Do you need to have good faith negotiations prior to adjudication?

In City Basements Ltd v Nordic Construction UK Ltd [2014] EWHC 4817 (TCC) the Technology and Construction Court (TCC) held that the failure to serve a Payment Notice or a Pay Less Notice was sufficient to crystallise the dispute, and no further discussions between the parties were necessary before the dispute could be referred to Adjudication.

City Basements Limited (City) made its Application for Interim Payment No.8 (Application 8) on 3 December 2013. Nordic Construction UK Ltd (Nordic) failed to serve a Payment Notice or a Pay Less Notice.

City commenced adjudication on 15 January 2014. The adjudicator found in City’s favour and ordered that Nordic pay to City the full amount stated in Application 8. Nordic did not pay and City commenced court proceedings to enforce the adjudicator’s decision.

It is an established principle of adjudication enforcement that the courts will refuse to enforce an adjudicator’s decision that is based on an adjudication notice issued before the dispute referred to adjudication has crystallised.

The contract between the parties stated that “with a view to avoidance or early resolution of disputes… each Party shall promptly notify the other of any matter that appears likely to give rise to a dispute or difference….the senior executives…. shall make [sic] as soon as practicable for direct, good faith negotiations to resolve the matter”

Nordic argued that this provision meant there should be some form of discussion between the parties before adjudication could be commenced and that as no such discussion had taken place, no dispute had crystallised between the parties and the adjudicator did not have jurisdiction to determine the dispute.

City said that Nordic had not raised this argument during the adjudication and this went beyond the scope of the general reservation with regards to the adjudicator’s jurisdiction that Nordic had included in its Adjudication Response.

The Court dismissed City’s argument and said that a general reservation is sufficient to reserve all future arguments of jurisdiction.

However, the Court did not accept Nordic’s argument either. It found that the Construction Act 1996 gives a party a right to refer to adjudication at any time and there is no requirement to go through dispute avoidance or seek early resolution of disputes in order to get to adjudication.

The Court upheld the adjudicator’s decision and granted summary judgment in City’s favour.

This case confirms that the safest course of action for a paying party remains to serve a Payment or a Pay Less Notice. If not, an adjudication decision ordering you to make payment of the full amount applied for might be unavoidable.

The above article was published by Walker Morris as part of its Adjudication Matters publications on 12/08/15.

 

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