VMA Services Limited v Project One London Limited

Adrian Williamson KC:

1. In these proceedings, the Claimant, VMA Services Limited (“VMA”), seeks summary judgment to enforce the decision in its favour in an adjudication dated 10 February 2025 (the “Decision”). In short, the adjudicator decided that the True Value Adjudication (“TVA”) brought by the Defendant (“POL”) could not be entertained because POL had not paid a notified sum and that VMA should be awarded this sum (“the Notified Sum”).

2. The central question I have to decide is whether the adjudicator had jurisdiction to make this monetary award in favour of VMA, the Respondent to the adjudication.

3. This Judgment will deal with this issue under the following headings: a) The facts. b) The legal background. c) Discussion of the jurisdiction issue. d) Other matters. e) Conclusions. A. The facts

4. The Parties entered into a contract on or around 16 October 2023 in the form of POL’s Sub-Contract Order (incorporating the JCT Design and Build Sub-Contract Agreement Conditions 2016) for the design and installation of mechanical works (the “Contract”) at 1 – 4 Munro Terrace & 112 – 114 Cheyne Walk, London SW10 0DJ. The Contract contained the usual provisions for interim payments.

5. VMA’s Application for Payment No.8 was submitted on 21 June 2024 for Works completed up to and including 30 June 2024. The gross sum of the application totalled £274,259.81, leaving a net value of the Works complete, less retention, of £260,546.83 (retention at £13,712.99), and leaving a payment due of £106,434.88 after the deduction of previous payments.

6. POL served no Payment Notice or Pay Less Notice timeously or at all.

7. On 16th December 2024, POL served Notice on VMA of its Intention to Refer a dispute to an Adjudicator. This sought determination of the TVA.

8. The parties filed documents as follows: i) VMA filed a Response on 7 January 2025 {G38/353-371} in which it raised POL’s failure to pay the Notified Sum (for the period up to 30 June 2024) by way of Defence and Counterclaim. ii) POL filed a Reply on 14 January 2025. iii) VMA filed a Rejoinder on 21 January 2025. iv) POL filed a Surrejoinder on 28 January 2025.

9. These documents extensively debated the question of whether VMA were right as a matter of jurisdiction and/or substance to contend that the TVA could not proceed in the light of the failure to pay the Notified Sum, and that the Adjudicator should order POL to pay the Notified Sum.

10. In the Decision, the Adjudicator approached the matter as follows. First of all, he defined the issues to be determined as follows: “2.1.1 Issue 1-Has VMA provided a valid Application for Payment which is compliant with the Contract and/or the Act and the Scheme? 2.1.2 Issue 2 — If VMA's Application for Payment is valid, has POL issued a valid Payment Notice and/or Pay Less Notice? 2.1.3 Issue 3- If VMA's Application for Payment is valid, and POL has not issued a valid Payment Notice and/or Pay Less Notice, then what sum (if any) is due as the notified sum? 2.1.4 Issue 4 — If VMA is entitled to the notified sum, what interest and compensation (if any) is VMA entitled to pursuant to the Late Payment of Commercial Debts (Interest) Act 1998? 2.1.5 Issue 5 — If the notified sum ("Smash and Grab") is not successful, then what is the gross value of the Works up to and including 30 June 2024, and therefore, the net sum less previous payment and retention? 2.1.6 Issue 6 — If there has been an overpayment by POL, is POL entitled to repayment of such sum (if any) that has been overpaid? 2.1.7 Issue 7 – Which Party is responsible for paying the Adjudicator’s fees and expenses?”

