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Adjudication Matters: April 2024

Welcome to the April 2024 edition of Adjudication Matters, where we discuss the key developments in adjudication and adjudication enforcement. Please contact Construction & Engineering Partner Carly Thorpe if you need any advice or assistance.

This month we discuss 3 recent cases which relate to the following topics:

  1. The interpretation of conclusive evidence clauses.
    • Re-adjudicating an issue in light of new evidence.
      • The court enforces an adjudicator’s decision even where the adjudicator has made an error.

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      The interpretation of conclusive evidence clauses

      Battersea Power Project Phase 2 Development Company Limited v QFS Scaffolding Limited [1]

      Conclusive evidence clauses are designed to help provide finality, which is particularly important when parties commence the final account of a project. Here the clause in question (materially similar to the JCT standard form) stated that the Final Payment Notice would have the effect in any proceedings under, or arising out of, or in connection with, the Sub-Contract as conclusive evidence that the necessary effect had been given to all of the terms of the Sub-Contract (including the calculation of all sums, extensions of time, the reimbursement of direct loss and/or expense, etc.). I.e. the Final Payment Notice was the binding valuation of the final account.

      This clause, however, was subject to what the Court described as the “saving provision”. In short, if either party commenced adjudication, arbitration or other proceedings within 10 days after receipt of the Final Payment Notice, then the Final Payment Notice would not be binding pending the “conclusion” of those proceedings.

      Factual Background

      Battersea Power Project Phase 2 Development Company (“BPP”), engaged QFS Scaffolding (“QFS”), to undertake the asbestos scaffolding package at the Battersea Power Station Development Project (“the Project”).

      The parties were progressing the final account when a valuation dispute arose. QFS issued their notice of intention to refer a dispute to adjudication seeking a decision on “the calculation of the Final Sub-Contract Sum i.e., the true value of the Final Sub-Contract Sum” (we refer to this as “Adjudication 11” below). A couple of days later, BPP issued their Final Payment Notice in the value of £31,041,884 excluding VAT.

      The parties agreed to extend the time for which QFS would be required to submit their Referral Notice (typically this would have been served 7 days from the notice of intention). However, shortly after the agreement to extend, the parties disputed what they had actually agreed.

      BPP said that QFS missed the agreed amended deadline, and therefore, Adjudication 11 was a nullity. The effect of this (on BPP’s case) was that the saving provision would then also fall away, either because the Referral Notice was not served in time, or in the alternative, because QFS had abandoned their claim.

      QFS rejected the assertion that the Referral Notice was not served on time (believing the agreed extension provided an open-ended basis in which it could be served), and further that there was never an intention to abandon the proceedings. They also argued that the “conclusion” referred to in the Sub-Contract, meant a decision, award, judgement or settlement.

      The Court thus had to consider:

      1. Whether Adjudication 11 was a nullity.
        • What the effect of this nullity was i.e. did it amount to a “conclusion” of the proceedings per the terms of the Sub-Contract so that the Final Payment Notice was binding.
          • Whether QFS had abandoned the proceedings.

          The Court’s Decision

          The Court concluded that QFS had failed to submit their Referral Notice on time, and therefore Adjudication 11 had become a nullity. However, this was not enough to bring about a conclusion of the proceedings (such that the final account would be binding). Here, the Court said that only a decision, judgement, award or settlement in respect of the “subject matter” of the initial dispute would satisfy the definition of “conclusion” in the Sub-Contract.

          Therefore, the Court concluded that the saving provision would not disengage unless QFS was shown to have abandoned their broader claim, which on the facts, the Court said they had not. In reaching this conclusion the Court referred to the correspondence exchanged, and settlement meetings held, which together intimated that both parties believed the final account was still disputed, even after Adjudication 11 had become a nullity.

          Takeaway Points

          This decision helps clarify the circumstances in which conclusive evidence clauses will apply and demonstrates a rare occasion where a notice of intention to refer a dispute to adjudication (even when not followed by a Referral Notice) was sufficient to prevent the Final Payment Notice from becoming binding. In such circumstances, it must be shown that a party has abandoned the proceedings before the conclusive evidence provision will re-engage (it is insufficient to show that the adjudication in question has become a nullity).

          Helpfully, the Court also provided some guidance on what constitutes abandonment. Correspondence will be considered, but mere words are not enough. Action must be taken by a party responding to an allegation of abandonment, but “when it becomes necessary to take action depends on the circumstances”.

          Whether an adjudicator erred in allowing new evidence to be considered on an issue on which he had previously decided in an earlier adjudication.

          It is a fundamental principle of adjudication that an adjudicator will not have jurisdiction to determine a matter which is “the same or substantially the same” as a matter determined in a previous adjudication.

