Zombies will be wiped out, which is good news for many but bad news for online gamers and fans of World War Z (which I never watched nor played). I did watch Zombieland once which means I know how to despatch a zombie with a 'double tap' if I were ever meet one, assuming I have a gun to hand to administer the required second head shot.

I know, for once, I jest because the Guardian's report concerns 'zombie companies' that have, on a diet of government funding and cheap bank borrowing, struggled on through and after the COVID-19 pandemic and are still trading. This diet of cheap cash is, if the many financial commentators are correct, soon to end which means a bonanza for insolvency practitioners and their retained rottweiler 'no win, no fee' debt collectors - 30% seems to be the standard contingency fee these days when I read Administrators' reports filed at Companies House. On one occasion I even spotted an average hourly rate in excess of £700 (in my dreams), so zombies are good for some.

What does the actor Woody Harrelson and Zombieland have to do with adjudication?

Anyway, what does this have to do with adjudication I hear you scream over your £3.90 (formerly £2.90) barista coffee? Well simple really, in a separate report by Creditsafe (June 2023) these boffins opined, "The Construction sector remains the most significant contributor to the insolvency numbers, representing 17% of all insolvencies in June 2023, with 449 Construction companies becoming insolvent". In addition, more boffins at the ONS reported that May 2023 witnessed the third consecutive fall in construction output, down 0.2%, coming solely from a decrease in new work (0.4% fall).  Even the additional bank holiday for King Charles III's coronation could not explain this, so we cannot blame His Majesty for the downturn.

Overall, the June 2023 picture for the construction sector (and the economy) is less than rosy which means cashflow will be king and, one can suggest, the adjudication industry will be busier. But if you are a sub-contractor and are told adjudication is a quick and cheap way to get the money owed, I would tell the claims salesman (or woman) to read the saga of A&V Building Solutions Limited's legal fight for cash; it got nothing but a large bill.

The A&V Building Solutions - an adjudication saga

In summary, the saga went like this:

The Sub-Contract - payment no. 14 of March 2021

• A&V was employed by J&B, on J&B's own standard terms, for certain plumbing works at Moulescoomb University Project, in Sussex. The contract sum was £368,000.
• The works did not go smoothly and in March 2021 A&V submitted payment application 13 for £520,890 (net £106,619.10). The figures rose in payment application 14 to £601,000 (net £211,773.60).
• The parties entered into discussions over interim payment 14 but no agreement was reached. A&V then threatened to start an adjudication over the disputed sum at which point J&B argued, for the first time and without explanation, that payment application 14 was invalid.

The initial adjudication - November 2021

• A&V started adjudication proceedings on 17 November 2021 seeking £211,773.60 plus VAT, interest and fees based on application 14.
• J&B’s solicitors raised a number of "unmeritorious jurisdictional challenges" (well, I never) which were “correctly rejected by the adjudicator” observed Lord Justice Coulson in the subsequent Court of Appeal decision.
• In essence, the Adjudicator had to decide whether payment application was valid being served on Monday, 22 March 2021 rather than Sunday, 21 March. If it was not, there could (on the terms of the sub-contract) be no valid claim for payment.
• On 19 January 2022, the Adjudicator decided that application 14 was valid and a payment of £138,010.86 was due to A&V, but J&B did not pay.
• The adjudicator's fees were £34,800, split 50:50 between the parties.

J&B's Part 8 Proceedings - an exceedingly cunning plan (December 2021)

• On 2 December 2021 and before the Adjudicator had reached his decision, J&B started Part 8 court proceedings seeking declarations that application 14 was invalid and its own payment notice was valid.
• A&V did not seek to enforce the Adjudicator’s decision of 19 January 2022 and J&B’s Part 8 court proceedings were heard on 12 April 2022. But the judge did not deal with the Adjudicator’s decision or the fact that J&B was in breach of the sub-contract in failing to pay A&V the £138,010.86 due or the £17,400 adjudicator fees.
• The judge went on to find that A&V's payment application 14 was one day late and invalid, i.e. nothing was due to A&V.

A&V's second adjudication - the final account (June 2022)

• Not to be outdone, A&V started a second adjudication for a final account sum of £455,526.53 but the second Adjudicator (a different chap) decided the true value of the works was £289,182.31 and A&V was entitled to £nil. This also meant A&V had been overpaid and owed J&B £82,956.88.
• A&V did not pay J&B.
• On the face of it, there was now a second Adjudicator’s decision that (like the first one) was valid but neither party had paid the other what the Adjudicators had decided was due.
• The second Adjudicator's fees were only £13,962, payable by A&V.

J&B wants to be repaid - February 2023

• A&V contested the enforcement proceedings on various grounds, all of which were rejected.
• As for the power of the second Adjudicator to direct that the over-payment should be rapid by A&V to J&B, the judge said, “Insofar as the result of the Adjudicator's conclusions was to show that a sum was due or would become due to J&BH, that seems to me to be a legitimate conclusion".
• The judge continued, "However, I have some doubt as to whether it was within his jurisdiction to go on to order payment. Nevertheless, in my judgment I should now grant summary judgment, since the conclusion that monies were due to J&BH is still binding upon A&V, and I should give effect to it".
• So, notwithstanding his concerns as to an adjudicator's power to order the payment to J&B, it was (on its face) a binding decision and should be enforced which accords with the 'pay now, argue later' doctrine of adjudication.
• But hold on, before J&B could get hold of the money the parties were in the Court of Appeal.  

Court of Appeal (January 2023) - what is going on?

A&V appealed against the Part 8 proceedings, i.e. the one in which the judge found A&V's payment application 14 was one day late and invalid and it could not get the £138,010.86 or the £17,400 for the adjudicator's fees.

