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TCC reviews enforceability and severability of adjudicators’ decisions

The decision in Pilon v Breyer Group addresses some very interesting issues on adjudication enforcement. It is probably one of the more important decisions to have emerged this year.

Broadly speaking, the judgment clarifies the law on two main issues:

  • Enforceability of adjudicators’ decisions where an adjudicator has wrongly excluded one of the responding party’s defences.
  • Enforceability of only part of a decision, either on jurisdictional or substantive grounds.

Failure by adjudicator to consider a defence

Most people who have conducted adjudications with any frequency will be familiar with attempts by referring parties to limit the scope of the responding party’s defences by reference to the wording of the referral notice. These attempts could often be successful in front of the adjudicator, but the TCC swiftly clamped down on such abuses of the adjudication process: a party is entitled to rely at an adjudication upon any defences he may have to the claim being brought, whether raised previously or not. If the adjudicator erroneously decides he cannot consider a defence, that is liable to be a breach of natural justice.

In Pilon, Coulson J summarised the authorities and confirmed that if an adjudicator takes an erroneously restrictive view of his own jurisdiction, his decision may be unenforceable if the failure to consider a defence is deliberate and material. This is a welcome clarification of the relevant test to be applied.

Coulson J also confirmed that a dispute about “valuation” is separate from a dispute about “payment”. Any time a referring party seeks a decision that a payment be made, it opens itself up to any defences to a claim for payment, including all available set-offs. This has been made clear in several other cases, but it seems that adjudicators keep failing to understand this distinction. Therefore it never hurts for it to be spelled out yet again.

Coulson J provided some choice quotes for responding parties to use to convince adjudicators that they must consider their defences:

“It is not uncommon for adjudicators to decide the scope of their jurisdiction solely by reference to the words used in the notice of adjudication, without having regard to the necessary implications of those words…  Adjudicators should be aware that the notice of adjudication will ordinarily be confined to the claim being advanced; it will rarely refer to the points that might be raised by way of a defence to that claim. But…  a responding party is entitled to defend himself against a claim for money due by reference to any legitimate available defence (including set-off), and thus such defences will ordinarily be encompassed within the notice of adjudication.”

Similarly, referring parties would be well advised to note Coulson J’s statement that an adjudicator’s decision is more likely to be unenforceable if the “claiming party has brought about the adjudicator’s error by a misguided attempt to seek a tactical advantage”.

This confirms what has been clear for some time now, namely that a party who seeks to argue that a defence is outside the adjudicator’s jurisdiction runs a substantial risk that any decision acquired on this basis won’t be worth the paper it’s written on. Long gone are the days where such arguments can be run with impunity.

However, while Coulson J was heavily critical of adjudicators who wrongly exclude defences (and parties who encourage them to do so), he was also wary of opening any floodgates that would encourage more people to resist enforcement of adjudicator’s decisions. In particular, he was critical of the decision in Quartzelec v Honeywell, suggesting that it was limited to its own particular facts and stating that it:

“has encouraged numerous defendants to enforcement proceedings to raise spurious complaints that the adjudicator failed to consider some aspect of the dispute referred to him, in an attempt to avoid the subsequent enforcement of his decision.”

Unfortunately, the grounds for distinguishing Quartzelec are not clear, save for the fact that the rejected defence only related to approximately one quarter of the sum awarded by the adjudicator. Coulson J was undoubtedly correct to say that this line of cases should not be exploited by parties seeking to find a loophole in an adjudicator’s decision. Fundamentally, however, the limitations referred to in the decision seem perfectly sufficient for this purpose and it is difficult to see why Quartzelec didn’t satisfy those requirements.

Severance and partial final determination revisited

By and large, recent cases have shown that adjudicators’ decisions may be partially enforced on one of two grounds:

  • Severance. Where part of the decision was made outside the adjudicator’s jurisdiction, the good part may be saved from the bad. Cantilon v Urvasco is often considered to be the leading case on this.
  • Partial final determination. Where the whole decision is made within jurisdiction, a losing party may seek a CPR Part 8 declaration that part of the decision was wrong, such that only the remainder is enforced.

Coulson J passes some very interesting comments on both these options, by and large indicating that the court will be more ready to do the former than previously indicated, but less willing to do the latter.

Severability of an adjudicator’s decision

You may recall that in Cantilon v Urvasco, Akenhead J confirmed that it was possible to sever a decision and save the good parts provided there was more than one dispute referred. The tainted dispute would be  jettisoned (or severed) and the untainted dispute enforced.

In Pilon, Coulson J suggested that the TCC may be willing to reconsider whether it’s permissible to sever a single dispute provided this can, in practice, be done.

This appears to be an entirely welcome suggestion. Any practitioner knows that arguments about the number of disputes referred are highly artificial. A final account claim can be referred as a single dispute but evidently also encompasses any number of matters which could be referred as individual disputes in their own right. Surely when it comes to severability, the courts should be concerned more with reality (what parts of the decision are, in practice, severable), than whether the matter is described in the adjudication notice as one or more disputes.

Coulson J indicated that the court may be willing to head in that direction and, if so, the move would be a welcome one.

Partial final determination

By contrast to severance on jurisdictional grounds, in Pilon, Coulson J indicated an adverse view on seeking to resist enforcement by obtaining final determination of part of the decision. He referred to Edwards-Stuart J’s decision in Geoffrey Osborne v Atkins Rail (in an earlier blog post, certain doubts were raised about where the decision might lead).

It is not entirely surprising to see that the court is already retreating from the decision in Geoffrey Osborne.  In fact, Coulson J gave it the same treatment as Quartzelec, describing it as a “case on its own particular facts”. It should also be noted that since the start of the year, Ramsey J has also indicated, without referring to Geoffrey Osborne, that a court will be slow to allow parties to escape enforcement by poking holes in only part of a decision.

The coming months will probably indicate whether this is a general retreat from Geoffrey Osborne or, perhaps more interestingly, a difference of judicial opinion within the TCC.

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