Battersea Project Phase 2 Development Company Ltd v Q.F.S. Scaffolding Ltd [2024] EWHC 591 (TCC) Mr Alexander Nissen KC judgment 15 March 2024

This was a Part 8 application by Battersea Project Phase 2 Development Company Ltd (BPS) in a first action seeking a declaration that its Final Payment Notice was conclusive evidence under clause 1.8.1 of the sub-contract as to the value of the works. By its Part 7 application in a separate action, Q.F.S. sought summary judgment of an adjudicator’s decision awarding it the sum of £3.177m (plus VAT) as the true value of the Final Sub-Contract Sum. It was agreed the two applications should be heard on the same day, and that the Part 8 application be heard first.

The dispute arose out of an asbestos scaffolding package for works at Battersea Power Station. The Sub-Contract Sum in the JCT standard DBSub/A 2011 Design and Build Sub-Contract Agreement 2011, with bespoke amendments, was £6.1m and whichever party was right, the Final Sub-Contract Sum exceeded £30m. The key provisions at Article 4, Annex 8, clause 1.8.1, concerning the conclusive effect of the (in this case) Final Payment Notice in any subsequent adjudication proceedings, were unamended.

Q.F.S. gave notice that it disputed a statement of the Final Sub-Contract Sum issued by Mace (acting as the agents/construction managers for BPS) in its entirety and commenced three adjudications in quick succession (Nos. 8, 9 and 10).  Matt Malloy was appointed adjudicator, as he had been in previous adjudications (Nos. 1-7).

On 19 December 2022, Q.F.S. issued notice of intention to refer a further dispute to adjudication (No. 11) namely "the calculation of the Final Sub-Contract Sum i.e., the true value of the Final Sub-Contract Sum" in which it calculated and claimed the Final Sub-Contract Sum to be £71,587,425 plus VAT.

On 22 December 2022, Mace issued a Final Payment Notice to Q.F.S. giving the Final Sub-Contract Sum as £31,041,884 excluding VAT. As Q.F.S. had already been paid £31,938,119, there was said to be a balance owing to BPS. This was the Final Payment Notice which, on BPS's case, became evidentially conclusive of the matters set out in clause 1.8.

Clause 1.8.1 of the Sub-Contract provided that a Final Payment Notice was conclusive of various matters listed unless (relevantly) clause 1.8.2 (‘the saving provision’) was engaged. Essentially, the Final Payment Notice would be conclusive evidence that the Final Sub-Contract Sum had been correctly calculated and had taken account of all extensions of time and loss and expense.

The saving provision would be engaged if (amongst other things) adjudication proceedings were commenced prior to or within 10 days after the receipt of the Final Payment Notice. In this case, Adjudication No.11 was commenced a few days before receipt of the Final Payment Notice. Accordingly, the saving provision was engaged by reason of clause 1.8.2.1 and the alternative means of engaging the saving provision, in clauses 1.8.2.2 and 1.8.2.3 respectively, did not arise.

The parties were in dispute as to what happened thereafter and as to the legal effects of the later developments.

BPS contended that Q.F.S. failed to serve a Referral within the time required, with the effect that Adjudication No.11 concluded, albeit without a decision. The effect upon a proper construction of clause 1.8.2 was that as the adjudication had concluded, the Final Payment Notice was not subject to any financial adjustment. Alternatively, it said that Q.F.S. abandoned Adjudication No.11 with the same outcome.

Q.F.S. said that the parties had agreed that time for service of the Referral would be generally extended so there was no failure as alleged. When Q.F.S. came to pursue the subject matter of Adjudication No.11, in May 2023, it served a new notice of intention to refer only because the adjudicator proposed it, but the subject matter of the dispute was identical to that contained within its earlier notice. It submitted that in those circumstances, the adjudicator, who duly accepted the appointment, was not bound by the conclusive evidence clause. It rejected the argument that it ever abandoned its prosecution of the proceedings. On its construction of clause 1.8.2, the Final Payment Notice was to be adjusted by the adjudicator's determination of the true value of the Final Sub-Contract Sum.

In was uncontroversial that Q.F.S. was bound to refer the dispute or difference to the adjudicator within seven days of the notice. If this mandatory requirement ("shall") was not complied with, any ensuing adjudication would be a nullity[1].

After considering the parties’ submissions and the correspondence, the judge concluded that there had been a binding agreement between the parties to extend the time for service of the Referral in Adjudication No.11. But, Q.F.S. having failed to serve the same by the extended date, the adjudication, if proceeded with, would have been bound to fail.