A&V's appealed on three grounds. The first ground failed, but the second and third were successful:

• First, on the facts of this case, the Part 8 court proceedings were not an abuse of process and should not have been struck out (as A&V claimed). However, the trial judge should have dealt with the enforcement of the first Adjudicator’s decision, i.e. a payment of £138,010.86 to A&V plus £17,400 of fees, before deciding if A&V lost its entitlement to enforcement based on the Part 8 proceedings. He had not done so and it was now far too late for the Court of Appeal to change anything.
• Second, on the facts, the payment application was sent and received in time because, on the wording of the sub-contract, it was only applications received less than 7 days before the relevant valuation date that would be invalid. The valuation date for payment 14 was 31 March 2021 and A&V’s application was sent and received on 22 March 2021, i.e. within time. Therefore, the Court of Appeal found the trial judge to have been wrong and his declarations that application 14 was invalid and A&V was not entitled to be paid £138,010.86 were wrongly granted. Therefore, A&V’s appeal on this ground was granted; and
• Third, the simple ingredients of an estoppel (i.e. a party cannot now argue something different to what occurred) were made out in light of the parties’ treatment of application 14. J&B had said in an email of 1 April 2021 they would deal with the application and in place of application 13. J&B then responded to the detail of application 14 and issued a payment notice. At no time did J&B challenge the validity of application 14 or reverse its position. Therefore, by its conduct J&B had “unequivocally affirmed the validity of application".

A&V still gets no money and neither does J&B

• Notwithstanding the Court of Appeal quashed the trial judge’s declarations that application 14 was not a valid payment because it was issued too late and A&V was not entitled to any payment in respect of application 14, the court did not enforce the first Adjudicator’s decision in favour of A&V because that entitlement had been overtaken by events. As it said, it was by now far too late to change what had happened - the proverbial horse had bolted along with the saddlebags of cash.
• By the time the dispute reached the Court of Appeal, the second final account adjudication in favour of J&B had finished. In addition, A&V had not (as part of the appeal proceedings) sought payment of any sum from J&B so the court could not, in any event, make any such order even if had wanted to, which it probably did - one forgets that judges are humans too and frequently favour fairness (or equity) over black & white outcomes.

Anyone for anymore or are you already too exhausted - June 2023? 

• Following their visit to the Court of Appeal, the parties were back before the same judge who had, in February 2023, granted J&B summary judgment in respect of the second 'final account' adjudication, i.e. A&V was to pay J&B £96,918,88, i.e. the £82,956.88 plus adjudicator's fees of £13,962. 
• On the facts of this case the judge decided it would be appropriate to allow A&V more time to submit further evidence as to its financial standing and that of its owner Mr P. This was relevant to deciding the application for a stay (suspension) of enforcement on ground that the applicant (A&V) was unable for any reason to pay the money (CPR 83.7).
• As the judge pointed out, the power to grant a stay is a discretionary one and in this regard, "The authorities make it clear that whether it is a stay of execution which is being sought, or whether it is being suggested that an order for security for costs will stifle a bona fide claim, the Court expects information not only as to the Company's position but also as to the position of those standing behind the Company, here Mr. [P]". 
• Put simply, the judge wanted more evidence before deciding to exercise this judicial discretion to grant a stay or not.

Adjudication is quick and cheap, says the salesman (or woman), you can trust me

I am not convinced A&V would agree because its payment application was made in March 2021 and by June 2023 it had still not been paid.  Indeed, it owed J&B money but they too had nothing despite the second adjudication having taken place a year earlier in June 2022.

Conclusion

An exhausting legal saga, but four points to ponder as you scratch your head and ask yourself, 'what was going on?":

1. First, adjudication is no guarantee of quick cashflow for a party to a construction contract.  The J&B v. A&V case may be an unusual one, but such lengthy legal battles are not new to adjudication. Given the downturn in construction activity and the general economic outlook, we could all witness a rise in claims and a corresponding reluctance to pay coupled with a rise in "unmeritorious jurisdictional challenges" when we enter the adjudication contest.
2. Second, even if you don't end up in a saga like A&V, the process is not cheap. The first Adjudicator charged £34,800 and the second £13,962, a total of £48,762. Of this total, A&V had to pay £31,362 (ouch).
3. Third, remember that where a party seeks a stay of the enforcement of an adjudicator's decision on the ground that it has no money to pay it, "the Court expects information not only as to the Company's position but also as to the position of those standing behind the Company". So, a copy of the latest company accounts filed at Companies House is unlikely to be sufficient to persuade a judge to exercise his/her discretion to grant a stay.
4. Fourth, where an Adjudicator finds the Referring party is due £nil and has, in fact, been overpaid the Responding party has a glimmer of hope that it can get that decision enforced by the court, i.e. recover the overpayment. That appears at odds with the notion that an Adjudicator's jurisdiction is limited by the terms of the Notice of Adjudication but adjudication has been subject to many developments over the past 25 years. We will have to see what happens.

Finally, a tale from the coal face by a jobbing high street construction solicitor

I (and one of my former colleagues, a Mr M P) once contested a contractor's claim for £750,000 which we did quite successfully. The Adjudicator (a very sound chap) decided our Employer client had in fact overpaid the Contractor by some £60,000 due to a long list of defects etc. The Contractor also paid the Adjudicator's fees. While the outcome gave me and our client team a warm feeling of inner self-satisfaction, getting our hands on the £60,000 cash would have been even better. Sadly, our Adjudicator decided he had no power to direct the Contractor pay, but we still took the outcome as a success. Ah, happy days on the south coast.