Case Law Updates – September 2023

Behxhill Construction Ltd v Kingsmead Homes Ltd [2023] EWHC 2344 (TCC)

Background

This claim was brought by Bexhill Construction Ltd (“the Claimant”) for a hearing on the Claimant’s application for a summary judgement to enforce an adjudicator’s decision.

On 16 May 2022, the Claimant sent an application for payment to the Defendant, who refused to pay it as the application was not made in line with the provisions set out in the contract, and the works were outside of the agreed scope of works. Following from this, a dispute arose between the parties, leading to the Claimant referring to dispute to an adjudication, where it was decided that the Claimant was owed £49,664.80, which remains unpaid.

Issues/Judges Findings

1. What was the dispute referred to the adjudicator?The parties agreed that 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 of the contract.
2. What was the defence, or defences, raised by the Defendant in Response to the dispute?The Defendant questioned the incorporation of the JCT terms and whether the Claimant had established that it was entitled to be paid under the terms of the sub-contract agreement or the Scheme.
3. In deciding the dispute, did the adjudicator consider the defence, or defences raised by the Defendant?The Defendant claimed that there was a natural breach of justice, so the adjudicator’s decision should not be enforced by way of summary judgement.It was argued that this adjudication had 2 rounds of formal submissions, round one being the Referral and Response, and, round two being the Reply and Rejoinder. The Defendant claimed that this was effectively two Particulars of Claim and two Defences which had to be considered as they raised different issues and defences.

   In its Rejoinder, the Defendant argued that there was no entitlement to payment under the sub-contract as the additional works were not approved in writing as required, therefore, the Claimant was not owed the sums claimed as the sub-contract had not been complied with. It was believed that this was not considered by the adjudicator as no specific reference had been made to this argument.

   Judge Kelly (“the Judge) rejected this point as there is no indication in the adjudicator’s decision that there was a deliberate exclusion of this argument in the defence. The decision states that all submissions by either party had been considered when making the decision and the Judge said that they did not accept the Defendant’s argument that a single adjudication on a single issue had to be considered as having two sets of pleadings.

4. If not, was there a material breach of natural justice?The Judge decided on the balance of probabilities, that the adjudicator did consider the defences asserted by the Defendant.
5. If so, does the Defendant have a real prospect of successfully defending the claim?The Judge also decided that the Defendant did not have a real prospect of successfully defending the claim due to the reasons set out in points 3&4.
6. In the alternative to the above, has the Defendant sufficiently pleaded that enforcement should be stayed?In its defence, the Defendant failed to mention of seeking a stay of execution, the only reference to this was made in a witness statement by a member of the Defendant. As it was failed to be mentioned in the pleadings, the Judge decided that the stay of execution was not sufficiently pleaded.
7. If not, can the court consider the matter of stay of enforcement?The fact that the defence failed to detail the basis for seeking a stay of execution does not prevent the Defendant seeking such an application, even if it was not made in the witness statement, an application could have been made after the judgment. An application does not have to be made in writing and the Judge thinks it is necessary to consider it in any event.
8. Would any subsequent judgement requiring the Claimant to repay monies to the Defendant go unsatisfied?And
9. Is any such evidence sufficient to provide special circumstances which render it inexpedient to enforce the adjudicator’s decision?The Judge considered both of these questions together. The referred to witness statement set out why the court should exercise its discretion to stay the execution of judgement. The foundations of this argument was the financial position of the Claimant. It was argued that the burden of risk of insolvency or liquidity or non-payment, was initially on the Claimant, but after enforcement of the adjudicator’s decision, this has shifted to the Defendant.The Defendant produced “Red Flag” reports to demonstrate the financial position of the Claimant had deteriorated, and was given an amber flag on their rating which meant that “Companies are newly incorporated or have only passed the lower threshold of the credit score algorithms, and display some financial, payment of filing characteristics that make them an elevated risk”. However, the judge stated that as the company was newly formed, this amber flag was not a concern. The Claimant took the judge to another part of the report that stated there was only a 3.23% possibility of the Claimant becoming insolvent.

Held

In terms of the risk and likelihood of repayment, the Judge refused to accept that the risk passing from the Defendant to the Claimant is a factor that should be considered. This is “the inevitable result of the Act and Scheme being applied”. The reports produced by the Defendant provided insufficient evidence to show that the Claimant is a risk in terms of repayment, especially as the risk of insolvency is 3.23%.

For the reasons set out above, it was decided that the adjudicator’s decision was to be enforced, meaning the Defendant was ordered to pay £49,664.80 to the Claimant.