This blog takes a look at three recent decisions where the TCC has declined to give the remedies and/or declarations sought following adjudication awards being made:

1. ISG Retail Ltd v FK Construction Ltd [2024] EWHC 878 (TCC)
   - Part 8 claim (seeking to finally determine a matter adjudicated) was dismissed on the basis the matter was not suitable for Part 8 determination.
    
2. Shaylor Group Ltd (in administration) v Valescure Property Ltd (in liquidation) [2024] EWHC 750 (TCC)
   - No Part 8 declaration that the Adjudicator had erred in his interpretation of the contract, even though he had, in fact, wrongly applied the provision, on the basis that this could give the claimant an “unlawful windfall”.
    
3. Morganstone Ltd v Birkemp Ltd [2024] EWHC 933 (TCC)
   - No Part 8 declaration that an Adjudicator’s award for payment could not stand on the basis that the application on which that payment rested was unlawful. 
   - The court, however, declined the Part 7 claim for enforcement on the basis that the Adjudicator breached the rules of natural justice in taking an overly restrictive view of his jurisdiction.

ISG Retail Ltd v FK Construction Ltd 

This is yet another decision in the ongoing saga between ISG Retail Ltd (“ISG”) and FK Construction Ltd (“FK”). In this most recent case, the TCC refused to permit ISG to bring proceedings under Part 8 of the CPR on the basis that the matter was not suitable to be determined via this alternative procedure.

In September 2021, ISG and FK entered into a subcontract for roofing and cladding works to six new industrial units in Avonmouth, near Bristol (the “Subcontract”). In the relatively short period since the Subcontract was entered into, this relationship has produced no less than 12 adjudications, eight sets of High Court proceedings and two appeals to the Court of Appeal. 

These most recent proceedings relate to ISG’s claim under Part 8 of the CPR which sought a declaration that FK was not entitled to an EOT that had been awarded to it in one of the preceding adjudications. More specifically, ISG asserted that the Subcontract contained a condition precedent relating to EOT entitlement, and that FK had failed to comply with the notification requirements. ISG claimed that the matter was suitable for determination under Part 8 on the basis that it did not involve a substantial dispute on the facts. 

FK disagreed, claiming that the dispute did require an investigation of the facts, both in respect of its compliance with any condition precedent as well as whether there had been any waiver on ISG’s part, meaning that ISG was estopped from relying on its strict rights under the Subcontract. In addition, FK asserted that Part 8 proceedings were not suitable for the final determination of just one aspect of an Adjudicator’s award (what FK termed a “category error”).

Mr Neil Moody KC, sitting as Deputy Judge of the High Court, did not permit the proceedings to continue under Part 8 on the basis that the matters in dispute were not suitable for disposition via this route.

The Judgment offers useful guidance as to when it is, and when it is not, appropriate to issue Part 8 proceedings. Overall, the Judge provided his reasoning as follows:

• The determination of whether a clause is or is not a “condition precedent” is suitable for Part 8 proceedings on the basis that this relates to “pure construction” of a specific provision. However, the Judge considered that there were other “impediments” in this case that would not allow a ruling to be given on this point alone.
   
• The claim made by ISG would require the court to determine whether, as a matter of fact, the condition precedent (if the clause were found to be such) had been complied with. This necessitated considering Early Warning Notices, as well as potentially compliant notification through other means and what a “reasonable recipient” would have understood from these communications.
   
• Matters concerning waiver and estoppel are, by and large, unsuitable for Part 8 determination. This is because judging whether waiver had occurred would require consideration of the facts given rise to the same. Part 8 could only potentially be used in relation to waiver/estoppel in circumstances where the factual background was generally non-contentious. This was not the case here and it would be unfair to make determinations on these points without each party’s position being pleaded out.
   
• There is nothing inherently inappropriate in making a claim regarding one aspect of an Adjudicator’s award (the “category error”) under Part 8. However, this is only in so far as that specific element of the award is otherwise suitable for Part 8 determination (i.e. not likely to involve substantial disputes of fact). In circumstances where the balance of the Adjudicator’s decision is not disputed, Part 8 is well suited to finally dispose of the (non-factual) points that remain contested. 

Shaylor Group Ltd (in administration) v Valescure Property Ltd (in liquidation)

The Judge declined to give a declaration acknowledging that the Adjudicator had incorrectly interpreted the Contract. Given the specific circumstances of the case, strictly applying the terms of the Contract could have resulted in an “unlawful windfall”.

