Devon County Council v Celtic Composting Systems Ltd (TCC - 17.1.2014)

The contractor was not entitled to refer to adjudication the dispute of whether any monies awarded to it should be paid to its claims consultant representing it in the adjudication



Technology and Construction Court
Stuart-Smith J
17th January 2014

The contractor’s professed inability to pay for its representation in these proceedings and its management accounts showed that it was probably only able to continue in business with the forbearance of its immediate creditors. One of its present and prospective creditors was the claims consultant which represented it in its disputes with the employer. The contractor’s financial stringency led to the execution of a deed of assignment which assigned the right to receive money to the claims consultant and reserved the right to enforce payment of monies to the contractor. Whilst the deed of assignment contained an entire agreement clause, the claims consultant stated in a letter to the contractor that any sums received by it would be held in its client account and for the contractor’s benefit, less the sum due to it as fees. One aspect of the dispute which the contractor sought to refer to adjudication was the question of whether it was entitled to refer this dispute to adjudication.
Stuart-Smith J held that the contractor was not so entitled. He stated that the Construction Act and the Scheme for Construction Contracts (and the contract in the instant case) provide that what is to be referred to adjudication is a dispute arising under the contract. The contractor’s arrangements with its claims consultant about who would receive any monies awarded in the adjudication was not something which arises under the contract within the meaning of the Act or the contract itself (regardless of the fact that notice of the assignment was given to the employer). The dispute between the parties in this respect was quite different from the sort of dispute which is to be referred to adjudication, namely matters arising as to substantive entitlement as a result of work carried out and any allegations of breach of obligation and so on. If the adjudicator were to direct that a payment was due and if the employer had concerns at that point, the employer could apply for a stay of execution on the grounds of special circumstances, serve notice of dissatisfaction leading to an arbitration to ensure that what it regarded as the lawful liability to pay money was preserved or raise the issue elsewhere if it was concerned that that something actually amounting to fraudulent preferences was being proposed.