Before Mr Justice Edwards-Stuart in the TCC. Judgment delivered 27 February 2015
Estura Limited (Estura) engaged Galliford Try Building Limited (Galliford Try) under a JCT Design and Build Contract 2011, to carry out certain works at the Salcombe Harbour Hotel, Devon. The contract contained payment terms that complied with the amended Construction Act requiring payment notices and, if necessary, payless notices.
As a special purpose company set up solely for the project Estura had few assets and was funded by others.
Towards the end of the works Galliford Try submitted its Interim Application 60 (“IA 60”), which was described as an “Indicative Final Account and Valuation Summary”. The sum claimed in IA 60, over £12.5m, was almost £5m more than the contract value and only about £4,000 less than the amount of Galliford Try’s anticipated final account.
Where Estura failed to serve a payment notice or a payless notice then in accordance with the amended Construction Act the sum claimed by Galliford Try became the notified sum due for payment by the final date for payment. Estura failed to make the payment and Galliford Try referred the dispute to adjudication. The adjudicator found that as Estura had failed to serve either notice Galliford Try was entitled to the sum claimed in IA 60; nearly £4m, plus VAT and interest.
Estura refused to pay and attempted to redress the balance by commencing a second adjudication seeking a declaration as to the true value of the works. The second adjudicator resigned saying he lacked jurisdiction and Galliford Try commenced enforcement proceedings in respect of the sum awarded in the first adjudication.
Estura submitted that as a result of the Judge’s earlier decision in ISG Construction Limited vs Seevic College, it was not able to ask another adjudicator to correct the payment position between the parties. In ISG it was held that a paying party was not able to frustrate the effect of an adjudication awarding the sum applied for following the failure to issue a payment notice or a payless notice by commencing an adjudication on the true value of the works at the time of the interim application. (The judge clarified that in ISG he found that the true value of the works could however be established at a later date.)
Estura argued that given the “exceptional circumstances” the adjudicator’s decision should not be enforced in the usual way by summary judgment or, if it was, enforcement should be stayed where there was a risk of “manifest injustice”. The exceptional circumstances relied upon arose out of the substantial windfall obtained by Galliford Try in the first adjudication. As IA 60 had claimed a valuation very close to the anticipated final account Estura argued that Galliford Try had no incentive to invoke the final account process to allow the true value of the works to be established and a balancing payment ordered.
Estura’s overriding concern was the impact of the first adjudicator’s decision on cash flow. Compliance with the final account process in the contract would preclude any payment to Estura until after the end of the 12 month rectification period, at the earliest. Estura would be kept out of its money for a considerable period of time which would cause serious financial difficulties and give rise to “manifest injustice”.
Galliford Try argued that staying enforcement of an adjudicator’s decision because the decision might be wrong or unjust would be inconsistent with the previous robust policy of the Court to require compliance with adjudicators’ decisions, right or wrong.
The judge ordered summary judgment for Galliford Try in the sum claimed but noted that the Court had two alternatives as regards the stay: to take a robust approach and refuse to grant a stay on the grounds that to do otherwise would be contrary to the policy of the court to enforce the decisions of adjudicators, or to stay enforcement of part of the amount. The Judge concluded that in the “very unusual circumstances” of this case, the robust approach would not be fair to Estura.
Having found it would not be fair to enforce the judgment in full or correct to stay the full amount of the judgment, the judge stayed enforcement of the judgment above the sum of £1.5m, which was to be paid to Galliford Try, subject to certain conditions.
The judge was sympathetic to Estura’s submission that Galliford Try’s substantial windfall in the first adjudication gave it little incentive to risk determining a potentially reduced valuation via the final account process. Estura could only have commenced the final account process after a substantial delay which would have adversely affected its financial position. Further, litigation to seek to reverse the adjudicator’s decision was not an option for Estura due to the costs involved.
The judge specifically warned that his decision arose from the “very unusual” circumstances of the case. However, it might be said that an application to enforce an adjudicator’s award requiring an employer (in financially difficulty) to pay sums properly applied for in full due to the absence of notices is more familiar than “very unusual”.
Galliford Try was awarded £1.5m when it could reasonably be expected to have been awarded nearly £4m. It will be interesting to see how many other employers claim “very unusual” circumstances and “manifest injustice” in order to avoid the consequences of their own failures to follow contract mechanisms.
Fenwick Elliott LLP