Adjudication update 9

This adjudication update deals with issues of the adjudicator's jurisdiction and his duty to consider fully all relevant information submitted. It also looks at whether a subsequent application for payment could be a final determination of a dispute, and whether liquidated and ascertained damages could be raised for the first time as a defence to enforcement proceedings.

IDE Contracting Ltd v R G Carter Cambridge Ltd

The contract between the parties provided for disputes to be determined in accordance with s108 HGCRA and the Scheme for Construction Contracts. It also named an adjudicator, and provided that a request could be made to the Chartered Institute of Arbitrators to nominate an adjudicator if the named adjudicator was unwilling to act.

When a dispute arose, IDE contacted the named adjudicator and found out that he was busy with other commitments, so IDE sent R G Carter its notice of adjudication and a letter informing it that IDE had asked the CIOA to appoint an adjudicator.

R G Carter submitted that this adjudicator had no jurisdiction to act. It reserved its rights to raise the jurisdiction issue during the adjudication and any subsequent proceedings, and did not respond to IDE's claim. The adjudicator decided that he did have jurisdiction to decide the claim, so R G Carter withdrew from the adjudication and refused to pay the award which the adjudicator made in IDE's favour.

When IDE applied to the court to enforce the award, R G Carter submitted that the adjudicator had had no jurisdiction to make the award, on the basis that it first discovered that the named adjudicator had declined to act when IDE served the notice of adjudication, and therefore IDE had not followed the procedure set out in ss2 and 6 of the Scheme for Construction Contracts.

The court held that the intention of the Scheme was that the notice of adjudication should be served first. Only then does the referring party make a written request to the person named in the contract to act as adjudicator, unless he has already indicated to all parties that he is unwilling or unable to act. If he indicates his unwillingness to act, then the referring party may request the nominating body to select an adjudicator. Otherwise, the referring party would be able, if it did not wish the person named in the contract to act as adjudicator, to find out when the named person would be unavailable and to serve the notice of adjudication at that time. This would deprive the responding part of the opportunity to have its first choice of adjudicator, and it would suffer prejudice. However, there is no requirement to show that the responding party has actually suffered prejudice.

Non-compliance with the Scheme's provisions means that the adjudicator does not have jurisdiction to act unless the respondent submits to such adjudication by agreeing that the adjudicator should rule on the issue of jurisdiction and also that it will be bound by this. R G Carter had made it clear throughout that it did not submit to the adjudicator's jurisdiction, and ruled that the adjudicator's decision would not be enforced.

Buxton Building Contractors Ltd v Governors of Durand Primary School

Buxton were engaged under a JCT Contract to do construction works at Durand Primary School (The School). The School made various complaints about defects in the works throughout the construction process and after Practical Completion. The School claimed that Buxton's responses to its complaints were inadequate, and that it had had to call out its own maintenance team to remedy defects on several occasions. The School claimed throughout that it was entitled to reimbursement for its costs.

The Contract Administrator decided not to issue the Final Certificate until the amount which the School should received as damages for the defects had been resolved. The School issued a withholding notice, notifying Buxton that it would withhold the value of its claim from the retention money, and the Contract Administrator issued an "interim certificate" relating to the release of the retention. However, the contract did not allow an interim certificate to be issued following the date of Practical Completion, but only provided for release of the first tranche of retention money on the issue of the Final Certificate, so the certificate was issued outside the scope of the contract. After the certificate had been issued, the School wrote to Buxton giving details of the claim it intended to withhold. Buxton then issued an invoice for the outstanding sums and served notice of adjudication.

The adjudicator decided to receive written submissions and relevant documents from the parties, and not to hold a hearing or meeting. The School submitted copies of the correspondence. Buxton made a written submission and said that the adjudicator should have no regard to the information that the School had provided because it was irrelevant since the School had not served a valid withholding notice. Buxton did not make any submission regarding the merits of the School's claim.

The adjudicator decided in Buxton's favour. He said that the sum being claimed was due pursuant to a valid interim certificate, no withholding notice had been served, and the Contract Administrator must be presumed to have taken account of the School's claim when he assessed the sum certified.

The School did not pay the award. At the enforcement proceedings, the School argued that paragraphs 17 and 20 of Part 1 of the Schedule to the Scheme for Construction Contracts required the adjudicator to consider all relevant information submitted and to decide all the issues in dispute. The School said the adjudicator had clearly not complied with this, and so his decision was unfair. Buxton's case was that, whether or not the adjudicator's decision was wrong, it was still valid. Any errors by the adjudicator were within his jurisdiction and his decision was enforceable.

The Court held that the decision was unfair and unenforceable. The adjudicator had not identified fully all the issues and decided them. He should have done so, particularly because the School was not legally represented. He had only considered the part of the dispute that Buxton had referred to him.

M.J. Gleeson Group plc v Devonshire Green Holding Limited

A dispute arose as to M.J. Gleeson's (MJG's) entitlement to payment under an interim application (application 31). An adjudicator decided that, following receipt of application 31, Devonshire Green Holding (DGH) had not given any written notice, either of the amount to be paid or any sums to be withheld, and so MJG was entitled to payment of the full sum set out in application 31. DGH resisted enforcement of the Award on two grounds.

The first ground was that before the adjudicator issued his award, MJG made application number 33 for further payment, and DGH issued a valuation certificate in response for significantly less than the amount applied for in application 31. DGH said that because the valuation certificate pre-dated the adjudicator's award, it had the right to the return of sums not yet awarded by the adjudicator pursuant to application 33. The court rejected this. A subsequent application could not be a final determination of a dispute – an adjudicator's decision is binding until determination by litigation, arbitration or agreement. DGH argued that, following Rupert Morgen Building Services v David and Harriet Jervis, an overpayment could be recouped under a subsequent application, however, the court held that the contract did not provide for any interim certificate at all, so the valuation certificate on the subsequent application was not a certification or binding determination of the valuation of the works carried out.

DGH's second ground for resisting enforcement was that it had given notice to MGH of withholding liquidated and ascertained damages (LADs) against the adjudicator's award 2 days prior to the award being issued. Added to the excessive valuation in respect of application 33 which it was claiming, the LADs amounted to more than the adjudicator's award, so the award should not be enforced, or enforcement should be stayed pending a decision in a separate dispute regarding application 33.

However, the court rejected this argument. When the adjudication was commenced, no notice had been served of MJG's alleged failure to complete work by the relevant completion dates, as required by the contract. Nor was the issue of LADs raised in the adjudication. DGH could not now raise the issue as a defence to enforcement of the award, particularly as it could have been raised nearly a year before. Under the contract, an adjudicator's award was not subject to deductions, and in any case the notice was not valid as it was served outside the timescale allowed by the contract.

For further information contact Diane Everist on +44 (0)20 7367 2050 or at [email protected]