Adjudication Matters: September 2023

Can an adjudicator determine a dispute that’s already been decided in a previous adjudication?

Background

In Sudlows v Global Switch Estates [1], the Court of Appeal held that the sixth adjudicator was correct when they decided they were bound by a previous adjudicator’s decision. Consequently, the adjudicator’s original decision was enforced.

We discussed the first instance decision in the January 2023 edition of Adjudication Matters.

The test deployed by the TCC in the first instance decision was whether the dispute was the same or substantially the same as the earlier dispute. Lord Dyson in the Court of Appeal said this test was a question of fact and degree, noting its complicated nature, particularly in cases of serial adjudication when parties are arguing over delay.

The sixth adjudicator decided they were bound by the fifth adjudicator’s decision and awarded Sudlows a further extension of time.

In the first instance decision, the judge concluded that the 2 disputes weren’t the same or substantially the same, which meant the sixth adjudicator had taken too narrow a view of their jurisdiction and so their decision was unenforceable.

Sudlows appealed and the Court of Appeal allowed the appeal and reinstated the adjudicator’s original decision. The Court of Appeal considered that the 2 disputes were the same or substantially the same because the core issue referred to the adjudicator was Global’s responsibility for the cabling and ductwork issues, which was the same in both adjudications. The fact that the fifth and sixth adjudications concerned different time periods was of little weight. The adjudicator wasn’t free to depart from the findings of Adjudication 5.

Coulson LJ set out 3 over-arching principles an adjudicator or enforcing court should apply when considering whether a dispute is the same or substantially the same:

• The adjudicator should be “encouraged” to give a firm and common-sense answer as to whether a previous adjudication was binding or not.

• An adjudicator should look at what the earlier adjudicator decided to see if the second adjudicator has impinged on the earlier decision. The form and content of the documents provided to the adjudicator are of lesser relevance than what was actually decided.

• They should be flexible in their approach in order to prevent a party re-adjudicating a claim or defence that’s been lost but also not shutting out a new claim or defence. Previous authorities demonstrate common sense and fairness.

Takeaways

This case identifies that although a court may not be bound by an adjudicator’s finding, they’re often hesitant to interfere with it. Otherwise, there’s the risk that the adjudication process would be undermined by repeated challenges to adjudicators’ decisions.

Do paying parties in an adjudication need to engage proactively?

In Home Group v MPS Housing [2], the TCC enforced an adjudicator’s decision for over £6.5 million.

Background

Home Group is a social housing provider which owns thousands of properties in England and Scotland.

The underlying contract required MPS to carry out planned and reactive maintenance, minor and emergency works. The orders carried out under the contract were generally low value and high volume.

It was decided in an earlier adjudication that MPS had committed a repudiatory breach of the contract in May 2022, bringing the contract to an end.

Home Group then commenced a further adjudication for quantification of its losses. The Referral contained a substantial expert report, witness evidence and large quantities of documents and data, covering many thousands of small value work orders, to which MPS was required to respond.

In April 2023, the adjudicator decided MPS was liable to Home Group for sums in excess of £6.5 million.

MPS refused to pay and sought to resist enforcement. It contended it had been unable properly to digest and respond to the material served with the Referral in the time available, and this was a breach of natural justice, so that the adjudicator’s decision was unenforceable.

The decision

The court disagreed with MPS and held that:

• Adjudication decisions must be enforced even if they contain errors of procedure, fact or law.

• An adjudication decision won’t be enforced if it’s reached in breach of natural justice and the breach is material, in that it’s led to a material difference in the outcome.

• Both complexity and constraint of time to respond are inherent in the process of adjudication, and are no bar in themselves to adjudication enforcement.

• In cases involving significant amounts of data, an adjudicator’s entitled to proceed by way of spot checks and/or sampling.

The judge went on to conclude that, on the facts, MPS’ position was “without merit”. MPS ought to have taken up an offer to inspect the underlying data on the basis of sampling when that proposal was made some months earlier.

