The recent decision of Pepperall J in Willow Corp SARL v MTD Contractors Ltd [25.6.19] is the latest in a long line of TCC cases where parties have sought to challenge adjudicator’s decisions and a rare example of case where the court was prepared to intervene when the adjudicator had made a clear and fundamental mistake.
The adjudication regime is designed with speed in mind both in terms of process (the Scheme introduced by the Housing Grants Construction & Regeneration Act 1996 (the “Act”) requires a decision to made within 28 days of referral) and also, if necessary, the subsequent enforcement of adjudication decisions by the courts. This novel form of provisional remedy was founded on the “pay now, argue later” principle and, in the words of Chadwick LJ in the decision of Carillion Construction Ltd v Devonport Royal Dockyard Ltd , “the need to have the right answer has been subordinated to the need to have the answer quickly.“
It is largely for this reason that courts have been very reluctant to interfere with claims to enforce adjudication awards. While this has been the general principle underlying the judicial approach, courts have been prepared to intervene in appropriate instances. The starting point is to consider whether the adjudicator has decided the right issue which was referred to him (i.e. does he have the jurisdiction to make his decision). If he has dealt with the right issue and has broadly acted in accordance with the principles of natural justice, his decision will be enforced (Macob Civil Engineering v Morrison Construction Ltd ). This was the case even where the adjudicator is shown to have made a clear error – for example, failing to take into account the 5% retention when calculating the amount due to the defendant (Bouygues UK Ltd v Dahl-Jenson UK Ltd ).
The courts have developed two exceptions to this general rule; first, where both parties accept that there has been a clear mathematical error, for example where the adjudicator failed to take into account payments already made to the defendant (Geoffrey Osborne Ltd v Atkins Rail Ltd ). Secondly, where there is a simple and clear issue as to the interpretation of a document – such as, in the case of Caledonian Modular Ltd v Mar City Developments Ltd , where the adjudicator had mistakenly found that an email was a valid payee’s notice.
Hutton Construction Ltd v Wilson Properties (London) Ltd [23.02.17]
This decision of Coulson J (as he then was) is important as it both sets out in clear terms the practice which the courts expect parties to follow when they seek to challenge adjudication decisions and also makes crystal clear the limited grounds that a court would look to intervene. The case itself concerned issues as to the validity of interim certificates and pay-less notices and Coulson rejected the challenge on the basis that it amounted, in effect, to a re-run of the adjudication.
In terms of practice, Coulson indicated that a defendant to an adverse adjudication award or part 7 enforcement proceedings should issue a part 8 claim promptly setting out the declarations sought or, at the very least, a detailed defence and counterclaim should be filed in the part 7 enforcement proceedings. Ideally, both parties should cooperate and approach the challenge, so far as possible, in a consensual way, trying to agree as many factual or other issues as possible.
To have any hope of succeeding on the challenge to the enforcement, the defendant must demonstrate that:
- The matter in dispute concerns a short and self-contained issue which arose at the adjudication and is still contested.
- No oral evidence is required or other elaboration beyond what is capable of being provided at an interlocutory enforcement hearing.
- It would be unconscionable for the court to ignore the issue on a summary judgment application.
Coulson gave three examples of appropriate cases: (i) the construction of a contractual term which was “beyond rational justification”; (ii) an obvious miscalculation of a time period; and (iii) an obvious mis-categorisation of a document (e.g. a payment notice).
What has happened since?
A number of attempts have been made to challenge adjudication decisions following Coulson’s guidance in Hutton.
In Seadown Developments Ltd v SMCC Construction Ltd [3.11.17], which was a dispute over the meaning of a clause in the contract concerning calculation of the final account, Jefford J enforced the award saying that the case came nowhere near the Hutton criteria and, in any event, the decision was still enforceable as the majority of the claim had nothing to do with the meaning of the disputed clause.
The decision of DSVG Facade Ltd v Conneely Facades Ltd  concerned the question of whether a sub-contractor’s invoice was a payee notice under the act and also the value of those works. The judge enforced the award and ruled that the valuation issue was not a short and self-contained issue and could not be used as a defence to enforcement.
The recent case of Willow Corp SARL v MTD Contractors Ltd [25.6.19] concerned the construction of a 150-bedroom Nobu hotel in Shoreditch. This was a £33.5m project which overran. Initially, the parties reached agreement on how to deal with the issues that arose as a result of the delays by means of a compromise agreement dated June 2017 which re-set the clock so far as practical completion was concerned and dealt with liquidated damages to that point. However, there were subsequent disputes which led to three separate adjudications and two sets of part 7 enforcement and part 8 claims following the second and third adjudications. This case arose from the second adjudication which, in essence, concerned the proper construction of a clause in the June 2017 compromise agreement. The adjudicator had found that the effect of the clause in question meant that practical completion was deemed to have been achieved on 28 July 2017 even though practical completion in fact did not take place until a year later. As a result of his finding, he disallowed Hutton’s claim for liquidated damages in the sum of £715k.
Peperrall J found that the case complied with Coulson’s criteria laid down in Hutton and went on to conclude that, on its proper construction, the clause in question did not mean that practical completion was deemed to have taken place on 28 July 2017. However, he did not agree that the whole decision was infected by this error and allowed enforcement of the balance of the award less the liquidated damages.
In the absence of genuine grounds to challenge an adjudicator’s decision for jurisdictional or natural justice reasons, the bases for preventing enforcement of adjudication awards are extremely limited.
Any party wishing to pursue such a challenge must strictly follow the procedure and criteria set out in the Hutton decision to have any hope of success.
Even if the challenge is successful, the courts can still enforce those parts of the adjudicator’s decision which are “not infected” by the error.
The solicitor acting for both parties should strongly encourage their respective clients to act reasonably and, if possible, cooperate in relation to any such challenge in order to follow the court’s preferred “consensual approach.”
Both clients should be given clear costs warnings in connection with the risk of pursuing an unmeritorious challenge to an award or unreasonably failing to cooperate with such a challenge.
It will be interesting to see whether, over time, the Hutton approach will reduce the amount of challenges to the enforcement of adjudication awards.
If you would like to know more about this matter, please speak to your contact at Plexus Law:
Simon Combe, Partner
T: 0207 220 5983 | M: 07770 437 787 | E: firstname.lastname@example.org
Peninsular House | 30-36 Monument Street | London | EC3R 8NB
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