Abbey Healthcare (Mill Hill) Ltd v Augusta 2008 LLP (formerly Simply Construct (UK) LLP) [2024] UKSC 23

The Respondent (Simply) was engaged to design and build a care home (the premises). Simply gave a collateral warranty to Abbey which provided, in common terms, that Simply had:

• performed and would continue to perform its obligations under the (building) contract;
• exercised and would continue to exercise all reasonable skill care and diligence to be expected in carrying out and completing the works and;
• exercised and would continue to exercise all reasonable skill care and diligence to be expected in carrying out and completing the design of the works.

Works under the building contract were practically complete in October 2016. In June 2017, the building contract was novated to a company called Toppan Holdings Ltd (Toppan), which owned the premises. In August 2017, Toppan granted a 21-year lease of the premises to Abbey. Toppan later asked Simply to give a collateral warranty to Abbey and, after some delay, Simply did so in September 2020.

Simply had been notified of alleged fire safety defects in the premises in 2018, but did not rectify them. Following the novation and grant of the lease, Toppan and Abbey referred the dispute over liability for the alleged defects to adjudication. The adjudicator gave an award in favour of Toppan/Abbey on the question of liability. Upon enforcement in the Technology and Construction Court (TCC), the judge, Mr Martin Bowdery (then QC), declined to enforce the award, holding that the warranty was not a 'construction contract' within the meaning of s104(1)(a) of the Act, such as to give rise to a statutory right to refer a dispute between the parties to adjudication.

Abbey appealed to the Court of Appeal, who by a majority of two to one reversed the judgment holding that a collateral warranty could amount to a construction contract where, as in this case, it provided for future obligations. The majority, Peter Jackson and Coulson LJJ, placing reliance upon the words “and would continue”, held that the warranty meant a future obligation was being undertaken or assumed.  Stuart-Smith LJ dissented, noting in particular the period of four years that had elapsed between the practical completion of the works and the giving of the warranty.

Simply now took the matter to the Supreme Court. Lord Hamblen, with whom the other four members of the court agreed, gave judgment allowing the appeal for the following reasons.

• A collateral warranty would be an agreement 'for ... the carrying out of construction operations', within the meaning of s104(1)(a), if it was an agreement by which the contractor undertook a contractual obligation to the beneficiary to carry out construction operations which was separate and distinct from the contractor's obligation to do so under the building contract;
• A collateral warranty where the contractor was merely warranting its performance of obligations owed to the employer under the building contract would not be an agreement 'for' the carrying out of construction operation;
• Accordingly, the majority of the Court of Appeal had erred in holding that the collateral warranty in the present case had amounted to a construction contract, giving rise to a right to adjudication; and
• Parkwood Leisure Ltd v Laing O'Rourke Wales and West Ltd[1] in which it had first been decided that a collateral warranty could be a construction contract, was wrongly decided and would be overruled.

[1]  [2013] All ER (D) 221 (Aug).

Henry Construction Projects Ltd v ProMEP Ltd [2024] EWHC 1825 (TCC) Jefford J (16 July 2024)

Henry applied under Part 8 Civil Procedure Rules (CPR) for declaration that a claim by ProMEP which resulted in an adjudicator’s award in its favour, had been settled by the terms of PoMEP’s CVA. It also contended that the award was obtained by fraud. It asked the court to hear its Part 8 claim first as it was commenced first in time and it raised matters which amounted to a defence to a Part 7 claim. The claimant, ProMEP,, meanwhile applied to enforce the adjudicator’s award.

The judgment sets out the involved background at considerable length. For the purposes of this report, only the most salient matters are referred to.

ProMep was a mechanical and electrical services (M&E) contractor and over a period of about four years was engaged as a sub-contractor by Henry on a number of projects with a total value of around £68 million. There were a series of some eight adjudications resulting in Henry owing ProMEP around £1 million.

