In July 1994 the Latham Report was published and made 13 recommendations as to provisions that should be inserted in construction contracts including a speedy resolution of disputes by adjudication. Shortly after, Part II of the Housing Grants, Construction and Regeneration Act 1996 (‘Act’) was passed and applies to all construction contracts entered into after 1 May 1998.
Any party to a construction contract has the right to refer a dispute arising under the contract for adjudication in accordance with section 108 of the Act. The minimum requirements are set out at sections 108(2) to 108(5). If the construction contract does not comply with these minimums, then the adjudication provisions of the Scheme for Construction Contracts apply.
Once a dispute has been referred to adjudication, an adjudicator is appointed, the adjudication proceeds to finality where the adjudicator produces a decision. The question that arises is, will this decision be enforced by the courts?
The Act does not make any provision for enforcement or require the contract to contain terms making such provision in a particular form. In VHE Construction Plc v RBSTB Trust Co Ltd  BLR 187 held that an adjudicator’s decision does not have the status of a judgment. Rather, coupled with section 108(3) of the Act, the obligation upon a party to comply with a valid decision is implied from the agreement to refer the dispute to adjudication.
The first occasion the courts had to consider adjudication provisions was in Macob Civil Engineering Ltd v Morrison Construction Ltd  BLR 93. Dyson J confirmed that the decision of an adjudicator was summarily enforceable regardless of any procedural irregularity, error or breach of natural justice.
Dyson J said:
“The intention of Parliament in the Act was plain. It was to introduce a speedy mechanism for settling disputes and construction contracts on a provisional interim basis, and requiring the decision of adjudicators to be enforced pending the final determination of disputes by arbitration, litigation or agreement…The timetable for adjudication is very tight… many would say unreasonably tight, and likely to result in injustice. Parliament must have been taken to have been aware of this…It is clearly Parliament’s intention that the adjudication should be conducted in a manner which those familiar with the grinding detail of the traditional approach to the resolution of construction disputes apparently find it difficult to accept. But Parliament has not abolished arbitration and litigation of construction disputes. It has merely introduced an intervening provisional stage in the dispute resolution process. Crucially, it has made it clear that decisions of adjudicators are binding and are to be complied with until the dispute is finally resolved.”
This passage has been cited and approved in many Court of Appeal decisions including Bouygues (United Kingdom) Ltd v Dahl-Jenson (United Kingdom) Ltd  EWCA Civ 507; Ferson Contractors Limited v Levolux A.T. Limited  EWCA Civ 11; Pegram Shopfitters Ltd v Tally Weijl (UK) Ltd  EWCA Civ 1750; Carillion Construction Limited v Devonport Royal Dockyard Limited  EWCA Civ 1358.
In a number of subsequent decisions the Court of Appeal has confirmed Dyson’s J approach. The first to do so was Bouygues (United Kingdom) Ltd v Dahl-Jenson (United Kingdom) Ltd.
Briefly, Bouygues was the main contractor for building works under a PFI contract. Dahl-Jenson was the mechanical subcontractor. The contract provided a retention clause, namely 5% of the contract price, pending certification under the main PFI contract. Bouygues terminated Dahl-Jenson’s contract on the grounds that it’s work was of inferior quality. Dahl-Jenson issued a notice to adjudicate claiming payment for works provided, damages for breaches by Bouygues and for wrongful repudiation. Bouygues issued its own notice to adjudicate, claiming a refund of payments already made, damages for delayed completion and damages for costs incurred by the termination of Dahl-Jenson’s employment.
The adjudicator valued the contract works incorrectly by adding the 5% retention to Dahl-Jenson even though it was not yet due under the contract, which in effect altered the overall calculation in favour of Bouygues to a balance in favour of Dahl-Jenson. Dyson J approached the question according to the same principle as stated by Knox J in Nikko Hotels (UK) Ltd v MERPC Plc  2 EGLR 103:
“If he has answered the right question in the wrong way, his decision will be binding. If he has answered the wrong question, his decision will be a nullity.”
