Having raised a claim at an earlier stage does not necessarily entitle a subcontractor to raise the same claim later
A recent decision concluded that a claim for loss and expense made after the date of practical completion was not a valid claim and therefore an adjudicator’s decision in respect of that portion of the award made was not enforceable. The fact that the subcontractor had raised such claims prior to practical completion of the works did not matter. This might come as a considerable shock to many in the industry. Just because you have claimed for something in the past does not necessarily entitle you to raise the same claim later and succeed on it.
The adjudicator decided that Galliford Try had to pay Ground Construction £446,405, including £239,523 in loss and expense. On enforcement Ground Construction was ordered to pay back Galliford Try the £239,523, plus interest in respect of the loss and expense.
The moral of the story is not only to read the contract carefully and to make claims in good time, but also not to come back years after the event with a new claim
The reason was that the contract said at clause 4.19: “If in the execution of this subcontract the subcontractor incurs or is likely to incur direct loss and/or expense […] the subcontractor may make an application to the contractor […] provided that no application shall be made by the subcontractor following practical completion of the subcontract works.”
The subcontract was dated 2013. Practical completion of the subcontract works wasn’t formally certified, but Ground Construction’s view was that its works were practically complete in July 2014. In November 2017 (on any analysis some three years after practical completion) Ground Construction made an interim application (no. 52) for payment, which included its claims for loss and expense. Ground Construction’s valuation of the works and interim application 52 were disputed by Galliford Try.
Ground Construction knew that clause 4.19 was going to be deployed against it. But it argued that during 2013 and 2014 it had made a number of payment applications including, it seems, £748,081 in claims for extensions of time and additional prelims “on account”. This type of application will not be any surprise to the industry or indeed viewed as unusual.
So in 2018 the claim for loss and expense made in 2017 went before an adjudicator. Ground Construction claimed £954,064 against which the adjudicator decided Galliford Try should pay £446,405, including £239,523 for loss and expense.
Galliford paid the money awarded, feeling it had no choice, but then disputed it by short form proceedings known as Part 8. His Honour Judge Andrew Singer QC in the Technology and Construction Court (TCC) on 26 July 2019 decided Ground Construction was not entitled to adjudicate the loss and expense claim made after practical completion.
In the adjudication, Ground Construction had argued that the requirement on it to make applications for payment before practical completion did not restrict its claim, in circumstances where it had made claims for on-account payments for delay and loss and expense and had repeated those claims in subsequent applications after practical completion. The adjudicator agreed.
Galliford Try argued that the requirement was there so that Galliford Try knew Ground Construction’s claims before practical completion, and that this was a condition precedent to any payment to the subcontractor. After all, a main contractor might have wanted to pass on subcontractor claims to its own employer under the terms of the main contract.
Adjudicator’s decisions are of course temporarily binding unless challenged through the courts or arbitration. Generally, if a losing party disagrees with an adjudicator’s decision, its usual option is to commence litigation (or arbitration) as if the adjudication had not taken place, except that meanwhile the adjudicator’s decision must be complied with.
In limited situations where there is no substantial dispute of fact, applications may be made to the TCC under Part 8 of the Civil Procedure Rules. Part 8 proceedings can be commenced for a declaration where an adjudicator has made a clear error. Galliford Try made a Part 8 application to the TCC.
The judge found that to allow claims for loss and expense to be made by Ground Construction after practical completion would frustrate the clear commercial intention of the subcontract. He further concluded that the claim made in application 52 was different from the claims previously made by Ground Construction.
The court therefore made a declaration in Galliford Try’s favour to the effect that under the subcontract the subcontractor’s loss and expense claim had to be made before practical completion. Application 52 was not made before practical completion. The adjudicator was wrong to make the loss and expense award and Ground Construction had to repay the sums awarded for loss and expense, plus interest.
The moral of the story is not only to read the contract carefully and to make claims in good time and as problems arise, but also not to come back years after the event with a new claim. It is unclear whether the outcome would have been the same had Ground Construction just adjudicated for a sum for which it had applied before practical completion. Probably not.
James Bessey is a partner in Blake Morgan