Practical Law

A contractor and employer are in dispute as to whether a particular item of work constitutes a variation under their contract. The contractor starts an adjudication to resolve the dispute. The claim succeeds and the resulting adjudicator’s award is paid by the employer, who then issues court proceedings to recover the money.

Does the employer have to prove that the adjudicator’s decision was wrong (that the relevant item of work is not a variation), or does the contractor have to prove that it was right (that the relevant item of work is a variation)?

As I will explain, while established wisdom has always been that an adjudicator’s decision should not reverse the burden of proof, recent Court of Appeal comments in Walker Construction (UK) Ltd v Quayside Homes Ltd would appear to cast doubt upon it.

The orthodox position: contractor bears the burden

What has been understood to be the orthodox position stems from the Scottish decision of City Inn Ltd v Shepherd Construction Ltd [2002] SLT 781. In that case, City Inn sought to levy liquidated damages against Shepherd for a period that included a five-week extension of time that had been granted by an adjudicator. Shepherd argued that, unless City Inn could establish that the adjudicator’s decision was wrong, it had no right to levy liquidated damages.

Lord MacFadyen rejected that proposition, saying that in his view it was:

“…no part of the function of an adjudicator’s decision to reverse the onus of proof in any arbitration or litigation to which the parties require to resort to obtain a final determination of the dispute between them.”

This is cited in Coulson on Construction Adjudication (at paragraph 14.48) as providing the “unequivocal answer” to the dilemma outlined above.

In practice, the wisdom of the position espoused in City Inn is easy to see. Adjudication can be an extremely rough and ready process in which large final account claims encompassing a whole host of issues (including variations, extensions of time and loss and expense) can be decided on paper in less than a month. Inevitably, in those circumstances an adjudicator’s consideration of many of the claims advanced will have to be somewhat cursory. It would be unfair for any decision that happens to be in the contractor’s favour to throw a burden onto the employer to disprove the claim.

Indeed, in many cases it is unclear how the employer could go about discharging that burden. Take, for example, a variation that the adjudicator approves for payment, but which the employer challenges, arguing that the amount of work undertaken has not been substantiated. It could be extremely difficult to lead evidence establishing that the work was not done, and it ought to be for the contractor to properly substantiate its entitlement.

More difficult, however, is whether the City Inn solution is correct as a matter of legal analysis. The general rule is of course that he who asserts a cause of action must prove it: does this solution fall foul of that?

Walker Construction: challenging orthodoxy?

Gloster LJ (with whom McFarlane and Laws LJJ agreed) grappled with this problem in Walker Construction v Quayside Homes. Having cited City Inn and the above passage in Coulson on Adjudication, she said that she had:

“real difficulty with Lord MacFadyen’s analysis that the adjudication has no effect whatsoever on the onus of proof in subsequent proceedings.”

She questioned why, when the employer was reclaiming payment of sums that it contended were wrongly paid, the defendant contractor could not:

“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…to…prove that no such extension was justified and it was entitled to its money back.”

Given that the point did not actually have to be decided, these comments are obiter. Further, their persuasiveness is tempered to some extent by the fact that the court “did not have the benefit of detailed argument on the issue generally”. Nonetheless, the comments are obviously significant. Are they right?

Implied term to recover money paid

It is now clear from the Court of Appeal’s judgment in Aspect Contracts (Asbestos) Ltd v Higgins Construction plc that the employer is entitled in principle to recover its money on the basis of an implied term that:

“…in the event that any dispute between the parties was referred to adjudication pursuant to the Scheme and one party paid money to the other in compliance with the adjudicator’s decision made pursuant to the Scheme, that party remained entitled to have the dispute finally determined by legal proceedings and if or to the extent that the dispute was finally determined in its favour, to have that money repaid to it.”

(It is worth noting that in Walker v Quayside, Gloster LJ reached the opposite conclusion on this point, citing with approval Akenhead J at first instance, which unbeknownst to her, had been overturned. Her Ladyship’s comments were obiter, however.)

Sticking with the example at the start of this article, on the face of it one might expect the employer to plead the relevant implied term, assert that the adjudicator’s decision was wrong, and therefore claim an entitlement to repayment. That being the case, it is difficult to escape from Gloster LJ’s conclusion that if neither party led any evidence, the employer would lose. This is because establishing that the adjudicator’s decision was wrong would be a necessary ingredient of the cause of action.

However, what Gloster LJ perhaps does not address is that whether establishing the incorrectness of the adjudicator’s decision amounts to a necessary ingredient of the cause of action turns entirely on the precise wording of the implied term pursuant to which the claim is made:

• On the one hand, the implied term could be that “if the employer establishes that the adjudicator’s decision was wrong, it shall be entitled to repayment”.
• On the other, it could be that “if the employer challenges the adjudicator’s decision and the contractor fails to establish its entitlement asserted in the adjudication, the employer shall be entitled to repayment”.

In the former case, establishing that the adjudicator’s decision was wrong would be a necessary ingredient of the cause of action and so the burden of proof would be shifted. In the latter case, it would not be, and so the burden would remain with the contractor.

The implied term under consideration in Aspect v Higgins is somewhat equivocal, but is arguably consistent with the burden of proof remaining with the contractor in subsequent litigation and so with City Inn orthodoxy.

Conclusion

This dilemma is obviously something that will need to be specifically tackled in a future case. Notwithstanding Gloster LJ’s comments in Walker v Quayside, for the reasons outlined above I think that the burden should remain with the contractor and that, in accordance with City Inn, the employer ought not to be expected to prove a negative.