BREYER GROUP PLC v ADAM MICHAEL SCAFFOLDING SERVICES

BREYER GROUP PLC v ADAM MICHAEL SCAFFOLDING SERVICES

The adjudicator has the power to order a repayment to the responding party if the worth of the claim is less than the sum it previously paid on account of that claim
 

Technology and Construction Court
Joanna Smith QC sitting as a Deputy High Court Judge
12 June 2018

The adjudicator has the power to order a repayment to the responding party if the worth of the claim is less than the sum it previously paid on account of that claim

Joanna Smith QC stated that the adjudicator in this case, having made a decision as to the value of the final account, was acting within the scope of his jurisdiction in ordering the defendant to refund the claimant in respect of the over-payment. She stated that support for this conclusion is to be found in the decision of Coulson J in Workspace Management v YJL London (2009) in which (i) The dispute set out in the notice of adjudication was the proper valuation of certificate twenty-seven (ii) The adjudicator arrived at a figure that was considerably less than the amount shown on the certificate and (iii) Once allowance had been made for sums already paid, the adjudicator decided that the referring party had been overpaid. Coulson J stated that the adjudicator (i) had the necessary jurisdiction to decide that, as a result of his valuation of certificate twenty-seven, the defendant had overpaid the claimant (ii) was entitled to a sum in return on the balance of the account between them and (iii) could therefore have ordered that this sum be paid by the claimant to the defendant.

The judge went on to state that the defendant relied on the Australian case of Alliance Contracting Property v James (2014) in support of its argument that the adjudicator exceeded his jurisdiction in requiring the defendant to repay the claimant. However, she further stated that this reliance was misplaced because (i) As an Australian case it is not binding on this court, which should instead follow Workspace (ii) It applied a different statutory regime which included specific provisions for payment claims and a resolution and (iii) It was in any event distinguishable on the facts.

THE FULL TEXT OF THE JUDGMENT OF JOANNA SMITH QC

Introduction

1. By a claim issued on 18 April 2018, the claimant, Breyer Group Public Limited Company, a contractor specialising in roofing, construction, responsive repairs and maintenance, seeks to enforce an adjudication decision dated 10 April 2018 (”the Decision”) against the defendant, Adam Michael Scaffolding Services Limited.

2. Pursuant to an order dated 20 April 2018, the claimant was given permission to make an application for summary judgment before service of a defence and/or acknowledgment of service by the defendant and the time for acknowledging service was abridged. I am asked to determine the claimant’s application for summary judgment in the sum of £2,040,819.24 plus interest and costs.

Evidence

3. In support of the application, the claimant relies on the witness statement of Ms. Porter dated 18 April 2018 together with its various exhibits. These include the notice of adjudication dated 20 February 2018 and the Decision.

4. In opposition to the application, the defendant (acting by Mr. Michael Trew, father to Mr. Adam Trew the defendant’s sole director who was unfortunately unable to attend today’s hearing because of his health) relies upon a witness statement from Mr. Adam Trew dated the 14 May 2018. The claimant responded to the defendant’s evidence in the second witness statement of Ms. Porter dated 29 May 2018.

Background

5. I can deal with the background to these proceedings relatively shortly. On or around 10 April 2013, the claimant appointed the defendant to carry out the supply of labour, plant, materials and design of scaffolding services and associated works (”the Works”) at Lewisham Homes, Leegate House, Burnt Ash Road, Lewisham. The contract document provided for the claimant to pay to the defendant the sum of £685,462.69 plus VAT or such other sum as might become payable. It seems that the period of the contract was originally intended to be one year but was ultimately extended to approximately three years in duration, thereby increasing the value of the defendant’s work.

6. Clause 22 of the contract provided that either party had the right to refer a dispute to an adjudication, which adjudication would be conducted in accordance with the provisions of Part 1 of the Scheme for Construction Contracts, England and Wales Regulations, 1998 . The nominating body is the Technology and Construction Solicitors Association.

