The Technology & Construction Court (TCC) has taken the unusual step of blocking a construction adjudicator’s award as payment would have been ‘manifestly unfair’ to the paying party.  The decision shows that the courts are willing to set aside the strict application of the payment procedures where the wider circumstances would make payment unjust.

Jonathan Woodcock of JRT Developments (JRT) helped to set up a business, TW Dixon (Developments) (TWD), for his elderly uncle and aunt, Mr and Mrs Dixon.  The sole intention of TWD was to develop 14 new homes on farmland in Shropshire.  The Dixons had no prior experience of the construction industry and the intention was that the development would be built and managed by JRT, with the parties sharing the profits.

The parties entered a JCT Minor Works contract, but the relationship between the parties was informal and the payment procedures in the contract were not followed.  Instead Mr Woodcock arranged payments to JRT to be made by TWD using funds sourced from the funder of the project, the Homes and Communities Agency (HCA).  At no stage did JRT request payments from TWD for any amount which exceeded the funding paid by the HCA.

The relationship between the parties soured due to cost overruns and delays and JRT terminated the contract.  At that stage JRT had been paid in full for the certified value of the work completed.

JRT went on to issue a ‘payment notice’ to TWD demanding over £950,000.  The Dixons did not appreciate the importance of the document and failed to issue a ‘pay less’ notice, which would have protected their financial position.

JRT commenced a so-called ‘smash and grab’ adjudication and was awarded the full sum demanded.  JRT issued proceedings seeking summary judgement to enforce the adjudicator’s decision.

In Court, the judge granted a stay of payment due to the ‘very unusual’ circumstances of the case.  Her Honour Judge Watson took into account the informal arrangements between the parties and ruled that it would be ‘manifestly unfair’ to enforce payment.  She concluded that some of the money demanded by JRT was not ultimately due and that much would have to be repaid at a later date.  Forcing payment would have forced TWD into liquidation which would have prevented it from recovering the over-payment.

This unusual case builds on the ruling in Galliford Try Building Ltd v Estura Ltd, which also prevented payment of an adjudication award,” said James Burgoyne, Director – Claims & Technical, Brunel Professions. “It is important to understand that JRT’s actions were not unlawful and that the adjudicator’s decision was in accordance with existing law. It was the wider context and the TCC’s sense of the injustice of the consequences which led to the stay. However in most adjudication enforcement hearings it is unlikely that parties will be able to demonstrate a similar level of imbalance and be able to avoid payment on grounds of ‘manifest injustice’.  In these times of strained cash flow it is important for construction professionals to promptly issue pay less notices if faced with inflated payment notices to avoid the risks of a smash and grab adjudication.

Reports of the case have been published by Thomson Reuters Construction Blog, Fieldfisher and Brodies LLP.

Brunel provides a wide range of PII broking services to construction professionals.  Click here to find out more or call Jonathan Filer on +44 (0)117 325 0752.