In this case the adjudicator answered the questions put to him. What went wrong was that in making the calculations to answer the question, he overlooked the fact that the assessment should be based on the contract sum presently due for payment, i.e. the contract sum less the retention. This was an error whilst acting within the adjudicator’s jurisdiction and provided the adjudicator acts within that jurisdiction his award stands and is enforceable.
On appeal the question for the court was even though the award was wrong, and this was not challenged by either party, is it a ground on which its enforcement can be resisted?
The Court of Appeal also found that the adjudicator had not exceeded his jurisdiction but had merely given a wrong answer to the question which was referred to him. If not for the special circumstances that the claimant was in liquidation so there could be no fair assessment on the final determination between the parties, summary judgment without a stay of execution would have been ordered.
In C & B Scene Concept Design Ltd v Isobars Ltd  EWCA Civ 46 the claimant sought to enforce a decision made by an adjudicator in relation to its entitlement to payment of three interim applications. Payment provisions were contained in the JCT form of contract, but no election as to which alternative payment method was ever made by the parties. In the absence of contractual provisions as to how much should be paid by interim payments and when that payment should be made, the provisions of section 109 of the Act are activated to imply the relevant provisions of the Scheme.
The defendant disputed the applications for payment and said that it was unaware of any variations to the work. The defendant failed to issue a withholding notice rendering the claimants application for interim payment unchallengeable by the defendant under the contract and had to be paid. The adjudicator found in favour of the claimant and summary judgment was sought.
The court refused summary judgment upon the grounds that there was an arguable defence entitling the defendant permission to defend and the adjudicator had erred in deciding the relevant provisions applicable to the contract.
On appeal before Sir Murray Stuart-Smith LJ, he stated that:
“The real question is whether this error on the part of the adjudicator went to his jurisdiction, or was merely an erroneous decision of law on a matter within his jurisdiction”.
His Honour referred to the principles formulated by Judge Thornton QC in Sherwood & Casson Limited v MacKenzie Engineering Limited (2000) CILL 1577 where:
- a decision of an adjudicator whose validity is challenged as to its factual or legal conclusions or as to procedural error remains a decision that is both enforceable and should be enforced;
- a decision that is erroneous, even if the error is disclosed by the reasons, will still not ordinarily be capable of being challenged and should, ordinarily, still be enforced;
- a decision may be challenged on the ground that the adjudicator was not empowered by the Act to make the decision, because there was no underlying construction contract between the parties or because he had gone outside his terms of reference;
- the adjudication is intended to be a speedy process in which mistakes will inevitably occur. Thus, the court should guard against characterising a mistaken answer to an issue, which is within an adjudicator’s jurisdiction, as being an excess of jurisdiction;
- an issue as to whether a construction contract ever came into existence, which is one challenging the jurisdiction of the adjudicator, so long as it is reasonably and clearly raised, must be determined by the court on the balance of probabilities with, if necessary, oral and documentary evidence.
His Honour also added that the provisional nature of adjudication, which, though enforceable at the time can be reopened on the final determination before a court or arbitral tribunal. Further, errors of procedure, fact or law are not sufficient to prevent enforcement of an adjudicator’s decision by summary judgment. The case of Bouygues is a striking example of this and the test formulated by Knox J in Nikko Hotels was mentioned.
The enforcement of an adjudicator’s decision by summary judgment should not be prevented by arguments that the adjudicator has made errors of law in reaching his decision, unless the adjudicator has purported to decide matters that are not referred to him. The adjudicator must decide as a matter of construction of the referral, and therefore as a matter of law, what the dispute is that he has to decide. If he has erroneously decided that the dispute referred to him is wider than it is, then, in so far as he has exceeded his jurisdiction, his decision cannot be enforced.
In the present case there was agreement as to the scope of the dispute, and the adjudicator’s decision, albeit he may have made errors of law as to the relevant contractual provisions, is still binding and enforceable until the matter is corrected in the final determination. Accordingly, the adjudicator’s award was enforced by summary judgment.
