Adjudicators’ decisions are often attacked in enforcement proceedings, with the party resisting enforcement arguing that the adjudicator lacked jurisdiction or breached the rules of natural justice (or both). If those arguments are successful, not only is the adjudicator’s decision unenforceable but, following PC Harrington v Systech, the adjudicator may not be entitled to be paid either. At the time of the Court of Appeal’s judgment, I said that one of the lessons for adjudicators must surely be to take care when dealing with jurisdictional issues. (I also said a fair few other things too!)
It has been a while but, at the end of last term, the issue was before the courts again, this time in Gary Kitt and EC Harris LLP v The Laundry Building Ltd and Etcetera Construction Services Ltd (which, just like PC Harrington v Systech, was also before Akenhead J).
Kitt v Laundry Building and Etcetera Construction Services
Etcetera Construction Services was engaged by The Laundry Building to carry out building work at (surprise surprise) an old laundry building in Hackney. A dispute arose over Etc’s final account, with Laundry suggesting it had a cross claim (including for liquidated damages, defects and outstanding works). It seems payment and pay less notices were served but Etc remained dissatisfied with the value of certain items and it started an adjudication in June 2013.
Mr Kitt of EC Harris LLP was appointed as the adjudicator and the parties entered into a tripartite agreement, agreeing to pay £295 per hour, with interest accruing at 8% over base rate, and to be jointly and severally liable for all his fees and expenses incurred in the adjudication.
In addition to serving the “usual” submissions (referral, response, reply, rejoinder, surrejoinder), the parties also corresponded with the adjudicator. For example:
- In its letter of 5 July 2013, Laundry set out its view of the background leading to the final account. It also set out its views on the notice of adjudication and Etc’s attempts to limit what the adjudicator was being asked to decide, which it disagreed with.
- In its letter in reply (also dated 5 July 2013), Etc said it was seeking a fair valuation of its final account, but just the items highlighted in yellow in a spreadsheet called “Final account – adjudication document”. It sought to reserve certain items from being opened up, saying the contract administrator had already agreed those items and it didn’t want to challenge those findings.
- The adjudicator’s reply (also dated 5 July 2013) set out his views on his jurisdiction, namely that he was being asked to value the final account and that it included all of the items in the final account. He noted that there were items that Etc agreed with the contract administrator about and items that it disagreed with.
- On 26 July 2013, Etc wrote to the adjudicator highlighting that Laundry’s rejoinder “deals almost entirely with [its] contra charges and other claims neither of which form part of this adjudication”. It followed this with a surrejoinder that made the same points, explaining that it hadn’t responded to these items because it did “not feel that they should be included within this adjudication”.
The adjudicator issued his decision in August 2013 and:
- Addressed the jurisdictional challenge (presumably to dismiss it, the judgment doesn’t say).
- Explained the approach he had taken to the dispute, before reviewing the disputed items in the final account and the contra charges.
- Valued the final account at £1,014,407 less a number of items, including a sum of £11,200 for liquidated damages.
- Ordered Etc to pay his fees and expenses (£11,800 plus VAT).
Adjudicator sues for fees
It probably didn’t come as much of a surprise to anyone when Etc refused to pay the adjudicator, arguing that it was not prepared to pay as the decision was unenforceable because the adjudicator had not ignored:
“…anything which [Laundry] put up in the adjudication which was contrary to what the CA had said.”
As Akenhead J says in the judgment, history does not relate why it took the adjudicator from August 2013 to September 2014 to issue proceedings for his fees. Neither is there an explanation as to why he sued Laundry rather than Etc, which resulted in Laundry bringing Part 20 proceedings against Etc, effectively seeking to be indemnified by it (either under the principle of unjust enrichment or by virtue of the Civil Liability (Contribution) Act 1978).
Etc’s defence, simply put, was that the adjudicator had breached the rules of natural justice or had exceeded his jurisdiction when he considered items that Etc did not want him to consider.
The adjudicator argued that there was no breach or jurisdictional issue, as he had given notice early on about the approach he was taking to the final account. This meant Etc had the “clearest opportunity to put in evidence or argument”.
Adjudicator has to consider all defences
The judgment supports the well-established principle that an adjudicator has to consider and adjudicate on any defence a responding party puts forward (Cantillon v Urvasco; Quartzelec v Honeywell). However, it goes further than that. In considering whether the notice of adjudication can “circumscribe and delineate the dispute”, so as to exclude particular defences, Akenhead J said that it can’t:
“It would be illogical and untenable, if not ludicrous, if this was the case. One needs only to take this case to see that this cannot be logical or fair.”
He went further still:
“..it is not possible in adjudication to limit an adjudicator’s jurisdiction in this way. One cannot refer to adjudication a disputed claim to payment and dress up the definition of the dispute in such a way as jurisdictionally to prevent a defending party from raising any defence, whether good or bad, in the adjudication.
…to refer a payment claim and say, at the same time, that the referring party is not referring parts of the claim which might be challenged by the defending party is illogical, unmeritorious and wrong. It is a device which cannot and should not work.”
Adjudicator’s approach put to the parties
With regard to the adjudicator’s approach to deciding the dispute, Akenhead J said that he had been “absolutely open with both parties” (see his letter of 5 July) and therefore there could not be a breach of the rules of natural justice. Both parties were given the opportunity to put their case/defence and it was up to them to decide whether they took up that opportunity.
Adjudicator entitled to sue either party
Because of the tripartite agreement, it was open to the adjudicator to sue either party. This was not a case where PC Harrington v Systech was engaged and so judgment was entered against Laundry, with an order that Etc should reimburse Laundry.
Points from the judgment that struck me
As an adjudicator who sometimes does not get paid, I have a vested interest in seeing successful claims like this one. I was also interested to see that Akenhead J suggested that the parties did not need to use the TCC’s pre-action protocol, as it would only have added to the costs and would not have resulted in a settlement for such a “modest claim” as Etc was “determined not to pay”.
Useful guidance indeed going forward.
Aside from eventually getting paid, one point that struck me was the corollary of what Akenhead J said in terms of the adjudicator being entitled to payment as he had not exceeded his jurisdiction or breached the rules of natural justice. I assume that if he had found either present then the adjudicator would not have been entitled to be paid (which is a direct application of the PC Harrington v Systech principle).
That leads me to wonder whether the fact that the adjudicator was open about what he was doing (see his letter of 5 July), would lead to a different conclusion, even if there was an excess of jurisdiction or breach of the rules of natural justice. In effect, is there a distinction between an adjudicator’s decision that is unenforceable as a result of a jurisdictional or natural justice issue that the parties are aware of (because the adjudicator told them what he was going to do) and something that the parties didn’t know about until after the decision was reached?
I’m sure I’ve suggested that may be the case previously and I know there is a school of thought that thinks that way…