Adjudication: “pay now argue later”


Author: Christian Charles


This article was published in Construction News on 13 June 2017.

A recent case has clarified when a party may be able to raise a substantive defence to adjudication enforcement.

The courts have long made it clear that they will enforce adjudicators’ decisions save in the most exceptional circumstances.

In the context of enforcement proceedings, the courts are not concerned with whether the adjudicator got the decision “right” or “wrong”. Accordingly, the scope for defendants to resist enforcement is usually limited to cases where the adjudicator lacked jurisdiction or otherwise failed to act in accordance with the rules of natural justice.

The Mar City exception

Despite this clear approach in favour of enforcement, the 2015 case of Caledonian Modular Ltd v Mar City Developments Ltd appeared to open the door – albeit slightly – to challenges on the basis that the adjudicator got the decision wrong.

In Mar City, the judge held that a defendant could ask the court to determine issues which had already been decided by the adjudicator, provided that those issues were (i) short, (ii) self-contained and (iii) did not require detailed submissions or evidence.

Relevantly, the parties in Mar City had agreed that the issue – whether or not a contractor’s application constituted a valid payment notice – was capable of being dealt with at the enforcement hearing.

In reaching his decision, the judge warned that this departure from the usual approach to enforcement would be rarely used, as it would be uncommon for the point in issue to be capable of determination on such a limited basis.

However, despite the judge’s warning, there has undoubtedly been an increasing trend towards parties challenging adjudicators’ decisions by seeking declarations which effectively re-open the underlying dispute.

Hutton Construction v Wilson Properties

In the recent case of Hutton Construction Ltd v Wilson Properties (London) Ltd, the court has clarified the scope of the Mar City exception and the procedure to be followed where the parties have not agreed that the issue is capable of being decided at the enforcement hearing.

In Hutton, the defendant sought to resist enforcement by issuing Part 8 proceedings seeking a series of declarations which, if granted, would effectively overturn the adjudicator’s decision.

The Part 8 proceedings, which were issued more than 2 weeks after the defendant had filed its response to the enforcement proceedings, asked the court to grant a series of declarations in relation to matters which had already been decided by the adjudicator.

The court enforced the adjudicator’s decision. In doing so, the court held that the defendant was not entitled to resist enforcement on the basis that it was dissatisfied with the adjudicator’s decision.

The court explained that, in the absence of agreement between the parties, the defendant would have to start separate Part 8 proceedings seeking declaratory relief. Moreover, the defendant would need to issue such proceedings “promptly” and would need to demonstrate that:

  • there is a short and self-contained issue which is contested;
  • that issue requires no oral evidence or any further submissions beyond that which is capable of being provided during the enforcement hearing (usually 2 hours); and
  • it would be “unconscionable” for the court to ignore the issue when considering whether to enforce the adjudicator’s decision.

The court would then decide whether or not the issue should be determined at the same time as the enforcement proceedings.

It is clear that the courts will expect parties to follow this procedure to the letter. Any Part 8 proceedings must be issued “promptly” and they must identify clearly which issue(s) are to be determined and why they are capable of being decided at the enforcement proceedings.

In reaching its decision, the court also warned that any failure to follow this procedure and any subsequent attempt to “shoe horn” a substantive defence into the enforcement proceedings would be an abuse of process. In such cases, the defendant would be liable for costs on the indemnity basis.

Conclusions

The decision in Hutton is perhaps unsurprising given the growing trend towards parties trying to re-open the adjudicator’s decision in order to resist enforcement.  The court has now clarified the limited scope of the Mar City exception and has warned parties that any attempt to “shoe horn” a substantive defence into enforcement proceedings will be punishable by an adverse costs order.

That said, there will plainly be cases which can be finally determined as part of adjudication enforcement proceedings. For instance, as in Mar City, some cases will turn on discrete issues such as the timing or form of a payment or pay less notice.  In such cases, however, a party wishing to raise a substantive defence to enforcement must do so promptly and in accordance with the court’s guidance in Hutton.

Christian Charles, Senior Associate, Fladgate LLP (ccharles@fladgate.com)

Would you like to hear more?


View by date:


View by author: