Out-Law / Your Daily Need-To-Know

Out-Law Analysis 7 min. read

How UK law on adjudication looks heading into 2024

Construction companies that encounter disputes in 2024 can learn lessons from case law established in 2023 concerning the operation of so-called serial adjudications and when an adjudicator’s decision might breach principles of natural justice.

The case law should help the industry understand how they can avoid being seen to re-adjudicate claims decided in an earlier adjudication – and therefore avoid being in breach of contract – and it also highlights that natural justice challenges to adjudicator decisions continue to arise, despite rarely being successful, more than 25 years after adjudication was provided for in UK construction law.

Serial adjudications

A serial adjudication arises in circumstances when there are two or more successive adjudications between the same parties in relation to the same construction contract. The courts have established that if any subsequent adjudication comprises the same or substantially the same dispute that has already been decided in a previous adjudication in the series, the adjudicator in the subsequent serial adjudication has no jurisdiction to hear or rule on the matter.

Ascertaining what has been decided in a previous adjudication – and therefore what is binding on the parties and the adjudicator in a subsequent adjudication – is a matter of fact and degree and requires an analysis of the terms, scope and extent of the decision made by the adjudicator in the previous adjudication.

In June, the Court of Appeal provided important guidance on the question of how to determine what has already been decided in a previous adjudication, in a case involving a dispute between Sudlows Ltd and Global Switch Estates 1 Ltd. Pinsent Masons acted for Sudlows in the case. The principles established by the Court of Appeal have now been made confirmed in case law in England and Wales after the UK Supreme Court denied Global Switch permission to appeal against the judgment.

What the Court of Appeal said

There is now a very clear set of principles from the Court of Appeal which apply to serial adjudications and guidance on how to approach the question as to what has already been decided in a previous adjudication.

The key principles identified are:

  • The need for speed and the importance of at least temporary finality mean that the adjudicator, and if necessary the court on enforcement, should be encouraged to give a robust and common sense answer to the issue of overlap between decisions. It should not be a complex question of interpretation of documents and citation of authority.
  • The need to look at what the first adjudicator actually decided in reality; the form and content of the documentation with which he was provided being of lesser relevance.
  • There needs to be flexibility in order to prevent a party from re-adjudicating something that has already been decided but also ensuring what is in effect a new claim or new defence is not shut out. The result should be a product of common sense and fairness.
  • Whilst a court on enforcement is not bound by an adjudicator’s decision on jurisdiction based on overlap with previous decisions, the courts should be slow to interfere with it unless it was clearly wrong. Anything less runs the risk of undermining the adjudication process by encouraging repeated challenges to the adjudicator’s decision.
The lessons for construction companies

The ruling highlights that if a party is going to ask the adjudicator in the subsequent serial adjudication to consider fresh arguments or evidence to reach a decision which is diametrically opposed to what has already been decided, then that party will be at risk of placing itself in breach of Section 108(3) of the Construction Act 1996.

Section 108(3) states that construction contracts must provide for a decision of an adjudicator to be binding until the dispute is finally determined by legal proceedings, by arbitration, if the contract provides for arbitration or the parties otherwise agree to arbitration, or by agreement.

For the construction industry, the ruling highlights the importance of understanding and identifying the “essential component of or basis for the [previous decision]” – a principle established in prior case law. They need to avoid eliding the fundamental dispute which was decided in the previous adjudication with the evidence deployed by the parties in the context of that dispute.

For businesses on the other side of the dispute, the Court of Appeal’s ruling highlights that there will be an opportunity to raise a successful challenge as to an adjudicator’s jurisdiction to determine matters that have already been decided upon in an earlier adjudication in the series.

Natural justice challenges

While UK law has now provided a statutory right for construction disputes to be resolved via adjudication for more than 25 years, pointing to the maturity of the mechanism for dispute resolution, there remain a steady trickle of cases each year in which the unsuccessful party claims that the adjudication process has been unfair in some way and the decision should not be enforced. This year was no different in this respect.

One recent case provides a relatively rare example of a successful natural justice challenge.

