Welcome to the January 2024 edition of Adjudication Matters, where we discuss the key developments in adjudication and adjudication enforcement. Please contact Construction & Engineering Partner Carly Thorpe if you need any advice or assistance.

Adjudication Matters: January 2024

Welcome to the January 2024 edition of Adjudication Matters, where we discuss the key developments in adjudication and adjudication enforcement. Please contact Construction & Engineering Partner Carly Thorpe if you need any advice or assistance.

This month we discuss:

1. The adjudicator’s jurisdiction to decide whether there’s a contract between the parties and what contract terms apply.
2. Where does England end for the purposes of the Construction Act?
3. Highlights from the annual UK Adjudicators London Adjudication and Arbitration Conference including:
   1. The court’s view on adjudication enforcement, and the importance of a well drafted notice of dissatisfaction.
   2. The important of selecting and supervising expert witnesses in adjudication proceedings.

The adjudicator’s jurisdiction to decide whether there’s a contract between the parties and what contract terms apply

In Illuminesia v RFL [1], Illuminesia supplied cladding to RFL on a site in London. After RFL cancelled the cladding order, a dispute arose as to whether RFL was liable to pay for the cladding that Illuminesia hadn’t yet delivered by the date of termination. The dispute was referred to adjudication and Illuminesia was awarded just short of £780,000. RFL didn’t pay and Illuminesia commenced Part 7 adjudication enforcement proceedings. RFL also commenced Part 8 proceedings.

The principles of summary judgment

In order to succeed when bringing a claim for summary judgment the claimant must show that the defendant has no real prospect of succeeding on the claim or issue on which summary judgment is sought and there must be no other compelling reason why the case should be disposed of at trial [2].

The following principles are to be considered:

• The court must consider whether the claimant has a “realistic” as opposed to a “fanciful” prospect of success [3].
• A “realistic” claim is one that carries some degree of conviction [4].
• In reaching its conclusion the court mustn’t conduct a “mini-trial” [3].

The defences and decision

RFL raised 4 defences to the enforcement proceedings. Below we discuss each defence in turn and what the court concluded.

Defence 1: There was no agreement to adjudicate and so the adjudicator lacked jurisdiction.

Although the court disagreed with the adjudicator about the date on which the contract was formed (because of a number of email correspondences containing possible offers and acceptances), the court agreed with the adjudicator that there was a binding contract between the parties which included an agreement to adjudicate disputes.

Defence 2: The Notice of Intention to Refer to Adjudication (NOI) was defective and so the adjudicator lacked jurisdiction.

The court said it would be a rare case for a NOI to be “knocked out” as being defective, simply as a result of looking at the notice alone, unless there’s something obviously missing from it. If it’s the case that the nature of the dispute isn’t adequately described, it’s sufficient to identify the dispute that didn’t fall within the notice, consider what the adjudicator decided, and then look at whether or not the dispute and decision fits within the NOI.

Here it was concluded that the NOI was valid and that – even if it was later held that this finding was incorrect – the NOI when read with the letter of claim covered all disputes and the parties agreed this would have been sufficient.

Defence 3: The adjudicator lacked jurisdiction and their award falls away for breach of the principles of natural justice.

The court held that the adjudicator had jurisdiction to determine whether there was a contract, what its terms were, whether RFL could cancel it and, if it did, whether Illuminesia was entitled to a liquidated sum or damages for breach of contract. So in making their decision, the adjudicator didn’t exceed their jurisdiction. Nor did they breach the principles of natural justice when requesting the parties’ submissions on a point. Accordingly, there was no real prospect in RFL arguing that there was a breach of natural justice.

Defence 4: The claimant can’t approbate (affirm) an adjudicator’s award whilst also reprobating (rejecting) it by seeking to assert to the court that the relevant contract in question was different to the one the adjudicator decided on.

Approbate and reprobate is the principle that a party can’t both affirm and reject the same legal right or instrument. In adjudication, the principle has been applied to prevent parties from challenging the validity of an adjudicator’s decision if they’ve accepted a benefit from the decision or treated it as valid for other purposes.

In legal matters, a claimant can’t agree with an adjudicator’s decision and also disagree with it by telling the court that the contract in question was different from what the adjudicator decided. This is known as the ‘approbate and reprobate’ principle. It stops parties from questioning a decision they’ve already benefited from or accepted as valid.

