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Who Are You Contracting With?

September 26, 2013 | Adjudication, Construction Contracts, Dispute Resolution

In the recent case of Westshield Civil Engineering Limited and Westshield Limited v Buckingham Group Contracting Limited the Court ruled on the enforcement of an adjudicator’s decision as to the identity of the relevant parties to a sub-contract.

Background

Buckingham Group Contracting Limited (‘Buckingham’), a main contractor, asked Westshield Limited (‘Westshield’) to provide a quote for the supply and installation of drainage works for the construction of a television studio. Buckingham and Westshield entered into negotiations, Westshield provided a quotation and attended a ‘Pre-order meeting’ whereby the minutes of the meeting identified Westfield as the ‘Sub-Contractor’.

The unsigned form of the sub-contract identified Buckingham as the main contractor but Westshield was not identified as the sub-contractor. Instead Westshield Civil Engineering Ltd (‘Civil Engineering’), a dormant company with ‘no assets to speak of’, was identified as the sub-contractor. Civil Engineering is not a subsidiary of Westfield, although it is owned by one or more of the same shareholders.

The Works commenced in December 2011. A dispute later arose between the parties as to the valuation of the final account.

Adjudication Proceedings

Buckingham commenced an adjudication against Civil Engineering for a declaration of the sums due to Civil Engineering and, in doing so, a determination of who the proper sub-contractor was. Civil Engineering argued that, given it is a dormant company, and was so at the time the sub-contract was entered into, and that the majority of the previous exchanges were with Westshield, Buckingham made an error in entering the name of Civil Engineering into the Contract and that ‘the most sensible solution would be to substitute and read [Westshield].. in lieu of [Civil Engineering]’.

The adjudicator produced his decision on 16 January 2013 which identified Civil Engineering as the sub-contractor. The adjudicator came to this decision despite the fact that the quotation incorporated into the Contract was from Westshield; previous correspondence was between Buckingham and Westfield; the minutes of the Pre-Order Meeting show that both parties were aware Civil Engineering was trading as Westshield; and that payments were made to Westshield on behalf of Civil Engineering. The sub-contract, the adjudicator stated, ‘is clear and unambiguous’ – Civil Engineering, not Westshield, is the named party to the sub-contract and is therefore the correct party to the adjudication proceedings. The adjudicator’s decision stated that monies were due to Civil Engineering and that no overpayment had been made by Buckingham. Whilst the adjudicator had the jurisdiction to declare the sums due, he did not have the jurisdiction to order payment to Civil Engineering.

Consequently, when Buckingham failed to make payment for the outstanding sums, Civil Engineering instituted a second adjudication in order to obtain payment. Surprisingly, Buckingham argued that the adjudicator’s decision was not enforceable because Civil Engineering was not the correct party to the sub-contract – a complete U-turn to what it argued in the first adjudication! The adjudicator declined jurisdiction.

Court Proceedings

Civil Engineering and Westshield issued Part 7 proceedings seeking enforcement of the adjudicator’s decision of 16 January 2013. Civil Engineering sought a declaration that Westshield, Civil Engineering and Buckingham were bound by the adjudicator’s decision as to the identity of the sub-contractor, namely Civil Engineering, and that Civil Engineering was entitled to payment for the outstanding sums. Additionally, Civil Engineering sought an order for payment.

The Court’s Decision

The judge held that the adjudicator had jurisdiction to decide the sub-contractor’s identity and so his decision was enforceable even if it was wrong as a matter of fact or law. Furthermore, although the adjudicator could not order payment of the outstanding sums due to Civil Engineering, the decision that sums were due to Civil Engineering must be accepted, at least temporarily, and as such the sums owed to Civil Engineering became due for payment. The adjudicator’s decision was enforced and Buckingham was ordered to pay the outstanding balance of £147,164.66 to Civil Engineering.

However, as Buckingham had referred the dispute through court proceedings for final resolution by issuing proceedings against both Civil Engineering and Westshield on 13 February 2013, the adjudicator’s decision as to the identity of the sub-contractor had not become final and binding.

Furthermore, Buckingham sought permission to delay payment of the adjudicator’s decision pending the dispute being heard by the courts, on the ground that Westshield had been placed into a creditor’s voluntary arrangement. However, the court refused to grant a stay of proceedings on the basis that Buckingham had known Westshield was in financial difficulties at the date of the contract and referred to the case of Wimbledon Construction Co v Derek Vago.

It appears Buckingham referred the dispute to adjudication in the first place as a tactical manoeuvre, possible to seek to confuse matters and force Civil Engineering and/or Westshield into a settlement given the poor financial positions of both Civil Engineering and Westshield.

Not only does this case confirm the well established principle of adjudication proceedings that an adjudicator’s decision on an issue which he or she has jurisdiction to address is enforceable, even if it is wrong as a matter of fact or law, but it also highlights the importance of pre-contract checks, proof reading documents and correctly identifying the relevant parties in the contract. Despite the Judge stating that ‘in reality the Sub-Contract was with Westshield’, the adjudicator’s decision was enforced and held that Civil Engineering is the sub-contractor as stated in the sub-contract. Whilst in this particular case the Judge notes that ‘apart from the tactics [the issue as to the identity of the Sub-Contractor] seems to be an almost pointless issue’ as Westshield agreed to guarantee Civil Engineering’s liabilities, in different factual circumstances, the adjudicator’s decision could have had far graver consequences for all parties involved.

The moral of this case – be sure as to the identity of the party you are contracting with.

 

This article contains information of general interest about current legal issues, but does not provide legal advice. It is prepared for the general information of our clients and other interested parties. This article should not be relied upon in any specific situation without appropriate legal advice. If you require legal advice on any of the issues raised in this article, please contact one of our specialist construction lawyers.

Wakefield Office

17 Navigation Court
Calder Park
Wakefield
West Yorkshire
WF2 7BJ
Tel: 01924 258719
Fax: 01924 257666
enquiries@hklegal.co.uk

London Office

28 Queen Street
London
EC4R 1BB
enquiries@hklegal.co.uk