Enforcement, costs among recent adjudication trends

Out-Law Analysis | 07 Mar 2018 | 1:57 pm | 6 min. read

ANALYSIS: The courts heard a number of interesting cases around adjudication practice in 2017 with the 'slip rule'; injunctions to prevent the re-running of a dispute; and challenges to adjudicator fees all featuring.

We also now have greater clarity over what it takes before the courts will entertain a party's defence on substantive grounds as part of enforcement proceedings, re-opening the question over whether adjudication is becoming a two-stage process.

This is the second part of our review of recent significant adjudication cases, following our review of payment-related disputes and so-called 'smash 'n' grab' claims. Here, we will look at how the courts have attempted to limit the scope for adjudication to become a 'two-stage' process; and the courts' confirmation that adjudication costs are not recoverable under the 1998 Late Payment of Commercial Debts (Interest) Act (LPCDA).

Enforcement

The courts have long been clear that adjudicators' decisions will be enforced in all but the rarest of cases. Provided that the adjudicator acted within his jurisdiction, and in accordance with the requirements of natural justice, the courts will generally enforce his decision, irrespective of the decision's merits.

The courts have, however, confirmed that they may consider the merits of an adjudicator's decision and permit 'final' determination of the substantive issues at enforcement stage, in cases where there is only a very narrow point at issue. A party seeking to resist enforcement by this route would typically raise Part 8 proceedings, which are used to obtain declaratory relief in the civil courts, in response to an enforcement action.

That said, in several recent cases, the courts have expressed concern about the improper use of this procedure. The central message is that Part 8 applications are not a licence to reopen the whole facts of the adjudication, and that the procedure will not be suitable where the facts of the matter are complex.

In February, the court said that contractor Wilson Properties should not be allowed to "shoehorn" the substantial part of the adjudication into an enforcement hearing. This would make adjudication the first part of a two-stage process, which would be contrary to the fundamental principles of statutory adjudication.

The court set out the conditions that must be satisfied by a party seeking to resist enforcement proceedings via a Part 8 application. In summary:

  • the party must be contesting a short and self-contained issue which arose in the adjudication;
  • that issue must require no oral evidence or elaboration beyond that which is capable of being provided during the time allowed for the enforcement hearing (usually 2-3 hours); and
  • the issue must be one which, on a summary judgment application, it would be unconscionable for the court to ignore.

The court warned that, should a defendant unsuccessfully raise a spurious or unsuitable challenge on enforcement, it would almost certainly be liable for costs on the indemnity basis.

Other recent cases illustrate the circumstances in which Part 8 proceedings might be used effectively. In August, the court reversed an adjudicator's decision that a liquidated damages clause was void for uncertainty. In that case, the construction of the contract between employer Vinci Construction and subcontractor Beumer Group was considered suitable for Part 8 proceedings. In Surrey & Sussex NHS Trust v Logan Construction, in February, the court agreed that examination of whether applications for payment and a pay less notice were valid was amenable to Part 8 proceedings.

Whether Part 8 proceedings are appropriate will therefore depend on the case, but parties would do well to well to recall the court's view that this approach will not be suitable in "99 cases out of 100".

Where grounds for a jurisdictional or 'natural justice' challenge exist, parties must ensure that they do not waive their rights to raise it. This point was illustrated in the Dawnus Holdings v Marsh Life Ltd case in May. Here, after working his way through the case law, the judge found that Marsh, the employer, had waived its right to challenge enforcement when it invited an adjudicator to use the 'slip rule' to correct errors in his decision. Crucially, Marsh did not expressly reserve its right to pursue a claim for breach of natural justice in its slip rule letter, which was found by the judge as acceptance of the adjudicator's decision.

It is worth emphasising that this case involves an alleged breach of natural justice, not a juurisdictional challenge. This was a point that Marsh's counsel made at the hearing. He also argued that the slip rule letter, in raising the natural justice failure, implicitly reserved the right to bring a claim for breach of natural justice if the decision was not later revised.