7. On 20 February 2018, the defendant issued a notice of adjudication. Under the heading, “Nature and brief description of the dispute and parties involved”, the notice included the following:

“The dispute concerns the value of the sub-contract final account. It is Adam Michael Scaffolding Service Limited’s contention that;

1. The proper value of the final account under the sub-contract is £5,601,093.63 excluding VAT and any CIS tax deduction liability. Breyer Group Plc considers the sub-contract final account is £3,129,597.18 excluding VAT and CIS tax deduction liability but inclusive of the free issue scaffolding reduction.”

8. Under the heading “Nature of redress being sought” at s.3 of the notice, various decisions are sought from the adjudicator, including at sub-para.5:

“The referring party asks the adjudicator to decide their final account is an accurate and correct value of the scaffolding works and agreed in the gross sum of £5,601,093.63 excluding VAT and any CIS tax deduction tax liability or, in the alternative, the referring party seeks the adjudicator to decide what he considers to be the correct value of the final account for the scaffolding works.”

9. On 26 February 2018, Mr. Nigel Davis was appointed to act as adjudicator. I will refer to him hereafter as “the Adjudicator”. In the defendant’s referral to adjudication at paras.5.10 and 5.11, it again articulated the relief that it sought as follows:

“5.10 The referring party asks the adjudicator to decide their final account is an accurate and correct value of the scaffolding works and agreed in the gross sum of £5,601,093.63 excluding VAT and any CIS tax deduction liability.

5.11 In the alternative the referring party seeks the adjudicator to decide what he considers to be the correct value of the final account for the scaffolding works.”

10. In its response at paragraph 27, the claimant noted that the dispute concerns the final valuation of the defendant’s works but disputed the figure alleged by the defendant to be due. Indeed, the claimant maintained that the defendant’s true final sub-contract value was, in fact, £1,481,577.42 and invited the Adjudicator to decide that given that, as was common ground, it had already paid £4,516,269.39 to the defendant, it had substantially over-paid the defendant and that it was entitled to a repayment of £3,034,691.97.

11. In the decision at para.8, the Adjudicator noted that the nature of the dispute was said by AMSS to concern the valuation of its final account for sub-contract scaffolding works. He then went on to answer the question which he posed, namely, “What is the value of the AMSS sub-contract final account overall and what is the consequence of that?” He dealt with that in paragraphs 67-71 of the Decision. His answer was that the gross value of the defendant’s sub-contract final account was £2,502,750.15. He set that out in paragraph 70 of the decision and in paragraph 71 he went on to say, “Since BGP has paid AMSS £4,516,269.39 to date, it follows that I decide that AMSS has been overpaid”. Then he did a calculation whereby he took the £4,516,269.39 and deducted the £2,502,750.15 to arrive at a figure of £2,013,519.24 and decided that “AMSS shall repay BGP £2,013,519.24 within seven days of my decision.” See also paragraph 75.1.

12. Further, the Adjudicator decided that, given his decision, AMSS was to bear the burden of paying his fees and expenses in the adjudication amounting to £27,300 and that the same should be paid within seven days of the Decision. See paragraphs 73, 75.2 and 75.4 of the Decision.

13. Notwithstanding that the adjudicator decided that his Decision was to be complied with by the parties forthwith in paragraph 75.5, Ms. Porter confirms in her first statement that the defendant has failed to comply with the Decision and has failed to pay the Adjudicator’s fee. This has, she tells us in that statement, therefore been settled by the claimant.

Summary Judgment

14. Ms. Shipley in her helpful skeleton argument on behalf of the claimant, set out the applicable law, which is well-established. The correct way to enforce an adjudicator’s decision is by way of summary judgment. See Bouygues UK Ltd v Dahl-Jensen UK Ltd [2001] 1 All E.R. (Comm) 1041 per Chadwick LJ at paragraph 29:

“The court may grant summary judgment under CPR 24.2 if it considers that,

1. The claimant has no real prospect of succeeding on the claim or issue, or

2. The defendant has no real prospect of successfully defending the claim or issue and

(b) there is no other compelling reason why the case or issue should be disposed of at trial.”

