Adjudication Matters: December 2022

Was an adjudicator’s alleged failure to consider a part of the responding party’s defence a breach of natural justice?

In Manor Co-Living v RY Construction [1] the TCC decided that the adjudicator had not breached the rules of natural justice where, having concluded that MCL could not successfully rely on repudiatory breach as a defence, the adjudicator considered it was therefore outside the scope of their jurisdiction to decide whether RYC were in fact in repudiatory breach in any event.

MCL sought a Part 8 declaration that, by declining to consider all aspects of MCL’s case, the adjudicator had: denied them a potential defence; this was in breach of the requirements of natural justice; and the decision was therefore invalid.

In rejecting MCL’s Part 8 application the court said:

1. A referring party is entitled to define and confine the dispute. Even where such submissions are incorrect this does not amount to “tactical manoeuvring” relevant to a breach of natural justice.
2. A responding party is not entitled to widen the scope of the adjudication to incorporate their own disputes – it is open to that party to commence their own adjudication proceedings. However it can raise any proper defence to rebut the claim even if this has the effect of widening the claim. Doing so is not widening the claim but engaging with it.
3. The courts will distinguish between situations where an adjudicator has considered a defence and concluded it is not tenable (this is unlikely to be a breach of natural justice); and where an adjudicator has not considered a defence at all.
4. It is necessary to look at the substance of the decision rather than the form.

This case confirms that whilst a responding party is entitled to raise a defence, an argument that  an adjudicator’s decision is invalid for not considering the entirety of that defence will rarely succeed in establishing a breach of natural justice.

King’s College concludes that the UK adjudication regime is “robust and resilient”

The recent King’s College Adjudication Report makes for fascinating reading. It’s packed with information and views gained from those involved at the coal face of adjudication in the UK.

The project consisted of two questionnaires issued to: both adjudicator nominating bodies and anonymised individuals from various professional networks; alumni of the Centre of Construction Law & Dispute Resolution at King’s College London; various members and networks of the Adjudication Society and the Society of Construction Law; and adjudication practitioners.

Generally the report concluded that the UK adjudication regime is “robust and resilient”, but a key area for improvement is the lack of diversity. In particular, the lack of women and those from ethnic minorities on adjudication panels is something which needs to be addressed.

Another interesting finding from the report concerns the leading causes of disputes and categories of claim. The report finds that the four leading causes of adjudication (by a wide margin) are:

• Inadequate contract administration;
• Changes by the client;
• Exaggerated claims; and
• Lack of competence of project participants.

The report highlights the importance of making sure that contracts are properly managed and controlled throughout the contract period. Contracts themselves are not enough to avoid disputes arising. Effective management by competent individuals will be required. Taking the time to deal with contractual disputes at the time they arise, and in accordance with the contract, should help reduce the risk of incurring substantial costs in adjudication later on.

The report also covers the timescales and costs of the adjudication process. The Construction Act [2] envisages that the adjudication process will be completed within a 28-day period. However, 56% of respondents found that the typical length of adjudications was between 29 and 42 days from receipt of the referral notice to the date of the decision. Only 16% typically fell within the 28 days.

Whilst costs vary widely, it was highlighted that the median hourly fees of adjudicators fall between £251 and £300, although a majority of adjudicator rates tend to fall within £251 and £400. It was found that adjudicators typically spend between 40 and 56 hours per adjudication with the most common values of adjudicator’s costs falling between £8,000 and £30,000.

When adjudicators were asked on their approaches towards the final allocation of their fees and expenses, the most frequent allocation was a “loser pays all” approach. This was followed closely by an apportionment based on the degree to which a party is successful or fails with respect to the claim or discrete issues.

It’s therefore clear that adjudication is a costly and lengthy process which should not be entered into lightly.

What does the new TCC Guide say about adjudication enforcement?

The TCC has released the third edition of the TCC Guide, which is intended to provide practical guidance on the conduct of litigation in the courts.

The TCC Guide includes a dedicated section governing the enforcement of adjudicators’ decisions.

This latest edition introduces the following key points to note on adjudication enforcement:

• The TCC continues to aim to list all adjudication enforcement hearings within 6 to 8 weeks of issue;
• There are changes to the case management directions form and the draft directions order for adjudication enforcement proceedings;
• Any adjudication enforcement hearing is likely to be held remotely;
• To reflect the court’s modern way of working, new appendices have been introduced which provide general guidance on statements of case, electronic court bundles, and dealing with remote and/or hybrid hearings;
• Unless there are exceptional circumstances, the TCC in London will only deal with enforcement of adjudicators’ decisions where the sum in dispute is £100,000 or more; and
• Parties seeking to enforce an adjudicator’s decision for less than £100,000 should issue the proceedings in one of the regional TCC courts.

This guidance demonstrates the court’s aim of dealing with adjudication enforcement quickly and efficiently to encourage the swift release of cash down the supply chain in a cost effective manner.

Do ongoing arbitration proceedings prevent the enforcement of an adjudication decision?

In Northumbrian Water v Doosan Enpure [3] it was held that despite ongoing arbitration proceedings an adjudicator’s decision was enforceable and the adjudication enforcement proceedings would not be stayed under section 9 of the Arbitration Act 1996.

NWL issued enforcement proceedings when the Doosan joint venture refused to pay the sums awarded in the adjudication.

The JV resisted enforcement and also applied for a stay of the enforcement proceedings under section 9. This was on the basis that enforcement of the adjudicator’s decision was a dispute “arising under or in connection with this contract” and therefore a matter for the arbitration tribunal in the ongoing arbitration to resolve.

The court granted summary judgment in favour of NWL, enforcing the adjudicator’s decision on the basis that:

• The JV was not in fact raising any jurisdictional challenge or some other challenge to the validity of the decision, and the right to challenge the validity of the adjudicator’s decision had since been lost; and
• The parties had expressly agreed that the adjudicator’s decision would be final and binding on an interim basis unless and until revised in arbitration.

The courts reiterated the robust approach to adjudication enforcement, confirming that decisions of adjudicators will be enforced “regardless of errors of procedure, fact or law, unless the adjudicator has acted in excess of jurisdiction or in serious breach of the rules of natural justice.”

This case is another in the well-established trend of cases showing that courts will support the “pay now dispute later” nature of adjudication decisions. It serves as a helpful reminder that the courts will only consider deferring enforcing adjudicators’ decisions in limited circumstances.

In addition, parties cannot pick and choose the validity of parts of an adjudicator’s decision. To the extent that there is a dispute as to the decision’s validity, parties should be careful about prejudicing their position by complying with or otherwise confirming part of it.

Where and to the extent there is scope for challenging the validity of the decision on jurisdictional or other grounds, these should be considered and raised promptly.

Please contact Carly Thorpe. if you have any queries about the points covered in this edition or would like to know more about adjudication.

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[1] Manor Co-Living Limited v RY Construction Limited [2022] EWHC 2715 (TCC)

[2] Housing Grants, Construction & Regeneration Act 1996 as amended

[3] Northumbrian Water Limited v (1) Doosan Enpure Limited (2) Tilbury Douglas Construction Limited [2022] EWHC 2881 (TCC)