Walker Construction (UK) Ltd v (1) Quayside Homes Ltd (2) Peter Brett Associates LLP (2014)

The status of an adjudicator’s decision in subsequent court proceedings, was considered to have been settled for some time.

However, the Court of Appeal recently considered the implications of the temporarily binding nature of adjudicators’ decisions in Walker Construction (UK) Ltd (“Walker”) v Quayside Homes Ltd (“Quayside Homes”) and another.

While the case did not decide new law on this point, the judgment called into question the idea that an adjudicator’s decision has no impact on the burden of proof in court proceedings on the same matter.

The case also highlights the difficulties faced by litigants and Judges when considering offers of settlement. The Court of Appeal also had to consider whether the Judge had exercised his discretion correctly in awarding costs to the Claimant, when each party had made multiple offers of settlement.

Background

The facts of the case are complex and, given the narrow focus of this article, suffice it to say that Walker had entered into a contract with the developer, Quayside Homes, to carry out drainage and highway works on a development site. Walker brought proceedings to recover sums retained by Quayside Homes and these proceedings were stayed pending the outcome of an adjudication. The adjudicator awarded Walker around £23,400 which Quayside paid before counterclaiming for more than £169,000 (though the counterclaim was later reduced to around £84,000).

At trial, Quayside were awarded £10,885, exclusive of interest, and Walker were ordered to pay Quayside’s costs as set out below, subject to some exceptions:

  • on the standard basis up to the date of the relevant date for acceptance of a Part 36 offer made by Quaysideand
  • from this date onwards on the indemnity basis.

The total sum Walker were ordered to pay in respect of Quayside’s costs totalled approximately £345,000.00. The principal issue before the Court of Appeal was whether the County Court judge was right to make this costs order (see below for further details).

However, given the history of the dispute, the court was also forced to explore the question of the status of an adjudicator’s decision in subsequent court proceedings. This is where we begin our analysis of the judgment before dealing briefly with the costs point.

Status of an adjudicator’s decision

It has long been established that a court is not bound by an adjudicator’s decision. But does an adjudicator’s decision have any effect at all in court proceedings so that the burden of proof is shifted at trial? Lady Justice Gloster posed this question as follows in her judgment:

“[The] more difficult question arises in relation to the status of the adjudicator’s decision after it has been complied with and payment has been made pursuant to the award, in accordance with the losing party’s obligations under the Scheme, but prior to the final determination of the relevant dispute in court or arbitration proceedings. In other words, how binding is the adjudicator’s decision, or how significant is the fact that payment has been, made under the award, when the court comes to consider the outstanding disputes between the parties, and their respective obligations, as at the date of trial but before the court “finally” determines the dispute?”1

The position on this point prior to the Walker case was thought to have been settled, having been considered by Lord MacFadyen in the Court of Appeal in City Inn Limited v Shepherd Construction Limited supra2. This was a case concerning whether the contractor was entitled to various extensions of time. Prior to the start of those proceedings, an adjudicator held that the contractor was entitled to its extension. The court was therefore faced with a question as to whether an adjudicator’s decision has any effect on the onus of proof in any subsequent litigation.

Lord MacFadyen concluded as follows:

“It is, in my view, no part of the function of an adjudicator’s decision to reverse the onus of proof in any arbitration or litigation to which the parties require to resort to obtain a final determination of the dispute between them. It is reading too much into the reference in […] section 108(3)) [of the Housing Grants Construction and Regeneration Act 1996] to the adjudicator’s decision being binding “until the dispute or difference is finally determined” to construe it as affecting the burden of proof in arbitration or court proceedings. The burden of proof in any such action lies where the law places it, and is unaffected by the terms of the adjudicator’s decision.”[3]

The same approach is preferred in Coulson on Construction Adjudication, 2nd Edition:

“Is the contractor entitled to rely in his pleaded defence [in court proceedings following adjudication proceedings] upon the adjudicator’s decision in support of his claim for an extension of time of 20 weeks, contending that it was for the employer to demonstrate that the adjudicator was wrong in reaching this decision? It seems that the unequivocal answer to this question is no. Once the decision has been formally challenged by the issue of subsequent litigation or arbitration, the contractor in the example noted above is not entitled to rely on the existing decision as having any status whatsoever, let alone one that changes or displaces the ordinary burden of proof.[…] This, in the example previously noted, it would be for the contractor properly to plead and prove his entitlement to the 20-week extension of time.”[4]