The court then turned to look at the true construction of clause 1.8 of the Sub-Contract. As the conclusive evidence clause was a form of exclusion of what would otherwise be a party's right to adduce evidence, the principles to be applied were to be derived from well-known previous authority[2].

The proceedings in Adjudication No. 11 were or became a nullity.

The proper construction of clause 1.8.2

Again the court considered previous authority[3]. None were directly on point as they did not deal with ‘conclusion’ but the court found the broad approach helpful. After due consideration, the court was unable to accept that an adjudication which became a nullity had reached a “conclusion”. The "conclusion" which the whole provision envisaged was necessarily either a decision or a settlement. An adjudication which ended up being a nullity resulted in neither. The court decided that the word "any" in the context merely meant any of a decision, award, judgment or settlement. Indeed it was probably broad enough to cover a decision, award or judgment resulting from a dispute between the Employer and Contractor as contemplated by clause 1.8.2.2 or clause 1.8.2.3 and not just one between the parties, but the words used included any decision which could impact upon the Final Payment Notice. The second difficulty for BPS was the harshness of the outcome. 

Suppose, through no fault of the referring party, a breach of natural justice by the adjudicator resulted in an unenforceable award. That party would lose the right to adduce any evidence to challenge the notice etc. in question. Such a harsh and random outcome was not one on which sensible business people would contract. Further, it was clear from the approach in Dovehouse, that no distinction was to be drawn between those adjudications which were rendered a nullity by reason of fault of the referring party and those for reasons outside its control. Though concerned with a different clause and point, the same approach should apply in this context. What mattered was that the adjudication which became a nullity was not one which had ever reached a ‘conclusion’ irrespective of the cause of it having become a nullity. It followed, that it did not matter that a second Notice of Adjudication was required to be issued in order for the adjudication proceedings to reach a conclusion.

Clause 1.8.2 was to be construed in the following way.

The ‘first phase’ of the saving provision in clause 1.8.2 was engaged upon the commencement of relevant proceedings and continued to apply until the subject matter of proceedings had been concluded. Only then was the ‘second phase’ of the saving provision applicable.

From the phrase "pending their conclusion" it was clear that one must not look at the first phase in isolation without considering the second phase. The clause as a whole contemplated that proceedings had to be commenced and, thereafter, concluded. The parties did not intend that the suspension of conclusivity in the first phase could continue to infinity.

In the context of clause 1.8.2, a "conclusion" did not include the ending of an adjudication which has become a nullity. The provision did not cover that eventuality.  One way or another, the proceedings which had been commenced would yield a conclusion, thereby engaging the second phase, unless they had been abandoned in the meantime.

The court was also of the view that the reference in the clause to ‘adjudication proceedings’ was generic and broad enough to encompass adjudication proceedings relating to the same dispute as was the subject of the initial notice raised within time in respect of the Final Payment Notice. There was no necessity for the adjudication decision in question to be responsive to the specific Notice of Adjudication by which the adjudication proceedings were commenced. Consistent with the approach in the cases referred to, including Dovehouse at [97], what mattered (in line with the expectation of sensible business people) was that the decision was responsive to the subject matter of the dispute raised within time. Overall, the court considered that to be a sensible, business-like construction of "such proceedings". It was also the approach adopted by Mr Molloy.

Abandonment

The court found the previous authorities on abandonment unhelpful in the context of adjudication.  It was necessary to consider whether Q.F.S. manifested an intention to abandon the underlying dispute which was the subject of its timely Notice of Adjudication. It did not automatically follow from the fact that it failed to pursue the specific adjudication which immediately followed the timely Notice that it intended to abandon the underlying subject matter of the dispute identified in that Notice. On the facts as found, Q.F.S. failed to pursue its original notice because of its erroneous belief that it did not need to so at that point in time, as BPS had agreed to grant indulgence. Two other matters were relevant. The exchanges about possible settlement talks, and what the court termed the commercial context – namely the fact that there was a difference of over £40m between the parties, both of whom were keenly aware of the conclusivity provision, meaning it was extremely unlikely that Q.F.S. was abandoning its claim or that BPS believed it was doing so. And the very experienced adjudicator took the same view.     