The Court of Appeal decision in Ferson Contractors Limited v Levolux A.T. Limited  EWCA Civ 11 revolved around whether pending final resolution by arbitration or litigation, an adjudicator’s decision should be enforced in derogation of contractual rights with which it may conflict?
Here the parties entered into a subcontract which complied with section 108 of the Act. Levolux carried out works on site and received a first interim payment. Levolux applied for a second interim payment but Fersons agreed to pay less than 10% relying upon a notice of withholding payment in respect of the balance. Levolux suspended works and Fersons gave notice to Levolux to return to work or it threatened to terminate the contract. Levolux gave notice of its intention to refer the matter to adjudication. Fersons purported to terminate the contract.
The adjudicator found that the notice of withholding payment did not comply with the statutory requirements in that it did not specify the grounds for withholding and ruled for Levolux. Levolux applied for summary judgment before Wilcox J. Fersons argued that in light of the purported termination a clause in the contract would take effect, namely that once the contract was determined all sums that may be due and owing to Levolux will cease to be due and owing. The court held that this clause did not apply to monies due under an adjudicator’s award provided always that the adjudicator had not exceeded his jurisdiction.
Fersons appealed arguing the judgment of Thornton J QC in Bovis Lend Lease v Triangle Developments Ltd  BLR 131 where three main exceptions to the principle that an adjudicator’s decision is binding and enforceable pending final resolution by arbitration or litigation:
- Where the adjudicator did not have jurisdiction or failed to act fairly or in conformity with the applicable procedures;
- The terms of the contract override the apparent obligation to make payment in accordance with the adjudicator’s decision; and
- Where the decision is overridden by another applicable adjudication.
Opposing summary judgment Fersons argued it had a right to withhold payment following a valid termination of the contract. Right or wrong, the adjudicator believed there had not been a valid termination. The intended purpose of section 108 is clear. The contract must be construed so as to give effect to the intention of Parliament rather than to defeat it. If that cannot be achieved by way of construction, then the offending clause must be struck down. Here, the offending clause need not be struck down as it does not apply to monies due by reason of an adjudicator’s decision. Longmore LJ agreed with Mantell LJ stating that “Parliament’s intention was to avoid just the kind of arguments” in the present case.
In R J T Consulting Engineers Limited v D M Engineering (Northern Ireland) Limited  EWCA Civ 270 it was established that since the documents relied on by the defendant contained no evidence of the terms of the oral agreement made between the parties or of those terms on which the defendant sought to rely in the adjudication, there was no “agreement in writing” within the meaning of section 107(2)(c) of the Act. It followed that Part II of the Act did not apply to that agreement. Parliament decided it was inappropriate for an adjudicator to have to deal with disputes pertaining to alleged terms of an oral contract
In Thomas-Fredric’s (Construction) Limited v Keith Wilson  EWCA Civ 1494, Simon Brown LJ opined that it did not follow that because the policy of the Act was to facilitate and encourage swift and summary adjudication, “pay now, argue later”, even where a respectable case has been made for disputing the adjudicator’s jurisdiction in the short term, the adjudicator’s decision should bind the parties. One issue on appeal was whether the appellant had submitted to the jurisdiction of the adjudicator which Simon Brown LJ believed he did but summarised the position in two propositions:
- If a defendant to a Part 24(2) application has submitted to the adjudicator’s jurisdiction in the full sense of having agreed not only that the adjudicator should rule on the issue of jurisdiction but also that he would be bound by that ruling, he is liable to enforcement in the short term even if the adjudicator was plainly wrong on the issue, and
- Even if the defendant has not submitted to the adjudicator’s jurisdiction in that sense, he is still liable to a Part 24(2) summary judgment upon the award if the arbitrator’s ruling on the jurisdictional issue was plainly right.
In this case the defendant continually alleged that the claimant had wrongly commenced adjudication against him personally and not his company. Applying the above propositions, the defendant did not submit to the adjudicator’s jurisdiction in the full sense and the adjudicator’s ruling was not plainly right, but plainly wrong and therefore dismissed the application for summary judgment.
