Is it fair when SMEs have to go to court to enforce an adjudication decision because bigger players refuse to pay? Two of our veteran columnists team up to look at a recent case and argue it’s time for reform
Rudi Klein gives us the facts in the case of Ground Developments Ltd vs FCC Construccion SA / Samsung C&T ECUK Limited /Kier Infrastructure and Overseas Limited / Merseylink Civil Contractors JV
Ground Developments is a Scottish-based SME specialising in groundworks engineering. The work it carries out is highly specialised with a massive dependency on investment in machinery, technology and people.
Back in 2009 the Construction Act was amended to provide firms like Ground Developments (GD) with greater certainty of payment through the operation of a statutory payment notice procedure. In the absence of payment notices from the paying party the amount applied for ordinarily becomes the due amount. Alternatively the payee can issue its own payment notice where the paying payer fails to issue one as required by the contract.
Back to GD. It became a groundworks subcontractor on the prestigious Mersey Gateway Project – a six-lane toll bridge over the River Mersey. GD had been engaged by Merseylink Civil Contractors JV, comprising FCC Construccion, Samsung and Kier Infrastructure.
GD had submitted three payment applications totalling almost £199,008.90 plus VAT. The joint venture did not issue any notices. GD adjudicated. Unsurprisingly the adjudicator ordered the JV to pay up. One would have thought that the matter would have ended there (with GD getting its money). But no, nothing was paid.
GD was forced to go to court to enforce adjudicator’s decision. The JV defence had nothing to do with whether or not the money was outstanding. During the adjudication it had maintained that the adjudicator had no jurisdiction because there was no contract.
But during the enforcement proceedings it changed its tune. There was a contract albeit on its terms.
Mr Justice Fraser had had enough. In the judgment he said: “Excluding VAT, the parties collectively have spent a total sum by way of costs in these proceedings in excess of £55,000, arguing about the enforceability of a sum of about £207,000 that is potentially repayable in any event, because of the temporarily binding nature of adjudication. That is over one quarter of the sum the subject of the decision. It cannot pass without comment that this is contrary to the purpose of parliament when it imposed this alternative, and temporary, process of dispute resolution upon parties who enter into construction contracts.”
The £55,000 would not have included the amount spent by the parties on legal fees incurred during the adjudication.
We must now act on Mr Justice Fraser’s statement by reforming the adjudication process to enable SMEs to re-connect with it. This means examining ways to reduce the costs.
Professor Rudi Klein is a barrister and chief executive of the Specialist Engineering Contractors’ Group
Tony Bingham explains how adjudication must be reformed in favour of enforcement to give SME construction firms a fairer deal
Right from the start of the adjudication, one theme that ran through the matter was that there was uncertainty in the nature of the contractual relations between the JV and its subcontractor: let’s us not mince words, it was a complete muddle.
So, on day one, the JV told the adjudicator that he had no power to decide his own jurisdiction. And there’s the rub. Since there is no power to decide jurisdiction, there is a heaven-sent opportunity to ignore the adjudicator’s eventual order to pay up. Ignore, that is, until the party held out of its adjudication money triggers enforcement. That’s where the £55,000 was spent. Some winners in adjudication can’t afford the fight, especially SMEs. Let’s shoot this fox. Change the Construction Industry Scheme rules. Give power to the adjudicator to decide jurisdiction. Before you shout “nonsense” or “no chance” take a leaf out of the Technology & Construction Solicitors’ Association (TeCSA) rules for their adjudicators: “The adjudicator may decide upon his own substantive jurisdiction and as to the scope of the adjudication.” Trust the adjudicator to decide what the contract is.
Some winners in adjudication can’t afford the fight, especially SMEs. Let’s shoot this fox. Change the Construction Industry Scheme rules
What differences will that make? Enforcement then cannot be resisted. The £200,000 will flow. The JV can still run the point in court but the boot is on the other foot: instead of waiting for enforcement, instead of defending enforcement, the JV would have to take the initiative and begin a fresh High Court action to bring the issue for a final decision. Meanwhile it has to pay up. And in the wake of paying up, the grumpy party has to work up an appetite that is missing a vital ingredient: the tactical manoeuvring that goes with trying to nudge the adjudicator off the pitch. The Institution of Civil Engineers says: “This may be genuine or can be seen as a tactic to unfairly stop an adjudication or unsettle the adjudicator.”
Some adjudicators cave in and leave the pitch because they can’t cope with the glare of publicity when being named in a High Court judgment. It is also beginning to dawn that the adjudicator who presses on may unwittingly come out in favour of the party that said he had no jurisdiction. Do you understand?
Seemingly the TeCSA solicitors are confident in their adjudicators to decide their own jurisdiction, and why not? Change the scheme. Better still to change the Construction Act. It is high time we got to grips with these expensive and morale-sapping tactics.
Tony Bingham is a barrister and arbitrator at 3 Paper Buildings, Temple