Practical Law

Every time we think the courts might have given defendants in adjudication enforcement proceedings slightly more latitude in raising their dissatisfaction with an adjudicator’s decision, the court brings us back down to earth with a bump and reminds us that, in fact, no matter how hard done by our clients feel, they will have to “pay now and argue later”, save in the rarest of cases.

In Hutton Construction v Wilson Properties, Coulson J got to grips with disavowing us of the encouragement we all thought he’d given us in Caledonian Modular Ltd v Mar City Developments Ltd. The message from that case was that it was permissible for dissatisfied defendants to ask the court for a declaration to determine issues of substance that had been decided in the adjudication, so long as the declarations sought related to short and self-contained points. This could either be done pre-emptively or alongside an application to enforce a decision by way of summary judgment.

Of course, this is something different to the defendant’s right to raise a properly preserved jurisdictional challenge or challenge based on a breach of natural justice, which are not concerned with the rights and wrongs of the underlying substantive decision.

Hutton Construction Ltd v Wilson Properties (London) Ltd

In Hutton, the defendant had sought to run its case, in Coulson J’s view, on a slightly less than rigorous basis. For example, the defendant had initially raised a whole range of objections to the issues the adjudicator decided. These were set out in a witness statement in reply to the summary judgment application, along with some issues that had not been raised before the adjudicator, although the precise basis of the defence had not been made clear. When a Part 8 claim was issued, it was late in the day and still unclear on precisely what basis the defence was being advanced, save that the defendant was effectively seeking to re-run the adjudication and more.

Coulson J made clear that he thought a defendant (like Wilson) who sought to crowbar into a short enforcement hearing a request for a declaration (or series of declarations) relating to substantive issues the adjudicator had decided, without following the steps set out in his judgment (which I shall come to shortly), would be guilty of an abuse of process. He pointed out that the TCC “works hard” to ensure that enforcement hearings can be heard within 28 days and could be safely listed for a couple of hours.

In doing so, Coulson J reminded us that the TCC is unwilling to stray too far from the basic principles laid down in Macob v Morrison:

“… the starting point, of course, is that, if the adjudicator has decided the issue that was referred to him, and he has broadly acted in accordance with the rules of natural justice, his decision will be enforced.”

He distinguished recent cases where the parties had agreed how to arrange their affairs before the court, for example by agreeing that the Part 8 claim (dealing with a substantive issue the adjudicator decided) should be heard alongside a summary judgment application. Essentially, so long as the parties were asking to make good use of the court’s time, they could do what they wanted.

However, what happens when the claimant does not consent to the defendant raising a substantive issue of law or fact, decided by the adjudicator, as a defence to the summary judgment application?

The way forward?

Coulson J noted that defendants might have been given the wrong impression by paragraph 9.4.3 of the TCC Guide, which seeks, on one view, to allow for a slightly more informal approach to enforcement:

“It sometimes happens that one party to an adjudication commences enforcement proceedings, whilst the other commences proceedings under Part 8, in order to challenge the validity of the adjudicator’s award. This duplication of effort is unnecessary and it involves the parties in extra costs, especially if the two actions are commenced at different court centres. Accordingly, there should be sensible discussions between the parties or their lawyers, in order to agree the appropriate venue and also to agree who shall be claimant and who defendant. All the issues raised by each party can and should be raised in a single action. However, in cases where an adjudicator has made a clear error (but has acted within his jurisdiction), it may on occasions be appropriate to bring proceedings under Part 8 for a declaration as a pre-emptive response to an anticipated application to enforce the decision.”

Coulson J said the test laid down in Hutton should replace this paragraph of the TCC Guide. Also that, insofar as it was permissible for a defendant to raise at an enforcement hearing a substantive issue decided by the adjudicator, the ability to do so was derived from two authorities, which presented “narrow exceptions” to the Macob rule:

• Firstly, where there was an “admitted error”, as in Geoffrey Osborne v Atkins Rail Ltd.
• The second exception “concerns the proper timing, categorisation or description of the relevant application for payment, payment notice or payless notice, and could be said to date from Caledonian“.

However, these “narrow exceptions” do not give a defendant an unfettered right to raise issues at an enforcement hearing (whether by way of Part 8 or otherwise) merely because the defendant disagrees with the adjudicator’s decision. Coulson J set out a mandatory regime that must be adopted where the parties are not in agreement as to the way their outstanding disputes should be dealt with before the court.

The new regime when parties disagree

The defendant:

• Should issue a prompt Part 8 claim setting out the declarations it seeks. Coulson J stated that, although it might be sufficient to issue a “detailed defence and counterclaim to the enforcement claim”, he thought a Part 8 claim would be better.
• Will need to show that:
  • there is a short and self-contained issue that arose in the adjudication and which it continues to contest;
  • the issue in dispute requires no oral evidence, or any other elaboration beyond that which is capable of being provided during the interlocutory hearing set aside for the enforcement; and
  • the issue is one which, on a summary judgment application, it would be unconscionable for the court to ignore.

As to the matters the defendant must now demonstrate, what is new in this judgment is the additional requirement of “unconscionability” if the matter is not considered (and determined in the defendant’s favour). The first two elements of the test can be traced back to Coulson J’s judgment in Caledonian v Mar City. Therefore, what did he mean to do by adding this requirement?

Unconscionability thrown into the mix

“Unconscionability” as a concept in isolation is a tricky one to pin down.

In respect of an unconscionable bargain, it will most often refer to the underlying behaviour of the parties to the bargain, which renders the agreement inequitable to enforce. That formulation is not relevant here because Coulson J is talking about an “issue” the adjudicator decided and, in any event, any issue relating to the behaviour of the parties (insofar as it could possibly be relevant to the enforceability of a decision), is more likely to arise as a jurisdictional/breach of natural justice challenge.

