Soothing your Adjudication Indigestion with a Minty Breathed After Eight

Gone are the days when parties were confined to raising lack of jurisdiction or breach of natural justice as grounds to defeat enforcement of an Adjudicator’s decision. Caledonian Modular Ltd v Mar City Developments Ltd¹ proved to endorse a novel approach by which a party could resist enforcement, after Mar City Developments Ltd (‘Mar City’) sought a declaration that the Adjudicator had made an error of law within his decision as a direct counterclaim instead of issuing separate Part 8 proceedings. Although Coulson J was quick to emphasize the limits that would be placed upon such counterclaims in order to avoid encroaching upon Statutory Adjudication’s ‘pay now; argue later’ ethos, he considered that Mar City was fully entitled to pursue this course of action.

Whether Caledonian was largely fact-specific and the procedure will be confined to only the most straightforward of payment disputes remains to be seen. What continues to emerge, however, is the shift in Adjudication enforcement cases away from disputes over the nature of the Adjudicator’s error and towards disputes about the precision with which the court can correct that error. A short, correct answer will now prevail over a wrong one.

Background

The initial position under the HGCRA 1996 was that an Adjudicator’s decision was immediately binding upon the parties even if it was wrong in fact or in law. Such was intended to enforce the primary purpose of Statutory Adjudication in reaching a quick answer, regardless of whether it was correct. These intentions held true after the TCC proved themselves willing to entertain only the most well-grounded challenges to enforcement, the rationale behind which was clear:

“It must be kept in mind that the majority of adjudicators are not chosen for their expertise as lawyers. Their skills are as likely (if not more likely) to lie in other disciplines. The task of the adjudicator is not to act as arbitrator or judge. The time constraints within which he is expected to operate are proof of that. The task of the adjudicator is to find an interim solution which meets the needs of the case. Parliament may be taken to have recognised that, in the absence of an interim solution, the contractor (or sub-contractor) or his sub-contractors will be driven into insolvency through a wrongful withholding of payments properly due. The statutory scheme provides a means of meeting the legitimate cash-flow requirements of contractors and their subcontractors. The need to have the ‘right’ answer has been subordinated to the need to have an answer quickly. The Scheme was not enacted in order to provide definitive answers to complex questions.”²

The intentions of the HGCRA would have been frustrated if a party could raise every perceived error within an Adjudicator’s decision as a means of resisting enforcement; the court would have to rehear the entire case before payment could be enforced, and the intended objective of maintaining cash flow to the contractor would have been emasculated.

This was illustrated in Bouygues (UK) Ltd v Dahl-Jensen (UK) Ltd.³ It was agreed between the parties that the Adjudicator had made a manifest error in his approach to the calculation of the sums due under the contract, as he had included the 5% retention monies in the award when they had yet to fall due under the contract terms. Buxton LJ determined that this was an error, but an error made within the Adjudicator’s jurisdiction; hence, this was not a ground for resisting enforcement. In support of this position, he considered that the following principle would apply to the decision of an Adjudicator:

"If he has answered the right question in the wrong way, his decision will be binding. If he has answered the wrong question, his decision will be a nullity."⁴

The effect of Bouygues was to debar the use of errors of fact or law as grounds to resist enforcement. The main routes of attack left open to Defendants were therefore twofold:

1. challenging the decision for lack of jurisdiction; or
2. alleging that the Adjudication had breached natural justice.

The courts adopted a restrictive approach to such arguments, alive to the possibility of parties disguising any error made by the Adjudicator as one that took him beyond jurisdiction. Carillion Construction Limited v Devonport Royal Dockyard Limited⁵ offered a cautionary tale to such attempts to resist enforcement, as the Court of Appeal refused to entertain any spurious challenges:

“In short, in the overwhelming majority of cases, the proper course for the party who is unsuccessful in an adjudication under the scheme must be to pay the amount that he has been ordered to pay by the adjudicator… To seek to challenge the adjudicator's decision on the ground that he has exceeded his jurisdiction or breached the rules of natural justice (save in the plainest cases) is likely to lead to a substantial waste of time and expense — as, we suspect, the costs incurred in the present case will demonstrate only too clearly.”⁶

Part 8

The position was changed in Jarvis Facilities Limited v Alstom Signalling Limited.⁷ The TCC recognised that the Adjudication provisions had been designed to implement a ‘pay now; argue later’ approach to construction disputes and would therefore be binding until the final resolution of the issues. However, where a party could raise an isolated point of law that was suitable for determination in CPR Part 8 proceedings, this would constitute a ‘final determination’ of those limited issues – and hence could defeat the enforcement action. The court considered this to be commensurate with the interests of both parties:

“I do not believe that the court’s powers are so circumscribed by the Act that, in an appropriate case, it cannot order that the dispute should be determined prior to or at the same time the application for enforcement is determined… Alstom has a right to a determination of the points that it has raised, just as Jarvis has a right to have its application heard and to know if the decision is enforceable. The two can be decided at the same time.”⁸

Of course, the party would have to issue the Part 8 application before the enforcement hearing in order for the two to be considered together, and it would ultimately be up to the TCC to determine whether the two could be heard at the same time.

