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Adjudication Matters – December 2019

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11/12/2019

The blurred line between jurisdictional and substantive issues

In LJH Paving Ltd v Meeres Civil Engineering Ltd [2019] EWHC 2601 (TCC) the defendant sought to resist enforcement of an adjudicator’s decision on the basis that (1) the final account dispute referred to adjudication had not crystallised because (on the defendant’s case) the referring party had not fully particularised its payment claim; and (2) that part of the sum claimed was in fact due under a different contract.  The Technology and Construction Court (TCC) rejected both of these arguments and enforced the adjudicator’s decision. In its Judgment the TCC emphasised the requirement that a party reserves its right to raise a jurisdictional challenge during the adjudication proceedings.

Background

LJH brought proceedings seeking enforcement of four adjudication decisions relating to three different construction contracts.  There was no dispute that three of the adjudicator’s decisions should be enforced.

The application to court related to the last in the line of adjudications – known as the Westfield Final Account Adjudication – which decided the true value of LJH’s works following it Final Payment Claim.

The parties had unsuccessfully attempted to agree the Westfield Final Account.  Meeres subsequently, on 14 December 2018, issued a document to LJH titled ‘Interim Completion Certificate’.  In a letter accompanying the document, Meeres stated that should LJH wish to make any further claim that LJH should provide details and substantiation relevant to its claim within 28 days.

The parties exchanged further correspondence before LJH submitted its Final Payment Claim valuing the works at £817,942.  Included in the Final Payment Claim was a summary sheet setting out the value of various heads of claim, and also a spreadsheet of approximately 140 pages setting out the line items making up LJH’s claim.

Meeres wrote to LJH on 17 January 2019 rejecting the Final Payment Claim.  Meeres argued that the claim was not a valid application as it was not compliant with the contract and contained insufficient substantiation to support the sum claimed.  Meeres also queried several items included in LJH’s claim regarding measured works, variations, and dayworks.  LJH denied the Final Payment Claim was invalid and did not respond to Meeres’ queries.

Meeres referred to its unanswered queries and, on the basis of no further information being provided by LJH, submitted a Pay Less Notice in late January 2019.  The Pay Less Notice showed a balance of £249,874.23 being due from LJH to Meeres.

LJH did not respond to the Pay Less Notice and issued a Notice of Adjudication in February 2019 seeking a true valuation of its Final Payment Claim.  The Adjudicator determined Meeres was to pay £132,410.83 plus VAT to LJH and the Adjudicator’s fees of £11,434.50 (the Decision).

Meeres resisted enforcement of the Decision on two grounds:

  1. Crystallisation – Meeres alleged the dispute had not crystallised at the time when the Notice of Intention to Refer a Dispute to Adjudication was served. Meeres contended that a contractor claiming payment must provide sufficient information for its claim to be assessed by the paying party before a dispute can crystallise. Meeres alleged that LJH failed to provide such information prior to service of the Notice, and that therefore, the adjudicator lacked jurisdiction.
  2. Multiple Contracts – Meeres argued that in the Westfield Final Account Adjudication, LJH had claimed £2,463.75 in respect of works that had been carried out on a different site and which were, as a matter of fact, arguably carried out under a different contract (the Highbury & Islington Contract). Meeres submitted that it had an arguable defence to a part of the claim which could not be severed and argued that LJH was not entitled to summary judgment.

LJH submitted that as Meeres had not raised its jurisdictional challenges to the adjudicator, Meeres had waived its right to raise such challenges upon enforcement.

LJH contended that Meeres’ argument regarding crystallisation of the dispute was without merit in both law and fact.

Regarding Meeres’ ‘Multiple Contracts’ argument, LJH contended that the adjudicator’s finding that the sum was owed was not outside his jurisdiction.  If (contrary to the forgoing) there was no jurisdiction in relation to this part of the claim, LJH argued the sum could be severed and the Decision enforced save for the disputed sum.

