When faced with a jurisdiction challenge, adjudicators almost universally give both parties the opportunity to make representations, consider the arguments raised, and reach a non-binding view as to whether they have jurisdiction. If yes, they continue; if not, they resign.

What is striking however is the range of different approaches which adjudicators take when considering these arguments. Anecdotally, from my own practice I have seen adjudicators ask themselves (for example):

• Whether there is a “real prospect” that they lack jurisdiction.
• Whether it is “clear” that they lack jurisdiction.
• Whether there is any “merit” in the suggestion that they lack jurisdiction.

These are obviously very different standards, which might in a marginal case lead to different outcomes. Should we be troubled by a lack of consistency in approach? And what approach should an adjudicator faced with a jurisdiction challenge adopt?

In this article, I will suggest that in any jurisdictional challenge, the appropriate questions is: which party has the better of the arguments on the available material? This is the standard that should be asked, consistently, by all adjudicators considering a jurisdictional challenge.

The (lack of) relevant law

An adjudicator seeking to understand what standard they should apply to a jurisdiction challenge will find limited assistance in the case law. Some guidance was provided in ABB Power Construction Ltd v Norwest Holst Engineering Ltd (2000) 2 T.C.L.R. 831. In that case, in an adjudication referred by Norwest Holt (NWH), ABB raised a jurisdiction challenge. The adjudicator “expressed the view that NWH had an arguable case that he had jurisdiction and decided that the adjudication should continue ‘unless and until the court finds that my views expressed above are incorrect’.”

Commenting on this approach in subsequent proceedings seeking declarations as to the adjudicator’s jurisdiction, Judge Humphrey Lloyd QC said (at para [2]):

“Again this seems to me to be have been a sensible and pragmatic decision although it might not be right in another case.”

Two points should be noted. First, the approach in ABB sets the bar for continuing the adjudication very low – the adjudicator need only be satisfied that there is an “arguable case” that he/she has jurisdiction. That tips the scales heavily in favour of an adjudication purportedly referred continuing – for example, in every case where there is a (real) dispute about which of two contracts is effective, an adjudication referred under one would always go forward.

Secondly, ABB seems to suggest that the standard to be applied might respond flexibly to the circumstances of the particular case. While in ABB the adjudicator’s approach was held to be “sensible and pragmatic” the possibility that it “might not be right in another case” was also acknowledged. Unfortunately, the court offered no guidance as to when or what circumstances might merit a different standard.

This lack of guidance from case law is unfortunate, but not entirely surprising. Due to the nature of adjudication, the issue of whether an adjudicator applied the right standard to a jurisdictional challenge is highly unlikely to arise for consideration before the court. There are two possibilities:

• If the adjudicator resigns, the disappointed referring party will likely pursue their claim through separate litigation (or arbitration, if available). The adjudicator’s decision to resign will never be reviewed or considered.[1]
• If the adjudicator continues, the disappointed responding party will renew their jurisdictional challenge before the court, which will decide the issue for itself without detailed reference to the adjudicator’s non-binding view of the issue.

In either circumstance, the adjudicator’s investigation and conclusions as to jurisdiction are generally not subject to arguments as to natural justice – see Amec v Whitefriars [2004] EWCA Civ 1418, at paras [41] to [43]. In practice,  therefore, there is no situation in which a judge (whether on an enforcement application or otherwise) will be required to review in any detail at the approach to the challenge that was adopted by the adjudicator.

In the absence of clear guidance from the courts, adjudicators are at present left to themselves to work out what standard they should apply. The correct approach falls to be determined from first principles.

The importance of adjudication and right answers

The starting point is that an adjudication has significant legal and practical consequences for the participants. An adjudicator’s decision on a disputed point is usually binding unless challenged in court or arbitration, and can be enforced via judgment through a summary TCC procedure. While in theory the decision is only temporary, in reality it is often accepted by the parties as a final result, or (at the very least) forms an anchor point around which any settlement will revolve. The Supreme Court observed in Bresco v Lonsdale [2020] UKSC 25:

“[14]  There is a chorus of observations, from experienced TCC judges and textbook writers to the effect that adjudication does, in most cases, achieve a resolution of the underlying dispute which becomes final because it is not thereafter challenged.

