Tony Bingham: Disputes before payment date

There are some useful pointers in this case. It’s about an adjudication between the M&E services subcontractor Working Environments Ltd and main contract fit-out contractor Greencoat Construction. I was the adjudicator and normally I would leave it to other writers to talk about the matter coming into the High Court. But I reckon I can give an even hand to my commentary.

The whole idea of adjudication is to spot the dispute and snuff it out. There is a plain dispute when the payee’s application calls for £488,000 and the payer says £16,000

The dispute was respectable - mere differences of opinion about an interim account valuation. The representation was highly professional, scrupulously courteous, excellently argued. It was genuinely held by the lawyer for Greencoat that there was no right for Working Environments to refer the dispute on interim No.10 to adjudication because it was too early. It was a familiar cry of “no dispute” so no adjudication. That’s called a “threshold jurisdiction” issue.

Interim account Application No.10 was issued by the subcontractor on 24 November last year. It was properly compiled. The main contractor issued a payment notice - the certificate - a week later. The snag was that the main contractor said £16,686 was due, while the subcontractor’s application said £488,153. Oh dear. Unsurprisingly, the main contractor and subcontractor exchanged views, but could not see eye-to-eye.

So, on 14 December, the subcontractor gave a notice of adjudication and started the ball rolling. “Wait a moment,” said the main contractor, “we haven’t yet reached the date for payment and here you are referring the matter to the adjudicator.”

Do you see why the shout of too early went up? But the whole idea of adjudication is to spot the dispute and snuff it out. There is a plain dispute when the payee’s application calls for £488,000 and the payer says £16,000. That, in due course, was the “threshold jurisdiction” point, which the High Court was asked to rule on.
The judge said that since the application wanted £488,000 and the certificate promised only £16,000, and since the payee had rejected the £16,000, then there was, at that point, a crystallised dispute. The certified value was in dispute, albeit payment was yet due some weeks later.

Construction adjudication is all about the legitimate cash entitlements of the parties. It is open to the adjudicator to declare what the sum ought to be on the
face of the certificate. So, there is “threshold jurisdiction” to adjudicate.

The dispute was respectable - mere differences of opinion about an interim account valuation. Representation was highly professional

The “internal jurisdiction” point is also familiar territory, but more tricky. It’s all about what arguments and evidence can be trundled out to the adjudicator, which is brand new to the other side. In the beginning of adjudication in 1998 most of us thought that the 28-day timetable only permitted the parties to put before the adjudicator what was already argued by either party before the referral to adjudication.

The High Court disagreed: “It is open to any defendant to raise any defence to the claim when it is referred to adjudication or arbitration.” Similarly, the claiming party is not limited to the arguments, contentions and evidence put forward by it before the dispute crystallised. And, in this Working Environments adjudication some new points came along while the adjudication was on foot. They were new withholdings/set-offs/ contra charges from the main contractor.

You might expect that the payee would yell objection to these new contras. Instead, it was the main contractor which, having brought them on to the list of contras in the certificate, announced that the adjudicator’s authority/jurisdiction didn’t run to these latest contra charges.

The payer didn’t want them decided, but the payee did and asked whether they were deductible or not.

The High Court gave the test: “Ask whether items were part or within the confines of the dispute as it had crystallised at or before the notice of adjudication.” At that stage the list of contras was published in the certificate. But there was still time to revise the “withholding notice” because that time deadline hadn’t been reached, nor had the final date for payment.

The adjudicator allowed the contras in but the High Court said there was no jurisdiction and simply “blue-pencilled” those new items and enforced the rest.

Tony Bingham is a barrister and arbitrator at 3 Paper Buildings Temple