Here the TCC dealt with a summary judgment application by Aqua Leisure International Limited (Aqua) seeking to enforce an adjudicator’s decision dated 24 July 2017 (the “Adjudicator’s Decision”) related to an interim payment dispute.
1. Had the Parties entered into a subsequent “agreement” as per s108 (3) of the Housing Grants, Construction and Regeneration Act 1996 (“HGCRA”) therefore making the Adjudicator’s Decision no longer binding?
2. Did the Adjudicator have jurisdiction to award Aqua its legal costs?
Benchmark was a site developer of a waterpark in Scarborough. In July 2015 it entered into a JCT Design and Build contract with Aqua. The Works achieved practical completion on 18 August 2016. On 7 September 2016 Aqua issued an interim application for payment seeking payment of £160,077.80 plus VAT (£192,093.36). Despite no pay less notice being served Benchmark paid only £20,000 in respect of same. In June 2017 Aqua commenced adjudication proceedings against Benchmark in respect of the outstanding interim payment owed and was successful. The judgement notes that the sums awarded to Aqua in the Adjudicator’s Decision were not all the sums due to it from Benchmark i.e. “there was a retention payment of around £48,811.38 plus VAT to deal with following completion of warranty works”.
In August 2017 the Parties entered into settlement discussions in respect of the entirety of their dealings. By its email dated 31 August 2017, expressly recorded as being "without prejudice and subject to contract", Aqua proposed a "payment resolution" in the total sum of £217,998 plus VAT payable by way of 4 instalments. The last instalment of £110,000 plus VAT, payable on 22 August 2018, was to be underwritten and guaranteed by Benchmark’s parent company, Abbey Commercial Investments Limited ("Abbey") "to wording written by [Aqua’s] advisers". Aqua’s email concluded stating “please confirm your agreement to this settlement by return". On 1 September 2017, Benchmark’s representative responded confirming its agreement with the single word: "agreed". Aqua responded (same day) that its lawyers would be drafting a settlement agreement and payment guarantee. On 13 December 2017 Aqua’s Mr Currie sent a "deed of settlement and payment guarantee" to Benchmark for "review and completion". However that was not the end of the matter. Between December 2017 and May 2018, Aqua issued not less than six reminders chasing Benchmark to sign the above documents sent. On 11 May 2018 Benchmark advised Aqua that “there would be no Abbey guarantee”. As noted by the judge the "resolution itself was never committed to writing and no guarantee was ever signed.”
By April 2019 Aqua had had enough. Only 3 of the 4 “payment resolution” payments had been paid to Aqua; the 4th payment of £110,000 plus VAT (due to be paid on or before 22 August 2018) had not been paid. Further the sums due under the Adjudicator’s Decision had not been paid in full either. Accordingly, on 26 April 2019, Aqua issued court proceedings in the TCC seeking to enforce the Adjudicator’s Decision.
TCC Issue 1 – was there a subsequent “agreement” as per s108 (3) HGCRA therefore making the Adjudicator’s Decision no longer binding?
S108 (3) of the HGCRA states “The contract shall provide in writing that the decision of the adjudicator is binding 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.”
Benchmark’s sought to resist the enforcement of the Adjudicator Decision. Its defence relied on s108 (3) of the HGCRA. It argued that subsequent to the said decision a settlement “agreement” had been agreed and acted upon by both Parties i.e. Benchmark having made 3 of its agreed payments; Aqua having performed the agreed warranty works. Accordingly, pursuant to s108 (3) of the HGCRA, Benchmark contended that the dispute had subsequently been determined "by agreement" by the Parties; accordingly the Adjudicator’s Decision was no longer binding. Benchmark also argued the alleged agreements “subject to contract” status had been subsequently waived by the Parties part performance of it.
Aqua disagreed. It argued that the compromise arrangement was expressly made on the basis that it would not become binding until it was reduced to writing. As this never happened, Aqua said that no binding agreement occurred. It did not matter (or assist Benchmark) that payments were made, or that works were done, in respect of the non-binding arrangement.
The TCC agreed with Aqua. Whilst noting (see paragraph 21) that in the “the normal course of events the agreement would have been treated as binding”, in this particular case Aqua’s email dated 31 August was “expressly written on a "without prejudice and subject to contract" basis” and “confirmation of the terms of the 31 August email makes it plain in my view that the agreement was made on the basis of a common understanding between the parties that the agreement would not be binding until reduced into writing and signed as a contract. Until that time the communications between the parties were to be treated as "without prejudice". At paragraph 25 the Judge also recorded various factors why, in the circumstances, he did not consider that Benchmark’s defence advanced allowed him “to reach the conclusion that a new contract was made”. This included:
1. The “payment resolution” agreement was expressed to be "subject to contract" and "without prejudice"; it was intended as a “compromise of issues that had arisen in the execution of the 2015 contract”. Here the Parties had “set their own rules of engagement…. agreed that there would be no binding contract until the terms were reduced to writing and signed off” and “it would not be enforceable until the formalities had been observed”.