Takeaways

This decision is an important reminder to paying parties that, when faced with claims, they will be expected to engage proactively.

Where an adjudicator has decided that they’re able to do “broad justice between the parties,” arguments of insufficient information, complexity or a lack of time are unlikely to be met with sympathy from the TCC on enforcement.

TCC confirms the importance of the “pay now, argue later” principle

Background

In Henry Construction Projects v Alu-Fix (UK) [3], the TCC dismissed Henry’s application for summary judgment to enforce a “true value” adjudication decision of around £190,000. The “true value” adjudication had been commenced before Henry had discharged its payment obligation to Alu-Fix under a previous “smash and grab” adjudication.

The subcontract between the parties was terminated by Alu-Fix on 11 November 2022 at will after a dispute arose. Alu-Fix was required under the subcontract to submit an application for payment, which it did. Henry then had until 13 December 2022 to make payment of the notified sum.

Henry failed to make payment of the notified sum, and so on 15 December 2022, the matter was referred to a “smash and grab” adjudication by Alu-Fix on the basis that Henry had failed to serve a valid payment notice or pay less notice or make payment of the notified sum.

However, before a decision was reached in the “smash and grab” adjudication, on 18 January 2023 Henry brought adjudication proceedings for a “true value” adjudication. This was on the basis that Henry had overpaid Alu-Fix and was therefore owed around £235,000 plus VAT.

Decision

• A decision of the “smash and grab” valuation was issued on 27 January 2023. Henry was ordered to pay approximately £260,000 to Alu-Fix, which it did on 2 February 2023.

• A decision of the “true value” adjudication was issued on 6 March 2023. Alu-Fix was ordered to pay £190,000 plus interest to Henry.

Alu-Fix challenged the decision of the “true value” adjudication on the basis that Henry had brought proceedings for the “true value” adjudication before making payment of the notified sum under the subcontract. Alu-Fix therefore argued the adjudicator of the “true value” adjudication had no jurisdiction and should have resigned. Henry responded to this by applying to the TCC for summary judgment. Henry argued it should be allowed to rely on the “true value” decision having already made payment of the “smash and grab” decision.

Henry’s application for summary judgment was refused. Henry was under an immediate payment obligation from 13 December 2022 (to make payment of the notified sum). Henry wasn’t entitled to commence the “true value” adjudication on 18 January 2023 as it hadn’t yet discharged its payment obligation. Therefore it couldn’t rely on the decision in the  “true value” adjudication.

The TCC referred to the case of Bexheat v Essex Services [4], where the court took a robust approach to adjudication enforcement and confirmed it will enforce an adjudicator’s decision by summary judgment unless the adjudicator has acted without jurisdiction or breached the rules of natural justice.

Takeaways

This case is a clear reminder of the “pay now, argue later” principle commonly enforced by the court in cases of this type. A true valuation adjudication cannot be commenced unless and until any outstanding payment obligations from a “smash and grab” adjudication have been complied with.

TCC confirms the temporary effect of an adjudicator’s incorrect decision must yield to the final effect of a court judgment.

Background

We covered an earlier judgment in this dispute between the parties in our recent June 2023 edition of Adjudication Matters. In this case, the TCC considered whether ISG could recover sums paid under one adjudicator’s decision in circumstances where it was owed money under another adjudicator’s decision.

ISG engaged FK Construction on 28 September 2021 as subcontractor in respect of roofing and cladding works at Avonmouth, Bristol, known as the Barberry project.

FK Construction issued an application for payment for around £1.6 million. ISG responded with a pay less notice, which FK Construction argued was invalid. FK Construction subsequently issued a “smash and grab” adjudication. ISG was ordered by the adjudicator to make payment to FK Construction of the notified sum. The adjudicator in this adjudication was Mr Wood (the Wood Decision).

