring-fencing the enforcement proceeds, and/or where there is other security available.
- Whether there is a real risk that the summary enforcement of an adjudication decision will deprive the paying party of security for its cross-claim.
The court denied John Doyle Construction Limited’s application for summary judgment. The adjudication did not deal with all outstanding matters between the parties and JDC did not offer sufficient security or ring fencing for the judgment amount or Erith’s costs.
Recovery of retention
DR Jones Yeovil Limited v Stepping Stone Group Limited [04.09.20]
Stepping Stone Group Limited (“Stepping Stone”) engaged DR Jones Yeovil Limited (“DR Jones”) to build a number of assisted living units under amended JCT forms of contract. The units had achieved practical completion by 2012, triggering release of half of the retention. The remaining retention was due to be released on issue of the Certificate of Making Good, but due to a number of defects, the Certificate of Making Good was never issued. At a meeting in December 2014, the parties had agreed a deduction from retention to cover a list of agreed defects. Whilst a number were rectified by DR Jones later in 2015, some defects remained unresolved.
DR Jones commenced proceedings for payment of the historic outstanding retention, approximately £40,000. In response, Stepping Stone sought to set-off and counterclaim for losses suffered by the owner and leaseholder of the site as a result of DR Jones’ breach.
The court found that Stepping Stone had no contractual basis on which it could retain the retention indefinitely – the remaining retention should be released when the Certificate of Making Good is, or should be, issued. Furthermore, there was no entitlement to the third party losses it sought in its counterclaim. The principle of transferred loss did not apply as Stepping Stone had specifically arranged its affairs to exclude third party rights.
Lane End Developments Construction Limited v Kingstone Civil Engineering Limited [28.08.20]
Kingstone Civil Engineering Limited (“Kingstone”), was employed by Lane End Developments Construction Limited (“Lane End”) under a sub-contract to provide enabling works. Kingstone issued an interim payment application on 2 March 2020 and Lane End failed to serve a timely payment notice or pay less notice.
The Scheme for Construction Contracts applied in respect of adjudication and, on 20 March 2020, Kingstone made an email request to RICS to appoint an adjudicator in the matter. Later that day, at a meeting between the parties, Kingstone provided Notice of Adjudication to Lane End, noting Lane End’s failure to make payment. RICS nominated an adjudicator, and the adjudicator notified the parties by letter on 23 March that he had been appointed. Lane End generally reserved its rights as to the adjudicator’s jurisdiction.
Confusion followed due to the outbreak of the coronavirus pandemic, and whether Lane End had subsequently terminated the adjudicator’s appointment. The adjudicator ultimately came to a decision, which was subsequently considered by the court in both Part 7 and Part 8 proceedings. The court found that, because the request to RICS wasmade before the Notice of Adjudication, the adjudicator was not validly appointed and, as such, did not have jurisdiction to make the decision. Furthermore, Kingstone’s arguments that Lane End waived its right to object by participating in the adjudication were dismissed as the court found that the adjudicator was simply not appointed to act at all.