adjudication: challenging the adjudicator's jurisdiction

Construction Law Training 2014 : Challenging the Adjudicator’s Jurisdiction 8 April 2014

Ben Worthington, Senior Associate [email protected] | + 44 20 7067 3541

http://www.linkedin.com/in/francis

The courts’ approach to enforcement

• Robust approach to enforcement

• “The need to have the "right" answer has been subordinated to

the need to have an answer quickly…in the overwhelming

majority of cases, the proper course for the party who is

unsuccessful in an adjudication under the scheme must be to pay

the amount that he has been ordered to pay by the adjudicator.”

(Carillion Construction Ltd v Devonport Royal Dockyard (2005))

• adjudicator's decision will be enforced even if there is an error of

fact or law

• Challenge possible only where the adjudicator has acted:

• Without or in excess of his jurisdiction

• In serious breach of the requirements of natural justice

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Is it worth challenging jurisdiction?

• “pay first, argue later" (Tally Wiejl (UK) Ltd v Pegram Shopfitters Ltd

(2003))

• Judicial criticism of parties "simply scrabbling around to find some

argument, however tenuous, to resist payment“ (Carillion

Construction Ltd v Devonport Royal Dockyard (2005))

• BUT:

• Challenges are not a foregone conclusion

• Recent decisions show willingness of courts to accept genuine

challenges

• Indemnity costs? CG Group Ltd v Breyer Group Plc (2013)

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Jurisdictional issues to consider before the adjudication

(1) Is there a statutory or contractual right to adjudicate?

(2) Has the dispute crystallised?

(3) Does that dispute arise “under the contract?”

(4) Has the dispute already been decided by an adjudicator?

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(1) Is there a statutory or contractual right to adjudicate?

• Statutory adjudication:

• Is there an agreement relating to “construction operations”? (s104-s105

HGCRA 1996)

• Do any of the exemptions apply?

• Are all of the terms of the contract in writing (section 107 HGCRA for

contracts pre-1 October 2011)? See RJT Consulting Engineers Ltd v DM

Engineering (Northern Ireland) Ltd (2002)

• Contractual adjudication:

• Is there a contractual agreement to appoint an adjudicator? See Twintec Ltd

v Volkerfitzpatrick Ltd (2014)

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(2) Has the dispute crystallised?

• Section 108(1) HGCRA 1996: “A

party to a construction contract

has the right to refer a dispute

arising under the contract for

adjudication…”

• courts will not enforce an

adjudicator's decision that is

based on an adjudication notice

issued before the dispute

referred to adjudication has

crystallised.

• can it reasonably be said that the

claim has not been admitted?

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AMEC Civil Engineering Ltd v SoS for Transport (2004)

• “dispute” should be given its normal meaning

• a dispute does not arise unless and until it emerges that the claim is not

admitted;

• It may be apparent that a claim is rejected:

• express rejection of the claim

• discussions between the parties from which objectively it is to be

inferred that the claim is not admitted

• The respondent may prevaricate or simply remain silent for a period of

time

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• A party must have a reasonable time to respond - the imposition of response

deadlines by a party is not a determining factor, but may be relevant

• If the claim is so nebulous and ill-defined that the respondent cannot sensibly

respond to it then there cannot be a dispute

Cantillon Ltd v Urvasco Ltd (2008)

• Cantillon claimed an EoT and loss and expense over a particular 13 week period

• Adjudicator awarded prolongation costs in respect of delays outside that 13 week

period

• Urvasco claimed adjudicator was not entitled to consider those delays

• Decision:

• it is open to any respondent to raise any defence to the claim when it is

referred to adjudication;

• the claiming party is not limited to the arguments, contentions and evidence

put forward by it before the dispute crystallised.

• “one should look at the essential claim which has been made… [The

adjudicator] must resolve the referred dispute, which is essentially the

challenged claim or assertion but can consider any argument, evidence or

other material for or against the disputed claim or assertion in resolving that

dispute.”

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Checklist : Is there a crystallised dispute?

• Has a coherent claim been put forward? Is the legal and factual basis of the

claim adequately explained?

• Was there sufficient time between the original claim and the service of the notice

of adjudication?

• Is the claim put forward substantially the same claim as that put before the

adjudicator?

• Are there on-going negotiations between the parties?

