UK: What Might The Consequences Be If An Adjudicator Fails To Deliver His Decision On Time?

If a final certificate has been issued, under most contracts there is a short period before it becomes conclusive; under most JCT contracts that period is 28 days. If a party wants to challenge that certificate it must take action within that window of opportunity. One option is adjudication. However what happens if you start an adjudication, but the appointment of the adjudicator is invalid or perhaps the adjudication decision is issued late? Is the decision a nullity? Have you lost your opportunity to challenge the final certificate? If so, whose fault might that be?

These were all issues which came before the TCC in the recent case of Cubitt Building & Interiors Ltd v Fleetglade Ltd. In his judgment, HHJ Coulson QC made a number of important points concerning the operation of adjudication. These points are relevant to all those involved in adjudication, including adjudicators themselves:

1. The act of an adjudicator in reaching a decision and publishing it consists of two separate events. Thus a decision reached in time will be valid if published out of time provided that publication is "forthwith" - "forthwith" means what it says, i.e. within a few hours at most;
2. An adjudicator who reaches a late decision which becomes a nullity may be liable for the consequences;
3. Time periods in adjudication are measured in full days, and not merely business length days. There is no provision that documents must be served by 4pm as under the CPR;
4. Adjudicators cannot hold a lien for their fees over their decisions even where they make such provision in their terms of acting;

Cubitt were engaged as main contractors by Fleetglade to carry out certain superstructure works. The contract incorporated the JCT Standard Form, 1988 Edition with certain amendments. On 24 August 2006 a Final Certificate was issued. Both parties had already raised claims and on 20 September 2006, Fleetglade issued an Arbitration Notice. On the same day, after 4pm, Cubitt issued an Adjudication Notice which amongst other things, sought a declaration as to the value Final Certificate.

On 21 September 2006, Cubitt applied to the RICS for the nomination of an adjudicator. The RICS failed to make a nomination until 27 September 2006. Cubitt’s solicitors only received details of that notification at 5.06pm. The adjudicator confirmed his acceptance of the appointment at 5.35pm. Late on 27 September 2006, Cubitt’s solicitors offered Fleetglade’s solicitors a copy of the Referral Notice itself, but without the accompanying documents, some 12 lever arch files, which were elsewhere. The offer was refused. Cubitt’s solicitors served the Referral Notice and supporting documents on 28 September 2006.

Under clause 41A of the JCT adjudication provisions if an adjudicator is agreed or appointed within 7 days of the notice then the party giving the notice shall refer the dispute or difference to that adjudicator within 7 days of the notice and that if the adjudicator is not agreed or appointed within 7 days of the notice, the referral shall be made immediately on such agreement or appointment. The referral notice must be supported by any accompanying documents upon which that party want to rely. Fleetglade argued that the referral notice was served out of time and, therefore, that the adjudicator had no jurisdiction.

In respect of the Final Certificate, the JCT contract provided that the Final Certificate shall have conclusive effect unless any adjudication, arbitration or other proceedings had been commenced by either party within 28 days after that Final Certificate had been issued. Accordingly, Cubitt was out of time to commence a fresh adjudication. Therefore, unless Fleetglade’s own arbitration was wide enough to encompass Cubitt’s arguments (which was open to doubt), Cubitt stood to lose the entitlement to have the Final Certificate reviewed at all.

In other words, Cubitt had no option other than to continue its existing adjudication. The adjudicator continued with the reference, and the time for the decision was extended to 24 November 2006. Having initially argued that, by virtue of his terms of appointment, he had a lien on his decision pending payment of his fees, the adjudicator sent his decision to the parties’ the following day – 25 November 2006, some 12½ hours late. Therefore, Fleetglade in addition argued that the decision was made out of time and was invalid.

Cubitt commenced enforcement proceedings and sought summary judgment. The key issues before Judge Coulson were whether the adjudicator had been validly appointed and whether the adjudicator’s decision was out of time and, therefore, a nullity.

Judge Coulson commented that the essence of adjudication is speed. This he noted, can mean that the ultimate correctness or otherwise of the decision matters less, because the decision is not binding and it can be challenged in court or in arbitration. What does matter is compliance by the parties and the adjudicator with the relevant timetable. If the timetable is not kept to, there is a clear risk that, instead of giving rise to a quick decision, the adjudication will instead become a long drawn-out and unnecessarily expensive process.

