Bellway v Surgo and Bellway v Surgo: a double-header on adjudication

Our key takeaways:

• A “single dispute” for the purposes of adjudication is to be broadly interpreted, and can include a “dispute” made up of a number of issues – for instance, a single claim for payment by alternative routes.
• Specifically, a “smash-and-grab” adjudication will not be invalid because it asks for a “true value” assessment in the alternative.
• Contractual provision for a “panel” of employer-approved adjudicators does not necessarily raise an issue as to those adjudicators’ bias.
• An adjudication timetable which may lead to a Referral beyond 7 days, does not necessarily run afoul of the Scheme.
• In general, the Court continues to take a pro-enforcement approach to adjudication, and is reluctant to unpick adjudicators’ decisions over technicalities.

These are taken from the cases of Bellway Homes Ltd v Surgo Construction Ltd [2024] EWHC 10 (TCC) and Bellway Homes Ltd v Surgo Construction Ltd [2024] EWHC 269 (TCC), which each relate to disputes between property developer Bellway Homes Limited (Bellway) and contractor Surgo Construction Limited (Surgo). They contain useful clarifications on the current scheme for construction adjudication in England and Wales.

Round 1: Bellway Homes Ltd v Surgo Construction Ltd [2024] EWHC 10 (TCC)

Surgo was engaged as the main contractor in relation to a Bellway development. Surgo sub-contracted another firm, Roundel Manufacturing Limited (Roundel), to supply and install kitchens.

In December 2022, Roundel made a payment application to Surgo for c£152,000. Surgo did not issue a payment notice or a pay less notice as required by the sub-contract.

In March 2023, Roundel referred the matter to adjudication, claiming that:

1. As Surgo had not issued either notice, Roundel’s December 2022 application had become the “notified sum” and was payable (the “smash and grab” claim).
2. Alternatively, if it had not become the notified sum, Roundel was entitled to an amount calculated by the adjudicator as reflecting the works it had undertaken under the sub-contract (the “true value” claim).

The adjudicator found that Roundel’s application was not a valid application under the sub-contract, and so could not be treated as the basis for a “smash and grab” adjudication. However, the adjudicator was able to calculate a “true value” of c£146,000 and awarded that sum to Roundel.

Roundel later assigned its rights to those sums to Bellway, who issued Part 7 proceedings to enforce payment. Surgo sought to oppose enforcement on the basis that Roundel had actually referred two disputes to adjudication without consent – one being the “smash and grab” claim, and the other being the “true value” claim.

It is settled case law that only a single “dispute” can be referred to adjudication unless the parties agree otherwise, though what constitutes a “dispute” can be a matter of some disagreement. 

In a judgment handed down in January (the TCC’s first of 2024), DJ Baldwin endorsed a broad common-sense approach to the meaning of a “dispute” and found that the two claims set out by Roundel were a single, disputed claim for a sum – any sum – due to Roundel by way of payment. To treat them as two separate disputes would be “too legalistic an approach”. 

Round 2: Bellway Homes Ltd v Surgo Construction Ltd [2024] EWHC 269 (TCC)

Bellway, as employer, had contracted Surgo under a JCT contract with several bespoke amendments, including to interim payment and adjudication provisions.

In February 2023, the contract administrator issued an interim payment certificate which valued the works at around £8m - c£3m lower than the cumulative payments already made to Surgo, with the result that the certificate showed a negative liability (ie that Surgo should in fact pay Bellway c£3m). 

This was immediately disputed, and Surgo contended that it was in fact owed a further c£1.4m by Bellway. 

The amended contract particulars between Bellway and Surgo provided that an adjudicator was to be chosen from Bellway’s “Panel of Adjudicators”, which included three named individuals.

Clause 9.2.1 further provided that if the first “panel” adjudicator could not confirm willingness to act within 2 days, the referring party was required to approach another “panel” adjudicator until these were all exhausted, in which case RICS would be approached as a nominating body.

As a result, the nomination process (and therefore the formal referral to the adjudicator) could take longer than 7 days from the initial notice of intention to refer a dispute to adjudication.

The adjudicator chosen, Mr Jonathan Cope, was one of Bellway’s panel, and ultimately awarded Bellway the sum of c£1.1m, which Bellway again sought to enforce in Part 7 proceedings.

Surgo opposed enforcement on the basis that the adjudication terms contravened the Housing Grants, Construction and Regeneration Act 1996 (the “Act”). Therefore, the Scheme for Construction Contracts was to apply, and the adjudication should have been referred to an adjudicator nominating body (ANB), not directly to Mr Cope.

Surgo argued that:

1. The terms contravened s108(2)(b) of the Act, which states a construction contract shall include provision in writing so as to “provide a timetable with the object of securing the appointment of the adjudicator and referral of the dispute to him within 7 days of such notice”. 
2. The fact a referring party was obliged to choose from a panel selected by Bellway produced a “perception” of bias which contravened the policy aims of the Act (namely, of having apparently impartial adjudicators).

In linked Part 8 proceedings, Surgo also sought a declaration that the adjudicator’s decision was wrong, and that Bellway was not entitled to be repaid until at least the final payment certificate / reconciliation on the project.

In a judgment handed down in February, HHJ Davies ruled that: 

1. s108(2)(b) only required the contract to provide a timetable with the object of referring the dispute within 7 days. It was not fatal that the contract failed to actively prohibit a referral beyond 7 days.
2. In respect of the “perception of bias” argument, the three “panel” adjudicators were all well-known, independent adjudicators, with no other links to Bellway. This was contrasted to other cases where, for instance, the employer reserved the right to pick a favourable adjudicator at the time the dispute was referred. There was no basis for suggesting an informed person would have concerns as to the bias of the “Bellway Panel”.

HHJ Davies also rejected Surgo’s Part 8 claim for declarations that Bellway was not yet entitled to repayment.

A closing thought on bias

On the specific point of “perception of bias” raised in the second Bellway v Surgo case, it is worth noting the findings of the King’s College report on construction adjudication (in partnership with the Adjudication Society) published last November.

In that report, 27% of respondents said they suspected adjudicators’ bias in at least one case in the previous year. The most common reason given by respondents for suspecting bias was the adjudicator’s relationship with the parties or their representatives.

In the previous (2022) King’s report, 40% of respondents said they suspected adjudicators’ bias in at least one case in their careers (rather than just the previous year). 

The 2023 King’s report found 90% support for a uniform guideline for adjudicators on conflict of interest, and 88% support for requiring adjudicators to provide a conflicts declaration, suggesting that despite Bellway v Surgo, this is an area to watch as there may be appetite for reform in the near future.

This article forms part of our Breaking Ground series. For more information on the series, contact Andrea Lynch.