In this latest 'Adjudication Watch' our construction team reviews key cases relating to adjudication from the last few months:
Key point: ensure contracts are formalised in writing to avoid costly disputes
RSC Contractors Limited v Anthony Conway [2017]
RSC agreed to carry out groundworks for Mr Conway as a subcontractor at three separate sites. A dispute arose and following an adjudication in which RSC were successful, Mr Conway now submitted that the adjudicator had no jurisdiction alleging he had wrongly concluded that there was one oral contract covering all three sites. Mr Conway argued that there were three separate oral contracts.
Under section 108(1) of the Housing Grants, Construction and Regeneration Act 1996 as amended (the Construction Act), the adjudicator would only have jurisdiction in this case if the dispute was a single dispute arising under one contract.
As there was no written agreement between the parties, it was necessary to determine the facts from the witness evidence and actions of the parties. Mr Justice Coulson concluded (in agreement with the adjudicator on this point) that there had been one contract covering all three sites.
This decision highlights:
- the importance of agreeing written terms so that parties achieve certainty in their contractual relationship (but remember that if this has not been done, the Construction Act may still apply).
- the risks inherent in pursuing disputes arising out of oral contracts which can result in a lengthy and costly process.
Key point: the courts remain reluctant to disturb an adjudicator's decision
AECOM Design Build Limited v Staptina Engineering Services Limited [2017]
AECOM engaged Staptina to undertake mechanical installation sub-contract works at Long Reach treatment works in Dartford under an NEC Short Subcontract form June 2005 with amendments.
Following an adjudication in which AECOM successfully argued the right to make deductions, AECOM then challenged the adjudicator's decision. AECOM argued that certain parts of the decision were unenforceable, as the adjudicator had acted outside her jurisdiction and/or in breach of natural justice in limiting the deductions that could be made by AECOM.
AECOM submitted that the dispute referred to the adjudicator was limited to the principle of deductions, and did not give the adjudicator jurisdiction to decide how those deductions were to be made - in other words, the adjudicator should have answered "yes" or "no"; she should not have gone on to decide "how" or "how much".
AECOM were not successful and Mr Justice Fraser emphasised that the key point was whether or not the adjudicator had focused correctly on the dispute that had been referred, which established the parameters of her jurisdiction:
"If there are only two answers available, yet an adjudicator were to choose (perhaps incorrectly) a third, that does not go to her acting outside her jurisdiction. That would be answering the right question in the wrong way. That is not the same as answering the wrong question".
In this case, the Notice of Adjudication given by Staptina had sought a specific declaration "or such declaration as the Adjudicator deems proper" (with similar wording in the referral notice). This was described by the parties as the "catch all" provision and relied upon by Staptina in these proceedings. Whilst it was outside (obiter) this decision, Mr Justice Fraser stated that such wording "should not be seen by parties as giving any adjudicator carte blanche to go outside the scope of the dispute referred to them in any particular case".
Key point: specifically reserve any right to challenge an adjudicator's jurisdiction before each step
Dawnus Construction Holdings Limited v Marsh Life Limited [2017]
Marsh engaged Dawnus to design and build a hotel together with retail and restaurant units at Lifeboat Quay in Poole under a JCT 2011 Design & Build Contract. A dispute arose relating to the account upon termination and, in due course, Dawnus sought to enforce an adjudicator's decision in its favour.
Marsh argued that the adjudicator had failed to apply the rules of natural justice by failing to consider and deal with all defences put forward. The key point ultimately however was that on receipt of the adjudicator's decision, both Marsh and Dawnus had asked the adjudicator to correct parts of the decision under the slip rule in s.108(3A) of the Construction Act.
HHJ McKenna held (as argued by Dawnus) that Marsh had waived its right to challenge jurisdiction by requesting an amendment under the slip rule. He stated: "It cannot be right that in such circumstances it is open to a party to an adjudication simultaneously to approbate and to reprobate a decision of the Adjudicator".
Key point: an adjudication decision is binding unless and until challenged in court (or arbitration where applicable)
Mailbox (Birmingham) Ltd v Galliford Try Building Ltd (formerly Galliford Construction Ltd) [2017]
Mailbox employed Galliford Try to construct a development in Birmingham under an amended JCT form of contract.
The dispute before the court related to Galliford Try's allegation that Mailbox had wrongfully terminated and/or repudiated the contract, together with Galliford Try's claims for extensions of time and Mailbox's claim for liquidated damages (LDs).
Simplifying for these purposes the complex background to this decision, the key points are:
- In March 2016, Mailbox commenced an adjudication (A1) seeking a declaration that it was entitled to LDs of approximately £5m (its entire claim for LDs).
- In adjudication one, Galliford Try stated that it was limiting its defence to specific issues (an approach described by Mr Justice Coulson as "an unwise course"); 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 large sums of money by way of LDs. Galliford Try did not pay, despite successful enforcement proceedings by Mailbox.
- On 13 April 2017:
- Galliford Try commenced an adjudication (A2) focusing on the lawfulness (or not) of the termination - a consideration would include whether or not Galliford Try was proceeding regularly and diligently with the works and in turn the completion date and any extension to that date.
- Mailbox commenced these proceedings seeking a declaration that its entitlement to LDs had been decided in A1 and so no further extension of time claim by Galliford Try could be considered in A2.
In summary, Mr Justice Coulson concluded that:
- Unless and until decided by the court, Mailbox's entitlement to LDs was as decided in A1 and this could not be disturbed by any subsequent adjudication.
- As a result, Galliford Try could not seek any further extensions of time in the second adjudication - the Judge confirmed that an extension of time was a defence to a claim for LDs and "where the employer's entitlement to liquidated damages has been fixed, a claim for an extension of time [becomes] redundant".
- It would of course remain open to Galliford Try to challenge the adjudicator's decision in court proceedings in which it could raise all its arguments about extensions of time.
- In the termination dispute referred in A2, Galliford Try could raise any point relating to its obligation to regularly and diligently perform the works, although Mailbox's financial entitlement as a result of A1 would remain unaffected.
Mr Justice Coulson clearly stated in his conclusion that Galliford Try was not entitled to any extension of time beyond that awarded in A1 unless and until that is modified or altered by the court.