The Judge was clear that the dater of service was 20 September 2006. You can not use the CPR rules to suggest that as the notice was sent out after 4pm, the actual date of service was the following day. The next point that arose concerned the events on 27/28 September. The Judge held the words in clause 41A.4.1 were mandatory. However that did not mean that the referral notice was not served in accordance with its provisions, and was therefore a nullity. First, clause 41A had to be operated in a sensible and commercial way. The clause dealt with the appointment of an adjudicator. However, it made no provision for what should happen if (as here) through no fault of the referring party, the appointment does not occur until very late on the seventh day. To the Judge, a sensible interpretation of clause 41A would be that, if the appointment happens late on day 7, the referral notice must be served as soon as possible thereafter; and if that meant that it was served on day 8, then service on day 8 would be in accordance with clause 41A. This, the Judge decided is what happened here. It would be contrary to business commonsense to rule that the provision of the referral notice in this case was out of time.

In addition, there were other reasons which the Judge took into account. The vast bulk of the delay between 20th and 27th September was caused by the appointing body, the RICS. The application was made on 21 September, but the appointment happened six days later. That delay was unacceptable. Further, the Judge considered the conduct of Cubitt. Within an hour of the adjudicator’s appointment, Cubitt’s solicitors offered to fax Fleetglade’s solicitors a copy of the referral notice making it clear that the accompanying files were with Cubitt’s claims consultant and would therefore be sent to Fleetglade’s solicitors the following day. The solicitors had done everything to try and comply with the clause.

Here, Cubitt argued that, pursuant to clause 41A.5.3, the adjudicator had two separate obligations. First, he had to reach his decision on 24 November, the agreed extended date. Second, he had to send that decision forthwith to the parties. Cubitt submitted that the decision was reached on 23 November, if not finalised the following day. On the evidence, it was available for transmission at 10.45 pm on 24 November, and was transmitted electronically at 12.21 am on 25 November, which was "forthwith" for the purposes of the contractual provision. Fleetglade disagreed, saying that the decision had not been reached by midnight on 24 November, which meant that the decision which was provided on 25 November was out of time.

Judge Coulson made it clear that adjudicators do not have the jurisdiction to extend without the express consent of both parties. He warned adjudicators that if their time management was so poor that they failed to provide a decision in the relevant period and they had not sought an extension, then their decision may well be a nullity. The significance of the adjudicator’s default in such circumstances should not be underestimated. The Judge set out the following principles:

1. It is not correct to say that a decision is not a decision until it is communicated. There is a two-stage process involved in an adjudicator’s decision, which is expressly identified in clause 41A. Stage 1 is the completion of the decision; stage 2 is the communication of that decision to the parties, which must be done forthwith;
2. An adjudicator must reach his decision within 28 days or any agreed extended date;
3. A decision which is not reached within 28 days or any agreed extended date is probably a nullity;
4. A decision which is reached within the 28 days or an agreed extended period, but which is not communicated until after the expiry of that period will be valid, provided that it can be shown that the decision was communicated forthwith.

Here, the adjudicator had considered that he was entitled to a lien on his fees as a result the specific terms of appointment. The Judge disagreed with that assertion, either as a matter of contract or law. The critical question, which was principally one of fact, was whether the decision was completed before the end of 24 November 2006. The Judge concluded that it was. It was dated 24 November, which suggested it had been made within the agreed period. Second, the adjudicator's evidence was that he had completed his findings on the previous day, 23 November, and then completed the entirety of the decision itself by late on 24 November. The adjudicator had stressed that but for the lien, he would have sent out the decision late on the 24 November. The Judge thought that it was wrong in principle to penalise Cubitt for the adjudicator's mistaken view as to his legal entitlement to a lien, particularly since he changed his mind and correctly decided to publish the decision within a few hours of his original incorrect decision to withhold the document.

There was a further consideration. The decision was sent out to the parties at half past twelve on the Saturday morning - the very day on which, according to the evidence, both sides had set aside to study its contents because of the other legal steps which needed to be taken. To the Judge, a practical businessman would conclude that the completion and communication of the decision within this time scale was not a fundamental breach of the adjudication agreement. Indeed, that same business man would be surprised at the suggestion that the decision reached on one day and communicated just after noon on the next day was in some way a nullity.

The Judge stressed that the events on 23 to 25 November nearly caused a serious problem for the adjudicator himself. For example, if the Judge had reached a different conclusion, the adjudicator’s failure to comply with the timetable might irredeemably have deprived Cubitt of its right to challenge a Final Certificate. That would have been the adjudicator's fault. Hence the Judge concluded:

This article is based on an article from a forthcoming issue of the Fenwick Elliott Dispatch, a monthly newsletter which summarises recent key developments relating to contentious and non-contentious construction law issues. To see the current issue please visit www.fenwickelliott.co.uk.

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.