In early 2021, a dispute arose under a further contract, for M&E works for a project at Stanbridge Earls, Romsey. Each party accused the other of repudiatory breach and claimed a right of termination.

In October 2021, ProMep entered into a Company Voluntary Arrangement (CVA) by way of a composition in satisfaction of the company's debts. Henry claimed to be a creditor for various sums by way of set-off and submitted proofs of debt in March 2022, which were accepted. Strangely, there was no claim from Henry in respect of the Romsey contract.

In November 2022, ProMep commenced an adjudication in respect of the Romsey contract. Mr Rowan Planterose was nominated as adjudicator. As the court later noted, Mr Planterose is a highly experienced barrister and solicitor in the field of construction law and that both parties were legally represented in the adjudication. By the Referral Notice, ProMEP claimed Henry was in repudiatory breach of contract which ProMEP accepted as terminating the contract. ProMep claimed payment for work done and damages for breach in a total sum of £887,545.80. Henry denied breach and claimed it was entitled to terminate the contract for ProMEPs’ repudiatory acts. In addition Henry said ProMEP owed it £3.215 million, the balance of a larger debt which had been accepted by the CVA Supervisor. In the ensuing submissions, in which the parties debated the terms of the CVA and how it impacted on the dispute, ProMEP disclosed and which supported its position that the Romsey claim had not been subsumed in and settled by the CVA, as Henry contended. Consequently, the adjudicator was obliged to and did consider whether or not the claim had been excluded from the CVA and concluded that it had. He then made an award in ProMEP’s favour.

Mrs Justice Jefford had to deal with a number of issues, briefly summarised below together with her findings.

Procedural issues

Her Ladyship held that the enforcement application should be heard first and that the Part 8 application should not be heard at the same time. That reflected the recent decision of the Court of Appeal in A&V Building Solutions Ltd. v J&B Hopkins Ltd[1] and the fact that the abridged directions for the hearing of the matter were made because it was an adjudication enforcement and not because of the Part 8 proceedings. It transpired the Part 8 application was not suitable for summary determination. The application raised a number of complex issues, required limited disclosure (as to counsel’s advice) and the consideration of evidence, and despite a second directions hearing, left insufficient time for submissions and argument.

The relevance of counsel’s advice

The advice as deployed in the adjudication was both incomplete and partial in that only that which supported ProMEP’s case was disclosed. If it amounted to a material misrepresentation, it was akin to a submission of law as to a question which the adjudicator was bound to decide. It could only complain if it amounted to fraudulent behaviour. In the present case, the scope of what was being presented to the adjudicator – a summary of advice which counsel had not herself approved – was clear and Henry could have, but did not, raise an issue as to whether the summary was misleading in the adjudication. It was a position that Henry could have taken in the adjudication, inferring that ProMep must have misrepresented counsel's advice. Even if there was any fraud argument to be advanced, it was, in effect, adjudicated upon.

Was there any defence to the Part 7 application?

Without considering the 8 application, the short answer was an emphatic “No”.

It was well established that, subject to limited exceptions, the court would enforce a decision made within the adjudicator’s jurisdiction. The 'Fraud Exception’ did not apply (see above).

Henry’s further submission – that this was an insolvency case where the position on enforcement should be different, relying on the decision in John Doyle Construction Ltd. v Erith Contractors Ltd[2] – was also dismissed. That case concerned a company in liquidation, and the issue that arose was whether it was entitled to summary judgment irrespective of the potential set-off of cross claims in the liquidation. The short answer was that it was not. Henry submitted that even if the court could not determine the Part 8 claim at the same time as the enforcement proceedings, it should not grant summary judgment because, so long as Henry's position was arguable, it might be the case that the insolvency set-off applied and the position would be the same as or analogous to that in John Doyle.

