Much has been written on the Supreme Court case of Bresco v Lonsdale and it has most recently been relied on by a party in the adjudication enforcement case of WRW Construction Ltd v Datblygau Davies Developments Ltd. However, as will be discussed in this blog, it was of limited assistance.
WRW Construction Ltd v Datblygau
The relevant facts of WRW Construction Ltd v Datblygau were very straightforward. The parties had entered into an undated contract incorporating the JCT Design and Build Conditions, 2011 Edition, for WRW to design and build nine dwellings on a site in Twickenham.
In the parties’ second adjudication, the adjudicator had decided that the contract was validly terminated by Datblygau Davies Developments Ltd (DDB) in mid-2018. As that decision had not been challenged in further proceedings, it was binding on the parties.
DDD then commenced a third adjudication seeking a valuation of the post-termination final account pursuant to clause 8.7 of the contract. The notice of adjudication sought the sum of £3,345,790.40 (or such other sum as the adjudicator determined was owed by WRW to DDD) and invited the adjudicator to:
“… determine the sums due and payable by WRW to DDD and to order payment of such sum by WRW to DDD…”
In its Response, WRW accepted the adjudicator had no jurisdiction to order a payment to it from DDD but, as the adjudicator had been asked to value the post termination final account, that led to a position where DDD was indebted to WRW and:
“… the Adjudicator should conclude that the sum due and payable by WRW to DDD is -£695,05.63.”
The adjudicator’s decision was dated 8 May 2020 and was revised on 13 May (the judgment does not go into the details of the revision) and decided that:
“… the total value of the account due to Clause 220.127.116.11 is an amount due as added by the debt from DDD to WRW as is permitted by Clause 8.7.5 in the sum of £568,597.32.
“… WRW shall pay to DDD the sum of -£568,597.32 (negative) within 7 days of my Decision.”
As the judge found, the adjudicator was clearly seeking to award a payment to WRW from DDD of £568,597.32, having decided the balance of the account between the parties. There was no order for payment because WRW was the responding party.
WRW issued a claim seeking an order that DDD pay the sum of £568,597.32 to it on the basis that it was awarded by the adjudicator or was a necessary consequence of that award. WRW then went down the standard path of applying for summary enforcement of the revised decision.
It appears from the judgment that there may have been an issue between the parties as to whether the adjudicator had jurisdiction to:
- Value the post-termination final account.
- Order payment of a sum of money to WRW.
However, by the time of the hearing, the sole issue on the enforcement application was whether, given the adjudicator’s valuation exercise, WRW was entitled to be paid the sums claimed in accordance with that valuation.
Submissions and judgment
DDD’s basic argument was that the court could not make an order for payment from the adjudicator on the basis of the adjudicator’s decision because that would be impermissible without a valid order for payment and, absent the same, such an order for payment would involve the court making a final determination on the merits of the post-termination valuation account, which would bar any attempt to reclaim overpayments in subsequent litigation.
Both parties referred to Lord Mance JSC’s judgment in Aspect Contracts (Asbestos) Ltd v Higgins Construction plc, where he stated:
“By providing that the decision of an adjudicator is binding and that the parties shall ‘comply with it’, Paragraph 23(2) of the Scheme makes the decision enforceable for the time being. It is enforceable by action founded on the contractual obligation to comply with the decision combined, in a normal case, with an application for summary judgment. The limitation period for enforcement will be 6 years from the adjudicator’s decision. But the decision is only binding and the obligation to comply with it only lasts ‘until the dispute is finally determined’ in one of the ways identified.”
However, although the judge noted that this judgment was dealing with general points of general effect, it was not a decision that considered the specific points argued before him.
