How not to challenge an adjudication
Steve Nichol and Zoeyah Shaheen on the rights and wrongs of challenging enforcement proceedings following an adjudication.
In a recent judgment, Mr Justice Coulson reaffirmed the principle that in all but the most exceptional cases, the courts will enforce an adjudicator’s decision even if it is wrong: “The need to have the ‘right’ answer has been subordinated to the need to have an answer quickly.”
From the earliest days of adjudications, the court has emphasised that provided an adjudicator has decided the issue referred and broadly acted in accordance with the rules of natural justice, their decision will be enforced.
However, in Caledonian Modular Ltd v Mar City Developments Ltd, the court stated that, in exceptional circumstances, a party could challenge enforcement of an adjudicator’s decision if the point at issue was short and self-contained, required very little evidence and could be decided at a short hearing.
That decision led to a proliferation of attempts to challenge enforcement proceedings on the basis that the adjudicator’s decision was wrong.
Mr Justice Coulson’s judgment in Hutton Construction Ltd v Wilson Properties (London) Ltd (2017) followed one such challenge. The adjudication itself turned on whether Wilson had served a valid interim certificate or pay less notice. The adjudicator concluded that it hadn’t and awarded Hutton the sum of £491,994.73.
When Wilson failed to pay, Hutton commenced proceedings to enforce the adjudicator’s decision.
Wilson challenged enforcement on the basis that the adjudicator was wrong to conclude that no valid interim certificate or pay less notice had been served. The court had indicated in Caledonian Modular that a dispute as to whether a payment or pay less notice was valid was the sort of issue that could be decided at the enforcement hearing and thus be relied on to challenge enforcement of an adjudicator’s decision.
In his judgment, Mr Justice Coulson observed that often in such cases the defendant would seek a declaration on the issue in dispute, but would agree that if it lost the Part 8 claim it would pay the sums awarded by the adjudicator. That would obviate the need for enforcement proceedings.
However, in the absence of consent, the defendant must promptly set out the declarations sought, either in a detailed defence to the enforcement claim or in a separate Part 8 Claim. The defendant must also demonstrate that:
there is a short, self-contained issue that arose in the adjudication and which it continues to contest;
the issue in dispute requires no detailed evidence beyond that which is capable of being provided during a short (usually two-hour) enforcement hearing; and
the issue is one which, on a summary judgement application, it would be unconscionable for the court to ignore.
As to the latter, in practice, this requires that any calculation or categorisation of a document must be “obviously wrong”, while the construction of a clause must be “beyond rational justification”.
There are practical reasons for these limitations. Chief among those is that the court cannot open up and review an adjudication decision over the course of a two-hour hearing. In addition, if the court opened itself up to more detailed reviews of issues and evidence it would relegate the adjudication process to the first step of a two-stage process that would result in more enforcement hearings and increased costs.
Mr Justice Coulson also observed that an attempt by a defendant to seek declarations that do not meet the above criteria, or an attempt by a claimant to prevent the defendant seeking appropriate declarations, will in each case be an abuse of process that will render that party liable for costs on the indemnity basis.
In this case Wilson did not issue its Part 8 claim promptly, and when it eventually did issue the claim it essentially sought to open up the whole of the adjudication. Indeed, Wilson failed to seek specific declarations in the Part 8 claim and raised new factual arguments in an attempt to resist enforcement. Consequently, its challenge to enforcement failed.
This decision is a warning to dissatisfied parties that the circumstances in which an adjudication decision can be challenged on the basis that the adjudicator was wrong are very narrow, and any party challenging such a decision incorrectly will be in danger of bearing a significant cost burden.
Steve Nichol is a partner and Zoeyah Shaheen is a solicitor in the contentious construction department at Trowers & Hamlins