TEMPORARY FINALITY OF ADJUDICATION DECISIONS FOR FINAL ACCOUNT
In Essential Living (Greenwich) Limited v Elements (Europe) Limited [2022] EWHC 1400 (TCC), the England and Wales Technology and Construction Court (“TCC”) had the opportunity to determine whether, and if so, to what extent, an adjudication decision between the parties was binding on them for the purpose of the ongoing final account process under the contract and any further adjudication. While this is an English decision, it poses some interesting questions in relation to adjudication under the Building and Construction Industry Security of Payment Act 2004.
Facts. Under a contract dated 1 December 2016 (“the Contract”), which incorporated the JCT Construction Management Trade Contract 2011 (subject to further amendments agreed by the parties), the defendant (“Elements”) was engaged by the claimant (“Essential Living”) for the design, supply, manufacture and installation of modular units for a project for a mixed-use development (at [5] – [7]).
As disputes arose between the parties, Essential Living commenced an adjudication seeking certain reliefs (at [23] – [25]).
The adjudicator in his decision dated 22 July 2019 (“Adjudication Decision”) described the dispute as being over the “latest interim” valuation of completed Elements works, and liability for contra charges and liquidated damages (at [29]).
The adjudicator in his Adjudication Decision determined, among others, the sums due to Elements for its work done under the original scope and for variations, as well as the amount to which Essential Living was entitled to for remedying of defects and liquidated damages (at [30]).
Essential Living then made a Part 8 Claim for declaratory relief, seeking a declaration that any matters assessed and decided by the adjudicator in the Adjudication Decision was “binding on the parties for the purpose of the ongoing final account process under the contract and any further adjudication, pending final resolution”: this would include matters such as, e.g., “calculating the final contract sum [and] fixing the completion period under the contract” (at [1] – [3]).
Elements opposed the relief sought on 3 grounds (at [4]).
The adjudication “related to an interim application for payment, shortly before the occurrence of practical completion”;
The Adjudication Decision “does not impact on the final account process or the contractual review of the period for completion following practical completion”; and
The claim “requires a detailed examination of disputed facts and is unsuitable for resolution as a Part 8 claim.”
Issues. Therefore, the issues before the court concerned the impact of the Adjudication Decision on (at [41]):
“… claims for extension of time, liquidated damages and delay damages”;
“…evaluation of the Final Trade Contract Sum, including variations and loss and/or expense”; and
“…. any subsequent adjudication.”
The court also had to consider whether the Part 8 procedure is appropriate for determining the issues raised in the claim and whether it is appropriate for the court to grant the declaratory relief sought (at [42]).
While the latter issue is not relevant in the Singapore context, the former issues are relevant. It is not uncommon to come across situations where parties have commenced adjudication under the Building and Construction Industry Security of Payment Act 2004 (“SOPA”) in order to resolve interim disputes.
In such situations, a frequent question that arises is whether adjudication determinations issued in order to resolve interim payment disputes remain binding on the parties for the purposes of final account.
Temporary binding. In England and Wales, Paragraph 23(2) of the Scheme for Construction Contracts (England and Wales) Regulations 1998 (the “Scheme”) provides that “The decision of the adjudicator shall be binding on the parties, and they shall comply with it until the dispute is finally determined by legal proceedings, by arbitration (if the contract provides for arbitration or the parties otherwise agree to arbitration) or by agreement between the parties.” (at [21]).
However, an adjudicator’s decision “does not affect the underlying rights and obligations of the parties under their contract or displace the agreed contractual procedures for determining those rights and obligations.” (at [53])
The “consequence of the binding effect of an adjudication decision on a dispute … is that an adjudicator has no jurisdiction to determine matters which are the same or substantially the same in a subsequent adjudication” (at [54]).
We pause here to note that this effect is similar to that as set out under s 17(7) (effect of earlier adjudication determination on subsequent adjudications), s 21(1) (temporary binding nature of adjudication determination) and s 36(4) SOPA (effect on other rights), though the regimes are not the same.
Extensions of time, liquidated damages and delay damages. In relation to Essential Living’s argument that Elements is seeking to re-open the delay issues determined by the Adjudication Decision, the court highlighted that the scope of the dispute referred to adjudication was limited to the correct valuation of Elements’ account as set out in the application for payment of 11 March 2019 and the Construction Manager’s valuation of 20 March 2019. This was why in the Adjudication Decision, the adjudicator stated that “the dispute before him was the latest interim valuation” (at [61] – [62]; our emphasis added).
Clause 2.27.5 was thus important. We set out the clause below (see also [16]):
“After the expiry of the Completion Period for the Works … if this occurs before the date of practical completion, the Construction Manager may, and not later than the expiry of 12 weeks after the date of practical completion shall, by notice to the Trade Contractor …
.1 fix a Completion Period for the works … later than that previously fixed if in his opinion that is fair and reasonable having regard to any Relevant Events, whether on reviewing a previous decision or otherwise and whether or not the Relevant Event has been specifically notified by the Trade Contractor under clause 2.26.1; or
.2 … fix a Completion Period shorter than that previously fixed if in his opinion that is fair and reasonable having regard to any instructions for Relevant Omissions issued after the last occasion on which a new Completion Period was fixed for the Works …; or
.3 confirm the Completion Period previously fixed.”
