Serial adjudications and focus on enforcement among current trends, says expert

Out-Law Analysis | 31 Jan 2017 | 3:04 pm | 5 min. read

FOCUS: Courts increasingly had to contend with serial adjudications in 2016, while stepping in to prevent parties from ambushing their opponents and running hopeless challenges to adjudicators' decisions.

Last year's significant decisions on adjudication centred on three themes:

  • parties embarked on and the courts had to contend with serial adjudications;
  • 'smash 'n' grab' adjudications were still being pursued, but the courts took an increasingly restrictive approach to parties' ability to ambush their opponents; and
  • hopeless challenges to the enforceability of an adjudicator's decision were not tolerated by the courts.

Serial adjudications

The extent to which more than one dispute can be adjudicated in front of the same adjudicator under the Scheme for Construction Contracts ('the Scheme') was first considered by the High Court this year in a dispute between Deluxe Art & Theme Ltd and Beck Interiors.

During the second adjudication, the sub-contractor started a third adjudication. RICS appointed the same adjudicator who had been appointed to the first two adjudications. The contractor, Beck, objected to the adjudicator dealing with two disputes at the same time and contended that neither of the decisions in the second and third adjudications were enforceable.

The Scheme provides that an adjudicator may adjudicate at the same time on more than one dispute under the same contract "with the consent of all the parties to those disputes". The court held that as a result of this, and in the absence of consent from the contractor, the adjudicator did not have jurisdiction to deal with the third adjudication. If a party wants to adjudicate more than one dispute at the same time before the same adjudicator then that party needs the consent of the other party.

The court also found that this provision of the scheme was not limited to multiple disputes being referred in the same notice, as had previously been suggested in the 2013 Willmott Dixon Housing/Newlon Housing Trust case.

Earlier in the year, the Court of Appeal considered the extent to which an adjudicator's decision is binding on the jurisdiction of a second. The court confirmed that:

  • the extent to which an adjudicator's decision is binding will depend on an analysis of the terms, scope and extent of the decision; and
  • what the first adjudicator actually decided determines how much remains for consideration by the second adjudicator.

The Court of Appeal followed the decision of the same court in the 2015 Harding v Paice case in this regard.

Ruling in a dispute between Penten Group Ltd and Spartafield Ltd, the High Court held that a party could not rely on an argument that, through its own omission, it did not raise in the first adjudication in a new adjudication, unless and until it challenged the first adjudicator's decision by way of subsequent litigation.

'Smash 'n' grab' adjudications

The courts continued to curtail so-called 'smash 'n' grab' adjudications: a term which, following the 2014 ISG v Seevic case, has been used to describe claims for the full amount set out in an application where the payer fails to serve a valid pay less notice in time.

In March, the judge noted that a contractor's application for interim payment "must be in substance, form and intent an interim application stating the sum considered by the contractor as due at the relevant due date and it must be free from ambiguity". In this instance, the court was not willing to apply the draconian consequences of the Construction Act payment regime where there were material differences in the payment application of the contractor, The Interiors Group, compared with its applications in previous months.

The court also confirmed, in July, that an interim application that did not comply strictly with the bespoke payment terms was not a valid application.

However, the most significant decision of 2016 came in September, in a dispute between Kilker Projects Ltd and Rob Purton, a joinery subcontractor. Here, the High Court had to address some of the apparent inconsistencies between the judgments in the Seevic and Harding cases regarding a party's ability to challenge the value of works under interim and final applications where no payment or pay less notices had been served.

The issue in the Kilker case was whether the proper value of the sum due could be referred to an adjudicator despite the absence of a payment or pay less notice. Kilker lost the first adjudication in relation to a final payment claim because it failed to issue a payment notice or a pay less notice. It brought subsequent proceedings in a second adjudication in relation to the valuation of the final account. The second adjudicator found that Kilker had overpaid. Purton challenged this decision, on the ground that the first adjudicator had decided the same or substantially the same claim.

The court found that the Construction Act and the Scheme established a regime for determining periodic payments, but that very clear words would be required if parliament intended to interfere with the commercial bargain negotiated by the parties. It went on to note that, although there was usually no contractual basis on which a contractor's entitlement to a 'notified sum' in respect of an interim payment could be re-opened, this was not the case in respect of final payments.

A 'notified sum' in respect of a final payment must be paid, the court said. However, either party was "entitled to have the ultimate value of the contract sum determined in a subsequent adjudication, litigation or other form of dispute resolution", unless the contract provides that the notified sum is conclusive as to the contract sum due.

As a result, the second adjudicator's decision was enforceable.

The Kilker decision establishes that there is a distinction between the 'notified sum' for an interim payment, the value of which cannot be challenged by subsequent adjudication; and that for the final payment. The substantive value of the final payment can be challenged by adjudication, even where payment or pay less notices are not served.

Enforcement and challenges

The court has confirmed that it will not tolerate, and it will punish, parties that do not honour enforceable adjudication decisions.

Parties were made aware of the court's attitude in the AMD Environmental Ltd v Cumberland Construction Company Ltd case in February. Mr Justice Coulson stated that the arguments in support of Cumberland's position were "properly categorised as hopeless". The court, the judge said, was "concerned that too many adjudication decisions are not being complied with, and that there are too many disputed enforcements where the grounds of challenge are without merit".

The court in this case penalised Cumberland for refusing to honour the adjudication decision by ordering it to pay interest at 6% and to pay costs on an indemnity basis.

Where the adjudicator has made an error of fact, the court will not sever an enforceable decision. In the Amey case in October, the judge stated that what the company was really seeking was "not 'severence'; it is the correction of the arithmetic or spreadsheet calculation. An error in the arithmetic does not render the decision unenforceable".

Consistent with this approach, the court enforced a decision notwithstanding clear evidence of a third party's involvement in the adjudicator's decision-making process in January. It held that the third party's role was merely that of a data handler and administrative assistant, and there was no evidence that the third party had taken any material decision or valuation.

Lawrence Davies is a construction disputes expert at Pinsent Masons, the law firm behind Out-Law.com.