Can a contractor adjudicate to recover outstanding retention monies from the employer’s assignee?

This was the question which the Technology and Construction Court (Liverpool) grappled with in the recent case of Grove Construction (London) Limited v Bagshot Manor Limited [2025] EWHC 591 (TCC).

Background

Grove Construction, was contracted by Bagshot Manor Developments Limited, to refurbish Bagshot Manor into 79 residential dwellings.

Following the end of the rectification period on 11 February 2023, Grove applied for the release of the remainder of the retention monies held by Bagshot Manor Developments (£112,337.16) plus VAT.  

Before payment was made, Bagshot Manor Developments entered into administration, but through a deed of assignment dated 21 July 2023, assigned its rights under the construction contract to Bagshot Manor Limited.

The assignment included all rights of action arising under the contract, albeit notification of the assignment to Grove was not given until the following year.  The deed of assignment contained wording typically used in such documents:

“On the date of this Assignment, in consideration of the sum of £1 exclusive of VAT now paid by the Assignee to the Assignor... the assignor... assigns... whatever right title and interest (if any) the Assignor has in the Construction Documents together with all rights of action arising under them, including any rights that have already arisen, to the Assignee, to the extent in both cases such are assignable.”

Grove obtained an adjudicator’s decision that Bagshot Manor Limited was liable to pay the retention monies to the contractor and pursued Bagshot Manor Limited for the outstanding retention monies.  

Issues before the Court

Bagshot Manor Limited contested enforcement proceedings on the basis:

• It was not liable to pay the retention monies under the contract;
• The adjudicator lacked jurisdiction to hear the dispute as it was not a party to the contract;
• The contract remained between Grove and Bagshot Manor Developments; and
• The adjudicator's decision was contrary to established law on assignment, which does not transfer burdens, obligations, or liabilities without a novation.

Decision

The court emphatically rejected Grove’s interpretation of the deed of assignment as somehow transferring the burden of an employer’s interest in the building contract by the backdoor. It concluded:

• The assignment in this case was a standard transfer of rights and benefits, consistent with established legal principles;
• Bagshot Manor Limited was not a party to the building contract and therefore the matter could not be referred to adjudication.  The parties to the contract remained Grove and Bagshot Manor Developments.

The Court emphasised that an assignment does not make the assignee a party to the contract unless there is a novation.  

The adjudicator's decision was deemed erroneous, and Bagshot Manor Limited was entitled to a declaration recognising the adjudicator's lack of jurisdiction.

Further considerations

The outcome of this case emphasises the distinction between the legal concepts of assignment and novation.  For the burden of the contract to transfer from one party to another, a novation agreement between the contractor, the original employer and its successor will be required.  

It is also worth mentioning the recent landmark decision of BDW Trading Ltd v Ardmore Construction Ltd [2024] EWHC 3235 (TCC) in which the right to adjudicate claims was confirmed to extend to a claim for breach of the Defective Premises Act 1972 commenced by an assignee of the employer's interest under a building contract where the contractual limitation period had long since expired.

Employer’s assignees availing themselves of the right to adjudicate a defects claim should bear in mind that they may still find themselves taking subject to liabilities (such as repayment of retention monies) owed by the employer under the contract.  This is because the contractor may raise against the employer’s assignee a defence, set-off or counterclaim which it would have had, had it been pursued by the employer.