First Insolvency Rule 14.25, requiring a set-off of mutual debts, was mandatory in liquidation, but not in a CVA. The Rule did not apply to the debts in this CVA. The issue properly before the adjudicator was whether the insolvency set-off applied at all, which was a question of the construction of the CVA which had already concluded. The adjudicator decided that the insolvency set-off did not apply. Henry's argument was no more than a variation on the theme that the adjudicator was arguably wrong and that did not provide a reason to refuse enforcement.

The CVA

It was common ground that the CVA took contractual effect by “statutory hypothesis” and was to be construed in accordance with normal contractual principles. The court having noted that there no automatic set-off within a CVA, in contrast to a liquidation or administration, the ‘default position’ was that the insolvency set-off did not apply unless provided for by the terms of the CVA. No set-off was provided for by the CVA. The relevant detailed provisions when properly construed, regard being had to the stated purpose of the CVA, led the court to conclude that the debt in question was excluded from the matters settled by the CVA.

The court gave judgment for ProMEP in the enforcement proceedings and refused the claim by Henry for a declaration.

[1] [2023] EWCA (Civ) 54.

[2] [2021] EWCA Civ 1452.

C.N.O. Plant Hire Ltd v Caldwell Construction Ltd [2024] EWHC 2188 (TCC) HHJ Kelly (21 August 2024)

There had been three adjudications between the parties arising out of a sub-contract for works at Poverty Lane, Maghull to which the Scheme applied.

The first adjudication concerned C.N.O.’s December 2023 payment application. The adjudicator, Mr, awarded C.N.O. payment in full in the absence of a payment or pay less notice. In a second adjudication commenced by Caldwell, . Despite C.N.O. arguing that the dispute was the same or substantially the same as that decided by Mr Latham in first adjudication, the second adjudicator, before , determined the two disputes were not the same and that he had jurisdiction and he found a sum due to Caldwell.

In a third adjudication, C.N.O. claimed a true valuation of its final account.

At the hearing of the enforcement of the first adjudication decision, Caldwell sought to resist enforcement on the grounds that they should be allowed as a matter of right or discretion to set-off the decision in the second adjudication. C.N.O. objected that (a) Caldwell had not made any application to enforce that decision and therefore the court could not allow a set-off; and (b) that the second adjudicator lacked jurisdiction as the dispute was the same as that decided by the first adjudicator.

The court noted the principles enumerated by O’Farrell J in Bexheat[1], in particular that a party could not commence a true value adjudication before payment of the notified sum as found due in a prior adjudication. However, the question here was factual: did the second adjudication concern the same dispute as the first adjudication? In fact, the December payment application was for the same valuation of the same work as the September payment application. It was wrong to argue that these were two different payment cycles when the December payment application was, in effect, a final account for the same sum.

The setting-off of one decision against another was only available where both decisions were valid and  enforceable[2]. Here for whatever reason, Caldwell had chosen not to apply to enforce the second decision, so the question of validity and enforceability could not be determined in the absence of evidence and argument. C.N.O. was not obliged to file evidence on that issue when there was no application to enforce the second decision. The court declined to allow the set-off of the second decision as there was no application before the court to enforce the second decision.

In case it was wrong in that finding, the court declined as a matter of discretion to allow Caldwell to set-off the second decision. The following matters were relevant to the exercise of that discretion and  that result:

1. The two payment applications were in respect of the same work and same sums. Although the first adjudication was a ‘smash and grab’ on the December payment application, and the second a true value adjudication on the September application, they were not different payment cycles and the disputes were essentially the same.
2. There was no application to enforce the second decision, and no evidence and argument to determine its validity – and therefore enforceability.
3. It was not possible to decide whether Caldwell had been entitled to commence a true value adjudication when an established process to enforce the decision was available to it that it chose not to use.
4. It would seriously undermine the swift enforcement process if the court were to allow set-off without requiring payment of the notified sum previously found due.

[1] Bexheat Ltd v Essex Services Group Ltd [2022] EWHC 936 (TCC) at [A/9/35-39].

[2] Akenhead J's decision in HS Works Ltd v Enterprise Managed Services Ltd [2009] EWHC 729 (TCC).

