Downs Road Development LLP v Laxmanbhai Construction (UK) Limited

The TCC is generally reluctant to interfere with an adjudicator’s decision and will always try to enforce the decision except in instances where the adjudicator lacks jurisdiction or has committed a serious breach of the rules of natural justice. This case is a rare example of the latter. 

Downs Road Development LLP (“the Employer”) engaged Laxmanbhai Construction Limited (“the Contractor”) to undertake construction works in connection with the development of land at Downs Road, London (“the Contract”). 

On 26 February 2021, the Contractor sent the Employer Interim Application 34 stating the sum due as £1,888,660.70. On 3 March 2021, the Employer sent Payment Notice 34 stating the net amount for payment was £0.97. The covering email stated “we confirm that a further Payment Notice will be issued to you in due course”. The Employer had adopted a practice of sending payment notices valued at £1 or £0.97 to gain time in order to make an assessment of the sum it actually believed to be due. On 9 March 2021, the Employer sent Payment Notice 34a and a valuation assessment, which provided for a net payment of £657,218.50. This was paid by the Employer on 26 March 2021.

The Contractor gave Notice of Adjudication for the amount stated as due in Interim Application No 34. The dispute was as to "the true value of the sum due pursuant to Interim Payment No 34 as at the Due Date of 26th February 2021". The Employer raised a defence in its Response relating to the Contractor’s alleged breach of contract in respect of the capping beam. The Adjudicator concluded that he did not have jurisdiction to consider the capping beam defence and that his task was limited “exclusively to the proper valuation of [Payment Application 34]”. He found that the net sum due at the time of Interim Application 34 was £771,045.48. When the sum of £657,218.50M which had been accepted in Payment Notice 34a, and the deduction of £10,000 as a consequence of the non-provision of warranties, were taken into account, the Adjudicator decided the Contractor was due £103,826.98 (“the Decision”).

On 24 June 2021, the Contractor threatened to suspend performance of the works if payment was not made pursuant to the Decision. This led to the commencement of TCC proceedings by the Employer in which it sought a declaration that the Decision was unenforceable because the Adjudicator had not addressed the capping beam defence. 

" This case provides useful commentary on the established rules of natural justice and what, in this instance, proved to be an Adjudicator’s “unduly narrow view” of his jurisdiction."

The first issue before HHJ Eyre QC was the validity of Payment Notice 34. HHJ Eyre QC referred to the covering email as evidence that the sum in Payment Notice 34 could not be interpreted as being the sum the Employer considered due at the payment due date under Section 110A (2)(a) of the HGCRA. Before concluding the payment notice was invalid, HHJ Eyre QC highlighted that Payment Notice 34 failed to set out the basis of the calculation, and did not show how the Employer had arrived at the figure of the gross valuation. 

The second issue that HHJ Eyre QC considered was whether the Adjudicator’s failure to address the capping beam defence constituted a breach of natural justice and left the Decision unenforceable. The Adjudicator concluded that this was outside of his jurisdiction because it was not part of the dispute between the parties “at the relevant time”, 26 February 2021. The Adjudicator viewed his jurisdiction as confined to determining the correct sum due in respect of Interim Application 34. The capping beam defence was being put forward by the Employer as a matter which reduced the amount due in that cycle. HHJ Eyre QC found that the Adjudicator deliberately decided not to address a defence which the Employer was “entitled to advance and entitled to have considered”. This was a material failure and the Decision was, as a consequence of that breach of natural justice, unenforceable.

HHJ Eyre QC lastly considered whether any part of the Decision was severable, namely the sum due in payment cycle 34 less the capping beam defence. The Adjudicator had reached a single decision and set out his findings and conclusions in respect of that single decision. HHJ Eyre QC said it would be “artificial and inappropriate” for the Court to stop at any particular point and conclude that the Decision was binding up to that stage but not as to the stages which followed. HHJ Eyre QC decided that no part of the Decision could be severed. 

This case provides useful commentary on the established rules of natural justice and what, in this instance, proved to be an Adjudicator’s “unduly narrow view” of his jurisdiction. Also important is the emphasis this judgment places on what the Employer “actually believed” and “genuinely considered” the sums due to be under the payment notice. This wording certainly appears to go beyond the wording of s110A(2)(a) HGCRA and introduces a more subjective requirement that employers and main contractors should be aware of.