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Adjudication Focus

 
Get it right first time: there are no second chances in adjudication…

 
Benfield Construction Limited v Trudson (Hatton) Limited [2008] WCHC 2333

Birmingham City Council v Paddison Construction Limited [2008] EWHC 2254

There have been a number of decisions in the last year which have confirmed that a dispute cannot be adjudicated more than once. The current law on this issue was usefully summarised and applied in the case of Benfield Construction Limited v Trudson (Hatton) Limited [2008] EWHC 2333.

The parties initially adjudicated a dispute on the date of practical completion. In a second adjudication, they argued over the entitlement to liquidated damages and in a third and final adjudication, there was a dispute on partial possession - an issue which was raised for the first time in the third adjudication. 

The Adjudicator's decision in the third adjudication went in favour of the claimant who then applied to the Technology and Construction Court (TCC) for its enforcement. The defendant resisted the application on the basis that the adjudicator did not have authority to act because the dispute was the same as that raised in the first adjudication (a position that the defendant had maintained throughout the third adjudication).

In his judgment, Mr Justice Coulson carried out a useful review of the law on what "has come to be called serial adjudication" and decided that the third adjudicator had not had jurisdiction to act. His reasons were as follows:

  • in HG Construction Ltd v Ashwell Homes (East Anglia) Ltd [2007] EWHC 144, it was decided that adjudication agreements providing for the adjudicator's decision to be binding until finally decided by arbitration or litigation effectively provide "a limit to serial adjudications" (Ramsey J). The Scheme for Construction Contracts achieves the same effect through paragraph 9.2 under which the adjudicator must resign if the dispute is the same or substantially the same as that decided on in an earlier adjudication;
  • the case law dealt with the issue of overlaps between material relied on in earlier and later adjudications. The judge noted that the court had only granted enforcements of later adjudication decisions where the material relied on later was very different to that relied on in former adjudications and gave rise to "a separate and distinct factual enquiry second time round";
  • on the present facts, the same or substantially the same disputes had been dealt with in the first and second adjudications. There were no new material facts raised in the third adjudication different to those previously presented; and
  • the partial possession argument could have been raised in the first and second adjudications – and could not now be raised in a third. The judge believed there to be an analogy (albeit "imperfect") to issue estoppel: that is the rule that once an issue has been decided by a court, that issue cannot be reheard in court. In this particular case, partial possession and practical completion did not give rise to different disputes: the former was simply an aspect of the practical completion and liquidated damages disputes – and as such should have been raised in the first and second adjudications.

The following of Mr Justice Coulson's comments are worth reiterating:

"Adjudication is supposed to be a quick one-off event; it should not be allowed to become a process by which a series of decisions by different people can be sought every time a new issue or a new way of putting a case occurs to one or other of the contracting parties…"

"If, as it obviously was, the claimant was unhappy with the results in adjudications 1 and 2, then the claimant should have gone either to an arbitrator or to the court in order to challenge those decisions".

Further, where there is a possible overlap of details raised as between an earlier and a later adjudication, whether an adjudicator's decision could be enforced would depend on: "whether, as a matter of fact and degree, the subsequent dispute was the same or substantially the same as that decided in the earlier adjudication…"

He stated that the courts have enforced a subsequent decision where: "the material relied on in the second adjudication was, as a matter of fact, very different to that relied on in the first, giving rise to what was described as 'a separate and distinct factual enquiry' second time round."

Key points to bear in mind:

  • whether you are bringing or defending a dispute in adjudication, put your best foot forward: ensure that you raise all relevant arguments in support of your position at the outset;
  • before issuing additional adjudication proceedings, consider carefully whether the new dispute is the same or substantially the same as any of the previous proceedings.  If yes, consider arbitration or litigation as the next step; 
  • if you are on the receiving end of an additional set of adjudication proceedings, consider carefully whether the new dispute is the same or substantially the same as [any of] the previous proceedings.  If yes, argue that the adjudicator has no jurisdiction to act – and maintain that position throughout the adjudication if the adjudicator disagrees;
  • in particular, consider the documents and facts upon which you are relying. If they are the same or substantially the same as those relied on in a previous adjudication, you run the risk that an adjudicator will refuse to act in that regard – or if he does, that  his/her decision may be unenforceable because he or she should not have acted.

