When will an earlier adjudication decision be binding on a subsequent one?

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Authored by: Stanley Lo

In Bexheat Ltd v Essex Services Group Ltd [2022] EWHC 936 (TCC), England’s Technology and Construction Court held that the dispute which was the subject of the first adjudication was not the same or substantially the same as the dispute which was the subject of the second adjudication and that the Claimant was therefore entitled to summary judgment to enforce the second adjudication decision.  

Background

The dispute arose out of a project for the construction of a residential care facility. ESG was engaged as sub-contractor for the works and engaged BHL as sub-subcontractor to carry out the plumbing works (Contract). The Contract provided that any dispute between the parties in relation to the sub-subcontract may be referred to adjudication.

Disputes arose between the parties as to BHL’s entitlement to payment, in particular, in respect of variations and prolongation costs. There had been two adjudications.

The adjudications

The subject matter of the First Adjudication was the true value of BHL’s interim application for payment number 22, which the adjudicator determined to be £141,646.35 and ESG paid the amount due under the award.

The subject matter of the Second Adjudication was BHL’s interim application for payment number 23 and the adjudicator awarded BHL £706,029.70. ESG did not pay this award.   

Enforcement of adjudication decision

BHL applied for summary judgment to enforce the Second Adjudication Decision.  

A material issue was whether the First Adjudication Decision affected the validity of the Second Adjudication Decision and ESG was entitled to rely on the ‘true valuation’ in the First Adjudication against any obligation to satisfy Interim Application 23 and/or the Second Adjudication Decision.

Impact of First Adjudication Award

The court held that the consequence of the binding effect of an adjudication decision on a dispute is that an adjudicator has no jurisdiction to determine matters which are the same or substantially the same in a subsequent adjudication. The starting point, the court said, was for it to consider the scope of the First Adjudication. The court said that the dispute referred in the First Adjudication concerned the true valuation of BHL’s entitlement in respect of Interim Application 22 and on its face, Interim Application 22 was for payment in respect of work for the valuation period up to 31 July 2021. In contrast, the dispute referred in the Second Adjudication was whether ESG had served a valid Pay Less Notice in response to Interim Application 23; if not, whether BHL was entitled to payment of the sum claimed as ‘the notified sum’. Thus, the dispute which was the subject of the First Adjudication was not the same or substantially the same as the dispute in the Second Adjudication, the court said.

Next, the court went on to consider the matters decided by the adjudicators. It said the dispute determined in the First Adjudication concerned the true value of Interim Application 22. In his decision, the adjudicator expressly stated that the nature of the dispute was “the true value of BHL’s interim application for payment 22 dated 19th July 2021 (“AP22″), and BHL’s entitlement to payment”. Necessarily, the scope of the dispute required the adjudicator to work through the detailed arguments, evidence and figures in respect of the measured works, preliminaries, variations and claims for additional costs but all with the intention of establishing the true value of Interim Application 22. Indeed, the relief granted by the First Adjudication Award contained a declaration as to the true valuation of Interim Application 22.

In contrast, the dispute or difference determined in the Second Adjudication concerned the validity of the document relied on by ESG as the Pay Less Notice in response to Interim Application 23; the key issue centred on the status of a valuation document served by ESG.  The relief granted by the Second Adjudication Award did not refer to the true valuation of Interim Application 23; it simply decided that BHL was entitled to payment in full by reason of ESG’s failure to serve a valid Pay Less Notice.

Court’s decision

Accordingly, the court concluded that the dispute decided in the First Adjudication was not the same or substantially the same as the dispute decided in the Second Adjudication. It followed that this was not a case in which the adjudicator trespassed on an earlier decision. The decision in the Second Adjudication was solely concerned with determining BHL’s entitlement to the ‘notified sum’ by reason of ESG’s failure to serve a valid Pay Less Notice. Accordingly, ESG had no defence to the application for enforcement of the Second Adjudication Award and BHL was entitled to summary judgment.

Comments

Pursuant to the UK Housing Grants, Construction and Regeneration Act 1996, if the paying party does not serve a Pay Less Notice, payment will become due. Whilst the draft Hong Kong security of payment legislation bill is yet to be published, it is understood that it will provide that if the paying party does not give any payment response disputing all or part of a payment claim, it will be deemed to have been disputed. The above case therefore may not be directly applicable in Hong Kong when the security of payment legislation is implemented. However, if no payment response is given, no set-off may be raised in the adjudication. The paying party can then only dispute the valuation of the payment claim or argue that it is not yet due under the terms of the contract.

It should be noted that in order to take the benefit of the security of payment legislation, the payment claim has to be submitted and the usual monthly interim payment application can constitute such payment claim. The sub-subcontractor in this case submitted its claims to adjudication in two consecutive payment applications.

Key Contacts

Stanley Lo

Consultant | Litigation and Dispute Resolution

Email or call +852 2826 5395