12/05/2022
If a party is unhappy with an adjudicator’s award, it must pay the sums awarded, unless grounds exist to avoid enforcement of the award. The Court considered some of these grounds in the case of Bexheat Limited v Essex Services Group Limited [2022] EWHC 936 (TCC) which involved adjudication enforcement proceedings regarding a technical adjudication for immediate payment and arguments around a prior true value adjudication.
The First Adjudication
In July 2021, Bexheat Limited (“BHL”), a plumbing subcontractor, submitted Interim Application 22 (“IA22”) to Essex Services Group Limited (“ESG”), a building contractor, for £1,832,071.87 gross for the valuation period to 31 July 2021 and £678,885.78 (net).
In August 2021, ESG issued a Pay Less Notice, setting out its valuation of the works for that period of £1,170,729.19 (gross) and £4,808.44 (net).
On 18 August 2021, BHL commenced the First Adjudication, seeking that the true value of BHL's IA22.
The Adjudicator decided that the true value of IA22 was £1,319,830.61 and that BHL was entitled to £141,646.35, which ESG paid.
The Second Adjudication
On 17 August 2021 (one day before starting the First Adjudication), BHL issued IA23 for £2,010,121.74 (gross) for the valuation period to 31 August 2021, £847,675.97 (net).
ESG did not issue its Pay Less Notice in time and BHL argued that it was therefore invalid. ESG failed to make any payment in respect of IA23.
In October 2021, BHL started the Second Adjudication for £706,029.70, based on IA23, taking into account the payment made by ESG in respect IA22, together with VAT and interest.
ESG argued the Pay Less Notice was valid, BHL was seeking to circumvent the decision in the First Adjudication and BHL was not entitled to any further payment.
The Adjudicator decided that ESG’s Pay Less Notice was invalid and ESG should pay BHL the sum claimed plus contractual interest and statutory compensation of £100 under the Late Payment of Commercial Debts (Interest) 1998 Act (“1998 Act”). ESG refused to pay.
Proceedings
BHL therefore issued enforcement proceedings at Court to enforce the Second Adjudication decision. ESG raised the arguments below:
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Issue No. |
ESG’s Arguments |
Court Decision |
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1 |
The 'true value' of IA23 was determined in the First Adjudication, with the result that the adjudicator had no jurisdiction to determine the payment due under IA23 in the Second Adjudication decision and/or ESG satisfied its payment obligations in respect of the same. |
The First Adjudication was not the same as the Second Adjudication. The First Adjudication concerned the true value of IA22. In contrast, the Second Adjudication was whether ESG had served a valid Pay Less Notice in response to IA23; if not, whether BHL was entitled to payment of the sum claimed as 'the notified sum'. |
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2 |
ESG could use a Contract entitlement under clause 30.2 of the Contract to set off or make deductions against the Second Adjudication award in respect of any amounts due from BHL to ESG.
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The Court rejected these arguments. These clauses were incompatible with section 111 and 108 of the Housing Grants Act 1996 (the “Construction Act”) which requires a party who fails to issue a valid Payment Notice or Pay Less Notice to pay the notified sum, which can be adjudicated. Therefore, these Contract clauses were struck out.
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3 |
ESG could use a Contract entitlement under clause 30.3 of the Contract to elect to have the 'true value' of the IA23 determined in the Second Adjudication, at the same time as the 'notified sum' dispute.
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4 |
The Adjudicator in the Second Adjudication had jurisdiction to award to BHL £100 compensation pursuant to the 1998 Act; if not, whether that part of the award should be severed. |
ESG failed to raise this jurisdictional challenge in the Second Adjudication and had therefore waived its right to do so.
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5 |
Enforcement of any judgment should be stayed pending the resolution of the Second Adjudication, because of the risk that BHL would dissipate the sums awarded and become insolvent.
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ESG provided:
1. Witness evidence that BHL is a small one director/ shareholder company with low value accounts; and 2. A forensic accountants report stating that BHL’s profitability had decreased over the years and that BHL appeared to be mainly financed through debt only having one live contract which was under considerable delay.
BHL had no management accounts available and the public accounts were 18 months out of date.
BHL’s witness evidence stated that BHL’s financial position had not changed significantly, it was profitable and that ESG’s was making speculative assertions around dissipation which were baseless.
The Court found that there was no evidence of any risk of dissipation or insolvency, so the court did not order a stay of execution. Further, a stay was contrary to general rule that adjudicators' decisions are intended to be enforced summarily and the successful party should not as a rule be kept out of its money.
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Commentary
This case highlights interplay between true value and technical adjudications and the effect on payment cycles in different adjudications. This case is also a reminder that section 111 of the Construction Act creates an immediate obligation to pay the notified sum, and that any right to adjudicate under section 108 of the Construction Act to obtain a true valuation of the sum due is secondary to the right to payment (S&T (UK) Ltd v Grove Developments Ltd [2018] EWCA Civ 2448).
Further, this case highlights the importance in adjudication proceedings of challenging or reserving ones position regarding jurisdiction where there is any concern regarding jurisdiction. Failure to raise it during the adjudication will mean it cannot be raised later, in enforcement proceedings at Court.
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