What is the extent of the temporary binding effect of an adjudicator’s decision?

The extent to which a contract may include express provisions for a separate and independent review of an extension of time or the correct value of an account following practical completion could restrict the temporary binding effect of an adjudicator’s decision on the final account.

Following the judgment in Bexheat v Essex [find out more about case in our previous article from 16 May 2022] a couple of months ago that touched on some similar themes, Mrs Justice O’Farrell has provided further clarity concerning the binding effect of an adjudicator’s decision.

Essential Living Limited v Elements Limited 

In Essential Living (Greenwich) Limited (“Essential”) v Elements (Europe) Limited (“Elements”) [2022] EWHC 1400 (TCC), Essential commenced Part 8 proceedings seeking declaratory relief from an adjudicator’s decision reached in July 2019 concerning the correct value of an interim application for payment.

The disputed account included, amongst other things, amounts in respect of variations, the cost of remedying defects and liquidated damages.

The adjudicator assessed each part of the account, which necessarily included an assessment of the period of delay and directed Elements (the Trade Contractor) to pay Essential (the Employer) circa £1.8m. By virtue of a subsequent consent order the parties gave effect to the adjudicator’s decision. Following practical completion and from May 2021 the parties were discussing the final account and the extent to which the adjudicator’s decision was binding when determining the final account.

Essential argued that the adjudicator’s decision was binding in respect of adjustments made to the Trade Contract Sum, variations, liquidated damages and extensions of time. Elements argued that the adjudicator’s decision was limited to the disputed interim application and did not affect the final account.

Before concluding the Final Trade Contract Sum process, Essential commenced proceedings seeking clarification of the extent of the temporary binding effect of the adjudicator’s decision in relation to the final account process.

The decision

The JCT Construction Management form in place between the parties included an express provision (clause 2.27.5) for the Construction Manager (”CM”), after the date of practical completion, to review and assess the Completion Period. The court described this mechanism as contemplating that a different Completion Period could be produced from that assessed earlier and that this mandates a separate exercise that expressly permits the CM to review any previous decision, including one reached by an adjudicator (see paragraphs 63-64 of the judgment). Mrs Justice O’Farrell stated that the adjudication decision did not purport to and could not override the contractual mechanism requiring a subsequent assessment to be made by the CM following practical completion. Accordingly, the adjudicator’s decision is not binding on the parties for the purpose of the CM’s final determination of the Completion Period and thereby any financial effects that flow from such a determination.

The story as concerns the binding effect of the adjudicator’s decision on the value of the works and variations, however, is not as clear cut. In this case, despite the contract providing for a separate mechanism for determining the final account, the prescribed mechanism does not provide for a separate and independent review of items for which a value has been agreed. Therefore, an adjudicator’s decision is only binding in the final account to the extent a particular contractual entitlement to a variation, or its value, has been determined (see paragraph 75 of the judgment).

Mrs Justice O’Farrell states that it is necessary to consider the arguments and evidence put forward by the parties on each element of the final account that is disputed, to determine whether it is agreed under the Contract determined by an adjudicator’s decision and binding, or if there is a fresh claim that requires a fresh assessment. In each instance, it is a matter of fact and degree requiring careful analysis that necessitates a detailed enquiry into the substance of each claim.

Mrs Justice O’Farrell gave a clear declaration that the adjudicator’s decision was not binding on the CM’s discreet and separate obligation to re-assess extensions of time following practical completion. Declining to give a general declaration in respect of the binding effect of the adjudicator’s decision on the final account, Mrs Justice O’Farrell described the complex considerations required to be given to each issue in the account, to identify whether a determination or agreement had been reached. Those items that had not been concluded were available to be determined.