Award —character of award—

recovery of sums overpaid

See Imperial Chemical Industries Ltd v Merit Merrell Technology Ltd10

This was the trial of liability issues between ICI as Claimant seeking to recover what it alleged were over-payments, from its contractor MMT following awards of some £20.93m in two adjudications. To enable the legal issues to be resolved, the parties had agreed to the assumption that the eventual financial exercise would show that the amounts paid to MMT were in excess of the correct contractual valuation of its works.

ICI claimed it was entitled to the recovery of any assumed overpayment either under the contract terms or the equitable doctrine of restitution.

MMT challenged this, claiming that the interim valuations of the account in the sums awarded and paid was “deemed to be the value of the works” and any alleged over-payment could not be recovered. MMT went further: it said the value of the account had already been determined in a finally binding adjudicator’s decisions and in a court judgment in

MMT’s favour.

 

 

The contractual route to recovery

The court had found on the facts that ICI had repudiated the contract. It was well-established that, if a contract came to an end through repudiation, the parties’ existing rights and obligations under that contract remained in existence. Accordingly, if ICI had an accrued right to recover overpayments under the contract, before the contract came to an end, that right remained notwithstanding a wrongful repudiation.

This was an NEC3 contract. There were two payment components being Defined Cost, and the Fee, each to be assessed by the Project Manager at each assessment date. The resulting amount due comprised the Price for Works Done to Date, plus other amounts to be paid to the Contractor, less amounts to be paid by or retained from the Contractor.

The court did not consider that such an interim assessment could be said to be a definitive or final valuation of the works for all purposes at that point. The contract made clear that “The Project Manager corrects any wrongly assessed amount due in a later payment certificate.” That later payment certificate could, potentially, be an interim assessment or the Final Assessment, as the Project Manager could at either stage correct any “wrongly assessed amount” If there was any doubt, clause 56 of the contract resolved it by providing:

“The issue of any payment certificate or the payment of any amount by the Employer to the Contractor does not constitute or imply or be evidence of the Project Manager’s, the Supervisor’s or the Employer’s approval or acceptance of any design, work, Plant and Materials forming part of the works or relieve the Contractor of any of his obligations under this contract.”

MMT relied on ISG Construction Ltd v Seevic College11 where the contractor sought an adjudicator’s decision in relation to its payment application, in respect of which the employer had not served valid payless notices. The decision, in Adjudication No.1, was in the contractor’s favour in the sum of £1.097m. Some four days before the decision in that adjudication, the employer started Adjudication No.2, in relation to the actual value of the contractor’s works the subject of the application. The employer succeeded in that adjudication in that the adjudicator decided that the value of the works was only £315k, disallowing approximately £1m claimed as loss and expense. Edwards-Stuart J declared that there was no jurisdiction to conduct Adjudication No.2, even though in Adjudication No.1 the adjudicator had stated “For the avoidance of doubt I record that I have made no decision as to whether or not that is the correct value of work undertaken by ISG.” This was because, as he put it in

[25] “as between contractor and employer, in the absence of any notices the amount stated in the contractor’s application as the value of the works executed is deemed to be the value of those works so that the employer must pay the sum applied for.” He considered that the question of the valuation of the works in Application No.13 had been decided in Adjudication No.1. Permission to appeal was granted in that

 

case by the Court of Appeal, but the appeal did not take place as the matter was compromised.

ISG did not support MMT’s pleaded assertion that the amount of the interim application was “deemed to be the value of those works”. It was decided before the Court of Appeal judgment in MJ Harding Contractors v Paice and Springall12 where the Court of Appeal found ISG difficult to reconcile with the ratio in Harding.

A similar approach to defining the dispute was adopted by a differently constituted Court of Appeal in Brown v Complete Building Solutions Ltd.13 The Court of Appeal held that the terms, scope and extent of the dispute previously referred, and the earlier decision, had to be analysed. The dispute that was referred for resolution in the earlier adjudication could not be considered in isolation. The latter adjudication dealt with a different dispute and the adjudicator had jurisdiction.

In the judgment of the court, the ratio of the Court of Appeal authorities cast real doubt on whether ISG would be decided in the same way now. That led to similar doubts as to whether the reasoning was correct. In any event, upon analysis, the judgment in ISG was concerned with timing not substantive underlying rights. In Galliford Try Building Ltd v Estura Ltd14 the judge himself had explained his view of what ISG had decided.

