Bexhill Construction Ltd v Kingsmead Homes Ltd

This judgment follows the hearing of the Claimant’s application for summary judgment in order to enforce an adjudicator’s decision. The Defendant is a construction contractor in respect of a project built in Warrington (“the site”). The Claimant is a construction subcontractor to the Defendant, having agreed by a subcontract order signed on 17 September 2021 that the Claimant was to provide bricklaying services at the site.

On 16 May 2022, the Claimant sent an application for payment to the Defendant which the Defendant refused to pay. As a result of the dispute between them, the Claimant made a reference to adjudication. The adjudicator, Mr Jon. E. Mizrahi, was nominated by the Royal Institution of Chartered Surveyors. He provided his decision on 15 February 2023. The adjudicator decided that the Claimant was entitled to payment of £49,664.80. That sum remains unpaid.

I had the benefit of hearing counsel Mr Adam Beaumont for the Claimant and counsel Mr Harry East for the Defendant. Both counsel had provided me with very helpful skeleton arguments before the hearing which summarised the dispute between them.

The following chronology is of assistance:

I have had the benefit of reading the trial bundle which contained the witness statement of Mr Paul Draisey dated 9 March 2023 for the Claimant and the witness statement of Mr Sam Edward Beer for the Defendant together with the various documents, some of which I was taken to during the course of the hearing and directed to in skeleton arguments.

I do not propose to rehearse all of the arguments raised, nor all of the evidence referred to during the course of the hearing. However, I record that I read and considered the evidence as a whole, as well as various documents within the trial bundle to which my attention was drawn, in addition to all those arguments before coming to my decision.

Happily, counsel largely agree on the legal principles, even if they disagree as to whether some of the principles apply on the facts of this case.

In summary, in respect of the enforceability of the adjudicator’s decision:

In respect of a stay of execution:

The parties agree on the issues to be determined. The issues are as follows:

What was the dispute referred to the adjudicator?

The parties agree that, in broad terms, the dispute was whether the Defendant should pay the Claimant £49,664.80 and that the adjudication was only concerned with enforcing payment on the terms/rules of the contract.

What was the defence, or defences, raised by the Defendant in Response to the dispute?

The Defendant raised the incorporation (or not) of the JCT terms and whether or not the Claimant had established that it was entitled to be paid at all under the terms of the subcontract agreement and/or the Act and the Scheme.

In deciding the dispute, did the adjudicator consider the defence, or defences, raised by the Defendant?

Whilst recognising that ordinarily the court will enforce the decisions of adjudicators, Mr East submitted that there was a breach of natural justice in this case such that it should not be enforced by way of summary judgment.

Mr East submitted that there were, perhaps unusually, two distinct rounds of formal submissions in this adjudication when all of the submissions were analysed. The first round of submissions was the Referral and the Response and the second round of submissions was the Reply and the Rejoinder. He submitted there were in effect two sets of Particulars of Claim and then two Defences as a result of the contents of the various submissions, all of which had to be considered as they raised different issues and defences.

In the Referral, the Claimant asserted that the contract incorporated the JCT short form terms and also relied upon clause 6.10 and other clauses of the subcontract itself to establish the date for submission of interim payment number 8. However, the Claimant did not set out any basis upon which it asserted it was entitled to be paid. That point was raised in the Defendant’s Response when the Defendant asserted that the parties had not in fact agreed the inclusion of any JCT terms.

Further, Mr East accepted that the Defendant had accepted in paragraph 13 of the Response that insofar as the subcontract terms did not fully comply with the Act then the Scheme applied. However, he asserted that this meant that the Defendant was accepting that, where necessary, the subcontract agreement would be supplemented by the Act or by the Scheme, not that if there was any non-compliance with the Act that the Scheme would replace the subcontract to decide what was payable.

Mr East also asserted that because the Claimant had not set out the contractual basis upon which it was entitled to be paid at all, the Defendant had “chosen to keep its powder dry” in terms of any substantive argument on that point. The Defendant asked for a finding that the JCT short form terms did not apply.

