Nathaniel Buckingham and Hayley Russell discuss our Top 5 Adjudication cases of 2023 and highlight some of the key commercial lessons arising.
Background
In 2023, adjudication remained a popular process for resolving disputes within the construction industry. Some of these disputes ultimately required input from the courts, which provide us with many interesting and relevant cases. We have highlighted some of the key commercial lessons arising from them below.
Topics include the use of 'without prejudice' material, evidence, natural justice, administration, and insolvency. Links to case judgements, where available, are provided in the headlines below should you wish to read the full case details. We also discussed these cases in detail in our recent Top 5 Adjudication Cases of 2023 Webinar, watch the full recording here.
1. AZ v BY
The Technology and Construction Court (TCC) considered whether an adjudicator's decision was rendered unenforceable due to the consideration of 'without prejudice' material. During the adjudication, AZ presented communications made by BY, at an earlier meeting, that were inconsistent with the contractual position BY were presenting at the adjudication.
The TCC granted BY's declaration that the communications referred to were 'without prejudice'. It held that the disclosure of the without prejudice material created an "inevitable question mark" over whether the adjudicator was inadvertently or unconsciously biased. In the circumstances, the TCC held that the resulting decision breached the rules of natural justice and could not be upheld.
This highlights that without prejudice material cannot be introduced into an adjudication. The key issue was whether having seen the material, there was a real risk of a lack of impartiality on the part of the adjudicator. The decision did not need to be primarily founded upon the material for the decision to be rendered unenforceable. Parties should review materials submitted by the other side carefully, and if without prejudice material is identified, they should challenge reliance on that material. You can also read more on this case in our previous article.
2. J A Ball (in Administration) ("JAB") v St Philips Homes (Courthaulds) Ltd ("SPH")
The TCC considered when an adjudicator's award would breach the rules of natural justice, and when a company in administration would be entitled to enforce an adjudicator's award.
The TCC held that the adjudicator's award was unenforceable, having breached the rules of natural justice because:
- the adjudicator reached the decision on a "novel" basis, of which neither party had notice;
- parties were not provided with the opportunity to respond to the adjudicator's novel reasoning; and
- this concerned a "determinative" part of the dispute.
JAB was facing a cross claim. SPH argued JAB's administration status meant they should be treated as a company in liquidation, which would likely mean they were unable to enforce adjudication awards. JAB disagreed as no notice of distribution had been issued yet.
The TCC held JAB's administration status meant it should be treated as a company in liquidation. The court stated that had they found the adjudicator's decision to be enforceable, they would have delayed enforcement by six months to allow SPH to pursue its cross claim.
This case serves as a reminder that insolvent companies will often struggle to enforce adjudication awards, particularly when facing a cross claim, however "there is no hard and fast rule" preventing enforcement. Each case will depend on the particular circumstances. An insolvent company would need to offer clear and substantial security for both the principal sum and costs to persuade a court to enforce an adjudicator's decision in its favour. You can read more on this case in our previous article.
3. Sudlows v Global Switch
The Court of Appeal considered the binding nature of a previous adjudicator's decision.
The TCC had previously decided that the adjudicator in the sixth adjudication, was incorrect to consider himself bound by the decision of the previous adjudicator. The Court of Appeal held that the TCC had failed to apply the test of whether the disputes were the same, or substantially so, and was therefore incorrect in their determination.
The Court of Appeal commented that the disputes in the fifth and sixth adjudication both concerned who was contractually responsible for defective ductwork and were therefore, substantially the same. The court felt the TCC decision ignored the binding nature of an adjudicator's decision as prescribed in s108 of the Housing, Grants, Construction and Regeneration Act 1996.
This case demonstrates the courts will generally respect the binding nature of previous decisions on later adjudications and will aim to leave the policing of serial adjudication debates to adjudicators. Whether or not disputes are the same or substantially the same is a matter of "fact and degree", with each case decided on its own facts. You can read more on this case in our previous article.
4. Home Group Limited ("HGL") v MPS Housing ("MPS")
The court considered to what extent substantial quantities of evidence provided during an adjudication could amount to a breach of natural justice, preventing enforcement of an adjudicator's decision.
MPS challenged enforcement of an award made to HGL at an adjudication, on the grounds there had been a breach of natural justice. MPS argued they had insufficient time to review the substantial materials provided with HGL's referral and submit a response within 19 days.
The court found, on the facts, that MPS' claim was without merit as:
- Adjudication decisions must be enforced even if they contain errors of procedure, fact, or law;
- An adjudication decision will not be enforced if it is reached in breach of natural justice and the breach is material, in that it has led to a material difference in the outcome;
- Both complexity and constraint of time to respond are inherent in the process of adjudication and are no bar in themselves to adjudication enforcement; and
- In cases involving significant amounts of data, an adjudicator is entitled to proceed by way of spot checks and/or sampling.
The judge placed emphasis on the fact that prior to the adjudication, HGL submitted their expert report and invited MPS to visit their offices to inspect some of the documents. The judge felt there was little excuse for declining HGL's offer to access the underlying material.
This case highlights that parties should take the opportunity to understand their respective cases prior to an adjudication. A responding party, wherever possible, needs to engage with the material. It is another case that demonstrates the courts in England and Wales have little sympathy for so-called "ambush" claims, where large volumes of evidence and witness statements are given with limited timeframes for a response. Although the time periods, in this case, were tight given the volume of material, they were longer than usual, and we always advise proceeding as though you are not going to get an extension of time on your deadline provided and not to have unrealistic expectations about how long it will take to review the material.
5. Alun Griffiths (Contractors) Limited ("AGC") v Carmarthenshire County Council ("CCC")
The court considered whether to enforce an adjudicator's decision or grant a stay of execution, in circumstances where the Council intended to pursue a true value adjudication. The adjudicator had awarded AGC £3,317,487.55 which they sought to enforce at court. CCC sought a stay based on the alleged insolvency of AGC and the inadequacy of AGC's parent company guarantee, from Tarmac Holdings Limited, to safeguard CCC's position.
The court held that Tarmac had a "substantial positive net-asset position". There was no evidence provided that their accounts were incorrect or on further investigation, demonstrated insolvency. Given that Tarmac had an overall healthy net-asset position, the judge went so far as to say it was "fanciful to suggest that the group would not support its cash requirements and that Tarmac will not be able to repay a judgment sum of circa £3 million in the event that it is called upon to do so".
This case highlights that parties seeking a stay of execution, based on the insufficiency of a parent company guarantee, will require clear evidence of the guarantor's likely inability to pay debts as they fall due. You can read more on this case in our previous article.
If you have any questions regarding the above cases, please get in touch with our expert Construction, engineering and infrastructure disputes team.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
