Category Archives: Adjudication

Pace and timing of adjudication did not deny natural justice

The courts will usually enforce the decision of an adjudicator.

There may be exceptions where a properly arguable case can be made out that there has been a breach of natural justice, or that the adjudicator lacked the necessary jurisdiction to reach the decision.

In CSK Electrical Contractors Ltd v Kingwood Electrical Services Ltd [2015], the defendant raised both challenges:

The natural justice challenge was based on the adjudicator’s timetable being too quick and therefore overstretching their resources.

This argument had been unsuccessfully raised in earlier cases.

The High Court said adjudication is a “rough and ready process” because it has to take place within a very strict timetable.

That often puts the responding party under particular pressure.

That was “a fact of adjudication life”. It is “inherent in the whole process”.

Here, the claimant testified that they had proper cash flow reasons for pursuing the claim at the time they did.

After all the importance of cash flow was the principle that underlies the adjudication process.

The timetable the adjudicator had set down made the best use of the 28 days that was available.

Though it took place over the Christmas/New Year period, the defendant had held the disputed invoices since the middle of November and so must have known what points it intended to make in the adjudication. Otherwise what was the basis for the defendant saying that the claims would be ‘strenuously defended’ on 18 December 2014? Also there had been no great complexity about the disputes between the parties.

The only real point of significance was whether or not the defendant had served on the claimant a valid “payless notice”. That was relatively straightforward and well capable of determination within the 28 days.

Lastly the defendant could have asked the adjudicator for further time but the defendant failed to do that.

That strongly suggested to the judge that this challenge was not based on something that was of great concern to the defendant at the time, but rather “on an attempted comb through the authorities on adjudication, to try and find a reason after the event for avoiding making payments to the claimant.”

So the defendant’s challenge to the adjudication, on this ground, was unsuccessful. Indeed it was on all the other grounds as well.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Wrong appointing body and rules applied to adjudication

Parliament provided that every party to a construction contract should have the right to resolve its disputes by adjudication at any time.

However, the jurisdiction of the adjudicator derives from the agreement of the parties, as represented by the terms of their contract. A dispute cannot be validly resolved by an adjudicator unless the adjudicator is appointed in accordance with:

– the terms of the contract; or

– (if it is incorporated into the contract either expressly or by operation of law) the Scheme in Part I of the Schedule to the Scheme for Construction Contracts (England and Wales) Regulations 1998 (“the Scheme”).

Unless the adjudicator is appointed under the correct contractual (or Scheme) provisions, his appointment would be null and void.

An adjudicator cannot be validly appointed under a non existent contractual provision. He or she would have no jurisdiction, So any decision that he or she might make could not be enforced.

In the High Court case of Ecovision Systems Ltd v Vinci Construction UK Ltd (Rev 1) [2015] the Sub-Contract contained 3 sets of terms under which, either party could request adjudication: (1) Option W2 of the Sub-Contract, (2) Option W2 of the Main Contract, incorporated into the Sub-Contract by Appendix 1 and Document A, or (3) if neither of the first two was applicable, the Scheme.

The procedure in each of the appointment provisions was not identical.

The court extrapolated the following principles from case law:

1. an adjudicator has no jurisdiction to determine whether he has jurisdiction, even on a temporarily enforceable basis; and

2. a choice between two sets of adjudication provisions will amount to such a determination if the choice makes a material difference as to how the adjudicator should be appointed, what rules he is obliged to follow or the effect of his decision.

However, in practice if the adjudicator purports to decide what rules governed his appointment and govern the conduct of the adjudication, his decision will be enforced if his decision turns out to be correct.

So the foregoing principle is subject to one pragmatic exception: an adjudicator can inquire into his jurisdiction and make such a determination with temporarily binding effect if:

1. his conclusion coincides with the claimant’s contentions as to the contractual terms; and,

2. the claimant is right.

This is because the defendant would not be able to establish, either:

1. with any real prospect of success when seeking to resist enforcement of a summary judgment; or,

2. on a final basis in the circumstances of a Part 8 claim,

that the adjudicator actually lacked jurisdiction because the adjudicator will have determined that the rules he was purportedly appointed under were the correct rules and the court will have gone along with his conclusion.

