Adjudication Matters: January 2023

Is it appropriate to use arbitration to resist adjudication enforcement?

In Sefton v Allenbuild [1] the TCC rejected an application for a stay pending arbitration and enforced an adjudicator’s decision.

Sefton obtained an adjudicator’s decision and commenced court proceedings to enforce that decision. Allenbuild applied for the enforcement proceedings to be stayed for arbitration [2].

The court refused to grant a stay because the Scheme [3] and the Construction Industry Council model adjudication procedure expressly exclude any challenge to an adjudicator’s decision from the range of matters which may be referred to arbitration.

This case highlights that ongoing arbitration proceedings will not be sufficient to stay adjudication enforcement proceedings. See our separate briefing for further detail.

Can a freezing injunction be sought in ongoing adjudication enforcement proceedings?

In Nicholas James Care Homes v Liberty Homes [4] the TCC granted a freezing injunction as part of adjudication enforcement proceedings.

NJCH provided evidence that Liberty Homes had taken, and continued to take steps to dissipate its assets to prevent satisfaction of judgment in the enforcement proceedings.

The TCC considered it was just and convenient to grant a freezing injunction [5] and in doing so applied the following three-stage test [6]:

1. The applicant has already been granted or has a good arguable case for being granted a judgment or order for the payment of a sum of money that is or will be enforceable through the court process;
2. The respondent holds assets (or is liable to take steps other than in the ordinary course of business which will reduce the value of assets) against which such a judgment could be enforced; and
3. There is a real risk that, unless the injunction is granted, the respondent will deal with such assets (or take steps which make them less valuable) other than in the ordinary course of business with the result that the availability or value of those assets is impaired and the judgment is left unsatisfied.

This case demonstrates that parties who engage in adjudication should carefully consider business restructuring and significant transactions by the other party and be alert to a real risk of dissipation of assets that might prevent satisfaction of an adjudicator’s decision.

Is an adjudicator’s alternative decision enforceable when the primary decision has failed for breach of natural justice?

Sudlows v Global Switch Estates [7] concerned Adjudication Nr 6 between the parties. In Adjudication Nr 5, the adjudicator decided that Sudlows was entitled to an extension of time. In Adjudication Nr 6, the adjudicator was tasked with deciding on a further extension of time claim and a loss and expense claim.

Sudlows brought court proceedings to enforce the decision in Adjudication Nr 6. There were two issues to be decided:

1. Was the sixth adjudicator bound by the fifth adjudicator’s decision regarding Sudlows’ entitlement to an extension of time i.e. was he bound to grant the extension of time in question (and with it, the claimed prolongation and other costs)?
2. If the sixth adjudicator was not bound by the decision in Adjudication Nr 5, could Global rely on the alternative findings made by the sixth adjudicator so as to lead to an enforceable award in its favour?

On the first issue, the judge found that the disputes of Adjudication Nr 5 and Adjudication Nr 6 were not the same or substantially the same and so the sixth adjudicator was not bound by certain findings of the fifth adjudicator. The sixth adjudicator was “clearly wrong” to conclude otherwise. There had been a breach of natural justice.

On the second issue, Sudlows argued that the alternative findings should be disregarded because, among other things:

1. Sudlows had reserved its position regarding the sixth adjudicator’s jurisdiction to put forward alternative findings; and
2. The alternative findings were not contained in the ‘final decision’ section of the sixth decision and so should be considered obiter.

The judge concluded, however, that the sixth adjudicator’s alternative findings could be enforced and, as a result, a sum was payable to Global. In making this finding, the judge noted that there was no point in the adjudicator making these alternative findings (or in the parties agreeing to the adjudicator doing so) if they were not to be regarded as binding.

This case is an important reminder of:

1. The provisions concerning whether a dispute is the same or substantially the same as one which has been previously referred to adjudication as contained in the Scheme and the Construction Act [8]; and
2. The courts’ willingness to examine in detail the scope of an adjudicator’s jurisdiction to make sure that the parties secure the benefit of a binding decision which accurately reflects the issues in dispute.

Is a collateral warranty a construction contract and will this change in 2023?

As discussed in our August 2022 edition of Adjudication Matters, in Abbey Healthcare v Simply Construct [9], the Court of Appeal considered the meaning of “construction contract” under the Construction Act for the first time. The Court of Appeal held that the collateral warranty in question was a construction contract with a statutory right to refer a dispute arising under it to adjudication.

The Supreme Court has now granted permission to Simply Construct to appeal the Court of Appeal’s decision. The appeal will examine the scope of section 104 and Part II of the Construction Act and whether collateral warranties fall within the Act. This appeal is of particular interest to end users of developments whose only recourse in respect of defects may be under a collateral warranty.

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] The Metropolitan Borough Council of Sefton v Allenbuild Ltd [2022] EWHC 1443 (TCC)

[2] under section 9(4) of the Arbitration Act 1996

[3] The Scheme for Construction Contracts (England and Wales) Regulations 1998 (as amended)

[4] Nicholas James Care Homes Ltd v Liberty Homes (Kent) Limited [2022] EWHC 1203 (TCC)

[5] under section 37 of the Senior Courts Act 1981

[6] from Broad Idea International Limited v Convoy Collateral Ltd [2021] UKPC 24

[7] Sudlows Ltd v Global Switch Estates 1 Ltd [2022] EWHC 3319 (TCC)

[8] Housing Grants, Construction and Regeneration Act 1996 (as amended)

[9] Abbey Healthcare (Mill Hill) Limited v Simply Construct (UK) LLP [2022] EWCA Civ 823