As reported previously, (view October Updater report on Hart (t/a D W Hart & Son) v Smith & Anor) a key purpose of the Housing Grants, Construction and Regeneration Act 1996 (Construction Act) was to introduce adjudication to enable the prompt settlement of disputes in construction contracts on a provisional basis. Since then, construction contracts must provide that an adjudicator’s decision is binding until the dispute is finally determined by legal proceedings, arbitration or agreement.

In the following case, the question arose as to the effect of the adjudicator’s binding decision. Was it a decision that required payment to be made promptly or was it simply a declaration of the value of the sub-contractor’s claim which could be adjusted in subsequent certificates for payment?

Rok Building Limited v Celtic Composting Systems Limited [2009] EWHC 2664 (TCC)

Celtic Composting Systems Ltd was the main contractor employed by Devon County Council to carry out works at one of its recycling facilities. The main contractor engaged Rok Building Ltd as sub-contractor to provide a composting facility under an amended NEC3 form of engineering contract (Option B) (Contract).

Flooding delayed progress of works in July and August 2008. The sub-contractor subsequently claimed an extension of time and made an application for payment in April 2009 (number 13) for £782,875.92 on the grounds that this was a compensation event under the Contract. The corresponding certificate of payment by the main contractor allowed nothing for this claim.

The sub-contractor disputed the main contractor’s position and subsequently referred the issue to adjudication. The adjudicator set out the nature of the dispute before him as:

"The dispute the Referring Party intends to be referred to adjudication is in relation to [the main contractor’s] failure to assess any change to the Completion Date as a result of flooding of the site and in relation to [the main contractor’s] inadequate assessment of [the sub-contractor’s] financial claim in respect of the flooding of the site as manifested in [the main contractor’s] valuation of [the sub-contractor’s] interim payment application number 13."

The adjudicator subsequently issued his decision:

"That [the sub-contractor] shall be paid in the additional sum of £204,465.14 plus VAT in relation to interim payment application 13 in respect of the compensation event arising from the flooding on the site…

That [the main contractor] shall pay interest on the sum awarded in the sum of £1470.47 and which continues to accrue at a daily rate of £14.00 from and including 8 September 2009, until judgement or sooner payment."

The main contractor failed to pay either of these sums, but instead issued a document entitled “Compensation Event No.72” which provided for an adjustment to the Contract Sum of £204,465.14 (the sum allowed by the adjudicator) and the subsequent certificate of payment (number 16) added this amount to the gross contract sum. Due to a previous negative amount certified under previous certificate 15, a deduction for retention and an amount representing delay damages, Celtic paid £64,020.79 under this certificate.

The issue before the court

Following the issue of Compensation Event No.72, the sub-contractor applied to the Technology and Construction Court to enforce the adjudicator’s decision on the basis that the adjudicator’s decision was directive. In other words, the adjudicator’s decision required the main contractor to pay the amount of the decision forthwith (or within a reasonable time). It was not declaratory in the sense that the sum allowed to the sub-contractor was simply to be accounted for in future certifications and payment procedures. The validity of the adjudicator’s decision was not challenged.

The decision

The Court followed a line of authority that adjudicators’ decisions should be interpreted not only on the words used by the adjudicator, but also in the context of the dispute which was referred. The Court was mindful that a crystallised dispute might involve or require a declaration as to what the true value was or might be a directive decision that money be paid.

On the facts of the case and the wording used in the adjudicator’s decision, the Court was in no doubt that the adjudicator was clearly and obviously calling for payment by the main contractor and directing that the sums in question be paid. The adjudicator was not simply declaring what the value of the sub-contractor’s claims for compensation and interest were with a view to them being the subject matter of later adjustment in certificates. In reaching its decision, the Court considered the adjudicator’s directive language that the sub-contractor "shall be paid" the sum in question, and the fact that interest was awarded on the basis that monies should have been certified and paid.

The Court held that it was not essential that the adjudicator directed payment to be made within a particular period if it was clear from the wording of the decision and in context that payment was required to be made. The court also found that it would require clear wording if the effect of the adjudicator’s decision was to be reflected in later certificates and less directive wording than that which was used in this case to avoid an interpretation that the adjudicator was requiring immediate payment.

Editors’ comments

Whilst the precise remedy provided by an adjudication will always turn on the words used by the adjudicator and the context of the dispute which was referred, clear words will be needed if the effect of the decision is to be reflected in later certificates. The case is also a useful reminder of the care needed, when drafting referrals to adjudicators, to include the precise nature of the relief sought, as any decision will inevitably respond to and be framed by these words.

View: Rok Building Limited v Celtic Composting Systems Limited [2009] EWHC 2664 (TCC)