Judgment

There was no conclusion of the adjudication proceedings until the adjudicator had reached a decision in Adjudication No.11.  Nor was there any abandonment prior to that. The second part of the saving proviso in clause 1.8.2 was therefore effective.  The Final Payment Notice was subject to the terms of the decision rendered by the adjudicator on 29 September 2023. Declarations as to the proper construction of clause 1.8.2. Summary judgment on the adjudicator’s decision.

[1] See the discussion in Coulson on Construction Adjudication 4^th Edition (Oxford University Press, 2018) at paragraphs 5.18 and 5.19.

[2] Modern Engineering (Bristol) Ltd v Gilbert Ash (Northern) Ltd [1974] AC 690; and Triple Point Technology Inc v PTT Public Co Ltd [2021] UKSC 29.

[3] Lanes Group plc v Galliford Try [2011] EWCACiv 617; Mr Tracy Bennett v FMK Construction Ltd [2005] EWHC 1268 (TCC) ("Bennett"); University of Brighton v Dovehouse Interiors Ltd [2014] EWHC 940 (TCC); Trustees of the Marc Gilbard 2009 Settlement Trust v OD Developments and Projects Ltd [2015] EWHC 70 (TCC).

Shaylor Group Ltd v Valescure Property Ltd [2024] EWHC 750 (TCC) Kerr J., 4 April 2024

This was a Part 8 claim for a declaration that the sum found due by the adjudicator to the defendant was wrongly calculated based on a misconstruction of the termination provisions of the parties’ contract.

The defendant, Valescure, engaged the claimant, Shaylor, to construct 157 apartments in the Jewellery Quarter of Birmingham with an original contract sum of £18.7m.

The history

By its payment application No.19 of 31 May 2019, the claimant claimed that the defendant owed it a further £752,628.80, over and above the £9,013,019 already paid. Its estimate of the total value of the contract works was then £20,277,563.57.

In June 2019, the defendant's agent issued a payment notice no. 19, agreeing that the value of the work done by the claimant was £9,369,927. However, the defendant's agent also wrote to the claimant stating that the correct value of the work done by the claimant was not £9,013,019 but £8,169,052 and, therefore, the defendant had overpaid the claimant by £844,867 and they demanded repayment of the latter sum. The claimant did not repay the sum.

Within days, the claimant went into administration, thereby becoming "Insolvent" within the meaning of that term in the contract. The insolvency activated the financial adjustment provisions of the contract applicable on termination and the defendant gave notice to terminate the claimant’s employment.

The defendant elected to complete the works, as it was entitled to, with the consequence that no further sum became due to the claimant pending the preparation by the defendant employer of a statement following completion of the works and the expiry of the rectification period. The defendant was entitled pursuant to the termination provisions to take into account “the amount of expenses properly incurred by the Employer, including those incurred pursuant to clause 8.7.1 and, where applicable, clause 8.5.3.3, and of any direct loss and/or damage caused to the Employer and for which the Contractor is liable, whether arising as a result of the termination or otherwise.”

Assignment

In April 2020 the defendant, having pressed on with completion of the works, assigned its rights and obligations under the contract to Grainger plc, who it claimed was the intended beneficiary of the project and that the claimant was aware of this from the outset. The court was shown an extract from the deed of assignment. It was in conventional form. No notice of the assignment was given to the claimant, still less did the claimant consent to the transfer, which point was to become significant later in the history of the dispute.

There then followed two adjudications, the latter of which gave rise to the present proceedings.

The first adjudication

The claimant claimed £11,264,544.57 from the defendant under clause 8.7 of the contract. Its case was that the defendant had failed to provide a statement of account as required under clause 8.7.4 and that it was liable to the claimant. The sum claimed was figure the account should have shown due to the claimant under clause 8.7.5. The defendant did not take part but was shown to have been aware of the proceedings.

The adjudicator, Mr Redmond, made various findings based on assumptions as to the date that practical completion had occurred and defects had been remedied, having been referred to a website showing that some of the properties were being marketed for rental. He also noted that the defendant had responded to queries about what costs it had incurred in securing completion of the works by others. The defendant had responded with a witness statement (in June 2022) saying it had no documents relating to the project. The adjudicator accepted it was for the defendant to show that it had incurred expenses or suffered loss and damage falling within clause 8.7.4.1 and that it had not done so. However, he added: "I cannot assume that it did not incur any such cost". He accepted that the defendant had paid the claimant only the sum of £9,013,019.

