REUTERS | Kim Hong-Ji

TCC gives a refresher of some important adjudication principles

A trip down the sweetshop memory lane brings to mind a whole host of childhood goodies: black jacks, flying saucers, cola cubes, sherbert fountains and, of course, refreshers. Described on one website I found as a “fizzy fruity sherbet hard candy sweet”, a refresher is also often used to describe a course or seminar that gives people an opportunity to review a particular subject. It was this latter description that came to mind when I read Akenhead J’s judgment in Wales and West Utilities v PPS Pipeline Systems.

Wales and West Utilities v PPS Pipeline Systems

This was an adjudication enforcement case, where the same adjudicator had reached two decisions in two separate adjudications (adjudications two and three). The main question for the court was whether the decision in the second adjudication had been made within jurisdiction. If it had, it was enforceable. Since that decision had been relied on in the third adjudication, that decision was also enforceable. If decision two was not enforceable, nor was decision three.

In deciding whether the adjudicator had jurisdiction, the court had to look at the scope of the dispute that Wales & West had referred to the adjudicator, which was described in its notice of adjudication as:

“PPS took the contractual risk for physical conditions including all physical conditions including rock. PPS… assumed the contractual responsibility for rock…

Accordingly PPS… do not have any contractual right to a compensation event in respect of the alleged existence of rock referred to in PPS’ early warning or in the letters referred to in this Notice to Adjudicate.”

Wales & West sought to limit the scope of the dispute:

“For the sake of clarity we confirm that the scope of this adjudication does not extend to consequential issues such as the quantity of rock encountered, alleged time or quantum impact. Wales… have not referred any consequential issues in this adjudication as it is clear that there is no entitlement in principle.”

Akenhead J analysed the parties’ correspondence, construed the notice of adjudication and held that the adjudicator did have jurisdiction in the second adjudication. In so doing, he held:

“[the notice] simply does not cut down the scope or ambit of the dispute which had earlier crystallised. It expressly refers to the letters of 11 and 29 October 2012 and it asserts that the ‘dispute had crystallised by the time of Wales’… letter of 29 October 2012 when [PPS’] claim in relation to rock was rejected’.

…The fact that Wales go on to say that the scope of the dispute being referred ‘does not extend to consequential issues’ does not in reality limit what is being referred because the dispute which has crystallised relates in any event to the principle or basis of entitlement… What was left and clearly intended to be left to be resolved in the adjudication was whether as a matter of principle there was any entitlement to a compensation event.

That dispute as it had crystallised and as it was being referred to adjudication included the whole package of arguments put forward by PPS in its letter of 11 October and substantively rejected by Wales in its letter of 29 October 2012.

That whole package included… the quantities of sand surround and Rockguard…”

Refresher course in adjudication principles

I think this judgment provides a useful reminder of a number of well-known principles:

  • Be careful in your choice of wording in the notice of adjudication.
  • Adjudicators’ decisions bind subsequent adjudicators as well as the parties.
  • An election (or approbation and reprobation) can seriously affect your position in later enforcement proceedings.

Be careful in your choice of wording in the notice

The notice of adjudication must be precisely worded if it is to limit the scope of an adjudication. This is particularly applicable where the referring party seeks a declaration, as Wales & West did, rather than money.

As Coulson J confirmed in Pilon v Breyer, subject to questions of withholding notices and the like, a responding party is entitled to defend itself against a claim for money due by reference to any legitimate means. That is generally considered to mean it can raise any factual or legal defence to the dispute.

In Wales v PPS, Akenhead J decided that the adjudicator had not considered matters outside the scope of the notice. Therefore he was acting within his jurisdiction when he decided that PPS was entitled to claim for the additional Rockguard as a change (even if it wasn’t entitled to a compensation event for the extra rock encountered on site).

Adjudicators’ decisions bind subsequent adjudicators as well as the parties

Remember the binding (albeit temporary) nature of an adjudicator’s decision. Unless an adjudicator’s decision is void because either he was appointed under the incorrect contractual or statutory machinery, or decided a dispute not referred to him, that decision will be binding unless a court decides it is unenforceable (or the merits are finally tried in court or arbitration).

An adjudicator cannot go behind a previous, unchallenged decision and decide for himself whether or not it was made without jurisdiction. While this may seem quite obvious to most of us, I could imagine some adjudicators being tempted to try and decide this for themselves.

Because Wales & West had not challenged the second adjudicator’s decision at the time, it was unable to argue that the third adjudicator’s decision was unenforceable because the adjudicator had relied on an earlier decision that, it now said, had been made without jurisdiction.

An election  (or approbation and reprobation) can seriously affect your position in later enforcement proceedings

Parties should consider carefully whether to pay the sums awarded (including the adjudicator’s fee) if they want to challenge the enforceability of that decision. If they do plan to challenge it, any payment should only be made with an express reservation of rights.

By paying the sum awarded by the adjudicator together with his fees, without making a reservation of its right to challenge that decision, Wales & West was held to have elected to treat the adjudicator’s decision as valid and enforceable. This meant that it could not be challenged in enforcement proceedings.  It’s not clear from the judgment why Wales & West did this. The only available redress now is for the merits of the dispute to be tried in arbitration or litigation.

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