REUTERS | Heinz-Peter Bader

Novel consideration when balancing the imperatives of adjudication and litigation

The court may order a stay of a claim pursuant to CPR 3.1(2)(f) where the claimant has previously been ordered to pay the defendant sums in satisfaction of an adjudicator’s decision and the claimant has not done so. That power is exercised, in part, with the “pay now argue later” ethos of the Construction Act 1996 in mind. The key decisions to date (which I discuss below) balance a party’s rights of access to the court against those broader policy objectives.

This post looks at a case in which the TCC applied and expanded the case law in this area, RHP Merchants and Construction Ltd v Treforest Property Co Ltd.

RHP Merchants and Construction Ltd v Treforest Property Co Ltd

The key circumstances of the case are as follows:

  • In adjudication one, the defendant (Treforest) obtained an adjudicator’s decision in its favour, which was enforced on 5 November 2020.
  • Shortly after the enforcement of adjudication one, the claimant (RHP) was successful in a separate adjudication between the parties (adjudication two).
  • Treforest had failed in winding up proceedings, issued against RHP, and was ordered to pay costs.
  • The aggregate of the sums owed to/ from the parties left a net balance owed to Treforest of about £36,000.
  • RHP issued Part 7 proceedings on 9 July 2021 and shortly afterwards, Treforest applied for a stay.

In view of the application for a stay, the court had to consider whether to order a stay and, if so, on what terms. That raised an interesting question: what weight should be attached to adjudication two as opposed to adjudication one? That was significant because, if adjudication two was discounted, the terms of the stay would require RHP to pay a much greater sum (about £220,000 more) in order to have the stay lifted.

The court’s answer to that question is an interesting new step in the case law considering the confluence between litigation and the adjudication regime.

The case law

The application for a stay, on the basis of an unsatisfied adjudicator’s decision in a defendant’s favour, necessarily raises a tension between the respective underlying schemes of adjudication and litigation. That tension was identified and summarised by Roger Stewart QC (sitting as a deputy High Court judge) as follows:

“Standing back from this it seems to me that the cases in this area involve a tension between two important principles: the first, which was identified specifically by O’Farrell J in the Kew decision, is the importance that the Court always attaches to access to justice. As she points out, this has been a feature of the English law since Magna Carta and, of course, features in the European Convention on Human Rights and the jurisprudence associated with it. More importantly, the core essence of the regime which is introduced in relation to adjudications is pay now and argue later, which necessarily involves the ability to argue later. Against that, the policy of the HGCRA, which has now been adopted and followed in a number of other jurisdictions, is unquestionably that one should pay now and argue later. In balancing these considerations I note that even in the context of the Anglo Swiss decision, Akenhead J cautioned of the need to apply a stay only in clear cases.”

The two decisions noted by the judge in that passage were Anglo Swiss Holdings Ltd and others v Packman Lucas Ltd and Kew Holdings Ltd v Donald Insall Associates Ltd, both of which had previously explored this tension. They set out the principle that a stay may be appropriate where proceedings are issued by a claimant who has failed to comply with an adjudicator’s decision requiring it to pay the defendant. In both cases, the court proceedings were stayed subject to satisfaction of the adjudicator’s decision. However, neither judgment entailed consideration of countervailing adjudication decisions, or whether to differentiate between enforced and unenforced adjudication decisions.

The relevance of adjudication two

Although the decisions in Anglo Swiss and Kew Holdings were relevant to the decision in RHP, they did not provide the full answer on the facts. With this in mind, the judge noted that the “pay now argue later” ethos of adjudication was something of a double-edged sword for a party seeking to rely upon it when it had not satisfied an adjudication decision:

“Against that background, I have come to the following conclusions. First, it seems to me that the second adjudication is of importance when considering the overall position between the parties. I confess to having very considerable doubts as to whether or not the second 7 adjudicator did in fact have jurisdiction. That is not an issue which I am required to decide but it seems to me entirely unsurprising that jurisdiction was challenged.

Nevertheless, it was always open to Treforest to seek a declaration that there was no jurisdiction, and the adjudicator was, as it seems to me, validly appointed. He was an experienced adjudicator, he considered the matters before him, and it does seem to me that, in the context of the pay now argue later, the existence of the second adjudication award is important.”

As those passages highlight, the judge did not accept the submission that adjudication two should not be considered – that was despite a concern as to the validity of that decision.

That conclusion follows from the decision in Prater Ltd v John Sisk and Son (Holdings) Ltd, which was raised in submissions and which is noted in the decision. In that decision, Veronique Buehrlen QC (sitting as a deputy High Court judge) treated an adjudicator’s decision as necessarily valid until challenged:

“It seems to me self-evident that if, upon an application for enforcement or other challenge of an adjudication decision, it is found that the adjudicator did not have the requisite jurisdiction his decision will not be binding or enforceable and will fall to be described as a nullity. However, it does not follow that the decision falls to be treated as a nullity in subsequent adjudications when it has yet to be challenged by the aggrieved party. Clause W2.3(11) expressly states that the Adjudicator’s decision is binding on the Parties unless and until revised by the tribunal. Further, I do not think that anything turns on whether one describes the effect of a lack of jurisdiction on an adjudication decision as resulting in a non-binding decision, an unenforceable decision or a decision that is a nullity. Unless and until the decision is challenged before a court or tribunal (as appropriate) it is to be treated as binding.”

Though the facts in Prater were somewhat complex, with a number of related adjudications in play, the decision as to the prima facie nature of an adjudication decision was relevant to that in RHP.

This was because the decision in Prater considered the language of clause W2.3(11) of the underlying NEC contract, which provided that the adjudicator’s decision “is binding on the Parties unless and until revised by the tribunal and is enforceable as a matter of contractual obligation between the Parties and not as an arbitral award”. That wording is closely aligned to the language of the Scheme for Construction Contracts 1998, which was incorporated into RHP and Treforest’s contract, whereby an adjudicator’s decision “shall be binding on the parties, and they shall comply with it until the dispute is finally determined by legal proceedings, by arbitration”.

Therefore, by analogy, the reasoning in Prater could be applied so that adjudication two was assumed valid until challenged, and that was the approach the judge adopted in RHP.

The outcome

Following those steps, the judge ordered a stay but, importantly, it was on the basis of the difference between the respective liabilities between the parties, which included the sums owed in adjudication two.

As such, the decision represents a further application of the principles formulated in Anglo-Swiss and Kew Holdings, though with something of a twist: where there are countervailing adjudication decisions between the parties, a stay is ordered subject to payment of the net balance.

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