Based on its interim payment application (No.19), the claimant asserted the amount which "would have been payable for the Works in accordance with this Contract" under clause 8.7.4.3 was its "Forecast Final Account" figure, which was £20,277,563.57. The adjudicator did not accept that reasoning.  He was unwilling to accept that "the Works were completed to an anticipated value of £20 million without any expenditure beyond the £9 million that had been paid to [the claimant] before it ceased work". He was unwilling to "assume that the total amount payable would in fact have been £20 million". He thought that on the balance of probabilities, the amount due from one party to the other would be "significantly less than £11 million".

Whilst accepting that the defendant was in breach of its obligation to draw up a statement of account under clause 8.7 (entailing the conclusion that practical completion and remedying of defects must have been complete by three months before the properties were being marketed),  the adjudicator stated that he did not have enough information to carry out the required calculations under clause 8.7.4 or to award any sum under clause 8.7.5. He concluded that such figure "can only be calculated on the basis of credible information", which he did not have. He found that on the balance of probabilities it was reasonable to conclude that the Employer would have incurred some expense in completing the Works, that such expense would probably have been greater than would have been payable to the claimant and that would result in a nil payment to the claimant.

The second adjudication

The claimant next sought a decision that the clause 8.7.4.1 figure was nil; that the clause 8.7.4.3 figure was £20,277,563.57, or £19,458,279.45; and that under clause 8.7.5, the claimant was owed £11,264,544.57 (or such other sum as the adjudicator may award). Alternatively, the claimant sought a decision that it was entitled to at least £752,628.80 or such other sum as the adjudicator may decide.

This time the defendant took part. It raised a jurisdictional challenge: that the defendant was the wrong party. The assignment meant that Grainger plc was now the employer and the correct party. Without prejudice to the jurisdictional challenge, the defendant submitted evidence that:

• practical completion had not occurred until August 2022;
• the rectification period had not yet expired so that no final statement of account was due/overdue; and
• ‘the employer’ had incurred expense in completing the works and that the claimant was liable to ‘the employer’ for not less than £5.732m.

Thus, in due course, the final statement would show a debt due from the claimant to Grainger plc.

The adjudicator did not agree with the jurisdictional challenge; he found that the assignment was not effective. He concluded that as the first adjudicator had not been able to determine what sum was due, he was free to decide that question. He decided that, since the value of the work done was £9,369,927 and the claimant had been paid £9,013,919 [sic], the claimant was entitled to be paid the difference, which came to (he said) £356,008.

The claimant’s contentions

The court noted this was a claim for declaratory relief. The defendant was in liquidation and not present in court. Nevertheless, the court would have to take account of what might have been said on its behalf if it had attended.

For the claimant, it was said it was plain and obvious that the second adjudicator had misinterpreted clause 8.7.4.3 of the contract; that the court should declare the error; and that the court should declare that the correct figure was £20,277,563.57 rather than £9,369,927; a difference of £10,907,636.57. That would have meant the claimant would be a creditor in the liquidation for almost £11m and improve its bargaining position. The question was thus far from academic.

As to the contract, wording of clause 8.7.4.3 was abundantly clear: "the total amount which would have been payable for the Works in accordance with this Contract". The value of the work actually done was plainly not the same as that "total amount". The words meant simply the overall contract price for the contracted works, which would have been payable to the contractor if the contract had been fully performed. The second adjudicator's construction of clause 8.7.4.3 did not make commercial sense. If it were correct, there would never be a situation in which an insolvent contractor would be owed any money and the wording in clause 8.7.5 ("a debt payable… if that sum is less, by the Employer to the Contractor") would be redundant and of no effect. The parties could not be taken to have intended that result.

The judgment

The court accepted that:

• The natural and ordinary meaning of clause 8.7.4.3 was that it referred to the contract price and not, as clause 8.8.1.1 does, to the value of the work actually performed. In a normal case, that interpretation caused no injustice. The employer could bring into account its expenses and losses under clause 8.7.4.1. Applying ordinary principles of interpretation, derived from the House of Lords and Supreme Court authorities, would lead to the same conclusion.
• The structure and commercial logic of the termination regime in clause 8.7 and 8.8 supported the claimant's interpretation of clause 8.7.4.3 and the distinction between value and price. If the employer decided not to complete the works, the contractor received a payment based on quantum meruit. If the employer decided to complete the works, the payment regime was governed by the contract price but adjusted to take account of the cost of completing the works and any part payment made.

