Enforcement of an adjudicator’s decision: lack of a reasoned decision

If the adjudication clause in a contract requires the adjudicator to give reasons and the adjudicator fails to do so, then the adjudicator’s decision will be invalid.

In what circumstances will the court decline to enforce an otherwise valid adjudicator’s decision because of the inadequacy of the reasons given by the adjudicator?

Balfour Beatty Construction Limited Construction Northern Limited v Modus Corovest (Blackpool) Limited [2008] EWHC 3029

The parties entered into a contract for the design and construction of a shopping centre in Blackpool. The contract was on JCT terms with bespoke amendments. Disputes arose between the parties as to whether a shop front structure for a unit was a change to the employer’s requirements. The dispute was referred to adjudication.

The original JCT provision provided that no reasons were required to be provided by the adjudicator. A bespoke amendment to the contract required a reasoned decision.

It appears that the adjudicator was not aware of the amendment since the adjudicator stated in his decision “this is not a reasoned decision”. However, the adjudicator did take five pages of his decision to explain why he had concluded that the work in question was a change to the employer’s requirements.

The employer resisted enforcement proceedings on the basis that the adjudicator had stated that his decision was not a reasoned decision and therefore his decision was invalid.

What is a reasoned decision?

The court found:

  • The adjudicator’s statement that the decision was not a reasoned decision was not conclusive. The decision had in fact included detailed reasons - nothing of significance had been left out.
  • Where reasons had been given, a challenge could only be successful if - in accordance with the principles set out in Gillies Ramsay Diamond & Ors v PJW Enterprises Limited [2003] BLR 48 -

“… the reasons are so incoherent that it is impossible for the reasonable reader to make sense of them. In such a case, the decision is not supported by any reasons at all and on that account is invalid.”

In short, an adjudicator’s reasons may be erroneous but they will be reasons provided they are comprehensible.

In this case, the adjudicator’s reasons were clear and cogent. Thus (notwithstanding the fact that the decision stated that it was not a reasoned decision) it was a reasoned decision which was therefore a valid decision, in accordance with the terms of the contract.

View: Balfour Beatty Construction Limited Construction Northern Limited v Modus Corovest (Blackpool) Limited [2008] EWHC 3029

Liquidated damages

The JCT forms of contract entitle the employer to give notice to the contractor stating that it will deduct any liquidated damages for delay due to it from sums otherwise due to the contractor; alternatively, to recover any such amounts from the contractor “as a debt”.

In Balfour Beatty Construction Limited Construction Northern Limited v Modus Corovest (Blackpool) Limited [2008] EWHC 3029 (referred to above), the employer served a notice on the contractor requiring payment of the sums due by way of liquidated damages as a debt.

The employer argued:

  • Since the contract contained no contractual mechanism specifying the due date or the final date for payment of any liquidated damages claimed by the employer under the contract, the Scheme for Construction Contracts (the Scheme) applied. This meant that the due date for payment was the date when the amount was claimed, with a final date for payment 17 days later.
  • The contractor was required to pay the whole amount of liquidated damages claimed by the employer because it had failed to serve a withholding notice.
  • The employer was therefore entitled to summary judgment on its counterclaim for liquidated damages.  

Could this argument succeed? It seems that it would do so if the Scheme applied to payments which the contractor was liable to pay to the employer (by way of liquidated damages) under the contract.

Liquidated damages and the Scheme

The court held that the whole purpose of Part II of the Construction Act and the Scheme was to improve cash flow for contractors and subcontractors. It was impossible to read the relevant provisions as applying to payments to be made by the contractor to the employer. Neither the Construction Act nor the Scheme applied to claims by employers for payments to the employer by way of liquidated damages.

It followed that the withholding notices regime set out in the Construction Act did not apply, and the employer’s claim for summary judgment failed.

Editors’ comments

Construction contracts do not typically state when an employer is entitled to recover the liquidated damages. If the payment provisions of the Construction Act do not apply, then presumably a term would be implied into the contract requiring payment within “a reasonable time”. When would this be?

To avoid uncertainty arising, it may be advisable to state a date on which the liquidated damages claimed will be due for payment.

View: Balfour Beatty Construction Limited Construction Northern Limited v Modus Corovest (Blackpool) Limited[2008] EWHC 3029