A contractor took its subcontractor to court halfway through an adjudication on the same issues. Then things got complicated

J&B Hopkins Ltd (JBH) was the main M&E contractor on the Moulsecoomb University Project in Brighton. It subcontracted part of its works to A&V Building Solutions Ltd (AVB) in December 2019. The price was £368,000. By the time they got to interim valuation #14, they had fallen out.

Tony bingham 2017 bw web

That valuation notice claimed £601,000 gross, with net due £211,773. Dear me, no, said JBH. A pay less notice was pinged back; it said zero payable and, worse, claimed AVB had been overpaid by £69,000. AVB called for the adjudicator on 17 November 2021 and so began a long march to the High Court, then to the Court of Appeal. In the appeal judgment – dated 27 January – the senior Court of Appeal judge, Lord Justice Coulson, seems a fraction niggled.

Could that have been because of an unusual, if not particularly silly, manoeuvre by JBH halfway through the adjudication? This was its decision to issue court proceedings on exactly the same issues AVB had brought in the adjudication. Perhaps JBH though it would lose in the adjudication and could go round again, this time in the High Court, and have another shot.

Anyway, the adjudicator decided in favour of AVB to the tune of £138,000 plus interest and costs: the total being about £150,000. Two months later, JBH’s litigation claim came before the High Court judge. It was in relation to this moment that the Court of Appeal became uncomfortable. Sitting in AVB’s hands was a 67-page decision ordering JBH to stump up £150,000. It hadn’t, and so JBH was in breach of contract, in breach of the Construction Act, could not pass GO and could not pick up any money.

JBH was bumping up against the court’s strong aversion to turning a blind eye to a disappointed losing party in an adjudication resisting enforcement

Lord Justice Coulson observed that the first-instance judge “did not approach the hearing from the starting point that there was an outstanding adjudication decision in AVB’s favour and JBH was in breach of the subcontract in failing to make payment of the sum found due to AVB”. The Court of Appeal recited the oft repeated mantra that construction adjudication is founded on the principle of “pay now, argue later”. JBH was bumping up against the court’s strong aversion to turning a blind eye to a disappointed losing party in an adjudication resisting enforcement by allowing litigation as to why the adjudicator’s decision was simply wrong.

Look, the proper approach to using “parallel process” via the court to resist enforcement of an adjudicator’s decision is to obtain judgment on the adjudicator’s decision first. Only after that will the court deal with and examine the same issues. Taken to its full effect (there are limited exceptions), JBH ought to have first paid AVB the £150,000, or at least paid that sum into court.

The Technology and Construction Court (TCC) Guide of October 2022 says (I precis) something like “it sometimes happens that one party to an adjudication commences enforcement proceedings while the other commences proceedings in order to challenge the validity of the adjudicator’s award. This duplication (I think that means concurrency) of effort is unnecessary and it involves the parties in extra costs.”

The TCC Guide then goes on to fairly explain the exceptions, which are (1) when there is a short and self-contained issue, which the losing party continues to contest; (2) the issue requires no oral evidence or any other elaboration; (3) it would be unconscionable for the court to ignore.

>>Also read: Can you skip the adjudication step?

>>Also read: Adjudication: is it time to evolve?

Despite the doubt in the Court of Appeal’s commentary, it was thought that some of the case brought to court by JBH was clear enough to support an exception. Meanwhile, AVB brought its final account to a second, separate adjudication. This was in June 2022. Its final account claim was £455,526. But the result was doubtless upsetting to AVB. The “true value” was calculated on the latest adjudication award to be £289,182.31. Worse, JBH had already paid more than that. It means that AVB is to repay JBH £82,956.88. The Court of Appeal finds nothing wrong with this award, nor did it as to the first award, so that sum is enforceable.

AVB was entitled to enforce award number one back in April 2022, but that entitlement has long been overtaken by events and by the true-value final account adjudication, which JBH has applied to enforce. In other words, AVB has been significantly overpaid and was so at the time of adjudications number one and number two.

Let’s just recap on the guiding principle of construction contract adjudication: “The task of the adjudicator is to find an interim solution that meets the needs of the case. Parliament may be taken to recognise that, in an interim solution, the contractor (or subcontractor) or his subcontractors will be driven into insolvency through a wrongful withholding of payments properly due. The statutory scheme provides a means of meeting the legitimate cash-flow requirements of contractors and their subcontractors. The need to have the ‘right’ answer has been subordinated to the need to have an answer quickly.”

And once the adjudicator decides on the quick cash flow interim answer, the rule is “pay now, argue later”. The award is binding pro-tem and must be obeyed, or else the court will tell you to come back once you have done so.

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