Since its introduction as a non-waivable statutory right in the Construction Act (the Act), statutory adjudication has, unsurprisingly perhaps, become a commonly used method of interim dispute resolution in UK construction and engineering projects.
In our experience, adjudication is popular in the industry and can be an effective means of unlocking a dispute in the short term, although its interim binding nature means that there are limited grounds for resisting enforcement.
In this update we examine the limits of possible challenge to the enforceability of decisions on the grounds of an adjudicator's jurisdiction.
Originally intended to help maintain cash-flow between parties in dispute, the Act allows any party to a "Construction Contract" to refer a dispute to a neutral third-party adjudicator at any time. Timetabled so as to produce a decision within 28 days, the process is intended to be a quick-fire (and therefore cheaper) means of resolving disputes compared to litigation and arbitration.
An adjudicator's decision is binding unless and until the dispute is finally determined by a court, arbitral tribunal or by settlement between the parties. The English courts have fittingly described the summary and interim nature of adjudication as being "pay first, argue later" and were quick to realise that in order for adjudication to be effective, any challenges to the enforceability of an adjudicator's decision must be swiftly resolved.
When Can the Enforceability of an Adjudicator's Decision Be Challenged?
Firstly, although the Act does not provide a right to appeal an adjudicator's decision, the courts have developed, through case law, limited ways in which a party can successfully resist the enforcement of a decision by the other party.
The purpose of the courts' approach has been to seek to ensure that adjudication continues to operate as an effective form of dispute resolution. The interim "binding up until finally determined" nature of adjudication has seen decisions being enforced even in cases where there has been an error of fact or law. This is one of the reasons why critics of adjudication (and probably even those who might support it) would admit that it is sometimes seen as "rough justice". Nonetheless, there seems to be an implicit acceptance that this shall be the case in such a speedy interim process and that, to maintain the validity of the process, decisions need to be enforceable with limited scope for resistance.
Valid grounds for challenging the enforcement of an adjudicator's decision have been limited to instances where the adjudicator has acted either in contravention of the principles of natural justice or, as is the focus of this update, has acted without, or in excess of, their jurisdiction.
The Adjudicator's Jurisdiction
The jurisdiction of an adjudicator is derived from their appointment as agreed between the parties to the dispute, the scheme or equivalent (Act-compliant) rules. A decision delivered by an adjudicator who has breached the boundaries of their jurisdiction during a statutory adjudication will not be valid and is likely to be incapable of being enforced by the successful party.
The English courts have recognised that jurisdictional challenges could potentially threaten the effectiveness of adjudication and its reputation as a process famed for its relative speed and simplicity. The courts have, therefore, recognised (and accounted for) the likelihood of some rough justice as being inevitable during a summary process.
Both the Technology and Construction Court (TCC) and Court of Appeal have (in the absence of statutory provisions) developed principles which limit the ability of parties to a construction contract to challenge the enforcement of an adjudicator's decision on jurisdictional grounds. The reasoning behind such a restrictive approach was clear from the outset: to not frustrate the statutory intentions underpinning the Act and thereby maintain the adjudication's speed and simplicity.
A Necessary Trade-off
The deployment of complex, legalistic lines of argument is perhaps unavoidable in a process driven principally day-to-day by legal professionals. However, to allow obscure jurisdictional grounds for challenge would threaten the ability of adjudication to remain a "pay now, argue later" process, as had been always been anticipated by Parliament.
A trade-off was, therefore, necessary. In order to maintain the status of adjudication as an effective summary process, the courts would be required to rationalise the administration of rough justice. Justification for doing so would principally be found in the "binding until finally determined" nature of an adjudicator's decision, which meant that parties would not necessarily be stuck with an unfavourable decision as they could seek a formal resolution of their dispute at a later date.
Bouygues v. Dahl-Jensen (2000), the first adjudication case to be heard by the Court of Appeal, not only affirmed a general principle of judicial "non-intervention" established previously in the case of Macob, but also began to clarify where challenges to the validity of a decision might succeed.
A link between an adjudicator's jurisdiction and the enforceability of their decision was made, concluding that "an error made when he was acting within his jurisdiction" would not be sufficient to invalidate a decision, adding if "the adjudicator acts within that jurisdiction his award stands and is enforceable".
Therefore, a party seeking to argue that the enforcement of a decision should be refused on jurisdictional grounds would only be permitted to do so in very limited circumstances.
In Carillion Construction v. Devonport Royal Dockyard (2005), the Court of Appeal endorsed the principles of enforcement summarised at first instance in the TCC by Mr Justice Jackson.
The court reinforced the position that an adjudicator's decision would be enforced despite any procedural, factual or legal errors, but would not be enforced where the adjudicator had acted in excess of their jurisdiction.
The court, therefore, sought to restrict the ability of a "dissatisfied party...to comb through the adjudicator's reasons" to mount a jurisdictional challenge. Only the "plainest cases" would prevent enforcement. This, again, reiterated that the "need to have the "right" answer has been subordinated to the need to have an answer quickly".
This robust approach to jurisdictional challenges continues to be applied by the courts. In the more recent TCC case of Science and Technology Facilities Council v MW High Tech Projects (2015)11, the court remarked that the "ingenuity deployed to avoid enforcement of adjudication decisions has been considerable over the years".
Here, "widespread and varied attempts by the defendant...to raise jurisdictional objection" resulted in a situation where 11 months after service of the Notice of Intention to Refer, the sum awarded to the referring party had still not been paid. This, held the court, was not "how the process of adjudication is intended to operate". The reason for this delay was "an example of a party "scrabbling around" trying to find reasons not to comply with an adjudicator's decision" as opposed to acting in the way which the 1996 Act clearly sets out, namely "to pay the sum awarded and then commence substantive proceedings to resolve with finality the underlying dispute".
The limited nature of valid jurisdictional challenges demonstrates the robust policy approach that the courts have adopted over the years towards the enforcement of an adjudicator's decision. In doing so, they have been clear and consistent in showing their support for adjudicators, thereby underpinning the statutory regime and rendering adjudication an effective means of dispute resolution (in certain cases). Whilst a jurisdictional challenge to the decision of an adjudicator remains possible, only in the most clear-cut cases will a challenge to enforcement be successful.
It is important in our view that clients understand the benefits of adjudication but also the potential drawbacks. Our view is that while adjudication is an effective and often pragmatic process, it is not optimal in all cases. Particularly large or complex disputes, while practically capable of being adjudicated if a Construction Contract exists might not be best resolved by such a summary procedure which does not involve a full hearing of the issues and the consideration of all of the potentially available evidence. If a party is left with an unfavourable decision, formal resolution may be the likely result in any event given the low probability of successfully resisting enforcement of the original decision.