In Bell Building Ltd v TClarke Contracting Ltd [2024] EWHC 1929 (TCC) the Technology and Construction Court explored challenges around natural justice and jurisdiction in a smash and grab adjudication. Interestingly, the Adjudicator awarded a sum greater than was being sought by the Referring Party. This article provides an overview of the judgment, highlighting the key considerations and implications for the industry.

Background

The parties were Bell Building Ltd ("Bell"; "the Subcontractor") and TClarke Contracting Ltd ("TCL"; "the Main Contractor"). The parties entered a sub-contract incorporating JCT Design and Build Sub-contract Conditions 2016 ("the Sub-Contract"). Bell was to supply and install the substructure and superstructure for a Data Centre at LCY-Ten (Echelon), Greenwich Point, London ("the Works").

Bell issued their Interim Application No. 18 on 20 April 2023, in the sum of £20,915,777.43 (gross) less retention of £627,473.36 ("the Interim Application"). The due date was 9 May 2023 and the final date for payment was 19 June 2023.

TCL issued a document named Pay Less Notice 18 on 16 June 2023, notifying the sum of £710,120.61 ("the Pay Less Notice").

Bell questioned the status of the Pay Less Notice, TCL maintained their reliance on the same. Nevertheless, TCL paid the notified sum under the Pay Less Notice on 21 June 2023 and Bell accepted the payment. Bell later challenged the Pay Less Notice, arguing that it was not valid, and the dispute was referred to adjudication.

The Adjudication

Bell's Notice of Adjudication ("the Notice") stated:

  • Payments totalling £18,084,322.36 (excluding VAT) have been received from TCL at the time of the Notice.
  • Bell did not give the Adjudicator jurisdiction to decide on the "true value" of the claim but reserved the right to bring such a claim in any subsequent adjudication.
  • As for the remedy and redress, Bell sought a payment of the outstanding sum of £1,443,981.51 plus VAT as a debt from TCL.

The Referral followed the content of the Notice, but further provided that Bell did not give the Adjudicator jurisdiction to decide the "value, true or otherwise, in respect of any other Payment Claim" and reserved their right to bring such a claim in any subsequent adjudication.

The Adjudicator, within his decision, acknowledged that this was a "technical adjudication concerning an Application for Payment and the associated service of any Pay Less notice leading to the payment of any Notified Sum colloquially known as a 'smash and grab' adjudication and does not concern the true value of the works at the relevant time". Ultimately, the Decision was that TCL did not issue a valid Pay Less Notice. In terms of the sums awarded, the Adjudicator first looked at the sum of £1,443,981.51 plus applicable VAT as a debt, which was sought by Bell. However, the figures were further explored by the Adjudicator.

It was brought to the Adjudicator's attention that TCL made payments to Bell under both Application No. 18 and Application No. 19. TLC opposed to consideration of Application No. 19 and the Adjudicator considered only Application No. 18. The Adjudicator considered the outstanding amount to be paid by TCL in the sum of £2,839,793.31 less £710,120.62, which totalled £2,129,672.69. Consequently, the final figure awarded by the Adjudicator was £2,129,672.69 plus applicable VAT as a debt ("the Decision"), based on this calculation.

Therefore, the Adjudicator awarded Bell more than was sought.

Court Proceedings

Bell raised Part 7 enforcement proceedings, which were defended.

TCL argued that the adjudication was a smash and grab adjudication whereby the sum would be payable due to an invalid Pay Less Notice, and not because of any valuation. The challenge was that of breach of natural justice and lack of jurisdiction on part of the Adjudicator.

Bell argued that although the dispute which was referred to the Adjudicator concerned Application No. 18, their claim also had the caveat of "such other relief as is necessary, just and equitable to resolve the dispute". Therefore, Bell's position was that the Adjudicator did not act outwith his jurisdiction.

Decision

Natural Justice – the judge found that the Adjudicator relied on material which was put in by Bell in answer to a question from the Adjudicator and observed that "it simply cannot be said that this Adjudicator went off on a frolic of his own, deciding a case upon a factual or legal basis which had not been argued or put forward by either side". As the parties were aware of the materials involved in the adjudication and neither party had contended, there was no breach of natural justice.

Jurisdiction – the judge found that the Adjudicator was "acting within his jurisdiction to determine the sum due as he saw fit in response to the submissions made by TCL". For completeness, TCL asked the Adjudicator not to consider payments made by them under Application No. 19. The judge was of the view that this then "opened the possibility of a different, greater assessment of the sum due than claimed".

Therefore, TCL had no arguable defence to the enforcement of the Decision, and the Decision was enforceable.

Implications for the Construction Industry

Firstly, this judgment serves as a reminder for parties to ensure statutory and contractual compliance for Pay Less Notices. A party with an invalid Pay Less Notice will find it difficult to defend a smash and grab adjudication, unless the validity of the corresponding Payment Application can be challenged.

Secondly, it confirms that even in a smash and grab adjudication, where sums sought are normally based on valid notices, the Adjudicator may still have the power to award sums greater than that sought. It is important that parties in the adjudication carefully assess the evidence that is submitted and address any issues as they arise during the adjudication, otherwise the right to object could be lost.

Contributors

Karolina Milne

Solicitor

Louise Shiels

Head of Dispute Resolution and Risk & Partner

Keith Kilburn

Legal Director