Geoffrey Osborne Ltd v Atkins Rail Ltd⁹ cemented this approach and confirmed that the use of Part 8 proceedings could save considerable time and expense. Edwards-Stuart J raised the apparent conflict between the rulings of Bouygues and Jarvis (which were factually very similar) but explained the difference in approach on the basis that Bouygues had been argued as an attack on jurisdiction rather than by way of a party seeking final determination of a small point of law. To him it made clear sense that a small and self-contained issue should be determined in this way, and Bouygues was no authority against such a principle:

“There is no reason why the court cannot determine an issue raised by Part 8 proceedings at the same time as entertaining an application to enforce an award – assuming that it is one that meets the requirements of Part 8 proceedings by not involving any substantial dispute of fact – and, indeed, that the court can and should do so. As I have already indicated, I accept that such an approach may be appropriate provided of course that the court is being asked to determine an issue that was presented to and decided by the adjudicator and that the applicant has sought an appropriate declaration in the relief claimed.”

Caledonian Modular Ltd v Mar City Developments Ltd

In Caledonian the courts took it a step further. It seemed logical that if the enforcement hearing and Part 8 hearing were capable of being heard at the same time in accordance with the CPR, it might not be necessary to issue a separate Part 8 claim at all; the point of law could be directly raised as a counterclaim to the enforcement action. Although this came as little surprise after Geoffrey, Coulson J justified what might have appeared at first blush to be a further inroad to Bouygues:

“It may be asked: why is the judge dealing on enforcement with an issue which has already been decided by the adjudicator? Surely, in accordance with Bouygues (UK)Ltd v Dahl-Jensen (UK) Ltd [2000] BLR 522, and the myriad cases thereafter, it is not open to a defendant to seek to avoid payment of a sum found due by an adjudicator, by raising the very issue on which the adjudicator ruled against the defendant in the adjudication?

That is, of course, the general rule and it will apply in 99 cases out of 100. But there is an exception. If the issue is a short and self-contained point, which requires no oral evidence or any other elaboration than that which is capable of being provided during a relatively short interlocutory hearing, then the defendant may be entitled to have the point decided by way of a claim for a declaration. That is what happened, for example, in Geoffrey Osborne v Atkins Rail Ltd [2010] BLR 363. It is envisaged at paragraph 9.4.3 of the TCC Guide that separate Part 8 proceedings will not always be required in order for such an issue to be decided at the enforcement hearing.”¹⁰

This decision was largely unsurprising as the contained nature of the Part 8 procedure lent itself very well to determination during a summary judgment hearing. However, it was not quite made clear where the line would be drawn between Part 8 applications that could be heard at the same time as enforcement proceedings and Part 8 applications which needed be heard separately. The only discernible criteria from Caledonian is that the issue must be: (1) a “short and self-contained point”; and (2) that it requires “no oral evidence or any other elaboration than that which is capable of being provided during a relatively short interlocutory hearing”. Caledonian necessarily raises the question of what order the court would make if the determination was raised as a counterclaim in circumstances where the issues were not short and self-contained enough to be heard simultaneously with the enforcement proceedings, but could appropriately be heard in separate Part 8 proceedings. The court would presumably have to hear the counterclaim at a later date, leaving important questions about whether the employer would have to pay the contractor in the meantime and whether they would also have to pay the contractor’s costs for the enforcement action before getting the chance to substantiate their counterclaim and secure the ‘win’ that would entitle them to their own costs from the contractor. Thinking tactically, it will still be worth raising the point as a counterclaim rather than a separate Part 8 claim in order to increase the chances that the court will consider the two can be heard during the same hearing. However, this is far from a guaranteed result as the decision remains one that is ultimately for the courts to make and not for the parties.  

Conclusion

Caledonian marks out some of the boundaries to the new flavour of dispute which the TCC will entertain by employers attempting to delay payment. Contractors will be keen to argue that the declaration sought is not one that can appropriately be determined using the Part 8 procedure, either by seeking to raise wider disputes of fact or to argue that the issue is one that cannot be contained in isolation from the rest of the case. The best response to such claims will need to be made during the Adjudication itself, and it will be more vital than ever to crystallise the exact legal disputes underpinning the case in the referral notice in order to have the Adjudicator respond clearly and directly to each issue. Crucially, a party must make sure that all of the evidence needed to determine the issue is put before the Adjudicator as well, so that the Part 8 challenge will not require any elaboration or new oral evidence.

¹⁰ Paras [12]-[13].
⁹ [2009] EWHC 2425 (TCC).
⁸ Para [19].
⁷ [2004] EWHC 1285 (TCC).
⁶ Per Chadwick LJ at [87.].
⁵ [2005] EWCA Civ 1358 at [86.].
⁴ Taken from the judgment of Knox J in Nikko Hotels (UK) Ltd v MERPC Plc [1991] 2 EGLR.
³ [2000] EWCA Civ 507.
² Per Chadwick LJ, Carillion Construction Limited v Devonport Royal Dockyard Limited [2005] EWCA Civ 1358 at [86.].
¹ [2015] EWHC 1855 (TCC).