Where a genuine jurisdictional issue was properly taken before the adjudicator, it must be sufficiently abundant that the party indeed agreed to abide by, or submit to, the decision of the adjudicator on this issue.
In Pegram Shopfitters Ltd v Tally Weijl (UK) Ltd  EWCA Civ 1750 May LJ opined that there are cases in which the Court of Appeal has upheld challenges to the enforceability of decisions of adjudicators, but examination of these cases shows that this has occurred when legal principle has to prevail over broad brush policy.
In Pegram, there had been a battle of the forms. The defendant contended the parties entered into the JCT Standard Form of Prime Cost Contract 1998 they had proposed, which has its own adjudication provisions complying with section 108 of the Act so the Statutory Scheme did not apply. Their alternative proposition was that, if an agreement was not made on these JCT terms, then there was no agreement between the parties and the claimants were entitled to be paid on a quantum meruit basis, i.e. a reasonable sum for the work they had carried out.
Both the adjudicator and the first instance judge proceeded along the lines that both parties were contending that a construction contract existed (even though they were proposing that different contracts applied) and that the Act therefore applied to their contract. However, such a conclusion ignored the defendant's alternative contention that if the terms that they proposed did not apply, then there was no contract in place.
On appeal the defendant alleged they have a real, not fanciful, prospect of establishing that the adjudicator had no jurisdiction because he was appointed under the provisions of the Scheme when the Scheme did not apply. If the JCT contract was not valid, it was alleged there was no written construction contract to satisfy section 107 of the Act and therefore had no jurisdiction to determine his own jurisdiction.
The Court of Appeal found in favour of the defendant's argument that summary judgment should not be given in favour of the claimant because the defendant had a real, not fanciful, prospect of establishing that the adjudicator acted without jurisdiction. It was argued that the adjudicator was appointed under the provisions of the Scheme for Construction Contracts when the Scheme did not apply because on one view there was no written construction contract within section 107 of the Act at all and because he had no jurisdiction to determine his own jurisdiction. Any award of the adjudicator was null. His Honour believed that there may be cases when legal principle has to prevail over broad brush policy such as “pay now, argue later” (R J T Consulting Engineers) and this was such a case.
Lady Justice Hale agreed that the court should not circumvent the policy of the Act and cited with approval the words of Justice Dyson in The Project Consultancy Group who cited Lord Justice Simon Brown in Thomas-Fredric’s:
“It is only if a defendant had advanced a properly arguable jurisdictional objection with a realistic prospect of succeeding upon it that he could hope to resist the summary enforcement of an adjudicator’s award against him.”
In The Project Consultancy Group v The Trustees of the Gray Estate  BLR 377 the issue was whether the construction contract had been entered into before or after 1 May 1998, the date when the Act took effect. Dyson J, at first instance, recorded counsel’s suggestion that it would be easy enough for an imaginative defendant cynically to invent an argument that there was no contract, or that any contract was made before 1 May 1998. In his view these fears were exaggerated. It would only be in comparatively few cases that such an argument would even be possible. Where they were advanced, the adjudicator and the court would be vigilant to examine the arguments critically. Dyson J concluded that it was open to the defendant in enforcement proceedings to challenge the decision of an adjudicator on the grounds that he was not empowered by the Act to make the decisions
The leading case on whether a “dispute” has arisen capable of being referred to adjudication is Collins (Contractors) Limited v Baltic Quay Management Limited  EWCA Civ 1757. The Court of Appeal cited with approval seven propositions derived in AMEC Civil Engineering Ltd v The Secretary of State for Transport  EWHC 2339 (TCC) by Jackson J:
- The word “dispute” should be given its normal meaning.
- Litigation over the years has provided a helpful guidance as to whether or not disputes existed in particular situations.
- The mere fact that a claimant notifies the respondent of a claim does not automatically give rise to a dispute. It is clear from the authorities that a dispute does not arise unless and until the claim is not admitted.
