Procedure—use of CPR Part 8 in

adjudication cases

See Merit Holdings Ltd v Michael J Lonsdale Ltd25

The Defendant (“MJL”) was engaged as mechanical services sub-contractors by the Claimant
(“Merit”) for construction operations at One Angel Court, Copthall Avenue, London. Merit
commenced two adjudications seeking payment of considerable sums for its work, and then MJL
started a third adjudication which lead to the present Part 8 Claim in which Merit sought a
declaration “as to the correct interpretation of the contract”.

The parties’ initial contractual relationship was set out in a letter of intent dated 20
November 2015 sent by MJL to Merit and providing that MJL would “….reimburse [Merit]
the costs wholly and necessarily incurred…pursuant to this letter up to a maximum sum of
£330,000.00”

A further letter of intent was sent on 16 February 2016 (incorrectly dated 2015). It was
in the same terms as the first letter of intent except that the date of expiry was given as
Thursday 29 February 2016.

Yet a further letter of intent was sent on 6 April 2016, again in the same terms as the first
letter of intent, except that (i) the capped value or maximum sum referred to was £430,000 and (ii)
the date of expiry was Friday 29 April 2016.

It was Merit’s case, that these letters of intent were the basis of the parties’ contractual
relationship as varied by conduct after 29 April 2016.

Work continued until 12 July 2016. Merit made seven applications for payment, roughly on a
monthly basis. Each application was based on Merit’s Tender Summary and assessment of
percentage complete against each item. The Tender Summary aligned with a Quantified Schedule of
Rates (QSOR) which was provided by Merit under cover of an e-mail dated 3 May 2016. Thus
applications were neither made nor paid on the basis of costs wholly and necessarily incurred and
the amounts concerned were well in excess of the capped figure (as amended).

In July 2016 MJL terminated the arrangement between the parties and a dispute arose
about payment of Merit’s application no. 7 dated 22 June 2016. Merit commenced an adjudication claiming the sum of £1,128,106.42 and the adjudicator, Mr Matt Molloy, decided that
the parties’ conduct evidenced an agreement that Merit would make applications for payment valuing
the work up to the end of each calendar month (amounting toa payee’s notice); that section.110B(4)
of the Act was engaged; that MJL was obliged to pay the notified sum as claimed. In January
2017 Merit made application for payment, no. 8, for £187,980.87 in which for the first
time they claimed on the basis of costs allegedly incurred. That application was disputed and
Merit commenced a second adjudication in which the adjudicator was again Mr Molloy. They sought
payment or alternatively, a declaration as to the basis on which its entitlement to payment was to
be calculated. Its case was that it was entitled to be reimbursed its costs wholly and necessarily
incurred, in accordance with the terms of the letters of intent.

Mr Molloy decided that Merit was not entitled to the sum claimed and that its entitlement to
payment was based on the agreed Contract Sum and the QSOR not the costs incurred.

MJL gave notice of intention to adjudicate on the value application no. 8 and make
declarations in relation to “the final account”.

On 27 April 2017, Merit issued a Part 8 Claim Form seeking a declaration later refined orally to
this effect: The Claimant is entitled to be paid its costs wholly and necessarily incurred on the
project”.

The Court recorded concerns about the use of the Part 8 Procedure in this case, for two principle
reasons.

Firstly, under section 9 of the TCC Guide, dealing with Adjudication Business, paragraph
9.4.1 noted that the Court would deal with applications for declaratory relief arising out
of the commencement of an adjudication (emphasis supplied). Common examples were:

• The adjudicator’s jurisdiction.

• Whether there was a “construction contract” under the Act.

• The scope of the adjudication, including whether there was a pre-existing dispute between the
parties.

Paragraph 9.4.2 contemplated directions leading to a “speedy resolution” of the
proceedings (in common with the abridged directions that are given in adjudication
enforcement cases).

Despite the adjudication background to this Claim, and the way it was first presented, it was
not one which directly related to the commencement of an adjudication, in the sense
used in paragraph 9.4.1. Instead it related to the substance of the decision in the
adjudication and the risk of the same error being “promulgated” in adjudication no.

3. That had consequently affected the directions, listing and time estimates, and allocation of
Court resources. Directions were given leading to a hearing less than two months later.

The Court took the opportunity to emphasise the guidance in the TCC Users’ Guide paragraph 9
and when it was applicable. It was not to be assumed that some relationship to an adjudication
and an adjudication label means that it was automatically appropriate for a case to be dealt with
in that way.

Secondly, and more generally, subject to CPR Part 8.1(6), the Part 8 procedure was only to be used
where the Claimant sought the Court’s decision on a question which was unlikely to involve a
substantial dispute of fact26 and by implication, that the question to be decided could be framed
with some degree of precision and/or be capable of a precise answer.

In the experience of the Court there was a real risk of the Part 8 procedure being used too
liberally and inappropriately with the risks both of prejudice to one or other of the parties in
the presentation of their case and of the court being asked to reach ill-formulated and
ill-informed decisions.

The question arose here whether the Claim involved substantial issues of fact, given
that Merit’s pleaded case turned substantially on what it said were the consequences of or
inferences to be drawn from the conduct of the parties (rather than, for example, from words used).
The Court was being asked to determine the very nature of the contractual relationship between the
parties, which was highly unusual, on documents only with a short hearing.

The court remained concerned both about the scope of the enquiry to be made and whether it
was right to make any and if so what declarations(s). Germane to this was the question whether the
defendant who did not agree with the Claimant’s entitlement was himself obliged to formulate an
alternative declaration. The court said he was not so obliged as otherwise he might be
compelled to seek declaratory relief that he did not in fact want to seek.

Although MJL were content for the Court to reach decisions that might assist the parties, there was
no formulation of any declaration that MJL sought. Despite the flexibility of their approach, the
court was reluctant to express non-binding opinions which might well store up trouble later
for both parties as to their status and content.

All these issues illustrated the care to be taken by the parties and the Court in the deployment of
the Part 8 procedure.

The April letter of intent clearly stated that it would expire on 29 April 2016. Equally it was
clear that the works continued after that date. Neither party contended that this happened on
anything other than the basis of a contract between the parties.

On the agreed facts the Court concluded that the “far more obvious interpretation of the
parties’ conduct” was that it had been agreed that Merit would continue to be paid (in
excess of the cap) on the basis of the contract sum. Therefore Merit was not entitled to
the declaration it sought. The question then was whether the court should make any
alternative declaration, which at first blush might seem appropriate. The difficulty with the
various available options was that the court would be making a positive declaration as to the basis of payment without, unless it went further, deciding the underlying contractual
relationship.

Due to the number of possible contractual permutations, the court declined to make any further
declarations as to the basis on which payment was to be made after the expiration of the last letter of intent.

 

This article was originally written and published on the internet by Slater Heelis on 07/06/18.

 

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.

 

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