One of the fears relating to adjudication is that a referring party will attempt to achieve success by grinding the responding party down through serial adjudications until it achieves the result it wants or the responding party gives in. In Benfield Construction Ltd v Trudson (Hatton) Ltd, Coulson J issued a clear warning that such an approach would not be condoned, stating:
“Allowing one party to raise one legal issue at a time, in serial adjudications extending over many months or even years, until that party achieved a result that it liked, would place an intolerable burden on the other party. It was not the purpose for which adjudication was designed.”
In the latest round of litigation between Mailbox (Birmingham) Ltd and Galliford Try Building Ltd, the court had to consider a similar argument, but this time in relation to whether a responding party could run piecemeal defences. Coulson J held that, in this case, the responding party had to run the whole of its defence.
The decision can be seen as a further attempt by the court to try and ensure that an adjudication deals with all the issues relevant to a dispute in order to provide a temporarily binding decision that is not subject to successive challenges in future adjudications. On that basis, it is to be welcomed.
Mailbox (Birmingham) Ltd v Galliford Try Building Ltd
Mailbox employed Galliford to construct a development in Birmingham. The works were to be completed in sections. The contract provided for liquidated damages in the event that the works were delayed and also a procedure for extending the contractual completion date.
The works were not completed by the contractual completion date and Mailbox served a notice of adjudication, identifying the issue as “Mailbox’s entitlement to liquidated damages”. The notice identified seven sections that had been completed late.
In its response, Galliford sought to defend the liquidated damages claim by listing only three events that it alleged gave rise to an entitlement to extensions of time. The response also noted that if the extensions of time were not recognised, “separate dispute resolutions would follow”.
Mailbox took issue with the fact that Galliford appeared to be limiting its defence to the first adjudication in order to raise it in a later one. Mailbox’s position was that the adjudicator was asked to decide its entire entitlement to the totality of the liquidated damages, which issue included the entirety of Galliford’s right to extensions of time.
The adjudicator agreed with Mailbox and awarded Mailbox liquidated damages. Mailbox later successfully enforced the adjudicator’s decision in the TCC.
Declaratory relief proceedings
Anticipating a second adjudication, Mailbox issued proceedings seeking declarations that the first adjudicator’s decision had determined the totality of Mailbox’s entitlement to liquidated damages and Galliford’s entitlement to extensions of time.
On the same day, Galliford commenced a second adjudication. While its principal focus concerned the lawfulness (or otherwise) of Mailbox’s termination of Galliford’s contract, one element of that debate concerned whether Galliford was proceeding regularly and diligently with the works. In turn, that argument required consideration of the contractual completion date and any extension to that date. Consequently, resolution of the issue partly turned on whether Galliford was entitled to an extension of time that went beyond that granted in the first adjudication.
Coulson J’s judgment
Coulson J recognised that there were two conflicting principles in play:
- On the one hand, a defending party in adjudication cannot seek to limit the defence previously advanced, much less to save parts of that defence for another day (for example, see Working Environments Ltd v Greencoat Construction Ltd).
- On the other hand, in a second adjudication, a contractor is entitled to defend itself against a claim for liquidated damages by relying on a full extension of time claim, even though it has already made a limited extension claim in an earlier adjudication (see Quietfield Ltd v Vascroft Construction Ltd).
Coulson J started his analysis by explaining that the “dispute” referred to adjudication is identified not only by reference to the notice, but also to the background facts. In relation to that dispute, neither party is confined only to those arguments raised prior to the adjudication as long as they relate to the challenged claim. However, in Working Environments it was held that where the crystallised dispute referred to adjudication encompasses a particular defence, the responding party cannot withdraw that defence during the adjudication to raise it later.
Coulson J then went on to consider the authorities on serial adjudications. In particular, he referred to Quietfield and Dyson LJ’s finding that, in respect of extension of time claims, generally, there was nothing in the express language of the contract (in that case) which prevented the contractor in a later application from making good the deficiencies of an earlier application. However, Dyson LJ also recognised that the rule of preventing a second adjudicator from reconsidering a matter in the first adjudication was designed to protect respondents from:
“… having to face the expense and trouble of successive adjudications on the same or substantially the same dispute.”
Coulson J then applied these principles to the Mailbox dispute.
In relation to the first adjudication, because the parties’ contract had been terminated, all of the pre-adjudication correspondence had concerned the whole period of delay. As there was going to be no further adjustment to the completion date, the dispute in the first adjudication concerned Mailbox’s full entitlement to liquidated damages. Since a contractor’s claim for an extension of time was simply a defence to an employer’s claim for delay damages, Coulson J held that the dispute in the first adjudication must have fixed not only Mailbox’s total entitlement to liquidated damages, but also Galliford’s entitlement to an extension of time. As a result, he stated:
“Given that I have found that the crystallised dispute between the parties concerned responsibility for the entirety of the delays, it follows that GTB were not entitled to seek to defend themselves by reference to just a few of the potential relevant events, and keep others back for another day. That would be contrary to paragraph 24 of Akenhead J’s judgment in Working Environments, because it would involve the defending party withdrawing part of its defence during the adjudication in order to rely on it another day. That is not an approach which can be permitted.”
Consequently, Coulson J held that Galliford could not claim an entitlement to an extension of time different to that awarded by the first adjudicator, even if such a claim was based on arguments not advanced in the first adjudication.
Galliford fared slightly better in relation to the arguments it could raise in relation to the wrongful termination issue. As the issue of termination was not decided in the first adjudication, Galliford was entitled to make whatever points it liked about its “diligent and regular performance”, even if these points related to facts already discussed in the first adjudication.
Consequences of the judgment
The case is on all fours with the principles in Benfield Construction. The effect of this judgment is to apply a similar rule to responding parties as that which already applies to referring parties, namely that neither party can refer to a second adjudication a dispute that has already been decided as part of an earlier adjudication, whether or not one party chose to deploy all available arguments and evidence open to it.
That said, it does seem to me that Coulson J was persuaded by the following points:
- The parties had argued in correspondence about Galliford’s entitlement to an extension of time generally and their arguments had not been limited to the three specific issues raised by way of defence in the first adjudication.
- Galliford had plenty of time to get its case in order before Mailbox commenced the first adjudication, but had chosen not to do so.
- Galliford had essentially taken a tactical risk that simply hadn’t paid off, but this was only temporary. It had not lost its right to argue its extension of time claim permanently, because it could still refer its claim for final determination.
Coulson J seemed to take into account the fact that the extension of time claim had essentially crystallised because the contract had been terminated. Therefore, there was no possibility of a “new” entitlement to an extension of time arising. This leaves open the possibility that “new” defences could be raised where the works are ongoing, because it is possible to argue that a subsequent defence (say an extension of time) did not form part of the crystallised dispute.
An adjudicator could not decide a dispute that has neither crystallised nor, in fact, arisen. Consequently, there will be cases where a decision on, say, an entitlement to liquidated damages may not be the end of a claim for an extension of time, and vice versa. However, if, at the time of the dispute a defence was available but was withheld, a future claim based on that defence is lost. That is because the success of the first claim logically means that the issue has already been adjudicated and the defence was unsuccessful.
Taking Mailbox v Galliford and Benfield together, it seems to me that the message from the courts (or, at the very least, Coulson J) is clear: parties must bring all their arguments relevant to the issues to be decided in one adjudication. It is now risky for either party to hold back arguments that could be made in an earlier adjudication, in the hope that they can be deployed in a later adjudication. If such a strategy is deployed and fails, Coulson J is unlikely to have any sympathy, whether sitting in the TCC or, perhaps even more importantly, in the Court of Appeal.