Mr East argued that there were in effect two sets of pleadings because it was only in the Claimant’s Reply that any substantive basis was put forward for an entitlement to be paid, namely that the work had been done. In response to that, the Defendant in its Rejoinder asserted that there was no entitlement to payment under the subcontract because the additional works had not been given written approval by the Defendant as was required. The Defendant therefore argued that the Claimant could not bring itself within the Act and the Scheme because the requirements of the subcontract agreement had not been complied with.

Although he accepted that neither party had required the adjudicator to give any reasons at all, Mr East asserted that having chosen to do so, it was incumbent upon the adjudicator to give adequate reasons to understand his decision. The adjudicator had not made specific reference to the Defendant’s argument that no approval had been given for the additional works claimed and therefore there was no trigger for payment.

This issue had been raised both in the Rejoinder and also after the adjudicator’s decision was given, by email from the Defendant’s solicitors to the adjudicator asking for detail as to where in the decision this defence had been considered. Mr East argued that it was not good enough for the adjudicator simply to say he had considered the submissions and any not referred to made no difference to his decision. It was unlikely that the adjudicator, even if making an honest mistake, would admit to that mistake when challenged. If he had actively considered it, the likelihood was that the adjudicator would have put something into the decision about it. There was a notable absence of specific mention of the defence and consideration of the arguments in the decision.

Mr Beaumont submitted for the Claimant that it was perfectly clear on the face of the decision that the adjudicator had in fact considered the defence. The adjudicator had understood the nature of the dispute and set it out, and he set out on the face of the decision that he had considered the Rejoinder and made explicit reference to it. Even if he did not set out all of the detail, it was clear that the adjudicator had considered the defence and that was all that was required.

Mr Beaumont further argued that even if the decision itself is insufficient, that the adjudicator had considered the defence specifically was supported by the post adjudication correspondence in the immediate days after the decision was given. The adjudicator was specifically asked the question by the Defendant as to whether or not the dispute had been considered. The adjudicator had confirmed that he had considered all of the submissions during the adjudication and confirmed that those that had not been expressly referred to did not impact his decision. In those circumstances, the Claimant argues that there can be no doubt that the Defendant’s submissions were considered.

In my judgment, the Defendant does not have a real prospect of successfully arguing that the adjudicator did not consider all of the defences raised during the course of the adjudication. Whilst I accept that the Defendant asserted a defence that no basis was established by the Claimant to justify (under the provisions of the Act) the claim made in interim payment application number 8 in the Rejoinder, it is only if the adjudicator failed to consider that defence at all that there may be a breach of natural justice.

There is no indication in the decision that there was a deliberate exclusion of consideration of this defence. Indeed, the decision implies the contrary because it states that the adjudicator has considered all of the submissions when making his decisions. I do not accept the Defendant’s argument that this single adjudication on a single issue has to be considered as being comprised of two sets of pleadings. For whatever reason, the Defendant chose, in its own words, to keep its powder dry in its Response until the Claimant had set out a contractual basis for payment. That said, the Defendant did specifically submit at paragraphs 15 and 16 of the Response that the Claimant had not identified a contractual basis for an entitlement to payment.

Once a basis was asserted by the Claimant in the Reply, the Defendant then responded with further details of its defence that no basis for payment had been established under the Act in its Rejoinder. In my judgment, the pleadings should be considered as a whole, demonstrating an evolving position for both parties. I do not accept that there is a real prospect of the Defendant successfully arguing that the submissions should be considered as two separate sets of pleadings. Even if I am wrong about that, I do not accept that the Defendant has a real prospect of successfully arguing that the defence it says was not considered was raised for the first time in the Rejoinder. Whilst it may have been presented in more detail and from a different angle in the Rejoinder, the Defence that no contractual basis had been shown was plainly raised on the face of the Defendant’s Response.

In my judgment, on considering the decision itself , I do not accept that the Defendant has a real prospect of successfully arguing that the adjudicator had not considered all of the submissions, including the Rejoinder and the subsequent email submissions which followed. The adjudicator states that he considered all of the documentation and specifically notes the Rejoinder. The adjudicator further states that having read both parties submissions, not all of those submissions bear on the matters he had to decide. He also made it clear that although the Claimant’s arguments had “evolved” and were sometimes difficult to understand, the dispute was still essentially the same dispute.