However the court also noted and inferred that both the defendant and the second adjudicator instinctively recoiled from the claimant's proposition that it was entitled to a substantial windfall, i.e. to be paid a sum in the region of £10 million for notional work which it had not done and would never do (though the defendant and the second adjudicator resisted that proposition in different ways).

The defendant’s solution was to treat Grainger plc as the employer and measure the claimant's entitlement by reference to expenses incurred and losses suffered the employer. For the second adjudicator, the solution was to treat the claimant's entitlement as a quantum meruit as if the exercise were being done under the clause 8.8 regime rather than the clause 8.7 regime, substituting value for price. Neither solution was obviously correct and satisfactory; but no more was the claimant's solution that it should receive a windfall of millions of pounds.

The second adjudicator's approach was wrong, because it was inconsistent with the correct interpretation of clause 8.7.4.3, both as a matter of ordinary language and read in its commercial context.

The defendant’s solution (to treat Grainger plc as the "Employer" under clause 8.7.4.1) was not obviously untenable. It involved reading "Employer" in clause 8.7.4.1 as including any assignee, whether or not the assignment had been authorised and consented to by the contractor. That might be thought to confer legitimacy on an unauthorised assignment. But it did have virtues which the claimant's solution patently lacked:

1. It did no violence to the language of the clause. Grainger was, in a sense, "the Employer" after the assignment. It is not the employer of the claimant but it had taken up the role of being "the Employer", albeit of a different contractor, under a contract to complete the works. Grainger had no contractual nexus with the claimant after the assignment, but nor did the defendant, post-termination, apart from in respect of the financial provisions. After termination, the defendant was no longer employing the claimant to do building work.
2. The defendant's interpretation preserved the integrity and commercial logic of the accounting exercise. The defendant received no windfall by being permitted to bring into account the assignee's expenses and losses. Being permitted to do so protected the defendant against an unjust and punitive liability to pay for work the benefit of which it would not receive.
3. The assignment, whilst unauthorised, remained invalid in that the assignee could not sue the contractor or be sued by the contractor under the contract. Clause 7.1 (and the disapplication of clause 7.2) prevented that. The assignee was merely, as a matter of interpretation, treated as "the Employer" for limited accounting purposes, to avoid injustice. It was the party that had actually incurred relevant costs which in principle should be brought into account.
4. To state the obvious, the defendant's interpretation avoided the windfall which is the cause of the injustice.
5. There was some analogy with the equitable principle that (per Snell's Equity, 34^thEdition, Sweet & Maxwell, 2022, at 3-028): "where it is a condition of enjoying the benefit that a burden is assumed, the assignee cannot enjoy the benefit without discharging the burden".

Jurisdiction

The court found there was no difficulty in granting a declaration without other relief, under section 19 of the Senior Courts Act 1981 and Civil Procedure Rule 40.20 (even though claims for a declaration alone might be unusual). It was accepted that claims for a declaration alone had a legitimate part to play in Technology and Construction Court (TCC) proceedings to challenge decisions of adjudicators as recognised in the guidance given by Coulson J, as he then was, in Hutton Construction Ltd v. Wilson Properties (London) Ltd [1]and now embodied in paragraph 9.4.5 of the TCC Guide.

The defendant’s absence was thought no fault of its own, the Official Receiver lacking funds with which to appoint representatives. Had it been present it would doubtless have argued vigorously that the first adjudicator was wrong to find that practical completion had occurred more than three months before the proceedings were taken; and that the second adjudicator was equally wrong to find the effect of the assignment was to allow a windfall to the claimant. Those challenges would have had a reasonable prospect of success.

It was not an appropriate case to exercise the court’s discretion to grant the declarations sought. To have done so would have been to bestow an unlawful windfall on the claimant.

[1] [2017] EWHC 517 (TCC).

ISG Retail Ltd v FK Construction Ltd [2024] EWHC 878 (TCC) Neil Moody KC, 18 April 2024

The court described the parties as ‘serial litigants’. The disputes between them had given rise to 12 adjudications, 8 sets of High Court proceedings and 2 appeals to the Court of Appeal.

 ISG was main contractor and FK its subcontractor in respect of ‘Project Barberry’, the construction of 6 new industrial units at Avonmouth Bristol.

