There is growing concern over the increasing legal costs of pursuing claims in adjudication to deny payment rights. Small and medium sized firms are now being locked out of the adjudication process. Barrister Professor Rudi Klein considers a recent case where a paying party wasted the time of the court to resist paying out on an adjudicator’s decision.
High costs of adjudication
There is growing concern over the increasing legal costs of pursuing claims in adjudication. Small and medium sized firms are now being locked out of the adjudication process. The very recent case of Ground Developments Ltd v FCC Construcción SA starkly highlights this problem.
Ground Developments (GD), a groundworks subcontractor, had not received payment from FCC Construcción (FCC), a joint venture comprising Samsung, Kier Infrastructure and Merseylink Civil Contractors.
GD obtained an adjudicator’s decision. FCC still does not pay. GD brought proceedings in the Technology and Construction Court to enforce the decision. FCC then proceeded to waste the court’s time in developing thin excuses for non-compliance with the decision. Thankfully, the judge, Mr Justice Fraser, saw through the excuses.
FCC was engaged to construct the Mersey Gateway Project, a six-lane toll bridge over the River Mersey to relieve congestion on existing crossings over the river. GD had submitted a tender for certain groundworks. The common intention was to finalise the sub-contract terms comprising the NEC3 sub-contract. In spite of some prodding from GD, a formal sub-contract agreement incorporating NEC3 was never finalised.
The dispute centred on FCC’s failure to discharge payment in respect of three applications totalling just over £200k. FCC had not issued any payment or pay less notices.
Not surprisingly – when the matter was referred to adjudication – the adjudicator had little difficulty in requiring FCC to pay the total of the amounts applied for.
During the adjudication, FCC had challenged the adjudicator’s right to deal with the matter. When GD issued court proceedings to enforce the adjudicator’s decision, FCC set out its defences to the enforcement. The main theme running through FCC’s defences was the “uncertainty” over whether there was a contract between the parties and, if so, what were the terms.
In fact, to the judge’s complete frustration, FCC decided not to “nail its colours to the mast”. It was the scenario – on one hand the situation was “X” but, on the other hand, it may be “Y”. In other words, FCC was arguing that there was no contract, but, at the same time, it was stating that if there was a contract, it was on the terms that had been proposed in a letter from FCC. After the judge had applied some pressure on FCC’s barrister, FCC accepted that its primary case was that there was a contract and that it was on certain terms proposed by FCC. But, during the adjudication, FCC had argued there was no contract at all. Consequently, there could not be an adjudication. FCC was also suggesting that the enforcement proceedings were inappropriate since it was necessary to have a full trial on the contract. But as the judge observed, FCC had done nothing to issue proceedings for a full trial.
FCC’s main defences
- The dispute referred to the adjudicator related to the lack of pay less notices but the adjudicator decided a different issue, namely, the valuation of the works.
Mr Justice Fraser dismissed this defence fairly quickly. In his decision, the adjudicator set out the dispute referred to him which was whether the total of the sums applied for were due in the absence of any pay less notices from FCC.
“In my judgement, [FCC is] straining to…demonstrate that there was some imaginary straying by the adjudicator outside the ambit of the dispute that was referred to him.”
- The adjudicator was appointed pursuant to the NEC3 sub-contract which was not agreed between the parties. Again, Mr Justice Fraser gave this defence short shrift. GD had applied to the Institution of Civil Engineers (ICE) to appoint the adjudicator.
In the application to the ICE for appointment, GD had made clear that there was a potential difference between the parties about the contract terms. Therefore, the application was being made under the procedure in the Scheme for Construction Contracts (which applies where there is no procedure set out in the contract).
- The court should put off enforcing the adjudicator’s decision to enable a full trial to resolve the uncertainty over the applicable contract terms. Mr Justice Fraser was equally firm in repelling this defence. GD had provided written confirmation to FCC on numerous occasions containing the terms upon which it was carrying out the works. FCC had failed to respond to these communications but had encouraged, if not instructed, GD to continue. It had failed to issue any pay less notices.
It had remained silent when it suited it to do so; it had failed to provide any positive statement of what contractual arrangements were agreed.
The court was generally bound to enforce an adjudicator’s award provided that the adjudicator was validly appointed, had acted within his powers or jurisdiction and in accordance with natural justice.
Observations on this case
The absence of pay less notices (or any notices) meant that FCC was legally obliged to pay the £200k. It was clear that FCC didn’t want to pay at all, so had hoped that, by doing nothing, GD would give up. FCC, no doubt, still hoped that GD would give up when they failed to abide by the adjudicator’s decision. Perhaps FCC hadn’t reckoned on GD’s steadfastness in issuing enforcement proceedings.
FCC’s lame defences in those proceedings annoyed the judge. This should have been a straightforward matter of paying outstanding amounts but turned into a long-winded and expensive process.
We should take careful note of what Mr Justice Fraser had to say:
“Finally, excluding VAT, the parties collectively have spent a total sum by way of costs in these proceedings in excess of £55,000, arguing about the enforceability of a sum of about £207,000 that is potentially repayable in any event, because of the temporarily binding nature of adjudication. That is over one quarter of the sum subject of the Decision. It cannot pass without comment that this is contrary to the purpose of Parliament when it imposed this alternative, and temporary, process of dispute resolution upon parties who enter into construction contracts.”
The message is clear. We must propose that government tightens up the adjudication process in order to reduce the time and costs involved.