Part 8 claim considers whether adjudicator's decision on interim application binds parties in final account process

Essential Living (Greenwich) Ltd v Elements (Europe) Ltd [2022] EWHC 1400 (TCC) considered this question in a judgment recently handed down by Mrs Justice O’Farrell. The case considered the effect of a previous adjudication decision dated 22 July 2019 on the parties overall final account assessment. The court was asked to consider whether or not the decision was binding for the purposes of calculating the final contract sum, fixing the completion period under the contract and any subsequent adjudication.

Facts

Elements (Europe) Ltd was engaged by Essential Living (Greenwich) Ltd under a contract dated 1 December 2016 for the design, supply, manufacture and installation of modular units at a development in London. The contract incorporated the JCT Construction Management Trade Contract 2011 (as amended by the parties).

The Completion Period under the contract expired on 11 December 2017. However, the works were delayed. Prior to practical completion, Essential Living commenced an adjudication on 9 April 2019 in relation to the correct valuation of Elements’ interim payment application. The Adjudicator made determinations as to the sums due for the original scope of work, variations, defective work and Essential Living’s entitlement to liquidated and delay damages.

On 5 July 2019, the works were certified as practically complete on 31 May 2019. Following practical completion, Elements made submissions on the adjustment to the Completion Period, for the purpose of the assessment under clause 2.27.5 of the contract, and the final calculation of the Final Trade Contract Sum, pursuant to clause 4.6.2 of the contract, to the construction manager. The submissions included increased claims for variations, requests for a full extension of time, no deductions for liquidated or delay damages, and additional prolongation and disruption costs.

Essential Living submitted that the determinations made in the decision, including the adjudicator’s valuation and determination in respect of adjustments to the Trade Contract Sum, variations, liquidated and delay damages and extensions of time, were binding on the parties. Essential Living issued part 8 proceedings, seeking declaratory relief as to the binding effect of the decision and its impact on the final account assessment / any subsequent adjudications. Findings Following review of the authorities, Mrs Justice O’Farrell held that:

• the decision was not binding on the parties for the purpose of the construction manager’s final determination of the Completion Period under clause 2.27.5 of the contract. In coming to her decision Mrs Justice O’Farrell said that regard must be had to the contractual procedure set out in clause 2.27.5. Clause 2.27.5 provides that the construction manager may, not later than the expiry of 12 weeks after the date of practical completion fix a Completion Period for the works that is fair and reasonable, “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.” At the time of the decision the time for the operation of clause 2.27.5 had not expired. Mrs Justice O’Farrell distinguished between assessment of delay under clause 2.27.1 and the construction manager’s review under clause 2.27.5. She noted that that the latter assessment “mandates a separate exercise and expressly permits the Construction Manager to review any previous decision”.
• As to impact of the decision on the Final Trade Contract Sum, Mrs Justice O’Farrell held that where valuations to variations (or any other discrete issue) had been determined these were binding for the purpose of ascertaining the Final Trade Contract Sum, until finally resolved by litigation or settlement. However, this is subject to either party being able to show a new basis of claim and whether such claim is permitted under the contract.

Comment This case provides a useful summary of the principles of the temporary binding nature of an adjudicator’s decision and also provides guidance on what needs to be considered to determine whether a dispute is the ‘same or substantially the same’. As noted by Mrs Justice O’Farrell whether a matter is binding is a “matter of fact and degree”. Where any party is considering issuing any further adjudication proceedings on matters which may be considered to be the ‘same or substantially the same” to those adjudicated on previously, careful consideration needs to be given to the argument and evidence of each disputed item and also the contractual mechanism (if any) for re-visiting any interim determined matters.