15. The approach that the court should adopt to a summary judgment application in a case such as this was set out by Chadwick J in Carillion Construction Ltd v Devonport Royal Dockyard [2005] EWCA Civ 1358 at paragraph 85:

“The objective which underlies the act and the statutory scheme requires the courts to respect and enforce the adjudicator’s decision, unless it is plain that the question which he has decided was not the question referred to him or the manner in which he has gone about his task is obviously unfair. It should be only in rare circumstances that the courts will interfere with the decision of an adjudicator.”

He then went on in paragraph 87 to say this:

“In short, in the overwhelming majority of cases, the proper course for the party who is unsuccessful in an adjudication under the scheme, must be to pay the amount that he has been ordered to pay by the adjudicator. If he does not accept the adjudicator’s decision as correct, whether or on the facts or in law, he can take legal or arbitration proceedings in order to establish the true position.”

The Issues Raised By the Defendant By Way of Defence

16. In Mr. Trew’s witness statement he identifies four reasons why the Adjudicator’s Decision should not be enforced and/or a stay of that Decision should be granted. These are as follows:

1. First, that the notice of adjudication did not confer jurisdiction on the Adjudicator to make an award in favour of the claimant;

2. Second, that the decision by the Adjudicator was not one that he could reasonably have made;

3. Third, that the claimant has been paid for its works by Lewisham Homes; and

4. Fourth, if the Adjudicator’s Decision is enforced, the defendant will become insolvent.

17. In addition, Mr. Trew senior has addressed me further during the course of his submissions on the injustice of the Decision made by the Adjudicator and his alleged failure adequately to deal with the evidence. It is very clear from Mr. Trew’s submissions that the defendant believes the Adjudicator to have erred in dealing with the facts and to have made an unreasonable and perverse decision.

18. Notwithstanding that I have every sympathy with the predicament in which the defendant finds itself, it is my judgment, for reasons I have set out in more detail below, that the claimant is entitled to an order for summary judgment today.

19. I now turn to deal with each of the grounds identified in Mr. Trew’s statement, picking up where appropriate, points made orally to me today.

1 Jurisdiction

20. I have already referred to relevant passages in the notice of adjudication which, in my judgment, are plainly, sufficiently wide to encompass a decision as to the value of the final account. Furthermore, in my judgment, having made a decision as to the value of the final account, the Adjudicator was acting within the scope of his jurisdiction in ordering the defendant to refund the claimant in respect of the over-payment.

21. Support for this conclusion is to be found in Workspace Management Limited v YJL London Limited [2009] EWHC 2017 (TCC) a decision of Coulson J, as he then was. In that case, the dispute set out in the notice of adjudication was the proper valuation of certificate twenty-seven. The adjudicator arrived at a figure that was considerably less than the amount shown on the certificate and once allowance had been made for sums already paid, the adjudicator decided that the referring party had been overpaid. I note paragraphs 21 and 22 of the judgment. At paragraph 24, Coulson J said this:

“24. I conclude that the adjudicator had the necessary jurisdiction to decide that as a result of his valuation of certificate twenty-seven, the defendant had overpaid the claimant and was entitled to a sum in return on the balance of the account between them. He could, therefore, have ordered that this sum be paid by the claimant to the defendant.”

22. The defendant relied on the case of Alliance Contracting Property Ltd v James [2014] WASC 212 in support of its argument that the Adjudicator exceeded his jurisdiction in requiring the defendant to repay the claimant. Ms. Shipley submitted, and I agree, that this case does not assist the defendant,

1. first, because it is an Australian case and so is not binding on this court, which should instead follow Workspace;

2. second, because it applied a different statutory regime which included specific provisions for payment claims and a resolution; and

3. third, because it was distinguishable on the facts. The dispute was defined as the amount of Tenix’ payment claim. Thus, although the court held that the adjudicator did not have jurisdiction to order a payment from Tenix to Alliance, this was explicable in circumstances where the dispute was confined to the amount of the claim by Tenix and did not require any more neutral valuation exercise of the type with which the Adjudicator was concerned in this case.