In these proceedings ISG claimed a declaration that FK was not entitled to a 188 day extension of time and loss and expense awarded to them by Mr Molloy in a recent adjudication. This was on the grounds that they had failed to comply with notice provisions in the subcontract, the clauses in question being conditions precedent to the right to either time or money.  FK argued that the issues gave rise to factual disputes requiring witness evidence. They contended that not all the various provisions of the notice clause were conditions precedent and that, in any event, they had complied with the provisions. Alternatively ISG was estopped from contending otherwise or had waived its entitlement to do so. In terms of the facts in issue and evidence, FK said notice of the various delays was given by way of a series of early warning notices (EWNs), and by emails, and orally at regular site meetings to monitor and discuss delay and measures to deal with delays. Also, that no complaints had been made at the time as to what were now said to be the shortcomings of the EWNs.

In addition, FK argued that it was not permissible to seek a declaration in relation to one finding comprising only part of the adjudicator’s decision. This was described as a ‘category error’.  Since this issue was fully argued, the court was able to state its brief conclusion, thus:

“I see no reason why one part of an adjudicator's decision should not be the subject of final determination under Part 8 if the issue is otherwise suitable for Part 8 determination (i.e. it is unlikely to involve a substantial dispute of fact). This is particularly so if the balance of the adjudicator's decision is uncontentious (which may be the position in the present case); otherwise the parties would be required to litigate matters which are not in dispute. I note that this was essentially the conclusion reached by Edwards-Stuart J in Geoffrey Osbourne Ltd v Atkins Rail Ltd[1]and I respectfully agree with him.”

On the main issue, the court declined to grant the declaration sought. The matter was not suitable for Part 8 determination as there were likely to be substantial disputes of fact (a) as to whether FK was in breach of the notice provisions of the subcontract, and (b) as to whether ISG had waived its entitlement to rely upon any breach, and/or was estopped from so relying. The court declined to make any declaration as to whether the clause in question (9(5)) was a condition precedent, there being little purpose in doing so without also deciding the issues of breach and waiver / estoppel at the same time. In any event it would be preferable for the construction issues to be pleaded out.

[1]  [2009] EWHC 2425 at [18].

McLaughlin & Harvey Ltd v LJJ Ltd [2024] EWHC 1032 (TCC) Adrian Williamson KC, 2 May 2024

The claimant MHL sought enforcement of the adjudicator’s award ordering LJJ to pay or allow Key Date Damages for delay of £808,000 arising from LJJ's failure to meet Key Dates in respect of MEP installations pursuant to an amended JCT 2016 Design and Build Sub-Contract dated 7 May 2021.

Upon issuing his award, the adjudicator invited the parties to inform him if there was any clerical error in the decision. Both parties responded asking for ‘errors’ to be corrected. The request by LJJ was in the nature of a substantial submission  to the effect that the damages awarded had  already been “allowed” and asking that the decision be revised to reflect this fact. MHL replied that the adjudicator had no power to make such a change under the applicable rules and in any event disagreed that the damages had already been taken. After further exchanges the adjudicator revised paragraph 2 of the operative part of his original decision to read: “If not already allowed, the said sum of £808,000.00 to be paid by LJJ to MHL within seven days of the date of this Decision together with such VAT, if any, as is applicable thereon in law."

LJJ now raised three issues for decision.

1. Did the Revised Decision supersede the Decision?

It was common ground at the enforcement hearing that the power to revise a decision was contained in paragraph 22A(1) of the Scheme and that there were no typographical errors.

The Scheme provided:

"The adjudicator may on his own initiative or on the application of a party correct his decision so as to remove a clerical error or typographical error arising by accident or omission."

The question then was: Did the Revised Decision consist of the correction of "a clerical error"? The court considered the Oxford English Dictionary definition of the words, and the decision on the wording of paragraph 22A(1) in Axis M&E UK Limited v Multiplex Construction Europe Limited[1].

Following that decision the court agreed that what was envisaged was an error in expression or calculation and not one going to the reason or intention forming the basis of the decision.  Nor did  it apply to ‘pure omissions’ i.e. something the adjudicator intended, but by oversight forgot to do. In simple terms, something which the ‘penman’ or ‘clerk’ wrongly transposed from the dictation of ‘the author’.

This was not the case here. This was a matter of substance which the adjudicator had failed to adequately address in his decision. Thus LJJ’s first ground of resistance failed.

1. Was the adjudicator's error within jurisdiction, such that the court would not interfere?

LJJ contended that even if the adjudicator was wrong in his view that he had power to correct his decision, it was an error of law within his jurisdiction and with which the court could not interfere.