Even where it is common ground that a construction contract exists under which there is a right to have adjudication, the adjudicator has no power to decide what rules of adjudication apply if:

1. there is a dispute about those rules; and

2. the dispute affects (i.e. makes a material difference as to):

2.1 the procedure for the adjudicator’s appointment;

2.2 the procedure to be followed in the adjudication; or

2.3 the status of the adjudicator’s decision.

Specifically there was no rule that the court will not interfere with an adjudicator’s conclusion as to a matter affecting his jurisdiction when considering whether to enforce a decision by summary judgment.

The choice of the correct adjudication rules was fundamental to the jurisdiction of the adjudicator.

Here:

1. The referring party (Vinci) had not told the adjudicator what adjudication rules it was saying applied or why.

2. The different adjudication provisions involved different nominating bodies and were likely to involve different adjudicators being nominated. It was possible but improbable that the adjudicator would have been nominated by one of the other bodies.

3. The different rules contained real differences of procedure. In previous precedent cases these may or may not have been significant.

Neither the Scheme nor the contractual adjudicator appointment rules in this case prescribed that the Notice of Adjudication or any request to adjudicate should specify the contractual terms as to adjudication or (if the Scheme) the power under which adjudication was being pursued, so it was not fatal to the defendant’s case that the Notice of Adjudication and the request for a nomination had failed to identify the contractual terms or the power under which adjudication was being invoked.

Were it otherwise, it would mean that even where:

1. the referring party’s contention as to the applicable contractual terms was correct (or there was no real prospect of the respondent being able to prove otherwise); and,

2. the adjudicator had been appointed in accordance with those terms,

the court could still decline to enforce the decision because, at the time the Notice of Adjudication was served or the nomination was requested, those terms were not stated as being the terms applicable.

The court would be loath to reach that conclusion.

The substantive validity of the Notice of Adjudication depends on whether it can be shown that the correct rules are or have been applied. It does not depend on what was said in the Notice. The same applied to the request for a nomination of an adjudicator.

However the adjudicator had been wrong to decide that the governing adjudication rules were those in Option W2, and his appointment had been made by the wrong body. On both counts, the adjudicator lacked jurisdiction to make the decision. If the defendant wanted adjudication, it must start again. If the President or any Vice-President of the RICS was not available to act, the adjudicator must be appointed by the Chairman of TeCSA. The Chairman could appoint the same adjudicator and the Adjudication Rules of TeCSA would govern the adjudication.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Building Contracts: Act quickly if you wish to challenge a Final Certificate

JCT Forms of Contract try to ensure that, when works have been completed, outstanding disputes can be rapidly and finally resolved.

In part this is by the employer’s agent issuing a Final Certificate, whereupon the contractor (and sometimes the employer) has 28 days to challenge it.

In the absence of a challenge, the Final Certificate becomes conclusive evidence for a wide range of issues, including defects, delays and outstanding cash disputes.

In the High Court case of Marc Gilbard 2009 Settlement Trust (trustees of) v OD Developments and Projects Ltd [2015] the claimant employed the defendant contractor to carry out works. The contract incorporated the JCT Standard Building Contract, Without Quantities, Revision 2 (2009).

The Contract Administrator issued a Final Certificate showing the defendant owing the claimant £232,153.54 plus VAT.

Within the relevant 28 day period, the defendant issued Part 7 proceedings in the Technology and Construction Court disputing the validity and correctness of the Final Certificate. Those proceedings had proceeded so slowly that, 13 months on, the first Case Management Conference had yet to be scheduled.

The defendant now wished the issues raised in the Part 7 claim to be referred to adjudication.

The court said the real interpretation issue was whether clause 1.9.3 of the contract envisaged:

1. one set of proceedings (whether adjudication, arbitration or court proceedings) issued within the 28 days to challenge the Final Certificate, or

2. an initial set of proceedings in which the relevant “matters” could be raised, but then allowed the challenger to commence other proceedings, beyond the 28 days, which would be equally legitimate so long as those same matters were raised in those later proceedings.

The court ruled that interpretation 1 was the correct interpretation. The purpose of clause 1.9.3 was to limit issues for which the Final Certificate was not conclusive to matters raised in any proceedings issued within the 28 days of that certificate.

The clause assumed that the party challenging the Final Certificate could choose the venue in which that was to be done. It could choose one of adjudication, arbitration or other proceedings (that’s to say in court).

The clause did not envisage more than one set of proceedings.

Nothing in clause 1.9.3 allowed a series of subsequent proceedings, with the first being commenced within 28 days, and the others starting months or years afterwards.

