Adjudication Matters – April 2016: Part 1Print publication
Welcome to Part 1 of the April edition of Adjudication Matters in which we summarise the key developments in adjudication since December 2015.
Part 1 includes summaries of three Technology and Construction Court decisions, and 1 from the Court of Appeal.
Part 2 will discuss four recent Technology and Construction Court decisions, and will be published at the end of April.
- Does issuing a new payment notice create a new dispute?
- Can an adjudicator engage a third party to assist with his decision?
- Can the wording of the notice of adjudication restrict the responding party’s right to raise a particular defence?
- Can the courts penalise parties who (without good reason) resist the enforcement of an adjudicator’s decision?
Does issuing a new Payment Notice create a new dispute?
It is an established principle of adjudication that an adjudicator cannot make a decision on a dispute which has already been decided by a previous adjudicator.
Here a new payment notice created a new dispute, despite the fact that both payment notices related to the same Final Certificate and claimed the same monies.
The First Adjudication
Complete Building Solutions Limited (CBS) was engaged by Mr & Mrs Brown (the Browns) to build a new house.
The house was built and the Architect issued what he said was a final certificate (the Final Certificate). CBS wrote to the Browns claiming that a final payment of £155,450.50 was due (the First Payment Notice). This sum was not paid and CBS commenced adjudication (“the First Adjudication”).
The parties agreed that the Final Certificate did not comply with the requirements of the Contract.
A clause in the Contract said that if a final certificate was not issued in accordance with the Contract, CBS could serve a payment notice on the Browns stating:
- the amount which CBS considered to be the amount of the final payment; and
- the basis on which that sum had been calculated.
There was also provision for the Browns to serve a pay less notice in response to the payment notice.
The amount due to CBS would then either be the amount set out in the payment notice or the amount set out in the pay less notice.
In the First Adjudication, the First Adjudicator concluded that the Final Certificate was ineffective, but also found that the First Payment Notice was not a valid payment notice in accordance with the Contract.
The Second Adjudication
After receiving the First Adjudicator’s decision, CBS served a new payment notice (the Second Payment Notice) on the Browns.
CBS commenced a second adjudication (the Second Adjudication) requesting payment of the amount set out in the Second Payment Notice.
The Browns disputed the jurisdiction of the Second Adjudicator and declined to participate in the Second Adjudication. They argued that the Second Adjudicator was being asked to decide the same, or substantially the same, dispute as had been decided by the First Adjudicator in the First Adjudication.
The Second Adjudicator decided that:
- The First Adjudicator had found that the First Payment Notice had not been issued in accordance with the Contract. The Second Adjudicator was not being asked to make any finding in respect of the First Payment Notice;
- The Second Payment Notice was an effective notice under the Contract; and
- The Brown’s refusal to make payment of the Second Payment Notice created a new dispute. This was not the same dispute (or substantially the same) as the one relating to the First Payment Notice which had previously been decided by the First Adjudicator.
As such, he ordered the Browns to make payment to CBS of the amount set out in the Second Payment Notice.
The Browns refused to comply with the Second Adjudicator’s decision and CBS commenced enforcement proceedings in the Technology and Construction Court (TCC).
The TCC agreed with the Second Adjudicator that the Second Payment Notice created a new dispute and enforced the Second Adjudicator’s Decision.
The Court of Appeal
The Browns appealed the TCC’s decision.
The Court of Appeal found that the Second Adjudicator had not been asked to decide the same or substantially the same dispute because he had not been asked to decide the validity of the First Payment Notice.
CBS were not seeking to make good a shortcoming in the First Payment Notice. It was approaching its claim via a new and different route. It was the Second Payment Notice, and only the Second Payment Notice which founded CBS’s right to be paid.
The Court commented that its analysis might have been different if CBS had tried in some way to cure a defect in the First Payment Notice so as to rely on it.
If an adjudicator finds that a payment notice is invalid, the losing party should consider whether the contract allows it to issue a fresh payment notice (which does not contain the errors which led to the first payment notice being invalid).
However, it is important to note that most contracts contain strict time limits in which a payment notice can be issued. In most cases, the deadline to serve the payment notice may have passed by the time an adjudicator’s decision has been obtained.
Can an Adjudicator engage a third party to assist with his decision?
In this case John Sisk & Son Limited (Sisk) sought to enforce an adjudicator’s decision which awarded Sisk a sum in excess of £10million.
Duro Felguera UK Limited (Duro) raised several arguments to resist enforcement of the decision including that there had been a wrongful delegation of the Adjudicator’s decision-making function.
Duro argued that the Adjudicator had delegated, or appeared to have delegated, part of his decision-making to a Quantity Surveyor, without notifying the parties or seeking their consent.
The Adjudicator had two meetings with the parties, the second of which related to quantum. The Quantity Surveyor accompanied the Adjudicator to this second meeting.
Over 2 months after the meeting had taken place (and two weeks after the Adjudicator’s decision had been issued) Duro’s solicitor emailed the Adjudicator querying what the Quantity Surveyor’s role had been at the meeting.
