Faced with an unfavourable adjudicator's decision, the paying party usually has two options - to pay up and litigate later, or raise a jurisdictional challenge in front of the judge when the decision is enforced. In some circumstances, the paying party has a third option, that is, a "Part 8 claim" under the court's Civil Procedure Rules. Under this procedure the paying party can ask the court to make a final determination of a key legal issue in the dispute.
A Part 8 claim can be made at any time, before, during or after adjudication but it can only be used where the question to be decided is unlikely to involve a substantial dispute of fact and where the decision will resolve a significant element of the dispute or save costs. In the adjudication arena, it has been used for determining jurisdictional challenges, disputes over the incorporation or interpretation of terms or to resolve potential errors in an adjudicator's decision.
R and C Electrical Engineers Ltd v Shaylor Construction Ltd
The claimant, R&C (a sub-subcontractor) applied for declaratory relief in relation to the decision of an adjudicator. An adjudication took place between the parties pursuant to which R&C claimed that time was at large and it sought damages for delay, together with the determination of its final account.
Shaylor (a subcontractor) responded by submitting that R&C had failed to complete by the date for completion and sought to recover damages under the subcontract for delay from R&C. It also disputed some of R&C's claims for variations. In short, the adjudicator found that R&C had an entitlement to just over £196,000 and that this sum, although not payable immediately, was payable in accordance with the subcontract.
Under the Part 8 procedure, R&C sought an order for immediate payment of the sum found due by the adjudicator, despite the fact that the adjudicator had directed that it was not to be paid forthwith. R&C's application was made on the basis that the contractual machinery relating to certification in the main contract had broken down so that it was no longer possible for the contractor to issue a final certificate.
Under the terms of the main contract, the issue of a final certificate was a precondition of R&C's right to payment. However, R&C argued that the precondition had become a nullity and it was therefore entitled to immediate payment.
In essence, the judge found that the definition of "Actual Completion Date" was an error, since it would have been expected to be defined as the date stated in the Final Certificate rather than the date of issue of the certificate by the client's representative.
R&C argued that if no certificate was issued on the correct day and there was no challenge to that failure by way of adjudication, the contractual machinery relating to certification must be taken to have broken down and could not be revived some 12 months later. Consequently, the adjudicator should not have imposed the payment condition and payment should have been ordered with immediate effect.
The judge noted that there was no evidence that the date of completion or the absence of the final certificate was ever a matter in dispute between the parties or between Shaylor and the main contractor. Consequently, it could not be inferred that the contractual machinery of the main contract had broken down. Having reached the conclusion that the contractual machinery had not broken down, the question of whether R&C was entitled to immediate payment did not arise. This would still have been the result even if the adjudicator had been told that the main contractor had deliberately and wrongfully refused to issue the certificate.
Interestingly, the judge said that "there is a difference between circumstances which prevent the contractual machinery being operated, and circumstances in which one party refuses to operate it although in a position to do so". He noted that the latter situation was capable of cure.
Further, the judge said that even if he had not reached his conclusion in relation to the breakdown of the contractual machinery, he would not have acceded to R&C's application. There were two reasons for this:
- The question of breakdown of the contractual machinery arose principally between Shaylor and the main contractor and the issue could not be determined without evidence from the main contractor.
- It was a question of fact as to whether or not the machinery had broken down and "Unless that question was very straightforward and the relevant issues to which it gave rise were narrow, it would not be suitable for determination on a Part 8 claim".
Withholding of monies against adjudication sum
There was also an issue as to whether Shaylor was entitled to withhold monies against the sum determined by the adjudicator. The adjudicator's decision stated that "Any sum to which R&C are entitled to be paid by Shaylor shall not be paid forthwith but only following issue of the Final Certificate... and then in accordance with clause 21.8(b)".
Clause 21.8 provided for withholding against the Final Payment. The judge noted that the adjudicator's use of the words "Any sum" pointed to the fact that the adjudicator had considered the withholding provisions in clause 21.8.
The parties also disagreed on the true meaning of "Final Payment". The contract provided that R&C was required, not later than three months after practical completion, to send Shaylor "all the documents necessary for calculating the Final Subcontract Sum." Shaylor was required, within nine months after receipt from R&C of the relevant documents and before the issue of the final certificate under the Main Contract, to prepare and send to R&C "a statement of the calculation of the Final Subcontract Sum."
