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Can you refer a dispute to adjudication before the time for payment has passed?

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Posted on 01 July 2019

The simple answer to the above question is “yes”. 

In Barry M Cosmetics Limited v Merit Holdings Limited[1], Barry Cosmetics sought to enforce through the courts an adjudicator’s decision in their favour. Barry was the employer and Merit the building contractor.

The adjudication concerned the final account. The adjudication itself involved Merit submitting, for the first time, an 800-page delay report with its response, and Barry, in response, its own delay report. Merit wanted to reply in full, but the adjudicator restricted their rejoinder to 12 pages on a specified issue.

Adjudication not dependent on right to payment

Barry won the adjudication, but Merit refused to pay. So Barry issued court proceedings to enforce the adjudicator’s decision.

Merit argued that the decision should not be enforced. It said the adjudicator did not have jurisdiction, because there had been no entitlement to payment at the relevant time.

The Technology and Construction Court found that there was nothing in the Scheme for Construction Contracts to the effect that a dispute can only be referred to adjudication once the right to payment has arisen. 

The judge found that in the present case there was a clear dispute between the parties over the correct value of the final account. Barry was therefore entitled to refer that dispute to adjudication, and so the adjudicator had jurisdiction.

Breach of natural justice argued against enforcement of decision

But Merit also argued that the adjudicator’s decision should not be enforced because there had been a serious breach of the rules of natural justice. It said it had been given only a very short period of time in which to respond, on a restricted basis, to significant new material from Barry in its reply. Merit said it should have been given an unfettered opportunity to respond to Barry’s delay report in Barry’s reply.

As the Judge commented, “If the adjudicator has all the arguments before him, he will not generally be required to permit further rounds of submissions.  There is no right to respond to every submission made by the other party ….”. 

Right to reply is not unlimited

The adjudicator had limited the nature and extent of the rejoinder to be provided by Merit.  The Judge found that he was entitled to do so.  As he commented, “The need to afford each party an opportunity to meet the case made against him is not an unlimited right.  Taken literally, it might be understood to afford the right to endless rounds of pleadings.  Such a literal interpretation is clearly misplaced ….”.

As a result, the Court enforced the adjudicator’s decision

Part of the problem Merit faced in this case was caused, it seems, by its own making. By only submitting its very lengthy delay report in its response, it took the risk that Barry would reply in detail to it (which Barry did), which could then leave Merit with a very limited opportunity to respond. Had Merit provided such a report at an earlier stage, it is likely that it would have had more time to respond to Barry’ own delay report. 

[1] Barry M Cosmetics Limited v Merit Holdings Limited [2019] EWHC 136 (TCC)

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