Posted: 28/03/2024
Bellway Homes Limited v Surgo Construction Ltd [2024] EWHC 269 (TCC) is the second judgment concerning disputes between Bellway and Surgo in as many months, and addresses some important points about adjudication.
Bellway is the employer on a development near Newcastle. It engaged Surgo on a JCT Intermediate Building Contract with Contractor’s Design, 2016 edition, with bespoke amendments.
The contract provided that the adjudicator was to be selected from Bellway’s ‘panel’ of adjudicators, which contained three people. The list of adjudicators was available upon request, and included Mr Cope, who was ultimately selected.
The amended procedure required a referring party to select one of the listed adjudicators. If the selected adjudicator did not indicate their willingness to act within two days of their selection, the referring party would then have to pick another adjudicator from the list, repeating this process until the list was exhausted. At this point, the Royal Institution of Chartered Surveyors could be asked to nominate an adjudicator, with the referral being made to the selected adjudicator ‘as soon as reasonably possible’ – so not necessarily within seven days of the notice of intention to refer.
The dispute centred around payment certificate 36. Surgo claimed £1,423,040.93. Bellway certified a negative sum of -£3,393,887.23.
Bellway argued it was entitled to repayment because either payment certificate 36 had become the notified sum, or, alternatively, calculation of the ‘true sum’ would show an overpayment. Surgo argued that the contract did not permit a ‘repayment’ to Bellway prior to the conclusion of the final accounting process, and that the contract’s adjudication procedure was not compliant with section 108 of the Housing Grant, Construction and Regeneration Act 1996 (HGCRA).
Bellway’s first attempt to refer this dispute to Mr Cope failed. Mr Cope agreed with Surgo’s submissions that the contract’s adjudication terms did not comply with the HGCRA because they could lead to the referral of the dispute being later than seven days after the notice of intention to refer.
However, Mr Cope opined that the specification of the ‘Bellway panel’ in the contract particulars was still enforceable. Despite this, a second adjudication was abandoned as Bellway had commenced this prior to Mr Cope’s formal resignation in the first adjudication.
On the third attempt, Bellway sought to rely on the Scheme for Construction Contracts (England and Wales) Regulations 1998 (known as ‘the Scheme’) when appointing Mr Cope, but Surgo objected, maintaining that the provision for named adjudicators was also replaced when the Scheme adjudication rules were implied into the contract, and so an adjudicator nominating body (ANB) had to be used. Mr Cope declined to resign and proceeded to decide the dispute.
Mr Cope rejected Bellway’s ‘notified sum’ argument but decided on a ‘true value’ basis that Surgo had been overpaid and should repay the sum of £1,076,220.82 to Bellway.
Bellway commenced proceedings to enforce Mr Cope’s award. However, on the commencement of the third adjudication, Surgo had issued Part 8 proceedings for declarations to the effect that Bellway was not entitled to repayment on an interim basis and/or, not until the final certificate and accounting process had been concluded. The two claims were listed for hearing at the same time.
Adjudication terms
The judge held that the contract’s adjudication provisions were enforceable, observing that section 108 of HGCRA only required the contract to have the ‘objective’ of referring a dispute to an adjudicator within seven days of the notice of adjudication. The fact that the contract did not mandate that the referral must be made within seven days, and may in fact take longer than this, was not fatal.
Helpfully, the judge went on to consider (albeit not as a binding part of the judgment) the status of the listed adjudicators, in the event that the contract’s adjudication provisions were unenforceable. He held that the contract particulars were tied to the later contract adjudication clauses and could not survive independently of them. He expressed himself broadly, indicating that even if they had been independent, they would be disapplied and the Scheme brought in ‘lock, stock and barrel’.
Despite this, the judge observed that there was nothing inherently objectionable with the existence of a ‘Bellway panel’. Parties are free to agree a single named adjudicator or ANB. Therefore, there was no reason why a list of adjudicators could not be agreed.
Right to repayment
Whilst the contract did not expressly provide for repayment at an interim stage, the judge held that on a proper interpretation, the terms of the contract did not prevent this. The judge went further and stated that, as a matter of general principle, there is a right to be repaid in respect of interim payments, and an adjudicator has jurisdiction to determine this.
However, it must be noted that it was equally accepted by the judge that a contract term could restrict the right to be repaid. That said, the default position seems to be that a party can seek repayment in adjudication (the judge did not go so far as to say that a contract administrator could require this without an express contract term).
Whilst some parties might be pleased to hear it is acceptable for a list of ‘pre-approved’ adjudicators to be included, caution is required. If a party were to make frequent use of the same adjudicator(s), this could lead to a suggestion of apparent bias, which could render a decision unenforceable (see Cofely Ltd v Bingham [2016] EWHC 240 (Comm)).
As regards the status of a panel or choice of ANB in a non-compliant procedure, it had been widely thought that such a term would survive the replacement of a contractual adjudication procedure with the Scheme. This case suggests that is not correct. This is important because errors in appointment procedure can deprive an adjudicator of jurisdiction. Where there may be challenges to the contractual procedure, referring parties may be well advised to adopt an approach that would comply with the Scheme and the contract terms, if possible. However, that may be difficult where the contract names an adjudicator (or adjudicators).
The existence of a right to seek repayment through adjudication at the interim stage will be welcomed by payers as mitigating the rigours of the requirement to pay a notified sum even where this is disputed; albeit, payers will have to pay that notified sum first, as Bellway had done.
© 2024 Penningtons Manches Cooper LLP.
All rights reserved.
Website design by Frontmedia / Dynamic Pear
Penningtons Manches Cooper LLP is a limited liability partnership registered in England and Wales with registered number OC311575 and is authorised and regulated by the Solicitors Regulation Authority under number 419867.
Return to news headlines 