It is fair to say that Mecright got its ears boxed in a recent fight with Shepherd Construction. First, it was wrong of the subcontractor to begin an adjudication in the face of an existing settlement agreement on the final account. Second, the call for an adjudicator was invented as a tactical device to avoid a foreseeable problem about that settlement agreement. Third, when Mecright presented its case to the adjudicator, it seemed not to be the full case. And finally, once the matter went to court, a witness statement by a director, signed “true to the best of my knowledge, information and belief”, was not only defective according to the rules of court but untrue and misleading. Boxed ears, huh?
The story starts with Shepherd Construction as main contractor for Walsall Bus Station. A subcontract involving steel trees was placed with Mecright to the tune of £93 000. But the trees grew. My guess is the contract outgrew Mecright; it mushroomed to more than £300 000.
It can be disastrous to let a small subcontract explode. The work becomes a totally different subcontract, leading to rows about the value of the extra works and almost always resulting in serious financial strain on the subcontractor.
Mecright did at least do the right thing by engaging an independent QS to do a full examination of the value of work done. And the QS sensibly worked with Shepherd to coax the money down the contractual tree from the employer. But they were still a long way apart on the valuations. It was at this point that they should have adjudicated.
However, Mecright needed the money quickly. So a compromise deal was done, putting another £75 000 into the bank in full and final settlement. It was formally recorded and signed.
Thereafter, Mecright wrote a couple of letters voicing unhappiness about the result. Advice was received from a consultant, which launched the call for adjudication. The referral notice complained about the failure to make proper payments, although it made no mention of the compromise agreement.
The judge remarked that “one expects a party seeking adjudication to present its case in full, not to hold anything back and to be open and honest in its presentation”. When you refer a dispute in adjudication, you are meant to refer the whole dispute, including both sides’ views.
When you refer to adjudication, you are meant to refer the whole dispute, including both sides’ views
Shepherd called on Masons, the solicitor at its Manchester office, which objected to the adjudication. It instructed Paul Darling QC to seek a court declaration that the disputes had been settled and nothing was left for adjudication.
Mecright had by now told adjudicator John Price that the settlement agreement was a product of Mecright’s financial strain and that it had been compelled to take what was on offer under duress. This put the agreement in dispute.
The snag is that adjudication is usually only available for disputes “under the contract”. Parliament was told about this limitation when the Construction Act was at bill stage, but it decided not to widen adjudication to disputes “in connection with” or “arising out of” the contract. And, as a dispute about a compromise can only be seen as “in connection with the contract”, the adjudicator cannot consider it. The judge said that, unless and until a court or arbitrator reached a decision about the efficacy of the agreement, it would stand. Thus, the purported reference to adjudication was invalid.
Mecright argued that the judge should nevertheless allow adjudication, and if Mecright received an adjudication decision in its favour on the final account, Shepherd should argue at enforcement stage that the formal agreement was enough to stop any payment being made. It would be at that stage that allegations of economic duress could be examined.
“I do not accept this approach,” said His Honour Judge Humphrey Lloyd. “In my view, it runs contrary to the 1996 Construction Act and the notion of adjudication, which is that it should be concerned about matters of immediate practical effect. Namely, there should not be questions that might prove to be academic but should result in a decision that one party will be obliged to comply with and which will not then be subject to some nullifying mechanism other than by ultimate arbitration or litigation.”
He approved of Shepherd’s approach of seeking a declaration from the court as to whether or not it was right to contend that, in this instance, no right to adjudication arose at all.
Tony Bingham is a barrister and arbitrator specialising in construction. You can write to him at 3 Paper Buildings, Temple, London EC4 7EY, or e-mail him on firstname.lastname@example.org.