Construction: Employer could not challenge adjudication in enforcement proceedings

In construction disputes if an adjudicator has decided the issue referred to him, and he has acted in accordance with natural justice, his decision will be enforced by the court.

The defendant must pay now and argue later.

There are two narrow exceptions to this rule:

1. Involves an admitted error. For example a calculation error admitted by everyone, including the adjudicator. Here in the absence of an arbitration clause, the court would have jurisdiction to make a final decision on the point, and correct the error. However if there is an arbitration clause in the construction contract, the court would not have the power to determine the issue and the decision would be enforced.

2. Involves the proper timing, categorisation or description of the relevant application for payment, payment notice or payless notice. However it would not be open to a defendant to seek to avoid payment of a sum found due by an adjudicator by raising the very issue on which the adjudicator ruled against the defendant in the adjudication.

If the issue is a short and self-contained point, which requires no oral evidence or any other elaboration than that which is capable of being provided during a relatively short interlocutory hearing in the court enforcement proceedings, then the defendant may be entitled to have the point decided by way of a claim for a declaration.

It is envisaged at paragraph 9.4.3 of the Technology and Construction Court Guide that separate Part 8 proceedings will not always be required in order for such an issue to be decided at the enforcement hearing.

This procedure will rarely be used, because it is very uncommon for the point at issue to be capable of being so confined.

Very often, the defendant’s point is straightforward: the adjudicator was wrong and that, with regard to its timing, or its content, the relevant payment notice was invalid and/or that the defendant’s pay less notice was valid and prevented payment. Here, the defendant will have issued Part 8 proceedings seeking a declaration to that effect, and the claimant may issue its own enforcement claim or,the parties may agree that, if the defendant loses its Part 8 claim, it will pay the sums awarded by the adjudicator in any event.

These “consensual approach” cases all involved a significant degree of agreement between the parties. In particular, they all involved CPR Part 8 claims issued by the defendant challenging the decision of the adjudicator, and seeking a final determination by way of court declaration.

In all those cases:

1. There was a tacit understanding that the parties’ rights and liabilities turned on the decision as to whether or not the particular notice had been served in time and/or was a valid application for payment or payment/pay less notice.

2. The issue of a separate Part 8 claim was important in two respects:

2.1 it provided a means whereby the defendant could detail its challenge to the adjudicator’s decision so that the claimant could see and understand the precise basis of the challenge and the declarations sought and

2.2 the existence of a separate Part 8 claim meant that the court knew what was going to be involved at any subsequent hearing. This was vital to the court for the making of directions. A Part 8 claim means more involved arguments than would ordinarily arise on an adjudication enforcement, so the court will be able to list the hearing for a longer timeslot, and will be less concerned about fixing it within the usual 28 days.

Problems have arisen elsewhere because there has been no such consent.

This was the position in Hutton Construction Lted v Wilson Properties (London) Ltd [2017].

Here the High Court laid down the following guidelines for these cases:

1. The defendant must issue a CPR Part 8 claim setting out the declarations it seeks or, at the very least, indicate in a detailed defence and counterclaim to the enforcement claim what it seeks by way of final declarations. A prompt Part 8 claim is the best option.

2. Where there is a dispute between the parties as to whether or not the defendant is entitled to resist summary judgment on the basis of its Part 8 claim, the defendant must be able to demonstrate that:

(a) there is a short and self-contained issue which arose in the adjudication and which the defendant continues to contest;

(b) that issue requires no oral evidence, or any other elaboration beyond that which is capable of being provided during the interlocutory hearing set aside for the enforcement; and

(c) the issue is one which, on a summary judgment application, it would be unconscionable for the court to ignore. For example, that the adjudicator’s construction of a contract clause is beyond any rational justification, or that the adjudicator’s calculation of the relevant time periods is obviously wrong, or that the adjudicator’s categorisation of a document as, say, a payment notice is wrong, when, on any view, it was not capable of being described as such a document.

Such an issue could still only be considered by the court on enforcement if the consequences of the issue raised by the defendant were clear-cut. If the effect of the issue that the defendant wishes to raise is disputed, it will be most unlikely for the court to take it into account on enforcement. Any arguable inter-mingling of issues would almost certainly be fatal to the defendant being able to claim that their challenge falls within this limited exception.

The dispute between the parties as to whether or not the issue should be dealt with on enforcement would have to be dealt with shortly at the enforcement hearing itself. Due to the inevitable time constraints of such a hearing it will be rare for the court to decide that the issue can still be raised as a defence to the enforcement application even though the issue and its effect is disputed.

Because it is a potential abuse of the court process, a defendant who unsuccessfully raises this sort of challenge on enforcement will almost certainly have to pay the claimant’s costs of the entire action on an indemnity basis. Conversely, if the claimant does not agree to the defendant’s proposal to deal with the issue on enforcement, but the court finds that the issue does fall within the limited exception, it is the claimant who runs the risk of being penalised in costs.

In this particular case

1. It was common ground that:

1.1 The proper meaning and interpretation of the documents was a straightforward matter for the court. No other evidence of any kind was required.

1.2 If the adjudicator was wrong, and those documents did not constitute a proper claim for payment or a payee’s notice, then the defendant’s payless notice was valid and there is no entitlement to summary judgment.

So it was one of those rare cases where the substantive point in issue can be determined at the enforcement hearing.

2. The defendant’s challenge was of a type which should have been the subject of a separate Part 8 claim at the outset. The defendant’s solicitor’s correspondence did not make clear how and why the enforcement was being resisted. Neither did the witness statement.

So, it was only when the Part 8 claim was provided that the claimant (and the court) was given an inkling as to the defendant’s stance. But even that was inadequate. No specific declarations were sought in the Part 8 claim.

Further the defendant endeavoured to rerun the issues in the adjudication and rely on other matters too, such as the earlier sequence of interim applications and how they were dealt with by the parties. The court, on an adjudication enforcement, simply could not deal with all of the points – and more – raised in the adjudication.

The defendant now wished to rely on a number of factual matters. Once they have been set out properly, they might be agreed, but the claimant had not had sufficient time to consider them and its precise response. There may well be disputes. That was another reason why the defendant’s challenge was wholly inappropriate for any consideration on the summary judgment application.

The adjudicator’s decision ran to 73 closely-typed paragraphs. The adjudication had lasted from 11 October to 15 November 2016. The court had seen only some of the documents relating to the adjudication.

Absent any consent from the claimant, it could not be right, to let the defendant shoehorn into the time available at the enforcement hearing the entirety of that adjudication dispute.

“Such an approach would mean that, instead of being the de facto dispute resolution regime in the construction industry, adjudication would simply become the first part of a two-stage process, with everything coming back to the court for review prior to enforcement. That …. cannot be permitted.^

The challenge to the adjudicator’s decision failed and the claimant was entitled to summary judgment.

The defendant could pursue its Part 8 claim separately. The defendant would need to amend that claim and there needed to be a proper exchange of pleadings.

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