In this case, Illuminesia was allowed to enforce the adjudicator’s decision. They did this even though they said the decision was based on different contract terms than the adjudicator had in mind.

Why? Because the adjudicator’s authority to make a decision is separate from the actual decision itself. Illuminesia chose the contract they thought should apply to the issue of authority, but not for the actual decision. They understood that the adjudicator might make some legal mistakes, but these would only bind them temporarily due to the adjudication process.

In conclusion

The court found that all 4 of RFL’s defences had no real prospect of being successful at trial and so Illuminesia was granted summary judgment. The issue of whether the summary judgment should be stayed pending resolution of the Part 8 claim will be dealt with at a separate hearing. These tricky questions of jurisdiction could have been avoided if a formal written contract had been agreed and signed by the parties.

Where does England “end” for the purposes of the Construction Act?

Background

In Van Elle v Keynvor [5] the Employer, the Royal National Lifeboat Institution, was the owner of a pontoon at Fowey Harbour in the River Fowey. Van Elle, the claimant, agreed to undertake works to “replace the existing pontoon berthing and mooring piles including the installation of new piles including rock socket and the supply and installation of grout into rock socket.”

A dispute arose on the project under a contract between Van Elle and the defendant, KML, the main contractor on the project. The adjudicator decided that KML was to pay just over £335,000 to VEL. KML didn’t pay and VEL subsequently sought summary judgment to enforce the adjudicator’s decision. KML raised arguments of lack of jurisdiction and breach of natural justice.

The jurisdiction issue

KML argued that the works were outside of the boundary of England and so didn’t fall within the scope of the Construction Act.

It was common ground that for Part 2 of the Construction Act to apply there must be a construction contract which relates to the carrying out of construction operations in England.

To determine whether the adjudicator had jurisdiction it was necessary for the court to define the boundaries of England for the purposes of the Construction Act. The court reviewed a number of Acts, OS maps, supporting explanations, Conventions and Orders and concluded that nothing seemed to be determinative of the question of what is meant by “England” on a proper construction of the Construction Act.

KML submitted that the simplest way of working out what England means is to look at the Interpretation Act 1978, and on this basis the works occurred outside of the black line on the OS map and were entirely outside of England. KML also relied on case law which found that structures which are, or are to be, found on the seabed below the low water mark are not structures forming, or to form, part of the land [6]. On these facts, the piles were not structures forming, or to form, part of the land.

VEL submitted that the pontoon was in England and the correct approach was to view the works to the piles as works to the pontoon as a whole. Using this approach, the pontoon comprised works forming part of the land and the installation of the new piles was part of the alteration, repair, or maintenance of the pontoon and so the test was satisfied.

The court said that where England ends can be interpreted by the baseline established by the 1958 Convention [7] and UNCLOS [8], and by the 1964 and 2014 Orders [9] [10]. References to “land” in the statutes [11] include land covered by water, and so also include land covered by inland waters up to the baseline (which in the case of rivers extends to the mouth of such rivers).

The court concluded that the pontoon was well inland and upstream of where the mouth of the river met the sea and so was within the boundary of England. The Construction Act applied.

Natural justice issue

Challenges of breach of natural justice rarely succeed and the principles the court will consider are:

• The adjudicator must attempt to answer the question referred to them. If the adjudicator has endeavoured to generally address any sub-issues to answer the question, whether right or wrong, the decision is enforceable [12].
• If the adjudicator deliberately fails to address the question because they’ve taken an erroneously restrictive view of their jurisdiction, then this may make it unenforceable [13] [14] [15] and [16].
• Any such failure must also be material [17] and the error must have a significant effect on the overall result of the adjudication [18].

KML relied on 4 instances where it said the adjudicator had failed to consider its defence.

Instance 1: Weather downtime

KML argued that the adjudicator awarded money to VEL on the basis that there was no argument that weather conditions reached a certain contractual threshold. The court decided that the adjudicator had clearly considered the issue and made a decision consistent with their final decision – a instead of mistakenly being confused as to whether or not there was an issue about the weather conditions. This argument therefore failed to meet the principles for a breach of natural justice.

Instance 2: Rates

KML submitted that the adjudicator wrongly found that the rates used were common ground when in fact the rates were strongly contested. This led to a significant increase in the sum awarded. VEL admitted that the adjudicator overlooked KML’s argument on the rates, but this wasn’t enough to be a breach of natural justice because:

• It wasn’t deliberate.
• The adjudicator inadvertently overlooked one sub-issue.
• The mistake wasn’t caused or induced by the claimant.
• Overall, the adjudicator addressed the dispute referred to them.

