Bellway Homes v Surgo – A Storm in a Teacup?

Key Terms:         Adjudication, Multiple Disputes, Jurisdiction, Smash and Grab, True Value

Introduction

There is much fuss being made in construction circles at the moment around the TCC decision in the case of Bellway Homes Limited v Surgo Construction [2024] EWHC 10 TCC, with many contending that it is decidedly unsound, and apt to appeal.

On analysis however, questions arise as to (i) whether the case in fact represents a departure from the established authorities, and (ii) if it does, whether the precedent set therein shall have any practical effect.

The Case

A kitchen fitter, Roundel Manufacturing (“Roundel”), made an application for payment (“the Application”) to its employer, Surgo Construction (“Surgo”), seeking the sum of £152,225.23.

In response, Surgo failed to serve a valid payment notice, or pay less notice.

Surgo did not pay the amount applied for, and accordingly Roundel referred the matter to adjudication, summarising the parties’ dispute as follows:

“6. The Responding Party failed to issue either a payment notice or a payless notice and the Referring Party’s primary position is that the Application became the notified sum which the Responding Party failed to pay on or before the final date for payment.

7. Further or in the alternative, the Referring Party is entitled to an amount due up to end December 2022, calculated on a substantive basis, in such sum as the Adjudicator shall decide.”

In other words, and adopting the industry parlance, Roundel asked the adjudicator to find that it was entitled to payment on the ‘smash and grab’ basis, or otherwise find that it was entitled to payment on a ‘true value’ basis.

The adjudicator ultimately determined that Roundel’s application for payment was invalid (i.e., it failed on the ‘smash and grab’ basis), but that it nevertheless succeeded on the ‘true value’ basis, and as such was entitled to payment in the sum of £148,431.70 plus VAT and interest.

On enforcement, Surgo contended that the adjudicator’s decision was unsound because, in broad terms, he had determined two distinct disputes when adjudication referrals are limited to determination of a single dispute.

DJ Baldwin, sitting in the TCC at Liverpool, found against Surgo. He decided that “overall, the dispute can fairly and much more straightforwardly be described as a single, disputed claim for a sum due.”.

He rejected the attempt to separate the ‘smash and grab’ and ‘true value’ bases of claim, finding such distinction as being “too legalistic” where these were ultimately “two routes to the same objective”.

The Response

Many have criticised the judgment of DJ Baldwin. Some have focussed on the narrow issue of his finding on the definition of a ‘single dispute’, whilst some have expressed broader concern around the practical impact such a decision may have in the context of ‘smash and grab’ adjudications.

Analysis

What is a Dispute?

Notably, there is no legislative provision which deals with the degree of granularity which one must apply when considering the definition of a dispute. The best one can do is draw from the purpose of such legislation and the context in which it was made, and invite an inference accordingly.

For example, one might contend that the purpose of the Construction Act was to facilitate better cash-flow and progress in construction projects, and that in the context of the legislative provisions around ‘notified sums’, it must follow that a claim for a ‘notified sum’ was intended to be defined as a single dispute, subject to a dedicated referral.

It is not however for practitioners to draw such inferences where the Courts have already grappled with the subject, and upon review of some prominent judgments on the matter, many may be surprised to find that the ‘breadth’ of a ‘dispute’ has already been defined quite widely.

See for example the decision in Witney Town Council v Beam Construction (Cheltenham) Ltd [2011] EWHC 2332 (TCC), where the court found that:

“A dispute can comprise a single issue or any number of issues within it.

 Whether there are one or more disputes again involves a consideration of the facts. It may well be that, if there is a clear link between two or more arguably separate claims or assertions, that may well point to there being one dispute. A useful if not invariable rule of thumb is that, if disputed claim No 1 cannot be decided without deciding all or parts of disputed claim No 2, that establishes such a clear link and points to there being only one dispute.”

And the decision in Prater Limited v John Sisk & Son (Holdings) Limited [2021] EWCH 1113 (TCC):

“[…] I do not read Akenhead J’s guidance in the Witney case as meaning that unless each claim cannot be decided without deciding all or part of the other claims, each claim constitutes a separate dispute. Clearly a single dispute in the context of a construction contract may include several distinct issues such as when determining appropriate deductions for the purposes of a payment application or final account. One needs to look at the facts of each case and to use some common sense.”