11. His conclusion on issues 1 to 3 was that VMA had provided a valid Application for Payment and POL had not issued a valid Payment Notice and/or Pay Less Notice: it therefore followed that £106,434.88 was due as the Notified Sum. He then found as follows on issue 5: “4.6.1 POL seeks the true value of AFP8 for Works completed up to and including 30 June 2024. POL contends that VMA's AFP8 in the gross sum of £274,259.81 (£260,546.82 after the deduction of retention) is incorrect, and the gross value should be £89,572.20 (£85,093.59 after the deduction of retention). 4.6.2 VMA's primary position is that it is entitled to the notified sum, and therefore, POL's claims should be dismissed in their entirety… 4.6.4 Therefore, having found that the notified sum is successful in this adjudication as a defence, I am not required to embark on the true value of the Works as the immediate payment obligation is required to be made by POL to VMA. 4.6.5 Accordingly, I find that the notified sum is successful in this adjudication, and I am not required to embark on the true value of the Works as the immediate payment obligation is required.”

12. It followed (issue 6 and the Decisions) that the Notified Sum was due to VMA and that this amounted to a full defence to the claim made by POL. As the adjudicator put it (para 4.6.3, having reviewed the authorities): “Where a party has failed to comply with its immediate payment obligation in respect of a notified sum, it is not entitled to adjudicate on the true value dispute under the contract or otherwise. Having found that VMA are entitled to the notified sum as a defence, I find that it would be futile for me to address the true value dispute in this adjudication.”

13. In section 5 of the Decisions, the Adjudicator set out his decisions as follows, so far as material: “I have found that VMA has been successful in its defence that in the absence of any Payment Notice and/or Pay Less Notice, the Notified Sum is that stated in VMA's application for payment which becomes due in full. I decide that POL shall pay VMA the notified sum of £106,434.88, plus interest from 3 August 2024 to 10 February 2025 in the sum of £5,598.77, which shall accrue at a rate of £29.16 per day for every day after 10 February 2025. VAT is to be added as applicable. Payment shall be made forthwith. I decide that the notified sum is successful in this adjudication, and I am not required to embark on the true value of the Works as the immediate payment obligation is required.” B. The Legal background

14. The Housing Grants and Construction Regeneration Act 1996 as amended (“the Act”) and the Scheme for Construction Contracts 1998 as amended (“the Scheme”) apply to the Contract. As is well known, one of the intentions of the Act and the Scheme was to improve cash flow in the construction industry.

15. In particular, the Act, as amended by the Local Democracy, Economic Development and Construction Act 2009, ss.139, makes provision by sections 109, 110A, 110B and 111 for notices and the requirement upon the payer to pay the sum notified. In summary, so far as relevant for present purposes, the payer is obliged to pay the sum notified unless it has served a valid Payment Notice or Pay Less Notice.

16. These amended provisions, which came into effect in 2011, have given rise to a body of case law in the context of so called “smash and grab” adjudications. From these cases, the following matters are now clear and were more or less common ground before me.

17. Firstly, as summarised by O’Farrell, J in Bexheat Ltd v Essex Services Group Ltd [2022] EWHC 936 (TCC), the courts have established a principle of subjugation, namely: “76. Thus, it is now clear that: (i) where a valid application for payment has been made, an employer who fails to issue a valid Payment Notice or Pay Less Notice must pay the 'notified sum' in accordance with s 111 of the 1996 Act; (ii) s 111 of the 1996 Act creates an immediate obligation to pay the 'notified sum'; (iii) an employer is entitled to exercise its right to adjudicate pursuant to s 108 of the 1996 Act to establish the 'true valuation' of the work, potentially requiring repayment of the 'notified sum' by the contractor; (iv) the entitlement to commence a 'true value' adjudication under s 108 is subjugated to the immediate payment obligation in s 111; (v) unless and until an employer has complied with its immediate payment obligation under s 111, it is not entitled to commence, or rely on, a 'true value' adjudication under s 108.”

18. Secondly, this principle applies whether or not the contractor has first obtained an adjudication award in its favour: see AM Construction v The Darul Amaan Trust [2022] EWHC 1478 (TCC) at paras 102-106.

