It can be tempting for a "losing" party in adjudication to defend itself against the winner's enforcement proceedings by arguing that the adjudicator got it wrong. Hard as it is to ignore apparent errors, such parties must remember that adjudicators' decisions - even if wrong - are binding until a court or arbitrator gives a final decision. In the meantime, the losing party must live with the decision and pay up – or face enforcement and additional costs.

Adjudication is founded on the “pay now, argue later” “principle" under which an adjudicator's decision will be enforced (even if wrong) unless the adjudicator exceeded its jurisdiction or acted in breach of natural justice. In essence, a quick answer is more valuable than the right answer: adjudication is a quick and interim solution.

This occasional "rough justice" is the price paid by the industry to keep cash flowing and businesses in the black. Parties who think the adjudicator got it wrong, must take the issue to court or arbitration for a final decision on the issue if they cannot accept the adjudicator's decision. They can only resist enforcement (by applying for declaratory relief under Civil Procedure Rules (CPR) Part 8), if they can establish a breach of natural justice or an adjudicator acting beyond its jurisdiction.

However, parties who want a final court or arbitration decision on a specific legal or contractual issue do not always have to wait for the outcome of full-blown litigation or arbitration proceedings. The quicker, Part 8 procedure is also available to those who want a court decision on a discrete legal issue involving few disputed facts - such as the interpretation of a contract or a question of law.

Hutton guidance on using Part 8

Following a spate of parties using Part 8 inappropriately to resist enforcement applications, the Technology and Construction Court (TCC) issued guidance on the use of Part 8 in Hutton Construction Ltd v. Wilson Properties (London) Ltd [2017] EWHC 517 (TCC).

The Hutton guidance emphasised the Construction Act's aim to keep project cash flowing which is achieved in part by the binding nature of an adjudicator's decision.

Exceptionally, the court might agree to review, under the Part 8 procedure, an issue arising from an adjudicator's decision which involves a short and self-contained point, requires no oral evidence or other elaboration and is suitable for a relatively short interlocutory hearing. Hutton makes clear that:

  • the parties can agree to the court dealing with a discrete point in enforcement proceedings either in a Part 7 enforcement application or in a Part 8 request for a court declaration;
  • however, while allegations of a breach of natural justice or a jurisdictional challenge should be dealt with by Part 8, a losing party which uses Part 8 to challenge the enforcement proceedings and ask the court to review an alleged error in the adjudicator's decision, risks being sanctioned with indemnity costs unless the issue is "clear cut". Examples of such errors were given, including where: the adjudicator’s construction of a contract clause is beyond any rational justification, the calculation of the relevant time periods is obviously wrong, or the categorisation of a document is clearly wrong. (See Hutton, paragraph 18.)

Many thought that Hutton effectively prevented losing parties from using Part 8 to obtain a court review of an error in an adjudicator's decision. However, a new decision in Willow Corp Sarl v. MTD Contractors Ltd [2019] EWHC 1591 (TCC) by HH Honour Judge Pepperall indicates that the TCC is still willing to hear Part 8 applications that challenge wrong decisions in certain cases.

What happened in Willow Carp Sarl v. MTD Contractors Ltd?

In September 2015 MTD entered into a JCT Design and Build Contract with Willow to build the 150- bedroom, 7-storey Nobu Hotel in Shoreditch for £33.5 million. The project was delayed and the parties agreed a plan for the phased handover of the hotel in February 2017. MTD claimed loss and expense and, in June 2017, the parties discussed these claims and agreed a date for practical completion of 28 July 2017. That date was not met. Several adjudications followed which dealt with a claim by Willow for liquidated damages and MTD's claims for loss and expense.

At the third adjudication decision in December 2018, the adjudicator was asked to interpret the terms of the June agreement. He decided that this agreement had redefined the terms relating to practical completion and imposed an obligation on MTD to complete the works by 28 July 2017. Willow was not entitled to liquidated damages for MTD's delay in completing work on the hotel after that date and owed £1,174.854.72 to MTD.

Willow did not pay. Instead, it issued a Part 8 application in December 2018 seeking court declarations on the proper construction of the June 2017 agreement, that practical completion had not been achieved by 28 July 2017 and that the adjudicator's decision was unenforceable because of various breaches of natural justice.

MTD later issued an application to enforce the adjudicator's award by way of summary judgment under separate Part 7 proceedings.

The court's view in Willow

Pepperall J allowed Willow's Part 8 application to be heard alongside MTD's Part 7 enforcement application. He decided that the adjudicator's interpretation of the June agreement was wrong and Willow was entitled to claim liquidated damages. His reasoning was as follows:

  • Willow had acted proactively and issued the Part 8 application ahead of MTD's enforcement application to seek declaratory relief: it was not using the Part 8 application to resist MTD's Part 7 enforcement by summary judgment but as a means to obtain a final decision of the court on the issue;
  • of the various declarations sought by Willow under Part 8, only the construction issue [of the June agreement] was suitable for determination under Part 8 (on the basis of the Hutton guidelines). That issue involved a discrete point, required little evidence of fact and was not a mechanism to resist MTD's Part 7 enforcement proceedings.

The remaining claims relating to the alleged breaches of natural justice, were not appropriate for Part 8 determination - those questions as to enforcement were best dealt with in the Part 7 proceedings.

It seems Hutton is not quite as strict a restriction on the use of Part 8 as we thought. Willow indicates that TCC judges are willing to deal with errors in adjudication decisions provided they are discrete issues, reasonably obvious and clear cut and capable of being dealt with in a short hearing with little evidence. Parties should, however, act quickly in seeking a final declaration under Part 8. Any delay could affect the chances of success.

Another interesting aspect of the Willow judgment was the court's sensible and practical approach to the remaining "good" elements of the adjudicator's decision. It allowed the wrong element of the adjudicator's decision to be severed from the good. While acknowledging that a breach of natural justice could undermine the whole of an adjudicator's decision, where it was possible to safely enforce the good elements of the decision, the court should sever those that were wrong. This holds true even where only one dispute has been referred to adjudication.

The court had a good deal of sympathy with adjudicators, the majority of whom are not chosen for their legal expertise, but who are obliged to reach a decision on complex issues of law: "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 recognise 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."