Court foils claimant's attempt to shut out defence arguments

A notice of adjudication should define a dispute and the adjudicator's jurisdiction (although this is not always the case). But can it be drafted so as to exclude particular defences? In Kitt v The Laundry Building Ltd a contractor's notice of adjudication claimed payment based on:

  • what the contractor said was due, where this differed from the contract administrator's valuation; and
  • what the contract administrator said was due, where the contractor did not want to challenge the valuation.

However, the adjudicator dealt with the issues that the contractor had tried to exclude. The contractor then claimed that the award was unenforceable because the adjudicator had acted in breach of the rules of natural justice, without jurisdiction and in breach of an implied term of his appointment.

Rejecting the challenge, the court said that an adjudicator's jurisdiction cannot be limited in this way. One cannot refer to adjudication a disputed claim to payment and dress up the definition of the dispute in such a way as to prevent jurisdictionally a defending party from raising any defence – good or bad – in the adjudication. To refer a payment claim and say, at the same time, that the referring party is not referring parts of the claim which might be challenged by the defending party is illogical, unmeritorious and wrong. Such a device cannot and should not work.(1)

A dispute need not cover all issues

In St Austell Printing Company Ltd v Dawnus Construction Holdings Ltd an employer claimed that an adjudicator had no jurisdiction because the dispute – an essential ingredient of adjudication – had not crystallised at the time of the notice of adjudication. The challenge failed because the detailed claim had been asserted and expressly rejected. Nothing more was required for a dispute to have crystallised. In addition, the contract administrator had promised to respond on a number of matters, but failed to do so in the eight months before the notice of adjudication. That inactivity clearly amounted to a rejection of the contractor's claim.

The employer also challenged jurisdiction on the basis that the dispute referred to the adjudicator was strictly limited to just one part of an interim application. That challenge also failed.

A claimant is entitled to prune its original claim for the purposes of the reference to adjudication. However, subject to questions of the relevant contract notices, a responding party is entitled to defend itself against a claim for money due by reference to any legitimate available defence (including set-off).(2)

When is a final certificate not final?

In Marc Gilbard 2009 Settlement Trust v OD Developments and Projects a final certificate under a Joint Contracts Tribunal contract was stated to be conclusive evidence as to loss and expense and other matters, unless proceedings were started within 28 days of its issue. The contractor started court proceedings within the 28-day period, disputing the certificate. However, some time after the period expired, the contractor wanted to dispute the same issues in adjudication. The court rejected this application.

The proper construction of the relevant clause was that (subject to a qualification where an adjudicator's decision is issued after the final certificate) the challenger had to challenge the final certificate in one set of proceedings, which was the only way in which the final certificate could be challenged. Notwithstanding this, as a matter of interpretation, business common sense dictated that any challenge to the final certificate should be in one set of proceedings, promptly commenced. The court's decision did not fetter the right to adjudicate "at any time". Nothing prevented the issue of adjudication proceedings, but the final certificate would – of course – be conclusive evidence on the relevant matters because those proceedings had not been issued in time.(3)

For further information on this topic please contact Chris Fellowes at Mayer Brown International LLP by telephone (+44 20 3130 3000) or email (cfellowes@mayerbrown.com). The Mayer Brown International LLP website can be accessed at www.mayerbrown.com.

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.