In the case of WRW Construction Ltd v Datblygau Davies Dev Ltd [2020, the Technology and Construction Court (TCC) has ordered summary judgment for payment to the responding party in an adjudication where there was (1) a binding valuation exercise by the adjudicator; but (2) no valid award for payment by the adjudicator as the adjudicator had no jurisdiction to make such an award.
We review this latest decision focusing on issues relating to enforcement and jurisdiction. There were additionally arguments relating to an application to stay any order for enforcement, which are not covered in this report.
Background
- Datblygau Davies Dev (DDD) appointed WRW Construction (WRW) as contractor to design and build nine dwellings in Twickenham based on amended JCT 2011 Design and Build Conditions. The contract sum was £2.2 million.
- Disputes arose resulting in several adjudications.
- Adjudication 2 in December 2018 decided that the contract had been validly terminated by DDD in mid-2018.
- Adjudication 3 (A3) was commenced by
DDD in February 2020 seeking a valuation of the post-termination
final account.
- WRW contended that the post-termination final account would result in a payment being due from DDD to WRW (and not from WRW to DDD, as argued by DDD), but accepted that "the Adjudicator has no jurisdiction to order payment to be made to WRW".
- In the determination of the final account valuation, the Adjudicator found that monies were due from DDD to WRW in the sum of £568,597.32.
- The following formed part of the decision by the Adjudicator, made and revised in May 2020: "Decisions on the remedies sought... Remedy B I decide that WRW shall pay to DDD the sum of -£568,597.32 (negative) within seven days of the date of my Decision."
- As DDD did not make such a payment to WRW following the A3 Decision, WRW commenced these enforcement proceedings seeking an order for payment of £568,597.32 "in accordance with the [A3 Decision] ... or as a debt; alternatively judgment for damages in the same sum.".
TCC Decision
By the time of the hearing, the parties had agreed that the sole issue for the TCC to determine on this enforcement application was whether, in the light of a binding valuation exercise by the Adjudicator in A3, WRW was now entitled to be paid the sums claimed in accordance with that valuation.
Did the adjudicator in A3 have jurisdiction to make an order for payment by DDD to WRW?
In the hearing, WRW did not ultimately put forward a positive submission that the Adjudicator had jurisdiction to order payment of a sum of money to WRW in the A3 Decision, so tacitly accepting that there was no such jurisdiction.
Recorder Andrew Singer QC confirmed that although the A3 Adjudicator sought to award a payment to WRW on the basis of the valuation of the post-termination final account (the same amount now sought by WRW in these proceedings), the Adjudicator did not actually have jurisdiction to award payment of that sum to the WRW as the responding party in A3.
Where there was no valid order for payment by DDD to WRW in A3, was it now open to the court to make an order for payment in these enforcement proceedings?
Two primary arguments were put forward on behalf of DDD.
- The court could not make an order for
payment on the basis of the A3 decision, as such an order was
impermissible without a valid order for payment from an
adjudicator. If the TCC made such an order for payment here, it
would involve the court making a final determination on the merits
of the post-termination valuation account, which would bar any
attempt by DDD to reclaim overpayments in subsequent litigation.
A fourth adjudication was needed to direct payment - then if necessary, enforcement proceedings could follow based on that adjudication decision.
- The doctrine of merger provides (in simple terms) that if a court gives judgment on a cause of action, that cause of action is extinguished. So if here, there was an order for payment, DDD would not then be able to commence proceedings to seek repayment of overpaid sums.
The TCC did not agree with these contentions.
The TCC held that merger would not apply in these circumstances. If an order for enforcement of the A3 decision was made and DDD later wanted to argue that this had resulted in an overpayment, Recorder Andrew Singer QC stated that "....the cause of action which [DDD] will have to seek repayment of overpaid sums will not merge in the cause of action [WRW] has to be paid sums which are due to it based on a temporarily binding valuation by the Adjudicator".
Additionally, the doctrine of res judicata does not apply as it does not arise where there are different causes of action based on different facts (as here said the TCC) and in fact, an adjudicator's award is not a judicial decision.
TCC conclusion
In his judgment, Recorder Andrew Singer QC summarised as follows:
"...I am not persuaded that any order for payment of the sums that follow from the Adjudicator's valuation would cause the doctrine of merger to apply and/or would amount to a final determination by the Court of the value of the post-termination account. Since the valuation by the Adjudicator is of temporarily binding effect only, any sums paid on foot of that valuation can only be paid on a similarly temporary binding basis so as to preserve cash flow as is the main purpose of construction adjudication".
Summary judgment was ordered in WRW's favour "in the sum of £568,597.32 due pursuant to Clause 8.7.5 of the Contract as a result of the Adjudicator's valid and temporarily binding decision as to the value of the post-termination account".
DDD made an application for stay of execution, which was dismissed.
Commentary
Once again, the TCC demonstrates clear and unequivocal support for adjudication. This decision is interesting as payment was ordered by the TCC despite the fact that the adjudicator her/himself had no jurisdiction to make such an award for payment.
Where employers have attempted to set-off liquidated and ascertained damages against monies payable to the contractor pursuant to an adjudicator's decision, whilst the general approach remains that such set-off will rarely be allowed, Mr Justice Jackson (as he then was) in Balfour Beatty Construction Ltd v Serco Ltd [2004] 1 set out some principles in this regard.
"(1) Where it follows logically from an adjudicator's decision that the employer is entitled to recover a specific sum by way of liquidated and ascertained damages, then the employer may set off that sum against monies payable to the contractor pursuant to the adjudicator's decision, provided that the employer has given proper notice (insofar as required).
(2) Where the entitlement to liquidated and ascertained damages have not been determined either expressly or impliedly by the adjudicator's decision, then the question whether the employer is entitled to set off liquidated and ascertained damages against sums awarded by the adjudicator will depend upon the terms of the contract and the circumstances of the case." [Emphasis added]
Whilst not relied on by WRW in this case, the payment ordered by the TCC could be argued to follow logically from the adjudicator's decision. Perhaps also of relevance however was the fact that WRW's enforcement application was effectively a request to the TCC to give positive effect to the adjudicator's decision (rather than seeking a deduction from the sum awarded by the adjudicator) where the adjudicator had attempted to award payment2 but in fact lacked the jurisdiction to make such an award.
This is the first decision on this particular point and going forward, parties preparing for adjudication will need to consider even more carefully the ambit of a notice of adjudication before it is served.
We will keep you updated.
Footnotes
1 Balfour Beatty Construction Ltd v Serco Ltd 2004 EWHC 3336 (TCC)
2 "I decide that WRW shall pay to DDD the sum of -£568,597.32 (negative) within 7 days of the date of my Decision"
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