DDD also relied on Bresco v Michael J Lonsdale and the High Court decision of PC Harrington Contractors v Multiplex Construction (UK), as referred to therein. In Bresco, Lord Briggs stated:
“However narrowly the referring party choose 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. This much was common ground, but it is supported by authority … The set-off may be advanced by way of defence to the exclusion of the claim referred to adjudication, but not as an independent claim for a monetary award in favour of the respondent to the reference. To the same effect, in relation to a cross-claim in fraud…”
DDD relied on this to argue that, before the court could order payment to WRW, there needed to be a fourth adjudication that would proceed on the basis of the third adjudicator’s valid and binding valuation of the post-termination final account.
The judge accepted the adjudicator did not have jurisdiction to award a monetary sum to WRW as the responding party to the adjudication. However, he did not consider the authorities cited to him provided any support for DDD’s submission:
“In my judgment, there is no bar on the basis of the authorities cited to me to the Court enforcing a temporarily binding valuation in an adjudication award by making an order for payment of the monies due as a result of that valuation. Indeed, in my judgment it would be contrary to principle and established authority for the Court to effectively force a party who has the benefit of an award in its favour as a balance being due to it, thereafter to have to commence a further adjudication (to which there is no defence) for the purpose of obtaining an order for payment from the Adjudicator before returning to the Court if necessary, for further enforcement proceedings.
In my judgment, the submission that a further adjudication award is required is not supported by the authorities put forward by Mr Hargreaves QC. They address different issues entirely and as stated above there is no authority which relates directly to the enforcement of a valuation in favour of the responding party to an adjudication valuation exercise and perhaps more importantly no authority for the proposition argued before me.”
DDD also argued that the adjudicator’s decision could not be enforced because an order for payment would involve the court making a final determination on the merits of the post-termination valuation account, which would bar any attempts to reclaim overpayments in subsequent litigation by reason of the doctrine of merger. In that regard, DDD relied on the Court of Appeal decision of Clark v In Focus Asset Management and Tax Solutions Ltd. In Clark, the doctrine of merger was explained as being:
“Merger explains what happens to a cause of action when a court or tribunal gives judgment. If a court or tribunal gives judgment on a cause of action it is extinguished. The claimant if successful is enabled to enforce the judgment but only the judgment. The effect of merger is that a claimant cannot bring a second set of proceedings to enforce his cause of action even if the first tribunal awarded him less than he was entitled to…”
However, the judge considered DDD’s reliance on Clark to be flawed because:
- Clark concerns the issue of whether an ombudsman’s award is a judicial decision leading to the doctrine of res judicata rather than dealing with the doctrine of merger. An adjudicator’s decision is certainly not a judicial decision.
- The argument fails to take account of the temporary nature of an adjudicator’s decision and the fact that if a court makes an order by way of enforcement of that decision, the only cause of action that could possibly “merge” is that cause of action by way of a contractual obligation on both parties to comply with the adjudicator’s decision. When a defendant wishes to reclaim monies paid out as a result of the award being enforced, it will be relying on a different cause of action. Merger can only occur where the causes of action are the same based on the same facts, which would not be the case here.
Therefore, the judge concluded that the doctrine of merger did not apply and an order for payment of the sums following from the adjudicator’s valuation would not amount to a final determination by the court of the value of the post-termination account because:
“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.”
Consequently, the judge considered there was no reasonably arguable defence to the claim for payment of the sum of £568,597.32 due as a result of the adjudicator’s valid and temporarily binding decision as to the value of the post-termination account. WRW’s summary judgment application succeeded.
While this case concerned a narrow issue, it has prompted an interesting judgment because of the lack of direct authority on the point. The decision was in the specific context of a post-termination final account valuation where the contractual provisions meant that whatever sum was found due to either the contractor or employer on the valuation was due to that party as a debt. It was common ground that, had there been no enforcement of this adjudication decision and WRW had been required to commence a subsequent adjudication, there would have been no defence to the same.
It will be interesting to see how parties may seek to use the wider principle that a mere absence of an order for payment is no bar to the enforcement of an adjudicator’s decision in other factual scenarios.
This article was first published in Practical Law.