This is the story of a company that went to adjudication and ended up with exactly what it said it wanted in its referral notice – and no more.
To commence an adjudication, it is necessary to serve a referral notice. This notice establishes the scope of the dispute that the adjudicator has to determine. It is therefore a key document. Not only does it define the adjudicator’s jurisdiction, but it is used in the adjudication process itself, and also when it comes to interpreting or implementing the adjudicator’s decision.

As the recent case of FW Cook Limited vs Shimizu (UK) Limited shows, these points are not academic. In the case of Cook, the claimant in the adjudication, who was subsequently the claimant in court proceedings, failed to achieve what it was looking for from the adjudication process.

The decision of His Honour Judge Humphrey Lloyd, sitting in the Technology and Construction Court in Cook on Friday 4 February 2000, is to be reported and has important implications for all those involved in preparing or addressing adjudication referral notices.

The adjudication

The dispute arose out of a contract for mechanical works on a building in London. Cook had identified four particular issues in its referral notice. It asked for the “reinstatement” of one claim against Shimizu and the “removal” of three items charged to its account by Shimizu, which Cook denied responsibility for. On the face of it, the referral letter did not expressly request payment of those sums or any overall sum.

The adjudicator, appointed by the Technology and Construction Solicitors Association, duly gave his ruling on the four issues, but did not identify a single sum of money as payable.

The question then was how to implement the adjudicator’s findings. The parties could not agree as to how that was to be done, and Cook started court proceedings to enforce its interpretation of the adjudicator’s award under Part 8 of the Civil Procedure Rules, a summary judgment procedure. In the meantime, Shimizu paid what it considered to be due under the adjudicator’s decision Cook’s case was that it was a simple matter of adding together the adjudicator’s various findings to arrive at a balance that was immediately payable. The argument supporting this view was that the referred issues were discrete and payable in their own right. According to Cook, it was not necessary – indeed, it was inappropriate – to have regard to who owed whom what under the contract and the pre-existing payment notices.

Shimizu argued that, on the proper interpretation of the referral notice, Cook was asking for values to be applied to the items. Shimizu said the items would then have to be placed into the payment notice to arrive at the balance due to Cook.

Placing the adjudicator’s findings into the payment notice had important consequences. The payment notice between the parties prior to the adjudication stated that a balance was due and owing to Shimizu, not Cook. Accordingly, if Shimizu was right, the balance now outstanding to Cook as a result of the adjudication was far lower than that contended for by Cook.

What the court said

The court had to consider whether this was an issue of interpretation of the adjudicator’s award or whether this was a question of the interpretation of the referral notice. The court concluded that there could be two stages to the process. The first was that the court had to interpret the referral notice to decide what was referred to the adjudicator.

The court would only need to move to the second stage and interpret the award if it was alleged or maintained by either party that the adjudicator had exceeded his jurisdiction.

The court concluded that the referral notice was not seeking payment of sums of money in isolation. Rather, the notice was seeking valuations of certain components of the overall financial position between the parties. Accordingly, the court agreed with Shimizu’s implementation of the adjudicator’s decision and dismissed Cook’s application for summary judgment.

The court’s decision on the scope of the notice meant that it was not necessary for it to move to the second stage and consider the actual award. The court concluded, however, that if it was necessary to interpret the award, then it was clear and unequivocal. The fact that the award did not define a single sum of money as payable was wholly consistent with the approach contended for by Shimizu.

The consequences

The court did not consider whether an adjudication of discrete issues always requires the award to then be interpreted in accordance with the overall balance and relevant payment notice between the parties.

In fact, it did appear willing to accept that it was possible to refer discrete issues to an adjudicator and ask for payment in isolation of those amounts. But for such an approach to be successful, that remedy needs to be clear on the face of the referral notice. If it is clearly what the referring party is seeking, then it will be open for the respondent to defend the adjudication on the basis that the overall balance under the contract is some other figure, or is in the respondent’s favour.

These findings reflect the need for clarity in referral notices, and the need to be clear in relation to the remedies sought. To that extent, there are parallels to be drawn with the long established body of case law concerning expert determinations and the extent of issues that an expert is asked to determine in such processes.

Cook sought leave to appeal, which was refused. Cook has now indicated an intention to ask the Court of Appeal to grant leave.

In a nutshell: Cook vs Shimizu

When Cook took Shimizu to adjudication, it said in the referral notice that it wanted one claim to be reinstated and others to be removed. What it did not say was that it wanted to be paid for those claims. Cook obtained findings, which it then expected to be paid straightaway. Shimizu argued that the adjudicator had merely sorted out who owed whom what on a few disputed points; if the overall commercial relationship between the parties was considered, Shimizu only owed a small balance. On the basis of the referral notice, the court agreed with Shimizu.