In paragraph 53 of his judgment, Coulson J said succinctly: "the court will be vigilant to prevent serial adjudications of matters which could and should have been raised first time round". Adjudication is designed to give the parties quick justice. Allowing parties to reserve some of their arguments to a later adjudication is not in the spirit of adjudication and will not be countenanced. There are no second chances: submit all your arguments and get it right first time!

It is worth noting that Judge Francis Kirkham echoed this decision in the TCC case of Birmingham City Council v Paddison Construction Limited [2008] EWHC 2254. In this case he concluded that the disputes raised in consecutive adjudications were the same or substantially the same: "…to conclude that there was a difference between the two disputes…would permit Paddison to have a second bite at precisely the same cherry".  The "court should be vigilant to ensure that a party is not unfairly subjected to successive adjudications of the same dispute". 
 
For further information, please contact Edward Shaw on 0161 934 6396 or email  .


The courts will do their best to enforce an adjudicator's decision


Balfour Beatty Construction Northern Limited v Modus Corovest (Blackpool) Ltd [2008] EWHC 3029 (TCC)

This case covered a wide range of issues which can be summarised as follows:

Practical points

1.    If you intend the parties to be bound by a mediation clause, ensure that your contract:

(a)      is drafted so as to make the obligation to mediate mandatory; and
(b)      includes clear provisions about the intended mediation process. 

2.    Adhere to the Civil Procedure Rules ("CPR") Practice Directions. Do not rely on the possibility of the Court allowing you to correct procedural errors however minor.

3.    An adjudicator has no obligation to provide a reasoned decision unless the parties ask for it at the start of the adjudication or there is a requirement to that effect in the contract (as in this case). It makes sense to ask for a reasoned decision if only because it helps the parties to understand how and why the adjudicator reached his decision. If there is a problem with the decision, the reasoning will enable the court to deal more easily with issues raised in enforcement proceedings.

4.    Any issues with the adjudication timetable must be dealt with promptly during the adjudication proceedings.  Any delay or failure to flag up concerns could lead to a lost argument later.

5.    The Scheme for Construction Contracts ("the Scheme") and the Housing Grants Construction and Regeneration Act 1996 ("Construction Act") do not apply to Liquidated and Ascertained Damages ("LAD") claims (at least not on the facts of this case).

Here are some highlights explaining the background to these practical points.

Highlight 1:  no stay to mediate

Although the court has an inherent jurisdiction to stay proceedings brought in breach of an Alternative Dispute Resolution ("ADR") agreement, it will not enforce an agreement to mediate where it is in effect an "agreement to agree". 

The parties' contract provided for disputes to be referred to mediation. The court confirmed that in such cases, the court had an  inherent jurisdiction to stay disputes which are brought in breach of the parties' ADR agreement. However, in this case the judge declined to grant a stay (or put a temporary hold on the proceedings). He ruled that the mediation clause was "nothing more than an agreement to agree": it was too uncertain and therefore unenforceable.

The court went on to comment that, even if the parties had had a binding agreement to mediate, it would only have stayed the claim and counterclaim to mediation if:

(a)      "the party making the claim and/or the counterclaim was not entitled to summary judgment." In other words, "there was an arguable defence on which the other party had a realistic prospect of success"; and
(b)      "the best way of resolving that dispute was a reference to mediation".

(See paragraph 18 of the judgment.) In this case, the judge went on to order summary judgment on the basis that there was no dispute.  There was, therefore no need to mediate even if the mediation clause had been enforceable.

Highlight 2: the effect of procedural errors

A procedural error was not allowed to frustrate an application for summary judgment.

In this case, the error was more than merely technical: it was a procedural error rather than something more substantive. The procedural error was one that could be made good by the offending party and the court made an order to that effect.