The Supreme Court went on to cite with approval the observations of Adam Constable QC (as he then was) in Meadowside Building Developments Ltd v 12-18 Hill Street Management Co Ltd [2019] EWHC 2651 (TCC):

“This plainly reflects the reality across the construction industry. Although it may have been a process which had its origins in a desire to maintain cashflow, the lifeblood of the construction industry (and alluded to in para 37 of Bresco, quoted above), it would in my view be wrong to restrict the utility of adjudication, in light of the breadth of the statutory scheme and its practical use within the industry, as being solely about short term cashflow. The scheme is, for example, used to determine final account disputes, and professional negligence claims, neither of which are usually primarily (or at all) about cashflow. Adjudication is often about achieving a quicker and cheaper resolution to the parties’ disputes. Where one party regards an adjudicator’s decision as a real miscarriage of justice, it has the right to take the dispute to litigation or arbitration to have that decision effectively overturned; where, as is so often the case, the parties regard the decision as a decent attempt to arrive at a fair resolution of the competing positions, the parties generally treat the decision as binding or negotiate a settlement around it. This is good for the overall administration of justice and no doubt many cases which would otherwise end up in the TCC are resolved without burdening public resources as a result of the practical utility of adjudication, notwithstanding its temporary nature.”

It follows that questions as to an adjudicator’s jurisdiction are important. An incorrect determination of a jurisdictional challenge could work real injustice. On the one hand, if an adjudicator resigns where he should not, the referring party has been deprived of a decision of real value – a decision that the referring party was entitled to, as a matter of contract and/or statute. On the other hand, if an adjudicator presses ahead where he lacks jurisdiction, the responding party has had imposed upon them a decision (with its important consequences) which is without legal foundation.

As such, a clear, consistent and principled approach to jurisdiction challenges should be the aim. An inconsistent approach between adjudicators to such challenges is a cause for concern and a source of potential injustice, if different parties (or even the same parties in different adjudications) are having different standards applied to their respective challenges.

CPR 24

The approach I see most often in practice is for the adjudicator to apply the summary judgment test, and ask themselves whether the responding party’s challenge raises an issue that has real prospects of success. There is some superficial logic to this approach. If the adjudicator makes a substantive decision which is subsequently subject to enforce proceedings in the TCC, enforcement will proceed by way of an application for summary judgment. On that application, the court will be asking itself whether the challenge has “real prospects of success.” It may make some sense for adjudicators to apply the same standard, to ensure consistency between the adjudicator’s preliminary investigation into jurisdiction and the subsequent enforcement stage.

However, there are three significant flaws with this line of argument. First, an adjudication decision on the substantive merits has importance and utility beyond its enforceability through the court process. This was recognised in Bresco v Lonsdale, where the Supreme Court rejected an argument that allowing an adjudication to proceed in circumstances where it would not be enforced[2] would be an exercise in futility. Lord Briggs said (at para [60]):

“[60] … In the context of construction disputes adjudication has, as was always intended, become a mainstream method of ADR, leading to the speedy, cost effective and final resolution of most of the many disputes that are referred to adjudication. Dispute resolution is therefore an end in its own right, even where summary enforcement may be inappropriate or for some reason unavailable.”

There is therefore no reason why an adjudicator should be constrained to only proceed to a decision where it would be enforced by the court.

Secondly, there is real doubt as to whether the court at the enforcement stage is really applying the summary judgment test. In the case of Ground Developments Ltd v FCC Construccion SA [2016] EWHC 1946 (TCC), Fraser J was faced with a multitude of challenges to an adjudicator’s jurisdiction. Noting that summary judgment was the usual procedure by which a party with an adjudication decision in their favour would seek relief from the court, he went on to say (at para [60]):

“[60] It is not necessary, and in my view would be contrary to that approach, to have to conclude on the material currently before this court that each, all, or any of the arguments that the Joint Venture has marshalled to resist this summary judgment application had no real prospect of success in order to give summary judgment to GDL on this Decision. The approach of the court should be the conventional one on an enforcement, namely was the adjudicator validly appointed, did he act within his jurisdiction and in accordance with the rules of natural justice?”