• Has the responding party:

• expressly rejected the claim;

• inferred that it rejects the claim;

• Prevaricated or refused to respond to the claim;

• remained silent about the claim;

• failed to respond within a reasonable time / by a reasonable deadline www.olswang.com 9

(3) Does that dispute arise “under the contract?”

• Hillcrest Homes Ltd v Beresford &

Curbishley Ltd (2014):

• A claim for misrepresentation was not

a claim arising under a design and

build contract

• did not therefore fall within the terms

of an adjudication clause that

provided for adjudication of disputes

"under the contract".

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(4) Has a decision already been reached on the issue? • Has the same issue been referred to adjudication previously?

• Is there is an adjudicator's decision on it?

• If so, the Court will not enforce the later decision:

• S.108(3) HGCRA 1996 – “The contract shall provide that the decision is

binding until the dispute is finally determined by legal proceedings, by

arbitration… or by agreement.”

• But see Quietfield Ltd v Vascroft Construction Ltd (2006) :

• multiple adjudications concerning extensions of time for the same period are

permissible, provided only that each adjudication arises from a separate

dispute.

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Jurisdictional issues to consider during the adjudication

(1) Is the adjudicator being asked to decide more than

one dispute?

(2) Was the adjudicator properly appointed?

(3) Has there been a breach of natural justice?

• Communications with the parties

• Failure to take into account submissions

• Decision making

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(1) Is the adjudicator being asked to decide more than one dispute? • “A party to a construction contract has the right to refer a dispute arising under

the contract for adjudication under a procedure complying with this section”

(Section 108(1) HGCRA 1996) [emphasis added]

• When does a claim involve the reference to adjudication of more than one

dispute?

• David and Teresa Bothma t/a Dab Builders v Mayhaven Healthcare Ltd (2007)

• Notice of adjudication: “disputes have now crystallised as follows…”

• Four disputes identified: (1) date for completion (2) non-withdrawal of a notice of non-

completion (3) the sum of valuation no. 9 (4) the scope and validity of architect’s

instructions

• Held: two disputes had been referred to adjudication – one concerned with an extension

of time the other concerned with valuation no. 9.

• There was no link between the extension of time claim and the valuation of payment

under valuation number 9 therefore these were two separate disputes.

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(1) Is the adjudicator being asked to decide more than one dispute? • But note court’s broad definition of dispute:

• Witney Town Council v Beam Construction (Cheltenham) Ltd (2011):

• Council argued that there were effectively four disputes being referred,

relating to: (1) the draft final account (2) the final account (3) a claim for

interest on underpayment of retention and (4) a claim for the payment of the

whole retention based on repudiatory breach;

• Held: there was only one dispute between the parties - what was due and owing to

Beam;

• if claim No 1 cannot be decided without deciding all or part of claim No 2, that

establishes a clear link and points to there being only one dispute.

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(1) Is the adjudicator being asked to decide more than one dispute? • But note court’s broad definition of dispute (continued):

• TSG Building Services PLC v South Anglia Housing Ltd (2013):

• the contractor made its claim for compensation for termination under several heads

(overheads and profit, additional maintenance costs and interest);

• The court looked at the nature of the dispute referred to adjudication and held that

there was only one dispute, although it comprised "three primary strands or issues“;

• the courts can adopt a sensible and commercial approach in determining the

relative width of any given dispute.

• Willmott Dixon Housing Ltd v Newlon Housing Trust (2013): two referrals

submitted simultaneously to the same adjudicator did not contravene s108(1).

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• The referring party must be appointed in strict compliance with the relevant

contractual provisions and the applicable adjudication procedure.

• Check the requirements of the contract

• Check the requirements of the adjudication nomination body (ANB)

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• Vision Homes Ltd v Lancsville Construction Ltd (2009):

• the contract required the Notice of Adjudication to be served before

application was made to the nominating body

• Referring Party issued a Notice and requested that the RICS appoint an

adjudicator. On the same day, it issued a modified notice of adjudication

(asking the adjudicator to decide fees)

• Adjudicator decided his fees and thereby acted under the modified notice

• Held: the adjudicator had no jurisdiction to act under the modified notice - it

was a strict obligation that any request for nomination must be made at the

same time, or following, the service of a notice of adjudication.

