Adjudication Case Law Update

1. Adjudication Case Law Update Peter Aeberli DipICArb RIBA ARIAS ACE FCIArb Barrister Chartered Arbitrator, Adjudicator Accredited DAB member and accredited CEDRMediator

2. Introduction Establishing and resisting a right to adjudicate Hurley Palmer Flatt Limited v. Barclays Bank PLC [2014] EWHC 3042 (TCC): Ramsey J. TwintecLtd v. Volkerfitzpatrick Limited [2014] EWHC 10 (TCC): Edward-Stuart J. Challenging a nomination Eurocom Limited v. Siemens PLC [2014] EWHC 3710 (TCC) Commencing adjudication University of Brighton v. Dovehouse Interiors Ltd [2014] EWHC 940 (TCC) Litigating (arbitrating) the underlying dispute Aspect Contracts (Asbestos) Limited v. Higgins Construction PLC [2013] EWCACiv1541 Walker Construction (UK) Ltd v. Quayside Homes Ltd [2014] EWHC Civ93

3. Establishing and resisting a right to adjudicate Hurley Palmer Flatt Limited v. Barclays Bank PLC [2014] EWHC 3042 (TCC): Ramsey J. The court considered whether rights of a third party (Barclays) enforceable under the Contracts (Rights of Third Parties) Act 1999 ("the 1999 Act") can be determined by adjudication under an express term, clause 27.1, which incorporated the Scheme, of the Agreement between the original contracting parties (one of which was HFP)? Clause 14.3 of the Agreement: "Any Affiliate [Barclays was such] with a direct interest in the Project shall be entitled to enforce the terms of this Agreement as "Client" always provided that the Consulting Engineer shall be entitled [to] rely on the equivalent defences in respect of such liability which it has against the Client." Section 1(4) of the 1999 Act: "This section does not confer a right on a third party to enforce a term of a contract otherwise than subject to and in accordance with any other relevant terms of the contract."

4. Establishing and resisting a right to adjudicate Hurley Palmer Flatt Limited v. Barclays Bank PLC [2014] EWHC 3042 (TCC) Section 1(5) of the 1999 Act: "For the purpose of exercising his right to enforce a term of the contract, there shall be available to the third party any remedy that would have been available to him in an action for breach of contract if he had been a party to the contract …“. Section 8(1) of the 1999 Act: "Where- (a) a right under section 1 to enforce a term ("the substantive term") is subject to a term providing for the submission of disputes to arbitration ("the arbitration agreement"), and (b) the arbitration agreement is an agreement in writing for the purposes of Part I of the Arbitration Act 1996, the third party shall be treated for the purposes of that Act as a party to the arbitration agreement as regards disputes between himself and the promisor relating to the enforcement of the substantive term by the third party."

5. Establishing and resisting a right to adjudicate Hurley Palmer Flatt Limited v. Barclays Bank PLC [2014] EWHC 3042 (TCC) The judge held that under Clause 14.3 it is the terms of the Appointment which relate to the Consulting Engineer's (HLP) liability to the Client which are intended to be enforced under the terms of Clause. Thus Barclays was not given a right to enforce the terms of the Appointment by adjudication under Clause 27. Even if this is wrong, the adjudication clause in Clause 27.1 would not be applicable to the relationship between Barclays as a third party and HPF. It is sections 8(1) and 8(2) in the 1999 Act that allow the third party to enforce its rights under the contract by arbitration. Section 1(4) does not, of itself, do this. It is only s. 8(1) that makes the third party a party to the arbitration agreement. It does not make the third party a party to the adjudication agreement. Neither is a method of dispute resolution, such as adjudication, a remedy the purpose of ss. 1(5) and 1(6) of the 1996 Act Those sections are concerned with remedies available in an action for breach of contract.

6. Establishing and resisting a right to adjudicate TwintecLtd v. Volkerfitzpatrick Limited [2014] EWHC 10 (TCC): Edward-Stuart J. Does a letter of intent incorporate the adjudication provisions contained within the standard form referred to in that letter? The court concluded that the LoI was a free-standing contract that governed the parties' legal relations until a formal sub-contract was entered into. But the obligation to carry out the works "in accordance with" the terms of DOM/2 did not incorporate secondary obligations in that form, such as compliance with indemnity clauses or the mode of dispute resolution, into the LOI;both as a matter of construction and because this was not necessary to give business efficacy to the LOI. In the latter case, the Scheme was incorporated, but VPC did not seek a nomination under the Scheme, but under a contract provisions that did not apply. Thus the adjudicator had no jurisdiction and, although an exceptional remedy, the adjudication should be restrained by injunction because the decision would not be binding and T would have to divert valuable resources and incur substantial irrecoverable expenditure in order to deal with the adjudication.