Highlight 3: courts will do their best to enforce adjudicator decisions

When faced with various arguments that the adjudicator was in breach of natural justice,  the court reinforced the general principle that it will always endeavour to enforce adjudicator's decisions (see Carillion Construction Limited v Devonport Royal Dockyard Limited [2006] BLR 15).

The following arguments used by the defendant were dismissed by the court:

  • the parties' contract required the adjudicator to provide a reasoned decision. In his decision, the adjudicator had stated "this is not a reasoned decision". However, the court held this was not enough to make the decision non-compliant with the contract: the substance of the decision had to be considered.  The court found that the decision itself was clear and cogent and contained many pages of reasons. It subsequently concluded that it was a reasoned decision.
  • the adjudicator failed to consider one of Modus' submissions and had acted in breach of natural justice. This was dismissed: the adjudicator had considered and rejected Modus' submission and was not therefore in breach; and
  • the adjudicator failed to provide time for Modus to put in a rejoinder to Balfour Beatty's reply. The court found that the adjudication timetable had not made any allowance for a rejoinder or a further response. Modus had not queried or challenged this omission at any point throughout the adjudication and it was therefore no longer a point open for argument.

Highlight 4: the Construction Act does not apply to LAD claims

The Scheme does not apply to LAD claims (at least not on the facts).

The court applied the decision in William Verry Limited v the Mayor and Burgesses of the London Borough of Camden and held that Modus had no right to set off the LAD against the monies owed to Balfour Beatty.

Modus had notified Balfour Beatty of its claim for LADs as a debt pursuant to the contract. Balfour Beatty had failed to serve a withholding notice and Modus therefore claimed that the sum set out in the notice became due in any event. They argued that there was no contractual mechanism for the final date of payment for LAD nor was there a contractual withholding notice mechanism in relation to the payment of LAD – and that therefore the Scheme applied.

The Court disagreed and concluded that it was impossible to interpret either the Scheme or the Construction Act as applying to payments to or suspensions by the employer.  Their provisions are aimed at improving cash flow for contractors and subcontractors by ensuring stage payments are made to the party carrying out the works and allowing that party to suspend if payment is not forthcoming.  The court's reading of the contract supported this interpretation: there were no amendments to ensure the LAD clause complied with the Act or the Scheme.

That the Scheme and the Act do not apply to LAD claims is a novel decision and one that has come as something of a surprise to some in the industry. How courts will apply this decision in the future is by no means clear and will depend on the facts and the contract used. Until the position is clarified, parties would be well advised to serve withholding notices in response to disputed LAD claims…just in case.  Employers are probably justified in thinking this decision an unfair approach and it might well be that an amendment to the standard forms results.
February 2009

For further information, please contact Rachael Yates on 0113 209 2503 or email .


Construction contracts in writing (again) and adjudicators awarding interest
Allen Wilson Joinery Limited and Privetgrange Construction Limited [2008] EWHC 2802 (TCC)

There were two main issues in this case:

1.      whether there was a contract in writing for the purposes of section 107 of the Housing Grants Construction and Regeneration Act 1996 ("the Act");

2.      whether the adjudicator had jurisdiction to award the claimant interest.

There were no new points raised on these issues but the judgment provides useful reviews of the relevant law in each case.

Facts

The claimant was a sub-contractor employed by the defendant to install staircases on a development. A written proposal was sent by the claimant outlining what would be included within the works and the price (with a proviso that the price might be subject to change when full details of the work were received). Further oral agreements followed.

The claimant began installing the stairs, but soon afterwards, the architect raised concerns that the staircase was unacceptable. The defendant refused to pay the claimant and the claimant subsequently referred the dispute to adjudication. The adjudicator made an award to the claimant including interest.

The defendant refused to meet the award and the claimant applied to the court for summary judgment.

First Issue: contract in writing

Was there a contract in writing for the purposes of section107 of the Act despite the fact that the parties had agreed various matters orally?

On the facts, Mr Justice Akenhead refused to order summary judgment on the basis that there was a triable issue as to whether the contract was in writing pursuant to section 107. He therefore gave the defendant leave to defend.

