Adjudication watch: case law review and update

22 May 2020

In our latest Adjudication Watch, our construction team analyses more of the significant decisions in 2020 so far relating to adjudication enforcement.



PBS Energo AS v Bester Generacion UK Ltd [2020]

Background

  • In 2016, Bester was appointed by Equitix to design and build an energy-generating plant in Wrexham. Bester then engaged PBS as sub-contractor with a sub-contract price of £14.2 million plus VAT.
  • A dispute arose between PBS and Bester and on 14 June 2017, PBS purported to terminate the sub-contract.
  • Equitix called on the performance security under the main contract which in turn triggered guarantees under the sub-contract in the sum of £2.7 million. In due course, Equitix terminated its contract with Bester.
  • Adjudications and litigation followed both in respect of the main contract and the sub-contract.
  • One of the sub-contract adjudications related to PBS' claims for loss and damage arising out of its termination. The adjudication decision dated 7 December 2018 assessed the net amount due to PBS from Bester to be approximately £1.7 million. 
  • Proceedings at first instance in the Technology and Construction Court (TCC) were commenced by PBS to enforce that decision.

TCC Decision - first instance

Bester sought to resist enforcement of the adjudicator's decision of December 2018 on the basis of alleged fraud by PBS. Bester contended that certain large items of plant manufactured by PBS which formed part of the adjudicator's valuation of the sub-contract work had in fact been sold on by PBS, and so, were no longer held to Bester's order on payment of the sums found due.

The TCC found that there was an arguable case in fraud and that consequently, it was not appropriate to enforce the adjudication decision by summary judgment. PBS appealed this decision on four grounds as set out below.

  1. The Judge erred in concluding that the allegations of fraud were relevant to the adjudicator's decision.
  2. The allegations of fraud could/should have been raised in the adjudication.
  3. The Judge should have found that, because the respondent had not filed a defence alleging fraud, the allegations of fraud were not open to the respondent.
  4. The Judge had failed to distinguish between granting summary judgment and enforcing judgment. He ought to have granted summary judgment, even if he had then stayed some or all of that judgment.

Permission to appeal grounds 1 and 2 was refused: ground 1 related to conclusions on the evidence that the TCC Judge was entitled to make and on ground 2, the TCC had found that the allegations of fraud could not have been discovered during the adjudication.

Court of Appeal decision

Delivering the lead judgment in the Court of Appeal (CA), Lord Justice Coulson considered grounds 3 and 4.

Ground 3 was purely procedural in the CA's view, and was rejected. The CA concluded that there was no requirement for PBS to provide a pleaded defence (here alleging fraud) prior to the hearing of this summary judgment application, nor did this prejudice PBS as neither the parties nor the TCC Judge were in any doubt as to the complaints being made. The allegations were clear from the witness statements and Counsel's skeleton argument.

As Ground 3 had failed, Bester accepted that Ground 4 would fall away - as the TCC Judge had concluded that the fraud had had a material effect on the outcome of the adjudication, the TCC was entitled to refuse the application for summary judgment. The CA upheld the first instance TCC decision.

(In terms of the overall position between the parties, this CA decision is somewhat academic. The December 2018 adjudication decision had been properly based on an earlier adjudicator's decision that PBS had been entitled to terminate the sub-contract with Bester. In a separate recent judgment, the TCC had held that in fact, PBS had not been entitled to terminate and that Bester's termination of the sub-contract was lawful. It was accepted by PBS that this gave rise to a separate ground supporting the TCC's refusal to enforce the adjudication decision of December 2018.)

Commentary

The CA made it clear in its decision that, in an application for summary judgment to enforce an adjudicator's decision, the fact that allegations of fraud were not pleaded in a defence was not fatal to Bester's position. Lord Justice Coulson stated that "the pleading and service of such a defence is not a condition precedent which has to be fulfilled before the defendant can rely on such an allegation….. there was…no mandatory requirement for the respondent (Bester) to plead the allegations of fraud upon which (it) relied to resist enforcement….. ".

Don't be misled however - in most cases, where allegations can be pleaded, they should be pleaded. Each case will turn on its facts and, as stated by Lord Justice Coulson, a party "may be well-advised to plead a defence".

MillChris Developments Ltd v Waters [2020]

NB - the full judgment has not yet been published so our review is based on the case summary currently available.

Background

  • MillChris had carried out works at Ms Waters' house, commencing in 2017.
  • In late 2019, MillChris ceased trading,
  • In March 2020, Ms Waters commenced an adjudication alleging she had been overcharged by £45,000 and that there were defects in the works.
  • The adjudicator timetabled the submission of evidence to be completed by 3 April and a site visit for 14 April. On 26 March, MillChris wrote to the adjudicator stating that that it was not possible to comply with the deadline because of COVID-19 and that the adjudication should be postponed until the lockdown measures were lifted.
  • The adjudicator directed a two week extension only which was not agreed by MillChris.
  • MillChris then made this application for an interim injunction to prohibit the adjudication proceeding, alleging that it would be in breach of the rules of natural justice as it did not have sufficient time to prepare as a result of the COVID-19 crisis and also that it was no longer trading. MillChris stated that its solicitor had been forced to self-isolate and there was insufficient time to organise representation at the site visit.