This suggestion has received limited attention in subsequent cases. But if and to the extent that it is an accurate reflection of how decisions on enforcement are taken, it suggests that an adjudicator should not be applying the summary judgment standard to jurisdictional arguments.

Thirdly, a court that refuses to enforce has scope to proceed down a middle path – refuse the application for summary judgment, but nonetheless list the matter for final determination (on the balance of merits) in due course. That is not a common approach – the court will usually ‘grasp the nettle’ and decide the issues raised by the enforcement challenge – but it is nonetheless a possibility that is not open to the adjudicator. The adjudicator facing a jurisdiction challenge makes a binary decision – do they resign, or not? Comparing their position to that of the court on enforcement is a false equivalence.

These three flaws point to a deeper underlying theme. In reality, the summary judgment test is something of an accident of history which has been introduced into adjudication by the TCC fashioning a special enforcement procedure within the existing CPR 24 rules. Had this not happened, it would be readily recognised that a jurisdiction challenge has no analogy with a summary judgment application, such that the application of the “real prospects” test is inappropriate. Summary judgment concerns the merits of the parties’ substantive arguments, with a view to avoiding waste of time and cost in points being pursued to trial that have no merit. It is necessary in the context of litigation, where proceedings are long and expensive, and any party can issue and serve proceedings as of right. It allows a party faced with a meritless claim (or defence) to have the dispute considered at an early stage, and an early decision reached if their case is sufficiently strong that a full trial is unnecessary.

A jurisdictional challenge has none of these features. It is not a consideration of the merits of the competing substantive arguments, but an examination whether the adjudicator has jurisdiction over the parties and the dispute in question. Applying the summary judgment test to a jurisdictional challenge is erroneous, and should be discouraged.

Jurisdictional challenges in litigation under CPR 11

A closer litigation analogy would be an argument about the court’s jurisdiction under the CPR 11 procedure. There is a well-developed jurisprudence as to the proper approach of the court to such applications.

The starting point is the case of Canada Trust Co v Stolzenberg (No 2) [1998] 1 WLR 547 which established that a claimant asserting that the court had jurisdiction needed to satisfy the court that they had a ‘good arguable case’. Waller LJ, giving judgment in the Court of Appeal, said:

“… what the court is endeavouring to do is to find a concept not capable of very precise definition which reflects that the plaintiff must properly satisfy the court that it is right for the court to take jurisdiction. That may involve in some cases considering matters which go both to jurisdiction and to the very matter to be argued at the trial, e g the existence of a contract, but in other cases a matter which goes purely to jurisdiction, e g the domicile of a defendant…  ‘Good arguable case’ reflects in that context that one side has a much better argument on the material available. It is the concept which the phrase reflects on which it is important to concentrate, i e of the court being satisfied or as satisfied as it can be having regard to the limitations which an interlocutory process imposes that factors exist which allow the court to take jurisdiction.”

Waller LJ’s judgment was approved on appeal to the House of Lords – see Canada Trust Co v Stolzenberg (No 2) [2002] 1 AC 1 .

While jurisdictional disputes can arise for a range of reasons in litigation, in adjudication they most often arise due to questions of contract formation and interpretation – either as to the identity of the contract between the parties, or whether its terms have been complied with. As such, the closest analogy to jurisdiction are the cases considering whether the court has jurisdiction by virtue of a choice of forum agreement between the parties. The application of the Canada Trust principles in the context of such agreements specifically was considered in Bols Distilleries BV (trading as Bols Royal Distilleries) v Superior Yacht Services Ltd [2006] UKPC 45; [2007] 1 WLR 12. At para [28] the Board said:

“… In practice, what amounts to a “good arguable case” depends on what requires to be shown in any particular situation in order to establish jurisdiction. In the present case, as the case law of the Court of Justice emphasises, in order to establish that the usual rule in article 2(1) is ousted by article 23(1) , the claimants must demonstrate “clearly and precisely” that the clause conferring jurisdiction on the court was in fact the subject of consensus between the parties. So, applying the “good arguable case” standard, the claimants must show that they have a much better argument than the defendants that, on the material available at present, the requirements of form in article 23(1) are met and that it can be established, clearly and precisely, that the clause conferring jurisdiction on the court was the subject of consensus between the parties.”