“[18] I held that if an employer fails to serve the relevant notices under this form of contract it must be deemed to have agreed the valuation stated in the relevant interim application, right or wrong. Accordingly, the adjudicator must be taken to have decided the question of the value of the work carried out by the contractor for the purposes of the interim application in question.

  • However, I made it clear that this agreement as to the amount stated in a particular interim application (and hence as to the value of the work on the relevant valuation date) could not constitute any agreement as to the value of the work at some other date (see paragraph 31).
  • This means that the employer cannot bring a second adjudication to determine the value of the work at the valuation date of the interim application in question. But it does not mean any more. There is nothing to prevent the employer challenging the value of the work on the next application, even if he is contending for a figure that is lower than the (unchallenged) amount stated in the previous ”

Even if the first sentence of [20] remained correct, (and it was decided on 27 February 2015, before the Court of Appeal judgment in Harding on 01 December 2015) this meant that the value of the work remained something that could be challenged.

In other words, the value of the works executed is not definitely determined by the figure in the interim assessment (or an adjudicator’s decision on that interim assessment). Nor could it sensibly be argued otherwise, given the nature of adjudication.

 

5

 

6

Support could also be drawn from the judgment of O’Farrell J in Kersfield Developments (Bridge Road) Ltd v Bray and Slaughter Ltd.15

The accrued rights which ICI had under the contract before repudiation included a right to recover any over- payment already made to MMT. Such an analysis would not, however, be the same as a Final Assessment under the contract terms in accordance with the Termination Table, nor would it have been the same exercise as though MMT had repudiated the contract.

The non contractual route – Restitution

It was not necessary therefore to determine this alternative route given the above findings. Nor was it necessary to decide whether restitution might be granted where there had been a total failure of consideration for part only of the work.

There was however another reason why ICI was entitled to be repaid any overpayment it had made to MMT, albeit it could be said to overlap (or more accurately perhaps, sit above) each of the two routes discussed above. This was because the total sum paid to MMT as at the date of the trial included sums paid pursuant to two adjudication decisions.

MMT’s bullish approach was that no valid payment or pay less notice had been given so that MMT’s application became the notified sum for the purposes of section 111 of the Act. It was further contended that the question of what was due had been subject to “a judgment on the merits”. The only judgment was the order made in the enforcement proceedings. There was no “finally binding adjudicator’s decision” and there was no “judgment on the merits”.

The nature of an adjudicators’ decision was one of “interim finality”. There were, sometimes, circumstances which changed the character of such decisions to ones that were finally binding. None of those circumstances pertained here.

The nature of the cause of action a party had when seeking to recover sums paid to another under an adjudicator’s decision was considered by the Supreme Court in Aspect Contracts (Asbestos) Ltd v Higgins Construction plc16 where the Court of Appeal found for Aspect and considered that the Scheme implied that any overpayment could be recovered17.

Comment

This case is reported at some length as it deals with several issues of importance when considering the nature of an adjudicator’s award and rights to payment and recovery of any overpayment. As to the very nature and character of an adjudicator’s award, in case there was any doubt, it is one of “interim finality” (previously commonly described in the reported cases as ‘temporarily binding’). It may in some circumstances become final as well as binding: essentially, if that is what the contract provides18, or the parties so agree. Otherwise the award of itself does not prevent either party from seeking a final determination from a court or arbitrator as to the sum properly due on the merits.

The adjudicator’s decision even on the merits and following a full valuation is not final except on a second adjudicator.

Furthermore, any court order for the enforcement of the award is no more a judgment or a final decision on the merits than the award itself.

The second point of note is that the question of valuation overall, can be looked at afresh at each subsequent interim or final valuation or at some other stage or event as the contract may direct (e.g. on termination).

In this case the court found the party who had wrongfully repudiated the contract, retained the right to recover any overpayment made before the contract came to an end. It did not in the event have to resort to the equitable remedy

of restitution.

 

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

 

This article is intended to provide general information about legal topics. Nothing in this article or in the documents available through it, is intended to provide legal advice. You should not rely on any information contained in this article, or in the documents available through it, as if it were legal advice.

 

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