Procedural Compliance, LADs, and the Consequences of Invalid Adjudications
Problem: In a contractual arrangement between the parties valued at almost £8 million, Vision Homes Ltd appointed Lancsville Construction Ltd for the construction of a structural shell and external envelope for a residential project in London under the JCT Design and Build Contract 2005 Edition.
Challenges arose in the project when Lancsville failed to fund the cladding works, leading to a mutual agreement to significantly reduce the scope of work, notably the external envelope components, resulting in a 40% (around £3m) reduction in the value of the contract.
The modifications disrupted the project’s workflow and confused the responsibilities and deadlines for the project. This caused a series of complex legal disputes between the parties resulting in 4 adjudications including Vision’s entitlement to Liquidated Ascertained Damages (LADs) and asserting their claims for unpaid payment applications, following Vision’s termination of their employment under the contract.
The parties disagreed on the adjudicator’s decisions and therefore referred to the Technology and Construction Court (TCC) for determination and enforcement.
Outcome: The Technology and Construction Court found the third adjudication was invalid because of the failure to comply with procedural issues for referring the matter to adjudication. The notice of adjudication was issued too early before any dispute had occurred, without a properly defined dispute, and lacked the necessary detail, making it invalid. In contrast, the fourth adjudication was upheld, awarding Vision Homes £509,254 in Liquidated Ascertained Damages for late completion.
How can Adjudication Help with Construction Dispute Resolution?
Adjudication in construction dispute resolution is a quick, interim dispute resolution process often used in the UK construction industry. It involves an impartial third party, the adjudicator, who decides the construction dispute until it can be resolved in arbitration or litigation, or until a final agreement is reached.
Adjudication is intended to ensure that cash flow and project progress are maintained while construction disputes are resolved. The process is governed in the UK by the Housing Grants, Construction and Regeneration Act 1996 (also known as the Construction Act). It’s a compulsory mechanism for many types of construction contracts in the UK, ensuring that parties have a rapid method of dispute resolution available to them.
Once a party refers a dispute to adjudication, the adjudicator is typically required to decide to dispute within 28 days, making it a much faster process than going to court. The adjudicator’s decision is binding until the dispute is finally resolved through legal proceedings, arbitration, or by agreement.
When can a Construction Dispute be referred to Adjudication?
The process of referring disputes to adjudication has several requirements that the parties must ensure to ensure that any referral to adjudication is compliant such as:
- Applicability of Adjudication: Adjudication is applicable for disputes arising from a construction contract. The contract must fall within the scope defined by the Housing Grants, Construction and Regeneration Act 1996 (most construction contracts will have an adjudication clause and there have been suggested reforms in our article “Construction Adjudication in 2023 – Analysis of Key Trends and Reforms”).
- The Notice of Intention to Refer a Dispute: The party initiating adjudication (the referring party) must issue a written notice to the other party (the responding party). This notice is the formal start of the adjudication process and must include specific information.
- Description of the Dispute: It should clearly define the nature of the dispute, including what the dispute is about and the parties involved.
- Details of When and Where the Dispute Occurred: This includes the contractual basis or circumstances leading to the dispute.
- Remedy Sought: The notice should specify what the referring party is seeking to resolve the dispute, such as payment of a specific sum, additional time, or any other form of remedy.
- Names and Addresses of the Parties: Full identification of all parties involved in the contract and the dispute.
- Timing: The notice must be issued at the appropriate time. It must be served after the dispute has crystallised but within a limitation period.
- Appointment of an Adjudicator: Following the notice, an adjudicator is appointed either by agreement between the parties or by an appointing body as specified in the contract or the scheme under the act. The adjudicator must declare their acceptance to act.
- Referral Notice: After the adjudicator’s appointment, the referring party sends a more detailed referral notice to the adjudicator and the other party. This document includes comprehensive details about the dispute, the contract terms relevant to the dispute, the basis of the claim, and any supporting documents.
Failing to comply with these requirements may mean that an adjudicator decision may not be valid and you will have difficulties enforcing any adjudicator decision at Court.
If you have a construction dispute, our expert lawyers can assist you to start or defend adjudication proceedings, for a Free Consultation please call us on 0207 459 4037.
Enforcing Adjudicator’s Decision & Challenging Adjudicator Jurisdiction
Vision Homes Ltd v Lancsville Construction Ltd [2009] EWHC 2042 (TCC)
Background
Vision Homes Ltd and Lancsville Construction Ltd were engaged in a construction contract for residential apartments, initially valued at £7.975 million. Issues emerged when Lancsville failed to secure funding for the external envelope works, leading to a de-scoping of the contract by approximately 40%. This reduction not only impacted the value but also significantly altered the project’s timeline and raised disputes over Liquidated Ascertained Damages (LADs) and completion dates.