Duro’s solicitors examined the meta data for the Excel spreadsheets which the Adjudicator had issued as part of his decision. In each case the Quantity Surveyor was shown as the person who had created the document, and the person by whom it was last modified. Duro argued that the Quantity Surveyor must have been engaged by the Adjudicator as an expert in relation to these documents and that the Adjudicator had therefore wrongly delegated part of his role as a decision-maker to the Quantity Surveyor, or alternatively, that the Adjudicator’s failure to notify the parties that he intended to use the Quantity Surveyor was a breach of natural justice.
In response to the email from Duro’s solicitor, in order to clarify the position the Adjudicator wrote to the parties setting out the following points:
- The Adjudicator had introduced each attendee at the meeting to the Quantity Surveyor and explained his role;
- The Adjudicator had asked the Quantity Surveyor to record various matters that related to liability and these notes became an email which the Adjudicator had sent to the parties after the meeting;
- The Quantity Surveyor checked the Adjudicator’s calculations in the spreadsheets and proofread the documents;
- The Quantity Surveyor had not written any integral parts of the decision;
- The Adjudicator had not made a separate charge for the Quantity Surveyor;
- The Quantity Surveyor carried out research for the Adjudicator by trawling through various submissions made by the parties and collating them into like items, together with carrying out administrative tasks such as checking calculations and proofreading documents.
The TCC’s Decision
The TCC said that they could find no evidence whatsoever that any material decision or valuation had been taken by the Quantity Surveyor, rather than by the Adjudicator, and it appeared that Duro was effectively challenging the honesty of the Adjudicator’s responses to the questions put to him by the parties, without having any reasonable justification for doing so.
The court commented that the parties had jumped to unsustainable conclusions without carrying out any proper analysis of the documents. The Adjudicator had to assimilate within a very short timescale over 20 lever arch files of information. Without the assistance of someone who could assemble and manipulate the data in a manner that made the figures manageable this task would be insuperable.
The court also expressed surprise that it had taken over 2 months for one of the parties to question the Quantity Surveyor’s involvement.
Duro’s challenge was dismissed and the Adjudicator’s decision was enforced.
This judgment confirms that an adjudicator can obtain the assistance of a third party when making his decision. If a party to adjudication has concerns as to the role being played by a third party then they should query this with the adjudicator as soon as possible.
Strong evidence will be required that elements of an adjudicator’s decision-making function were delegated to another party before the court will decline to enforce the adjudicator’s decision.
Can the wording of the notice of adjudication restrict the responding party’s right to raise a particular defence?
Spartafield Limited (Spartafield) engaged Penten Group Ltd (Penten) to carry out building works by way of a letter of intent dated 19 July 2013 (the Letter of Intent). The parties intended to eventually sign a JCT ICD 2011 contract but no contract in that form was ever concluded.
Spartafield terminated Penten’s employment in 2015 and commenced adjudication (the First Adjudication) seeking a declaration that the contract between the parties was in the form of the JCT ICD 2011, and that Spartafield was entitled to payment from Penten of liquidated damages, the balance of an advance payment, and interest.
The Adjudicator (the First Adjudicator) decided that there was a valid construction contract between the parties, but that this contract was formed by the Letter of Intent and did not include the terms of the JCT ICD 2011. As the terms of the JCT did not apply, Spartafield had no entitlement to liquidated damages but was entitled to the return of the outstanding balance of the advance payment and interest.
Penten paid the sum ordered by the First Adjudicator to Spartafield.
Penten then commenced adjudication (the Second Adjudication) seeking payment of monies from Spartafield based on the First Adjudicator’s decision that the contract between the parties was governed by the Letter of Intent and not by the terms of the JCT ICD 2011. The Adjudicator (the Second Adjudicator) resigned on the basis that the dispute in the Second Adjudication had not crystallised.
Spartafield then served a notice of adjudication on Penten (the Third Adjudication), seeking a declaration that the First Adjudicator did not have jurisdiction to decide the terms of the contract between the Parties if he did not accept that it was the JCT ICD 2011. Spartafield’s position was that whilst the First Adjudicator was entitled to conclude that the contract did not incorporate the JCT ICD form, he was not entitled to conclude that the parties’ rights and obligations were governed by the Letter of Intent.
Penten commenced Part 8 proceedings in the TCC objecting to the Third Adjudication by arguing that the First Adjudicator’s decision was enforceable and any adjudicator appointed in the Third Adjudication would not have jurisdiction to determine the form of contract between the parties because this had already been decided by the First Adjudicator.
The TCC’s Decision
The TCC held that the parties were bound by the First Adjudication and another adjudicator would not have jurisdiction to decide the terms of the contract between the parties, as this had already been decided by the First Adjudicator.
In reaching its decision, the TCC made the following points:
The scope of an adjudicator’s jurisdiction comes from the terms of the notice of adjudication;
- The notice of adjudication in the First Adjudication sought a declaration that there was a binding contract between the parties. It was impossible for the First Adjudicator to answer that question without deciding what the terms of any such contract might be.
