The English Court of Appeal has held that it is not an abuse of process for parties to issue court proceedings parallel to an ongoing UK construction adjudication, but reaffirmed that Part 8 proceedings should be used when the issues are straightforward (as stipulated in the TCC Guide), and not deployed as a way of avoiding adjudication award enforcement.
The story so far – a disputed payment claim
In A & V Building Solutions Ltd v J & B Hopkins Ltd [2023] EWCA Civ 54, JBH was the main mechanical and electrical contractor on a project at Brighton University. JBH engaged AVB as subcontractor for certain mechanical and engineering works.
The subcontract had an appendix which required interim payment claims to be submitted on dates set out in a schedule, as a "condition precedent" to payment. The date for each claim was always ten days before the valuation date, which in turn was always the last date of the month. The appendix also provided a formula for determining dates for claims falling due beyond those in the schedule and stated that ABV was not entitled to payment for claims not received by JBH seven days before the valuation date.
AVB submitted a claim one day after the date in the schedule, and nine days before the relevant valuation date. JBH responded with an initial assessment indicating that AVB had been overpaid and no further sums were due.
AVB began adjudication proceedings for payment based on that claim. JBH argued the claim was invalid as it had been submitted one day after the date in the schedule. The adjudicator rejected that argument and identified a net sum due to ABV as an interim payment.
Before the adjudicator's award was issued, JBH issued Part 8 proceedings in the English Technology and Construction Court (TCC) against AVB (a short court procedure for resolving disputes where there are no substantial factual issues), requesting declarations that the claim was invalid and that JBH's assessment was valid.
For reasons not apparent to the Court of Appeal, ABV did not issue enforcement proceedings until after directions had been made in the Part 8 proceedings. Nor did it seek consolidation of the enforcement proceedings with the Part 8 proceedings (the usual approach). JBH succeeded in the Part 8 proceedings. AVB appealed.
The Court of Appeal held unanimously that the Part 8 proceedings should not have been struck out as an abuse of process but that the claim was valid.
Valid Part 8 proceedings – no abuse of process
Coulson LJ criticised both parties: JBH had brought the Part 8 proceedings as a "pre-emptive strike" to avoid enforcement if or when it lost the adjudication; AVB had been slow to enforce the adjudication and failed to consolidate the proceedings. He further observed that statutory adjudication's guiding principle, "pay now, argue later" (designed to meet the legitimate cashflow requirements of contractors and their subcontractors by means of adjudicators making decisions quickly, and thereby reducing the prospect of insolvencies), was not mentioned in the first instance judgment (probably because the adjudication had not featured prominently in the arguments).
Nevertheless, Coulson LJ observed that court proceedings in parallel to adjudications are not invalid or an abuse of process. Case law is "crystal clear" that parties in an ongoing adjudication also have the option of issuing court proceedings.
However, the authorities and the TCC Guide also showed that the proper approach to parallel proceedings was that judges should usually give judgment on the claim based on the adjudicator's decision and then, to the extent possible, sort out the Part 8 proceedings, unless the Part 8 issue was straightforward and self-contained, required no oral evidence, would be unconscionable for the court to ignore on a summary judgment application, and could be addressed at enforcement without increasing the time estimate.
Consistent with "pay now, argue later", the first instance judge should therefore have considered the Part 8 proceedings through the prism of AVB's successful adjudication and recognised that, when giving judgment, JBH had breached its contractual obligation to pay AVB the sums determined in the adjudication.
Payment claim valid
Nonetheless, JBH's claims raised contract interpretation issues suitable for Part 8, even in the context of adjudication enforcement. In allowing the appeal on this point, Coulson LJ rejected the judge's simplistic approach of treating the date in the schedule as "sacrosanct"; the position was more nuanced.
Applying the orthodox rules of contractual interpretation, he ruled that the subcontract payment provisions and, more significantly, specific paragraphs in the appendix, indicated there to be some general flexibility in the dates. The first of those paragraphs referred to payments becoming due beyond the dates set out in the schedule; the second, to a requirement for claims to be submitted seven days before the valuation date.
The judge's construction of the subcontract incorrectly required the deletion of these paragraphs, or "seven days" to be replaced by "ten days". He concluded that the claim, issued nine days before the valuation date, complied with the subcontract and was therefore valid.
Key lessons: enforce awards swiftly and don't misuse Part 8
Whilst court proceedings remain open during an adjudication, parties are reminded to enforce awards promptly, and to expect criticism for circumventing the guiding principle of "pay now, argue later" by instituting Part 8 proceedings in parallel to an ongoing adjudication and/or before enforcement proceedings, except where the TCC Guide allows for their appropriate use as a means of challenging enforcement.
Where issued, Part 8 proceedings should be consolidated with the related enforcement proceedings, the correct approach in most cases then being for the Part 8 proceedings to be dealt with after enforcement, unless the points raised are straightforward and self-contained.
Authored by Rupert Sydenham, Mariel Hoare, Ben Littlewood and Mark Crossley