However if adjudication is the first option of a challenger under clause 1.9.3:

A. a challenger under clause 1.9.3, can within the 28 days issue simultaneous protective arbitration or court proceedings. This would protect the challenger’s position if they have messed up the reference to adjudication or the outcome of adjudication was no decision or a decision which is unenforceable; and/or

B. clause 1.9.4 of the JCT provisions allows 28 days more for a party to issue arbitration or court proceedings to challenge an adjudicator’s decision as to the Final Certificate.

But, if arbitration or court proceedings are the first option of the challenger, or if the challenger messes up the reference to adjudication, a party may end up out of time to challenge the Final Certificate.

Subject only to the qualifications at A and B above, the challenger has to challenge the Final Certificate in one set of proceedings, and those proceedings are the only means by which the Final Certificate can be challenged.

The JCT Design and Build Contract has a provision very similar to clause 1.9 which additionally and usefully allows the employer or contractor, before the final date for payment, to give notice “disputing anything in the Final Statement”.

The moral of this case is, if you are thinking of challenging a Final Certificate, to act without delay within the 28 day period to secure your position as above.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Notice of Adjudication could not exclude consideration of defences and counter claims

In adjudicated construction disputes, the view has been expressed that the Notice of Adjudication defines the dispute and the adjudicator takes his or her jurisdiction from the content of that Notice.

This is usually a good guide but its not always the case. For example something may be referred, which the Notice of Adjudication mentions as being a dispute, when it has never previously been disputed. An entirely new claim which has never been put to the other party cannot become a dispute:

– unless and until it has been notified to the other party and
– it does not become a dispute simply because it is set out in the Notice of Adjudication.

The “disputed claim” set out in the Notice of Adjudication must be seen in its context. That context will can only be ascertained by looking at what the parties have said and done over a period of time.

An adjudicator must take into account and adjudicate on defences raised by someone defending an adjudication even if the particular defence is being raised for the first time.

What happens if one party to an adjudication seeks to limit an adjudicator’s jurisdiction by referring to a disputed claim but defining the dispute in the Notice of Adjudication in such a way as to attempt jurisdictionally to prevent a defending party from raising any defence to the adjudication?

In the High Court case of Kitt & Anor v The Laundry Building Ltd & Anor [2014] ETC’s Notice of Adjudication required:

1. all claims to be determined and decisions as to their payment but
2. sought to qualify the reference by excluding issues which might give TLB:

2.1 cross and counter claims and/or
2.2 defences as to the correct quantum of individual claim items

thereby denying TLB available defences it could otherwise use in adjudication in relation to those items.

For instance ETC’s Notice of Adjudication had said that the adjudicator was required to decide whether its second application for an extension of time was justified but that did “not give the adjudicator jurisdiction in this adjudication to open up the [previous] extension of time award or the agreed weekly value for loss and expense”.

The adjudicator could not, and was not prepared to, work within these constraints in making the award.

In the High Court ETC’s defence was that the adjudicator’s decision was not binding and enforceable since:

1. it dealt with issues which its Notice of Adjudication had sought to exclude, and
2. the adjudicator had thereby:
2.1 acted in breach of the rules of natural justice and
2.2 exceeded his jurisdiction and
2.3 breached an implied term of his appointment that he would decide the dispute:
2.3.1 in accordance with the jurisdiction the parties granted him,
2.3.2 in accordance with the rules of natural justice and
2.3.3 by producing a decision that was binding on the parties.

The court said a Notice of Adjudication could not circumscribe and delineate the dispute, set out or defined in it, in such a way as to exclude particular defences.

It would be illogical and untenable, if not ludicrous, if it were otherwise.

This case alone illustrated that it could not be logical or fair. So:

1. a Responding party has an unfettered ability to elect how to defend itself in response to a Notice of Adjudication and

2. ETC “telling” the adjudicator that he must not consider legitimate defences was of no legal effect.

If that had been attempted in court proceedings, it would have been treated as completely wrong and unjustified. The Court would never be constrained by artificial attempts to limit its jurisdiction, though it would usually only address arguments actually raised by a defendant in defence.

That was not to say that potential evidential weakness in a defence could not be highlighted in the Notice of Adjudication. For example a money claim may be based on exactly what the defending party’s own architect has certified or approved such that this constitutes strong evidence in the referring party’s favour.