Construction Disputes Referred to Adjudication
There were 4 disputes between the parties which were referred to adjudication:
- First Adjudication: Lancsville initiated the first adjudication regarding the lawfulness of Vision Homes’ termination of their contract. However, this was withdrawn before any decision was made, and the adjudicator, in this case, stood down without making a ruling on this issue.
- Second Adjudication: Lancsville initiated a second adjudication, this time concerning non-payment of part of an interim valuation by Vision Homes. The dispute was resolved when Vision made full payment, leading to the second adjudicator also standing down in relation to this issue.
- Third Adjudication: This adjudication initiated by Lancsville sought a pre-emptive declaration decision from the adjudicator as to whether it was liable LADs following the significant de-scoping of the contract. The issue here was whether the contract’s original terms, particularly relating to LADs and completion dates, still applied. The adjudicator decided that given that the scope of the contract had changed between the parties that the LADs were not enforceable.
- Fourth Adjudication: Vision Homes, shortly after the referral of the third adjudication, initiated an adjudication seeking £509,254 in LADs due to the alleged late completion of the project; this was referred to a different adjudicator to the one who determined the 3rd adjudication. The adjudicator upheld the claim in favour of Vision, affirming that despite the substantial contract modifications and change in scope, certain obligations and claims remained enforceable. Lancsville challenged the enforceability of this decision, leading to the TCC’s review.
Given the conflicts between the adjudicator decisions in respect of the Third and Fourth Adjudications, which were determined by separate adjudicators it fell to the Court to determine which adjudicator was correct.
Decision
The Court held that the referral for the third adjudication was invalid and did not comply with the requirements. It had been referred to early and lacked detail in the adjudication notice, rendering the adjudicator’s decision to declare that there was no liability for LADs null and void. This lack of jurisdiction meant the adjudicator’s decision could not be enforced.
In respect of the fourth adjudication, the Court upheld it and awarded Vision Homes £509,254 in Liquidated Ascertained Damages for late completion despite the reduced scope of the work. The LADs clause was not amended and was still enforceable.
Free Consultation with Expert Construction Dispute Resolution Solicitors
It should be noted that despite the Court agreeing with Vision, Lancsville went into administration shortly after the Court’s decision and was ultimately dissolved in April 2018. This complicated the enforcement of the Court’s decision and highlights the need to act quickly to enforce and protect your rights – you can find more information on enforcing adjudicator decisions here.
Financial due diligence is paramount in the construction industry which is why our lawyers offer a free service “Insolvency Tracker & Claims Protection Service”. Parties should regularly assess the financial stability of their counterparts to mitigate risks associated with financial distress.
Facing a construction dispute or need guidance on construction adjudication? Call our expert lawyers for a free consultation at 0207 459 4037. We are here to help.
We provide flexible funding options including fixed fees and ‘no win no fee’ arrangements for your construction dispute.
Resolution of Construction Dispute – £1.2m Recovered for Sub-Contractor plus costs
Client A approached our expert construction dispute lawyers after receiving a contentious Pay Less Notice which the client assessed at zero.
Our dedicated construction dispute lawyers swiftly analysed the situation, and evidence (including an expert valuation report), identified key areas of contention, and helped Client A successfully challenge and mitigate the financial implications of the notice.
Our construction dispute lawyers were able to recover a significant multi-million-pound sum of over £1.2m for the subcontractor.
Winning Approach to Construction Adjudication
Our lawyers’ extensive industry-specific knowledge and our commitment to justice make us the preferred choice for many businesses in the construction industry. Our construction dispute lawyers are passionate about this industry and are members of the Society of Construction Law and the Adjudication Society.
Our lawyers are recognised among the best lawyers in England & Wales, and have regularly been asked and featured to write authoritative articles in the Financial Times, the Law Society and LexisNexis and have been quoted in City AM, the New Law Journal, Law Society Gazette and Litigation Futures.
Our unique approach to construction adjudication means that we will:
- Arrange a Free Consultation with you & a qualified lawyer to discuss your construction dispute
- Free Asset Tracer & Due Diligence Report
- Arrange a WhatsApp group with you & your legal team in case you have any questions
- Investigate the merits of your issue & create a strategy for success
- Send us your case documents easily through our secure client portal, Go Transfer
- Advise on any judgments & tactics that have proved successful in construction disputes
- Consult with independent surveyors & experts to strengthen your position
- Free sign-up to our Insolvency Tracker & Claims Protection service (worth £1k pa)
- Fixed fees & “no win no fee” arrangements so that you have peace of mind throughout
- Work hard to achieve the best outcome in your construction dispute
Our construction lawyers offer regulated, independent & confidential legal advice and are also dedicated members of the Professional Negligence Lawyers Association, the London Solicitors’ Litigation Association, the Association of Cost Lawyers, the Insolvency Lawyers Association and the Commercial Litigation Association.
