Adjudication Matters – February 2020

13th February 2020

Willow Corp SARL v MTD Contractors Ltd [2019] EWHC 1192 (TCC) – Adjudication Enforcement and Part 8 Challenges

In light of the recent scarcity of adjudication cases before the Technology and Construction Court, the following article concerns an important case from summer 2019 regarding adjudication enforcement and challenges under Part 8 of the Civil Procedure Rules.

In Willow Corp SARL v MTD Contractors Ltd [2019] EWHC 1192 (TCC), Willow Corp SARL (the “Claimant“) brought Part 8 proceedings seeking a declaration that an adjudicator had erred in his construction of the contract between the Claimant and MTD Contractors Limited (the “Defendant“). The Court agreed that the adjudicator had misconstrued the contract between the parties, and subsequently severed the affected part of the adjudicator’s decision. The Claimant was therefore able to partially resist enforcement of the adjudication decision.

Background and issues

The Claimant and the Defendant entered into a construction contract in which the Defendant was to design and build a 150-bed, 7-storey hotel in Shoreditch for £33,500,000 (the “Contract”). Delays to the project led to the parties entering into an agreement on 21 June 2017 (the “June Agreement“) which provided a revised date for practical completion of 28 July 2017.

By the time of the revised date for practical completion, the Defendant still had a significant amount of outstanding work to carry out. The works were not in fact completed until October 2017, at which point the Claimant sought to levy liquidated damages against the Defendant within the context of a wider dispute regarding sums payable under the Contract and June Agreement. The dispute went to adjudication.

The Adjudicator awarded the Defendant £1,174,854.92 plus VAT and interest (the “Decision“), and rejected the Claimant’s claim for liquidated damages. Under the Adjudicator’s interpretation of the June Agreement, the Claimant was required to certify that practical completion had occurred upon agreeing a list of outstanding work with the Defendant. Because such a list had been agreed on the revised date for practical completion, it followed that practical completion should have been certified on 28 July 2017 and therefore the Claimant’s claim for liquidated damages from this date until the date of actual completion in October 2017 would not be allowed.

The Claimant brought proceedings under Part 8 of the Civil Procedure Rules seeking a declaration as to the proper construction of the June Agreement. The Claimant additionally sought to raise natural justice objections to the Adjudicator’s decision within its Part 8 claim. In turn, the Defendant brought Part 7 proceedings to enforce the Adjudicator’s decision. The Court tried both claims together.

The Enforcement / Part 8 Proceedings

Although a party which is unsuccessful at adjudication may challenge an adjudicator’s decision within subsequent court proceedings, it must usually first pay the amount ordered by the Adjudicator. This is commonly referred to as the ‘pay now, argue later’ rule.

However, Caledonian Modular Ltd v. Mar City Developments Ltd [2015] EWHC 1855 (TCC) provides an exception to this rule. In that case, Coulson J indicated that a party seeking to resist an adverse adjudication decision might seek declaratory relief on a ‘short and self-contained point, which requires no oral evidence or any other elaboration than that which is capable of being provided during a relatively short interlocutory hearing’.

Coulson J discussed a further exception in Hutton Construction Ltd v. Wilson Properties (London) Ltd [2017] EWHC 517 (TCC). The decision in Hutton indicates that where a party wishes to resist an adjudicator’s decision, it should act promptly in bringing Part 8 proceedings before enforcement proceedings are issued by the other party. In this case, the Claimant had brought its Part 8 proceedings prior to the Defendant’s enforcement claim.

Decision

The Judge found that the contractual interpretation point regarding practical completion was an appropriate issue to try in Part 8 proceedings, under the guidelines set out in Caledonian Modular Ltd.

The Judge determined that the June Agreement did not require the Claimant to certify practical completion if it agreed to a list of outstanding works. The Adjudicator had erred in finding the contrary. Consequently, the Claimant ought to have been allowed to claim liquidated damages from the anticipated date of practical completion to the actual date of completion.

The Adjudicator’s alleged breaches of natural justice were held to be inappropriate for resolution in Part 8 proceedings. The alleged breaches of natural justice were therefore only considered as a defence to the Defendant’s concurrent enforcement proceedings.

The Court subsequently considered whether it had the authority to sever the error regarding the Claimant’s entitlement to liquidated damages from the remainder of the Adjudicator’s decision. The Judge confirmed that the Court had the authority to sever an adjudicator’s decision and expressed a hope that the courts would be “rather more willing to order severance where one can clearly identify a core nucleus of the decision that can be safely enforced.”

The error of contractual construction only led the Adjudicator to dismiss the Claimant’s claim for liquidated damages. The remainder of the decision was ‘uninfected‘ by this error and was therefore enforced by the Court.

Practical Considerations

This judgment confirms that parties may be able to resist enforcement (at least in part) where an adjudicator’s decision leaves a ‘short and self-contained point‘ to be determined. In such cases, the Court has expressed a willingness to sever an adjudicator’s decision where appropriate, in order to correct any discrete points capable of determination through Part 8 proceedings.

It is therefore clear that Part 8 proceedings will be inappropriate in cases where a party seeks to effectively re-litigate multiple complex issues which have previously been determined by an adjudicator. Parties should therefore be wary of assuming that unfavourable adjudication decisions are necessarily capable of being reversed through the Part 8 process.

Consequently, while this judgment provides an important illustration of the circumstances in which a party might successfully resist an adjudicator’s decision, the Court simultaneously confirmed that an adjudicator’s decision is ‘a quick and interim solution that the courts will ordinarily enforce pending final resolution of the parties’ dispute through litigation or arbitration.’