A lot of firms seem to think that if they lose an adjudication, they can try again with a different adjudicator. Ah, but what happens when they finally win and the other side won’t pay?
I am not sure that history relates who it was that, during the laborious passage of the Construction Act through parliament, coined the immortal phrase “temporary finality” as the feature of adjudication that distinguished it from arbitration or litigation.
Arbitration is, of course, designed to be a process of resolving disputes through the issue of an award that, save for a very limited scope for an appeal, is intended finally to determine the parties’ contractual position. An adjudicator’s decision is also intended to be binding but is always subject to the right of either party to reopen matters for final determination through arbitration or litigation. Hence the expression “temporary finality”.
The principle that an adjudicator’s decision is binding is enforced through a rule that requires the resignation of any adjudicator to whom a dispute is referred that has already been decided in adjudication.
However, in recent times the practice of launching successive adjudications relating to what is essentially a single dispute has become increasingly widespread. The result is an increase in the number of decisions where the above rule has been invoked to challenge the validity, and therefore the enforceability, of an adjudication decision.
Given the practical difficulty in demonstrating that two disputes are substantially the same, it is hardly surprising that it is possible to detect a judicial trend towards the rejection of such challenges. However, the recent decision of Mr Justice Ramsey in HG Construction vs Ashwell bucks that trend and, in doing so, illustrates how complex unravelling this problem can be.
In a nutshell the disputes in question related to the entitlement of party A to deduct liquidated and ascertained damages from party B, the contractor, as a result of late completion. Party B started an adjudication seeking a decision that the contractual provisions for damages were void for uncertainty and unenforceable. In this connection it argued that the key aspect of uncertainty in the provisions was that the work was divided into 10 sections but the precise scope of each section was unclear.
It seems inevitable that the temporary finality of the adjudication process will throw up further complicated problems of this sort
In his decision the adjudicator rejected that argument; he considered that the sections were sufficiently clearly described to enable the damages provisions to be operated.
Party B started two successive adjudications seeking to reverse that outcome. In the second of them, it raised what appeared to be a new argument for challenging the damages provisions. It contended that they could not fairly be operated since the employer had taken partial possession of some of the work comprised in the sections in advance of completion. Although the contract did contain standard provisions for reducing the amount of damages deductable in such a situation, they could not be operated in practice, from which it followed that the provisions were penal and so unenforceable.
The adjudicator, who was not the same as the adjudicator in the original adjudication, found in party B’s favour and declared that the damages provisions were void. Party A challenged that decision in the Technology and Construction Court.
Mr Justice Ramsey held that, given that the reason the provisions for reducing damages could not be operated was ultimately the uncertainty about the scope of the sections, and since that issue had been expressly decided in the first adjudication, it must follow that the dispute before the new adjudicator was essentially the same one. It followed that the new adjudicator’s decision was invalid and unenforceable. Indeed, the judge commented, since the original adjudicator had actually declared the damages provisions to be valid in general terms, that in itself would be sufficient to rule out the possibility of subsequent challenge on whatever basis.
It seems inevitable that the temporary finality of the adjudication process will throw up further complicated problems of this sort for the courts to unravel in the future.
Dominic Helps is a partner in Shadbolt & Co