 And finally the decision in Quadro Services Ltd v Creagh Concrete Products Ltd [2021] EWHC 2637 (TCC), in the context of a referral for a claim made out under multiple payment applications:

“[…] the parties would be put to the very significant cost and inconvenience of numerous separate adjudications to recover a single claimed balance under a single contract. That would be contrary to the policy underlying the adjudication process of efficient, swift and cost-effective resolution of disputes on an interim basis.”

Whilst none of these cases deal with the distinction between a ‘smash and grab’ and a ‘true value’ basis of claim, they nevertheless demonstrate an apparent trend towards a pragmatic approach to adjudication as a process.

I pause to note that one might argue that in fact adjudication was never intended to be a pragmatic, or indeed fair, process; it was intended as a rough tool to facilitate a pragmatic approach to construction projects.

Those wishing to explore this point further would do well to read the relevant sections of Coulson on Construction Adjudication (Fourth Edition) (see for example paragraphs 7.71 and 7.146). As with the judges in the above cases, Coulson LJ also adopts a generous definition of ‘dispute’, which may come as a surprise to some who regularly refer discreet issues to adjudication.

In summary, there is no definition of a ‘dispute’, and it is not open to practitioners to arbitrarily apply a degree of granularity which suits a given case. One must look to the judicial authorities, and those authorities appear to suggest simply that a ‘dispute over payment is a dispute over payment’.

In this context, the decision of DJ Baldwin (in which he referred to some of the above cases) may be said to be entirely consistent with the principles set prior; it just happens to be that it in this case the application of those principles has encroached upon the sanctity of ‘smash and grab’ adjudications.

Practical Considerations

An End to ‘Smash and Grab’?

Not really. The decision in Henry Construction Projects Limited v Alu-Fix (UK) Limited has made it clear that a party may only pursue an adjudication on a true valuation basis where it has first paid the relevant notified sum.

If a party attempts to raise a true valuation defence to a ‘smash and grab’ adjudication (as Bellway appears to provide for), then it will not gain anything; either:

1. It will lose on the notified sum point, rendering the part of the decision dealing with the true valuation element void, as per
2. It will win on the notified sum point but will have exposed itself to liability for paying a sum due on true valuation, which it would not otherwise have had to pay had it merely addressed the ‘smash and grab’ element.

Two Bites of the Cherry?

Not really. It has always been open to a party seeking payment to first contend for payment on the basis of a notified sum due, and then – if that fails – issue a fresh referral for a true valuation.

The decision in Bellway merely provides for a more efficient means of achieving the same outcome, whereby neither party is burdened with the additional expense of tackling two separate rounds of proceedings. Indeed, this consideration is in part the basis of DJ Baldwin’s decision.

Less or More?

Consider a situation where a referring party seeks a decision on a ‘smash and grab’ basis and on ‘true value at the same time, only to find that the the true value sum is less than the notified sum.

The question arises as to what the referring party ought to be paid.

Whilst this may appear to engage many complex issues (does it depend on how the pleading is worded? Does it depend on how the dispute is defined in the referral notice?), the answer is in fact already found in judicial authority.

Firstly, the responding party must ‘pay’ the notified sum, because Henry Construction says so. Then however, because the dispute is recognised simply as “what payment is due”, the adjudicator may make any deduction as necessary from that sum, having regard to the true valuation.

Importantly, it does not matter that ordinarily the adjudicator would not have jurisdiction to decide on a ‘true value’ claim where a notified sum has not been paid (Henry Construction) because simply by referring both bases of claim the referring party has conferred such jurisdiction on the adjudicator.

In practice then, the referring party shall always plead alternative bases at its own risk.

Limitation

I wrote an article last year on a somewhat esoteric point to the effect that if notified sum claims are founded on a separate cause of action to payment claims for true value, then they ought also to have independent limitation periods.

Whilst a ‘dispute’ and a ‘cause of action’ are not the same thing, the finding in Bellway that really notified sum claims are just claims for payment nevertheless does away with this apparent incongruity.

Summary

The finding in Bellway is entirely at odds with the notion which many practitioners hold as to the definition of a ‘dispute’, much as was the decision in Quadro, where prior to that many worked under the assumption that each and every payment cycle was a blank slate.

On analysis however, there appears to be no sacred definition of a ‘dispute’ which detractors to Bellway may rely upon, but only a body of judicial authority which – in the round – supports the finding of DJ Baldwin.

Whether that authority is consistent with the intention of Parliament is another matter.

James Rooney

16 January 2024