In this latest 'Adjudication Watch' our construction team provides updates on significant adjudication decisions:
What is the potential effect of the responding party seeking to limit its defence to specific issues?
Mailbox employed Galliford Try to design and construct a development in Birmingham under an amended JCT form of contract. A dispute arose. Simplifying the background, in March 2016, Mailbox commenced an adjudication (number one) seeking a declaration that it was entitled to liquidated damages (LDs) of approximately £5m (its entire claim for LDs).
In adjudication one, Galliford Try stated that it was limiting its defence to specific issues; outside the adjudication however, it served a "full" extension of time claim. The adjudicator considered that the adjudication could not be so restricted by the terms of Galliford Try's defence and awarded Mailbox significant LDs. Galliford Try did not pay.
In adjudication two, Galliford challenged the lawfulness of the termination of contract and relied on claims for extensions of time. By way of challenge to adjudication two, in these proceedings, Mailbox sought a declaration that adjudicator one had decided the entitlement to LDs and so, no subsequent adjudicator had jurisdiction to consider further extension of time claims made by the contractor.
The court held that Mailbox's entitlement to liquidated damages was final and binding unless/until the decision was overturned by a court. Consequently, a claim for an extension of time became redundant - as the dispute in adjudication one included all time-related issues, they could not therefore be re-visited in a subsequent adjudication (but could be re-considered in later court proceedings).
Termination had not been part of the crystallised dispute in the first adjudication and therefore, a second adjudicator could consider all issues relating to whether or not the contractor was proceeding regularly and diligently with the works. (Mailbox's financial entitlement following the first adjudication would remain unaffected.)
In the view of Mr Justice Coulson (as he then was), the contractor "...chose to stick to a high-risk policy of attempting to dictate which of their extension claims were in and which were not. In the event, that has proved an unwise course."
This decision highlights the need to choose your strategy wisely - as defendant in an adjudication, limiting your line of defence can prejudice you going forward (as you may lose your right to argue the balance of issues at a later stage).
Compare this with the position of a claimant in adjudication who potentially has more scope for cherry picking the issues to be considered by the adjudicator at the outset, although a claimant seeking to limit the scope of any adjudication has to accept that a responding party can defend itself on the basis of any available defences.
If a party reserves its rights on jurisdiction but then takes part in the adjudication, what is its contractual position with the adjudicator?
This dispute arose following Mr Linnett's appointment as adjudicator in a dispute between MJH, a building contractor, and MJH's employer under a building contract. At the outset of the adjudication, MJH had reserved its rights pursuant to a jurisdictional challenge, declined to accept the adjudicator's terms, but went on to take part fully in the adjudication.
In enforcement proceedings, MJH was ordered to pay monies to the employer, and also, a half share of the adjudicator's costs. In these proceedings, Mr Linnett claimed interest and related amounts following the delay in payment of his fees.
One of the issues to be decided was whether or not there was a concluded agreement between MJH and Mr Linnett. The court held that, notwithstanding MJH's reservation of rights, there was a concluded contract between MJH and Mr Linnett which arose from conduct, following the full participation by MJH in the adjudication. This was a commercial contract on the adjudicator's terms falling within the ambit of the Late Payment of Commercial Debts (Interest) Act 1998, therefore entitling the adjudicator to recover interest, statutory compensation and debt recovery costs.
This decision highlights the need to be aware that even if you reserve your position on jurisdictional issues, taking part in an adjudication (which is often the only pragmatic approach) may result in a concluded contract with the adjudicator, with attendant rights and obligations.
Does an adjudicator's appointment lapse after the date for the decision, if no decision is issued by that date?
Mr Baldwin was appointed as adjudicator in a dispute involving Pickstock and another contractor (M). The progress of the adjudication was scattered with numerous jurisdictional challenges and procedural disagreements. In particular, the parties had agreed that the adjudicator's decision should be delivered by 27 May 2016. In due course however, the adjudicator asked for an extension to 7 June 2016 - Pickstock's representatives remained silent on this issue until 31 May (ie after the original date of 27 May), at which point Pickstock refused to agree the extension of time to 7 June.
As a result, on 9 June 2016, the adjudicator purported to resign before issue of his decision. In doing so, he stated that Pickstock's silence in relation to the requested extension of time led him reasonably to believe that the extension had been agreed.
In these proceedings, the adjudicator sought to rely on clause 3.2 of his appointment which provided (in summary) that if he should resign before reaching a decision due to jurisdictional challenges, the Referring Party would be liable for his fees - as a result, it was argued Pickstock was liable for those fees, following the purported resignation.
Pickstock's position was that the appointment lapsed once the date for delivery of the decision passed and therefore there was nothing from which the adjudicator could resign as at 9 June. Accordingly, it was argued, the adjudicator's claim for fees based on clause 3.2 of the appointment should fail.
The conduct of Pickstock's representatives on this issue was described by the Judge as "reprehensible". Based on previous case law, they were taken by their silence to have acquiesced to the extension of time to 7 June 2016. However, after this date, the adjudicator's appointment lapsed and therefore the adjudicator's attempt to resign on 9 June was invalid and he could not recover the sum claimed.
According to the court's decision, had the adjudicator resigned on 6 June 2016, the outcome would have been very different.
The decision highlights:
- If an adjudicator's decision is not issued by the specified date, the adjudicator's appointment will lapse after that specified date - no specific act is needed to bring the appointment to an end.
- Don't assume that you can reserve your position in these circumstances by simply remaining silent - the court made it clear that it is incumbent on a party to respond promptly to an adjudicator's request for an extension of time. If you fail to respond, you could be taken to have acquiesced in any event.
To what extent can an adjudicator consider arguments/issues not put forward by the parties?
This dispute arose out of a design and build contract for the conversion of a hotel in Leicester Square. In these proceedings, RGB (the contractor) sought to enforce an adjudicator's decision in its favour against Victory (the employer).
The only issue considered by the court at this time related to a contention that there had been a breach of natural justice by the adjudicator, in that his decision did not reflect an argument that had been put forward by either party and so the adjudicator was "going off on a frolic of his own" in terms of the construction of a Memorandum of Agreement between the parties.
This contention was firmly rejected by the court as the adjudicator had specifically invited both parties to make submissions on the clauses in issue. Even if that had not been the case, the decision turned on contractual interpretation and following previous case law, he could make a decision that did not necessarily reflect a submission made by either party in any event.
The decision highlights the need to give very careful consideration to queries raised by an adjudicator inviting further submissions - if you choose not to make substantive submissions in response, you may not get a later opportunity.
In this dispute, Victory chose not to respond to the queries raised (re-asserting rather the factual background) so could not complain later that it had not been given the opportunity to address a particular point.