Practical Law

As I’ve said before, it is part and parcel of acting as an adjudicator that you may, one day, find your actions being discussed in court, with one party challenging the enforcement of your decision. It hasn’t happened to me for a while, but it recently happened for the first time to my co-director, Jonathan. It’s a strange feeling, especially the first time it happens, and your natural reaction is to worry about what you did (or didn’t do), and to sit down and analyse whether you’d react the same way, the next time you are faced with the same sort of situation. It’s a bit like poring over your exam results and looking again at your exam paper, wondering if you went wrong, where you went wrong, and how you could have done better.

What happened in Beck v UK Flooring?

A dispute arose over the fitting of a carpet in Selfridge’s Oxford Street store. Essentially the carpet wasn’t ordered by UK Flooring (UKF) (although there was an issue as to why this was the case), and UKF “withdrew” from the contract. This, Beck said, was a repudiatory breach of contract, which it accepted. Beck arranged for the carpet to be fitted by another firm and advised UKF that it had incurred damages in the region of £30,000. Beck subsequently advised UKF that is was going to claim liquidated damages at £20,000 a week for at least eight weeks and then started an adjudication, claiming just over £67,000 (including £36,000 for liquidated damages).

In the adjudication, UKF challenged the adjudicator’s jurisdiction, arguing that the dispute regarding liquidated damages had not crystallised by the time the notice of adjudication was given. It said the claim in the adjudication was different from the claim Beck had put forward before. Not so, said the adjudicator. He proceeded to issue his decision, deciding Beck was entitled to £20,000 damages and £36,000 for liquidated damages.

Unhappy with a potential bill of over £56,000 for a contract valued at (to quote Akenhead J) “a little over £10,000 and the laying of what was originally only 55 m2 [of] carpet”, UKF refused to pay and maintained its jurisdictional challenge in the enforcement proceedings that followed.

The judge agreed with UKF that the adjudicator did not have jurisdiction to deal with the liquidated damages claim because the dispute had not crystallised at the time of the notice. However, rather than ruling the whole decision null and void for want of jurisdiction, the judge opted to sever the decision, removing the bit about liquidated damages and enforcing the rest.

What do I take from this?

I think there are several lessons to be learned from this judgment:

• Perhaps one of the most obvious points is the reminder that parties need to be careful when they decide to walk away from a contract. Regardless of the reasons at the time, UKF have found themselves in an unenviable situation. Parties need to remember that the rules of contract law bind them.
• Adjudicators have to be careful when they consider jurisdictional challenges, especially when it comes to looking at the crystallisation of the dispute in circumstances where the revised claim was issued shortly before (or even in) the referral of the dispute. As the judge noted, “…it is of course always a matter of fact and degree… as to whether amendments to a disputed claim fall within the umbrella of the original dispute”. Akenhead J made similar comments earlier this year in Working Environments v Greencoat.
• Decisions that can be severed are more likely to be enforced. While I have previously suggested that adjudicators should write decisions that are issued based, that advice is even more pertinent given Akenhead J’s decision to sever in both Working Environments and Beck. It’s probably wise for the adjudicator to consider splitting his fee between issues too, especially if there is a jurisdictional challenge. After all, it’s a good idea to have an eye on the future and plan accordingly.