Therefore, the error made was didn’t affect the adjudicator’s jurisdiction. The court agreed this was a modest and unintentional oversight and so didn’t meet the level of seriousness necessary for the decision to be invalidated by breach of natural justice.

Instance 3: Ground conditions

KML contended that the adjudicator didn’t consider its submissions on the ground conditions which led to money being awarded to VEL. VEL submitted that it was clear that the adjudicator had addressed the submissions but had rejected them on their merits. The court agreed with VEL.

Instance 4: Deduction for equipment not included in the valuation

KML submitted that the parties had agreed that VEL was to award an abatement which wasn’t honoured in the adjudication decision. The court again agreed with VEL that even if this was an oversight it was unintentional, and the adjudicator produced detailed reasoning for their decision. This didn’t meet the level of seriousness necessary for the decision to be invalidated.

As all 4 defences failed, it was held that there was no breach of natural justice on these facts.

Take-home points

This case is an interesting example of the uncertainties that can arise when carrying out construction projects in waterways. To avoid any scope for dispute as to whether the parties have a right to adjudicate, a contract adjudication clause should be included so that neither party needs to establish a statutory right.

The case also shows the high bar for establishing a breach of natural justice. The court will only decline to enforce an adjudicator’s decision in extreme cases and will enforce even if both parties accept that the adjudicator has made an error of fact or law. This could be viewed as a windfall for the winning party, who benefits from the adjudicator’s mistake, but the temporary binding nature of adjudication means that any benefit may only be reversed by a judge or an arbitrator in later proceedings.

The UK Adjudicators London Adjudication and Arbitration Conference

Walker Morris attended this conference in December. The conference brought together world leading adjudicators, arbitrators, dispute board members, lawyers, academics, construction professionals, clients, and expert witnesses to discuss topical issues in adjudication and arbitration.

We focus below on 2 key cases discussed at the conference.

The NEC Suite:  Can adjudicators’ decisions be enforced in the courts where the contract says arbitration?

In Northumbrian Water v Doosan Enpure [19] the parties entered into a contract for the design and construction of water treatment works.

The parties expressly agreed that the dispute resolution procedure that should apply in the event of a dispute would be arbitration.

Disputes subsequently arose, and Northumbrian Water commenced adjudication (with the parties jointly appointing an adjudicator).

The adjudicator gave a decision in favour of Northumbrian Water, but Doosan served a notice of dissatisfaction (NOD). Northumbrian Water then started court proceedings seeking summary judgment to enforce the adjudicator’s decision. Doosan made an application to stay the proceedings on the basis that the correct forum for the dispute was arbitration, not the courts.

The judge noted that Doosan’s NOD didn’t identify any grounds on which the validity of the adjudicator’s decision would be challenged, such as any breach of the rules of natural justice or jurisdiction, and the general non-admissions and reservations were far too vague to be effective.

The judge referred to the case of Bresco Electrical Services v Lonsdale [20], and set out the following applicable principles on waiver and general reservations in the adjudication:

• If the responding party wishes to challenge the adjudicator’s jurisdiction, it must do so ‘appropriately and clearly’.
• It will always be better for a party to reserve its position based on a specific objection, otherwise the adjudicator can’t investigate the point.
• If the specific jurisdictional objections are rejected by the adjudicator, then the objector will be subsequently precluded from raising other jurisdictional grounds which might otherwise have been available to it.
• A general reservation may not be effective if: (i) at the time it was provided, the objector knew or should have known of specific grounds for a jurisdictional objection but failed to articulate them; (ii) the court concludes that the general reservation was worded in that way simply to try and make sure that all options could be kept open.

The judge rejected Doosan’s application on the following grounds:

• The NOD didn’t include any challenge to jurisdiction or any breach of the rules of natural justice and, as a result, the adjudication decision was final and binding.
• Regardless of the scope of any reference to arbitration, the parties expressly agreed that the adjudication decision would be binding on an interim basis and so the adjudication decision could be enforced in the courts.

Take-home points

The decision demonstrates the court’s robust approach to adjudication enforcement, enforcing the decisions of adjudicators by summary judgment 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.

An adjudicator’s decision can be enforced through the courts even where the contract dispute resolution clause refers to arbitration.