7. Establishing and resisting a right to adjudicate TwintecLtd v. Volkerfitzpatrick Limited [2014] EWHC 10 (TCC): The court considered whether, if the adjudicator had jurisdiction, the adjudication should have been restrained because the referral was unreasonable and oppressive. The court, following Mentmore Towers v Packman Lucas [2010] EWHC 457 (TCC) concluded it had the power under s. 37 of the SCA. But this was not appropriate to in this case, an adjudication seeking the costs of testing piles, £800K, in the context of multi-party proceedings, £170m in dispute, in which T and VFP were involved. The court rejected T’s case that this was unreasonable and oppressive because the adjudication sought to undermine and circumvent case management in the action, disrupting T’s ability to abide by the Court's timetable and seeking a result which refused by the Court; fragmented the proceedings by pursuing T alone when the issue was a multi-party dispute; imposed an unconscionable burden on T and its advisors (commenced just before Christmas, although the adjudicator said s(he) couldn’t deal with it over Christmas) , diverting time from the litigation; and had no real prospect of success (the court did not accept this was so).

8. Establishing and resisting a right to adjudicate TwintecLtd v. Volkerfitzpatrick Limited [2014] EWHC 10 (TCC) The court emphasised that the two requirements unreasonable and oppressive are disjunctive and continued, paragraph 68: “A referral to adjudication may be unreasonable (for example, if deliberately delayed until shortly before Christmas) without necessarily being oppressive. Alternatively, it may prove to be oppressive - perhaps because, unknown to the referring party, the relevant personnel within the responding party have just been posted abroad - without having been unreasonably started. Both elements must be present and, in my judgment, to a fairly high degree.” See also Clarke (Scotland) Ltd v MMAXX Underfloor Heating Ltd [2014] ScotCSCSOH 62, a Scottish case where the court concluded it had a similar jurisdiction but declined to exercise it against a serial adjudicator (eight plus one started by the other party) because not satisfied that it was acting unreasonably and oppressively (some adjudications were abandoned on procedural grounds and it had some partial success in others).

9. Challenging a nomination EurocomLimited v. Siemens PLC [2014] EWHC 3710 (TCC): Ramsey J. The court considered, inter alia, whether the adjudicator’s appointment was invalid because of fraud in providing information on behalf of E to the RICS in applying for the nomination and/or by the RICS failing to raise conflicts of interest with (S) in accordance with the procedure in the RICS explanatory notes. The judge, paragraph 65, concluded on the evidence that there was a very strong prima facie case that E’s representative deliberately or recklessly answered the question "Are there any Adjudicators who would have a conflict in this case?" falsely and therefore made a fraudulent representation to the RICS as the adjudicator nominating body and, after reviewing relevant authority, continued: “74. The false statement was material. It was made in the context of a process by which an adjudicator had to be nominated by an impartial adjudicator nominating body and, on the basis set out above, was made improperly to eliminate candidates on the basis they had a conflict of interest when they had none.

10. Challenging a nomination EurocomLimited v. Siemens PLC [2014] EWHC 3710 (TCC) 75. On that basis I conclude that the fraudulent misrepresentation would invalidate the process of appointment and make the appointment a nullity so that the adjudicator would not have jurisdiction.” The judge’s gave an alternative analysis, paragraph 78 and 79: the appointment was also invalid because E was in breach of an implied term that parties should not act dishonestly and this had affected the RICS’s discretion to nominate. The RICS: The judge, paragraph 81, said that the role of an adjudicator nominating body when approached unilaterally is limited to a proper exercise of their discretion to make the nomination. Given the character of an adjudicator nominating body, that it appoints persons to act as adjudicators rather than making substantive decisions and the statutory framework of s.108 of the Housing Grants … Act 1996, as amended, and the Scheme, including the short period for a nomination, such a body did not have to consult with the other party or seek to achieve a balance between the parties which may be required by procedural fairness.

