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Adjudication: when is a decision not a decision?

An adjudicator cannot determine a dispute which is the same, or substantially the same, as one which has been decided in a previous adjudication. When faced with such a claim, an adjudicator should resign. If he issues a decision, the decision will be unenforceable, as he had no jurisdiction to issue it. It is a matter of fact in each case, whether or not the dispute is the same as that from a previous adjudication, so in certain cases, the answer to the question may not be obvious, even if the principle is.

However, how should an adjudicator proceed where he is faced with a dispute which has not been the subject of a previous adjudication as such, but where related issues have been considered by a previous adjudicator? This was the issue which Lady Smith, sitting in the Outer House of the Court of Session considered in W H Malcolm (Petitioners) [2010] CSOH 152. Matt Molloy looked at this decision from an adjudicator’s perspective last week, but this post considers some practical implications for the parties.

The adjudications

To cut a long story short, the parties had taken part in an earlier adjudication (the first adjudication). As part of her reasons for the decision in the first adjudication, the adjudicator stated:

“With respect to [the] parties’ submissions… I find that SMM7 [a common method of measurement in construction contracts] does not apply to the parties’ contract…”

In a second adjudication, the sub-contractor claimed further sums were due and the contractor argued (again) that SMM7 should apply. The sub-contractor tried to persuade the second adjudicator that he could not determine whether SMM7 applied, because that issue had been decided by the first adjudicator. However, the second adjudicator stated:

“I am not bound by the [first adjudicator’s] comments in respect of SMM7.”

The sub-contractor sought judicial review of that decision, and an order preventing the adjudicator from considering any submissions on the SMM7 issue.

The court case

The adjudications were subject to the TeCSA Rules. The contractor successfully argued that TeCSA clause 38 barred the sub-contractor from bringing any proceedings regarding the adjudication until after the adjudicator gave his decision, so the sub-contractor’s claim failed at that first hurdle.

However, the court went on to consider (obiter) the arguments in relation to the first adjudicator’s decision on SMM7. Lady Smith stated:

“I accept that there is considerable force in [the] submission that the dispute referred to [the first adjudicator] was not the issue of whether or not the subcontract provided for SMM7 measurement. Nor was that what she decided. Her view of that matter is part of the reasoning employed in reaching her decision as to the sum due. But that of itself does not seem to me to be capable of being relied on as making it part of her decision. It was manifestly not an issue which was referred to her, although it could have been. Not was it part of her decision.”

A rigid decision?

It is clear from Lady Smith’s obiter opinion that, in the first adjudication, the parties argued about whether SMM7 applied. It is not clear whether a dispute in relation to SMM7 had crystallised prior to the referral, or whether the contractor was exercising its right to run any available defence to referral, whether or not that defence was previously raised with the sub-contractor.

If the parties were in dispute about payment, but underlying that dispute was a disagreement about how to value work (using SMM7 or another method), Lady Smith’s analysis does seem very rigid. In addition, it appears to run contrary to an earlier decision of Lord Drummond Young in Castle Inns (2005), where the court had to consider the impact of an adjudication “decision” on the continuing administration of a contract:

“What [an] architect cannot do, however, is to refuse a head of direct loss and expense that has been allowed by an adjudicator, or to go against the basic principle on which the adjudicator proceeded in awarding a sum for such loss and expense.”

Lady Smith’s opinion did not refer to this opinion, although she did refer to Lord Drummond Young’s opinion in the subsequent Castle Inns (2007).

Practical impacts

Suppose an employer rejects a contractor’s claim for loss and expense in an interim certificate. One important part of the rejection is the interpretation of a contractual provision which may, or may not, be a condition precedent to the claim. The contractor starts an adjudication seeking:

  • a declaration that the provision is not a condition precedent; and
  • payment of sums due.

If the adjudicator determines that the provision is a condition precedent, as the issue was part of the dispute referred, it would remain binding on the parties, and as such, subsequent adjudicators, unless and until the issue was finally determined.

However, if Lady Smith’s obiter view is correct, a referring party may be ill-advised to frame their referral in this way. Rather, they might simply refer a dispute concerning entitlement to payment under a particular certificate. As with the SMM7 issue in Malcolm, while the adjudicator would have to form a view on the condition precedent issue in order to determine the payment dispute, his reasoning would not be part of the decision. If the contractor lost, it could try the same argument again on another certificate, and so on. Of course, if it were particularly confident in its position, it could still request a declaration.

Similarly, if a sub-contractor has 200 variation claims, many of which hinge on the correct method of valuation, there may be little commercial sense in placing all 200 before an adjudicator, if the sub-contractor has concerns about the strength of its arguments. Rather, the sub-contractor may wish to “spread its bets” by removing the risk of an all-or-nothing decision. If the sub-contractor loses on the first 100 items, it could try again on the next 100 with a different adjudicator.

One note of caution. In Barr v Klin, Lord Glennie recognised that it was permissible for a party to engage in “sequential” adjudications. That is, referring a series of disputes on sharp legal or factual issues in an effort to unlock a dispute. However, that can be contrasted with the courts’ disapproval of “serial” adjudications where a party tries to argue the same dispute again (for example, Benfield Construction v Trudson).  If Lady Smith is correct, the line between the two may be narrower than we had previously thought.

However this opinion plays out in future, claimants and their advisors would do well to consider the possible pitfalls and opportunities flowing from it.

2 thoughts on “Adjudication: when is a decision not a decision?

  1. Alastair, I have responded to Matt’s comments already, and have experienced this issue twice recently. We also discussed this issue at recent training session for CIARB Adjudicators. It was quite surprising to see the diversity of opinions!

    I think what is clear is that if your are likely to have a series of adjudications on one project, then frame the Redress Sought with clarity.

  2. It seems to be pretty clear that the adjudicator’s decision cannot be revisited in a second adjudication but I would have thought that the reasons can be provided it is established that the reasons refer to related issues and do not form part of the matters referred to the adjudicator to decide. It would be helpful to obtain other adjudicators views on this interesting point.

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