Take care not to rely on ‘without privilege’ documents

In the case, a disputed adjudicator’s decision was ruled by the High Court in London to be unenforceable due to apparent bias, after the court determined that certain communications and documents relied upon by the referring party in the adjudication were subject to ‘without prejudice’ privilege.

‘Without prejudice privilege’ is a legal principle that allows parties engaged in a dispute or negotiation to communicate freely without the risk of their discussions being used against them in future legal proceedings.

The ruling emphasises the need for parties to be careful about what documents they rely on in their adjudication submissions. A document does not have to be labelled ‘without prejudice’ for the principle to apply if, as a matter of substance, the parties were genuinely trying to reach a settlement.

For businesses that spot that the other party has relied on without prejudice material, the ruling shows that it is possible to successfully argue that it can prompt unconscious bias in an adjudicator’s decision making.

However, not every inadvertent reference to without prejudice documents will be a breach of natural justice. This will only be the case where – as in this case – the documents are placed front and centre and have a material influence on the adjudicator.

The courts’ limited sympathy for ‘ambush’ claims

The case of Home Group v MPS Housing Ltd highlighted how difficult it is to convince a judge that an adjudication process breached principles of natural justice where there are severe time constraints imposed on responding to mountains of paperwork filed by the other party when referring matters to the adjudicator.

In the case, MPS was given just 19 days to serve its main response to Home Group’s referral notice, which MPS said would have ran to 127 double sided lever arch files if all the documents included with the notice had been printed out. MPS argued that it was not given long enough to digest the material and submit a response, so when Home Group sought to enforce the decision, MPS challenged that enforcement arguing that there had been a breach of natural justice.

The judge, however, rejected that claim and placed particular emphasis on the fact that prior to the adjudication Home Group had submitted its expert report and invited MPS to visit its offices to inspect some of the documents.

The ruling highlights that parties in a construction dispute should take the opportunity when it arises to understand the other party’s case pre-adjudication. It is also the latest in a series of judgments made by courts in England and Wales which suggest that they have limited sympathy for so-called ‘ambush’ claims pertaining to large volumes of evidence and witness statements and limited timeframes imposed for providing a substantive response.

Adjudicators’ payment demands

In a third case ruled on in 2023, Nicholas James Care Homes v Liberty Homes, the High Court rejected claims raised that there had been a breach of natural justice in a case that concerned the extent to which adjudicators can press parties for payment of their adjudicator fees before releasing their decision.

In the case, the adjudicator’s clerk had sent eight payment chasers to one of the parties before the party paid. The adjudicator’s decision was released the day after payment was made. The party argued that this was a breach of natural justice because it contravened the rule that an adjudicator cannot make the release of their decision conditional on being paid first. However, the judge said that while the chasers for payment were tenacious and persistent, he did not think the adjudicator was refusing to release the decision before being paid. The judge said that if the party truly thought payment of the adjudicator fees was being made a precondition to the release of the decision, they ought to have raised a complaint at the time.

The case highlights the importance of reviewing the terms and conditions of an adjudicator’s contract at the outset specifically to see what they say about payment terms, and of raising a complaint promptly if there is a concern that the adjudicator is demanding payment of their fees before releasing the decision, if a party wishes to keep open the possibility of raising a natural justice challenge later.

Broad lessons on raising natural justice challenges

The three cases in the past 12 months show that natural justice challenges against adjudication processes at the point of enforcement are still common, even after 25 years of construction adjudication. To our mind, four principles have been established in respect of natural justice challenges over the last quarter of a century.

Firstly, context is important. The purpose of adjudication is to provide a quick and rough method of resolving disputes. Adjudications must be fair, but the standard of fairness required is not the same as in arbitration or court proceedings.

Second, there is a high bar for establishing a breach of natural justice. It is not enough to point to a peripheral breach of natural justice – the breach must be material to the outcome of the adjudication.

Third, parties wishing to rely on a natural justice challenge will be expected to have made the complaint promptly, so during the course of the adjudication, rather than simply raising it afterwards at enforcement.

Finally, because of the high bar and the policy objective behind construction adjudication, courts will approach alleged breaches of natural justice with scepticism. Challenges are therefore rarely successful.

Co-written by Callum Miller of Pinsent Masons.

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