The right to adjudication gives parties a quick way to resolve construction disputes, which helps maintain cashflow and get projects finished.
However, an adjudication decision is binding unless taken to court or arbitration for final determination.
So in taking advantage of adjudication, parties risk having to pay up in the short term – even if an adjudicator gets the decision wrong – and save their arguments for later.
While the temptation to challenge a wrong decision can be strong, parties should carefully consider their options: the grounds for challenge are limited to breaches of natural justice or an adjudicator acting beyond their jurisdiction and these are increasingly difficult to establish.
Aecom Design Build Ltd v. Staptina Engineering Services Ltd  EWHC 723 (TCC) reinforces this position.
Facts of the case
Aecom engaged Staptina to carry out mechanical installation works under an amended form of the NEC Engineering and Construction Short Subcontract at Long Reach treatment works. Aecom later terminated the subcontract but made clear that the termination did not affect Staptina’s ongoing obligation to correct defects.
Disputes arose and, after two adjudications, Staptina commenced a third adjudication seeking a declaration that, following the termination, Aecom was “not entitled to make any deductions against [Staptina’s] termination account for alleged defects not rectified or at all, or such declaration as the adjudicator deems proper”.
The adjudicator decided that Aecom was entitled in principle to deduct the cost of proven defects from the sum due to Staptina at termination.
However, the adjudicator went further and decided that “this right is, however, confined to a deduction of the sum (if any) it would have cost Staptina to carry out the relevant rectification works had the termination not taken place”.
Despite being broadly successful in this adjudication, Aecom challenged the adjudicator’s decision and sought court declarations that:
- The adjudicator acted in excess of her jurisdiction by dealing with the extent of the deductions allowed, when she should have given a “yes” or “no” answer to the question “is Aecom entitled to make deductions for defects?”. Aecom argued that the parties had not asked her to decide on this point; and, (if this first ground failed;
- The adjudicator had breached the rules of natural justice by not giving Aecom opportunity to make submissions on the level and / or appropriateness of any deductions.
Aecom’s challenge was rejected and the adjudication decision enforced as follows.
The jurisdiction issue
In finding that the adjudicator had acted within her jurisdiction, Mr Justice Fraser rejected Aecom’s submission that there could only be a “yes” or “no” answer to the question posed.
A dispute cannot be defined by its potential answers. Rather, a dispute is defined by the wider matters set out in the notice of adjudication, the pleadings (including the defences), pre-adjudication correspondence and the evidence.
Further, the ambit of an adjudication reference can be widened by the nature of the defence[s] advanced by the responding party. Attempting to define a dispute by reference to there being only two permissible answers is one “fraught with difficulty”.
In any event, the judge held that the notice of adjudication, by making reference to “deductions for the cost of defects”, expressly allowed the adjudicator to decide how such deductions were to be calculated.
The natural justice issue
Mr Justice Fraser dismissed the argument that there was a breach of natural justice on the basis that the adjudicator was not bound to accept one of the two alternatives put forward by the parties.
The correct answer (as is often the case regarding questions of contractual interpretation) “may not have been expressly proposed by either one of the parties”. The adjudicator was free to choose a different answer and was not in breach of natural justice by failing to notify the parties of this and inviting further submissions.
The judge also rejected the idea that an adjudicator must consult the parties on his / her draft findings before issuing the decision.
This case reminds parties that adjudication challenges are very difficult – and potentially expensive – to establish.
It also shows how hard it is to apply the jurisdictional rule that adjudicators can only decide points on the basis of legal or factual submissions put forward by the parties themselves. The courts are clearly prepared to treat the dispute referred to the adjudicator as wider in scope than that set out in the notice of adjudication alone.
In the shorter term, rather than challenge an adjudication decision, time and money resources might be better focused on the project – with an eye to later litigation or arbitration.