The Court of Appeal in JSC Aeroflot Russian Airlines v Berezowsky [2013] EWCA Civ 784 considered what was added by the suggestion that a claimant must have “much” the better of the argument, and decided that this word should be “allowed to slip from view.” The Court said:

“[50] … The only point of the word is to emphasise the fact that if the two arguments are equal, then the party asserting the Article 23 jurisdiction will not succeed. Too much emphasis on the word “much” would simply lead to the error of imposing too high a standard of proof on the party wishing to establish the Article 23 jurisdiction. The whole point of the jurisprudence on the standard of proof in jurisdictional disputes is to emphasise that such decisions are made at an early stage in a dispute and that the same or very similar questions on the substantive dispute between the parties (eg. on whether the substantive contract itself has been concluded) may have to be decided at the trial. Any conclusion at the jurisdiction stage must not preclude the possibility of a different finding when all the evidence has been collected and considered at trial.”

Summarising the law as it currently stands, Popplewell J in IMS SA and others v Capital Oil and Gas Industries Ltd [2016] EWHC 1956 (Comm) said:

“[45] The burden rests on the claimants to establish that there exists an agreement on jurisdiction which fulfils article 25, which I shall call “an article 25 agreement“. The standard of proof is that the claimants must establish that they have the better of the arguments on the material presently available; the question is one of relative plausibility and does not impose a balance of probabilities standard…”

The above passages point to an approach that could equally be applied by an adjudicator to jurisdictional challenges – to consider the competing arguments and determine which party has the better of the arguments on the available material, recognising that some of the issues raised (e.g. as to formation of the relevant contract) may be relevant in the subsequent merits phase.

Such an approach also accords with the fact that, as noted above, adjudications are important events and the answers to jurisdiction challenges are significant.  The adjudicator is best placed to resolve the jurisdictional issue, at least for the time being. They should consider the competing arguments and try to reach the right answer, neither imposing upon nor depriving the parties of an adjudication unfairly.

Any other approach requires the adjudicator to take a different path to that which the balance of the competing arguments suggests is correct. In a finely balanced case, a high standard requires an adjudicator to resign when the arguments suggest they should continue; a lower standard requires the adjudication to continue when it should not. That is neither appropriate nor fair.

The approach in ABB Power Construction

The foregoing suggests (respectfully) that the court was wrong in ABB Power Construction to endorse the adjudicator’s approach of proceeding where there was merely an “arguable case” that the adjudicator had jurisdiction. That set the bar too low, and the claimants should have been required to show that they had the better of the arguments.

There are reasons that could be advanced in support of the ABB Power Construction approach. It could be said that, whereas a jurisdiction challenge under CPR 11 will be considered by a judge who has extensive training in weighing the competing legal arguments, an adjudicator might have been chosen for their expertise as a construction professional, and may be less equipped to deal with the respective points. In those circumstances, it might be sensible for an adjudicator to lean in favour of allowing the adjudication to continue, leaving the jurisdictional questions over to be dealt with by a judge at the enforcement stage.

However, there are three problems with that line of argument. First, many adjudicators would (rightly) take umbridge at the suggestion that they are not suitably equipped to deal with jurisdictional arguments. Many are either qualified legal professionals, or have extensive experience dealing with construction contracts and issues of contractual interpretation. Jurisdiction challenges do not usually raise complex issues of law, but instead factual questions as to what contract the parties agreed and whether its terms have been complied with. There is no real reason to suppose that adjudicators cannot deal properly with these issues.