Creating doubt

Lady Justice Gloster confessed to having “real difficulty with Lord MacFadyen’s analysis that the adjudication has no effect whatsoever on the onus of proof in subsequent proceedings”[5]. She pointed out that the defendant in the court proceedings (the successful party in the adjudication) has no reason to bring court proceedings to claim payment as it has already been paid. She also interprets section 108(3) of the HGCRA 1996 in the very way which Lord MacFadyen believed could not be justified when she suggests that because the decision of the adjudicator is binding until the final determination by the court, the onus of proof should have rested with the claimant employer to adduce evidence and prove that no extension was justified.

The Court of Appeal in Walker Construction stopped short of holding that City Inn was wrongly decided as Lady Justice Gloster was concerned she had not been taken to any academic or industry commentary on the issue, nor had there been any detailed argument on the point during the course of the trial. Furthermore, on the facts of the Walker Construction case, there was no need for the Court of Appeal to answer this question definitively. Having said that, Lady Justice Gloster’s analysis has certainly cast doubt over what had previously been thought of as a settled legal principle.

While the judgment did not create new law, it may give rise to successful parties in adjudication arguing that an adjudicator’s decision has empowered them to shift the evidential burden in subsequent litigation.

Whether the Court of Appeal’s analysis in Walker Construction on this point is right, is open to debate. It can be argued that to elevate the status of an adjudicator’s decision so that the burden of proof is shifted,  stretches the meaning of s.108(3) of the HGCRA 1996. The analysis of Lord MacFadyen in City Inn seems more faithful to the likely intent behind the drafting. Leaving the burden of proof exactly where it lies in court proceedings is not inconsistent with treating an adjudicator’s decision binding up until the point a dispute is determined in court. Even if the successful party in the adjudication is having to prove their case again in court, until the issue is finally determined, the adjudicator’s decision stands and they remain entitled to any award the adjudicator has made. The treatment of an adjudicator’s decision as binding and asking the successful party in that adjudication to make out their case afresh at trial, are not mutually exclusive.

Costs – the limitations of Part 36

As noted above, the main task facing the Court of Appeal in Walker Construction involved considering the costs award made by the trial judge.

The case highlights the difficulties in assessing the approach the court will take in exercising its discretion on costs when multiple offers have been made by both sides.

When reviewing the costs award in Walker Construction, the Court of Appeal considered the effect of various settlement offers made by the parties before overturning the costs order.

The key offers considered by the Court of Appeal were Walker’s Calderbank offer to pay Quayside £30,000 inclusive of costs and Quayside’s Part 36 offer some months later to accept a payment of £100 with payment of its costs in accordance with CPR 36.10.

The particular facts of this case meant that it was not viable for Walker to make a Part 36 offer because, by accepting it, Quayside would have been entitled to all of its costs. The Court of Appeal found that the trial judge had not given appropriate weight to this fact and to Walker’s Calderbank offer. The Court of Appeal held that the Calderbank offer was a reasonable one and the judge should have given effect to it given that the machinery of Part 36 would produce an unjust and entirely disproportionate result.

The Court was not convinced by arguments that Calderbank offers cannot provide costs protection and treating them as such would be to wrongly elevate them to the status of Part 36 Offers. Lady Justice Gloster concluded as follows:

I see no reason why requirements of certainty or the desirability of the clarity which a Part 36 offer provides should, in the particular circumstances of the present case, where a Part 36 offer would […] have been disproportionate and unjust, prevent a judge from properly analysing the effect of one party’s Calderbank offer.[6]

Again, the approach of the Court of Appeal has arguably created some uncertainty by preferring the Calderbank offer to the presumed certainty of the Part 36 offer and the costs consequences which flow from it. However, the judgment clearly makes reference to “the particular circumstances of the present case” so it appears the court will only prefer a Calderbank offer in circumstances where the machinery of Part 36 produces a disproportionate or unjust result.

Part 36 therefore remains the most reliable way of ensuring costs protection in the majority of cases but, as Walker Construction demonstrates, it is important to be alive to scenarios where the machinery of Part 36 runs up against limitations and Calderbank offers assume greater significance as a result.