Everyone knows that adjudications are often as much about tactical manoeuvring as they are about the substance of the dispute. However, once in a while the courts like to remind parties not to push their luck too far. That is exactly what happened in Pilon Limited vs Breyer Group Plc.
Pilon, the builder, carried out extensive work for Breyer on a number of different projects. This work was divided into two separate batches, batches 1-25 and batches 26-62. Pilon issued an interim application for payment in respect of batches 26-62. This application was not paid, and the dispute went to adjudication. The adjudicator awarded Pilon approximately £200,000 plus VAT and interest. Breyer still refused to pay up, so the matter ended up in an enforcement application at the TCC.Pilon’s adjudication notice had made it plain that it was limited to the interim application in respect of batches 26-62. Breyer’s principal defence was that they had made an overpayment to Pilon of approximately £150,000 in respect of batches 1-25, and they were therefore entitled to set this off from the sums claimed by Pilon.
However, the adjudicator refused to consider Breyer’s overpayment defence. He said that Pilon, as the referring party, had deliberately formulated its adjudication notice and referral to limit his jurisdiction to the interim application in respect of batches 26-62. Therefore, in his view, he could not consider the overpayment defence because the overpayment related to batches 1-25.
Crucially, it could not be shown that Pilon and Breyer had agreed to be bound by the result of the adjudicator’s investigation into his own jurisdiction. Breyer were therefore at least in with a chance to challenge the enforcement proceedings. They had to show a respectable case that the adjudicator had reached an erroneous conclusion as to his jurisdiction.
That erroneous conclusion has to be arrived at deliberately. If there has simply been an inadvertent failure to consider one of a number of issues, then such a failure would not ordinarily render the decision unenforceable. It was pretty clear in this case that the adjudicator deliberately arrived at that conclusion. He felt that was the only option open to him given the way the adjudication notice and referral had been drafted.
The court took a different view, and said the adjudicator’s decision as to his jurisdiction amounted to a breach of natural justice. However, Breyer still had one more hoop to jump through for the court not to enforce the adjudicator’s decision. Breyer not only had to show the adjudicator had made a deliberate error as to his jurisdiction, but also that the error was material.
Unsurprisingly, the court found the error was “highly material”, not least because the overpayment defence was worth 71% of the sum eventually awarded. The adjudicator’s decision was therefore unenforceable.
Pilon had tried one last throw of the dice. They argued that even if Breyer was entitled to raise the overpayment defence, Pilon should be entitled to answer it by relying on the alternative case, namely that the overpayment was the subject of a binding agreement reached by the parties at the time. The court acknowledged that on some level Pilon may have been disadvantaged by not being able to run their alternative response.
However, the court’s sympathy was short lived. If Pilon could not run their alternative response they are, in the words of the court, “wholly to blame for that result”. Pilon had the choice to deal with the overpayment defence on its merits. Instead they chose to run a jurisdictional defence which they knew or should have known was erroneous. Mr Justice Coulson said “it seems to me that it is now too late for Pilon to complain about that”. Strong stuff!
Pilon had sought a tactical advantage by putting forward an erroneous statement of the adjudicator’s jurisdiction. This case shows in no uncertain terms why that can be a dangerous tactic to adopt.