          In Engenda Group Limited v Petroineos Manufacturing Scotland Limited [2], the Scottish Court decided that the adjudicator had erred in considering new evidence about an issue he had previously adjudicated on.

          Engenda Group (“Engenda”) and Petroineos Manufacturing Scotland (“Petroineos”) entered into an NEC3 Contract for works at the Petroineos plant at Grangemouth, Scotland in November 2021, but the parties soon fell into dispute, out of which a number of adjudications took place. Adjudication 3 commenced in August 2022 with Petroineos seeking a declaration and an order for payment of £1,134,547 as damages for various breaches of contract on the part of Engenda. Whilst the adjudicator granted declarations that Engenda had been in breach of contract, he declined to order any payment of damages.

          Engenda then submitted a demand for payment of the £1,134,547 which had been withheld from them, and in response Petroineos issued a payless notice for the same amount. Consequently, Engenda referred the matter to Adjudication 4. This time around the adjudicator found that Petroineos, now bolstering their case with an expert quantum report, had proved damages because of Engenda’s breach of contract in excess of the disputed sum. No order for payment of the sum was made.

          In response, Engenda turned to the Courts arguing that by allowing Petroineos to set off their claim for unliquidated damages against Engenda’s final account in Adjudication 4, the adjudicator was acting in excess of his jurisdiction as he had already decided in Adjudication 3 that such a claim for unliquidated damages had not been proven.
          In order to decide the issue, the Court had to consider what the adjudicator had in fact decided in Adjudication 3. It found that the adjudicator had decided that Petroineos had failed to prove their entitlement to unliquidated damages rather than declining to rule on a matter of quantum.

          The Court then considered whether the arguments in Adjudication 4 were the same or substantially the same as those in Adjudication 3. In doing so the Court drew heavily on the previous case of Sudlow Ltd v Global Switch Estates 1 Limited [3] which provides guidance on what “the same or substantially the same means”.

          Having reached the conclusion that Adjudication 3 had decided that Petroineos had no claim for unliquidated damages, the Court ruled that the adjudicator was acting beyond his jurisdiction in Adjudication 4. In other words, the Court found that Petroineos’ case in Adjudication 4 was the same as that advanced in Adjudication 3, it was simply presented differently and with new supporting evidence. Consequently, the Court found that the adjudicator was “clearly wrong” in deciding otherwise. As a result, the finding in Adjudication 4 was not enforced by the Court.

          Significantly, the Court did not suggest here that Petroineos was not entitled to bolster its claim, only that such entitlement was confined to litigation or arbitration, and not by further adjudication.

          Takeaway Points

          Parties should make every effort to present their best evidence at the first opportunity. The Courts are alert to parties who seek to re-argue points under the guise of new evidence. If a party acquires convincing new evidence on a previously adjudicated point, the only remedy is via litigation or arbitration. This rare case of a Court finding an adjudicator had acted beyond their jurisdiction, must be viewed in light of the Court supporting the certainty that Engenda were entitled to expect from Adjudication 3. Finally, as this is a Scottish matter it is not binding on the Courts of England and Wales (it is persuasive only). However, it did rely heavily on English case law and is supportive of those judgements and as such is likely to be followed by the English and Welsh courts.

          The court enforces an adjudicator’s decision even where the adjudicator has made an error.

          Historic Royal Palaces v Piperhill Construction Limited [4] saw an attempt to resist a summary enforcement application in the Courts of Northern Ireland defeated.

          Piperhill Construction (“Piperhill”) were contracted to complete works for Historic Royal Palaces (“HRP”) at Hillsborough Castle, the royal residence in Northern Ireland. At the conclusion of the works HRP issued a final statement which required Piperhill to pay HRP £406,293 due to previous overpayments. In response Piperhill issued a payless notice.

          HRP commenced adjudication in respect of the final statement sum. The adjudicator found in their favour ordering Piperhill to pay £314,000 plus interest to HRP.

          Within a week of the adjudicator’s decision Piperhill issued a writ seeking a declaration that the adjudicator’s decision was made in excess of his jurisdiction and was a breach of natural justice. Further, it also sought a true valuation of the works. Some 8 months later HRP began proceedings seeking summary judgment in respect of the adjudication award against Piperhill.

          Summary Judgment Hearing and Decision

          Piperhill resisted the application on the following grounds:

          1. The adjudicator lacked jurisdiction; and
            • The adjudicator erred in his decision making;
              • Alternatively, In the event the Court considers it should make an order for summary judgment, they asked that such order be stayed on the grounds of:
                1. delay by HRP.
                  • hardship to Piperhill.
                    • on the basis Piperhill’s true value proceedings can be heard on an expedited basis and in accordance with the overriding objective it should be dealt with  first, thereby avoiding the need for a separate interim hearing regarding enforcement of the adjudicator’s decision.