However, to refer a payment claim and, at the same time, for the referring party to exclude from reference parts of the claim which might be challenged by the defending party was “illogical, unmeritorious and wrong. It [was] a device which cannot and should not work.”

This blog has been posted out of general interest. It does not remove the need to get bespoke legal advice in individual cases.

Unfounded opposition to adjudicators invalidated decision

Where one party to an adjudication makes a fraudulent misrepresentation during the appointment process would that invalidate the process of appointment and make the appointment a nullity so that the adjudicator would not have had jurisdiction to act in the adjudication?

In the High Court case of Eurocom Ltd v Siemens Plc [2014] the application form sent to the Royal Institution of Chartered Surveyors (“RICS”) seeking the appointment of an adjudicator misrepresented to the RICS that a number of individuals had a conflict of interest.

Eurocom’s agent had admitted that he used the section of the application form allocated to name “adjudicators who would have a conflict of interest in this case” to refer to people without any conflicts of interest who he did not want to be appointed.

So there was a very strong prima facie case that the agent had made a clear misrepresentation and a deliberate and/or reckless false statement and that therefore he had made a fraudulent representation to the RICS as the adjudicator nominating body.

The High Court ruled that where a party applies to an adjudicator nominating body and makes a fraudulent representation then the fraud cancels the advantage which would otherwise have been got from the transaction by voiding the transaction completely.

The false statement had been material. It had been made during a process by which an adjudicator had to be nominated by an impartial adjudicator nominating body and, was improperly made to eliminate candidates based on them having a conflict of interest when actually they had none.

Where there had been a material fraudulent misrepresentation in the process of applying to an adjudication nominating body, the application for a nomination of an adjudicator would be invalid and it would be as if no application had been made.

It did not matter whether the RICS was deceived or not.

The fraudulent misrepresentation would have invalidated the process of appointment and made the actual adjudicator’s appointment a nullity so that the adjudicator would not have had jurisdiction to make the award Eurocom were now seeking to enforce through the courts.

So Siemens had an arguable defence to Eurocom’s claim. That claim must go to a full hearing and Eurocom were denied summary judgement on the claim to enforce the adjudicator’s award.

This case and it’s outcome is a clear warning to anyone who may be minded to use any parts of an application form for their own collateral purposes.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Challenge to adjudicator’s jurisdiction over “novation” unsuccessful and waived

Where the business of a partnership is incorporated the existing contractual rights and obligations of the partners are seldom novated to the new company. That is because that would involve the participation of each outside contracting party in the novation arrangements.

Instead the new company will, as between itself and the old partnership, take over the benefit of those rights, and assume responsibility for the performance of those obligations, probably informally.

However the position of the outside contracting parties remains unchanged. Generally, their contract will still be with the old partnership even if the old partnership has delegated its performance to the new company.

This was ruled to be the position in the High Court case of AT Stannard Ltd v Tobutt & Anor [2014] where the employing main contractor unsuccessfully challenged the sub contractor’s successful reference to adjudication.

The Employer challenged the adjudicator’s decision to award the full amounts claimed against the old partnership of £53,392.63 plus interest based on the facts that:

– the subcontractor had informally participated in the “novation” of the subcontract from the old partnership to the new company; and

– the breaches complained of had occurred whilst the contracting parties had still been the old partnership and the subcontractor; and

– such “novation” had passed the benefit of the old partnership’s rights and the burden of its obligations to the new company; and

– the “novation” which the subcontractor had informally participated in had released the old partnership from any liabilities for the breaches and had caused the new company to assume those liabilities; and

– the “novation” meant the parties to the contract were now the new company and the claimant; and

– therefore the adjudicator had had no jurisdiction to make the award against the old partnership.

The High Court rejected any idea that there had been any informal participation by the subcontractor or any “novation”. It had been the sort of informal takeover mentioned above.

Had the old partnership wished to challenge the adjudicator’s jurisdiction they should have done so in the adjudication proceedings instead of taking part in them without objection and waiting for an unfavourable outcome and doing it then. Indeed, by expressly and actively participating in the adjudication “without any reservation”, the old partnership had waived any right to challenge the adjudicator’s jurisdiction.