The starting point was the decision of the House of Lords in Lesotho Highlands Development Authority v Impregilo SpA[2]. This was a case arising under the Arbitration Act 1996 concerning the correction of an award which, correctly characterised, was held to be an erroneous exercise of a power vested in the tribunal, rather than an excess of power. The point was considered by Ramsey J (as he then was) in the adjudication context in O'Donnell Developments Limited v Build Ability Limited[3]. The court concluded it was not bound by O’Donnell to follow any particular approach when considering the facts of the present case. What was clear from O'Donnell was that "the dividing line between exercising a wrong jurisdiction which does not exist and exercising a jurisdiction which does exist, wrongly is difficult. Each case obviously has to be considered on its facts to decide whether it is a decision within or outside the adjudicator's jurisdiction."

On the facts and looking at the documents, the court was satisfied that the adjudicator's approach fell the wrong side of the line. The addition of the words "if not already allowed" served to convert a straightforward determination that a sum of money should be paid, into a mere declaration that a sum was due, subject to an investigation of other transactions between the parties. Lesotho obliged the court to "focus intensely on the particular power". The power in question was "to remove a clerical error or typographical error arising by accident or omission". On analysis, what the adjudicator did here, was not "merely a case of erroneous exercise of power vesting in the tribunal" but, rather, the purported exercise of a power which the adjudicator did not have, namely "giving effect to second thoughts or intentions". He was not, in truth, attempting to remove a clerical error or typographical error arising by accident or omission, the power which he did have.

1. Approbation and reprobation

This was not a case where MHL had ‘blown hot and cold’ by proffering minor and legitimate corrections to the decision.

The revised decision was not made within the adjudicator’s jurisdiction and the original decision was enforceable

[1] [2019] EWHC 169 (TCC).

[2]  [2006] 1 AC 221.

[3] [2009] EWHC 3388 (TCC).

Morganstone Ltd v Birgkemp Ltd [2024] EWHC 933 (TCC) HHJ Keyser KC, 25 April 2024

Morganstone Ltd (ML) engaged Birgkemp Ltd (BL) to carry out ground works under a bespoke form of subcontract. Before the subcontract was entered into the parties agreed a payment schedule with a list of dates on which interim payment applications were to be made, and with the due dates and final dates for payment. The schedule dates were incomplete, and the timing of applications was inconsistent with the payment provisions in clause 10 of the subcontract. BL pointed this out and ML agreed to issue a fresh payment schedule with extended application / payment dates or replace the one with the subcontract. In the meantime, the subcontract was signed and both above and alongside clause 10 of the subcontract there was written in manuscript, in red ink, "PAYMENT SCHEDULE TAKES PRECEDENCE".

The works were set to continue after the last dates in the schedule and ML agreed to issue a new schedule for the following year, 2022. Towards the end of 2022 , with work still proceeding, ML issued a further payment schedule for 2023. BL did not agree with some of the content and it was never agreed. 

BL made a payment application (No.22) in August 2023. ML gave a pay less notice making various deductions and two cross claims without prejudice to its contention that BL had no entitlement to make the application for payment 22 (AfP22) or any further interim application. BL challenged many of the deductions as being “inappropriate” and, on 4 December 2023, BL issued a notice of intention to refer the dispute to adjudication. In the adjudication, BL asked the adjudicator to decide the sums properly due for what they called the “impermissible deductions” made by ML, and to decide the sum to which they were entitled on AfP22. ML contended that BL had no right to make AfP22. But in any case they relied on all of the deductions they had set out in their pay less notice, including but not limited to the impermissible deductions and two items of set off, for defective works, not referred to in the pay less notice.

By his decision the adjudicator decided that BL had been entitled to make the AfP22, that ML had made some impermissible deductions, and that BL was entitled to be paid £207,076 together with interest (‘the award’). In so doing, the adjudicator decided he could not consider any deductions or other ML claims beyond the impermissible deductions because the dispute referred by the notice of adjudication was confined to those items.

ML paid the adjudicator’s fees but not the sum awarded to BL.

ML issued a Part 8 claim for a declaration that BL had no entitlement to make the AfP22 or any other interim payment application, the last date in the 2022 payment schedule having passed and the 2023 payment schedule not having been agreed. In response BL issued a Part 7 application to enforce the award.

