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TCC decides adjudicator did not stray off course

I very much welcome the fact that the TCC has clearly been open for business as usual during the COVID-19 lockdown, and that we’ve seen a number of interesting judgments published, one of which is Flexidig Ltd v M&M Contractors (Europe) Ltd.

This was a case about the enforcement of an adjudicator’s decision (as so many are) and involved many of the usual arguments (as so many do), such as did the adjudicator have jurisdiction to reach the decision and was there a breach of the rules of natural justice? Unusually, the judge also had to consider an application to serve proceedings out of the jurisdiction, something I’m not really familiar with but, luckily, Helena White has already talked about that in her blog. That means I don’t need to mention whether enforcement proceedings should have been started in England or Northern Ireland, and leaves me to look at the jurisdiction and natural justice issues in more detail.

Flexidig Ltd v M&M Contractors (Europe) Ltd

Briefly, the case concerned the fourth adjudication between the parties and the enforcement of the resulting adjudicator’s decision. It arose following a dispute arising out of Flexidig’s role in carrying out civil works associated with Virgin Media’s new underground infrastructure in Lincolnshire, which would enable the delivery of fibreoptic broadband to people’s homes. Flexidig’s contract was with M&M, a company incorporated in Northern Ireland. The works were completed in 2018 and M&M alleged they are defective.

The first adjudicator had awarded Flexidig around £184,000 and that decision had been enforced in Northern Ireland. The second adjudicator had awarded M&M £462,000 and that decision was also enforced in Northern Ireland (although only for £12,000 due to the rest being a payment on account – something there was no contractual basis for and which the adjudicator lacked jurisdiction to award). A third adjudication was started but was stayed (we don’t know why), which brings us back to number four.

The fourth adjudication

The fourth adjudication was started by Flexidig, who claimed a sum of £673,000 was due to it under its application for payment number 70 (IA 70). It said there had been no payment notice, so its application stood as a default payment notice, and there was no valid pay less notice, so the notified sum became the sum in the application.

The adjudicator disagreed and decided that there was a valid payment notice and a valid pay less notice, but he went on to decide that a payment was nevertheless due to Flexidig  (some £223,000) on the basis that the value of the defects had already been decided in the second adjudication (some £462,000), even though the enforcing judge in Northern Ireland had only ordered Flexidig to pay some £12,000.

I don’t normally comment on the merits of adjudicators’ decisions in this blog, but I must confess that I have some difficulty with this adjudicator’s approach.

In my view, an adjudicator decides whether a payment is due either as a result of failure to comply with the contract’s payment and/or pay less notice machinery, or following a true value adjudication. However, here the adjudicator decided that there was a valid pay less notice and that he could not decide the true value of the application, but that he could nevertheless decide that a sum was due to Flexidig – a so-called “third way” to resolving payment disputes.

The adjudicator relied on Flexidig’s request that the adjudicator award it the sum claimed “or such other sum as the Adjudicator finds due”, a so-called “catch-all provision”,  and also on section 111(8) of the Construction Act 1996, which refers to an adjudicator deciding that more than a sum stated in a valid payment or pay less notice is due to a referring party.

I have reservations as to whether these reasons entitled the adjudicator to reach the findings he did, and I have to say that I have some sympathy with the parties objections raised after the adjudicator’s decision was published, with Flexidig arguing that it had no liability for the £462,000 as it was a “hypothetical on account payment for which the Contract made no provision”, and with M&M suggesting the adjudicator had exceeded his jurisdiction by “reaching a de facto valuation of [Flexidig’s] application for payment number 70”.

I realise that whatever I might have done if I’d been the fourth adjudicator is irrelevant though, and the point is whether the decision was enforceable, which was the question that Waksman J had to decide.

The enforcement proceedings

Waksman J heard the enforcement application and dealt with it in two parts, namely as the “referral objection” and the “positive award objection”.

The referral objection was really all about whether the referral had been served out of time. It goes without saying that if it had been, the adjudicator would have had no power to act. It was an issue that the adjudicator had considered and dismissed during the adjudication.

I must admit I don’t think the point is particularly interesting, but it is a useful reminder that the date of the notice of adjudication will be the date it is received by the addressee or is deemed to have received under the relevant provisions of the contract.

The “positive award objection”

Turning to the positive award objection, Waksman J said this was made up of three elements:

  • It is impossible to understand what the adjudicator was doing.
  • Even if he understood, he had no jurisdiction to do what he did.
  • What he did was a breach of natural justice.

He dealt very quickly with the first point (he was content it was clear what the adjudicator was doing) and said the second and third points ran together. The real issue here was whether the adjudicator had jurisdiction and/or breached the rules of natural justice.

Waksman J referred to a number of cases, including AECOM Design Build Ltd v Staptina Engineering Services Ltd, which I blogged about at the time.

AECOM also concerned a case where the adjudicator had relied on a “catch-all” provision, and Fraser J made it clear that the inclusion of such provisions can allow an adjudicator to make an alternative declaration, as the adjudicator had done in that case. However, he also sounded an important word of caution when he stated that:

“… such wording is most unlikely to be determinative on its own, and should not be seen by parties as giving any adjudicator carte blanche to go outside the scope of the dispute referred to them in any particular case.”

Interestingly, at the time I said that:

“I most often see responding parties trying to rely on ‘catch all’ provisions in smash and grab adjudications. In particular, where a referring party is claiming a sum of money on the basis that no payment and/or pay less notice has been served, they will obviously state the sum claimed in the declaration sought, but will also sometimes include the words ‘or such other sum as the adjudicator may decide’ (or something similar). On a number of occasions I have come across responding parties arguing that this means that I have jurisdiction to consider the merits of the sum due.

To date, I have given all of these challenges relatively short shrift because it is quite clear to me that a notice of adjudication needs to be read as a whole in order to define the extent of the dispute referred. The scope of a dispute cannot be widened by a ‘catch all’ provision in circumstances where it is clear from the notice that, no matter what was in dispute prior to the notice being issued, only the technical right to payment of a notified sum due to a lack of a payment notice and/or pay less notice has been referred to adjudication. If the merits of the sum due had been referred to adjudication then it begs the question of why the referring party would not have made any submissions or served any evidence regarding this aspect of the dispute.”

Anyway, I acknowledge that the circumstances were somewhat different in this case, and I’m digressing.

Waksman J set out six clear reasons why he considered that the adjudicator had jurisdiction to reach the decision he did, including the existence of the catch-all provision and the fact that M&M had engaged in the debate about the true extent of its defects claim.  He also referred to Fraser J’s judgment in AECOM and agreed that catch-all provisions cannot be taken in isolation and must take account of the relevant context, which he had done. He concluded on jurisdiction by saying that:

“I take here the same kind of non-technical approach which was taken by Fraser J and recognising that this is in the context of a relatively rough and ready procedure not ultimately binding in any way.”

Waksman J was also content that the adjudicator had not breached the rules of natural justice, and he therefore enforced the decision.

What do I take from this?

Standing back, much of the costs and time incurred by the parties could have been avoided if the adjudicator had either stuck to the scope of the dispute referred or, at least, asked the parties for submissions on the point before he reached his decision. That said, the judge was content that the adjudicator had jurisdiction to do what he did, and at least it resulted in a good old fashioned jurisdictional and natural justice ding-dong to blog about!

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