Construction – Adjudication – Housing Grants, Construction and Regeneration Act 1996 – Para 9(2) of Scheme for Construction Contracts – Adjudicator determining that respondent employers required to pay sums specified in appellant contractor’s account where no valid “pay less” notice served – Appellant disputing respondents’ entitlement to commence further adjudication for determination of sum properly due under contractor’s account – Whether that adjudication raising issues already determined by previous adjudicator – Appeal dismissed
The respondents employed the appellant as building contractor to construct and fit out two residential houses in Purley, Surrey, under a contract in the JCT Intermediate Form 2011, with amendments. The appellant commenced work in April 2013 but problems arose on the project. In September 2013, the respondents purported to terminate the contract and work came to a standstill, although the appellant denied that the respondents were entitled to terminate.
In October 2013, the appellant commenced two separate adjudications against the respondents in respect of interim payments due. The same adjudicator was appointed in both adjudications and made awards totalling £258,222 in the appellant’s favour, which the appellant enforced by bringing proceedings in the Technology and Construction Court (TCC). In January 2014, the appellant himself served notice to terminate the contract.
In September 2014, the appellant sent notice of a third adjudication to the respondents claiming the full amounts shown as due in the contractor’s account, which, after giving credit for payments already made, amounted to £397,912 plus VAT. The respondents did not accept the appellant’s claim but took the view that they had overpaid and were entitled to repayment; they served what purported to be a “pay less” notice pursuant to section 111(3) of the Housing Grants, Construction and Regeneration Act 1996 and paras 9 and 10 of Part II of the Scheme for Construction Contracts. The adjudicator found that the “pay less” notice was invalid and that the appellant was entitled to the sum claimed; the respondents then paid that sum.
The respondents then commenced a fourth adjudication, seeking a decision as to the true sum due under the contract. The appellant applied to the court for injunctive and declaratory relief to prevent the adjudication from going forward, on the ground that all the issues raised by the respondents in the fourth adjudication had already been decided in the third adjudication.
Refusing that relief, the judge held that, while the third adjudication had established that the respondents were obliged to pay the sum shown on the face of the contractor’s account because they had failed to serve a valid “pay less” notice, that failure could not deprive the respondents forever of the right to challenge the contractor’s account; consequently, they were entitled to seek a determination, either by adjudication or litigation, as to the sum that was properly due in respect of the appellant’s account. The appellant appealed.
Held: The appeal was dismissed.
The judge had not erred in his application of para 9(2) of the Scheme for Construction Contracts so far as it required an adjudicator to resign where the dispute was the same or substantially the same as one which had previously been referred to adjudication and a decision has been taken in that adjudication. When applying para 9(2), the dispute or disputes referred to the previous adjudicator could not been viewed in isolation; it was also necessary to look at what the previous adjudicator had actually decided in order to determine how much or how little remained available for consideration by the subsequent adjudicator. The word “decision” in para 9 (2) meant a decision in relation to the dispute now being referred to adjudication: Quietfield Ltd v Vascroft Construction Ltd [2006] EWCA Civ 1737; [2007] BLR 67; [2006] PLSCS 268 and HG Construction Ltd v Ashwell Homes (East Anglia) Ltd [2007] EWHC 144 (TCC); [2007] BLR 175 applied.
On a proper analysis of the notice of adjudication and the referral document in the third adjudication, the appellant had referred a dispute involving two alternative issues, the first being a contractual one relying on the absence of a valid “pay less” notice and the second a valuation issue as to the sum due. The adjudicator had dealt with the contractual issue and thus had not needed to deal with the valuation issue because of the rule that a notified sum became automatically due in the absence of a valid “pay less” notice.
There was a fundamental difference between payment obligations which arose on an interim application and those that arose on termination. The present dispute was concerned with a final account following termination of the construction contract. The contract conditions required an assessment of the amount which was “properly due in respect of the account” and the relevant clause expressly permitted a negative valuation. The adjudicator in the third adjudication had not carried out any such valuation exercise. It followed that the respondents were entitled to refer that dispute for resolution in the fourth adjudication: Watkin Jones & Son Ltd v Lidl UK GmbH [2002] EWHC 183 (TCC); (2002) 86 Con LR 155 and Rupert Morgan Building Services (LLC) Ltd v Jervis [2003] EWCA Civ 1563; [2004] 1 WLR 1867; [2003] PLSCS 257 applied; ISG Construction Ltd v Seevic College [2014] EWHC 4007 (TCC); [2015] BLR 233; [2015] PLSCS 72 and Galliford Try Building Ltd v Estura Ltd [2015] EWHC 412 (TCC); [2015] BLR 321; [2015] EGLR 30 considered.
Accordingly, the respondents’ failure to serve a valid “pay less” notice had limited consequences. While it meant that the respondents were obliged to pay the full amount shown on the contractor’s account as ordered by the adjudicator and argue about the figures later, they were now entitled to proceed to adjudication in order to determine the correct value of the contractor’s claims and the employer’s counterclaims.
Adrian Williamson QC and Gideon Scott Holland (instructed by Davies & Davies Associates Ltd) appeared for the appellant; David Sears QC and Charles Pimlott (instructed by Silver Shemmings LLP) appeared for the respondents.
Sally Dobson, barrister
Click here to read the transcript of Harding (t/a MJ Harding Contractors) v Paice and another