The biggest clue to what Coulson J is expressing is found in the examples he gave of the sort of cases it would be unconscionable for the court to ignore. These include where the adjudicator’s:

• Construction of a contract clause is “beyond any rational justification”.
• Calculation of the relevant time period is “obviously wrong”.
• Categorisation of a document as, say, a payment notice when, on any view, it was not capable of being described as such a document.

He concludes that:

“… in a disputed case, anything less would be contrary to the principles in Macob, Bouygues and Carillion.“

Therefore, it seems that what Coulson J is seeking to import by the use of “unconscionable” is the notion that any mistake must be so obvious that to allow it to stand would be run in the face of reason. Furthermore:

“It is axiomatic that such an issue could still only be considered by the court on enforcement if the consequences of the issues raised by the defendant were clear-cut.”

Caledonian v Mar City is a paradigm example of that.

It is unlikely that, when considering unconscionability, the court would invite submissions on whether a paying party would be particularly disadvantaged or inconvenienced by having to pay over the sum ordered to be paid by the adjudicator because:

• It will always be open to that party to recover any sums paid over by launching its own claim for a final determination.
• If there is any genuine concern that the paid party will not be able to repay those sums, then the defendant could apply to stay enforcement.

Unconscionable issues: obvious mistakes

Where the adjudicator has made a truly “obvious” mistake, it seems that there will be little doubt as to whether the court should deal with that issue at the enforcement hearing (so long as a proper Part 8 claim has been issued). As Coulson J says, this will include instances where the adjudicator has calculated an incorrect period of time or the interpretation of a clause lies beyond the bounds of reason. In the majority of cases, just one look will reveal the mistake, and the court will not be exercising its discretion in any real sense.

However, parties are going to have more difficulty, and may not be assisted by the notion of unconscionability, where the very nature of the dispute requires the court to decide whether a document, such as a payment notice, is valid – whether it is in “substance, form and intent” a relevant notice and “free from ambiguity”, as was held in Henia v Beck.

Turning to Henia, that is a case that would probably fall into the “where the parties consent to the way forward” category, such that the strictures laid down in Hutton are not directly applicable. It involved the court interpreting documents, in particular, the interpretation or construction of an interim application for payment and a pay less notice. It is fairly easy to come to the conclusion that:

• The point raised was short and self-contained.
• No further significant elaboration or evidence was required in order for the court to decide whether to make a decision.

However, would it have been unconscionable for the court to have ignored the determination of that issue at the enforcement hearing?

As soon as you need to think about “intent” (in itself not the most helpful concept to import into the objective construction of notices), you automatically move away from the territory of the obvious error. It might be that the adjudicator’s decision in Henia that the document before him was a valid interim application for payment would now be held to be obviously wrong because Akenhead J held that there was only one argument ultimately that might militate in favour of the notice being valid:

“The only argument on analysis supporting the submission that the 28 April 2015 Interim Application was intended to be the Interim Application for the 29 May 2015 due date is that, because it was out of time for the 29 April 2015 due date, it must be taken as relating to the later due date as being the next in time; indeed that is what the adjudicator based his decision on in relation to this issue. In my judgment, at best the 28 April 2015 document is as consistent with error or misunderstanding as to what was required or even misguided hope that the 28 April 2015 application would be treated as an effective application for the April payment due date on the part of the Contractor as it is with it being intended to be an Interim Application for the 29 May 2015 due date.”

But that issue, on one view, only appears to be an “obvious” one now because we know, since Henia, that validity requires “substance, form and intent” to be present and correct. Putting yourself into the shoes of the court at the time, you would struggle to say that the adjudicator’s error was truly an “obvious” one. The court had to weigh the evidence in the balance and exercise its discretion on a different basis to the adjudicator, whose decision was not irrational even if, ultimately, it was held to be incorrect.

The practical issue for the parties in this sort of borderline case is that Coulson J also made clear that, if either party makes the wrong election – either a defendant is unsuccessful in its attempt to “crowbar” a substantive issue into a summary judgment hearing or the claimant wrongly tries to resist the defendant raising a substantive issue – then that party will be on the hook for indemnity costs of the entire action.

Therefore, the force of Coulson J’s judgment in Hutton is that he is clarifying the confusion that was arguably created by the 2014 version of the TCC Guide, that defendants should not expect to be able to waste the court’s time with meritless or inappropriate challenges to enforcement and that one way to make sure this happens is to ensure that there is a penalty for any party that does not follow the court’s clear rules.

However, returning to the particular guidance in Hutton, it is difficult to see where the concept of unconscionability takes us. Indeed, paragraph 9.4.3 of the TCC Guide already makes Coulson J’s point, resting on simpler language:

“… in cases where an adjudicator has made a clear error (but has acted within his jurisdiction), it may on occasions be appropriate to bring proceedings under Part 8 for a declaration as a pre-emptive response to an anticipated application to enforce the decision.”

The other category of case mentioned in paragraph 9.4.3, where the parties talk sensibly and then bring their disputes to the court in a single action, are already happening, as Coulson J himself acknowledged.

Therefore, Coulson J’s judgment probably amounts to no more than an attempt (albeit a very helpful one) to give the clearest of guidance on how the TCC intends to case-manage adjudication business. It is a warning that disgruntled defendants should not be blinded, in the post-adjudication panic, to the fact that the TCC is unwilling to stray too far from the enduring principle founded by Dyson J in Macob that, in 99 out of 100 of cases, if there is no jurisdictional or natural justice challenge to be raised, even if the adjudicator’s decision is wrong you will need to pay now and argue later.