An adjudicator decided he had the authority to referee a compromise agreement. One of the parties disagreed and refused to abide by the adjudicator’s decision. So what next?
I am much obliged to construction solicitor Colin Moore of Halliwell Landau, Manchester, for providing a copy of a recent judgment regarding adjudication. It is called Lathom Construction Limited v AB Air Conditioning. If my reckoning is right, we have now had 12 judgments about this new approach to building industry dispute management. All of them tackle interesting points and this one is no exception. By the way, please keep sending me those copies of court decisions, since we all have a lot to learn about our 20-month-old offspring.

In this case, AB was the employer and required Lathom to carry out completion works on a factory at Skelmersdale. The price in the JCT81 contract was £93 000. Lathom got on with the job but was upset because, it said, the interim certificates were not being paid properly by the employer. So the contractor called for the referee under new adjudication. By now, the issues included extensions of time and withholding of liquidated damages. The RICS appointed Kevin Hayes, who is experienced in adjudication. That was last April. Within a week, though, the parties negotiated a £143 000 settlement on their own, but with twiddly bits. The deal was put in writing, so the referee was asked not to bother.

That ought to have been the end of it, but the twiddly bits got in the way. The parties became upset again because each now read the settlement to mean different things. The dispute bells rang again. Lathom called for the referee. The RICS again appointed Hayes. He was asked to decide whether a binding agreement was reached at all, and, if it had been, whether it was a complete defence to Lathom's claims, and, also if so, had AB kept to its part of that agreement? There were other things, all to do with the compromise agreement of April, but they are unimportant for now.

Can you see the difference between the job of the referee in these two instances? In the first, he was appointed to deal with the usual quarrels arising under the JCT81 construction contract: time, money, liquidated damages and so on. The second was different; he had to decide what the compromise agreement was all about.

AB’s solicitor spotted the big difference in the two jobs. It said to the referee that Lathom had rights only to call for adjudication for construction contracts. The compromise agreement was not a construction contract, nor something arising under the construction contract. It was a separate or collateral contract, So, said AB, the referee had no jurisdiction. Lathom rebutted all this.

Let’s be clear: an adjudicator has no power to make a binding decision about his own ability to play referee

Now the adjudicator is no longer focusing on the actual dispute between the parties. He is embroiled in an inquiry about himself, or the scope of his job. This is a satellite issue. Let's be clear: an adjudicator has no power to make a binding decision about his own ability to play referee. It is only if the parties appear to give him that added power to decide his own jurisdiction that he can so decide and bind. In the Lathom vs AB adjudication, AB made it clear that no matter what the referee thought, it would still regard him as having no authority to be a referee under the compromise agreement. Hayes, the referee, made a thorough inquiry into his position and decided he did have authority to be the referee. So he got stuck into the real issues under the compromise agreement, and ordered AB to pay monies to Lathom under the compromise.

AB said it wouldn’t pay and so Lathom went to the Technology & Construction Court for an order. Once it got to the judge, AB argued, of course, that the referee was wrong to decide he had jurisdiction. On such questions, the court already has a track record. If the judge is quite clear that the referee did have jurisdiction, he will enforce the referee’s decisions. But, where the issue of jurisdiction is arguable, the court will not enforce immediately. The argument will be sent for a more in-depth trial or sent to an arbitrator, if an arbitration clause is in the JCT81 contract.

In my humble view, the issue of jurisdiction should have been raised during the adjudication, not with the adjudicator but with the much more powerful arbitrator. This person is the umpire in the stand. And the issue of whether a compromise agreement is a construction contract or arises under a construction contract can go to the umpire forthwith. He makes the binding decision as to whether the referee should stay or go.

In the Lathom case, the issue has been sent for trial. Meanwhile, money stays locked in the employer’s hands. Mind you, if the compromise had contained an adjudication clause, all would have been well …