J & B Hopkins Ltd v Trant Engineering Ltd [2020] EWHC 1305 (TCC)

In the recent case of J & B Hopkins Ltd v Trant Engineering Ltd [2020] EWHC 1305 (TCC), in rejecting a challenge to the enforcement of an Adjudicator’s decision, Fraser J found that the “correction principle” does not extend to the effect that later payment cycles under the contractual process preclude a party from adjudicating in respect of a dispute under a previous payment application, including by way of a smash and grab adjudication.  Further, Fraser J decided that there was no manifest injustice giving rise to a stay of execution.

The Facts

Trant Engineering Limited (‘Trant’) engaged J & B Hopkings limited (‘J&B’) to carry out M&E works at a recycling plant. In accordance with the payment provisions set out in the contract, J&B submitted its Interim Payment Application No. 26 in the amount of £812,484.94 plus VAT. Trant failed to issue a valid payment or pay less notice in response and the sum stated as due in that application therefore became the notified sum due for payment. However, Trant refused to make payment and a dispute arose between the parties.

However, by the time J&B commenced the adjudication there had been subsequent interim payment cycles where Trant had issued payment and pay less notices.

The Adjudication

In a so-called ‘smash and grab’ adjudication, Trant sought to argue that it had in fact issued the requisite notices. Further, Trant argued that Payment Application No. 26 had been superseded by subsequent interim payment cycles where valid payment notices had been issued such that no further sums were due to J&B.

These submissions were rejected by the Adjudicator, who proceeded to decide that the sum stated as due in Payment Application No. 26 was due and payable to J&B immediately and without deduction (‘the Decision’).

However, Trant still refused to make payment, therefore J&B issued enforcement proceedings.

The Enforcement Proceedings

J&B issued proceedings in the Technology and Construction Court (‘TCC’) in order to enforce the Decision.

Trant resisted enforcement, but not in respect of the Adjudicator’s jurisdiction or natural justice. Trant repeated its position that Payment Application No. 26 had been superseded by subsequent interim payment cycles where valid payment notices had been issued such that no further sums were due to J&B. Therefore, to enforce the Adjudicator’s Decision in respect of the sums due for Interim Payment No. 26 would be to “undermine the correction principle’” which permits interim payments to be corrected in subsequent payment cycles.

Trant also argued that if the decision was enforced, it should be granted a stay of execution on the grounds of manifest injustice. This was because a true value adjudication was underway for a later interim application and it was said that this would determine the true value of J&B’s account.

Decision

Fraser J did not accept Trant’s argument as a valid ground for resisting enforcement. Fraser J held that the dispute referred to adjudication did not cease to exist because subsequent applications were made and ‘corrected’ by Trant’s corresponding payment notices. Indeed, the existence of later payment cycles does not mean that the prior sum was not due at all or that there was no dispute in respect of that earlier payment application.

In this regard, the judgment provides further clarification of the judgments that support the “correction principle”: ICI Limited v Merit Merrell Technology Limited [2017] EWHC 1763 (TCC) and Grove Developments Limited v S&T (UK) Limited [2018] EWHC 123 (TCC) (first instance) and [2018] EWCA Civ 2488 (appeal).

In addition, Fraser J highlighted the typical contractual timeframe for payment cycles which if Trant’s position was correct meant that “it would be verging on impossible for a claimant to react to the non-payment of an application … before the next application fell due”.

Further, Fraser J rejected Trant’s submission as if it was correct then this would prevent a party’s ability to adjudicate at any time as allowed for under the Housing Grants, Construction and Regeneration Act 1996.

In relation to the stay of execution, Fraser J held that it would be dangerous to consider a stay on the basis of manifest injustice in these circumstances. Granting such a stay would frustrate Parliament’s intention in passing the Housing Grants, Construction and Regeneration Act 1996, which sets out in clear terms the necessity of issuing, and the repercussions of failing to issue, timely payment notices and pay less notices.

Comment

When considering that the original purpose of adjudication was to assist with cash flow in the construction industry and that the TCC has looked to enforce adjudication awards, this decision may seem unsurprising by rejecting an attempt not to comply with an adjudication decision in respect of a payment cycle because of later payment cycles.

However, it also means that a paying party is at the risk of a smash and grab adjudication for a failure to issue a payment and pay less notice in one payment cycle which in any event is addressed in later applications or having to commence a true value adjudication on the payment application when it fails to issue a payment or pay less notice to give certainty. Such an adjudication could be commenced vexatiously, even if later payment applications are dealt with in a fair and reasonable way.

This decision may give rise to some uncertainty as to what is actually paid over following an adjudication on an earlier payment application, given that later applications will have set down the sums due and payments to be made.

It should also be noted that this decision relates to an interim payment cycle. It is not clear if the Judge’s reasoning would apply where the parties are in the final account stage.

While it is correct that under the Construction Act a party can adjudicate at any time, there may well need to be some adjustment to reflect the difference between a dispute over a technical breach like missing a payment or pay less notice date, and a substantive dispute on the valuation of sums claimed in a payment application.

Given this, it is a decision that may be appealed.

For further information please contact James Vernon.