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Adjudication Matters – October 2020

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02/10/2020

Does a negative valuation from an Adjudicator equate to an order for payment?

In this recent case the Technology and Construction division of the Business and Property Courts (TCC) was asked to determine:

  1. whether a negative valuation from an Adjudicator meant that payment was automatically due; and
  2. whether enforcement of the Adjudicator’s decision should be stayed due to the Claimant’s financial position.

WRW Construction Ltd v Datblygau Davies Developments Ltd [2020] EWHC 1965 (TCC)

The Background

WRW Construction Ltd (WRW) and Datblygau Davies Developments Ltd (DDD) had entered into a contract (the Contract) incorporating the JCT 2011 Design and Build Conditions for WRW to design and build nine dwellings on a site behind 84 Whitton Road, Twickenham, London for a contract sum of £2.2 million.

The parties had previously participated in two adjudications relating to the Contract, with the second adjudication determining that the Contract was validly terminated mid-2018. The third adjudication was commenced in February 2020 by DDD, who sought a valuation of the post-termination final account.

The Adjudicator decided that the final post-termination account under the terms of the Contract was a negative sum with a debt due to be repaid from DDD to WRW totalling £568,597.32. No express order for payment was made by the Adjudicator.  WRW asked DDD to make payment of the debt valued by the Adjudicator. DDD refused and WRW made an application to the TCC under CPR Part 24 for summary enforcement of the Adjudicator’s decision.

DDD defended the application on the basis that the Adjudicator had no jurisdiction to award payment and also requested that any enforcement be stayed due to WRW’s financial position.

The TCC’s Decision

The TCC concluded that the parties had not expressly asked the Adjudicator to award payment. As such the Adjudicator had jurisdiction to carry out a valuation but did not have jurisdiction to award a monetary sum to WRW.

However the TCC considered that the issue to be determined was whether an order from the TCC to enforce the valuation made by the Adjudicator could also include an order for payment of the sum due as a consequence of that valuation.

DDD submitted that a fourth adjudication was required to award the sums due as a result of the Adjudicator’s valuation. The TCC did not agree with this submission and noted that there was no binding authority that prevented the TCC from enforcing a temporarily binding valuation by making an order for payment of the monies due as a result of that valuation. Furthermore, the TCC considered that it would be a waste of time and money to force WRW to commence a further adjudication for the sum due.

With regards to the stay of execution, DDD submitted that WRW’s financial position was troubling and therefore caused real concern as to whether WRW could repay the sums awarded. The TCC considered the applicable principles for granting a discretionary stay of execution and confirmed that it was important for the TCC to understand the financial position of WRW, and any attributing circumstances.

Two expert reports were served from an independent accountant expert (the Expert) in support of DDD’s application for a stay. Both reports indicated that WRW was not balance sheet test insolvent at the time of each relevant year, but the Expert did suggest that WRW may fail the cash flow insolvency test, and that up to date information would be needed to be certain. The Expert recognised that the Covid -19 climate may have disrupted the provision of up to date management accounts.

The Expert also argued that the amount to be paid from DDD to WRW had not fallen due, and that therefore the fact that DDD had not made payment would not have impacted the financial position of WRW. The TCC entirely disagreed with this point as the Contract had already been validly terminated in 2018 and the sums due were to be paid in mid-2020.

The TCC concluded that the financial evidence produced by WRW (which comprised of management accounts and awarded tenders) demonstrated WRW’s financial health to be stronger and more robust than the Expert’s report. Furthermore, the Expert’s second report did not demonstrated that WRW failed the balance sheet insolvency test or the cash flow insolvency test.

Accordingly, the TCC enforced the Adjudicator’s decision and ordered payment to WRW, without a stay.

Conclusion

The TCC’s decision is in line with the Court’s robust approach to the enforcement of an Adjudicator’s decision. Even though the TCC accepted that the Adjudicator did not have jurisdiction to order payment to WRW, the TCC concluded that it would contrary to the swift justice principle of adjudication to force WRW to seek a further adjudication for the sum that was automatically due under the Contract as a result of the Adjudicator’s valuation.

Further, the TCC’s decision emphasises that strong conclusive evidence of a party’s financial difficulties will be required before the TCC will be persuaded to grant a stay of enforcement of an Adjudicator’s decision. Speculative evidence will not be accepted.

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