- The circumstances from which it may emerge that a claim is not admitted are protean. For example, there might be an express rejection of the claim; there might be discussions between the parties from which objectively it can be inferred that the claim is not admitted; the respondent may prevaricate, thus giving an inference that he does not admit the claim; or simply remain silent for a period of time giving rise to the same inference.
- The period of time a respondent may remain silent before a dispute is inferred depends heavily upon the facts of the case and the contractual structure. Where the claim is well known a short period of silence may suffice, whereas an agent acting on behalf of the respondent a longer period may be required before it can be inferred that mere silence gives rise to a dispute.
- If a deadline is imposed that deadline does not have the automatic effect of curtailing a reasonable time for responding. However, it may be relevant to the court when it considers what a reasonable time for responding is.
- If the claim is presented so nebulous and ill-defined that it cannot be sensibly responded to, neither silence nor an express non-admission is likely to give rise to a dispute for the purposes of arbitration or adjudication.
On the facts of this case and applying the above principles there was a dispute between the parties at the time proceedings being commenced.
In Carillion Construction Limited v Devonport Royal Dockyard Limited  EWCA Civ 1358 the Court of Appeal, in particular Lord Justice Chadwick, agreed with the first instance judgment of Jackson J confirming the legal principles to be applied when enforcing an adjudicator’s decision. Chadwick LJ examined a number of authorities, including five decisions of the Court of Appeal (Bouygues; C & B Scene Concept Design Limited; Levolux; Pegram Shopfitters; Amex Capital Projects Limited) and two decisions from the TCC (Discain Project Services and Balfour Beatty Construction), conclusively finding:
- The adjudication procedure does not involve the final determination of anybody’s rights, unless the parties so wish.
- The Court of Appeal has repeatedly emphasised that adjudicator’s decisions must be enforced, even if they result from errors of procedure, fact or law (see Bouygues, C & B and Levolux).
- Where an adjudicator has acted in excess of his jurisdiction or in serious breach of the rules of natural justice, the court will not enforce his decision (see Discain, Balfour Beatty and Pegram Shopfitters).
- Judges must be astute to examine technical defences with a degree of scepticism consonant with the policy of the Act. Errors of law, fact or procedure by an adjudicator must be examined critically before the court accepts that such errors constitute excess of jurisdiction or serious breaches of the rules of natural justice (see Pegram Shopfitters and Amec).
These general principles are supported by the authorities with no recorded successful challenge. His Honour then delivered five propositions relevant to the issues of the case:
- If an adjudicator declines to consider evidence which, on analysis of the facts or the law, is irrelevant, that is neither (a) a breach of the rules of natural justice nor (b) a failure to consider relevant material which undermines his decision on Wednesbury grounds or for breach of paragraph 17 of the Scheme. If the adjudicator’s analysis of the facts or the law was erroneous, it may follow that he ought to have considered the evidence in question. The possibility of such error is inherent in the adjudication system. It is not a ground for refusing to enforce an adjudicator’s decision. I reach this conclusion on the basis of the Court of Appeal decisions mentioned earlier. This conclusion is also supported by the reasoning of Justice Steyn in the context of arbitration in Bill Biakh v Hyundai Corporation  1 Lloyds Reports 187.
- On careful reading of Thornton’s J decision in Buxton Building Contractors Limited v Governors of Durand Primary School  1 BLR 474 I do not think that this judgment is inconsistent with proposition 1. If, however, Mr Furst is right and if Buxton is inconsistent with proposition 1, then I consider that Buxton was wrongly decided and I decline to follow it.
- It is not often practical for an adjudicator to put to the parties his provisional conclusions for comment. Very often those provisional conclusions will represent some intermediate position, for which neither party was contending. It will only be in an exceptional case such as Balfour Beatty v London Borough of Lambeth that an adjudicator’s failure to put his provisional conclusions to the parties will constitute such a serious breach of the rules of natural justice that the court will decline to enforce his decision.
