Enforcement of Adjudication decisions

Adjudication, as a form of Alternative Dispute Resolution (ADR) is a faster form of resolving a dispute between parties to a contract. However there is a golden rule when Adjudicating on the same dispute.

The current position is quite straightforward.

If a dispute referred to Adjudicator is the same or substantially the same as a previous Adjudication, an Adjudicator cannot decide on this second dispute. He will not have jurisdiction.

In a recent Court of Appeal case this was put to the test.

In Brown v Complete Buildings Solutions Ltd [2016],  the judge was required to rule on whether an Adjudicator had jurisdiction to decide on a dispute referred to him. As the matter of the dispute had been argued in a previous Adjudication, it was argued that the Adjudicator did not have jurisdiction.

Timeline of events

A Joint Contract Tribunal (JCT) Minor Works Building Contract (2011) was entered into between the parties to demolish a residential house in Ashtead, Surrey and build a new house. The Contract Sum was £496,578.

The Architect certified Practical Completion on 9th April 2013 and then issued a Certificate of Making Good Defects on 25th October 2013. On 31st October the Architect issued a Final Certificate for the sum of £115,450.50. This sum remained unpaid and on 20th December 2013 the Contractor sent a letter to the Employer stating this Final Payment of £115,450.50 was due.

The sum remained unpaid and a Notice of Adjudication (the First Adjudication Notice) was issued on 7th February 2014 in accordance with Clause 7.2 of the Contract.

Mr. C Calcroft was named as the Adjudicator by the Adjudication Nominating Body (ANB). In this Adjudication is was accepted that the Architect’s Final Certificate was in breach of contract as it was not issued in accordance with Clause 4.8.1 of the Contract, but rather relied on clause 4.8.4 which provided:

If the final certificate is not issued in accordance with clause 4.8.1,

4.8.4.1  the Contractor may give a payment notice to the Employer with a copy to the Architect/Contract Administrator stating what the Contractor considers to be the amount of the final payment due to him under this Contract and the basis on which the sum has been calculated and, subject to any notice under clause 4.8.4.3, the final payment shall be the final amount.

 4.8.1.3 If the Employer intends to pay less than the sum specified in the Contractor’s payment notice, he shall not later than 5 days before the final date for payment give the Contractor notice of that intention in accordance with 4.8.3 and the payment to be made on or before the final date for payment shall not be less than the amount stated as due in the Employer’s notice.

Further Clause 4.8.5 of the Contract established that where the Employer did not give a counter notice under clause 4.8.4.3 it was obliged to pay the Contractor the sum stated as due in the Contractor’s notice.

The Adjudicator, Mr. Calcroft issued his Decision on 1st April 2014 where he concluded that the Final Certificate (CBSL) issued on 30th October was ineffective and further found that CBSL’s letter of 20th December 2013 was not a valid Payment Notice in accordance with Clause 4.8.4.1 of the Contract on the following two grounds:

  1. It was based on the ‘Final Certificate’ being issued late, whereas it was in fact invalid
  2. The terms of the 20 December 2013 letter did not comply with clause 4.8.4.1 in view of the way it was expressed as it did not make clear that it was:
  • a notice
  • Issued pursuant to clause 4.8.4.1

The Adjudicator ruled that since no Payment Notice had been served, no sum was payable.

On the same day as Mr. Calcroft issued his Decision, 1st April 2014, CBSL sent a letter which was detailed as a “‘notice pursuant to Clause 4.8.4.1 of the Contract.” This was followed on 24 April 2014 with a further Notice of Adjudication (the Second Adjudication Notice).

The ANB appointed Mr. C Hough as Adjudicator on 29th April 2014. Brown disputed Mr. Hough’s jurisdiction on the basis that he was being asked to decide the same, or substantially the same, dispute as had been decided by Mr. Calcroft in the First Adjudication. They therefore declined to participate in the Adjudication and further did not serve a notice under Clause 4.8.4.3 of the Contract. In layman terms the Employer did not issue a Payless Notice.

Mr. Hough issued his Decision on 27th May 2014.

He ruled that the dispute he was being required to determine was not the same or substantially the same as the Adjudication determined by Mr. Calcroft. He further found that Mr. Calcroft had determined that no certificate had been issued in accordance with Clause 4.8.1 (Final Certificate) and this decision was binding on both the parties and him. However, he determined that the 1st April 2014 notice was an effective notice under Clause 4.8.4.1 (Payment Notice from the Contractor to the Employer) and Brown’s refusal to pay had created this dispute, which was not the same or substantially the same as the one previously dispute.

As Brown had not issued CBSL with a Payless Notice, the sum fell due for payment. Brown was required to pay:

  • £115,440.46 to CBSL within 7 days
  • Interest of £817.70 up to the payment date, increasing at a rate of £17.90 per day until paid
  • The Adjudicator’s fees of £1,944.

Brown did not pay and on 11th June 2014 CBSL initiated proceedings in the Technology and Construction Court (TCC) Manchester District Registry. They were granted permission to issue an application for Summary Judgment. Brown applied for an adjournment and an application to transfer the proceedings from Manchester to London. They did not however pay the required fee for the request to transfer.

Judge Raynor QC refused the application to Adjourn and ruled in CBSL’s favour on 10th July 2014. He found that the sum of £118,500 was due, with costs summarily assessed at £6,000. However he stayed execution of the judgment until 8th August 2014. Brown had to make application to set aside by 8th August 2014.