11. Commencing adjudication University of Brighton v. Dovehouse Interiors Ltd [2014] EWHC 940 (TCC): Carr J. The court was concerned with when adjudication commenced under clause 1.9.2 for the purpose avoiding the effect of the "conclusive evidence" clause, clause 1.9 of JCT CD (2005), the terms on which the parties contracted. The court held that, on construction of clause 1.9.2 and the Scheme, specifically paragraphs 1(1) and 1(3), adjudication proceedings commenced when a Notice of Adjudication (“Notice”) was given under paragraph 1 of the Scheme, not when the dispute was referred to the nominated Adjudicator. Although there was a breach of paragraph 1(3)(d) of the Scheme in that the First Notice did not include the contractually agreed address for B (Mithras House) but B’s Exion address, this was a procedural matter. It did not affect the validity of the Notice, that error not affecting the fact that the First Notice achieved its purpose of informing B of the dispute being raised against it by D.

12. Commencing adjudication University of Brighton v. Dovehouse Interiors Ltd [2014] EWHC 940 (TCC) Neither was the Notice invalid because not served on the contractually agreed address for B. A notice of adjudication under paragraph 1 of the Scheme was not a notice "expressly referred to in the Agreement…or Conditions." as envisaged in clause 1.7.1 of the Contract; thus the clause 1.7.3 requirements for service did not apply. The Scheme was a self-contained procedural code. Under paragraph 1(2) notice has to be given to every other party to the contract, there is no specific requirement for a particular method or place of service. In any case, clause 1.7.3, was not a mandatory requirement to serve the Notice on B at Mithras House. It also provided for service by any effective means. But, if not at Mithras House effective service had to be proved, the deeming did not apply. If necessary, the judge would have held that a breach of clause 1.7.3 would not invalidate the Notice for the purpose of triggering the saving proviso in clause 1.9.2. Notice of Adjudication was given substantively and effectively to B at the Exion address. Its substantive purpose of commencing proceedings was achieved.

13. Commencing adjudication University of Brighton v. Dovehouse Interiors Ltd [2014] EWHC 940 (TCC) B also contended that proceedings were not commenced by the Notice for clause 1.9.2 because the wrong nominating body was stated. The Adjudicator's resignation (nominated by the wrong body) necessitated service of a "fresh notice" and there was no such service in time. The Notice could not be relied on in relation to any later Referral, because no Referral was (or could be) served within 7 days of that Notice. The judge rejected this argument. Since proceedings, for the purpose of 1.9.2 were commenced by Notice of Adjudication, the suggestion that proceedings were not commenced because the nominating body was incorrectly identified in the Notice fell away. D was not obliged to identify the nominating body in the Notice at all. It could have been silent on the point. The judge concluded that the invalidity of the Referral and the resignation of the Adjudicator did not negate the sufficiency of the Notice of Adjudication for the purpose of commencing proceedings under clause 1.9.2.

14. Commencing adjudication University of Brighton v. Dovehouse Interiors Ltd [2014] EWHC 940 (TCC) The saving proviso in clause 1.9.2 was not triggered by reference to any outcome, or any step beyond the commencement of proceedings. It did not require a Referral, a hearing or a decision in order for the proviso be triggered. Under clause 1.9.2 all that was required was the commencement of proceedings. It was important to distinguish between the question of the validity of an adjudication notice and the validity of a referral notice. An invalid referral might mean the nominated adjudicator has no valid jurisdiction, but that did not mean that the notice of adjudication was invalid for the purpose of commencing proceedings for the purpose of clause 1.9.2. The saving provision in clause 1.9.2 was triggered by the commencement of adjudication proceedings. Once triggered, the saving proviso remained in operation during the currency of any subsequent adjudication proceedings.

15. Litigating (arbitrating) the underlying dispute Aspect Contracts (Asbestos) Limited v. Higgins Construction PLC [2013] EWCACiv1541: Akenhead J. The CA considered whether the time bar for a claim by a losing party in adjudication (A) for repayment of sums paid to the successful party (H) accrues at the time of the original breach of contract or duty or only from the date of the unnecessary payment made as a result of the adjudication. Longmore LJ, paragraph 9, giving the judgment of the court, construed Paragraph 23(2) of the Scheme, “The decision of the adjudicator shall be binding until the dispute is finally determined by legal proceedings by arbitration …”, as meaning that in any subsequent proceedings “any overpayment is recoverable”. Paragraph 23(2) does not say this in actual words, but that was “the true intent of the provision and is inherent in the words used”. Applying AG of Belize v Belize Telecom Ltd [2009] UKPC 10 Lord Hoffman, paragraphs 16, 17, it did not matter whether one called this a process of construction or implication because one was only trying to decide what the words meant. He concluded, paragraph 16 that “(t)he accrual of that cause of action is the date of overpayment since the losing party is "entitled" to have the overpayment returned to him.”

