When you Try your best but don’t succeed - cherry-picking gone sour

26 Jul 2017

A cautionary tale when defending claims in an adjudication

Mailbox (Birmingham) Ltd v Galliford Try Building Ltd [2017] EWHC 1405 (TCC)

BACKGROUND

Mailbox entered into a building contract with Galliford Try Building Ltd (‘GTB’) in relation to a well-known development in the city centre of Birmingham. From May 2015, GTB began to apply for extensions of time (‘EOT’). Mailbox granted limited extensions for some sections of the works but in November 2015 claimed liquidated damages. Naturally, GTB asserted it was entitled to EOTs on all the delayed sections, with associated loss and expense. By March 2016 the relationship had broken down.Mailbox served a termination notice and claimed liquidated damages in the sum of £5m. The parties then entered into adjudications to resolve their differences.

FIRST ADJUDICATION

Mailbox served a Notice of Adjudication in August 2016, claiming payment of liquidated damages. GTB defended the claim with an argument that the project was delayed because of a number of employer delay events which entitled it to an EOT. GTB wasn’t yet in a position to submit a detailed EOT claim addressing all the relevant events covering the full period of delay. So, in the meantime, GTB relied on only 3 relevant events with a promise to issue a full EOT claim at a later date. The adjudicator took GTB’s defence into account and awarded liquidated damages to Mailbox.

SECOND ADJUDICATION

GTB commenced a second adjudication dealing with the lawfulness of Mailbox’s termination. One of the principal issues for determination was whether GTB had proceeded regularly and diligently with the works. This question required consideration of GTB’s entitlement to an EOT.

On the same day GTB commenced adjudication number two, Mailbox issued Part 8 proceedings in the Technology and Construction Court seeking a declaration that the first adjudicator’s decision determined the question of Mailbox’s entitlement to liquidated damages and GTB’s entitlement to an EOT, and that decision was binding on the second adjudicator. 

THE COURT’S DECISION

The Judge determined that Mailbox’s entitlement to liquidated damages as awarded by the first adjudicator was ‘beyond argument’, binding on the second adjudicator. Even if there were final account discussions held subsequently, Mailbox was entitled to feed the amount of the first adjudicator’s award into the overall calculation in full.

Regarding GTB’s entitlement to an EOT, the Judge observed that under a JCT contract, a contractor’s claim for an EOT acts as a defence to the employer’s claim for liquidated damages. Since the employer’s entitlement to liquidated damages was fixed by the first adjudication, any further claims for EOTs were now “redundant”.

Further, Mailbox’s claim for liquidated damages had crystallised the dispute which encompassed all of GTB’s entitlements to an EOT. The Court noted the broad nature of the pre-adjudication correspondence, in which GTB referred to delays occurring on all seven sections which were late and identified relevant events in relation to each delayed section of the works (albeit in varying detail), not merely the three relevant events listed in its defence in the first adjudication.

As such, GTB was not entitled to ‘defend themselves by reference to just a few of the potential Relevant Events and keep others back for another day’, which it could run in a future adjudication.This was not an unfair decision because it arose from the tactical choices of GTB itself. The Judge pointed out that although GTB could no longer adjudicate on its entitlement to an EOT, it could still raise the claim in Court proceedings.  

CONCLUSION

Conclusions based on the circumstances of this case may well be one reached with the benefit of hindsight. Clearly, holding back on the available defence open to the defending party in the first adjudication turned out to be an unwise course for GTB adopt.

Each party to an adjudication has one bite of the cherry and should present its case by setting out its stall in full. Holding back the armoury at your disposal in the hope of a second bite is a high risk strategy, which in most cases will not succeed.

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