2. A court “will not lightly hold" that a condition that negotiations and agreements are "subject to contract" has been superseded.” Absent the compromise being in place, “sums were still due to Aqua under the 2015 Contract and under the terms of the binding adjudication award“ and “[t]he presence of an agreement that was acted on, is not therefore without more enough to indicate that the parties intended to be bound.” In this particular case it was “obvious that the agreement would be acted upon before it became binding. Payments would be made and work would be done”. On the facts it was impossible to conclude that: 1) the payment and acceptance of sums of money already due under those primary obligations; 2) that works were carried out; and that 3) monies were paid and "banked", pointed to the existence of a new contract of compromise.
Accordingly, Benchmark’s defence here failed. The Adjudicator’s Decision remained binding; s.108 (3) HGCRA did not apply, and the Parties had not waived the “subject to contract” status by part performance of the alleged agreement.
TCC Issue 2: – did the Adjudicator have jurisdiction to award Aqua’s legal costs?
As part of his Decision, the Adjudicator decided that Benchmark was to pay Aqua’s legal costs (£12,500) under section 5A of the Late Payment of Commercial Debts (Interest) Act 1998. The Decision however pre-dated the TCC judgment in Enviroflow v Redhill  EWHC 2159 (TCC) where it was held that an Adjudicator had no power (jurisdiction) to award the Parties adjudication costs unless the parties have expressly agreed to this in writing in line with the requirements of Section 108A(1) and (2) HGCRA. Benchmark submitted that, as Aqua and Benchmark had not so expressly agreed to this in writing, the Adjudicator was “wrong in law to award costs” and invited the TCC to declare that such costs were not payable (i.e. that part of the Decision be severed).
Aqua disagreed. Its argument focused on the Adjudicator’s jurisdiction. Benchmark was too late to raise this challenge, i.e. “the costs issue was referred to the adjudicator by [Aqua], [Benchmark] engaged with it and the adjudication dealt with it. In the absence of any reservation of position (general or specific) [Aqua] says [Benchmark] has waived its right to raise any jurisdictional issue”.
TCC: Whilst noting that the “question here is one of jurisdiction in the most fundamental sense. He had no jurisdiction to make the award at all because the statute under which he purported to act had no application.”; and 2) that Benchmark had not reserved its position on costs, nevertheless the judge found in Benchmarks’ favour, on the facts, because:
a. “[I]t would be wrong to hold that [Benchmark] had waived any right to raise this fundamental point of jurisdiction”. The adjudication proceedings were pre-Enviroflow, when it was “common practice and understanding at the time of the decision was to proceed on the basis that there was jurisdiction.” Benchmark could not be expected to have reserved its position on a case not known at the time. The judge stressed that: ”[t]o conclude otherwise might well lead to parties to adjudication expressing general reservations in respect of developing law. That would be undesirable.”
b. The Judge also held that “a fundamental point of jurisdiction such as the one in play here” cannot be waived.
Held. Aqua succeeded. The TCC enforced the Adjudicator’s Decision, excluding the part awarding Aqua’s legal costs.
• Where Parties in a dispute are at the stage of seeking to negotiate a settlement and its terms, then until a formal written agreement is reached and executed by the Parties, it is not uncommon practice for the Parties to seek to protect themselves from the risk of becoming inadvertently bound by terms they have not agreed to, by clearly marking all relevant communications and any draft settlement agreements they send to each other during same as being ‘without prejudice and subject to contract’. The expression "subject to contract" indicates that the Parties are still negotiating and have not yet reached an agreement on the terms. In these circumstances, this case serves as a warning that a court: 1) “will not lightly hold" that a condition that negotiations and agreements are "subject to contract" has been superseded.”, and; 2) until the settlement agreement is agreed, finalised, and formally executed and signed by both parties there is an inherent risk that a court may that the agreement is not binding, regardless whether the agreement was acted upon. Typically (subject to careful drafting), a formal, signed and executed settlement agreement will also be evidence of what the Parties have, and have not, agreed to as the basis of the settlement should there be a disagreement on what was agreed to later on.
• Secondly, this case serves as a further reminder that an Adjudicator does not have the jurisdiction to award the Parties legal costs unless the Parties have both expressly agreed to this. If therefore a Party seeks their legal costs in such adjudication proceedings (e.g. the Referring Party) and the other side do not agree, the other side must raise a jurisdictional challenge contesting this as soon as possible in the adjudication proceedings, and maintain and reserve its position here throughout.
Blue Sky ADR regularly represent clients in disputes and in their successful resolution, including via negotiation or by adjudication proceedings. If you have a dispute and need assistance, please give us a call.
Matthew Davies, Director, Blue Sky ADR Ltd
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