The importance of selecting and supervising expert witnesses in adjudication proceedings

Van Oord v Allseas [21] concerned the laying of a gas pipeline relating to the Shetland Gas Project in Scotland.

The Project Owner was Total. Total engaged Allseas as Main Contractor, and Allseas engaged Van Oord and SICIM Roadbridge (collectively, OSR) to perform a range of construction and engineering services.

The Project fell into delay and OSR made various claims against Allseas, including disruption and additional supervision costs resulting from an alleged delay by Allseas. OSR’s quantum expert valued OSR’s claims at £10 million.

In considering OSR’s quantum expert’s evidence, the judge didn’t hold back in their criticism, by saying that the expert’s evidence was entirely worthless.

The court then gave the following 12 reasons to justify this view:

1. The expert took OSR’s pleading at face value without checking the underlying documents;
2. The expert only looked at OSR’s witness evidence;
3. The expert refused to value the claims on any other basis or subject to any other assumptions than those put forward by OSR;
4. Actual costs incurred by OSR were disregarded in favour of made-up or calculated rates;
5. The expert made fundamental errors and didn’t critically analyse the claimants’ claims, so was forced to make multiple concessions under cross-examination;
6. The expert admitted under cross-examination that they were unhappy with their reports;
7. The expert admitted under cross-examination that their reports were confusing and, in one instance, misleading;
8. The expert had not read in detail, or at all, documents appended to their report;
9. The expert made assertions that, on cross-examination, turned out to be based purely on the subjective views of OSR – and such assertions had been used to “plug the gaps in OSR’s evidence”;
10. The expert didn’t prepare documents that they claimed to have prepared, many of which contained errors;
11. Rather than checking OSR’s claims, the expert “preferred to recite what others had told him”; and
12. The expert hadn’t cross-referred the value of line items in their report with fair and reasonable rates. On the contrary, “he seemed almost proud that he had not embarked on that exercise”.

OSR’s own QC accepted that its expert fell far below the required standards expected of an independent expert.

By contrast, Allseas’ expert was found by the judge to be “an independent and clear expert witness”.

The court therefore relied solely on Allseas’ expert, who had valued a number of line items at zero.

Take-home points

This case demonstrates the importance of instructing an expert who follows the proper process and procedure in drafting an expert report.

How we can support you

If you have any queries in respect of this bulletin or would like to know more about adjudication please contact Carly Thorpe, Georgina Blenkin or Jonathan Coser.

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[1] Iluminesia Limited (t/a AlterEgo Facades) v RFL Facades Limited [2023] EWHC 3122 (TCC)

[2] CPR Rule 24.3

[3] Swain v Hillman & Anor [1999] EWCA Civ 3053

[4] ED&F Man Liquid Products Limited v Patel & Anor [2003] EWCA Civ 472 at paragraph 8

[5] Van Elle Limited v Keynvor Morlift Limited [2023] EWHC 3137 (TCC)

[6] Staveley Industries plc v Odebrecht Oil & Gas Services Limited (unreported)

[7] Convention of the Territorial Sea and Contiguous Zone, 1958

[8] United Nations Convention on the Law of the Sea (Cmnd 8941)

[9] Territorial Waters Order 1964

[10] Territorial Sea (Baselines) Order 2014

[11] s105(1) Housing Grants, Construction and Regeneration Act 1996

[12] Carillion v Devonport Royal Dockyard [2005] EWCA Civ 1358, [2005] BLR 310)

[13] Ballast Plc v The Burrell Company (Construction Management) Limited [2001] BLR 529

[14] Broadwell v k3D [2006] ADJ CS 04/21

[15] Thermal Energy Construction Limited v AE and E Lentjes UK Limited [2009] EWHC 408 (TCC)

[16] Bouygues (UK) Limited v Dahl-Jensen (UK) Limited [2000] BLR 49

[17] Cantillon v Urvasco and CJP Builders Limited v William Verry Limited [2008] EWHC 2025 (TCC)

[18] Keir Regional Limited v City and General (Holborn) Limited [2006] EWHC 848 (TCC)

[19] Northumbrian Water Limited v Doosan Enpure Limited and other [2022] EWHC 2881 (TCC)

[20] Bresco Electrical Services Limited v Michael J Lonsdale (Electrical) [2019] EWCA Civ 27

[21] Van Oord UK Limited and SICIM Roadbridge Limited v Allseas UK Limited [2015] EWHC 3074 (TCC)