ISG argued it had a right to set off the sums owed to it by FK Construction against the payment it owed to FK Construction under the Wood Decision. ISG failed to make payment of the notified sum and FK Construction issued enforcement proceedings regarding the Wood Decision.

Separately, ISG engaged FK Construction on another project, the Triathlon project. There were 7 separate adjudications across the 2 projects relating to various disputes. ISG sought to rely on adjudication decisions relating to the Triathlon project (the Triathlon Decisions) and a decision that the net value of the subcontract for the Barberry project was worth around £906,000 (the Molloy Decision).

ISG asked the court to exercise its discretion and grant ISG a right to deduct the sums owed to it from the amount to be paid to FK Construction in the Wood Decision.

Decision

In April 2023, the court held ISG wasn’t entitled to set off the sums owed to FK Construction under the Molloy Decision or the Triathlon Decisions.

The TCC referred to the case of HS Works v Enterprise [5]. That case confirmed that set-off requires:

• Separate valid adjudication decisions;

• Capable of being enforced/given effect; and

• Separate proceedings before the court.

In ISG v FK Construction, the position was different as the court wasn’t being asked to consider the validity of the Molloy Decision and had no scope to do so. No separate proceedings had been issued in respect of the Molloy Decision.

In the April 2023 decision, the court refused to exercise its discretion on the basis that there were no payments due or flowing from the Molloy Decision, and there was no suggestion from the Wood Decision that there might have been a set-off of monies against the sum due. The court held exercising its discretion to grant ISG the right of set-off would “plainly undermine the policy of enforcement of adjudicators’ decisions as developed and applied in the TCC over the last 20 years”.

In respect of the Triathlon Decisions, the court similarly refused to exercise its discretion to grant ISG a right of set-off. The court wasn’t being asked to consider the validity of the Triathlon Decisions, and there were no separate proceedings in the Triathlon Decisions.

The court ultimately held that FK Construction was entitled to summary judgment for the full £1.6 million claimed in respect of the Wood Decision. ISG was ordered to make payment in this amount to FK Construction plus VAT and interest.

However, in this further case ISG Retail v FK Construction [6] in August 2023, the TCC’s decision was reversed on technical grounds. ISG challenged the adjudicator’s award and sought several declarations in respect of the April 2023 judgment.

Between these proceedings being issued (in May 2023) and the hearing date (June 2023) another judgment (unreported) was handed down. This decision undermined the Wood Decision. Another adjudicator (Mr Shawyer) had construed the effect of section 110B of the Construction Act 1996 incorrectly. ISG was therefore allowed to amend its claim to seek declarations that it should be repaid the £1.75 million payment it had made in the enforced Wood Decision. This was because Mr Shawyer’s decision underpinned the Wood Decision. This is a reminder of the principle that an adjudicator’s decision is only binding until there is a final decision on the point.

The TCC agreed and found that the adjudicator’s decision had been incorrect and there was no merit in FK Construction’s arguments. The TCC held that ISG was entitled to the declarations it sought and awarded ISG summary judgment for the repayment of £1.7 million.

Takeaways

This decision reinforces the position that the temporary binding effect of an incorrect adjudicator’s decision must give way to the final effect of the correct judgment. This will be the case even where summary judgment has been given in adjudication enforcement proceedings.

How we can help

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

[1] Sudlows Limited v Global Switch Estates 1 Limited [2023] EWCA Civ 813

[2] Home Group Limited v MPS Housing Limited [2023] EWHC EWHC 1946 (TCC)

[3] Henry Construction Projects v Alu-Fix (UK) Limited [2023] EWHC 2010 (TCC)

[4] Bexheat v Essex Services Group [2022] EWHC 936 (TCC)

[5] HS Works Limited v Enterprise Managed Services Limited [2009] EWHC 729 (TCC)

[6] ISG Retail Limited v FK Construction Limited [2023] EWHC 2012 (TCC)

—

Sign up to receive next month’s edition.

Check out our video nuggets on Adjudication Basics