Mr Justice Akenhead's decision contains a useful review of the law in this regard. In particular:

1.      to comply with section 107, "all the terms of the contract must be in writing and recorded in one of the ways set out by section 107" (paragraph 27 (a) of the judgment in RJT Consulting Engineers Ltd v DN Engineering (Northern Ireland)Ltd [2002] BLR 217);

2.      whether trivial matters agreed orally by the parties can prevent an otherwise written contract falling within section 107, is a matter to be determined objectively in relation to the parties and the contract. What is "trivial" will differ from project to project;

3.      when looking at oral agreements, there should always be consideration of whether orally agreed matters were expected or intended to be binding. Parties may not expect or intend matters they have orally agreed to be binding;

4.     the existence of implied terms (howsoever implied – whether by statute, to provide business efficacy or otherwise), does not render what would otherwise be a written contract into a contract not covered by section107.

Second Issue: awards of interest

The defendant objected to the fact that the adjudicator had made an award of interest in his decision.  The court considered whether the adjudicator had had the power to award interest and in this case, decided that he had not.

Again, Mr Justice Akenhead's judgment contains a useful review of the law on this issue.  He relied on the Court of Appeal judgment in Carillon Construction Limited v Devonport Royal Dockyard Limited [2006] BLR 15, paragraph 91:

"So the adjudicator may decide questions as to interest if, but only if, (i) those questions are "matters in dispute" which have been properly referred to him or (ii) those are questions which the parties to the dispute have agreed should be within the scope of the adjudication or (iii) those are questions which the adjudicator considers to be "necessarily connected with the dispute".

In this case. the parties:

  • had not agreed that the adjudicator had jurisdiction to award interest;
  • nor had the contract provided for the payment of interest;
  • further, the parties had not properly referred the interest issue to the adjudicator - indeed, the defendant had continually argued that the adjudicator had no such jurisdiction; and
  • in this case, the application for interest was not necessarily connected with the dispute.

Practical issues

This decision highlights – again – the need to check whether you have a written contract before going to the expense of adjudication and possibly court enforcement proceedings. In line with what is becoming something of an emerging trend, you might want to consider issuing Civil Procedure Rules Part 8 Proceedings in the court before referring a dispute to adjudication, to check whether there is an agreement in writing.  (There's more analysis of the use of CPR Part 8 later on in this section).

It is also worth keeping in mind the proposed amendments to the Act which are currently being debated in the House of Lords: if they are enacted, construction contracts will not need to be in writing for the Act to apply. (For more on the progress of the amendments through Parliament, see the update in the "In Parliament" section.)

On interest, be aware that you need to take positive action to recover interest in adjudication. For example, agree to give the adjudicator that power when you enter contracts or ensure that you make an interest claim in your referral.

February 2009

For further information, please contact Ally Mackenzie on 0113 209 2452 or email .


The Slip Rule: when can an adjudicator correct his decision?
YCMS Limited (trading as Young Construction Management Services) v (1) Stephen Grabiner, (2) Miriam Grabiner [2009] EWHC 127 (TCC)

Mr Justice Akenhead has restated the current position on whether and to what extent adjudicators can amend mistakes or "slip ups" in their awards after publication.  (Previous cases dealing with the issue are noted below.)

Use of the "slip rule"  originated in arbitration proceedings and was designed to allow the arbitrator to amend errors in his award which amounted in effect to minor slips – whether of the pen or the mind. Its use has been approved in adjudication proceedings – but subject to certain constraints which are summarised below.

The Slip Rule

The decision in this case provides a good review of when and how an adjudicator can amend his award.

1.      An adjudicator will only have the power to correct his award if the parties have so provided in their contract.

2.     What if there is no such express term (which is the normal position)?  The court in the Bloor case (see note below) decided that a term should be implied into the contract referring the dispute to adjudication and that the adjudicator might correct an error arising from an accidental error or omission.

3.      The Housing Grants Construction and Regeneration Act 1996 ("the Act")  does not give the adjudicator the power to correct slips.  (Note that the proposed changes to the Act, if enacted, will introduce a statutory slip rule).

