The Housing Grants, Construction and Regeneration Act 1996 ("Act") sought to remedy cashflow issues in the construction industry by establishing the adjudication process, which allows payment disputes to be resolved quickly. The Act, as amended, is complimented by speedy enforcement of adjudication awards through the courts so that payments flow quickly rather than after months (or years) of protracted litigation. One of the latest cases to come before the English courts is Exyte Hargreaves Limited v NG Bailey Limited.
Exyte Hargreaves Limited v NG Bailey Limited
The case concerned subcontract claims by Exyte, and the case report identifies there having been a series of adjudications between the parties in respect of the value of Exyte's claims for variations, extensions of time, etc. Exyte ultimately sought to enforce three separate awards in the proceedings, all of which concerned claims for variations; and one of which sought extensions of time. Bailey sought to resist enforcement on various grounds. The most interesting of those was Bailey's contention that each of the earlier adjudicators/awards should not have awarded payment to Exyte because there was a Pay Less Notice in place for the relevant payment cycle (no. 27) which asserted cross claims (including liquidated damages), and which produced a negative sum due to Bailey.
Neither party had, however, specifically addressed the adjudicators on the effect of the relevant Pay Less Notice. Bailey had reserved its position on jurisdiction in at least two of the adjudications, but the Court found that it had not advanced a positive defence of set off in respect of any payment order in any (with Para 65 of the judgment observing):
"I do not accept the submission of Mr Page that it was for the Claimant to raise any issue about set off or how the valuation would affect the balance of payments within cycle 27 generally. Those were matters which, in my judgment, could and should have been raised by the Defendant if the Defendant intended to rely upon them. For whatever reason, it chose not to."
It followed that once the decisions and attendant payment orders were made, Bailey could not rely on a right to set-off at enforcement stage – either as a jurisdictional issue which prevented the adjudicators making the payment orders; or rely on any failure to address that right to set-offs by any of the adjudicators in their decisions.
So why is this of interest?
The case was resolved on conventional grounds. A failure to take a specific jurisdictional challenge, if available during the adjudication, will normally be fatal if an attempt is later made to rely on that at enforcement stage. Similarly, if a party does not insist on a line of defence to a payment order (e.g., its own cross claims) before an adjudicator, it will be difficult to succeed with later complaints that an adjudicator ought nevertheless to have applied those cross claims (or any rate resist making a payment order on their footing).
However, there are certainly a couple of aspects of the decision and surrounding circumstances which will be familiar to those in the construction disputes sector, and which are worth mentioning.
The first is the broader strategy which appears to have been deployed by Exyte. Which was to pick discrete claims and adjudicate to seek payment on those only, rather than seek a valuation/payment on an entire payment cycle. There is nothing wrong in principle with that, but often that strategy can come unstuck if those aspects of the account you have not referred into adjudication are nevertheless picked up by the responding party in its response and deployed as cross claims/set-offs to any payment order. As the judge noted, this did not happen in Exyte. Here, Bailey had first argued that the adjudicators could not make payment orders at all on the basis of the redress sought and that might explain why cross claims were not pressed before those adjudicators.
The second is that one of the cross claims/set-offs, as is often the case, was liquidated damages. The Judge noted that where there was an extant extension of time claim in play by Exyte, and practical completion had not yet been achieved, the final sum due (if any) in respect of liquidated damages was as yet "unassessed" and so would not have been permissible as a set-off in any event. We do wonder whether that goes too far, but given the case was resolved on other grounds, it is an argument for another day. What can be said is that the fact that Bailey had not asked the adjudicators to decide anything on the set-offs does appear to have influenced that observation.