In the first of our retrospective reviews of the approach of the Technology and Construction Court (TCC) to adjudication challenges in 2019, our construction team analyses significant decisions.
Challenges to an adjudicator's decision rarely succeed
- Barry M Cosmetics Ltd (BMC) appointed Merit as contractor in relation to construction works.
- Around 9 months after practical completion, Merit submitted its final account, which was disputed by BMC, finally resulting in an adjudication relating to the correct value of that final account.
- The adjudicator found in favour of BMC and in due course, BMC applied to the TCC for summary judgment to enforce the adjudicator's decision.
Two main issues were considered by the TCC:
- was there a "dispute" capable of being referred to adjudication under the Housing Grants, Construction and Regeneration Act 1996 as amended (the Construction Act)?
- had the adjudicator acted in breach of natural justice?
The key practical point is that Merit argued that as there was no entitlement to payment, there could be no dispute capable of being referred to adjudication.
Merit failed on both points and the adjudicator's decision was enforced.
There was clearly a dispute between the parties and it was not correct that there could only be a dispute capable of referral to adjudication once an entitlement to payment has arisen.
Jurisdictional challenges are even less likely to succeed during an ongoing adjudication
- A dispute arose out of a construction contract between the Claimants and a contractor (SMC). SMC commenced an adjudication in February 2019 and Mr Dight was appointed as the adjudicator.
- The Claimants then commenced these proceedings against SMC and Mr Dight, seeking an injunction to prevent the continuation of the adjudication, arguing that there was a strong case that the adjudicator had no jurisdiction as allegedly, SMC had not used the correct adjudicator nominating body.
The TCC firmly refused this application, affirming once again that declaratory or injunctive relief will rarely be ordered during an adjudication. Ordinarily, jurisdictional challenges should be addressed at the enforcement stage.
Is a jurisdictional challenge waived by active participation in the adjudication?
- The Defendant (CBI) is an engineering/design consultancy and in 2016, appointed Ove Arup engineers to provide consultancy services, including feasibility studies and project management assistance, in relation to investigations into a possible high-speed transport link between Manchester and Leeds. In due course, a dispute arose over the amount of fees due to Ove Arup.
- In September 2018, Ove Arup commenced an adjudication seeking the balance of fees it considered to be due.
- In October 2018, the adjudicator issued a decision directing CBI to pay the amount sought by Ove Arup plus various elements including his fees and other compensation.
- CBI did not pay the sums directed. Ove Arup therefore commenced these proceedings in the TCC seeking enforcement of the adjudication decision by summary judgment.
- CBI's defence was based on jurisdictional challenges, one of which was that the agreement between the parties was not a contract that fell within the ambit of the Construction Act.
In short, Ove Arup was successful and judgment was entered ordering CBI to pay the sums directed by the adjudicator.
Key points from the judgment:
- In reliance on previous case law, the purported reservation of position on jurisdiction by CBI did not satisfy the requirement of being appropriate and clear; "[a] mere general reservation was not sufficient to enable the adjudicator to understand and deal with the nature of the objection". CBI's point was too vague and therefore ineffective.
- In addition, CBI had, in the course of the adjudication, raised 2 very specific jurisdictional challenges - having lost on those points at that time, it would be inappropriate (in the TCC's view) now to allow any new form of challenge to resist enforcement.
- The TCC considered that in its response, CBI had admitted there was in fact jurisdiction under the Construction Act (possibly unwittingly).
To what extent can an adjudicator amend an issued decision based on the statutory "slip rule"?
- In June 2015, Axis was appointed by Multiplex as mechanical and electrical sub-contractor in relation to a development in London.
- A dispute arose in relation to valuation of certain variations, the validity of contra charges applied by Multiplex and Axis' resultant entitlement to payment.
- The adjudicator issued an early decision, stating that that on his calculation, Axis' claim had failed as no sum was due for payment. Axis was ordered to pay the adjudicator's fees.