19. Thirdly, a responding party to an adjudication is entitled to raise a very wide range of matters by way of defence and counterclaim without infringing the general rule that only one dispute can be referred within a single adjudication. In Global Switch Estates 1 Limited v Sudlows Limited [2020] EWHC 3314 (TCC), O’Farrell, J summarised, at paragraph [50], the relevant principles as follows: “(i) A referring party is entitled to define the dispute to be referred to adjudication by its notice of adjudication. In so defining it, the referring party is entitled to confine the dispute referred to specific parts of a wider dispute, such as the valuation of particular elements of work forming part of an application for interim payment. (ii) A responding party is not entitled to widen the scope of the adjudication by adding further disputes arising out of the underlying contract (without the consent of the other party). It is, of course, open to a responding party to commence separate adjudication proceedings in respect of other disputed matters. (iii) A responding party is entitled to raise any defences it considers properly arguable to rebut the claim made by the referring party. By so doing, the responding party is not widening the scope of the adjudication; it is engaging with and responding to the issues within the scope of the adjudication. (iv) Where the referring party seeks a declaration as to the valuation of specific elements of the works, it is not open to the responding party to seek a declaration as to the valuation of other elements of the works. (v) However, where the referring party seeks payment in respect of specific elements of the works, the responding party is entitled to rely on all available defences, including the valuation of other elements of the works, to establish that the referring party is not entitled to the payment claimed. (vi) It is a matter for the adjudicator to decide whether any defences put forward amount to a valid defence to the claim in law and on the facts. (vii) If the adjudicator asks the relevant question, it is irrelevant whether the answer arrived at is right or wrong. The decision will be enforced.

20. Fourthly, and notwithstanding the point made in the previous paragraph, a Responding party will not generally be able to make a monetary recovery arising from its defence and counterclaim.In Bresco Electrical Services Ltd (in liq) v Michael J Lonsdale (Electrical) Ltd [2020] UKSC 25, (2020) 190 ConLR 1, Lord Briggs JSC explained the position as follows, with emphasis supplied: “44. However narrowly the referring party chooses to confine the reference, a claim submitted to adjudication will nonetheless confer jurisdiction to determine everything which may be advanced against it by way of defence, and this will necessarily include every cross-claim which amounts to (or is pleaded as) a set-off. This much was common ground, but it is supported by authority: see Bailey Construction Law 3rd edition (2020), paragraph 24.57 and PC Harrington Contractors Ltd v Multiplex Constructions (UK) Ltd [2007] EWHC 2833 (TCC); [2008] BLR 16, paragraphs 40 to 41 per Christopher Clarke J. The set-off may be advanced by way of defence to the exclusion of the claim referred to adjudication, but not as an independent claim for a monetary award in favour of the respondent to the reference.” C. Discussion of the jurisdiction issue

21. Despite the point emphasised in the preceding paragraph, Mr Dilworth, Counsel for VMA, submits that the adjudicator did here have jurisdiction to make a financial award in favour of his clients.

22. First, he points to paragraph 20 of the Scheme, which provides, with emphasis upon the words relied on, that: “The adjudicator shall decide the matters in dispute…In particular, he may— (b) decide that any of the parties to the dispute is liable to make a payment under the contract (whether in sterling or some other currency) and, subject to section 111(4) of the Act, when that payment is due and the final date for payment…”

23. I do not think that this provision will bear the weight which Mr Dilworth seeks to place upon it. There is no authority which supports such a construction. I think that this paragraph is directed to the power of the adjudicator to decide that a party is liable in a certain amount, but does not confer upon him/her the power to order payment to a Responding Party.

24. Secondly, reliance is placed upon the judgment of Mr Singer KC, sitting as a Judge of this court, in WRW Construction Limited v Datblygau Davies Developments Limited [2020] EWHC 1965 (TCC). In that case, the Referring Party, DDD, sought determination from an adjudicator of a post-determination final account. In its Response, WRW asserted that the account should be determined as a sum due in their favour. The Adjudicator agreed and ordered that a sum should be paid to WRW. WRW then sought summary judgment of that sum.