4.      Subject to the parties having agreed that the slip rule will apply, an adjudicator can only correct patent errors, genuine mistakes or purely accidental clerical errors.  This could be, for example, "typos", clerical or mathematical errors.

5.      An adjudicator must correct the error within a reasonable time which is (according to the judge in the YCMS case), within 48 hours of the end of the adjudicator's 28 day period to publish his decision.

6.      An adjudicator can make the correction on his own initiative.  Alternatively, one of the parties can apply for the correction. It is not necessary (normally) for the adjudicator to hear the views of either or both of the parties on whether he should/can use the slip rule.

7.      An adjudicator can only amend the decision if the award does not reflect his initial thoughts on the decision.  He cannot amend to give effect to "second thoughts".

8.      In using the slip rule, an adjudicator should not be materially prejudicing either party.  In YCMS, the defendants would have been materially prejudiced by the amendment.  "The adjudicator simply got it wrong the second time around…" (paragraph 57 of the Judgment).

What happened in YMCS?

YCMS had asked the adjudicator to amend an arithmetical error in his award. The error appeared to be a genuine mistake and had the adjudicator done what YCMS had asked, he would have been acting within the ambit of the adjudication slip rule.  However, while the adjudicator acknowledged the error, he seems to have had "second thoughts" and went on to make corrections which effectively amounted to a recalculation of the figures in his award. The court found that his action was outside the rule and therefore ordered that the pre-correction decision be enforced. 

Note
The judge in YCMS Limited v Grabiner relied on the previous decisions in:
Bloor Construction (UK) Limited v Bowmer & Kirkland (London) Limited [2000] BLR 314,
Edmund Nuttall Limited v Severn Oaks District Council [2000] WL 1544581; and
CIB Properties v Birse Construction [2004] EWHC 2365 (TCC).

February 2009

For further information, please contact Simon Palmer on 0113 209 2607 or email  .
 

The use of CPR Part 8 proceedings in adjudication


Background to CPR 8

Part 8 of the Civil Procedure Rules, (CPR 8), is the process parties use to obtain a ruling from the court where there is no substantial dispute of fact. (As an aside, CPR Part 7 is the appropriate process to be used where there are substantial facts involved.)  CPR 8 might, for example, be used when there is a dispute about how a contract is to be interpreted.  For example, is there a written contract?

The Technology and Construction Court's ("TCC") power to hear CPR 8 applications arises under Part 9.4.1 of the TCC Guide which provides that:

"9.4.1      ….the TCC will also hear any applications for declaratory relief arising out of the commencement of a disputed adjudication. Commonly, these will concern:
(a)      Disputes over the jurisdiction of an adjudicator. It can sometimes be appropriate to seek a declaration as to jurisdiction at the outset of an adjudication, rather than both parties incurring considerable costs in the adjudication itself, only for the jurisdiction point to emerge again at the enforcement hearing.
(b)      Disputes over whether there is a written contract between the parties or, in appropriate cases, whether there is a construction contract within the meaning of the Construction Act.
(c)      Disputes over the permissible scope of the adjudication, and, in particular, whether the matters which the claimant seeks to raise in the adjudication are the subject of a pre-existing dispute between the parties."

In recent adjudication related proceedings it has been used by parties in a variety of ways including:

  • before adjudication proceedings started to establish whether the parties had a right to adjudicate; and
  • after commencement of the adjudication process to establish if there might be a breach of natural justice should the proceedings continue.

The courts have confirmed that CPR 8 can be used in these ways – subject to limitations. There follow highlights from some of those decisions.

Vitpol Building Service v Samen [2008] EWHC 2283 (TCC), 

Highlight: it can be appropriate for a party to use CPR 8 proceedings before an adjudication process commences.

In this case, the defendant had applied to the TCC at the end of the pre-action protocol process for a declaration that there was a construction contract which gave rise to a right to adjudicate.

The decision effectively allowed the party to seek confirmation from the court as to: 

  • whether there was a contract; and therefore
  • whether there was a right to adjudicate…

…and all before the dispute was referred to adjudication.  The fact that the claimant had given no notice of the CPR proceedings or the adjudication did not affect the outcome.

