REUTERS | Amit Dave

Serial adjudication again

A couple of weeks ago I wrote about the judgment in Niken v Trigram and highlighted some of the issues that arise in serial adjudication. Just as I went to press (so to speak), the issue popped up again, this time in Imperial Chemical Industries Ltd v Merit Merrell Technology Ltd. It is a long-running dispute that I’ve looked at before, although then I was discussing the parties’ contract drafting and the question mark over which ANB and which adjudication rules applied to the parties’ disputes.

While in Niken v Trigram it was very apparent that the same dispute had not been referred to more than one adjudicator, in ICI v Merit, the point was not so clear cut (at least, not the way ICI argued it). Perhaps this time, it was less shades of grey and more a whiter shade of pale.

ICI Ltd v Merit Merrell Technology Ltd

Merit Merrell Technology Ltd (the contractor) entered into an amended NEC3 ECC with ICI Ltd (the employer) to carry out works at the employer’s new paint processing plant in Ashington, Northumberland. Although the initial contract sum was said to be just under £2 million, extra works were instructed, which the contractor valued in excess of £23 million.

A dispute arose over the quality of the contractor’s welding and the value of its works. In early 2015, the contractor’s employment under the contract was terminated and a number of adjudications followed:

  • The first adjudicator decided that the contractor was entitled to some £7.5 million because the employer had not served a valid payment notice.
  • The second adjudicator (Mr Sliwinski), decided that the employer was entitled to certain documents, but did not order the contractor to provide them (the contractor had argued it had a lien over them, due to the non-payment of its interim application 23 (IA 23)). When the employer sought to enforce the adjudicator’s decision, the contractor argued that the adjudicator had no jurisdiction as he was nominated by the wrong ANB. Edwards-Stuart J enforced the adjudicator’s decision, but did not order the documents to be delivered to the employer.
  • The third adjudicator (also Mr Sliwinski) decided that the employer had not validly terminated the contract, nor had it accepted a repudiatory breach. Instead, he found the employer had repudiated the contract.
  • The fourth adjudicator (Mr Wright) was asked to consider the payment outstanding under IA 23, which he did, deciding the contractor was entitled to some £816,000 plus VAT and interest.

It was the fourth adjudicator’s decision that ended up before Jefford J and she decided that the contractor was entitled to summary judgment. In doing so, she rejected all of the employer’s defences to enforcement.

What the second adjudicator had said

To understand how the fourth adjudicator’s decision ended up before the courts, it is necessary to look at what the second adjudicator said in his decision. Even though he was being asked to consider the contractor’s claim that it had a lien over certain documents because of the non-payment of IA 23, he said:

“…I must accept that [the contractor’s] Application No. 23 in December 2014 became a notified sum and that without a valid Pay Less notice this is the sum that was payable.

However, the repudiation and termination of the contract was on 17 February 2015 and as accepted by both parties the primary obligation came to an end. Payment is a primary obligation and as payment had not yet become finally due as at the date of termination the obligation to pay did not crystallise.

Accordingly as at the date of termination no further sum was to be paid to [the contractor] under the contract.”

Was the fourth adjudicator bound by the second adjudicator?

As well as payment of IA 23, the contractor also asked the fourth adjudicator to determine the effect of the second adjudicator’s decision on its claim in the fourth adjudication. Clearly it was interested in the bit above that said that there was no valid pay less notice issued against IA 23.

In reply, the employer argued that the fourth adjudicator was not bound by what the second adjudicator had said about IA 23:

“…Mr Sliwinski’s comments in relation to the payment or pay less notices issued in relation to Application No.23 are not only incorrect but that they are not binding on the parties as Mr Sliwinski was not asked to decide the status of Application no. 23 or any notices issued in response to that Application…

Mr Sliwinski was not asked to decide whether Application No. 23 was payable, and nor was he asked to decide whether the notices issued by [the employer] in response to Application No. 23 were effective. Mr Sliwinski had jurisdiction to consider whether [the contractor’s] defence of a lien over the documents was effective, but not to determine the effectiveness of payment and pay less notices issued by [the employer]. Mr Sliwinski did not therefore have jurisdiction to make the findings that he did in his Decision in Adjudication No. 2 and his comments in relation to the notices issued by [the employer] in response to Application No. 23 are not binding on the parties.”

What did the fourth adjudicator decide?

The fourth adjudicator found that the second adjudicator’s comments on the employer’s notices were not binding on him, but he concluded that he was bound by his observations on the parties’ rights and obligations following termination. However, the situation had changed because, since those comments were made, the third adjudicator had decided that the employer was in repudiatory breach of contract. Therefore, in the fourth adjudicator’s view, it would not be right for the employer to rely on that breach to avoid payment.

Pausing there, this highlights some of the difficulties posed by serial adjudications and the challenges subsequent adjudicators can face when having to decipher what has been referred and decided by a previous adjudicator. The starting point will always be the dispute that was referred. Providing that the dispute referred in the later adjudication is different to the previous adjudications, then it may be relatively straightforward to differentiate between the matters referred. In this instance it appears that the dispute referred to the adjudicator in the fourth adjudication was different to the dispute referred to the adjudicator in the second adjudication.

In the enforcement proceedings

At no time did the employer raise a jurisdictional objection to the fourth adjudicator, that only came later, in the enforcement proceedings. It seems the employer argued that the fourth adjudicator did not have jurisdiction to decide whether he was bound by the second adjudicator’s decision but, if he did have jurisdiction, then he should have concluded that he was bound by his comments on payment and could not order a sum payable under IA 23.

Interestingly, the court suggested that such an argument was trying to constrain the adjudicator’s jurisdiction “in a very particular manner” by, on the one hand accepting that he had jurisdiction and, on the other hand, saying he was bound by comments made in an earlier adjudication on matters not referred to the previous adjudicator. The court said it would approach that sort of argument “with caution where there are serial adjudications”.

There is a quote that pretty much sums up where I think the court got to:

“…if an adjudicator has jurisdiction to decide the extent to which a previous decision is binding on him then it is inherent in that jurisdiction that he has jurisdiction to decide the consequences thereof.”

For me, this again suggests that, provided an adjudicator has jurisdiction, questions of whether an adjudicator’s conclusion on the application of the law or interpretation of a previous adjudicator’s decision are right or wrong are not matters that the court will seek to review. That being the case, it may be that the binding nature of an adjudicator’s decision is more extensive than previously thought.

MCMS Ltd Matt Molloy

Share this post on: