On 3 December 2020 the Technology and Construction Court handed down yet another judgment concerning a disputed adjudication enforcement hearing.
Adjudication is a quick and relatively inexpensive way of resolving disputes that arise on most construction contracts. Adjudication enforcement is the process whereby the successful party in an adjudication applies to the court to obtain a court order validating the adjudicator’s decision. This is also a quick and relatively inexpensive process, and often results in payment being made or at least gives the successful party a judgment debt that can be enforced against the debtor.
Given that the primary reason that the availability of adjudication was mandated in construction is cashflow and that an unhappy party can have the same dispute decided by the courts if they really want to, the courts do tend to ‘rubber stamp’ the vast majority of adjudicator’s decisions.
Courts’ will enforce adjudication decisions save for breach of natural justice
But one constant feature of adjudication business has been challenges to enforcement. In Global Switch Estates 1 Limited v Sudlows Limited, Global was successful in an adjudication (the fourth between the parties relating to the same contract) to the tune of £5,019,120.86. The adjudicator had also required Sudlow to pay the adjudicator’s fees, to the tune of some £81,588. So these were always going to be numbers worth fighting over.
Enforcement was resisted by Sudlows on the basis that:
- The adjudicator did not deal with certain of its defences, which they said was a breach of natural justice;
- The adjudicator failed to deal with an allegation of fraud, which they said was a further breach of natural justice; and
- The adjudicator wrongly decided certain matters contrary to decisions that had already been made by a previous adjudicator, which they said meant that the adjudicator had exceeded his jurisdiction.
The court started its analysis of the position with the usual starting point of the courts taking a robust approach to adjudication enforcement, such that they must be enforced even if they result from errors of procedure, fact or law. However, it confirmed that decisions reached where there has been a breach of natural justice will not be enforced.
The judge went on to confirm that the referring party has the right to define the dispute it refers and can confine it if so desired. It is not for the responding party to then seek to try to widen the scope of the adjudicator’s jurisdiction if the referring party does not agree to do so. The responding party can however rely on all available defences within the scope of the adjudicator’s jurisdiction.
Court disagrees with adjudicator’s decision over loss and expense claims
The adjudicator had decided not to consider certain of Sudlow’s defences, including loss and expense claims which related to the relevant application for payment under consideration in the adjudication. This is because he agreed with Global’s submissions during the adjudication that it could not rely on loss and expense claims where it had not properly made claims for extension of time nor substantiated the loss and expense claims.
The court held that the adjudicator was wrong to do so. Sudlow’s loss and expense claims were relevant to valuation and ought to have been considered. The adjudicator should have taken a view himself on whether or not they were valid and substantiated rather than excluding the arguments entirely. This was a breach of natural justice.
The fraud argument related to a call on a bank guarantee and Sudlows had argued in the adjudication that this call was fraudulent. However, the court found that the adjudicator had in fact considered the arguments and found that Sudlows had not demonstrated that the call on the guarantee was illegitimate. Hence, even if the adjudicator might have been wrong, there was no breach of natural justice.
In relation to issues already said to have been decided in previous adjudications, these related to the failure to award loss and expense for extensions of time already awarded to Sudlows in the previous adjudications. However, the court held that loss and expense had not been decided in the earlier adjudications and the adjudicator had in fact not ‘trespassed’ on those earlier decisions in failing to award loss and expense. He was entitled to find that no loss and expense was due, despite the extensions of time already being awarded and he formed that view largely on the basis that the claims were unsubstantiated.
So, although only one ground succeeded, it was a ground that was critical to determination of the dispute, so enforcement of the entire amount failed. Cue adjudication number five perhaps…?
The decision shows that the court will act upon breaches of natural justice and serves as a reminder to adjudicators to correctly consider what the dispute referred actually is, but there will always be a presumption towards enforcing adjudicator’s decisions.