Valescure Property Limited (“Valescure”), as the Employer, entered into a building contract with Shaylor Group Limited (“Shaylor”) for the construction of 157 new apartments in Birmingham’s Jewellery Quarter (the “Contract”). At the point when the parties entered into the Contract, in September 2017, the Contract Sum was £18,796,450. By 31 May 2019, Shaylor had been paid a total of £9,013,019 and the estimated total outturn costs to complete the Works was, at that time, projected to be £20,277,563.57.

In June 2019, Shaylor became “insolvent” within the meaning of the Contract and Valescure issued a Notice of Termination. Valescure opted to instruct an alternative contractor to complete the Works, and this triggered the financial adjustment provision in the Contract. 

The overall calculation of sums due under this provision accounted for:

a) The costs incurred and/or losses suffered by the Employer for which the Contractor is liable;

b) The payments made to the Contractor; and

c) The total amount that would have been payable for the Works.

In the second adjudication between the parties, Shaylor asserted that the sums referred to in c) above did not relate to the value of the works, but to the overall contract price (i.e. the Contract Sum as adjusted by variations). On Shaylor’s reasoning, it was entitled to the sum of circa £20 million, as the projected outturn cost of the Works. This would result in a net payment to Shaylor, over and above the sums already paid by Valescure, of circa £11 million. The Adjudicator disagreed and determined that the proper sum to be accounted for under the termination provisions was the value of the works done by Shaylor at the point its employment was terminated. On this basis, the Adjudicator awarded Shaylor a further payment of £356,008 in respect of the value of the works completed, not the £11 million sought.

Following this decision, Valescure went into liquidation. By the time these proceedings were commenced, the development was owned, and had been completed by, Grainger Plc (“Grainger”). 

Shaylor commenced Part 8 proceedings in order to prove its debt in the liquidation, seeking a declaration that the Adjudicator had misconstrued the termination provisions and incorrectly calculated the sum due. Shaylor brought this claim against the Employer under the Contract, Valescure, and not the new owner, Grainger. The matter before the court related only to the interpretation of the contractual terms and did not involve any dispute on the facts. Accordingly, no challenge was made as to whether the claim was suitable for Part 8 determination.

Shaylor’s arguments were that, in line with the clear and ordinary meaning of the words “the total amount which would have been payable for the Works”, the Adjudicator had incorrectly decided that this equated to the value of the works done. A key argument was that this provision should be contrasted directly with the wording of a separate clause which dealt with the post-termination account in circumstances where the Employer had not appointed another contractor to finish the works. That being the case, the statement of account related to “the total value of work properly executed at the date of termination or date on which the Contractor became insolvent…”. It was, on Shaylor’s case, clear that the two provisions envisaged two very different outcomes.

Mr Justice Kerr agreed with Shaylor that the Adjudicator had incorrectly applied the contractual provisions and that the termination calculations should account for the overall Contract Sum. In normal circumstances, this would make sense because the Employer is credited with the sums it expended to complete the works. This will usually result in a net payment being owed by the Contractor to the Employer as the costs of another party stepping in to finish the project are usually higher than originally contracted for. However, the key factual difference here is that Valescure did not incur the additional costs of finishing the works: Grainger did, following Valescure going into liquidation. On the basis that the original Employer could not be credited with these costs (due to an ineffective assignment), the termination calculation was skewed in the Contractor’s favour. 

The Judge accepted that he had wide discretion to grant the declarations sought, but, for the above reasons, he declined to do so and dismissed Shaylor’s Part 8 claim. The Judge stated that he did not criticise Shaylor for pursuing its financial interests. However, he concluded that declaring an overall balance due to the Contractor of circa £11 million “for notional work which it had not done and would never do” could “bestow an unlawful windfall on the claimant”.

Morganstone Ltd v Birkemp Ltd 

The winning party in an adjudication, Birkemp, was not able enforce the award due to the Adjudicator’s breach of natural justice. This was the case notwithstanding that Birkemp successfully defended Morganstone’s Part 8 claim that there was no contractual entitlement to the sum applied for.

In December 2021, Morganstone Ltd (“Morganstone”) entered into a subcontract with Birkemp Ltd (“Birkemp”) to provide groundworks at a housing development in Swansea (the “Subcontract”). As part of the Subcontract, there was a payment schedule setting out the dates on which each interim application was to be made. The schedule noted that the first application was due on 31 March 2021 and listed 12 subsequent dates, ending with 28 February 2022. This was later updated to cover applications in 2022 but the parties never agreed the dates for interim applications in 2023.

