In Grove Construction (London) Ltd v Bagshot Manor Ltd the Technology and Construction Court heard a claim in which the employer (a) had not paid remaining retention to the contractor, (b) went into administration, (c) entered into a deed of assignation with a third party and (d) the contractor then pursued the assignee, instead of the employer, for money due under the original contract. This article provides a summary of the judgment and highlights its key implications for the construction industry.
BACKGROUND
The parties were Grove Construction (London) Limited ("Grove") and Bagshot Manor Developments Limited ("BMDL"). Grove was employed by BMDL, under a construction contract entered in April 2020, to design and construct 79 residential dwellings by refurbishing a building known as Bagshot Manor. Practical completion was achieved on 11 February 2022. At the end of the rectification period (11 February 2023) Grove claimed entitlement to the remaining sum of the retention. However, BMDL went into administration and entered a Deed of Assignment dated 21 July 2023 ("the Deed") with Bagshot Manor Ltd ("Bagshot"; "the Assignee"). The Deed was described as "Assignment of Construction Documents for Bagshot Manor".
In the circumstances, Grove asked Bagshot to pay the retention. Bagshot refused to do so.
THE ADJUDICATION
Due to non-payment, Grove resorted to adjudication against Bagshot. It had two attempts, the first failing as the adjudicator declined jurisdiction. In the second adjudication, raised on 17 October 2024, the adjudicator rejected Bagshot's objections and on 18 November 2024 made an award in favour of Grove ("the Adjudicator's Decision").
Bagshot did not pay in accordance with the Adjudicator's Decision, and Grove raised enforcement proceedings in December 2024.
COURT PROCEEDINGS
Grove sought a summary judgment against Bagshot for £112,337.16 plus VAT, maintaining the position that Bagshot stood in the shoes of BMDL in terms of liability to pay the retention sums to it.
Bagshot again opposed, this time on the basis that the adjudicator acted outwith his jurisdiction (that Grove had no statutory or contractual right to adjudicate against Bagshot as opposed to BMDL) and raised Part 8 proceedings for a declaration.
At the heart of this dispute was the law of assignment and clause 3 of the Deed which provided:
"On the date of this Assignment, in consideration of the sum of £1 exclusive of VAT now paid by the Assignee to the Assignor… the assignor… assigns… whatever right title and interest (if any) the Assignor has in the Construction Documents together with all rights of action arising under them, including any rights that have already arisen, to the Assignee, to the extent in both cases such are assignable."
DECISION
The Adjudicator's Decision was not enforced.
The judge saw "no merit" in Grove's position and found Bagshot's analysis "without flaw".
The Court was "entirely persuaded" that the Deed intended to assign to Bagshot "no more and no less than BMDL's benefits accrued and to accrue in the future under the contract…". Further, the judge observed that importing a burden [of liability] as a general "right of action" would be "a backdoor importation of something impermissible".
This decision is two-fold. Firstly, the adjudicator lacked jurisdiction as the parties were not parties to the contract in place. Grove had no basis on which it could adjudicate against Bagshot, only against BDML. Secondly, the adjudicator erred in law by finding that Bagshot "stepped into the shoes of BMDL" when no such obligations, burdens or liabilities under the contract had been transferred by the Deed or by other means.
The Court reminded that the "impact of insolvency….is simply one of the hazards of contracting, not least within the construction industry" and that the parties could protect themselves from such situations by "negotiating amended terms" of a contract.
IMPLICATIONS FOR THE CONSTRUCTION INDUSTRY
Firstly, this judgment serves as a reminder that in an insolvency situation, it is important to review the contract documents to confirm a legal basis for any claims which may be made, prior to raising an adjudication or any other form of proceedings.
Secondly, it highlights the complexities which can arise where a transfer takes place and what the legal effect of that transfer is. For that reason, where there has been a purported transfer there is merit in taking legal advice as to whether the transfer is valid, and if so, the extent and nature of what has been transferred in order to then inform any future strategy.
Contributors
Solicitor
Head of Dispute Resolution and Risk & Partner
Legal Director