I do not accept that the Defendant has a real prospect of successfully arguing that the adjudicator did not consider the Rejoinder and did not consider the defence raised that the Claimant had no basis contractually for claiming an interim payment. Having raised the defence of a lack of a contractual basis for the claim in further detail in the Rejoinder, the Claimant drew further attention to the Defendant’s argument by seeking permission to make further submissions as the defence had not previously been raised. The adjudicator considered that request and then gave permission to both parties to make further brief submissions. Only the Claimant chose to do so.

I do not accept the assertion made by Mr Beer in his witness statement that the adjudicator made “erroneous findings of fact/agreements” when the adjudicator stated that the parties agreed that the Claimant’s application for payment was made on 16 May 2022. It is correct that the adjudicator did not specifically set out the contents of paragraphs 22 to 25 of the Rejoinder and the emails of 2 February 2023 where the Defendant argues further why that notice was not a valid notice. However, in its Response at paragraph 20, the Defendant said “it accepts Bexhill served an interim application for payment on 16 May 2022” and later at paragraph 31 stated “However, as has already been agreed, Bexhill issued its interim application on 16 May 2022…”. Having made those submissions, I do not accept that there is a real prospect of successfully arguing that the finding of such an agreement was erroneous.

That conclusion is supported by the email correspondence which followed shortly after the decision was given. The adjudicator confirmed specifically that he had considered all of the submissions. Whilst I note the observation made by Mr East that an adjudicator who has made an error was unlikely to admit to that error, I do not accept that necessarily to be the position. However, in any event, the adjudicator here specifically replies to state that any other submissions not specifically identified in the decision would not have made a difference to his decision.

It is further relevant to the issue of whether the adjudicator considered the defence that neither party asked the adjudicator to give any reasons whatsoever. Whilst the reasoning in the decision arguably could have been fuller, and the basis for all of the arguments set out more extensively, the adjudicator answered the question posed to him. In the absence of authority, I do not accept that having chosen to provide some reasons when none were requested, the adjudicator then obliges himself to provide reasons and a discussion on every point raised. It is a low bar for the adjudicator to negotiate in terms of reasons. If the adjudicator has answered the question posed to him and reached certain conclusions on the legal points raised and given reasons for those decisions which are comprehensible, that suffices even if the decision is wrong.

Even if there was no contractual basis for payment to be made, the adjudicator considered the facts of this case and the various submissions made by both parties across the whole of the adjudication. Those submissions included the adjudicator’s understanding of the situation that the Defendant agreed that the Scheme applied. Even if the adjudicator was wrong in interpreting the Defendant’s submissions in that way, that by itself is not sufficient in my judgment to show that he did not consider the defence. Indeed, the adjudicator specifically noted that not all of the submissions applied to the issue which he had to decide. As Mr East acknowledged, the adjudication decision is not a final determination of any issues which the parties wish to raise. Even if the adjudicator has got it wrong, that is not something which the court will interfere with at this stage.

Applying the Act and the Scheme, the adjudicator decided, applying the Scheme, that once the claim had in fact been made by the Claimant, in order for the Defendant to dispute the claim, it needed to comply with the provisions of the Act and/or the Scheme. As the adjudicator decided, the Defendant did not serve a valid payment notice or a valid pay less notice. This was a decision which the adjudicator was entitled to make to deal with the dispute he was asked to decide, even if he made the wrong decision.

If not, was there a material breach of natural justice?

This question does not fall to be answered as I have decided on the balance of probabilities that the adjudicator did consider the defences asserted by the Defendant.

If so, does the Defendant have a real prospect of successfully defending the claim?

No, for the reasons given above.

In the alternative to the above, has the Defendant sufficiently pleaded that enforcement should be stayed?

In the Defendant’s defence itself, there is no mention of seeking a stay of execution. A stay of execution is sought in the witness statement of Mr Beer. In my judgment, having failed to mention it at all in the pleading, it has not been sufficiently pleaded.