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• Profile Projects Ltd v Elmwood (Glasgow) Ltd (2011):

• the parties did not apply to the ANB specified in their contract

• Twintec Ltd v Volkerfitzpatrick Ltd (2014) :

• adjudicator appointed by reference to a standard form DOM/2 sub-contract,

which had not been incorporated into the parties' letter of intent

• The LoI itself was a construction contract and so the Scheme applied – the

ANB under the scheme was the same body that the Referring Party had in

fact applied to

• No jurisdiction: “the validity of the procedure by which the adjudicator was

nominated goes to the heart of his jurisdiction.”

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• Courts recognise that adjudication can be “rough justice”

due to the timescales within which decisions have to be

given

• Carillion confirms that Courts will only interfere where

there has been a material or serious breach of natural

justice

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• Bias

• Failure to address a matter in issue

• Failure to consider a submission

• Failure to consult

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Bias

Catalina v Norma (1938):

“Italians are all liars and will say anything to suit their book. The same thing applies

to the Portuguese. But the other side here are Norwegians and in my experience

Norwegians generally are a truthful people… I entirely accept the evidence [of the

Norwegian captain]”

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Failure to address a matter in issue or consider a submission

• If an adjudicator takes an mistakenly restrictive view of his own jurisdiction, and

fails to consider an important element of the dispute as a result, that will be a

breach of the rules of natural justice.

• the adjudicator failed to address the responding party's counterclaim because

it was not mentioned in the notice of adjudication: Broadwell v K3D (2006)

• the adjudicator did not breach the rules of natural justice by refusing to consider

the employer's rejoinder, which was served after the adjudicator had refused to

give the employer permission to serve the rejoinder: GPS Marine Contractors Ltd

v Ringway Infrastructure Services Ltd (2010)

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Failure to consult

• Adjudicator discusses case with one party

• Adjudicator took into account a contract clause not relied on by either party and

not giving the parties an opportunity to make representations on the clause: ABB

Ltd v Bam Nuttall Ltd (2013)

• Adjudicator relies upon a report or advice provided by a third party without

provided the parties with an opportunity to make representations

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Issues to consider after the adjudication

(1) Was the decision made in time?

(2) Has the adjudicator decided a dispute that was not the

one referred to him?

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• Section 108(2) HGCRA 1996

“The contract shall…

(c) require the adjudicator to reach a decision within 28 days of referral or

such longer period as is agreed by the parties after the dispute has been

referred;

(d) allow the adjudicator to extend the period of 28 days by up to 14 days,

with the consent of the party by whom the dispute was referred…”

• Barnes and Elliot Limited v Taylor Woodrow Holdings Ltd (2004): the adjudicator

must complete his decision within the 28 days or the agreed extended period, but

its subsequent communication to the parties could occur a day or two days

thereafter.

• Ritchie Brothers (PWC) Limited v David Philip (Commercials) (2005)BLR 384 : an

adjudicator's failure to reach his decision within the time limit rendered any

subsequent decision a nullity.

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• Cubitt Building & Interiors Ltd v Richardson Roofing (Industrial) Ltd (2008): 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 always that it can be shown that the decision was communicated

forthwith.

• Objection must be made promptly:

• AC Yule v Speedwell Roofing (2007) : the challenging party had either agreed

to an extension of time by their silence or conduct or were estopped by their

silence or conduct from contending that the decision was not valid.

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(2) Has the adjudicator decided a dispute that was not the one referred to him? • The adjudicator only has jurisdiction to decide the dispute referred to him.

• Provided he answers the correct question, he will have jurisdiction (even if he

answers it incorrectly): Bouygues (UK) Ltd v Dahl-Jensen UK Ltd (2000)

• However, if he answers the wrong question or a question which was not referred

to him, he will not have jurisdiction.

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(2) Has the adjudicator decided a dispute that was not the one referred to him? • J G Walker Groundworks Ltd v Priory Homes (East) Ltd (2013) : A notice of

adjudication had clearly embraced variations and additions to the work to be done

under a construction contract; the adjudicator had jurisdiction to determine issues

surrounding the additional work.

• Wales And West Utilities Ltd v PPS Pipeline Systems GmbH (2014): The referring

party stated that certain aspects of a dispute were not being referred to

adjudication. The judge held that expressly stating that certain aspects of the

dispute were not being referred did not prevent the court (and the adjudicator)

from reaching a different conclusion on those points.

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How to challenge jurisdiction

• Reserve position and proceed

• Part 8 proceedings

• Agree to let adjudicator determine his own jurisdiction

• Injunction

• Refuse to participate

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