Judicial Salute to Fundamental Adjudication Principles

In addition to the hotly anticipated third edition of his seminal work ‘Coulson on Construction Adjudication’ released on 26 March 2015, the Honourable Mr Justice Coulson has recently reiterated some of the more fundamental principles of adjudication enforcement, including the point of crystallisation of the dispute and the validity of the appointment of an adjudicator. As if this was not enough, there was consideration of the principles applied where a stay of execution is sought in an adjudication context, consideration of whether there had been a waiver of potential grounds of objection, and there was also a judicial salute to the ‘rough and ready’ nature of the adjudication process.

Background

The defendant engaged the claimant to carry out electrical works at the West Stand and in the executive boxes at Twickenham. The claimant applied for summary judgment to enforce two adjudicator's decisions arising out of those contracts. The Defendant raised four objections on the two broad grounds that the adjudicator lacked jurisdiction to reach the decision and that there had been a breach of natural justice. The four objections were that:

1. No dispute had crystallised before the reference to adjudication;
    
2. The adjudicator's appointment was invalid;
    
3. The timetable in the adjudication was too onerous and therefore unfair;
    
4. If none of the above points were accepted, there should be a stay of execution

Ground 1 – No Crystallised Dispute

The rule is that a dispute must have crystallised between the parties before it can be referred to adjudication. Mr Justice Coulson highlighted that this argument has rarely been successful when raised. The learned judge stated that the starting point is the decision of Jackson J in AMEC Civil Engineering Ltd v Secretary of State for Transport [2004] EWHC 2339 (TCC) where, in summary, it states:

1. The mere fact that one party ("the claimant") notifies the other party ("the respondent") of a claim does not automatically give rise to a dispute. A dispute does not arise until the claim is ‘not admitted’, including where: a) there is an express rejection of the claim; b) there are discussions between the parties from which objectively it can be inferred that the claim is not admitted; c) the respondent acts evasively, giving rise to an inference that he does not admit the claim; d) the respondent simply remains silent for a period of time.
    
2. For crystallisation to occur, no more than the service of a claim by the claiming party, and subsequent inactivity for a further short period by the responding party, may be enough.

Mr Justice Coulson determined that the dispute had crystallised in the present case because the defendant had:

1. Failed to pay the invoices in accordance with the contract;
    
2. Failed to serve a valid payless notice within proper time; and
    
3. Expressly said that the claims were disputed and would be defended. For those reasons, the defendant's crystallisation challenge must fail.

Ground 2 – Invalid Appointment of Adjudicator

In making this objection, the defendant relied upon the infamous decision of Eurocom Ltd v Siemens PLC [2014] EWHC 3710 (TCC), in which it was found that the claimant's representatives had fraudulently misrepresented to the relevant appointing authority the fact that a lengthy list of potential adjudicators could not be appointed because they would have a conflict of interest.

Mr Justice Coulson reiterated the three-stage test for fraudulent misrepresentation: first, whether a false statement was made; secondly, whether any false statement was made fraudulently or recklessly and thirdly, the effect of any such statement. He then held that the fraud arising in Eurocom did not arise in the present case because, although the application to CEDR for the appointment, made by the claimant's representatives, included the sentence "It is preferred that any of the adjudicators in the attached list are not appointed," the evidence was that that sentence was included in error. It was important that there was no attached list.

Ground 3 – Timetable

Mr Justice Coulson noted that this issue had been raised in a number of previous cases but that it had never been upheld. He stated that the plain fact is that adjudication is a rough and ready process because it had to be carried out within a very strict timetable. While acknowledging that this often caused particular pressure for the responding party he stated: “that is, I am afraid, a fact of adjudication life; it is inherent in the whole process.”

With another judicial nod to one of the fundamental principles of adjudication (“the importance of cash flow is, after all, the principle that lies behind the adjudication process”), the learned judge dismissed this objection because:

1. The claimant had proper cash flow reasons for pursuing the claim when they did;
    
2. The timetable set down made the best use of the 28 days that was available. Although it took place over the Christmas/New Year period, the defendant had been in possession of the relevant invoices since the middle of November and therefore must have known what points it wanted to make;
    
3. There was nothing of great complexity about the disputes. The only point of substance was the issue around the absence of a valid payless notice;
    
4. The defendant could have asked the adjudicator for further time but did not

Waiver

Mr Justice Coulson determined that the challenges, whether by way of jurisdiction or breach of natural justice, had any event been waived by the defendant. He noted that it was clear that if a party wishes to raise a jurisdictional objection then that objection has to be expressly stated at the outset of the adjudication.

As to the allegation of breach of natural justice, he noted what Ramsey J said in Farrelly (M&E) Buildings Services Ltd v Byrne Brothers (Formwork) Ltd [2013] EWHC 1186 (TCC) that, for there to be a waiver in the case of a natural justice challenge, the party has to know or be taken to know that the grounds for a natural justice challenge have arisen. However there has then to be some clear and unequivocal act by that party to show that it does not intend to rely on that natural justice challenge before there can be waiver.

In the present case, the defendant was held to have known of the relevant facts that gave rise to the alleged breach of natural justice, namely the onerous timetable. It did not raise that complaint during the adjudication. There were clear acts to show that the breach had been waived, namely the payment of fees and corrections that were sought to be made to the decisions themselves.

Stay of Execution

Mr Justice Coulson reiterated the relevant principles governing a stay of execution in cases of adjudication enforcement and financial difficulties:

1. Adjudication is designed to be a quick and inexpensive method of arriving at a temporary result in a construction dispute;
    
2. Adjudicators' decisions are intended to be enforced summarily and the successful party should not generally be kept out of its money;
    
3. In an application to stay the execution of summary judgment arising out of an adjudicator's decision, the Court must exercise its discretion with considerations 1) and 2) firmly in mind;
    
4. The probable inability of the claimant to repay the awarded sum at the end of the substantive trial, or arbitration hearing, may constitute special circumstances rendering it appropriate to grant a stay;
    
5. If the claimant is in insolvent liquidation, or there is no dispute that the claimant is insolvent, then a stay of execution will usually be granted;
    
6. Even if the evidence of the claimant's present financial position suggested that it was probable that it would be unable to repay the judgment sum when it fell due, that would not usually justify the grant of a stay if: a) the claimant's financial position is the same or similar to its financial position at the time that the relevant contract was made; or b) the claimant's financial position is due, either wholly, or in significant part, to the defendant's failure to pay those sums which were awarded.

On the facts, the learned judge found that the claimant company was growing steadily and that the financial evidence was not such as to justify a stay of execution. He added that since the claimant's financial position had been growing better, it followed that their position at the time of the application was at least as good as the position at the time that the contracts were entered into.

Conclusion

Mr Justice Coulson has reiterated clearly what many will already know: that a dispute will crystallise if it is opposed, whether expressly or by implication; parties who choose to adjudicate have to put up with its seemingly harsh timetable, and bear the burden of asking for more time; parties who do not reserve their rights to raise jurisdictional objections at the adjudication will be taken to have waived those rights at enforcement unless there are real grounds for fraudulent misrepresentation; and that if the unsuccessful party has money, or at least has a similar amount of money to what it had when it first entered into the contract in question, the court will be unlikely to grant a stay of execution.

The judgment can be found here.