                  Looking at each of these in turn

                  Lack of Jurisdiction – Piperhill argued that the final statement was void and invalid since it was not issued in compliance with the contract, and as the adjudication was predicated on this final statement, this is where the adjudicator derived his jurisdiction. The adjudication decision which flowed from this was therefore unenforceable.

                  The Court disagreed with Piperhill, deciding that it was not from the validity of the final statement that the adjudicator drew his jurisdiction, but from the existence of a crystallised dispute between the parties. In fact, Piperhill’s proposition that the final statement was invalid was in itself proof that a dispute existed.

                  The adjudicator erred – Piperhill alleged that the adjudicator, in finding the final statement valid, had erred in two ways. First, that the final statement could not be valid as it was not issued within the timeframes set out in the contract. In response, HRP said any failure to adhere to contractual time limits was caused by Piperhill’s failure to provide contractually required information.

                  Second, Piperhill argued that the Contract Manager who issued the final statement did not have a “genuine belief” that it was accurate, relying on contemporaneous communication and correspondence between the parties to support this claim. HRP said in reply that the email relied upon by Piperhill did not come from the Contract Manager.

                  In respect of the first argument, the Court reiterated the well-known general rule that an adjudicator’s decision will be binding and enforceable even when they have erred in some respect. The limited exception to this is where the Court is called on to consider an issue that is short and self-contained, requiring no oral evidence and its determination will not give rise to further disputes.

                  According to the Court, the facts on this case did not lend themselves to this exception because the validity of the final statement concerned a broad factual matrix and was not a mere matter of contract interpretation. Therefore, the Court found that this could only be decided after a full hearing.

                  In respect of the “genuine belief” of the Contract Manager, the Court concluded that absent clear documents betraying that lack of genuine belief, this issue could only be decided by way of oral evidence of the Contract Manager. For these reasons, the Court decided that the exception to the general rule does not apply in this case.

                  Stay on the basis Piperhill has ‘true value’ proceedings pending – Although Courts can grant a stay where proceedings are pending, in this case, the Court determined that granting a stay based on a pending true value hearing would offend the principle of “pay now, argue later” enshrined in legislation. In arriving at this conclusion, the Court referred to Parliament’s deliberate decision to introduce a two-step process in construction cases (where an interim decision of an adjudicator is enforced pending final determination).

                  Stay on basis of delay – Piperhill suggested that the delay in enforcement proceedings by HRP should lead to a stay. The Court firmly disagreed, finding that there was no time limit on HRP to commence proceedings, and there had been no prejudice to Piperhill as a result of the delay.

                  Stay on the basis of hardship – In support of the hardship argument, Piperhill submitted a letter from their auditors explaining that immediate payment of such a large sum would place Piperhill’s ability to continue trading at risk. Here the Court accepted that it could consider the financial position of the parties when considering, as a matter of fairness and justice, whether a stay ought to be imposed. Although, the Court observed that this would necessarily need to be balanced against the purpose of the legislation that adjudication decisions should be enforceable. Ultimately, the Court found that there was no independent evidence submitted in this case that demonstrated enforcement would cause hardship and commented that even if there was such evidence before it, that would not make it unjust to refuse a stay.

                  Takeaway Points

                  That there is nothing remarkable in this case should serve as a salutary reminder of the difficulties faced by those considering resisting an enforcement application. Whilst successful attempts to resist enforcement rightly receive a lot of attention in legal circles, this can give the misleading impression that they are commonplace. The reality is that they are rare exceptions. The court will enforce an adjudicator’s decision in all but limited circumstances. In this case Piperhill raised five grounds upon which to resist enforcement, and each was rejected in somewhat short order in a clear and well written judgment. Although this case was in the Courts of Northern Ireland, it is likely that a similar result would have occurred in England and Wales.

                  How we can help

                  If you have any queries in respect of this bulletin or would like to know more about adjudication please contact Carly Thorpe, David Maclellan or Andrew Dixon.

                  Explore our Adjudication Basics video series here.

                  [1] Battersea Project Phase 2 Development Company Ltd v QFS Scaffolding Ltd [2024] EWHC 591 (TCC) (Walker Morris acted for the Claimant in these proceedings)
                  [2] Engenda Group Ltd v Petroineos Manufacturing Scotland Ltd [2024] CSOH 36
                  [3] Sudlow Ltd v Global Switch Estates 1 Limited
                  [4] Historic Royal Palaces v Piperhill Construction Ltd [2023] NIKB 30

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