2. The Decision Was Not One That the Adjudicator Could Reasonably Have Made

23. In paragraph 6 of his witness statement, Mr. Trew asserts that the decision was not one that the Adjudicator could reasonably have made acting within the scope of his jurisdiction because he rejected the fact that the claimant had, “Approved for payment almost double the sum that was ultimately awarded by the adjudicator as falling due under the contract when the claimant valued the final account in August 2016”. Mr. Trew goes on to say that:

“It must be perverse that the claimant can certify a final account sum and in doing so issue a corresponding pay-less notice and then subsequently resile from the position during the course of the adjudication to state that the defendant is in fact due a lesser sum.”

24. In the course of his oral submissions, Mr. Trew Senior also contended that the Adjudicator failed to consider all of the relevant sub-contract documents, dismissed the statement of truth of Mr. Mark Vickery, the defendant’s main quantity surveyor charged with negotiating and running the contract, dismissed variations notwithstanding that they had been signed off by the contracts manager and failed to have regard to numerous relevant emails concerning these variations. He told me that he had received advice that the claimant owed additional sums to the defendant and that he had instructed solicitors with a view to challenging the Adjudicator’s Decision, albeit that the defendant had insufficient funds to pay for legal representation at this hearing.

25. Ms. Shipley made two main submissions in response to these points. First, she submitted that the suggestion that the claimant had agreed a much higher figure by way of final account previously was factually inaccurate and she referred me to paragraph 25 of the defendant’s response in the adjudication where it said this:

“The AMS contention that Breyer considered the true value of the AMS final account is £3,129,597.18 excluding VAT etc., is out of date. In fact, the figure of £3,129,597.18 cited by AMS does not relate to a final account but was merely an interim valuation produced by Breyer in or about August 2016 on the basis of the best information and evidence provided to Breyer by AMS at that time.”

26. She says that throughout the adjudication, the claimant made the consistent submission that the final account was £1,481,577. When this is seen beside the defendant’s contention that the value of the final account was £5,601,093.63, the Adjudicator’s Decision that the value of the final account was £2,502,750.15 was, she says, plainly reasonable.

27. Second, and in any event, she says that the reasonableness of the Adjudicator’s Decision is generally irrelevant to the question of whether it should be enforced. She points out that errors of fact and/or law are not defences to an application to enforce an adjudicator’s reward and she relies on a passage in the judgment of Edwards-Stuart J in the case of Urang Commercial Limited v Century Investments Limited [2011] EWHC 1561 (TCC) at paragraph 19, as follows:

“It is now firmly established that an error of law or fact made by an adjudicator when deciding an issue referred to him is no defence to an application to enforce the award.”

Edwards-Stuart J then refers to various authorities including the authority of Bouygues UK Ltd v Dahl-Jensen that I have already mentioned.

28. Further, Ms. Shipley points to paragraphs 840 to 842 of Coulson on Construction Adjudication 3rd Edition in which Coulson J expresses the view that it is highly questionable whether the principles of Wednesbury unreasonableness apply to adjudication enforcement at all, but that if they do, they could only apply at the extreme end of the scale, namely an “irrational decision so outrageous in its defiance of logic, that no sensible person who had applied his mind to the question to be decided could have arrived at it”, to pick up the words of Lord Diplock in CCSU v Minister for the Civil Service [1985] 1 AC 374 at 410.

29. I accept Ms. Shipley’s submissions. The criticisms raised by the defendant of the Adjudicator’s Decision are plainly criticisms of fact and/or law and thus do not amount to defences to this application. I can of course make no finding as to whether they may amount to a good argument in due course were fresh proceedings to be commenced before this court.

30. Whilst the defendant considers the Adjudicator’s Decision to have been irrational and perverse, in my judgment, it cannot be said to be outrageous or at the extreme end of the scale so as to give rise to a defence to the claim for enforcement.

3. Payment By Lewisham Homes

31. In paragraph 7 of his statement, Mr. Trew contends that the claimant has been reimbursed for the monies it paid to the defendant by Lewisham Homes under the main contract and that accordingly, enforcement of the decision will unjustly enrich the claimant. This point has no merit. I agree with Ms. Shipley’s submissions that the contractual arrangements between the claimant and Lewisham Homes are irrelevant.

