The recently released judgment of Edwards-Stuart J in Geoffrey Osborne Limited v Atkins Rail could have a major impact upon adjudication enforcement and substantially affect the enforceability of adjudicators’ decisions.
It raises two important issues:
- The use of CPR Part 8 proceedings to avoid enforcement.
- Obtaining final determination of only part of a dispute.
The judgment in Geoffrey Osborne
The central facts of Geoffrey Osborne can be summarised briefly:
GOL had commenced an adjudication in which it sought revaluation of two particular variations. The adjudicator did just this, and then decided that a further £550,000 was due to GOL. However, it transpired that on the basis of the valuations reached by the adjudicator, he should have found that GOL had been overpaid by £400,000 – a difference of over £900,000. The reason for the error was that the adjudicator had failed to take into account the amounts already included in previous certificates when assessing the amount now due.
It can be presumed from this that the adjudication had gone rather badly for GOL and it had been “saved” simply by an accounting error on the part of the adjudicator. The error was acknowledged by both sides, but GOL sought to enforce the adjudicator’s decision on the basis that the error was within the adjudicator’s jurisdiction and therefore the decision was perfectly enforceable. No doubt it objected to the adjudicator’s decision on the valuation of the variations and was disinclined to allow one “error” to be corrected without the other also being corrected.
ARL sought declarations that the adjudicator had erred. Edwards-Stuart J found the adjudicator’s decision to be enforceable, but refused to order any money to be paid over on the basis that he had finally determined, based on the valuations which the adjudicator had reached, that the adjudicator had been wrong to award the sum he did.
Legitimacy of using final determination to avoid or reduce enforcement
The first issue that Geoffrey Osborne decides appears to be that an unsuccessful party to an adjudication is entitled to resist enforcement by using Part 8 proceedings to finally determine some or all the matters which the adjudicator got wrong.
Unfortunately, between this decision being handed down and being published, Coulson J handed down a decision in Fenice Investments v Jerram Falkus Construction, in which he clearly indicated that the losing party may be able to use Part 8 proceedings to seek final determination of the dispute referred to adjudication, but this provides no justification for the losing party to refuse to pay up in the intervening period. This was reinforced by an award of indemnity costs in respect of the enforcement application.
It is difficult to reconcile the approaches adopted in these two cases. On the merits, the easiest distinction to draw is that the error in Geoffrey Osborne was manifest, whereas the legal point in Fenice was more finely balanced. However, is that a sound basis to draw a distinction? If a court can say that a decision was wrong, why should it matter how manifest the error was?
Partial final determination of the decision
Perhaps the most interesting part of the decision in Geoffrey Osborne is that it appears to allow a party to seek and obtain final determination of only part of the dispute referred to adjudication. The result is an amended adjudicator’s decision where parts are retained (for example, the valuation of certain matters), whereas other parts are overturned (for example, the maths used to assess the amount due for payment). That is, a result where part of the decision is severed from the rest.
Counsel for GOL explicitly argued that final determination was an “all or nothing” process, but this was rejected by the Judge. This is somewhat surprising. If one takes a valuation dispute to court, one cannot ordinarily get the court to order some money to be paid over because part of the claim can be resolved summarily. On the contrary, there is a single debt owed and ordinarily no money changes hands until all disputed aspects of that debt have been resolved. If there are counterclaims then, in all likelihood, they amount to set-offs, and no sum will be awarded until the set-off is also resolved. Money changing hands where there has been only partial resolution of a dispute is generally perceived to lead to unfairness.
An example helps clarify this
Suppose that, following an adjudication, both parties are unhappy with the result:
- The employer is unhappy with the decision in respect of two variations which it considers were covered in the original scope of the contract works; and
- The contractor is unhappy with the valuations of three different variations which it considers the adjudicator undervalued.
The employer may be able to demonstrate the validity of its complaints about the decision without evidence because they may be purely legal points relating to the scope of the contract. By contrast, the contractor who has merely valuation disputes will need to rely upon evidence. Is it not unfair for the court to return money to the employer in respect of its complaints without also hearing the contractor’s complaints?
On what legal basis would such an award be made in any event? Each interim certificate gives rise to a single debt claim. The adjudicator’s decision provisionally determines the value of that debt and is enforceable as such until the dispute is finally determined. Until the court (or arbitrator) has done this, doesn’t the adjudicator’s decision on the value of the debt still stand?
In circumstances such as this, the most a court can do is award summary judgment and/or declaratory relief under CPR Part 24.6, but with a stay of enforcement until all remaining issues have also been resolved.
Risk of abuse?
The decision in Geoffrey Osborne appears to suggest that this traditional position does not apply to proceedings in which final determination is sought. Parties appear to be able to chip away at an adjudicator’s decision one bit at a time, leaving the rest standing. ARL was allowed to challenge the mathematical error and amend the adjudicator’s decision accordingly. GOL was not given an opportunity at the same time to challenge the adjudicator’s valuations of the variations. The adjudicator’s decision was amended on one basis, but not the other.
It is this aspect of the decision which is arguably the most controversial and the most at risk of abuse. Construction lawyers have long believed that there may be a way out of payment of an adjudicator’s decision if they can get it reversed speedily with Part 8 proceedings. However, the instances where this was possible were considered to be rare because there would inevitably be some factual matters which would have to be reversed before the whole dispute could be finally determined. If, however, one need only poke a few legal holes in the adjudicator’s decision, then this route will be available to a great many more people.