16. Litigating (arbitrating) the underlying dispute Aspect Contracts (Asbestos) Limited v. Higgins Construction PLC [2013] EWCACiv1541 Longmore LJ commented that the court had not received argument to the effect that A could recover its overpayment by relying on the law of unjust enrichment. It should be noted that this reasoning, which probably applies to other adjudication rules since they contain similar wording to Paragraph 23(2) of the Scheme, only postpones the commencement of the cause of action for recovery of overpayments made pursuant to adjudicator’s decisions to “the date of overpayment”. Thus a partially successful party in adjudication cannot bring proceedings for its full claim after the cause of action on which that claim founded is statue barred and a wholly unsuccessful party in adjudication cannot do more than recover the overpayment once its underlying claim is statue barred.

17. Litigating (arbitrating) the underlying dispute Walker Construction (UK) Ltd v. Quayside Homes Ltd [2014] EWHC Civ93: Laws, McFarlane, GlosterLLJ. The Court of Appeal considered, inter alia, the burden of proof when, following an adjudication, the underlying dispute is litigated (or arbitrated). The adjudicator rejected Q’s defence and set off based on defective work, including £9,000 for defective drains, and ordered payment In the litigation, Q sought, inter alia, repayment of the £9,000. Neither party tendered evidence on the drains. It was held that Q had the burden of proof as it was alleging the drains were defective, thus it claim to recover this sum failed. GlosterLJ, giving the judgment of the court, extensively reviewed the problem of the status of adjudicator’s decisions in the context of subsequent litigation of the underlying dispute, including Lord MacFadyen’s judgement in City Inn Limited v Shepherd Construction Limited [2002] Scots Law Times 781, paragraph 55ff, and Coulson on Construction Adjudication, 2nd Edition, paragraphs 14.47-14.50, and concluded at paragraph 51:

18. Litigating (arbitrating) the underlying dispute Walker Construction (UK) Ltd v. Quayside Homes Ltd [2014] EWHC Civ93 “51. It is clear (and indeed was common ground on the appeal) that the court in subsequent litigation is not bound by the decision of the adjudicator and may come to a completely different conclusion on the relevant issues. It was also common ground that the adjudicator's decision did not give rise to res judicata. But I have real difficulty with Lord MacFadyen's analysis that the adjudication has no effect whatsoever on the onus of proof in subsequent proceedings. In litigation following an award, the unsuccessful party in the adjudication, who has paid under the award, is claiming repayment of sums, which it contends it has wrongly paid. Necessarily, the defendant, the successful party in the adjudication, who has been paid, has no need whatsoever to bring court proceedings to claim payment, or even to seek a declaration that it was entitled to have been paid. Moreover section 108(3) provides that, until the final determination by the court, the decision of the adjudicator is binding.

19. Litigating (arbitrating) the underlying dispute Walker Construction (UK) Ltd v. Quayside Homes Ltd [2014] EWHC Civ93 [51 continued] In those circumstances, why should the defendant contractor, for example, on the facts of City Inn Limited v Shepherd Construction Limited not be entitled to contend that, until the contrary was proved to the court's satisfaction, the adjudicator's decision that the contractor was entitled to an extension of time remained binding, and that therefore the onus of proof was on the claimant employer (the losing party in the adjudication) to adduce evidence, and prove on that evidence, that no such extension was justified and it was entitled to its money back? Why should the court have to proceed on the incorrect hypothesis that the court action was one being brought by the defendant contractor claiming an extension of time? We were not referred in the course of the hearing to any academic or industry commentary on City Inn Limited v Shepherd Construction Limited… . In those circumstances I would be reluctant to decide that City Inn Limited v Shepherd Construction Limited was wrongly decided unless it were necessary to do so.”

20. Thank you Peter Aeberli DipICArb RIBA ARIAS ACE FCIArb Barrister Chartered Arbitrator, Adjudicator Accredited DAB member and accredited CEDRMediator