Irrespective of the rights and wrongs of the decision in that case (Pegram Shopfitters Ltd vs Tally Weijl (UK) Ltd), a key issue that arises in many adjudications is the manner in which the adjudicator conducts the process. In fact, there is one recurring theme so prevalent that it is incumbent on parties to take active steps to avoid it. Let me explain.
A high proportion of adjudications have involved the question of the non-payment of a sum due under an interim application where the paying party has not served the requisite section 111 withholding notice. In the absence of a withholding notice (so payees contend) the payer is not able to raise matters relevant to the correct sum due. For example, the question of whether or not the value of the works should be reduced for some reason, or whether a contra charge may be set off against the sum that would otherwise be due.
In arbitration or court, there would be no problem with the arbitrator or judge deciding all of the connected issues, but apparently not so in adjudication. Rather than resolve the dispute, adjudication often acts as a catalyst, causing the dispute to fester and grow. Often this leads to three adjudications where one may have sufficed.
Of course, the situation is complicated by conflicting decisions of the courts on the meaning and effect of notices – or rather the absence of notices served under the Construction Act. However, some adjudicators exacerbate the problem in the manner in which they allow and sometimes actively encourage parties to conduct their cases.
To take a simple example: a party applies for sums due under the contract and the other party fails to serve either a payment notice or a withholding notice. The adjudicator is then asked by the payee to award the entire sum it applied for. The payer, however, believes it has set off claims and abatement claims, albeit these have not been raised in a valid withholding notice.
Twenty-eight days can be, and often are, spent arguing about defects in the works, only to find that the adjudicator at the end decides that the whole sum is due because no notice was served
On such an issue, adjudicators come from three schools, with a roughly equal split between the three:
- Some award all that the referring party has asked for, believing that they have no jurisdiction to consider any defence that has not been included in a payment or withholding notice.
- Others will award the proper sum due, taking note of abatement arguments but ignoring set-off arguments not set out in a withholding notice.
- The third school of thought is that all arguments can be considered because they are necessarily connected with the dispute.
Therefore the entire dispute can be resolved in one go, with the payee getting the net sum due after any legitimate deductions and abatements – irrespective of the fact no notice had been given.
The problem for parties is that upon referral of the dispute, they generally do not know what school the adjudicator is from. This means 28 days can be, and often are, spent arguing about, for example, defects in the works, only to find that the adjudicator at the end decides that the whole sum is due because no notice was served.
Thankfully, there are some high-quality adjudicators around. In a recent adjudication, the adjudicator indicated at a very early stage of the proceedings (day seven), having received the referral notice and the response to it, what school he was from. The parties' representatives took note of his views and the adjudication came to a swift end without the need for further voluminous submissions right up until day 28.
It is likely that this particular adjudicator's initiative saved the parties between them many thousands of pounds. The parties were left in no doubt that they could continue with their submissions and presentation of evidence for the remainder of the adjudication, but that this was unlikely to make the adjudicator change school. This was good adjudicating.
Nick Henchie is a partner in the construction and engineering group at Mayer Brown Rowe & Mawe LLP and can be contacted at firstname.lastname@example.org