Secondly, the parties are able to agree as part of their contract the identity of the adjudicator or (more commonly) the nominating body that will appoint them. A party who finds themselves before an adjudicator who is ill-equipped to deal with any jurisdictional challenge has got exactly what they bargained for.

Thirdly, the approach in ABB Power Construction would add a further advantage to referring parties, in a process that is already somewhat skewed in their favour. Referring parties have the luxury of time to prepare their evidence and submissions, and can (and do) use this to their advantage. It is not unheard of for a referring party to take months to marshal their evidence and submissions, provide a heavy batch of documents at short notice and/or at a time inconvenient to the responding party, then insist on a decision within 28 days thereby limiting the ability of the responding party to deal with the claim. They also (at least under the Scheme) have a greater degree of control over the timetable, in that they can unilaterally extend the adjudication by 14 days, whereas any extension sought by the Responding Party has to be agreed.

The second aspect of the judgment in ABB Power Construction – the suggestion by the court that the standard applied by an adjudicator could somehow be flexible and apply differently in different circumstances – is also unconvincing. A jurisdiction challenge raises a question to which there is a defined answer – does the referring party have a right to adjudicate, and is the adjudication proceeding in accordance with the principles of natural justice? There are well-established legal principles that provide the answers to these questions; they should be determined in accordance with those principles.

The suggestion of a flexible standard also appears in the CPR 11 jurisprudence,[3] so might be said to have some support from authority. However, a jurisdiction challenge in litigation can arise for a whole range of reasons, from issues of forum agreements through to examination of the legal system in other jurisdiction to determine whether claimants will obtain substantial justice elsewhere. Furthermore, a judge dealing with a CPR 11 application might be dealing with any conceivable type of proceedings – a simple contractual/tort claim, allegations of international fraud, cross-border insolvency proceedings, or anything else imaginable. It is easy to see that a flexible standard may be required to accommodate these very different circumstances.

By contrast, jurisdiction questions in adjudication are more narrowly confined. Where the question is whether the referring party has a right to adjudicate, that is fundamentally a question of contractual interpretation. The conventional approach to disputed contractual rights is to interpret the contract, and determine whether the right exists and if so its content. While the law sometimes treats particular classes of contractual terms differently from others[4], an approach of interpreting one type of clause (adjudication provisions) more or less strictly depending on the circumstances would be highly unorthodox.

Similarly, challenges based upon a breach of natural justice raise questions about the fairness of the proceedings. These rules are not discretionary – they have either been breached, or they have not. The adjudicator should apply those rules as best they can. If the proceedings are unfair, what other circumstances could justify them continuing to a temporarily binding decision?

The types of dispute referred to adjudication are similarly more confined, relating almost exclusively to disputes over the application or breach of contract terms, together with analogous or related claims.

In those circumstances, it is doubtful as a matter of practical reality whether it would ever be appropriate for an adjudicator to adopt a different standard to simply considering which party has the better of the competing arguments on the materials available.

Conclusion

Adjudications and jurisdictional challenges have serious consequences for the parties; as such, they should be taken seriously, and a consistent and principled approach applied. Therefore:

• Adjudicators faced with jurisdictional challenges should ask themselves which party has the better of the arguments on the available material.
• Appeals to or application of the summary judgment test should be discouraged.
• The suggestion in ABB Power Construction that all that is required is an “arguable case” that the adjudicator has jurisdiction should not be followed.

Article by Simon Kerry.

[1] In theory, it would be possible for the disappointed referring party to commence Part 8 proceedings seeking a determination in short order that the adjudicator did have jurisdiction, in order to enable a subsequent further referral of the substantive dispute; however, this doesn’t happen in practice.

[2] In that case, due to the insolvency of the referring party.

[3] See Waller LJ in Canada Trust Co v Stolzenberg (No 2) [1998] 1 WLR 547

[4] For example, clauses purporting to exclude liability for negligence, which are generally interpreted strictly.