It was agreed that if the Part 8 application succeeded then the Part 7 application would fail. If the Part 8 application failed, then it was necessary to go on to consider ML’s contention that the award was made without jurisdiction and / or in breach of the rules of natural justice by reason of the adjudicator’s refusal to consider its defences (other than the impermissible deductions) and two set off items advanced by way of defence.

Part 8 application

ML relied on the case of Balfour Beatty Regional Construction Limited v Grove Developments Limited[1] in which the Court of Appeal decided that after the last contractual dates for applications for payment there was no entitlement to make further applications. The court distinguished Balfour Beatty  on the facts. In the  ML/BL subcontract, the Schedule governed the time for making and payment of applications where not in conflict with clause 10.  That was the intended effect of the words “PAYMENT SCHEDULE TAKES PRECEDENCE”. Once there ceased to be a Schedule (on expiry of the 2022 list of dates) payment was governed by clause 10. The application failed.

Part 7 application

The issue was whether the adjudicator had correctly exercised the power to revise his initial decision and if he had incorrectly exercised that power, what was the effect. ML’s first line of defence (that BL had no right to make the AfP22) had already been determined against them.

The notice of adjudication defined the dispute narrowly (i.e. the valuation of the Inappropriate Deductions in the pay less notice) but, significantly, also claimed payment of the money to which BL was entitled. In the adjudication, ML had relied on an express right of set off in clause 6 of the subcontract for two items that were not included in its pay less notice, being claims for the cost of remedy of defects in (a) storm drainage and (b) groundwork in the shower area. The adjudicator decided he was confined by the notice of adjudication to considering only the Inappropriate Deductions and that these items were not within the dispute. Although he accepted evidence that the defects existed and that ML had incurred losses, he declined to make any deduction for them.

The law was found in the cases of Global Switch Estates Ltd v Sudlows Ltd[2]  in which O'Farrell J considered the relevant authorities in detail including at [47] the conclusion of Coulson J in Pilon Ltd v Breyer Group Plc[3].

BL first submitted that the adjudicator had considered the cross claims but had decided as a matter of law that ML could not rely on them as they had not been included in the pay less notices.

In addition, BL submitted that the adjudicator's jurisdiction was derived from and defined by the Notice of Adjudication: simply, whether the deductions in the pay less notice were appropriate. It was not a wider dispute as to the valuation of specific elements of the works. ML had impermissibly sought to raise issues that fell outside the scope of the adjudicator's jurisdiction. The matter fell squarely within observations in Global Switch. Had it wished to raise the matters in its proposed cross claims, ML should start another adjudication to ascertain the correct figure due (see S&T (UK) Ltd v Grove Developments Ltd ).

The court rejected both of those submissions.

• The adjudicator did not address the substance of the cross claims, because he made the preliminary decision that their consideration fell outside the scope of his jurisdiction.
• BL was not merely seeking a ruling on the appropriateness of specific deductions in the pay less notice. It was seeking, and it obtained, an award of payment. Whether or not BL’s drafting could fairly be characterised as "devious", the way the notice was drafted and its subsequent reliance on the confines of that drafting clearly sought to "put beyond the scope of the adjudication the defending party's otherwise legitimate defence to the claim" - that is, the claim for payment. That tactic amounted to the use of a fallacious argument that, once the validity of the deductions in the pay less notice had been determined, it was entitled to payment of the resulting amount. ML was not seeking to widen the scope of the adjudication by raising other, freestanding disputes. It was engaging with and responding to the issues in the adjudication by raising cross claims as a defence of set-off to BL’s claim for payment.

The adjudicator took an erroneously restrictive view of his jurisdiction. That failure was deliberate rather than inadvertent, in that he specifically addressed his mind to the question whether the cross claims could be raised on the adjudication and decided that they could not be raised as they fell outside the scope of the adjudication. The error was material, in that the cross claims would, if upheld, have had a very significant effect on the overall result of the adjudication. Moreover, the error was brought about by BL’s deliberate attempt to achieve a tactical advantage by confining the scope of the adjudication in such a manner as to exclude potentially relevant defences to the claim for payment. In these circumstances, the court held the Decision was unenforceable as having been made on the basis of an error as to the adjudicator's jurisdiction and in breach of the principles of natural justice.

Since neither party had fully achieved it aims, the court made a partial order for costs.

[1] [2016] EWCA Civ 990.

[2] [2020] EWHC 4796 (TCC), [2021] BLR 111.

[3] [2010] EWHC 837 (TCC), [2010] BLR 452.