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A useful reminder that spurious jurisdictional challenges in adjudication will fail

I think that most of us would agree that the law concerning an adjudicator’s jurisdiction (as well as issues related to natural justice), is now fairly well established and that, given the TCC’s strong support for adjudication, judges will dismiss spurious jurisdictional and natural justice challenges. I therefore get the impression that, while such challenges are regularly put to adjudicators during adjudications, they are not often used to resist enforcement of decisions because paying parties know the probable outcome.

However, when I read Coulson J’s judgment in St Austell Printing Company v Dawnus Construction, I confess to feeling that this was one of those occasions where the spurious challenges had slipped through the net and gone all the way to the TCC. While it may be a step too far to say that the employer needed St Jude (the patron saint of lost causes), rather than St Austol (the Cornish saint from which the name of the town derives), the position isn’t that far off.

St Austell Printing Company v Dawnus Construction

St Austell had engaged Dawnus to design and construct two industrial units and practical completion occurred in early 2013.

In December 2013, Dawnus issued interim application 19 claiming a net payment of some £2.3 million. The contract administrator issued a certificate stating that no further sum was due and advised that defects existed. It also advised that it would review the account and confirm the extent of the defects, but this was not undertaken.

In August 2014, Dawnus commenced an adjudication concerning interim application 19, but limited the scope of that adjudication to 115 specific variations. In other words, it excluded issues such as loss and expense.

St Austell objected to the adjudicator’s jurisdiction claiming that:

  • No dispute had crystallised.
  • The adjudicator did not have jurisdiction to order part payment of interim application 19.

The adjudicator concluded that St Austell’s jurisdictional challenge was “entirely without merit” and went on to reach his decision, awarding Dawnus some £418,000.

Challenge 1: no crystallised dispute

The contract administrator had dismissed Dawnus’s claims for additional payment in December 2013 and the adjudication was commenced in August 2014. Given the clear law on this area, established in cases such as AMEC Civil Engineering Ltd v Secretary of State for Transport, I have difficulty in understanding how St Austell could have imagined that this challenge would have been successful.

Coulson J quite rightly gave this challenge short shrift:

“I am in no doubt that, however it is analysed, the dispute about what, if any, sums were due to Dawnus on the basis of interim application 19 had crystallised long before the notice of adjudication. Indeed, I consider that the contrary is unarguable.”

Challenge 2: no power to order payment for part of interim application 19

Coulson J also dismissed this challenge, citing three reasons.

Firstly, Fastrack v Morrison makes it clear that a referring party is entitled to prune its original claim for the purposes of the reference to adjudication. In that case HHJ Thornton QC stated (in paragraph 23) that:

“In some cases, a referring party might decide to cut out of the reference some of the pre-existing matters in dispute and to confine the referred dispute to something less than the totality of the matters then in dispute. So long as that exercise does not transform the pre-existing dispute into a different dispute, such a pruning exercise is clearly permissible.”

I mean no disrespect to St Austell or its advisors but, given that this point had clearly been decided previously, I struggle to understand how it could have anticipated successfully avoiding enforcement of the adjudicator’s decision on this ground.

Coulson J also made the point that such pruning should be encouraged so that only those claims which a referring party was confident of succeeding with should proceed to adjudication. Coulson J described as a “nonsense” the proposition that a referring party had to include all elements of a claim in a notice of adjudication because they formed part of an original application.

Secondly, Coulson J said that the adjudicator’s decision reflected what St Austell should have paid for the variations in interim application 19. He rejected the proposition that it created a liability to pay where none existed before.

Thirdly, if St Austell had a valid claim for damages for defects, liquidated damages, and so on, which fell for assessment at interim application 19, there was nothing to stop St Austell defending Dawnus’s claim for payment by raising its own cross-claim for damages. Coulson J referred to his judgment in Pilon v Breyer, in which he said:

“25. It is not uncommon for adjudicators to decide the scope of their jurisdiction solely by reference to the words used in the notice of adjudication, without having regard to the necessary implications of those words: that was, for example, what went wrong in Broadwell. Adjudicators should be aware that the notice of adjudication will ordinarily be confined to the claim being advanced; it will rarely refer to the points that might be raised by way of a defence to that claim. But, subject to questions of withholding notices and the like, a responding party is entitled to defend himself against a claim for money due by reference to any legitimate available defence (including set-off), and thus such defences will ordinarily be encompassed within the notice of adjudication.

26. As a result, an adjudicator should think very carefully before ruling out a defence merely because there was no mention of it in the claiming party’s notice of adjudication. That is only common sense: it would be absurd if the claiming party could, through some devious bit of drafting, put beyond the scope of the adjudication the defending party’s otherwise legitimate defence to the claim.”

Useful reminders

This judgment acts as a useful reminder for parties in adjudications, especially the first point about pruning the claim. It is also useful to be reminded about cross-claims (the last point), as I’ve seen this issue crop up on a number of occasions where I have been the adjudicator. It is clear that, subject to issuing the correct notices (and this is a very important proviso), a responding party is entitled to defend a claim for money due by reference to any legitimate available defence, and such claims will ordinarily be encompassed within the scope of the notice of adjudication. For example, if St Austell had a defects claim, provided it had issued the relevant notices, it could have raised this as a defence to Dawnus’s claim for payment for the variations.

However, the position is different if a referring party simply seeks a declaration as to its entitlement, rather than payment. Here, if Dawnus had simply claimed a declaration as to the correct value of the variations, and not payment, St Austell could not have raised a set-off for defects or other damages in defence of that claim.

I wonder if St Jude would have considered St Austell’s set-off defences to be any more meritorious than its jurisdictional challenges?

MCMS Ltd Jonathan Cope

3 thoughts on “A useful reminder that spurious jurisdictional challenges in adjudication will fail

  1. Hi Jonathan

    Thanks for another interesting and useful article. A brief couple of questions for clarity if you would be so kind –

    If, say, a dispute is referred by a contractor about valuation and payment of variations then, provided that the employer has issued the correct notices in time, could he raise matters of say Defects and LAD’s by way of defence in the adjudication even if no reference was made to those matters in the notices he had previously issued?

    If the above is the correct interpretation, then what is the benefit to the contractor in ‘pruning’ the reference, if the employer can bring the ‘off cuts’ into the adjudication in his response anyway?

    Thanks and best regards,

    Dean

  2. Dean

    Thank you for your kind words and comments.

    No, I don’t think that an employer can raise matters as a defence in a money claim adjudication that have not previously been raised in a payment or pay less notice. The payer has to set out the basis on which a sum in a notice is calculated, and if an abatement or similar has not been made for, say, defects, then I do not consider that they can be raised as a defence.

    I hope that is helpful.

    Jonathan

  3. Jonathan,

    Many thanks for your response. Your comments reflect my own thoughts on the subject, but paragraph 25 of the judgement did leave me in some doubt as to whether or not my thoughts were correct! Your comments are thus most helpful.

    Thanks and regards,

    Dean

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