TCC Decision

MillChris' application was refused, with the TCC emphasising that an injunction in respect of an ongoing adjudication would only be granted in very rare and clear cut cases - this was not one of them.

The TCC did not accept that MillChris' position had been exacerbated by the COVID-19 crisis, and in any event, MillChris could have accepted the two week extension proposed by the adjudicator. The TCC noted that the parties to an adjudication did not have a right to be present or represented at a site visit - the visit could be recorded or alternatively, MillChris could list specific matters for the adjudicator's attention in advance.

The injunction was not granted, meaning that the adjudication should proceed.

Commentary

This decision by the TCC is in line with previous cases - the courts are reluctant to prevent an adjudication proceeding and will do so only in very limited circumstances.

Platform Interior Solutions Ltd v ISG Construction Ltd [2020]

Background

  • In early 2018, ISG appointed Platform as sub-contractor in respect of redevelopment works at Erskine House in Edinburgh.
  • In April 2018, Platform's works were extended and the contract price was increased by over £2.7 million.
  • Disputes arose and by the end of October 2019, Platform had made a referral to adjudication. Platform sought a determination of amounts due to Platform under the sub-contract and alleged that ISG had repudiated the sub-contract. ISG in turn contended that Platform's purported rescission of the sub-contract was unlawful and that ISG had validly terminated the sub-contract by letter in January 2019.
  • In summary, the adjudicator decided that
    • Platform's purported rescission was unlawful and so ISG was entitled to terminate as Platform was in material or persistent breach of the sub-contract;
    • on valuation, a payment from ISG to Platform was due in the amount of approximately £418,000 plus VAT.
  • ISG did not pay the specified amount to Platform.

Two sets of TCC proceedings

  • Platform commenced these TCC proceedings (the Platform proceedings) to enforce the adjudicator's decision.
  • ISG commenced separate proceedings (the ISG proceedings) seeking various declarations that (1) the adjudicator's decision was "wrong and beyond rational justification"; (2) Platform is not entitled to the sum awarded by the adjudicator and (3) Platform is not entitled to judgment enforcing the Platform proceedings.

This judgment relates only to the Platform proceedings seeking to enforce the adjudicator's decision.

ISG's main defence to enforcement in the Platform proceedings was the contention that there had been a breach of natural justice in that the adjudicator had made a "fundamental error" in the methodology of valuation used, which was challenged in various ways, including the argument that it was not in accordance with the sub- contract.

Platform in turn contended that ISG had waived the right to challenge the validity of the adjudicator's decision by paying the adjudicator's fees and the purported reservation of rights by ISG was an ineffective general reservation.

TCC decision on the Platform proceedings

Platform's waiver argument

Mr Roger Ter Haar QC sitting as a Deputy High Court Judge held that ISG had not waived any rights to challenge the adjudicator's decision. He addressed this contention as follows.

  • Whether or not payment of the adjudicator's fees in itself amounted to a waiver would depend on the context of the payment. Such a payment was capable of amounting to a waiver in principle but here, as ISG had sought to effect a reservation of rights, it could not be inferred that ISG was in fact electing to treat the adjudicator's decision as valid.
  • ISG's challenge to the validity and enforceability of the adjudicator's decision focused on an alleged breach of natural justice that became apparent on receipt of the decision on 11 December 2019, meaning that the reservation on 16 December was not ineffective.

    (This can be contrasted to an attempted general vague reservation of rights to challenge jurisdiction at the outset of an adjudication where a specific focused challenge could be (but is not) made.)

The Judge additionally made it clear that as a matter of policy, the TCC should not do anything to discourage payment to an adjudicator of his fees. It is often a difficult decision for a losing party to make as to whether it should pay the adjudicator's fees if it wants to challenge the decision. This case makes it easier to advise that, where appropriate, payment of fees can be made, but upon a reservation of rights.

ISG's challenge

ISG put forward three grounds of challenge to the adjudicator's decision:

  1. that the adjudicator failed to exhaust her jurisdiction in respect of the dispute referred;
  2. that the adjudicator breached natural justice in reaching her award on a method of valuation advanced by neither party;
  3. that the adjudicator failed to give adequate and cogent reasons for her decision on valuation.

All three challenges were rejected by the TCC. Notably, the TCC confirmed on ground 2 (as in previous case law), that an adjudicator is entitled to decide a point of importance on the basis of the material before her/him, and on a basis for which neither party had contended. Additionally, the adjudicator had made clear the reasoning behind her decision - the TCC noted that "whether [the adjudicator] was or was not right as a matter of law is not the question".

Commentary

The TCC remains committed to facilitating adjudication and the work of adjudicators - this was emphasised again in this judgment. The TCC will seek to enforce adjudication decisions wherever possible so think very carefully before mounting a challenge that will undoubtedly lead to delay and expense and may not have a clear prospect of success.

If you have any queries on these cases or any construction issue, please contact Ashley Pigott.


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