32. The adjudication concerns the final account valuation in relation to the contract between the claimant and the defendant. For this reason, there was no evidence before the Adjudicator as to any payments that may or may not have been made by Lewisham Homes and he did not consider the matter. In any event, I further agree with Ms. Shipley that even if it is correct that the Adjudicator should have considered payments from Lewisham homes, his failure to do so would amount to an error of fact or law, which would not provide a defence to the enforcement of the Decision.

4. Stay

33. The defendant contends that if its defence to this application is unsuccessful, there should be a stay of enforcement on the grounds that if the award is enforced and no stay granted, the defendant will be insolvent. I note in particular paragraphs 8-11 of Mr. Trew’s statement.

34. Very little evidence is available as to the defendant’s financial circumstances. However, the defendant relies on an email from its accountant, confirming that accounts since September 2016 have not been prepared but that he expects the 2017 and 2018 accounts to show a considerable loss. He says that the defendant has spent all available sums and has borrowed additional amounts from its director and his family, and further that he understands most of the company’s assets to have been sold or to have charges registered against them. He also says that following loss of the adjudication “it seems that the company is now insolvent and I have advised that they should cease trading while their advisors consider the next action”. It is said by Mr. Trew in his statement that this insolvency would prevent the defendant from correcting the injustice of the Adjudicator’s Decision.

35. During the course of the hearing, Mr. Trew Senior said that the stay sought was for a period of three months. In answer to my questions, Mr. Trew Senior explained that the family had been putting money into the defendant’s coffers to keep it going and that work was coming in albeit that the company had experienced a very difficult time over the last year or so, in common with other scaffolding businesses. He also explained that the very recent release of a charge over property owned by the defendant was due to incoming funding from an investor.

36. It is clear that whatever the advice received by the defendant from its accountant, it has not ceased trading but has, on the contrary, continued to pursue its business including renewing its contractor’s health and safety assessment scheme accreditation which facilitates the continuation of that business.

37. I was shown during the hearing a draft profit and loss statement for the period June 2017 to June 2018 which records a loss of £123,539.43, but no other evidence of the defendant’s financial position was made available to me.

38. I have jurisdiction to order a stay under CPR 83.7(4) where I am satisfied that,

(a) there are special circumstances which render it inexpedient to enforce the judgment or order or,

(b) the applicant is unable for any reason to pay the money.

39. However, it is clear from the authorities relied on by the claimant that it is only in rare and exceptional circumstances in a commercial case such as this that the court will grant such a stay. I refer in particular to the authorities referred to and relied upon in Kersfield Developments (Bridge Road) Limited v Bray and Slaughter Limited [2017] EWHC 15 (TCC) by O’Farrell J at paragraph 102.

40. I have no evidence to suggest that this is a rare and exceptional case. Contrary to the email from the defendant’s accountant, the defendant continues to trade and it plainly has access to funds from outside investors. Its financial position based on the draft profit and loss statement that was shown to me appears poor, but I have no evidence to indicate whether it might be expected to improve by reason of the work that Mr. Trew told me it has recently attracted, just as I have no evidence as to whether funds could be made available from Mr. Trew’s family or other investors.

41. In the circumstances, I decline to order the stay requested by the defendant.

42. I should add, that insofar as the defendant argues that it would be prevented from correcting the injustice of the Adjudicator’s Decision if a stay is not granted, I accept the submissions of Ms. Shipley that the case of Galliford Try Building Ltd v Estura Ltd [2015] EWHC 412 (TCC) confirmed that a stay on the basis of manifest injustice would only be successful in very unusual circumstances and a stay would in any event only be appropriate in rare cases.

43. I accept her submissions that there were a number of factors in that case which supported the grant of a partial stay which are not present in this case. In the circumstances, I do not believe that this is a case involving very unusual circumstances or that it is a rare case in which a stay would be appropriate.

Conclusion

44. For the reasons I have given, the Adjudicator’s Decision is valid and enforceable and the circumstances are not so exceptional as to justify a stay of execution. It follows that the claimant is entitled to summary judgment in the sum of £2,040,919.24 plus interest and costs which I will deal with following consideration of any further submissions from the parties.