A recent decision by the Technology and Construction Court (“TCC”) has been handed down from which we learn some important lessons.
We take a look at the recent case of Broseley (London) Ltd and Prime Asset Management Ltd (“PAML”) and specifically the points put forward by PAML in relation to enforcement for a stay of execution.
Interestingly, the TCC ruled against PAMLs request and enforced the adjudicator’s decision of payment by PAML to Broseley Ltd.
The Background
Broseley was appointed by PAML to carry out refurbishment works, commencing in December 2017.
It is necessary to note, there is an issue as to when the Contract was finished, but from a document dated 13th December 2017, Broseley commenced work under a “Limited Letter of Authority for works at Stanley House“.
The letter authorised Broseley to proceed with initial works with a total value of £81,975 plus VAT which was. approximately 5% of the Contract Sum.
The contract was a construction contract to which the Housing Grants, Construction and Regeneration Act 1996 as amended (the Construction Act) applied.
The contract value was £1,485,800.95 excluding VAT.
Payment
On 11th July 2019, a payment application (Valuation 19) was submitted by Broseley to PAML for the sum of £485,216.17 plus VAT.
PAML failed to submit a payment notice but did submit a Pay Less Notice (“PLN”). However, as the PLN was not submitted in accordance with the conditions of Contract, it was deemed invalid.
Subsequently, the amount claimed by Broseley became payable by PAML by 1 August 2019 and when payment was not forthcoming, Broseley commenced adjudication proceedings for the full payment of £485,216.17 (plus VAT) which was successful, and the adjudicator issued their decision on 12 September 2019.
PAML once again did not pay Broseley the amount awarded by the adjudicator, which was the original sum, plus VAT, plus interest from that date at the rate of 5.75% per annum; consequently, Broseley sort to commence proceeding to enforce the decision.
In addition, two more adjudications between Broseley and PAML were ongoing with the same adjudicator dealing with all three.
- i) Decision dated 1 October 2019 (“Decision 2”). Declarations were issued in respect of Payment Certificate No. 20.
- ii) Decision dated 28 November 2019. Broseley started this adjudication and obtained a declaration that it had lawfully terminated the contract on 29 September 2019.
Whilst PAML now accepted that a judgement should be made against them, they now sort to apply for a stay of execution setting the decision aside whilst they look to obtain a full evaluation assessment.
PAML’s Application for a Stay of Execution
PAML applied for the stay of execution (of payment) to enable a true value adjudication to take place.
PAMLs dispute was that given a full evaluation of account, Broseley would in fact, owe PAML a considerable sum; furthermore, if PAML were to pay in full the sum the adjudicators granted, given Broseley’s possible financial situation, PAML would be unable to reclaim any monies owed to them by Broseley.
The application by PAML, based on an earlier case of Grove Development Ltd v S&T UK Ltd in which a stay of application was successful, PAML sort to establish that Broseley’s financial situation was poor and included the following grounds:
- The probable inability of Broseley to repay the judgment sum at the end of the trial;
- Broseley’s financial position being worse than its financial position at the time when the contract was made;
- Broseley’s financial position was not due to PAML’s failure to pay the sum awarded by the Adjudicator;
- A real risk that any future final judgment would go unsatisfied by reason of Broseley organising its affairs with the purpose of dissipating or disposing of the adjudication sum so that it would not be available to be repaid.
The TCC pointed to the relevance of PAML’s application on the above points and viewed that the delay in seeking a resolution of the final account by PAML was a crucial factor and that they showed little enthusiasm in determining the true value of the account, also, at the time of the application for a “stay” there was no adjudication or court proceeding in place by PAML, unlike the Grove Development Ltd v S&T where payment had been made.
The court also found that with current and existing projects won by Broseley, PAML points on the financial position of Broseley were not justified and did not give a reason as to not pay, (even in the current climate owing to COVID-19) and that by not following the terms of the contract in submitting the correct paperwork in the correct time frame was a fatal error of judgement on PAML’s side.
Would PAML be able to determine a “true value” of Valuation 19 and go for adjudication?
PAML cited the case of Grove Development Ltd v S&T UK ltd, and it was argued that based on that case, PAML should have the right to raise a “true value” account for adjudication.
However, as S&T had made payment, albeit WITHOUT a payment OR payless notice the judge stated:
“Whilst the S & T decision does not expressly concern the present situation, where what is suggested as the possible subject of an as yet unstarted adjudication is the determination of a notional final account where the amount of that final account would be dependant [sic] on the validity of Decision No. 1, the ability to mount such an adjudication following upon Decision No. 3 attacking the validity of that Decision without prior payment of the amount awarded in Decision No. 1 would be a remarkable intrusion into the principle established in S & T: it would permit the adjudication system to trump the prompt payment regime, which is exactly what the Court of Appeal said in paragraph [107] of that case would not be permitted to happen.”
The court held that PAML was unable to challenge the decision in adjudication 1 of September 2019 concerning Valuation 19 in a further adjudication, without having first paid the amount due as directed by the adjudicator in adjudication 1.
The judge stated that for those reasons, a stay pending an adjudication did not reflect any possible factual option in circumstances where Broseley had withdrawn its referral (for a 4th adjudication).
The Judge looked at the steps taken (or NOT in this case) by PAML in the other adjudications and found that PAML failed to take the reasonable step of obtaining a detailed examination of the final account in the proceedings. That together with relevant case law, was enough for the Judge to refuse PAML’s application for a stay of execution.
The judge did consider all four points put forward by PAML and found that the alleged inability of Broseley to pay at the end of the full account assessment did not give cause for PAML not to pay, and as such the 2nd and 3rd points did not need to be considered.
Point 4 although a serious claim, whereby PAML claimed any monies owed by Broseley would possibly not be repaid due to their financial position, was not considered to be valid by the TCC as PAML had failed to prove this.
Outcome
The TCC enforced the decision in adjudication 1 dated 12 September 2019 and ordered PAML to pay the original sum of £485,216.17 pus VAT and interest, within 14 days of 9th April 2020.
Key Points to Consider
Once again, we note that by not adhering to the contract and by not following the correct notice procedure or ensuring any notices are delivered in the correct manner whether that is by email or signed delivery and enduring communications are addressed to the correct person as and when a dispute arises and it subsequently goes to adjudication, can prove very costly.
One of the many key lessons here is to not delay finalising a final account, especially if it does come to adjudication and you are confident it will work in your favour. Any delay in concluding your final account assessment will not improve the position and in the case of PAML provided for a costly outcome.
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Please note. The information provided on this website is NOT LEGAL ADVICE and is for information purposes only. No action or inaction should be taken due to this information or any reliance placed upon this information. Please note where legal advice is required this should be obtained by an appropriate qualified legal practice and no information provided within this website should form the basis of any legal, contract or commercial decision. K J Taylor Consulting Ltd. are commercial quantity surveyors and not construction legal advisors.
