This article summarises the judgment in OD Developments v Oak Dry Lining [2020] EWHC 2854 (TCC). The case concerned the enforceability of an adjudicator’s decision in favour of Oak for £431,291.81. OD challenged the validity of his decision due to a lack of jurisdiction revolving around whether the JCT 2011 Design and Build Subcontract terms were incorporated into a Letter of Intent (LOI) between the parties and thereby whether the adjudicator was appointed under the correct terms and whether the final certificate was conclusive.

Background to Dispute

OD engaged Oak by a LOI to undertake the dry-lining works at 19 Bolsover Street in London. As is usually the case, the LOI stated the intention to enter into formal contractual relations, based on the JCT DB11 Subcontract, but no such contract was ever executed. 

One of the most interesting parts of the decision were matters pertaining to the payment provisions under the Act and the parties demonstrating their expertise by traversing the roles of payee and payer and their corresponding payment notices. OD issued its final account on 22 July 2019 showing a balance of negative £625,000 and then sent the final payment notice on 26 September showing the sum considered due from Oak. However, Oak disagreed with this final account sum and sought to circumvent its effect with a payless notice on 14 October stating the sum considered due of negative £765,000. For the avoidance of doubt, in this somewhat unusual state of affairs, the difference between the parties was £1,390,000.

Later that day, in what it might have considered a belt and braces approach, Oak sent another letter claiming that the OD payment notice was invalid and that it was serving a ‘default’ payment notice. I am guessing that Oak had reservations about its entitlement to serve a payless notice. However, two days later, OD saw this default payment notice as an opportunity to serve its own payless notice. That is right, extraordinarily, there were two payment notices and two payless notices.

An adjudication followed on 19 December 2019. Oak’s notice of adjudication proceeded on the basis that the JCT terms were not incorporated and that the adjudication fell under the Scheme. The adjudicator held that even though the notice did not explicitly mention the LOI’s adjudication clause, as appointment by RICS was consistent with it, he was therefore validly appointed. The LOI stated: “any dispute or difference arising out of, or in connection with, this Letter of Intent will be determined by adjudication under the current scheme. The adjudicator will be appointed by a president or vice president of the RICS.”

Although there is very little detail on the payment notices, it seems that the adjudicator was tasked with determining the value of the final account and he found the OD payment notice was invalid and therefore it could not represent a conclusive determination. He then proceeded to a true value of the works and decided a sum of £1.41 million, leading to the award of £431,291.81 to Oak.

On 9 January 2020, OD issued a Part 8 claim contending that the adjudicator lacked jurisdiction and claimed £595,479.11 was due from Oak. On 17 March, Oak made an application for summary judgment to enforce the adjudicator’s decision.

Validity of Appointment & Existence of Dispute

On enforcement, Waksman J rejected OD’s argument, finding that Oak did comply with the LOI’s adjudication provision by seeking adjudication under the Scheme and appointment by the RICS. The lack of explicit reference to the LOI in the notice was not fatal. The Judge said that Oak “did not refer to the LOI adjudication provisions in the notice, but I do not consider that it had to, though what it did was completely in accord with it.” He distinguished this case from Twintec Ltd v Volkerfitzpatrick Ltd, where the adjudicator was appointed under a non-existent contractual provision.

The judge also rejected OD’s argument that the final payment notice being conclusive meant no dispute existed. He stated that the validity of the final payment notice itself was in dispute. He stated: “It cannot be right that a mere claim by one party to be able to rely on a conclusivity provision is sufficient to deprive the adjudicator of adjudication at the outset.”

Incorporation of JCT Terms

The judgment recited the relevant part of the adjudicator’s reasoning on his finding that the JCT terms were incorporated in to the LOI: “The Letter of Intent states the intention that the 2011 JCT Design and Build Subcontract will apply…It is clear the parties proceeded on the basis that the 2011 JCT Design and Build Subcontract Condition applied, referring to the Conditions albeit absent any completed subcontract particulars… I further agree with OD Developments that whilst parties did not complete the Subcontract Particulars, there was nothing further to be agreed and hence a contact was formed…I therefore agree with the Parties that the Conditions of the JCT Design and Build Subcontract are incorporated and apply.”

The judge disagreed and held that the JCT terms were not incorporated into the LOI. He analysed the language of the LOI and concluded it contemplated either the LOI applying on its own or a fully executed JCT contract. The reference to JCT was about the intended future formal contract. The Judge stated: “It is plain from all of this, in my judgement, that the LOI contemplated only two possibilities. Either it applied by itself and on its own, with the provision for payment and relevant particular terms contained within it or a JCT contract is actually executed and signed with all the particulars filled in. There is, in my judgement, no third way, i.e. that in the meantime there is an adoption of the JCT terms.”

Conclusion

The judge concluded that because the adjudicator proceeded on the basis that the JCT terms were incorporated, he acted without jurisdiction. The adjudicator’s valuation was based on a contractual framework that did not exist. While the courts generally support the enforcement of adjudicator’s decisions, they will not do so if the adjudicator lacked jurisdiction, even if the substantive outcome might have been similar under a different contractual basis.