The court expressed disapproval of parties who challenge adjudications on jurisdictional grounds instead of challenging the substance of their outcomes in further arbitrations and legal proceedings.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Third Party Rights Beneficiary of Appointment could not call for Adjudication

To what extent can an express term contained within the agreement between the original contracting parties make the rights of a third party, enforceable under the Contracts (Rights of Third Parties) Act 1999 (“the 1999 Act”), determinable by an adjudication under Housing Grants, Construction and Regeneration Act 1996 (“the 1996 Act”)?

It has recently been determined that a collateral warranty can be a “construction contract” covered by the Adjudication regime of the 1996 Act. What would be the position where a beneficiary was given third party rights under the 1999 Act rather than a collateral warranty?

In Hurley Palmer Flatt Ltd v Barclays Bank Plc [2014] Clauses 2.3 and 14.2 of the claimant’s Appointment said respectively:

“Unless expressly stated otherwise in this Agreement, nothing in this Agreement confers or is intended to confer any rights on any third party pursuant to the Contracts (Rights of Third Parties) Act 1999.”

“Save as expressly provided in Clause 14.3 and Clause 10 (Collateral Warranties) nothing in this Agreement shall confer or purport to confer on any third party any benefit or right to enforce any terms of this Agreement.”

Clauses 27.1 and 27.3 of the Appointment included provision for Adjudication and said respectively:

“The adjudication provisions contained in Part 1 of the Scheme for Construction Contracts (England and Wales) Regulations 1998 (S.I. 1998/649) (the Scheme) shall apply to this Agreement.”

“The decision of the adjudicator shall be binding on the parties unless and until the dispute is determined by legal proceedings or by agreement.”

The claimant sought a declaration that as, now, third party to the Appointment Barclays was not entitled to commence adjudication proceedings against the claimant.

The High Court said the Appointment contained 31 Clauses some being substantive terms exposing the claimant to liability as the Consulting Engineer. Other provisions contained “procedural rights” including the ability of the Client to suspend the performance of the claimant’s Services or to terminate the claimant’s appointment as Consulting Engineer.

Clause 14.3, of the Appointment, when read with Clauses 2.3 and 14.2 contained the full scope of Barclays’ right to enforce any term of the Appointment.

Clause 2.3, meant that apart from Clause 14.3, no rights were given to a third party which could be enforced under the 1999 Act.

Clause 14.3 actually said:

“Any Affiliate [Barclays were included within this term] with a direct interest in the Project shall be entitled to enforce the terms of this Agreement as “Client” always provided that the Consulting Engineer shall be entitled [to] rely on the equivalent defences in respect of such liability which it has against the Client.”

The court latched onto the reference to “such liability” as “strongly” indicating an intention that the only rights the third party (i.e. Barclays) could enforce, under Clause 14.3, against the claimant were the rights giving rise to liability not the procedural rights such as those in Clause 27 (adjudication). It followed that Barclays had not been given any right to enforce the terms of the Appointment by adjudication under Clause 27.

We may doubt whether the draftsmen, or the parties, intended the word “such” to have such a restrictive effect.

In any case, the adjudication clause in Clause 27.1 was not applicable to the relationship between Barclays as a third party and the claimant

The Adjudication system under the 1996 Act had no equivalent to Arbitration in terms of Section 8(1) of the 1999 Act which enabled a third party to be treated also as a party to the arbitration agreement.

The Scheme for Construction Contracts (England and Wales) Regulations 1998 (“the Scheme”) which was incorporated in Clause 27, referred, in paragraph 1(1) of Part I, to a party to a construction contract being able to give written notice to refer disputes to adjudication. Also paragraph 1(2) stated that the notice of adjudication should be given to every other party to the contract. Barclays, the third party was not a party to a construction contract.

It was clear from those provisions of the Scheme and from the provisions of the Appointment (Clause 27.3, for example) that Clause 27 was inapplicable to the relationship between Barclays, as third party and the claimant. It was for that reason that the provisions of section 8 of the 1999 Act had been included in the case of Arbitration.

The 1999 Act had given no consideration to Adjudication or other means of Alternative Dispute Resolution.

This case highlights an anomaly in the 1999 Act whereby, for Adjudication purposes, Third Party Rights construction documents are prima facie outside Adjudication but Collateral Warranties are within Adjudication.

In the meantime precedent provisions, similar to Clause 14.3, could be redrafted to make it clear that procedural rights like the right to refer a case to Adjudication are also enforceable by a third party under the 1999 Act on the same basis as if they had been a party to the original contract.

This blog has been posted out of general interest. It does not remove the need to get bespoke legal advice in individual cases.