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Can a party withdraw from adjudication part way through and what are the implications?

After a summer of writing about arbitration and experts, it is nice to turn my attention to adjudication for a change. As the observant will realise, this is my second adjudication case in a row!

Jacobs UK Ltd v Skanska Construction UK Ltd was a dispute all about the adequacy of Jacobs’ design services, which related to street lighting in Lewisham and Croydon. It highlights some interesting issues related to whether a party is entitled to withdraw from an adjudication and then start again.

Jacobs UK Ltd v Skanska Construction UK Ltd

The parties’ contract was entered into in February 2011 and was described as a “design agreement”. It was a construction contract, which meant disputes could be referred to adjudication.

The parties’ dispute centred on an alleged disparity between the design advice that Jacobs gave Skanska, which Skanska relied on when it submitted its bid for the PFI project, and the design Jacobs prepared once the PFI contract started. Skanska alleged it was materially different and, as a result, it suffered loss and damage.

In February 2017, Skanska referred the dispute to adjudication. Although Jacobs raised jurisdictional issues, those were resolved and, on 13 February 2017, the parties reached agreement on the applicable procedure and timetable for the adjudication. This February 2017 agreement is important, as you will see later.

The parties exchanged submissions in the adjudication but when Skanska was unable to serve its reply (its counsel was unavailable), as no extension of time could be agreed, Skanska took the step of withdrawing from the adjudication. A few days later, the adjudicator resigned.

Fast forward to June 2017, and Skanska started another adjudication. Although it referred substantially the same dispute, one claim had been withdrawn, another claim’s scope was narrowed and the methodology and quantum of the claim was revised.

As you might imagine, Jacobs did not respond well to this. It applied to the TCC for a declaration that the second adjudication was unlawful, that Skanska should be restrained from taking any further steps in the adjudication and it should withdraw, and that Skanska should pay its costs of the first adjudication.

O’Farrell J declined to grant the injunctive relief Jacobs sought, although she did make a wasted costs order. It was this element of the judgment that caught my attention, along with the possible consequences for the parties if the first adjudicator had not resigned.

What would have happened if the first adjudicator had not resigned?

It is evident from the sequence of events that Skanska withdrew from the first adjudication and invited the adjudicator to resign on Friday 7 April 2017, but that he did not resign until Tuesday 11 April 2017. It would be interesting to know why the adjudicator didn’t resign earlier. Was it because he was pondering whether he should resign?

I wonder what the outcome would have been if he hadn’t resigned and had instead proceeded to reach a decision. I don’t possess a crystal ball, but I guess that if the adjudicator had refused to resign and had proceeded to reach a decision without Skanska’s reply, his decision would not have bound the parties, temporarily or otherwise.

This is because the judge made it clear that the Construction Act 1996 and the Scheme for Construction Contracts 1998 do not impose any restrictions on the referring party’s entitlement to withdraw unilaterally from a claim referred to adjudication. In doing so, she referred to Midland Expressway Ltd v Carillion Construction Ltd where Jackson J (as he was then) stated that:

“I have come to the conclusion that it is impossible to read into either the 1996 Act or the Scheme any restriction prohibiting a party from withdrawing a disputed claim which has been referred to adjudication. I reach this conclusion for four reasons:

(i) There is nothing in the Act or the Scheme which suggests that any such restriction is intended.

(ii) Adjudication is an informal process which arrives at an interim resolution of disputes pending final determination by litigation or arbitration. It would be contrary to the statutory purpose to prohibit a party from withdrawing from such a process any claim which it did not wish to pursue.

(iii) If there were such a restriction, it would have the bizarre consequence that parties would be forced to press on with bad claims in adjudication. This would lead to wastage of costs and resources on the part of all parties. In my view, this simple consideration outweighs all the policy arguments which have been urged in Mr Blackburn’s skeleton argument.

(iv) In John Roberts Architects Ltd v Park Care Homes [2006] BLR 106, the Court of Appeal stated obiter that a referring party could discontinue an adjudication. See the judgment of Lord Justice May at page 109.”

If a party is entitled to unilaterally withdraw a claim referred to adjudication, then it must follow that the adjudicator no longer has jurisdiction. Therefore, if the adjudicator had continued to reach a decision in this case, then he would have done so absent jurisdiction and, as such, his decision would not have been binding on the parties.

What are the implications of the judge’s conclusions on the wasted costs order?

I think that the judge’s conclusions concerning the wasted costs order she made will be scrutinised in some detail, so it is worth setting out the relevant extracts from the judgment:

“Jacobs is entitled to any wasted or additional costs caused by Skanska’s failure to comply with the agreement of 13 February 2017. It is common ground that, in the absence of agreement giving the adjudicator jurisdiction to award costs, a party’s costs of adjudication proceedings are not recoverable. However, in this case, the parties entered into an ad hoc agreement under which the procedure and timetable to resolve the referred dispute in the first adjudication were agreed and fixed. That went beyond mere agreement as to the timetable to be directed by the adjudicator in respect of an existing contractual or statutory adjudication and imposed new enforceable obligations on the parties.

Skanska’s failure to serve its reply or continue with the first adjudication constituted a breach of the ad hoc agreement, entitling it to its wasted or additional costs as damages.”

The first question that springs to my mind is in what forum can Jacobs claim its wasted costs? Can it claim them in the second adjudication, or does it have to claim them in any subsequent court proceedings?

I raise this question because the judge made clear that the parties had entered into an ad hoc agreement concerning the adjudication timetable and procedure, and there may be question marks as to whether the second adjudicator would have jurisdiction to consider claims for breach of this separate agreement. If the adjudication clause in the contract between the parties provides for disputes arising “under or in connection with” the contract to be referred to adjudication, then it may be uncontroversial that such claims can be addressed by the second adjudicator, but if the adjudication clause only refers to claims arising “under” the contract to be referred, then it might not be so clear cut.

That said there are now a number of authorities to support the proposition that, notwithstanding the fact that an adjudication clause only allows claims arising “under” the contract to be referred to adjudication, all claims arising “under or in connection with” the contract can be referred to adjudication. For example:

If that is the case then the second adjudicator may be able to consider the wasted costs claim in any event.

I hope that one of the implications of this case is that parties do not start to shy away from agreeing adjudication timetables and procedures simply because they fear being hit by a wasted costs order if they are unable to comply with what has been agreed. I would encourage parties to continue to reach such agreements because they can be helpful for everyone involved in the adjudication process and, ultimately, if a realistic timetable is agreed then there should be no need to change it. Furthermore, it must be remembered that the facts of this case were somewhat unusual in that Skanska’s counsel became unavailable part way through the adjudication and Jacobs refused to extend time to accommodate his unavailability.

MCMS Ltd Jonathan Cope

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