In December 2023, Birkemp commenced an adjudication, contesting the sums certified following its August 2023 application. In response, Morganstone alleged that Birkemp was not entitled to any payment on the basis that no payment schedule was agreed for 2023. Following the decision in Balfour Beatty v Grove Developments [2016] EWCA Civ 990, this meant that Birkemp had no contractual right to issue applications after the last date within the agreed payment schedule. Therefore, its application in August 2023 was invalid. The Adjudicator agreed with Birkemp and determined that the August application was, indeed, valid and that Morganstone had wrongfully deducted the sum of £207,076. Birkemp brought the present claim to enforce the Adjudicator’s decision. Morganstone countered with a Part 8 claim seeking a declaration that Birkemp’s August application was unlawful and that no repayment was due.

Dealing first with Morganstone’s Part 8 claim, HH Judge Keyser KC held that, whilst the precise terms of the payment schedule for 2023 had not been agreed, the clear intent of the parties was that payment applications were to continue in that period. This was distinguishable from the facts in Balfour Beatty v Grove on the basis that, in that case, the evidence was that the parties had clearly agreed to finite payment applications. Accordingly, Birkemp was entitled, under the Subcontract, to continue to make interim applications and to be paid in 2023. 

The Judge then moved on to consider Morganstone’s defence to enforcement, wherein it claimed that the Adjudicator had taken an overly restrictive view of his jurisdiction and had, therefore, breached the rules of natural justice. In its Notice of Adjudication and Referral, Birkemp framed the dispute to be determined narrowly. More specifically, it asked the Adjudicator only to determine the “value of the Inappropriate Deductions”. In its Response, Morganstone raised two cross claims under which it was entitled to set off sums due to defective works. Birkemp, in its Reply, asserted that these cross claims went beyond the bounds of the dispute as they did not relate to the sums noted to be the “Inappropriate Deductions”. In the Decision, the Adjudicator stated that Morganstone’s cross claims were attempts to widen the scope of the adjudication, and therefore these were not taken into account in his overall award.

The Judge helpfully set out the applicable law related to when and how an Adjudicator will breach the rules of natural justice in circumstances where there has been a deliberate failure to consider a legitimate defence. Citing O’Farrell MJ in Global Switch Estates Ltd v Sudlows Ltd [2020] EWHC 4796 (TCC), it is clear that “if the adjudicator fails to consider whether the matters relied on by the responding party amount to a valid defence to the claim in law and on the facts, that may amount to a breach of the rules of natural justice” [50(viii)]. HH Judge Keyser KC agreed that this was an instance where the Adjudicator had taken an overly restrictive view of his jurisdiction in not considering Morganstone’s claims to set off and it was immaterial that the dispute referred was purposefully narrow. 

On this point, the passage in Lord Briggs JSC’s judgment in Bresco Electrical Services Ltd (In Liquidation) v Michael J Lonsdale (Electrical) Ltd [2020] UKSC 25 could not be clearer:

“However narrowly the referring party chooses to confine the reference, a claim submitted to adjudication will nonetheless confer jurisdiction to determine everything which may be advanced against it by way of defence, and this will necessarily include every cross-claim which amounts to (or is pleaded as) a set-off.” [44]

Accordingly, Birkemp’s Part 7 claim was dismissed and enforcement of the Adjudicator’s decision was refused.

Conclusion

It is accepted that Judges in the TCC have broad discretion in respect of Part 8 proceedings and claims for enforcement. Consequently, the Court has a wide remit to assess the merits in any particular case, as well as the letter of the law.

Whilst the three cases discussed above address different matters, the judgments all focus on the fairness of the outcome. In ISG, the matter was held not to be suitable for Part 8 determination because this process would not have permitted the parties a fair opportunity to plead their cases. In Shaylor, the contractual terms were clear but applying them strictly, due to the unusual circumstances of the case, would have resulted in a “windfall”. Finally, in Morganstone, the terms of the contract were upheld but no enforcement was granted on the basis that potential defences had, unfairly, been disregarded.

These cases offer reminders to parties that fairness and the overall merits of any particular claim or application are key considerations for the English Courts, balanced against strict legal entitlements.