Injunctions

In September, in the Jacobs v Skanska case, the court was asked to consider whether a party to an adjudication is entitled to withdraw unilaterally a dispute referred to adjudication and then commence a second adjudication in respect of the same, or substantially the same, dispute. Skanska claimed that it had suffered loss and damage as a result of defective designs provided by Jacobs in relation to a street lighting project it had been engaged to deliver.

Before the court, Skanska pleaded its case in the extreme, arguing that there is "no concept of 'abuse of process' in adjudication and a referring party is free to obtain whatever tactical advantage it can". The judge rejected this slightly over the top submission, although she did ultimately find for Skanska. Although adjudication is a "rough and ready" process, where inherent unfairness must be weighed against speed, efficiency and the temporary effect of any decision, the courts may, grant injunctive relief to prevent serial adjudications where this amounts to unreasonable and oppressive behaviour.

Whether injunctive relief was appropriate is a question of fact in each case, according to the judge. Examples of unreasonable and oppressive behaviour may include where the adjudicator obviously does not have jurisdiction, where the referring party has not complied with the adjudication agreement or where the further adjudication is vexatious. In the present case, the unavailability of counsel which caused Skanska to withdraw from the original adjudication was unreasonable, but was not oppressive. She did, however, rule that Jacobs was entitled to its wasted costs and any additional costs caused by Skanska's failure to comply with the original adjudication.

Costs

Section 108(A) of the Construction Act constrains parties' abilities to recover their costs in adjudication. It states that a provision in a construction contract dealing with the allocation of adjudication costs between the parties is ineffective, unless it is:

  • made in writing after service of a notice of adjudication; or
  • if made in advance, limited to conferring power on the adjudicator to allocate his fees and expenses between the parties.

The lack of clarity in these provisions has kept alive discussion of exactly when a party will be entitled to recover its costs in adjudication.

Some practitioners have argued that the Late Payment of Commercial Debts Act might provide a way around the apparent constraints in section 108(A). The LPCDA gives parties a statutory right to payment of their costs when recovering "debts", in certain circumstances. An adjudication enforcement case decided in 2016, in which the court enforced an adjudicator's decision to award costs under the LPCDA, seemed to leave this as a possible route to recovery.

The court has now come closer to clarifying that an adjudicator has no jurisdiction to make an award of costs under the LPCDA. In the unreported Enviroflow v Redhill case, the court acknowledged that although the LPCDA provides for a party to be paid the costs of recovering a debt in certain circumstances, s108(A) of the Construction Act supersedes these provisions in relation to construction adjudication costs. Parties wishing to recover adjudication costs should therefore be limited to the provisions of s108(A), unless there is a written provision in the construction contract allowing recovery or if there is agreement between the parties in writing after the giving of notice of adjudication.

However, the relevant part of the judgment was only a couple of paragraphs, and the judge did not mention the approach taken in the Lulu and Mullaley case. More recently, in the Actavo v Doosan Babcock case, the same judge followed the Lulu approach in the context of interest, and found that even if the adjudicator was wrong to award the interest he was wrong as a matter of fact and/or law, and still within his jurisdiction.

As things stand, therefore, although the Enviroflow decision is useful and makes the award of costs less likely to be enforceable, there remains some confusion on this issue.

Fee challenges

In July, the courts dealt with two cases where adjudicators sought to use the LPCDA to recover their costs from chasing down unpaid fees. In both cases, Linnett v Harding and Vinden v Orca, the adjudicators were successful. The judges found that the costs claimed were reasonable, both in terms of time spent and rates applied.

Although it might not immediately seem that way, this is actually consistent with the Enviroflow judgment above as the implied term in this context does not fall within the remit of section 108(A). So this is one important area where LPCDA will continue to apply, allowing costs to be recovered.

It is also worth noting that, when looking at the substance behind why the parties had refused to pay the adjudicator's fees, the courts took a fairly generous view of what amounted to reasonable fees. In this case, the fees were around £33,000, against an average adjudicator fee of less than £10,000. For contractors, the clear moral of the story is to pay the adjudictor's fees unless there is a very good reason for doing otherwise.

Lawrence Davies and David Greenwood are construction disputes experts at Pinsent Masons, the law firm behind Out-Law.com.