25. The Judge so ordered, saying that: “18. I accept on the basis of the authorities quoted above (and the Claimant does not argue otherwise) that the Adjudicator did not have jurisdiction to award a monetary sum to the Claimant as the responding party to the adjudication. However that, in my judgment, is not the relevant issue, nor was it an issue which arose for determination in Harrington or Bresco. The issue before me is whether on the basis of a valid, binding valuation of the post-termination account a court’s enforcement of that valid award can include an order for payment of the sum due as a consequence of the binding valuation, or not.

19. In my judgment, there is no bar on the basis of the authorities cited to me to the Court enforcing a temporarily binding valuation in an adjudication award by making an order for payment of the monies due as a result of that valuation. Indeed, in my judgment it would be contrary to principle and established authority for the Court to effectively force a party who has the benefit of an award in its favour as far as a balance being due to it, thereafter to have to commence a further adjudication (to which there is no defence) for the purpose of obtaining an order for payment from the Adjudicator before returning to the Court if necessary, for further enforcement proceedings.

20. In my judgment, the submission that a further adjudication award is required is not supported by the authorities put forward by Mr Hargreaves QC. They address different issues entirely and as stated above there is no authority which relates directly to the issue of the enforcement of a valuation in favour of the responding party to an adjudication final account valuation exercise and perhaps more importantly no authority for the proposition argued before me.”

26. I find this reasoning persuasive and would follow it in the particular circumstances of the present case, in which an adjudicator has found in terms that the Notified Sum is due to VMA. There will be many cases where the usual Bresco approach will prevail and there will be no jurisdiction to make a monetary award in favour of a Respondent. However, where there is a determination that a particular sum is immediately due to a Respondent, different considerations apply.

27. This conclusion is fortified by the wording of paragraph 23(2) of the Scheme, which states that “the decision of the adjudicator shall be binding on the parties, and they shall comply with it until the dispute is finally determined”. This adjudicator has decided that the Notified Sum is due to VMA, and both parties are bound to comply with this Decision. I agree with the submission of Mr Dilworth that it would be an arid exercise to require VMA to commence another adjudication to recover a sum which has already been determined to be due to them. That would be quite contrary to the policy of the Act and the Scheme to improve cash flow and encourage the rapid, but temporary, resolution of disputes.

28. Mr Philpott, counsel for POL, makes the Micawberish submission that something might turn up in such a further adjudication which would provide his clients with a defence to the Notified Sum. But that would be to turn on its head the whole process of adjudication: once an amount has been decided to be a Notified Sum, that amount must be paid. Any further argument over the amount is not for adjudication but for legal proceedings.

29. For these reasons, I agree with VMA that this adjudicator did have the jurisdiction to order payment of the sums awarded. E. Other matters

30. I can take this shortly. POL sought to argue that the Decision should not be enforced for a variety of other reasons, not all of which were easy to follow. In my view this is a classic case of a losing party seeking to ‘ comb through the adjudicator's reasons and identify points upon which to present a challenge under the labels “excess of jurisdiction” or “breach of natural justice”’, a practice deprecated as long ago as 2005 by the Court of Appeal: see Carillion Construction Ltd v Devonport Royal Dockyard [2005] EWCA 1358, (2005) 104 ConLR 1, [2006] BLR 15) at para

86.

31. This adjudicator acted perfectly fairly. There was no breach of natural justice. He gave each party ample opportunity to address him on the Notified Sum point, and they did so, at length.

32. Nor was there any excess of jurisdiction. The Adjudicator was quite entitled to consider the Notified Sum defence, and he did so. The only possible jurisdictional argument was as to the order for payment, the point which I have dealt with above. F. Conclusions

33. For these reasons, I have concluded that the Decision should be enforced.

34. Counsel should please seek to agree any consequential matters, failing which the same can be dealt with on the basis of brief written submissions.