Brown applied on 31st July 2014 for the order to be set aside and have the hearing transferred to London. Judge Raynor QC dismissed the application in a fully reasoned judgment and Brown was further ordered to pay costs, summarily assessed at £5,750.

It is from this judgment Brown made an appeal to the Court of Appeal.

The issue and the argument

A number of case law precedents were cited by both parties. The applicable principles are summarised as follows:

  1. The parties are bound by the decision of an Adjudicator on a dispute or difference until it is finally determined by court or arbitration proceedings or by an agreement made subsequently by the parties.
  2. The parties cannot seek a further decision by an adjudicator on a dispute or difference if that dispute or difference has already been the subject of a decision by an adjudicator.
  3. The extent to which a decision or a dispute is binding will depend on an analysis of the terms, scope and extent of the dispute or difference referred to adjudication and the terms, scope and extent of the decision made by the adjudicator. In order to do this the approach has to be to ask whether the dispute or difference is the same or substantially the same as the relevant dispute or difference and whether the adjudicator has decided a dispute or difference which is the same or fundamentally the same as the relevant dispute or difference.
  4. The approach must involve not only the same but also substantially the same dispute or difference. This is because disputes or differences encompass a wide range of factual and legal issues. If there had to be complete identity of factual and legal issues then the ability to re-adjudicate what was in substance the same dispute or difference would deprive clause 9.2 of The Scheme for Construction Contracts (England and Wales) Regulations 1998 (The Scheme) of its intended purpose.
  5. Whether one dispute is substantially the same as another dispute is a question of fact and degree.

The reference above to “fact and degree” are interpreted from further case law precedent from a 2006 Court of Appeal case, Quietfield Limited v. Vascroft Construction Limited [2006] EWCA Civ 1737 where the matter of an Extension of Time (EoT) was referred to Adjudication and Determined. The matter was subsequently referred to Adjudication again, however the Adjudicator determined he did not have jurisdiction as this was the same dispute. At the Court of Appeal it was found:

  1. Clause 9.2 of The Scheme provides that an Adjudicator must resign where the dispute is the same or substantially the same as one which has previously been referred to Adjudication with a decision reached. It must that the parties may not refer a dispute to Adjudication in these circumstances.
  2. This mechanism being adopted to protect respondents from having to face the expense and trouble of successive Adjudications on the same or substantially the same dispute. There is an imperfect analogy here with the rules developed by the common law to prevent successive litigation over the same matter
  3. If the first Adjudication is substantially the same as the second Adjudication is a question of fact and degree. If the contractor identifies the same Relevant Event in successive applications for EoT, but gives different particulars to its expected effects, the differences may or may not be sufficient to lead to the conclusion that the two disputes are not substantially the same. Particularly if the particulars of expected effects are the same, but the evidence by which the contractor seeks to prove them is different.
  4. Where the only difference between disputes arising from the rejection of two successive applications for an extension of time is that the later application makes good shortcomings of the earlier application, an Adjudicator will usually have little difficulty in deciding that the two disputes are substantially the same.

The central claim made by Brown was that Mr. Hough was being asked to determine the same or substantially the same dispute as Mr. Calcroft had been asked to determine. This was further reinforced as it was for the same sum of money, with the only material difference being no valid Final Certificate in the first Adjudication

Decision

  1. A further case was quoted, this being Matthew Harding (trading as M J Harding Contractors) v. Paice and Springhall [2015] EWCA Civ 1281 where it was stated in the text of the Judgment:

It is quite clear from the authorities that one does not look at the dispute or dispute referred to the first adjudicator in isolation. One must look at what the first adjudicator actually decided. Ultimately it is what the first adjudicator decided which determines how much or how little remains for consideration by the second adjudicator.

It was found in a unanimous decision that in the second Adjudication, the Adjudicator was both entitled and correct to conclude that he was not considering the same or substantially the same dispute as the first Adjudication. Mr. Hough had recognised that both parties were bound by the Decision in the First Adjudication that the Final Certificate was ineffective and that the letter of 20th December 2013 was not a valid notice under the Contract. Mr. Hough was being asked to determine if a different notice served 4 months later had different consequences.

While both Adjudications relied on the ineffectiveness of the ‘Final Certificate’ and claimed the same sum, the Relevant Event was CBSL’s notice of 1st April 2013. Neither this notice nor the consequence of it (CBSL’s entitlement to be paid if no Payless Notice was issued served) gave rise to dispute referred in the first Adjudication. Crucially CBSL were not making good a shortcoming in the earlier letter by bring a new claim via a new and different route as it relied on a letter issued after the Decision of the first Adjudication and therefore raised a different dispute. This had been dealt with by Judge Raynor QC in his judgment, “what was decided in the First Adjudication was the ineffectiveness of the notice given in December 2013. That was not raised at all as an issue in the Second Adjudication.”

The appeal was therefore dismissed.

 

What is the lesson here?

It the same lesson as in Henia Investments Inc v Beck Interiors Ltd [2015] EWHC 2433 (TCC), follow the contract and stick to its strict timetables particularly around the Payment Mechanism

In this case Brown could have protected themselves by issuing a Payless Notice, but did not. There would still have been a dispute, that is clear, but as the second Adjudication was found to be a different dispute, so too would a second Adjudication where a valid Payless Notice was in place.

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