- It transpired that there was an error in the adjudicator's calculations. Removing that error and issuing an amended decision on the day that the decision was due, the correct calculation resulted in Multiplex being directed to pay approximately £654,000. Multiplex was also directed to pay interest plus the fees of the adjudicator.
- Multiplex did not pay as directed and Axis commenced these enforcement proceedings in the TCC. Multiplex resisted enforcement on the basis that the amendments to the original decision went beyond those permitted by the "slip rule" provided for by paragraph 22A of the Scheme for Construction Contracts as amended, as the amendments were not made "so as to remove a clerical or typographical error arising by accident or omission".
The TCC Decision
After reviewing relevant case law, Mr Roger Ter Haar QC decided that this amendment by the adjudicator did fall within the statutory slip rule, as he was giving effect to his original intentions, not to "second thoughts and intentions".
As a result the amended decision was enforced.
Mr Roger Ter Haar QC stated in his judgment, "It is clear … that I should start from the position that decisions of adjudicators are to be enforced save in very exceptional circumstances".
"Breach of natural justice" challenges to an adjudicator's decision rarely succeed
- In October 2015, Victory House appointed RGB as contractor in relation to the conversion of an office building into a hotel. The contract was based on the standard form JCT Design and Build 2011.
- Following significant delays, disputes arose and there were 4 adjudications.
- Adjudication 4 was commenced by Victory House requesting a decision on the proper assessment of the Final Statement. Victory House contended that the adjusted Contract Sum was around £6 million, compared to RGB's assessment of over £11 million.
- The adjudicator decided that the adjusted Contract Sum was £9.76 million; Victory House was entitled to deduct £62,000. The net amount due to RGB was therefore £1.1m plus VAT. Victory House did not pay.1
- This TCC decision comprises RGB's
application to enforce the decision in adjudication 4.
Victory House's defence was that the adjudicator had acted in
breach of natural justice in 2 respects :
- in relation to his consideration of the extension of time to which RGB was entitled, by undertaking his own analysis without reference to the parties;
- by failing to address key aspects of Victory House's defence in relation to the claims of sub-contractors included in RGB's claim.
In short, the TCC enforced the adjudicator's decision, confirming that there had been no breach of natural justice.
- It was self-evident from the queries raised and requests made by the adjudicator following receipt of the reports of the quantum experts that he needed this information to facilitate modifying the programme (so to examine the impact of delay events) if he disagreed with the approach taken.
- The TCC was satisfied that the adjudicator had proceeded "entirely properly" and there had been no breach of natural justice.
Is it worth challenging an adjudicator's decision or an ongoing adjudication?
These decisions consistently highlight the risk of seeking to resist enforcement of an adjudication decision - in most cases, the adjudicator's decision will be enforced by the TCC, leaving the unsuccessful party with an exposure to an adverse costs order. Any prospective challenge to an adjudication needs therefore to be pragmatically assessed before proceeding - very few challenges are successful, resulting in (at the least) wasted costs and delay.
The TCC is transparent in its intention to facilitate the operation of the Construction Act and this is even more clear cut where a challenge is made during an ongoing adjudication, rather than at the enforcement stage - in the absence of exceptional circumstances, the courts will simply not interfere (Billingford v SMC).
Preserving (or not waiving) a jurisdictional challenge
The decision in Ove Arup & Partners Limited v Coleman Bennett International Consultancy plc  is a cautionary tale for parties who are seeking to reserve their position on jurisdiction whilst taking part in the adjudication - the right to challenge jurisdiction can be unwittingly waived.
Bear in mind:
- a general reservation of rights on jurisdiction in an adjudication will be only effective in limited circumstances - you need to get the wording right;
- if you have a viable jurisdictional challenge, set it out in writing to the adjudicator right at the outset, in clear and specific detail.
Even if you do this however, there is no guarantee that you will have successfully preserved any accrued right to challenge the jurisdiction of the adjudicator. Again, this uncertainty needs to form part of your overall strategic consideration at the outset.
1 Referenced sums are approximated.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.