- Penten’s defence in the First Adjudication had been that the terms of the contract were not the JCT ICD form, but were those set out in the Letter of Intent. Penten said the ICD terms were never agreed. Further, the Letter of Intent was frequently referred to in both parties’ adjudication submissions. As such it was an important element of the First Adjudication.
- It did not matter that Spartafield did not refer to the Letter of Intent in its notice of adjudication in the First Adjudication. A claiming party cannot artificially restrict the responding party’s defence to its claim by saying that, because they made no reference to a particular point in the notice of adjudication, it therefore cannot arise for decision. It is not appropriate to construe a notice of adjudication in such a way as to deprive the responding party of a defence which, but for the wording, would be open to that party to raise.
- Spartafield could not raise new arguments in the TCC proceedings that it failed to raise in the First Adjudication.
- The courts will give adjudicators some latitude when deciding the terms of contracts that have not been recorded in writing.
This case is an example of the difficulties that arise in serial adjudications under the same contract.
The parties will be bound by a previous adjudication decision. If an adjudication has previously taken place under a contract a party wishing to adjudicate a further dispute should carefully consider both the previous notice of adjudication and the previous adjudicator’s decision to ensure that the issue in dispute has not already been decided.
Can the Courts penalise parties who (without good reason) resist the enforcement of an adjudicator’s decision?
In adjudication between Cumberland Construction Company Limited (Cumberland), the main contractor, and AMD Environmental Ltd (AMD), a subcontractor, concerning AMD’s final account, the Adjudicator ordered that Cumberland make payment to AMD.
Cumberland did not pay and AMD commenced enforcement proceedings in the TCC.
Cumberland’s grounds of challenge
Cumberland argued that the Adjudicator did not have jurisdiction to determine the dispute between the parties, on the following grounds (all of which were rejected by the TCC):
- The statutory adjudication regime did not apply because the subcontract was not in writing.
- The dispute between the parties had not crystallised by the date of AMD’s notice of adjudication because AMD had not particularised the sums claimed.
- There had been a breach of natural justice because AMD provided new information to the Adjudicator during the adjudication, which had not previously been provided to Cumberland
- The Adjudicator had failed to consider the submissions made by Cumberland in respect of 3 variation claims within AMD’s final account.
The TCC’s Decision
The subcontract was not in writing
The TCC said this argument was ‘misconceived’ and rejected it given that the statutory adjudication provisions were extended to apply to oral contracts in November 2011.
The dispute had not crystallised
The TCC rejected this argument because there was a 5 month gap between AMD’s application for payment of its final account and the notice of adjudication during which time the parties had sent numerous items of correspondence back and forth discussing the final account.
Cumberland’s specific point was that it had repeatedly asked AMD for particulars of certain elements of the claim which AMD had not provided. The TCC held that the lack of particularisation did not affect whether or not a dispute existed because this could allow a paying party to keep requesting more detail and put off paying indefinitely.
Although Cumberland had raised this objection during the adjudication, the adjudicator found that a dispute had crystallised and did not step down. At this point Cumberland did not reserve its right to challenge the adjudicator’s decision subsequently on this same ground, but instead accepted the Adjudicator’s ruling that he had the necessary jurisdiction. Cumberland should have expressly reserved its position during the adjudication if it had wanted to be able to raise this challenge during enforcement proceedings.
The TCC rejected this submission because an adjudicator can request any information which he believes will be of assistance in reaching his decision. If one party has not previously seen this information, then it is open to the Adjudicator to grant that party additional time to respond. However, this new information will have no bearing on the Adjudicator’s jurisdiction.
Failure to consider submissions
This challenge was rejected by the TCC because Cumberland had provided no evidence that the Adjudicator had failed to consider Cumberland’s submissions. A schedule attached to the Adjudicator’s decision made it clear that he had considered all of the information put before him.
Even if the Adjudicator had failed to consider Cumberland’s submissions, then this would only amount to a breach of natural justice if the Adjudicator’s failure had been both deliberate and material. Here the 3 variations comprised less than 15% of AMD’s total claim and as such the way the Adjudicator dealt with these points was not material to the overall result of the adjudication and there was no breach of natural justice.
Interest and costs
The TCC ordered that the Adjudicator’s decision be enforced and Cumberland make payment to AMD
Typically, the High Courts will award interest at between 4% and 5%. Here the TCC ordered that Cumberland pay interest on the sum set out in the Adjudicator’s decision at the higher rate of 6% because the adjudication decision should have been honoured some time ago and the arguments in support of Cumberland’s position were ‘hopeless’.
The TCC also awarded AMD their costs as an indemnity rate (which results in a higher than usual recovery of costs).
This judgment demonstrates the TCC’s concern that too many adjudication decisions are not being complied with. A party who resists enforcement of an adjudicator’s decision could be penalised on interest and costs if the grounds of challenge are without merit.