The Court’s Decision

The court held that the dispute had crystallised.  In reaching its decision, the court considered the judgment in AMD Environmental Ltd v Cumberland Construction Ltd [2016] 165 Con LR 191 in which Coulson J said, at paragraphs 14 to 16 of that judgment:

‘Whatever the precise factual position, I consider that it is wrong in principle to suggest … that a dispute had not arisen until every last particular of every last element of the claim had been provided. When a contractor or a sub-contractor makes a claim, it is for the paying party to evaluate that claim promptly, and form a view as to its likely valuation, whatever points may arise as to particularisation. Efforts to acquire further particularisation should proceed in tandem with that valuation process…..

In an ordinary case, a paying party cannot put off paying up on a claim forever by repeatedly requesting further information; a fortiori, a paying party cannot suggest that there is no dispute at all because the particularisation of the claim is allegedly inadequate….

Accordingly, in my view, the alleged absence of particularisation is not a proper ground for resisting enforcement of an adjudicator’s decision.’

At paragraph 18 of the judgment in the present case, it was also noted that it will be rare to prevent enforcement in the ordinary case by arguing that a dispute has not crystallised by reference to requests for information and by seeking to ‘draw an inference about crystallisation from the purported reasonableness of those requests and the absence of response’.

LJH had disputed the accuracy or relevance of Meeres’ contentions as to the need for further information.  It was not for the court, in enforcement proceedings, to engage with the detailed merits of each sides’ stated position as to what substantiation was or was not provided or relevant.  In addition, Meeres had unequivocally rejected the claim on grounds that the claim has not been validly submitted in accordance with contractual provisions.  This was sufficient to create a crystallised dispute.  The dispute was LJH’s right to payment of its Final Payment Claim, and the unequivocal rejection by Meeres on one particular ground properly created a dispute in respect of all aspects of that claim (including its true valuation).

Paragraph 25 of the judgment notes that Meeres’ defence would have been rejected in any event as it had not been properly raised in the Adjudication itself as a jurisdictional defence and, as a result, Meeres’ right to do so on enforcement was lost (see Bresco Electrical Services Ltd v Michael J Lonsdale (Electrical) Ltd [2019] 182 ConLR 1 at paragraph 92 (iii)).  Whilst Meeres had referred to a failure to crystallise the dispute during the adjudication, the court held that this challenge had been limited to the contractual deficiency of the Final Payment Claim, rather than the claim being so ‘nebulous’ and ‘ill-defined’ that, as respondent, Meeres it could not ‘sensibly respond to it‘.

The Court also noted that it would have also rejected Meeres’ argument regarding the adjudicator’s jurisdiction relying on the position that some of the works had been carried out under a different contract.  Meeres had failed to take this jurisdictional point during the adjudication.  It followed that Meeres could not then rely on this point during enforcement proceedings.  Whether a particular sum fell due for payment pursuant to the Westfield contract or another contract was a substantive issue of law and/or fact on which the Adjudicator could decide.  If the Adjudicator was incorrect (as was alleged by Meeres), that was not an error that went to the Adjudicator’s jurisdiction.

Practical Implications of the case

This case reiterates the principles that:

  • a dispute can crystallise where a party has not fully particularised all details of its claim prior to commencing an adjudication
  • generally, a lack of:
    (i) detailed particularisation; or
    (ii) responses to requests for further information
    will not prevent the crystallisation of a dispute unless the claim is so ill-defined as to be incapable of response.

The case also:

  • demonstrates that where a payment claim is rejected by a responding party on the basis that the claim does not comply with contractual requirements, this in itself can be sufficient to create a dispute in respect of all aspects of a payment claim, including its true valuation, and that this dispute is capable of being referred to adjudication
  • highlights the principle set out in Bresco v Michael J Lonsdale that a responding party must be specific when making a jurisdictional objection during an adjudication if it is to be entitled to argue the same jurisdictional defence during enforcement proceedings.

References

http://www.bailii.org/ew/cases/EWHC/TCC/2019/2601.html

https://www.bailii.org/ew/cases/EWHC/TCC/2016/285.html

http://mansfield.bailii.org/ew/cases/EWCA/Civ/2019/27.html

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