Coronavirus, or COVID-19, is impacting all parts of our lives. Currently, the focus in the construction industry is rightly on the safety of workers still attending sites. No doubt, the future will see litigation on whether the coronavirus gives rise to extensions of time, force majeure, frustration or other legal rights or remedies.
At present, the main impact on the litigation of construction disputes is that, as Matt Molloy explained in his recent blog, it is being carried out “in the shadow of coronavirus“, rather than dealing substantively with what coronavirus means under a particular contract.
A search of Lawtel reveals there are already 15 High Court judgments referring to coronavirus. These include civil litigation procedural issues, such as the refusal of an application to adjourn a five-week trial in a £250 million claim in the Insolvency and Companies List of the B&PCs, due to start in June 2020.
Millchris Developments Ltd v Waters
The question of adjudication and coronavirus was, as Matt foreshadowed at the end of his blog, always likely to arise. The surprise is how quickly it did so.
On 2 April 2020, the TCC heard an application by Millchris Developments (MD), a building contractor, for an interim injunction to prohibit a home owner (Ms Waters) for whom it had carried out building works in 2017 from continuing with an adjudication.
Sadly, the full text of Jefford J’s judgment is not yet available. The following facts and reasoning can be gleaned from the Lawtel and Westlaw case notes.
MD had carried out building works to W’s property. The works commenced in September 2017. It is unclear when they were completed.
In November 2019, MD ceased trading (although it is an active company on Companies House).
According to Lawtel/Westlaw, on 23 March 2020, W commenced a true value adjudication contending she had overpaid MD by £45,000 and that there were defects in its works. That evening the government announced the current “lockdown” measures.
An adjudicator was appointed who initially proposed a timetable for submissions to be completed by 3 April 2020 and a site visit on 14 April 2020. These directions are rather surprising in the shortness of the timetable and having a site visit. It may be that notice of adjudication was served and the timetable set before 23 March 2020. The Lawtel/Westlaw commencement date may reflect the date the referral notice was served. In any event, the directions proposed by the adjudicator could perhaps have been more reasonable and flexible, as Matt advocated.
Perhaps recognising this, and following a letter from MD that it would not be able to comply with the timetable and that the adjudication should be postponed until after the lockdown, the adjudicator proposed a two-week extension to the timetable.
Still dissatisfied, MD applied to the court for an interim injunction to stop the adjudication.
Injunction: principles and argument
The principles applied by the court on an interim injunction are well established. Following American Cyanamid, the questions to be asked are:
- Is there is a serious issue to be tried?
- Would damages be an adequate remedy?
- Where does the balance of convenience lie?
The adjudication specific guidance from Fraser J in Lonsdale v Bresco in applying this three stage test is that the court will only grant an injunction in respect of an ongoing adjudication “very rarely and in very clear cut cases”. (The Court of Appeal, in affirming the first instance decision (which is of wider significance for insolvency and adjudication), did not comment on this part of the judgment. The ongoing appeal to the Supreme Court is scheduled for later this year.)
MD’s argument was that there was a serious issue to be tried because the adjudication, if pursued, would be in breach of the principles of natural justice and thus unenforceable.
Jefford J’s judgment
Unsurprisingly, the court appears to have made short shrift of this argument in declining to grant an injunction on the first stage of the test.
As a matter of principle, the court did not completely shut the door on the argument that an adjudication could be injuncted on grounds of an unavoidable breach of natural justice. However, it made it clear that such an argument would only succeed in exceptional circumstances.
On the facts, the court rightfully does not appear to have had much sympathy for MD’s explanations as to why it could not participate. Plainly, allowances need to be made for remote working, but it should have been possible for MD to obtain documents and provide submissions.
Overall, the clear indication from the court is that natural justice challenges to ongoing adjudications or adjudicator’s decisions based on the coronavirus are very unlikely to succeed.
This decision is unsurprising and to be welcomed. In fact, far from being discouraged or unfair, adjudication is eminently suited to resolving disputes during the current lockdown:
- Adjudication is typically conducted on paper without live evidence.
- Procedural issues are typically dealt with by email rather than hearings.
- Adjudicators and the parties can adopt, subject the longstop on any decision absent agreement, a flexible and bespoke timetable or approach.
- Any decision in the adjudication is interim.
The first three points mean that for many adjudications minimal if any changes are required to the typical procedure and approach, save for the absence of hardcopy bundles. (Following Matt’s discussion of this issue, from the perspective of someone who represents parties, I would welcome adjudicators taking the lead on directing the parties to provide documents in a manner they are comfortable with, such as establishing a site or folder on Dropbox specific to the adjudication and asking parties to upload all submissions and documents to it.)
The last point means that even if a party feels aggrieved by a decision, it still has the opportunity to contest the adjudicator’s decision in court or arbitration once we have returned to normal. The possible prejudice faced by a party having a remote electronic court trial because of the lockdown is far greater than the prejudice to a party in an adjudication. The latter retains the ability to bring later proceedings in court or arbitration, which should be unaffected by coronavirus.
Adjudication can and should play a vital role in allowing those in the construction industry to resolve disputes and secure cashflow, particularly important during this difficult period. So long as parties and adjudicators are flexible and reasonable in making allowances for the unique working environment, and any particular difficulties it may pose, there is no reason why adjudication should be restrained.
However, one aspect of the court’s reasoning could merit criticism. The court’s response to MD’s argument that it could not be present at the site visit was (according to the Lawtel/Westlaw case note) that:
- Parties do not have an absolute right to be present at a site visit, so an adjudicator could conduct it alone.
- While W would likely be present as it was her home, the visit could be recorded or MD could provide a list of points for the adjudicator to consider in advance.
Full analysis must of course be left until sight of the full reasoned judgment. Nevertheless, on first sight, this reasoning is open for criticism:
- As a matter of public and personal safety, site visits during the lockdown period should be discouraged, particularly a visit to someone’s home.
- The risk of unfairness, even if unintended, from an adjudicator and one party being alone together, particularly at the location relevant to the substantive dispute, is significant. While not giving rise to an unavoidable breach of natural justice, this situation should be avoided, particularly where the absence of one party is enforced.
If a site visit is truly necessary, hopefully more creative solutions (such as a live video tour on Zoom, Skype or Microsoft Teams) can be adopted. If not, then it is important to remember that the timing of an adjudication is a matter for the referring party. If a claim is brought where a site visit or meeting to examine witnesses is not possible or reasonable, despite a visit or oral evidence being essential to the determination of the claim, then fairness might dictate the claim should fail for want of proof.