Adjudication Watch - August 2015

14 August 2015


In this latest 'Adjudication Watch', our construction experts review cases involving adjudication enforcement from the last few months.

Key Point: the scope of the adjudicator's jurisdiction is determined by the dispute identified in the Notice of Adjudication, not by the remedy sought

ISG Retail Ltd v Castletech Construction Ltd [2015]

Following an advance payment of £35,000 plus VAT to Castletech, ISG later commenced an adjudication alleging that there had been a complete failure of consideration. ISG was successful and Castletech was directed by the adjudicator to repay the sum of £35,000 plus VAT.

Castletech refused to pay, arguing that the adjudicator had no jurisdiction on the basis either that the remedy sought (restitution) was not mentioned in the Notice of Adjudication or that ISG's claim for restitution was made in equity not contract. Therefore, it was argued, there was no dispute arising "under the contract" and so the claim did not fall within the ambit of the Housing Grants, Regeneration and Construction Act 1996 as amended (HGA).

In enforcement proceedings, ISG was again successful. Given that the parties agreed the existence of a contract, the court held that where there had been a total failure of consideration, it was open to the adjudicator to award restitution, as this remedy was available as an "ordinary incident of a claim for breach of contract where the breach amounts to a total failure of consideration". The failure of consideration issue had been clearly identified in the Notice of Adjudication.

Once again the Court was emphasising the importance of how a claim is presented in the Notice of Adjudication - clarity is needed but be aware that by including unnecessary detail, you could inadvertently tie the adjudicator's hands.

Key Point: stick to the payment milestone dates set out in your contract

Leeds City Council v Waco UK Limited [2015].

Key Point: unless you agree otherwise, payment of an amount awarded in adjudication re-starts the limitation clock for the paying party in relation to the amount paid

Aspect Contracts Ltd v Higgins Construction Plc [2015].

Key Point: check applications for payment are clear in their intention

Caledonian Modular Ltd v Mar City Developments Ltd [2015]

Further to a Letter of Intent dated 19 December 2013, Mar City engaged Caledonian to carry out extensive construction works at a site in North London. Disagreements arose and adjudications followed. The parties agreed that the Letter of Intent constituted a "construction contract" under the HGA.

This decision arose out of the second adjudication, which related to the issue of when Caledonian had validly submitted application for payment number 16.

Here's the key point of disagreement:

  1. Caledonian argued that application 16 was validly submitted on 13 February 2015 - if this was the case, then the parties agreed that Mar City's payless notice of 25 March 2015 was out of time and therefore ineffective.
  2. Conversely, Mar City argued that application for payment number 16 was not actually made until 19 March 2015 - if this was correct, the parties were in agreement that the payless notice of 25 March was valid and that the second adjudication decision should not be enforced.

The judge, while hearing the enforcement claim, was also able to determine the underlying issue using Part 8 of the Civil Procedure Rules and therefore unequivocally to hold that no new and valid application for payment 16 was made on 13 February 2015.

In his clear view, application 16 was not made until 19 March 2015 and,as a result, the payless notice of 25 March was valid. The decision in the second adjudication was wrong and therefore would not be enforced. The judge observed that it would be a rare case where enforcement was not ordered simply because an adjudicator got it "wrong" but in this case, enforcement proceedings could also utilise Part 8 to determine the substantive issue.

It is worth considering the key factors that the court took into account when deciding whether or not the papers sent by Caledonian on 13 February 2015 amounted to a fresh valid application for payment.

  • There was nothing to suggest that Caledonian viewed the documents of 13 February as application 16 until after receipt of the payless notice of 25 March - prior to this, in spite of a request from Mar City for clarification of their status, they were described by Caledonian as a "final account application summary" and an "updated account".
  • Caledonian's interim applications 1-15 had all followed the same format and were clearly stated to be applications for payment. The documents sent on 13 February did not follow this format.
  • A new application for payment on 13 February would not have followed the 28 day payment regime in the contract (agreed and applied) under which application 16 would have been due at the end of February 2015.

In summary, ensure that applications for payment are clearly marked as such if you want to avoid arguments about their status arising from ambiguous or inadvertent wording.

Key Point: when facing an adjudication, state any jurisdictional challenge clearly in writing and reserve your position

In Promet Technology Ltd v Imperial Cash & Carry Ltd (2015), Promet commenced an adjudication against Imperial on the basis of an alleged oral agreement for the provision of steelwork. Imperial, representing itself, argued that no contract had been concluded and that the claim was, in any event, wrongly addressed. In his decision in favour of Promet, the adjudicator acknowledged that he could not bind the parties on jurisdiction, noting that Imperial had denied the existence of a contract.

In these enforcement proceedings, Promet argued that Imperial's decision to participate in the adjudication had constituted a waiver of any challenge to jurisdiction and that in any event, its defence had no realistic prospect of success. Promet was awarded summary judgment on the basis that Imperial had failed to provide material supporting its assertions e.g. its statement of defence did not even refer to the meeting at which the alleged oral contract was said to be made.

This case is interesting, however, because of the court's view that, as Imperial was not legally represented, in principle, the company had done enough to reserve its position on jurisdiction. The judge concluded that, even if participating in an adjudication, a party was not required to state specifically that it reserved the right to challenge jurisdiction.

Adjudication in the construction industry was intended to provide a swift accessible solution to disputes. Arguably this decision reflects that intention, in that the court took a pragmatic approach when considering jurisdiction, taking account of the fact that Imperial was represented by one of its directors, rather than legally represented.

Imperial had done enough here, but make sure that if you dispute the jurisdiction of an adjudicator, you explicitly and consistently reserve your position in writing, both to the other side and to the adjudicator, stating that you challenge jurisdiction.


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