Enforcement of Adjudicator’s decision – how to lose on a technicality

A summary and analysis of Lane End Developments Construction Ltd v Kingstone Civil Engineering Ltd (2020) EWHC 2338 (TCC)

19 October 2020

Summary

The recent decision of HHJ Halliwell in Lane End Developments Construction Ltd v Kingstone Civil Engineering Ltd [2020] EWHC 2338 (TCC) serves as a timely reminder to the construction industry of the importance of strict compliance with the procedural rules around adjudication and the potential draconian consequences of failing to do so.

In response to a payment dispute between Lane End Developments Construction Limited (“Lane End”) and Kingstone Civil Engineering Limited (“Kingstone”) Kingstone initiated a "smash and grab" adjudication against Lane End and the adjudicator subsequently issued a decision directing the payment of £356,439.19 to Kingstone. However, Kingstone’s Notice of Adjudication, under which the adjudicator was nominated by RICS, had been sent to RICS before it was served on Lane End. Lane End subsequently challenged the jurisdiction of the adjudicator and the validity of his decision.

The court held that Kingstone’s simple procedural error, in requesting the appointment of an adjudicator before serving the Notice of Adjudication on Lane End, breached the terms of paragraph 2(1) of the Scheme for Construction Contracts 1998, as amended (“the Scheme”). As such, the adjudicator’s decision was unenforceable and the decision was set aside.

Facts

Lane End was the main contractor on a housing development in Cheshire and, in November 2018, appointed Kingstone as sub-contractor to carry out the enabling works. The subcontract employed by the parties did not make explicit reference for disputes to be referred to adjudication. However, this was implied by virtue of Section 108(5) and Section 114(4) of the Housing, Grants, Construction and Regeneration Act 1996 (and, as such, any adjudication arising out of the sub-contract was to be conducted in accordance with the provisions of the Scheme).

The sub-contract sum was £54,158.40. However, on 2 March 2020 Kingstone issued an interim payment application, applying for the sum of £356,439.19. In response, Lane End failed to serve a pay less notice but, on 26 March 2020, issued a payment notice.

In the intervening period, at 0736hrs on 20 March 2020, Kingstone submitted an email request to RICS for the nomination of an adjudicator in relation to the unpaid payment application. Later that morning, representatives of the two parties met at Lane End’s offices. During that meeting, Kingstone’s representatives presented a ‘Notice of Referral’ relating to the disputed sum.

On 23 March 2020, the parties were advised that RICS had nominated an adjudicator and later that day, as directed by the adjudicator, Kingstone served its ‘Referral Notice’. On 25 March 2020, Lane End reserved it position on the adjudicator’s jurisdiction and the adjudicator continued with his appointment.

The adjudicator issued his decision on 27 April 2020, in which he concluded that Kingstone was entitled to the full amount of the interim application (£356,439.19). This was on the basis that Lane End’s payment notice was issued five days after the payment due date, outside the period allowed by paragraph 9(2) of the Scheme.

Enforcement

There were two claims brought before the court, heard at the same time:

  • The first claim was a Part 8 claim brought by Lane End, requesting that the adjudicators’ decision from 27 April 2020 be set aside; and
  • The second claim was a Part 7 claim brought by Kingstone for enforcement of the adjudicator’s decision of 27 April 2020, requiring Lane End to pay the sum of the interim application.

HHJ Hallliwell, finding in Lane End’s favour on the first claim and dismissing Kingstone’s Part 7 claim, held that the adjudicator’s appointment was void.

Citing paragraphs 1(1) and 2(1) of the Scheme, HHJ Halliwell stated that “a party to a construction contract is afforded the right to serve notice of adjudication and request the appointment of an adjudicator. There is an obvious logic in providing for the referring party to service notice of adjudication prior to the request for appointment.” Notably, paragraph 2(1) of the Scheme provides for the referring party to submit its request for the appointment of an adjudicator “following the giving of a notice of adjudication”. 

Conclusion

This case serves as a reminder to the industry of the importance of strict compliance with the procedural rules around adjudication, and the potential draconian consequences of failing to do so, as a claim may well fail if these procedures are not complied with regardless of the actual merits of the claim.

COVID-19 clearly had some impact in this case too. In financially unstable times, where contractors and subcontractors may be tempted to employ the use of "smash and grab" adjudications for payment of interim applications (something which J Tomlinson Limited v Balfour Beatty Group Limited [2020] EWHC 1483 (TCC) shows is very much still alive and kicking), simple procedural errors, undermining otherwise good claims, must be avoided at all costs.

Key contact

Richard Adams

Richard Adams Partner

  • Construction and Engineering
  • Construction Disputes
  • Infrastructure

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