Are you being served?

Much of the current workload of the Technology & Construction Court judges involves deciding whether adjudicators’ decisions should be enforced. Enforcement proceedings require the issue of a Notice of Claim in the High Court, to be followed by an application for summary judgment pursuant to Part 24 of the Civil Procedure Rules. It will be necessary to persuade the judge that there is no defence to the adjudicator’s award which should be enforced.

Whereas the parties are free to refer the dispute to an arbitrator or judge in due course, the principle of “pay first, litigate later” is well established.  But is it always necessary to obtain an adjudicator’s decision as a pre-requisite to demonstrating there can be no defence to a claim for outstanding money?  Reference to the recent case of ISG vs Seevic (December 2014) suggests that adjudication is not always a pre-requisite. This was where a payer had clearly failed to comply with the payment requirements of the Local Democracy, Economic Development and Construction Act 2009 (LDEDC).

ISG made an interim application for payment (Application No 13) in the sum of £1,097,696.  An adjudicator held that ISG was entitled to this sum as Seevic, its employer, had not served a payment notice or a pay less notice.  Four days before the adjudicator made that decision, Seevic served a notice of adjudication hoping to obtain a decision that the value of ISG’s works was less than the amount of its application, as previously awarded in the first adjudication.  The same adjudicator, in the second adjudication, indeed found that the value of ISG’s works was less than the amount already awarded and sought to reduce ISG’s entitlement. 

If the employer in this case had failed to serve any notices, it had to be taken to be agreeing the value stated in the application rightly or wrongly

However, the court upheld ISG’s claims to the greater sum, concluding that the adjudicator had no jurisdiction to decide the value in the second adjudication process.  If the employer in this case had failed to serve any notices, it had to be taken to be agreeing the value stated in the application rightly or wrongly.  In the second adjudication, Seevic was really asking the adjudicator to value the work when it had already decided the amount of ISG’s entitlement.  To find otherwise, the court concluded that the statutory regime imposed by the LDEDC Act would be completely undermined. 

This decision demonstrates the importance to all paying parties of serving valid payment notices within the requisite time limits. Any failures invites the payee to despatch a default notice and as seen, the courts will not be influenced by any suggestion that the payee’s valuation in its notice is excessive, leading to it being overpaid.

A payee with such a valid claim, if pursued by an adjudication, will at least have incurred his own legal costs which will be irrecoverable. Why not then refer the matter directly to the court? There is no requirement to comply with any Pre-Action Protocol where it is contended that there is no defence to the claim.  It is true that the courts have now substantially increased the fees scale when commencing proceedings. For example, the court fee payable on commencing an action in the High Court is £10,000 if the amount claimed exceeds £200,000 and the fee for a summary judgment application is £155. These fees are effective as from April of this year. These are large sums, but costs do follow the event. Thus if the claim succeeds, and summary judgment is granted, not only should the successful party be reimbursed these fees but it should also have its own legal costs assessed and paid.

Also, by eliminating the adjudication process altogether, this produces an even bigger saving. Thus whereas the initial outlay may be greater than adjudication, there is certainly far greater recoverability.

Litigation was once referred to by an eminent judge as like betting on the horses but without the same degree of certainty. This does not include situations where a party has clearly failed to comply with the payment notices procedures. ISG vs Seevic, as supported by the following decisions, makes clear that the payment claimed in any payee’s default notice has to be paid whatever the actual value of the works may be. In such a situation the payee should apply to the court for summary judgment which should provide it with a speedier and cheaper solution and avoid the additional costs of an adjudication.

Jeffrey Brown is a partner in the London office of Veale Wasbrough Vizards