In the recent case of Lane End Developments Construction Limited ("Lane End") v Kingstone Civil Engineering Ltd ("Kingstone") the TCC considered a challenge to enforcement of an adjudication decision on the grounds that the adjudicator had not been validly appointed according to the rules set out in the Scheme for Construction Contracts (England & Wales) Regulations 1998 ("the Scheme"). The case serves as a useful reminder of the importance of careful compliance with the applicable adjudication rules.
Lane End was the main contractor on a housing development in Cheshire. Kingstone was appointed as a sub-contractor to carry out the enabling works. The sub-contract between the parties, dated 19 November 2018, was termed a 'Minor Works Sub Contract Agreement' in the sum of £54,158.40.
There was no express provision in the sub-contract for disputes to be referred to adjudication. The provisions of the Construction Act 1996 therefore applied and, as such, any adjudication arising out of the sub-contract was to be conducted in accordance with the provisions of the Scheme.
The order in which events took place was fundamental to the case:
- On 2 March 2020 Kingstone issued Interim Payment Application No 17 ("IPA17") in the sum of £356,439.19.
- Lane End failed to serve a Pay less Notice and did not serve a Payment Notice until 26 March 2020.
- On 20 March Kingstone submitted a request by email to the RICS requesting the appointment of an adjudicator. In a meeting later the same day Kingstone served a 'Notice of Referral' which the parties later agreed would amount to a Notice of Adjudication.
- On 23 March the parties were notified that an adjudicator had been appointed. Kingstone served a document headed 'Notice of Referral' later the same day.
- In an email sent to the adjudicator on 24 March, Lane End argued that Kingstone had failed to give adequate notice of the adjudication as required under the Scheme. It did not raise any points as regards timing, but did reserve Lane End's position on the adjudicator's jurisdiction.
- On 8 April the adjudicator received an automatically generated email from Lane End advising him that "due to the Government guidance relating to the Covid19 pandemic, Lane End Group is currently closed for business until further notice". He advised Lane End that this email effectively terminated the adjudication and asked for payment of his fees. Surprisingly, nothing was communicated to Kingstone about this termination.
- On 15 April Kingstone became aware of the purported termination, claimed it was null and void and asked the adjudicator to continue with his appointment.
- On 16 April the adjudicator sent the parties an email confirming his conclusion that Lane End was clearly not actually closed for business at all. He therefore decided to continue with the adjudication.
- On 27 April the adjudicator concluded that Kingstone was entitled to the full amount in IPA17 (£356,439.19) on a 'smash and grab' basis. The amount had first become due on 9 March 2020, 7 days after the claim was first issued. The final date for payment was 26 March, 17 days later, in accordance with the provisions of the Scheme. However, Lane End had not issued a Payment Notice until 26 March 2020, outside the period allowed by the Scheme, and had not paid the sum sought in IPA17.
Lane End subsequently brought a Part 8 claim asking for the adjudicator's decision to be set aside. It argued that the adjudicator was not validly appointed and therefore had no jurisdiction to make his decision. This was on the basis that the Scheme provides for the referring party to submit its request for the appointment of an adjudicator "following the giving of a notice of adjudication". Kingstone had erred by requesting the appointment of an adjudicator prior to giving Lane End Notice of Adjudication.
Lane End also argued that, by way of his email on 8 April, the adjudicator had terminated the adjudication and thus had no jurisdiction to consider the matter at hand.
The court held that Kingstone's request for the appointment of an adjudicator was not compliant with the Scheme on the basis that it was submitted prior to giving the requisite Notice of Adjudication to Land End. As such, the adjudicator was not validly appointed and did not therefore have jurisdiction to consider the dispute.
The purported termination by the adjudicator was not effective. It was clearly made in error; Lane End had not in fact ceased trading. It was not sent to Kingstone at all. As such, it could not constitute a termination, which to be effective would have to be served on each party to the dispute.
The TCC therefore gave judgment to Lane End on its Part 8 claim and set aside the adjudication decision in Kingstone's favour.
The case provides a stark reminder of the importance of adhering to procedural rules. Kingstone's failure to give notice of adjudication prior to attempting to secure an adjudicator's appointment was fatal to its claim.
In the current economic climate we are likely to see increased use of so-called 'smash and grab' adjudications. It is important to remember that any such decisions will be enforced only if the correct procedures have been followed. As such, parties must pay close attention to the relevant contract provisions, or where relevant the Scheme, and ensure strict compliance. Breaching the correct procedures for commencing an adjudication in the interest of a quick result will be terminal to giving an adjudicator the necessary jurisdiction and will lead to additional time and cost further down the line.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.