Legal Q&A – Adjudication
Lee Lothian, Associate, CMS Cameron McKenna Nabarro Olswang
S9 (2) of The Scheme for Construction Contracts 1998 sets out that an adjudicator must resign where the dispute referred is the same or substantially the same as a dispute which has already been referred to adjudication and a decision has been taken in that adjudication. It is therefore a widely accepted principle that the same dispute cannot be referred to adjudication twice. But what happens if an issue is referred but no decision is taken in the first adjudication? The recent Technology and Construction Court (TCC) case of ML Hart Builders Ltd (In Liquidation) v Swiss Cottage Properties Ltd (2022) EWHC 1465 (TCC) considered exactly that. This case also considered the requirements of assessing the final account, and whether a settlement agreement between the employer and the surety, to which the contractor was not party, settling liability under a bond would settle the matter.
The facts
Swiss Cottage appointed Hart under a Joint Contracts Tribunal (JCT) form of contract to demolish a pub and design and build 14 flats and a commercial shell. The contract required Hart to provide a performance bond in Swiss Cottage’s favour. Aviva granted the bond and agreed that in the event of Hart’s breach of contract or insolvency it would ‘satisfy and discharge’ damages sustained by Swiss Cottage.
The court emphasised that determining whether a dispute is the same or substantially the same requires not only an assessment of what was referred but also what was actually decided.Hart entered a company voluntary liquidation in February 2015 triggering the JCT final account provisions Swiss Cottage submitted a statement of final account in September 2016 claiming circa £400,000 from Hart for the costs of Swiss Cottage completing the works. Hart disputed Swiss Cottage’s assessment and claimed instead that it was owed £200,000 from Swiss Cottage. Swiss Cottage separately called on the performance bond and entered into a settlement agreement with Aviva (known as the ‘acceptance agreement’ ) accepting £235,000 in full and final settlement of Aviva’s obligations under the bond.
The adjudication
Following Swiss Cottage entering into the acceptance agreement, Hart raised an adjudication for sums it claimed were due to it by Swiss Cottage. The adjudicator had to decide (1) did the acceptance agreement prevent an assessment of the final account? and (2) if not, what was the value of the final account?
The adjudicator found that the acceptance agreement was an assessment of the final account, preventing that from being reopened in an adjudication between Hart and Swiss Cottage. Having made that decision, the adjudicator did not make a decision on the second issue. Hart referred the matter to court, arguing that:
- The acceptance agreement between the surety and employer could not decide the final account as between the employer and contractor; and
- It should be able to launch a fresh adjudication for the true value of the final account.
The decision
The court agreed. It said that the acceptance agreement had no binding effect as between Hart and Swiss Cottage on the basis the agreement simply settles a bond call between the employer and surety, and Hart were not party to the acceptance agreement. Accordingly, there was nothing in the acceptance agreement to preclude Hart from seeking an assessment of the final account. Furthermore, because the adjudicator had declined to make a decision on the value of the final account in the first adjudication, Hart was free to refer the matter to a second adjudication.
Conclusion
In this case it was concluded, with reference to previously decided case law, that what is referred in an adjudication must not be considered in isolation, but together with what was decided. In this case the adjudicator had not assessed the final account, giving Hart the opportunity to refer that the matter to a further adjudication. In reaching the decision, the court emphasised that determining whether a dispute is the same or substantially the same requires not only an assessment of what was referred but also what was actually decided.
Lee Lothian, Associate, CMS Cameron McKenna Nabarro Olswang