The TCC held that this provision “mandated” the Construction Manager to determine a Completion Period within 12 weeks after the date of practical completion, and, importantly, contemplated that this “post-completion exercise could produce a Completion Period for the works that differs from earlier assessments …” (at [63]). The TCC therefore found that the Adjudication Decision “did not purport to, and could not, override the contractual mechanism” (at [65]):
“63. … Clause 2.27.5 contemplates that this post-completion exercise could produce a Completion Period for the works that differs from earlier assessments under clause 2.27.1.
64. The time for the clause 2.27.5 exercise had not expired when the Adjudication Decision was issued and no such exercise had in fact occurred by then. Nothing in the Contract or the Scheme suggests that resolution of a dispute as to the Completion Period under clause 2.27.1 would displace the Construction Manager’s obligation to assess the Completion Period under clause 2.27.5. The latter provision mandates a separate exercise and expressly permits the Construction Manager to review any previous decision. Therefore, the Adjudication Decision could not (and did not purport to) determine any dispute arising out of any fixing of the Completion Period under clause 2.27.5.
65. The Adjudication Decision determined Essential Living’s entitlement to liquidated damages and finance costs by reference to the Completion Period as at March 2019. The Adjudication Decision did not purport to, and could not, override the contractual mechanism requiring a subsequent assessment to be made by the Construction Manager following practical completion, with the potential to produce a different result.”
(Our emphasis added in bold)
Final Trade Contract Sum. Nonetheless, the TCC accepted that while the adjudicator did not purport to determine the Final Trade Contract Sum, “it does not follow necessarily that the Adjudication Decision could not bind the Construction Manager, in respect of specific matters determined by the adjudicator, for the purpose of ascertaining the Final Trade Contract Sum” (at [72]).
This is because the TCC distinguished between an exercise for determining the Final Trade Contract Sum from the exercise under clause 2.27.5 for fixing the Completion Period, on the basis that “the Final Trade Contract Sum on the adjustment basis does not require the Construction Manager to remeasure the works”, as opposed to a remeasurement contract (at [72]).
“73. Under the Contract, the Construction Manager is not required, or permitted, to reconsider or revalue variations that have been accepted and valued in accordance with the contractual procedure. Clause 5.5 provides that effect shall be given, in the calculation of the Final Trade Contract Sum, to agreed variations and valuation of such variations, including direct loss and/or expense incurred thereby. The Contract does not provide for those matters to be re-opened at the final account stage.”
(Our emphasis added)
Further, a determination by the adjudicator on a discrete issue of dispute, “such as whether the parties reached any concluded agreement on the Deeds of Variation”, would be binding on the parties pending any final resolution (at [76]).
The upshot is that “… A careful analysis is required to ascertain whether any claim now sought to be advanced by Elements is subject to a binding decision by the adjudicator in the Adjudication Decision. … Regard must be had to the basis of the claim made, whether it amounts to a new cause of action and whether such claim is permitted under the terms of the Contract.” (at [77]) See also [78] – [79] set out below:
“78. … In respect of each disputed element, the Construction Manager must determine whether it is agreed under the Contract, determined in the Adjudication Decision and binding, or whether there is a fresh basis of the claim that requires or permits him to make a fresh assessment.
79. It is not a matter that the court can resolve by way of a general declaration. It is a matter of fact and degree, requiring careful analysis of the evidence and argument on each disputed item. That necessitates a detailed inquiry into the substance of each claim that is not suitable for a Part 8 claim.”
Any further adjudication. Given the findings as set out above, the TCC declined to determine whether the Adjudication Decision is binding on any further adjudications. There was no such further adjudication before the court, and as it would be “a matter of fact and degree as to whether any matters which Elements might seek to refer to a subsequent adjudication are the same, or substantially the same, as the matters determined by the Adjudication Decision” (at [83]), it would be too speculative for the court to make a decision.
Significance. As alluded to earlier, Singapore’s adjudication regime also has its concept of temporary finality, which is embodied in Section 21 SOPA.
This concept of temporary finality is important. For instance, in Goldbell Engineering Pte Ltd v Etiqa Insurance Pte Ltd (Range Construction Pte Ltd, third party) and another matter [2022] SGHC 1, the High Court held that pursuant to Section 21 SOPA, parties were bound by the adjudication review determination in relation to when the maintenance period ended, and it was not open for argument otherwise.
However, while SOPA (which is modelled after the New South Wales (Australia) legislation) is a “statutory scheme”, the Housing Grants, Construction and Regeneration Act 1996 (the enabling act of the Scheme for Construction Contracts (England and Wales) Regulations 1998) in United Kingdom is different. This difference has led to substantive differences between the two regimes, such as, e.g., that addressed in Hauslab Design & Build Pte Ltd v Vinod Kumar Ramgopal Didwania [2017] 3 SLR 103, in terms of the standard of proof for the purposes of a setting-aside application.
Returning to the present case, the TCC held that if a contractual clause empowered a party – in this case the Construction Manager – to conduct a final review as part of final accounting, then in conducting this final review, an adjudicator’s decision on interim valuation may or may not be binding, as it would turn on the specific contractual provision in question.
It therefore raises the interesting question of, notwithstanding the differences in the regimes between Singapore and England, whether the same result would have been reached in Singapore. This is an especially interesting issue bearing in mind that, depending on the contract, it is possible for parties to exclude “post-final account” payment claims from SOPA such as in Far East Square Pte Ltd v Yau Lee Construction (Singapore) Pte Ltd [2019] 2 SLR 189.
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