We have recently reported on a Court of Appeal decision ruling on the ability of companies in liquidation or subject to CVAs to pursue adjudication proceedings against their creditors (see our earlier Law-Now here). The Court of Appeal’s decision also provides important guidance on the use of generally worded reservations of rights as a means of allowing new jurisdictional objections to be raised after the conclusion of an adjudication. Such general reservations are now less likely to be effective and Responding Parties will need to decide at an early stage whether to raise specific jurisdictional objections with the adjudicator.

Jurisdictional reservations

It is common for Responding Parties to an adjudication to object to the jurisdiction of the adjudicator. Such objections rarely succeed and Responding Parties will often continue to participate in the adjudication subject to their jurisdictional objections.

If jurisdictional objections are not made at the outset of an adjudication, the Responding Party will usually be taken to have waived its right to object to the adjudicator’s jurisdiction by continuing to participate in the adjudication. This has led to the use of generally worded jurisdictional reservations, whereby Responding Parties have sought to reserve their rights to make any jurisdictional objections in the future.

The effectiveness of such general jurisdictional reservations is supported by some previous cases, but had also been questioned. The Court of Appeal has now significantly restricted the usefulness of such reservations.

Cannon Corporate Limited v Primus Building Limited

On 8 March 2018 Primus referred to adjudication a claim for damages in respect of a repudiatory breach of contract which had been found in a previous adjudication. The adjudicator awarded Primus £2.128 million, plus interest, however, Cannon did not make payment and on 21 March 2018 Primus commenced proceedings to enforce the adjudicator’s decision.

During the adjudication, on 17 March 2018, Cannon’s solicitors had made a reservation in the following terms: “…the Responding Party (Cannon) reserves its right to raise any jurisdictional and/or other issues, in due course, whether previously raised or not and whether within the forum of adjudication or other proceedings”. On 20 March 2018, Cannon’s solicitors repeated the general reservation of rights and raised two specific challenges to the adjudicator's jurisdiction. The adjudicator rejected both of the specific challenges and Cannon did not raise them again during the enforcement proceedings.

During the enforcement proceedings, Cannon sought a stay of execution on the basis that Primus was the subject of a Creditors Voluntary Arrangement, an insolvency procedure. At first instance the judge granted Primus summary judgment and refused a stay of execution, enforcing the adjudicator’s decision.

On appeal, Cannon argued for the first time that the adjudicator did not have jurisdiction due to the CVA, a new jurisdictional challenge. The Court of Appeal found that the purpose of the Housing Grants, Construction and Regeneration Act 1996 (as amended) “would be substantially defeated” if a party could participate in an adjudication and then subsequently in enforcement proceedings raise new jurisdictional points to those already rejected by the adjudicator.

Cannon could not therefore rely on its generally worded reservation to raise a new jurisdictional challenge. The reservation was held to be too vague to be effective and had been superseded by the two specific objections which were raised before the adjudicator and failed. More generally, the Court of Appeal noted that:

A general reservation of position on jurisdiction is undesirable but may be effective … Much will turn on the wording of the reservation in each case. However, a general reservation may not be effective if:

i) At the time it was provided, the objector knew or should have known of specific grounds for a jurisdictional objection but failed to articulate them …

ii) The court concludes that the general reservation was worded in that way simply to try and ensure that all options (including ones not yet even thought of) could be kept open …

Conclusions and implications

The guidance provided by the Court of Appeal is likely to have a significant effect on the tactics adopted by Responding Parties in adjudications. The decision has already been applied by the TCC to dismiss a jurisdictional objection raised for the first time at the enforcement stage on the faith of a general reservation as to jurisdiction (Ove Arup and Partners International Ltd v Coleman Bennett International Consultancy Plc). It is now clear that such general reservations made at the outset of an adjudication will in many cases be insufficient to allow a Responding Party to subsequently challenge an unfavourable decision. This is particularly the case if the grounds of objection ought to have been known to the Responding Party or a general reservation has been made merely to keep all options on the table.

The Court of Appeal’s decision means that Responding Parties would be well advised to carefully consider all possible jurisdictional objections at the outset of an adjudication. An early decision will then be needed as to which objections (if any) are to be raised (with the risk of creating an uncooperative impression with the adjudicator). It will no longer be possible in many cases to defer raising such objections until the conclusion of an adjudication by the use of a generally worded reservation.

References:

Bresco Electrical Services Limited (in liquidation) v Michael J Lonsdale (Electrical) Limited & Cannon Corporate Limited v Primus Building Limited [2019] EWCA Civ 27.

Ove Arup and Partners International Ltd v Coleman Bennett International Consultancy Plc [2019] 1 WLUK 366 (unreported).