- During argument, my attention has been drawn to certain decisions on the duty to give reasons in a planning context. See in particular Save Britain’s Heritage v No 1 Poultry Limited  1 WLR 153 and South Bucks DC and another v Porter No 2  1 WLR 1953. In my view, the principles stated in these cases are only of limited relevance to adjudicator’s decisions. I reach this conclusion for three reasons:
- Adjudicators’ decisions do not finally determine the rights of the parties unless all parties so wish.
- If reasons are given and they prove to be erroneous, that does not generally enable the adjudicator’s decision to be challenged.
- Adjudicators often are not required to give reasons at all.
- If an adjudicator is requested to give reasons pursuant to paragraph 22 of the Scheme, in my view a brief statement of those reasons will suffice. The reasons should be sufficient to show that the adjudicator has dealt with the issues remitted to him and what his conclusions are on those issues. It will only be in extreme circumstances, such as those described by Lord Justice Clerk in Gillies Ramsay Diamond and others v PJW Enterprises Limited  BLR 131 that the court will decline to enforce an otherwise valid adjudicator’s decision because of the inadequacy of the reasons given. The complainant would need to show that the reasons were absent or unintelligible and that, as a result, he had suffered substantial prejudice.
The Court of Appeal agreed with the reasons he had given. They further confirmed that the objective of the Act and the Statutory Scheme requires the courts to respect and enforce the adjudicator’s decision unless it is plain that the question which he has decided was not the question referred to him or the manner in which he has gone about his task is obviously unfair. It should be only in rare circumstances that the courts will interfere with the decision of an adjudicator. The courts should give no encouragement to the approach adopted by the appellant in this case; which may, indeed, aptly be described as “simply scrabbling around to find some argument, however tenuous, to resist payment”.
Enforcement of an adjudicators decision may be resisted on a limited number of grounds including:
- there is no contract in writing, R J T Consultancy Engineers;
- there is no “construction contract” within the meaning of the Act, The Project Consultancy Group;
- the statutory requirements of the contract being in writing or evidenced in writing have not been met, Pegram Shopfitters;
- there was no “dispute” capable of being referred to adjudication on the date of the purported referral;
- the adjudicator did not have jurisdiction over an issue or question or has gone outside his terms of reference, Bouygues;
- the adjudicator has conducted the adjudication so as to breach the principles of natural justice so seriously that the purported decision ought not to be enforced, Carillion Construction;
- there has been a breach of the European Convention on Human Rights;
- the adjudication provision does not, by operation of law, bind one party. This may be the position in the case of a consumer, by operation of the Unfair Terms in Consumer Contracts Regulations 1999; or
- the adjudicator has not been properly appointed under the terms of the contract.
The following arguments cannot be used to challenge the enforcement of an adjudicators decision:
- A decision of an adjudicator whose validity is challenged as to its factual or legal conclusions or as to procedural error remains a decision that is both enforceable and should be enforced, Macob v Morrison  BLR 93;
- A decision that is erroneous, even if the error is disclosed by the reasons, will still not ordinarily be capable of being challenged and should, ordinarily, still be enforced, Bouygues; or
- A decision which gives a mistaken answer to an issue within the adjudicator’s jurisdiction. The court should give a fair, natural and sensible interpretation to the decision in the light of the disputes that are the subject of the reference,
However, a stay of execution will be granted in two distinct scenarios. First, where the successful claimant in enforcement proceedings is in liquidation, then the liquidation operates as an automatic stay of the proceedings by virtue of rule 4.90 of the Insolvency Rules 1986, Bouygues.
Second, where the successful claimant in enforcement proceedings is impecunious to the extent that, on the evidence, there are serious concerns that the claimant will not be able to repay sums claimed if the adjudicator’s decision is later overturned in arbitral or court proceedings, then the court may, in the exercise of its discretion, stay the proceedings on such terms as it thinks fit, on the basis that “…there are special circumstances which render it inexpedient to enforce the judgment or order…” Herschel Engineering Limited v Breen Properties Ltd  BLR 272 and Rainford House Ltd v Cadogan Ltd  BLR 416.