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TCC limits defendants reopening adjudication at enforcement

In the case of Caledonian Modular Ltd v Mar City Developments Ltd [2015] (Caledonian), Coulson J allowed the unsuccessful party at an adjudication to challenge the substance of the adjudication decision when it came to be enforced in the Technology and Construction Court (TCC). Coulson J stressed that this was a rare occasion and that 99 cases out of 100 could not challenge at the enforcement stage. Despite Coulson J's comments, his decision in Caledonian opened the floodgates to adjudicator's decisions being challenged at the enforcement stage. This should now change following the detailed guidance given by Coulson J himself in the recent case of Hutton Construction Ltd v Wilson Properties (London) Ltd [2017] (Hutton).

Dispute Regarding Payment/Pay Less Notice

Hutton Construction was the contractor under a JCT contract and served payment notice on the employer, Wilson Properties. It responded with a pay less notice which it also argued was a valid interim certificate. There were the usual arguments about the validity and timing of notices. These were referred to an adjudicator under the Construction Act 1996 who awarded Hutton Construction Ltd £492,000. Adjudication is a "pay now, argue later" approach that reaches a quick 28 day decision on payment to keep a building project moving.

Enforcing the Adjudicator's Decision

Wilson Properties did not make the payment to Hutton Construction so Part 7 proceedings were issued in the TCC to enforce. Enforcement proceedings are used to rubber stamp the adjudicator's decision in Court and there should be no detailed re-examination of the facts. More substantial litigation can be dealt with in the background at a slower pace.

The case of Macob Civil Engineering Ltd v Morrison Construction Ltd [1999] (Macob) established that adjudicators' decisions must be enforced if the adjudicator had jurisdiction and acted within the rules of natural justice. However, following the decision in Caledonian, it was increasingly common for unhappy parties to challenge the substance of the adjudication at the enforcement stage. In addition, the TCC's own guide indicated at paragraph 9.4.3 that all disputes should be dealt with in one set of proceedings if possible to avoid duplication of effort.

Hutton Properties did not serve a Defence and Counterclaim but indicated that enforcement would be resisted and elaborated its position in a witness statement from its solicitor served on 3 February 2017. This statement did not identify how and why the adjudicator was wrong and simply provided a history setting out the facts. Perhaps realising that a more formal approach was required, Hutton Properties issued CPR Part 8 proceedings shortly before the enforcement hearing. These essentially asked the Court to re-examine the substantive issues already decided by the adjudicator.

Guidance on Challenging the Adjudication at the Enforcement Stage

Coulson J recognised that Wilson Properties' tactics were increasingly common following his own decision in Caledonian and sought to return to the previous position. Coulson J clarified the limited circumstances for this type of challenge and set out the following guidance:

  1. Formal proceedings should be issued in accordance with CPR Part 8 or as a CPR Part 7 Defence and Counterclaim so the detail of the challenge is clear to the Claimant and the Court.
  2. If the adjudicator and the parties agree there has been an error with the adjudicator's decision it can be challenged at enforcement. It is unlikely that the victorious party would concede the decision unless there was something obviously wrong with it.
  3. If the parties agree that there is a self-contained point regarding the issuing of a payment notice, a pay less notice or an interim certificate that can be dealt with at the enforcement hearing without oral evidence being required. Again, a victorious party may be reluctant to adopt a consensual approach and would more likely be pushing for its money.
  4. Where there is no agreement between the parties, the Defendant must show the issue it contests is a small self-contained point that arose in the adjudication and which requires no further expansion or oral evidence. The issue must be one that would be unconscionable for the Court to ignore and is capable of being dealt with in the half day put aside for the enforcement hearing. The practical issue of the TCC having enough time to deal with the matter may be the largest barrier to these challenges.

Coulson J went on to suggest the types of limited cases which might be considered in the future and set the bar fairly high. The actions or interpretation of documents by the adjudicator must be clearly wrong on any view.

How to Challenge an Adjudicator's Decision

The challenge put forward by Hutton Development failed to meet the above requirements. The CPR Part 8 Claim was made quite late and even then, left out a major issue addressing the form of the pay less notice. The Claim was incomplete and no specific declarations were sought. Even if the Claim had been served earlier and had been complete, Wilson Properties would not likely have been allowed to rerun the adjudication at the enforcement hearing. The TCC commented that to allow this would be to create a two stage process; the quick decision of the adjudicator having to be reviewed by the Court every time. Coulson J held that Adjudication should be a complete one stage process in all but a very limited number of instances.

As the TCC have limited the scope of Defendants' challenges at the enforcement stage, that can no longer be pursued as a reliable course of action. It is clear following Hutton that having a Court judgment on the substantive issues is the only sure way to reverse the adjudicator's decision. It seems that if the adjudication is going badly for technical or substantive reasons, the vulnerable party should issue a CPR Part 8 Claim as soon as it can. This may be done even before the adjudication is concluded and lost. That would limit the time between the enforcement hearing and the substantive hearing. A party acting very quickly might even get the substantive challenge listed for around the same time as the enforcement hearing preventing large sums having to be paid out. The downside of increasing the legal costs by issuing proceedings may well be outweighed by the speed of coming to the correct substantive decision.

If you have any disputes regarding payment notices, pay less notices, interim certificates, JCT contracts or construction projects generally, please contact James Murray.