Balfour Beatty Construction Northern Ltd v Modus Corovest (Blackpool) Ltd [2008] EWHC 3029 (TCC)

Where an adjudicator states that his decision is not reasoned, those words are not conclusive as to whether or not that is, in fact, the case. An agreement to mediate will not be enforced where it is nothing more than an agreement to agree. The Scheme for Construction Contracts does not apply to sums claimed by the employer by way of liquidated damages pursuant to clause 24.2.1 of the JCT Standard Form with Contracted Design (1998 edition). To read the judgment, click here.  

Balfour Beatty v Modus: The parties’ agreement contained an adjudication clause, which stated that the adjudicator was ‘obliged to give reasons for his decision’. Modus, the losing party, tried to argue that the adjudicator’s decision had not complied with that contractual provision. The court disagreed, noting that his decision contained many pages of reasons, explaining how the decision was reached, and nothing significant had been omitted. His decision was a clear and cogent document and he did not have to give detailed reasons for every part of his conclusion. Importantly, Modus had never sought additional reasons or clarification of any part of that decision.

Enforcement of the decision was not stayed pending mediation in accordance with the parties’ agreement because the mediation agreement in the present case was nothing more than an agreement to agree and was too uncertain to be enforced by the Court. Even if there had been a binding agreement to mediate, a stay would only be granted if summary judgment was not awarded, because only in such circumstances would there still be a proper dispute referable to mediation. Even where summary judgment is not awarded, because there is an arguable defence, the court would have to be satisfied that the best way of resolving that dispute was by a reference to mediation.

Modus also tried to rely on the absence of a withholding notice to argue that clause 30.3.5 should then apply to a certificate/valuation, so that the contractor was only entitled to that amount ‘properly due’ and the employer remained entitled to rely on their set-off and counterclaim in respect of liquidated damages. The court held that such an interpretation would be contrary to the whole contractual scheme. If an employer could flout the withholding notice regime so blatantly, it would mean that the JCT Standard Form did not comply with the 1996 Act on this fundamental issue.

Perhaps surprisingly, the court concluded that the Scheme for Construction Contracts does not apply to sums claimed by the employer by way of liquidated damages pursuant to clause 24.2.1 of the JCT Standard Form. The whole purpose of Part II of the 1996 Act and the Scheme for Construction Contracts (set out in Statutory Instrument 1998 No.649) was to improve cashflow for contractors and subcontractors. Not only is there nothing specific in either the Act or the Scheme about payments to the employer, there are many parts of both that are inconsistent with this construction. For example, sections 109, 110 and 111 of the Act deal with stage payments – when they should be paid and the regime of withholding notices. Pursuant to Section 112, the contractor can suspend work if proper stage payments are not paid, and s.112(4) notes that the period of suspension has to be discounted in considering questions of delay. That section can only make sense if it is the contractor who is the party suspending the work if he has not been paid for doing it. It is impossible to read that section as applying to payments and suspensions on the part of the employer. A consideration of the Scheme wholly confirms that interpretation. As a result, neither the Act nor the Scheme applies to claims by employers for liquidated damages.