Walker Construction (UK) Ltd v Quayside Homes Ltd [2014] EWCA Civ 93

This summary was provided by CMS Cameron McKenna LLP.

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Summary

Where a party was seeking in legal proceedings to obtain by way of a set-off and counterclaim the repayment of a sum which it had previously paid pursuant to an adjudicator’s award it was incumbent on that party, as the party asserting its right to set off, repayment and/or damages, to plead and adduce evidence to prove its entitlement.

Court of Appeal (Civil Division), Lord Justice Laws, Lord Justice McFarlane and Lady Justice Gloster:

Background

In December 2004, Walker Construction (UK) Ltd (“Walker”) were engaged by Quayside Homes Ltd (“Quayside”) to carry out drainage and highways works at Quayside’s residential development on land known as ‘Willowbank’. 

At the conclusion of the works, a dispute arose between the parties regarding the final payment sought by Walker.  Walker had carried out remedial works on the instruction of Quayside’s contract administrator.  Quayside considered these remedial works to be a correction of Walker’s own defects and had also withheld parts of the retention and other payments to reflect the costs it considered were incurred in rectifying allegedly defective work by Walker.

In February 2008, Walker issued County Court proceedings, claiming a sum of £23,572.36.  A stay of proceedings was agreed to allow the parties time to settle their dispute, but in August 2008 Walker started an adjudication in respect of the same claims as the County Court proceedings.  The Adjudicator gave his decision in December 2008, rejecting Quayside’s claim that Walker was not entitled to be paid for the remedial works. He also rejected Quayside’s claim to withhold payment in respect of damage allegedly resulting from Walker’s allegedly defective work. The Adjudicator awarded Walker the sum of £23,440.72 plus interest, which Quayside paid.  Part of Walker’s claim, for £1,773.65, had been withdrawn from the Adjudicator following concerns as to the Adjudicator’s jurisdiction to determine that issue.

The County Court proceedings were revived, with Walker pursuing a claim for the £1,773.65 the Adjudicator had not dealt with and Quayside pursuing a counter-claim for £169,138.80 for defects they argued were present in Walker’s work.  This £169,138.80 included a claim for £8,941.16, the sum that had been included in the Adjudicator’s award paid to Walker, and which Quayside alleged was not properly due to Walker since, Quayside argued, it related to Walker correcting its own defects. The claim by Quayside for £8,941.16 was a key issue when the matter went to trial.  The judge held that there was an implied term in any contract to which the Housing Grants, Construction and Regeneration Act 1996 applied, that the contractor would repay any money paid by the employer under the terms of an adjudicator’s decision, if liability to pay was not substantiated by the contractor in subsequent legal proceedings.  However, as a breach of this implied term had not been pleaded by Quayside, their claim for repayment of the £8,941.16 failed.  Quayside appealed against the judge’s finding and the matter went to the Court of Appeal.

Issues

The Court of Appeal had to decide the following issues:

  • Whether, in subsequent litigation in respect of an amount that has been has held by an adjudicator to be due to a contractor and that has been paid by the employer, the burden of proof remains with the contractor to show that that amount was indeed due, or switches to the employer to show that it was not.
  • Whether, since Walker had not attempted to show that the £8,941.16 was payable to them, the Judge ought to have ordered that it should be repaid to Quayside.
  • Whether, because Quayside’s claim was effectively a claim to set-off damages in respect of allegedly defective works, the burden of proof was on Quayside.

The Decision

  • The Court of Appeal had difficulty with the analysis of the Outer House of the Scottish Court of Session in City Inn Limited v Shepherd Construction Limited [2002]Scots Law Times 781 that the burden of proof in subsequent proceedings was unaffected by the adjudicator’s award (in that case the Outer House had held that, where the contractor had successfully argued in an adjudication that it was entitled to an extension of time, the burden remained on the contractor to show that it was entitled to the extension in subsequent proceedings brought by the employer).
  • However the Court did not need to conclusively address the question of the effect of an adjudicator’s decision on the burden of proof because in the context of the present case it was on any basis incumbent upon Quayside to establish the set-off and counterclaim it was asserting in response to Walker’s claim in the action for £1,773.65(a sum which had nothing to do with the allegedly defective works).  Quayside had not properly pleaded its case and failed to call any evidence at trial to support its argument that Walker’s works were defective.
  • In the obiter comments, however, the Court indicated that it preferred the views of Akenhead J in Aspect Contracts (Asbestos) Ltd v Higgins Construction PLC [2013] EWHC 1322 (TCC) to those of His Honour Judge Davis in Jim Ennis Construction Limited v Premier Asphalt Limited [2009] EWHC 1906 (TCC). Akenhead J had held that, contrary to the views of His Honour Judge Davis, there was no implied term giving rise to a new right to the losing party in the adjudication to sue as from the date of payment for the recovery of sums paid and no separate cause of action in restitution enabling the losing party in the adjudication to bring a restitutionary claim for payment.  Neither of these two cases, however, assisted in the resolution of the issue of the burden of proof.
  • Accordingly, the Court of Appeal upheld the trial judge’s dismissal of the £8,941.16 included in Quayside’s counter-claim, but for somewhat different reasons from those given by the judge.

This summary was provided by CMS Cameron McKenna LLP.

For more information visit http://www.cms-lawnow.com/adjudication

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