An adjudication within an adjudication? Jurisdiction or not?

I often hear party representatives complain that adjudicator fees are becoming too expensive. As with all things, sometimes these complaints are justified and at other times the criticisms are unfounded, unfair and the parties really do need to look at their own conduct before criticising the adjudicator.

But this is another topic for another day. This article is about a development in the law which has added yet another layer of complexity and has the potential for increasing time and yes, you’ve guessed it, costs.

The statutory right to adjudicate payment disputes has been with us for over 34 years.

You would have thought that we would have a settled legal landscape by now, accompanied by a backlog of decided cases to clarify the statutory legislation issued in 1996 (The Housing Grants Construction Regeneration Act 1996) and updated in 2011 (The Local Democracy, Economic Development and Construction Act 2011). But it never pays to be overly confident in the adjudication game. As I have learnt over the years, any understanding I may have of a legal principal affecting, for example, when and how a party may adjudicate a payment dispute, is built on shifting sands.

As the law stands, I am confident in saying that unless and until an employer has complied with its immediate obligation to pay a notified sum, it is not entitled to embark on a “true value” adjudication. This position has been confirmed by a number of High Court judgements of the Technology and Construction Court (TCC) including M Davenport Builders Limited and Mr Colin Greer (1) and Mrs Julia Greer (2) [2019] EWHC 318 (TCC) and as recent as Bexheat Ltd v Essex Services Group Ltd [2022] EWHC 936 (TCC) handed down on 19 April 2022, as well as a ruling of the Court of Appeal in S&T (UK) Ltd v Grove Developments Ltd [2018] EWCA Civ 2488 handed down on 7 November 2018.

The right to receive payment of a notified sum is invariably confirmed by the decision of an adjudicator. So, once you have the adjudicator’s decision then the position is clear.

Digressing for one minute, challenges to an adjudicator’s jurisdiction are pretty much routine. As an example, and without breaching confidentiality, I want to share a war story with you. In the Spring of this year, I was appointed to deal with quite a large true value claim commenced by an employer who maintained that the contractor had been overpaid. Within 24 hours of having my appointment confirmed by the Adjudicator Nominating Body, I was knee-deep in challenges to my jurisdiction. I was comfortable dismissing most of these as “white noise” but one of the challenges was far from routine and did stop me in my tracks.

The challenge that concerned me was that, in an earlier payment cycle, the employer had failed to issue either a valid Payment Notice or Pay Less Notice in response to a valid application permitted by and submitted by the contractor.

After inviting, receiving and considering submissions on this point, I concluded that the notified sum argument was a separate dispute to the one that had been referred to me. The contractor could have elected to commence a “smash and grab” adjudication but it hadn’t. The employer had been the quicker of the two parties out of the starting blocks with its “true value” referral. If I was to entertain the contractor’s challenge, I would effectively have to decide the no Payment/ no Pay Less Notice dispute before I could then decide my own jurisdiction. Depending on the outcome of my decision on jurisdiction, I could then proceed to decide the true value dispute referred to me.

In my mind this would have amounted to doing an adjudication within an adjudication and it felt as if I would have been deciding two disputes, rather than one, which is not permitted under the Scheme unless the parties agree. As you may have already guessed I continued with the adjudication, albeit no decision was ever issued because the parties settled the dispute a week before my decision was due to be issued.

Up until recently, I was content that I had dealt with this matter correctly but a decision of the TCC handed down on 17 June 2022 suggests that I managed to get this wrong. The case is AM Construction Limited and The Darul Amaan Trust [2022] EWHC 1478 (TCC).

The judge concludes his finding on this point of law at paragraphs 102 to 106 and says as follows:

“102. Thus DAT seeks to distinguish Bexheat (as well as the Court of Appeal decision in S&T (UK) Ltd v Grove Developments Ltd and the decision of Stuart-Smith J in M Davenport Builders Ltd v Greer) on the basis that in the present case there was no unsatisfied adjudication decision in the Contractor’s favour. This amounts to a submission that a contractor in the position of AMC cannot prevent the commencement of a ‘true value’ adjudication relying upon the above cases unless it has first obtained a monetary adjudication award in its favour.

103. I do not accept that submission. Firstly, no such limitation was suggested by the Court of Appeal or the first instance judges in this Court in any of the three cases cited.

104. Secondly, the submission is contrary to the requirement referred to in those cases and repeated by O’Farrell J. in sub-paragraphs [76(v)] and [76(vi) of Bexheat that

“(v) the entitlement to commence a 'true value' adjudication subjugated to the immediate payment obligation in section 111;

“(vi) unless and until an employer has complied with its immediate payment obligation under section 111, it is not entitled to commence, or rely on, a 'true value' adjudication under section 108”

105. Thirdly, the submission runs contrary to the policy considerations underlying the above trio of cases, that where no Pay Less Notice has been served, the Employer must pay before disputing the amount outstanding.

106. It follows that I accept AMC’s submission that DAT cannot commence a ‘true value’ adjudication until it has paid the amount I have found to be due.”

Summary

The Court concluded that an employer was not entitled to commence a true value adjudication until it had paid the notified sum, even if the requirement to pay the notified sum had not been formally confirmed first by an adjudicator in a “smash and grab” adjudication. It will be interesting to see how this area of law continues to develop and if other judges in similar cases follow this judgement. Some guidance from the Court of Appeal would be very welcome.

But in the meantime and in future situations like the one above, I may well find myself dealing with an adjudication within an adjudication and, no doubt, I will be faced with more complaints about the rising cost of adjudication. My response to any such criticism will be that I am following the guidance given by the Court as it currently stands, so don’t “shoot the messenger”.