Challenging an Adjudicator’s decision

Adjudication – Overview

Adjudication under the Construction Act 1996 has been available as a method of deciding disputes or differences under construction contracts since May 1998. It was designed primarily, to assist cash-flow in the construction industry and to prohibit “pay when paid” clauses which adversely affects sub-contractors and suppliers – in other words “pay now, argue later”.

The number of referrals has remained on an upward trend. According to Kings College London data, there were 2,078 referrals between May 2022 and April 2023, rising to 2,264 for 2023-2024.

It is a “quick and dirty” 28 day-procedure (although the parties can agree to extend this period).

Adjudication is often used for resolving claims relating to:

• Interim payments and final accounts;
• Delay and disruption and entitlement to EOTs and loss and/or expense; and
• Defects.

Adjudication is also used for complex claims, such as contract interpretation, termination and professional negligence, though commentators debate whether justice in such claims can be done in such a short time period.

An adjudicator’s decision is binding unless or until the dispute is “finally” determined whether by agreement or litigation (court proceedings or arbitration depending on the underlying contract).

An adjudicator’s decision can also be enforced in the Technology and Construction Court (TCC) by way of an expedited summary judgment application. It generally does not matter that the adjudicator has “got it wrong” providing they have determined the dispute referred.

Of course, there is usually a “losing” party who will not want to pay up and all manner of inventive arguments have been advanced to resist enforcement. As a result, a significant body of case law has grown which seeks to provide clarity on the grounds upon which a challenge can be raised.

Whilst such grounds are limited, this note provides an overview of the practical and legal points which should be considered.

Did the losing party reserve its position?
Any party who considers that the adjudicator lacks jurisdiction and so may wish to challenge their decision should it go against them, should ensure that it reserves its position from the outset. If it does not, and takes part in the adjudication, the right to challenge the decision is likely to be lost.

It should also be unequivocally stated that any participation in the adjudication is without prejudice to that objection.

Establishing Jurisdictional grounds to challenge enforcement
If the adjudicator did not have jurisdiction, or has materially breached the rules of natural justice, the losing party may have grounds to resist enforcement. Jurisdictional challenges can be broadly categorised as follows:

• The contract is not a “construction contract” under the Construction Act and therefore there is no statutory or contractual right to adjudicate[1]
• The request for the nomination of an adjudicator was made prior to serving the Notice of Adjudication contrary to the Act and the Scheme[2]
• The appointment of the adjudicator did not comply with the relevant adjudication procedure rules in the contract or the Scheme
• The dispute had not crystallised
• The dispute referred to the adjudicator was different to the dispute that had crystallised
• The dispute referred to the adjudicator was the same or substantially the same as a dispute already decided in a previous adjudication
• The adjudicator did not determine the dispute referred
• The adjudicator failed to reach the decision within the required time or
• The adjudicator imposed a pre-condition on the publication of the decision

Did the Adjudicator breach the rules of natural justice?
The court may also decline to enforce an adjudicator’s decision if there has been a material breach of the rules of natural justice. This may include, for example, the adjudicator’s failure to:

• Communicating with one party but not the other
• Taking an entirely different approach to dispute to those advanced by the parties (or “going on a frolic of their own”)
• Taking advice from a third party without the parties’ consent
• Failing to give a party sufficient time to advance their case (but considering that given the 28 day timetable, the time to respond will necessarily be limited)
• Failing to consider a party’s submission
• Failing to give reasons for the decision (if requested to do so);
• Exceeding jurisdiction

Fraud
Allegations of fraud can be raised both during the adjudication proceedings and/or in any subsequent enforcement action either to resist enforcement or support an application for a stay of execution. An example of fraud might be a Payment Notice issued by a certifier who was mis-led by a party as to the true value of works completed. However, this should be contrasted with a simple and honest mistake in the way e.g. a payment claim has been formulated or a contractual term has been interpreted.

Such allegations should be raised at the earliest possible opportunity. The Court will not enforce an adjudicator’s decision if it is satisfied that it would assist in the perpetration of a fraud, though the evidence must be clear and unambiguous.

Stay of Execution
In some limited circumstances, rather than dismissing an enforcement application, the court may order a stay of execution.
The most common basis is where the court is persuaded that the successful payee would be unable to repay the sum awarded to the payer if the effect of the adjudicator’s decision was reversed in any final determination of the dispute i.e. by court proceedings or arbitration.

The list of applicable principles the court will consider are:

• Adjudication provides a temporary result and that parties should generally be entitled to their money
• The probable inability of a payee to repay the sum awarded may be a sufficient ground to order a stay unless the payee’s financial position
  – is the same as when the contract was entered into or
  – was caused by the payer’s failure to pay
• If the payee is obviously insolvent on the evidence (or in an insolvency process) then a stay of execution will usually be granted.
• There is a real risk that the payee would organise its financial affairs with the purpose of dissipating the adjudication award so that it would not be available to be repaid on a final determination of the dispute.

However, the court may still enforce an adjudicator’s decision if the payee is able to offer security (such as a guarantee bond or insurance policy) which would allow the money to be repaid in any final determination.

The court also has power to grant a stay of execution to prevent “manifest injustice” though only in exceptional circumstances.

Conclusions
The court has repeatedly made it clear that adjudicators’ decisions should generally be enforced even where the decision on the facts or the law may be wrong. The established narrow grounds for challenging an adjudicator’s decision are limited to:

• Jurisdiction
• Material breaches of natural justice
• The payee’s financial impropriety
• Fraud
• Manifest injustice

Any grounds for challenge should be raised at the earliest possible opportunity in order to avoid the right to challenge being lost.

If you are facing challenges with an adjudicator’s decision and need expert advice, please do not hesitate to contact our Construction & Engineering team for practical guidance tailored to your specific situation.

[1] Crystal Electronics Limited v Digital Mobile Spectrum Limited [2023] EWHC 2656 (TCC)

[2] Paragraph 2(1) of Part 1 of the Scheme