(See the Dispute Resolution  section for a more full report on this case.)

Dalkia Energy and Technical Services Limited v Bell Group UK Limited [2009] EWHC 73 (TCC)

Highlight:  the court confirmed that it did have jurisdiction over a CPR 8 claim brought to obtain a declaration that the adjudicator had no jurisdiction to act.  The decision confirms that parties can bring CPR 8 court proceedings to clarify jurisdictional issues before the adjudicator gives his decision.

The claimant had denied the adjudicator's power to act and invited the adjudicator to decide on his jurisdiction. The adjudicator did so but the claimant then refused to take a further part in the proceedings and issued the CPR 8 application. One of the issues was whether certain contract conditions applied. The answer would determine whether the adjudicator was validly appointed and acting within his jurisdiction. The defendant argued that:

  • use of CPR 8 was an abuse of process and inappropriate because there would have to be oral evidence on the facts, for example relating to the contract conditions; and
  • the claimant had authorised the adjudicator to decide on the jurisdiction issue after which the court could not undertake a review.

The court found that while there was a factual dispute, it would not allow "an almost irrelevant factual matter" to thwart what it thought was "an otherwise valid [CPR 8] claim. The issues referred to the court under CPR 8 involved issues of law rather than fact and therefore CPR 8 was a suitable way to proceed.

While the court acknowledged that the claimant was making every effort to frustrate the adjudication process, it is interesting to note that the court thought it better to finalise the jurisdiction point straight away rather than wait until the point was raised at enforcement proceedings.

Note however that if the issue as to the incorporation of the contract conditions had arisen in post decision enforcement proceedings, the TCC would not have been able to decide whether the adjudicator's decision was right or wrong. It would merely have been able to decide on whether the adjudicator was acting within his powers – and if yes, the decision would be enforceable.

CPR 8 will not be appropriate in all cases - which takes us to the Dorchester case…

Dorchester Hotel Limited v Vivid Interiors Limited [2009] EWHC 70(TCC)

Highlight:  the TCC does have jurisdiction to deal with applications made before the adjudicator reaches his decision on whether the adjudicator is in potential breach of natural justice.

The claimant claimed that it had been "ambushed" by the defendant despite an agreement for extensions of time in which to respond to the adjudication claim. The claimant used CPR 8 to apply for a declaration that there would be a breach of natural justice if the adjudication proceedings continued on its current timetable. In particular, the claimant did not have sufficient time to respond, the adjudicator did not have enough time to reach a decision fairly within the time limits and these factors would lead to the adjudicator's decision being unenforceable.

The court concluded that it did have the power to grant declarations on an adjudicator's jurisdiction during an adjudication. It also had power (although in limited circumstances) to make declarations on potential breaches of natural justice by the adjudicator.  That said, the court did not want court interventions to become the norm in adjudications: "applications of this sort will be very much the exception rather than the rule".

The application for a declaration failed in this case: it was not clear whether the service of new documents would lead to a breach of natural justice. Also, there had been an extension of time and tight timetables are a common feature of adjudications.

Walter Lilly & Co Limited v DMW Developments Limited [2008] EWHC 3139 (TCC)

Highlight: an adjudicator's decision is temporarily binding on the parties until they seek a final determination in court or arbitration.  The court's final determination on an issue can be sought through the CPR 8 procedure provided that the application meets the strict CPR 8 criteria.

Following an adjudicator's decision, the claimant applied for a declaration that the natural fading of some walnut veneers it had supplied to the defendant did not amount to a breach of their contract. The defendant objected on the basis that there were substantial facts in issue and the application should therefore have been made under CPR 7. The court disagreed: there were no substantial issues of fact for the court to decide and CPR 8 was therefore appropriate.

The judge thought that this case "gave rise to interesting questions about the interrelationship between construction adjudication, CPR Part 7 and CPR Part 8". He commented that the attraction of the CPR 8 proceedings lay in the way it "offers the means by which a dispute can be finally determined in a speedy and cost-effective way".

March 2009

For further information, please contact Jonathan Tattersall on 0161 934 6544 or email

 
 
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