ML HART BUILDERS LIMITED (IN LIQUIDATION) v SWISS COTTAGE PROPERTIES LIMITED

A settlement between an employer and a surety under a performance bond does not, without more, constitute the contractual account required between the employer and contractor after termination. Nor does it bind a contractor who was not a party to the settlement. The contractor may therefore seek the contractual accounting exercise unless agreement, estoppel or another recognised principle prevents it.

For the purposes of paragraph 9(2) of the statutory adjudication scheme, the relevant comparison is between the dispute referred to the later adjudicator and what the earlier adjudicator actually decided. Where the earlier adjudicator decided only a preliminary jurisdictional or legal issue and declined to determine the financial merits, a fresh adjudication on those merits is permissible.

The claimant contractor entered insolvency after its construction contract with the defendant employer was terminated. The employer and the contractor’s surety later agreed a discounted settlement of the employer’s bond claim.

An adjudicator held that the settlement had completed the contractual accounting exercise and rejected the contractor’s claims. The contractor sought declarations that the adjudicator’s decision was wrong, that no contractual account had been completed, and that a fresh adjudication on the sums due was permissible.

The issues were whether the settlement bound the contractor, whether the contractor was estopped from seeking the contractual account, and whether paragraph 9(2) of the statutory scheme prevented a further adjudication.

1. The court granted all three declarations sought. The Acceptance Agreement settled the employer’s claim against the surety, but it neither constituted nor evidenced the account required by clauses 8.7.4 and 8.7.5 of the Contract.

2. A clause 8.7.4 account is a definitive, one-time assessment containing the matters specified by the clause. It has primary efficacy between the employer and contractor. A bond settlement may affect the surety’s secondary liability, but it does not alter the character of the contractual account.

3. The Acceptance Agreement did not bind the contractor. It was expressed to settle the bond call and claims between the employer and surety; the contractor was not a party; and the agreement’s warranty of authority was inconsistent with treating the contractor as a contracting party. The surety’s possible rights of subrogation and indemnity did not justify inferring that the contractor was bound.

4. The contractor was not estopped from seeking an account. The authorities relied upon were best regarded as involving issue estoppel or abuse of process, and the circumstances did not approach the unconscionability required for the proposed estoppel. The court should be slow to give an agreement, to which the contractor was not a party, a preclusive effect on its contractual right.

5. The adjudicator’s decision was erroneous but not a nullity. Under paragraph 9(2) of the statutory scheme, the question is what the earlier adjudicator actually decided. Since the adjudicator decided only that the Acceptance Agreement barred consideration of the account and made no decision on the amount due, a later adjudicator could determine the financial dispute on its merits.

First-instance Part 8 proceedings. The court had previously ordered that the claim continue under CPR Part 8 and identified the issues for determination.