Shaylor argued that the Final Payment would be the same as the Final Subcontract Sum. In contrast, R&C successfully argued that the amount of the Final Payment would be the amount of the Final Subcontract Sum, less any contra charges (which in fact amounted to nil due to lack of proof of loss by Shaylor of four weeks delay attributed to R&C).
The judge found that there was nothing to prevent Shaylor from setting off against the adjudication sum any sum that it would have been entitled to set off against, either the Final Subcontract Sum (when arriving at the amount of the Final Payment) or the Final Payment itself.
The judge did not accept R&C's submission that the claim for damages for delay which Shaylor was seeking to set off against the adjudication sum was the same claim that the adjudicator had rejected - "the Adjudicator never determined whether or not Shaylor had a valid claim for delay in a situation where time was at large, because it did not put forward its delay claim on that basis".
WW Gear Construction Ltd v McGee Group Ltd
In this case the court confirmed that it has jurisdiction to grant a Part 8 declaration while adjudication proceedings are on foot but only in rare cases will it do so. The court refused to grant a declaration while an adjudication was on foot because a declaration would unduly interfere with the ongoing adjudication where the decision was due on 1 June 2012 - only two days after issue of the draft judgement. Also, the court held that the declaration sought did not reflect the true meaning of the contract.
Pursuant to a Joint Contracts Tribunal Trade Contract, Gear (the employer) appointed McGee (the trade contractor) to carry out ground works. Disputes arose as to McGee's entitlement to payment (mainly for loss and expense arising from alleged variations), resulting in adjudication proceedings. Gear sought a declaration from the court to the effect that McGee was required to make its claim pursuant to a different contractual clause to that upon which it had relied. McGee opposed the declaration on three grounds:
- That the court did not have jurisdiction to entertain the claim or, at least, that in all the circumstances it ought to decline to exercise its discretion in favour of doing so.
- That court intervention at this point would be an unwarranted interference with the adjudication process.
- That the declaration sought "blurs the distinction between issues of legal interpretation and questions of fact and that, in any event, any appropriate declaration would be of limited utility and would not justify the court's intervention".
The judge refused to grant Gear's declaration and accepted McGee's second and third grounds of opposition. The judge decided against McGee by holding that the court did have jurisdiction to grant a declaration in this case but the real question was whether it was appropriate to do so. Reference was made to the general principle that it will only be appropriate in rare cases for the court to intervene in an ongoing adjudication.
McGee argued that it was clear that Parliament had provided a scheme whereby disputes could be resolved quickly by an adjudicator on an interim basis. It was implicit from this that the adjudicator should be able to conduct the adjudication free from court intervention. Gear also argued that parallel court proceedings would result in the parties wasting time and money as well as such intervention wasting judicial resources.
On the other hand, Gear contended that a party could make an application for a court declaration at any time and there was no reason why this right should be curtailed during an adjudication.
The judge observed that there are obvious practical difficulties in permitting a declaration application to be made during an adjudication. First, parties could be distracted during a very tight adjudication timetable. Second, it could interfere with the adjudicator's ability to conduct the referral to adjudication properly. Given the fact that it would take at least 14 days after the issue of a claim form for legal proceedings to be commenced, the application would be heard when the adjudication was well advanced.
In this case, the adjudicator would only have had just over one working day to take the judgment into account before delivering his decision. The judge found such a situation was "an unacceptable imposition on an adjudicator and one that may well result in unfairness, misunderstandings or mistakes - not least because the parties may well have no right or opportunity to make submissions to the adjudicator in the light of the judgment". The judge stated that for this reason alone, it would not be appropriate to make the declaration.
In view of the fact that the court found Gear's application for a declaration failed, the judge directed that the contents of the judgment were not to be communicated to the adjudicator unless both parties agreed.
The clear message is that only in rare circumstances will a court intervene in an ongoing adjudication. If there are any issues which need to be resolved before a dispute can be progressed, it is wise to seek court intervention early on. The Part 8 procedure is a useful tool if used in the right circumstances. Specialist legal advice can assist in exploring and deciding on the most appropriate form of proceedings or alternatively, opting for one of many forms of alternative dispute resolution (ADR).