If not, can the court consider the matter of stay of enforcement?

In case I am wrong in finding that setting out a request and reasons for a stay in the witness statement of Mr Beer is inadequate, I should in any event consider the matter of a stay of enforcement. The issue of enforcement is usually dealt with after a judgment is given. The fact that the defence did not set out the basis for seeking a stay does not prevent such an application being made. Indeed, if it had not been made in the witness statement of Mr Beer, an application could have been made after judgment was given. Such an application is not required to be in writing and it should therefore be considered in any event.

Would any subsequent judgment requiring the Claimant to repay monies to the Defendant go unsatisfied? and

Is any such evidence sufficient to provide special circumstances which render it inexpedient to enforce the adjudicator’s decision?

I propose to deal with issues 8 and 9 together. In his witness statement, Mr Beer set out various reasons why he asserted that the court should exercise its discretion to stay execution of the judgement if the court granted summary judgment in respect of the adjudicator’s decision. He argued in his witness statement that the burden of the risk of insolvency or liquidity or non-payment was initially borne by the Claimant but after enforcement of the adjudicator’s decision, it has shifted to the Defendant.

Mr Beer further set out his assertion that “the financial covenant of Bexhill has deteriorated, as is clear from the “Red Flag Alert” report. He described that, at the point of contract in May 2021, the Claimant was given an amber flag which meant that: “Companies are newly incorporated or have only passed the lower threshold of the credit score algorithms, and display some financial, payment or filing characteristics that make them an elevated risk. Moderate risk and open credit is only recommended with caution”.

As the Claimant was a newly formed company, there was a reason for that amber status and thus it was not a concern, especially as it was a labour only subcontract. However, the rating changed on 27 January 2023 when the Claimant went from an amber flag to a red flag which meant:

“Companies are in the weakest 20% in their size category and display risk factors that might include a deteriorating financial position, sub-optimal gearing or liquidity, and the possible presence of recent or significant legal notices. The risk is elevated, and suppliers should seek suitable assurances or guarantees.”

Mr Beer exhibited the Red Flag Alert documents generated in respect of the Claimant, which he asserted showed a deteriorating position which he presumed was as a result of being unable to secure profitable work in the previous 12 months. He also set out that Mr Tracey, the sole director of the Claimant and the person with significant control of the Claimant company, had previously held a similar position with another company which had gone into liquidation. It was therefore argued that the enforcement of the decision should be stayed.

In considering the documentation relied on, Mr Beaumont took me to another part of the report which showed that there was only 3.23% possibility of a catastrophic failure, meaning the likelihood of the Claimant going from an active rating directly to insolvent. This, Mr Beaumont argued, showed that in fact there was a very low risk to support the Defendant’s argument. Further, there was no detail on the report to show what the issue was with this particular Claimant, just that there were some high level risk factors, some of which could be explained by suboptimal gearing or liquidity. There was no evidence, Mr Beaumont argued, which established a probable inability to repay. Financial issues of a previous company with the same director should not be taken into consideration as there was inadequate information to assist the court at all.

I prefer and accept the submissions made by Mr Beaumont in respect of stay. Although the status of the Claimant has worsened between May 2021 and January 2023, there is no explanation for that change of position. In addition, when one looks at the events table concerning the company, the Claimant initially improved from amber to bronze between May 2021 and May 2022 before the one red flag is noted.

In terms of risk and the likelihood of repayment, I do not accept that the risk shifting from the Defendant to the Claimant is a factor which I can or should take into account. That is the inevitable result of the Act and the Scheme being applied. Further, I do not accept that the Defendant has established on the balance of probabilities that there is a probable risk of the Claimant not being able to repay. As Mr Beaumont noted, the assessed risk of insolvency was only 3.23%. There is insufficient evidence about previous companies and the criticism of the director to enable me to make any finding that would be relevant to this decision.

For all of the reasons given above, the Claimant’s application for summary judgment in the sum of £49,664.80 is granted and the Defendant’s application for a stay of enforcement is dismissed.

I am grateful to counsel for their very able assistance in this matter.