ISG Retail Ltd v FK Construction Ltd [2024] EWHC 1713 (TCC) HHJ Hodge KC, 28 May 2024

ISG applied to enforce an adjudicator’s award ordering FK to pay (1) £191,740 for “pallet store works” and (2) £370,180 for “rooflight works”. There was no issue as regards the award at (1) and summary judgment was granted. FK objected to the second part of the award at (2) arguing it was reached in breach of natural justice.

FK argued, and the judge agreed, that the adjudicator had fallen into error in the quantification of damages. The court was satisfied on the evidence and looking at the history of the adjudication, that the adjudicator had considered all the arguments put before him. He had considered FK’s case on assessment of damages. There was no want of natural justice.

The question then was whether the incontrovertible error, which was not of calculation but of approach in failing to take account of deduction resulting in a double counting and a potential windfall of nearly a quarter of a million pounds, rendered the decision invalid,or whether the court could correct the error, and give effect to the decision as corrected.

The court was “entirely satisfied that there was an error of approach on the part of the adjudicator on the basis of the actual figures he had found”. It was the result of an incorrect approach, not an arithmetical error and would be unconscionable to ignore it. The fact that this error of approach might be characterised as ‘an issue of law’ did not prevent it being raised as a partial defence to a summary judgment application, following what Coulson J. said in Hutton[1]. In addition, consideration of the issue satisfied all the requirements for a Part 8 application. It was a short self-contained point requiring no evidence, and there was no doubt as to the correction to be made. The court corrected the amount of the second award and ordered enforcement of the award as corrected.

[1] Hutton Construction Ltd v Wilson Properties (London) Ltd [2017] EWHC 517 (TCC), reported at [2017] BLR 344.

Bell Building Ltd v TClarke Contracting Ltd [2024] EWHC 1929 (TCC) Mr Jonathan Acton Davis (25 July 2024) 

Bell brought adjudication proceedings upon a payment application No.18 (PA18), in which they gave credit for sums paid up to the date of the referral. It argued there was no valid pay less notice and it was entitled to the sum claimed in PA18. In Bell’s notice of adjudication and its referral, Bell expressly did not give the adjudicator jurisdiction to assess the true value of the payment due, though the relief claimed was the sum of PA18 “or such other relief as is necessary, just and equitable to determine the dispute”. TCL argued that it had given a valid payment notice. It also challenged the calculation of the payment claimed in PA18 on the grounds that it included sums claimed in PA19. It submitted that as the adjudicator was dealing with PA18, he could not take account of PA19.

The adjudicator found (1) that TCL’s pay less notice was invalid; and (2) that following TCL’s logic, he concluded that as he was not entitled to take account of the payment made under PA19, his assessment of the sum due under Application No. 18 should exclude the sum of £679.592.78 that Bell claimed it had received under Application No. 19. Bell was, therefore, entitled to a greater sum than the payment claimed.

Upon enforcement, TCL complained the adjudicator had gone outside his jurisdiction and acted in breach of the rules of natural justice in what they claimed was an exercise to assess the value of the payment claimed and in awarding a greater sum than the payment claimed.

The judge found as follows:

Natural justice

On the material before him, the adjudicator was acting on “a frolic of his own”. He was entitled to decide the matter upon a factual or legal basis which had not been argued or put forward by either side where the parties were aware of the relevant material, and the issues were canvassed before him. His decision was a product of responding to and accepting the case advanced by TCL. He did not carry out a valuation: he corrected the arithmetic put before him.

Jurisdiction

TCL presented a series of defences to the quantum of Bell's claims and the adjudicator reached the conclusion that he had been invited by TCL to ignore payments made under PA19. This opened up the possibility of a different, greater assessment of the payment claimed due. The adjudicator was therefore acting within his jurisdiction to determine the sum due as he saw fit, in response to the submissions made by TCL.

Summary judgment application granted.