Adjudication Matters: October 2022

Can adjudication be used to pursue costs arising out of cladding remediation works?

This is particularly topical as many building owners are currently faced with large-scale outlays in remediation of wall systems originally constructed with materials considered unsafe or non-compliant with Building Regulations [1]. The usual route to recovery of costs for building owners is through litigation against the contractor or relevant professionals under the original building contract or appointments, or a claim under the Defective Premises Act [2] as extended following the introduction of the Building Safety Act [3].

However building owners who are either a party to the original building contract, or a beneficiary under a collateral warranty, may consider using adjudication as an alternative route to reimbursement for those remedial costs already incurred in replacing non-compliant wall systems on buildings.

We discussed in our August edition of Adjudication Matters that a collateral warranty can be a construction contract, with a statutory right to refer to adjudication a dispute arising under the same, if it warrants both past and future performance.

The benefit of adjudication is that it’s quicker and cheaper than pursuing litigation. However, the parties each bear their own costs in adjudication so that legal costs would not be recoverable even if the claim was successful. The parties are also jointly and severally liable for the adjudicator’s fees.

The following factors are also relevant as to whether adjudication would be suitable for this type of claim:

• Has limitation under the original contractual document expired?
• If the relationship between the parties exists under a collateral warranty, does this collateral warranty warrant both past and future performance?
• Has a dispute crystallised between the parties?
• Is there expert opinion available which identifies a breach dating back to the original construction?
• Is the scope of remedial work sufficiently developed to understand the likely costs of the scheme arising from the breach?

If you wish to discuss how the above may affect your projects, please contact Carly Thorpe.

Is the adjudicator entitled to payment of their fees if they resign?

In Ward v Davies & Davies [4] the adjudicator resigned from the adjudication proceedings on two separate occasions:

• first, on the basis that the referring party had made a request for the nomination of an adjudicator prior to issuing the first Notice of Adjudication to the responding party; and
• second, after the second Notice of Adjudication was issued, the adjudicator found that the responding party was not a party to the relevant contract and so concluded that he lacked jurisdiction.

After the referring party subsequently refused to pay the adjudicator’s fees, the court found that though the adjudicator’s second resignation was wrong (given that there was no dispute as to the identity of the contracting parties), the adjudicator was still entitled to his fees. The adjudicator had not acted in bad faith, and in any event the Scheme [5] allows resignation at any time on giving notice to the parties.

This case is a reminder of an adjudicator’s responsibilities to make full enquiries about jurisdiction prior to resignation. It does offer some comfort to adjudicators that the court will only agree to deprive an adjudicator of their fees in extreme circumstances.

If the adjudicator relies on a point not raised by either party or fails to consider a particular defence is this a breach of natural justice?

In Bilton & Johnson v Three Rivers [6] Three Rivers argued that the adjudicator’s decision had been made in breach of natural justice because the adjudicator had reached a decision on a point which had not been advanced by either party, and on which Three Rivers had therefore not been able to make representations. The court did not accept this argument and said the fact that the adjudicator’s precise reasoning behind his decision did not appear to have been put forward by either party “does not come close to establishing that there was a breach of natural justice”.

In the alternative, Three Rivers also argued that the adjudicator’s decision had been made in breach of natural justice because the adjudicator had failed to address Three Rivers’ rectification defence in his decision. Three Rivers argued that the adjudicator had, therefore, failed to exhaust the full extent of his jurisdiction. Noting that “this complaint proceeds from the unpromising starting point that the Adjudicator’s decision contains a section entitled “Rectification” which spans 21 paragraphs and more than four pages in total”, the court found that only a deliberate failure from an adjudicator to address the rectification defence would suggest a breach of natural justice. There had been no such deliberate failure because the adjudicator had considered, and rejected, the rectification defence in question.

This case is a reminder that the threshold for establishing a breach of natural justice is high. It is rare that the court will decline to enforce an adjudicator’s decision on this basis.

Is a telephone conversation a binding agreement?

In Mansion Place v Fox [7] the court agreed with an adjudicator’s finding that an agreement reached during a telephone conversation was binding even where the parties disputed what had been said.

Fox alleged that Mansion had agreed to waive any entitlement to claim liquidated damages (LADs) in exchange for Fox waiving any entitlement to claim payment for loss and expense due to the delay. Mansion disputed that a verbal agreement was made and sought payment of LADs.

The judge analysed the conduct of the parties after this call took place “through the prism of the contemporaneous documents; of their subsequent actions; of those events which are accepted or clearly demonstrated to have happened; and of inherent likelihood“. The judge found that on balance those contemporaneous actions and documents fitted more with Fox’s account than Mansion’s.

This case is a reminder of the importance of recording oral agreements in writing to avoid any dispute as to what has been agreed.

If you have any queries about any of the points covered or would like to know more about adjudication please contact Carly Thorpe.

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[1] The Building Act 1984 and The Building Regulations 2010 (or as in force at the date of construction)

[2] Defective Premises Act 1972

[3] Building Safety Act 2022

[4] Steve Ward Services (UK) Limited v Davies & Davies Associates Limited [2022] EWCA Civ 153

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

[6] Bilton & Johnson (Building) Co Limited v Three Rivers Property Investments Limited [2022] EWHC 53 (TCC)

[7]  Mansion Place Limited v Fox Industrial Services Limited [2021] EWHC 2972 (TCC)