Practical Law

Last year I wrote about the judgment in Nicholas James Care Homes Ltd v Liberty Homes (Kent) Ltd, where O’Farrell J continued an interim freezing injunction that had been granted a month or so earlier. As I said at the time, while I wouldn’t ordinarily be interested in an injunction application, I wrote about it because one of the contractor’s defences to enforcement of the adjudicator’s decision focused on the adjudicator’s request for on account payments for his fees.

Fast forward six months and the case has been back before the TCC judges (also called Nicholas James Care Homes Ltd v Liberty Homes (Kent) Ltd). This time it was in front of Recorder Andrew Singer KC (sitting as a High Court judge), who was asked to look at the payment point as part of the enforcement application. He held that the adjudicator had not exercised a lien before issuing his decision. Consequently, the adjudicator’s decision was enforced and there were no grounds to stay enforcement. (Separately, he declined to discharge the freezing injunction but I’m not going to discuss that aspect of the case.)

Just like last time, I’m interested in what the judge had to say about those on account payment requests.

Nicholas James Care Homes Ltd v Liberty Homes (Kent) Ltd

I discussed the background last time, but to set the scene, it is worth mentioning that:

• In July 2021, Liberty Homes (Kent) Ltd (the contractor) served a pre-action letter of claim on Nicholas James Care Homes Ltd (the employer). This claimed £1.15 million was due and owing to it. In response, the employer said it had overpaid the contractor to the tune of £2.6 million.
• By October, the employer had started a “true value” adjudication of work carried out at Beacon Hill Lodge and sought repayment of some £2.38 million.
• The adjudicator’s decision was issued in February 2022. The adjudicator decided that the total amount the employer had paid on account was some £5.17 million and the true value of the work done was £2.58 million, meaning the contractor should repay the employer just under £2.6 million. That sum was not paid, hence enforcement proceedings were issued.

In terms of the adjudicator’s appointment, the adjudicator was nominated by RIBA and, in October 2021, the adjudicator’s clerk emailed the parties with the adjudicator’s terms and asked for an initial deposit of £10,000 plus VAT from each party. Those terms:

• Entitled the adjudicator to “further request that such sum be replenished on a regularly [sic] basis as and when he deems necessary”.
• Provided that the referring party would pay the adjudicator’s fees in full within seven days. Although the referring party could apply to the responding party for reimbursement, the “ultimate allocation” was to be determined by the adjudicator.
• Non-payment allowed the adjudicator to “suspend his services (without notice) until the payment is received” or to “resign his appointment by giving notice”.

On 10 January 2022, the adjudicator’s clerk asked both parties for a further deposit of £15,000 plus VAT. The contractor paid this sum but the employer was chased for payment five times, before eventually paying on 2 February 2022. As the employer had omitted to pay the VAT element, the adjudicator’s clerk chased for this sum three times before finally being paid on 15 February.

The adjudicator’s decision was sent to the parties on 18 February 2022.

Enforcement proceedings

The employer challenged enforcement because of the way the adjudicator had “demanded payment for his services in advance of the delivery of the Decision”. It said those payment demands amounted to a breach of paragraph 19 of the Scheme for Construction Contracts 1998.

The judge noted that it was not disputed that attempting to exercise a lien was unlawful (Cubitt Building and Interiors Ltd v Fleetgate Ltd). The question was whether a lien was being imposed in this instance.

The judge also noted that the employer had reserved its position so far as jurisdictional challenges were concerned at the time they made payments. This was to take into account the judgment in Platform Interior Solutions v ISG Construction and the principle of election. However, it had not gone further. It did not address the lack of impartiality that HHJ Thornton QC talked about in Mott MacDonald Ltd v London & Regional Properties Ltd, when he said that imposing a precondition on the delivery of an adjudicator’s decision meant:

“… the adjudicator appeared to lack impartiality in making it a condition of his appointment that his fees would first have to be paid by the referring party before he delivered his decision … The adjudicator may not, therefore, be or appear to be financially beholden to one party, particularly the referring party, or place himself in the position in which he might appear to be more partial to one side than the other.

The imposition of a lien on his decision … gives an appearance of partiality and amounts to a breach of rule 12(a) of the scheme.”

Ultimately, the judge was not persuaded that the “tenacious and persistent” emails from the adjudicator’s clerk crossed the line. He thought they would not be construed by the reasonable observer as “improper threats to impose a lien”. They were not extraordinary, as the employer had argued. Consequently, they were not an attempt to rely on a lien.

My takeaways

In one sense, since the judge has told us there was no lien being exercised, that’s where the matter lies. However, I’m sure there are some “reasonable observers” out there that probably think the emails “crossed the line”. I know Michelle does!

I think it is a difficult issue. On the one hand, I can see why some adjudicators ask for payments on account. Like everyone else, adjudicators want to get paid, and don’t always want to rely on the joint and several nature of the parties’ liability for their fees. It is time consuming and expensive to have to chase for fees when you don’t get paid (although it happens). That said, I can count on one hand in over 800  adjudications when both parties have gone bust!

On the other hand, it can put an adjudicator in an awkward position if they ask for money on account and it is not forthcoming. This is an example where a clerk did the chasing but we don’t all have one of those. I wonder what would have happened if the employer had not paid, despite all that chasing. Would the adjudicator really have stopped work? If so, how would he have squared that with the adjudication timetable? Would he have allowed the deadline for the decision to be reached and delivered to the parties pass? What if he had resigned, as the terms provided? Where would that have left the parties? We know an adjudicator isn’t entitled to be paid if there is no decision unless their terms say otherwise, and we don’t know if this adjudicator had that sort of clause in his terms.

For us, we don’t routinely ask for payments on account, not just because of the points made by HHJ Coulson QC (as he then was) in Cubitt, but also because in an adjudication lasting 28/42 days the fees are potentially more modest. That said, we have recently introduced a term that allows us to ask for a payment on account for cases that last longer than 56 days. Once we are in the realms of months rather than weeks, the points made in Cubitt about timing are less apposite.

I’m not sure if this judgment will signal a change in how adjudicators do things, now there is judicial sanction for on account payments, even if there is the question mark over whether another judge on another day may have taken a different view. Either way, it is also a reminder that if parties want to run jurisdictional challenges (and that includes bias because of the on account payment), they need to make it clear at the time they hand over their money “even if they are loathe to make a complaint”.