The unintended consequences of a successful submission during an adjudication.
In the recent case of Bell Building Ltd v TClarke Contracting Ltd [2024] EWHC 1929 (TCC), the Technology and Construction Court (TCC) upheld the enforcement of an adjudicator’s decision on a "smash and grab" claim, even where the sum awarded was in excess of that claimed in the referral, due to the acceptance by the adjudicator of a submission made by the responding party, which had unintended consequences.
Background
- TClarke Contract Ltd (TCL) engaged Bell Building LTd (Bell) to carry out certain works via a JCT sub-contract dated 4 November 2011.
- In due course, Bell issued their interim application 18 (IA18) and TCL issued a pay less notice against IA18 reducing the amount due to be paid. This reduced amount of £710,120.61 was duly paid by TCL (all sums stated exclusive of VAT).
- TCL paid a further sum of £685,591.18 to Bell as against a later interim application 19 (IA19).
- The parties subsequently fell into dispute and Bell challenged the validity of the pay less notice issued against IA18. Bell referred the matter of IA18 to adjudication on a "smash and grab" basis.
The adjudication
Bell claimed payment of £1,443,981.51 (plus VAT) in respect of what it calculated to be the outstanding amount due under IA18 on a ‘smash and grab’ basis in the absence of a valid pay less notice. Bell calculated the sum due by starting with £2,839,793.31, less the £710,120.61 paid by TCL in respect of IA18 and also less the £685,591.18 later payment made against IA19. Bell’s referral included the common caveat giving the adjudicator license to grant "such other relief as is necessary, just and equitable to resolve the dispute".
During the course of the adjudication, it appears that TCL challenged Bell’s calculation of the sums due, on the basis that it included payments made in relation to IA19, and IA19 was outside the adjudicator’s jurisdiction in this adjudication.
The adjudicator found that TCL’s pay less notice was invalid, and therefore the notified sum for IA18 was due to Bell. Usually this would mean that the adjudicator would then simply award the sum claimed by Bell in the referral on a "smash and grab" basis (Bell’s adjudication documents confirmed that the adjudicator was not given jurisdiction to decide the ‘true value’ of IA18, or any other payment claim).
However, the adjudicator noted that “It is the Respondent 's position that I cannot take into account a payment made under Application No. 19 as that will be outside my jurisdiction.” He therefore corrected Bell’s calculation to remove the allowance for the payment made against IA19 and awarded Bell the sum of £2,129,672.69 (being the starting sum of £2,839,793.31 less £710,120.61 already paid by TCL against IA18). The award also included adjudicator’s costs of £21,000. Therefore, the awarded sum was significantly in excess of the sum claimed by Bell in the adjudication.
Enforcement proceedings
During subsequent enforcement proceedings, TCL argued that the adjudicator’s decision should not be enforced due to a lack of jurisdiction and/or a breach of natural justice. In particular, TCL argued that the adjudicator’s jurisdiction did not extend to value the work done in IA18 and/or to award a higher sum than sought by Bell in the adjudication referral.
The court upheld Bell’s application for summary judgment and confirmed that there was no arguable defence to enforcement of the award.
There was no breach of natural justice, as the adjudicator had relied upon material which was put before him by the parties. He did not go off on a frolic of his own. Instead, “his decision was a product of responding to and accepting the case advance by TCL….he did not carry out a valuation: he corrected arithmetic”.
Further, the court confirmed that the adjudicator had acted within the bounds of his jurisdiction, “the adjudicator reached the conclusion that he had been invited by TCL to ignore payments made under Application No. 19. TCL's submissions therefore opened up the possibility of a different, greater assessment of the sum due than claimed … 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.”
Key takeaways
- Adjudications are fast paced and responding parties in particular often have very little time to consider and frame their arguments in defence of the claim. However, care still needs to be taken to consider whether an argument, if successful, may have unintended consequences, as it did in this case.
- While an adjudicator may not have jurisdiction to determine the value in a true "smash and grab" adjudication, the adjudicator may be able to correct arithmetic errors, leading to a greater or lesser sum being awarded than that claimed in the referral.
- It is not clear whether Bell could or should have calculated its claim on the basis of that eventually awarded by the adjudicator, within its referral. If it had done so, it may have left itself option to an accusation of claiming more than it was actually owed under its contract. It is always important for the referring party to carefully consider what is being referred to the adjudicator and the basis of any sums claimed.
Parties need to do their best to ensure that any submissions made during the course of an adjudication are fully considered, as points raised by the parties will likely be within the adjudicator’s jurisdiction and any unintended consequences will be enforced by the courts.
Claire Perry