Litigation in the technology and construction court

Adam Constable KC; Lucy Garrett and Calum Lamont

Document

Page 121

CHAPTER 9 The TCC and adjudication

Introduction

9.1 The Housing Grants Construction and Regeneration Act 1996 (‘the Act’) changed the landscape of construction dispute resolution beyond recognition. Many disputes, big and small, which otherwise would have been litigation through the TCC have been resolved through adjudication processes which, while non-binding, have led the parties to accept the result as a final decision, or arrive at settlement. While this has had the inevitable effect of reducing the number of substantive disputes being litigated, it also spawned a seemingly ceaseless flow of satellite claims relating to the enforcement of adjudication decisions, or disputes resulting from the payment process requirements of the Act. There are now over 600 cases which deal with adjudication, and countless articles and publications. This chapter is not intended as a substitute for more in-depth books,1 but rather focusses on the nexus between the Court function and adjudication.

Before the adjudication

9.2 In adjudication, each side bears its own costs unless the parties agree otherwise. Obtaining an adjudication award which is not capable of being enforced is expensive. Some grounds to challenge a decision arise only from the conduct of the adjudication or from the decision, and can only really be dealt with by the Courts following the issue of the award. However, some grounds to challenge enforcement can be anticipated. In some circumstances, the referring party is able to prevent otherwise good enforcement points by obtaining agreement, either expressly or tacitly, so that the point does not survive. For example, if the contract specifies an incorrect appointing body or a defective procedure, the parties can obviously agree a particular course of action. It may be that by participating in a particular procedure without protest, a party is taken to have waived any jurisdictional challenge which might otherwise have existed. However, some potential challenges may not be overcome where one of the parties does not agree, or wishes generally to reserve its rights and await the outcome of the adjudication. The types of challenge which may exist in advance of the referral to adjudication include whether there is a ‘construction contract’ (the question may be whether a particular entity is a party to a construction contract, or whether the contract is a ‘construction’ contract for the purposes of the Act) or whether there is a dispute which has ‘crystallised’. 9.3 Taking the first of these examples – whether there is a construction contract to which the Act applies – a party will have to consider strategically the best course of action if there is dispute between the parties about the nature of the contract. If, for example, there is a

Page 122

question of whether there was a contract at all, then commencing an adjudication will be risky because the question of the validity of the contract might always be a matter which the Court will be required to resolved; and if and to the extent that the resolution of the issue would involve substantial issues of fact, the award will not be capable of summary enforcement (see, for example, Pegram Shopfitters Ltd v Tally Weijl (UK) Ltd 2). However, if the issue is capable of being determined summarily, it may be sensible to obtain clarity from the Court before the adjudication is commenced, rather than afterwards on enforcement. This can be achieved by commencing Part 8 proceedings for a declaration. This is a tactic which is open, of course, not just to the prospective referring party, but also the prospective responding party. If the Court determines that there is a construction contract, then the parties can adjudicate in the knowledge that the award will not be subject to successful challenge on grounds that no construction contract existed; if the Court determines otherwise, the parties know that they will most likely have to resort to litigation to resolve their dispute. 9.4 Questions about whether a dispute exists are much less likely to succeed; generally the Court will look broadly at whether a claim has been made and whether it has been rejected. Strategically, the cost of seeking a declaration prior to the adjudication is unlikely to be sensible if the ground for objecting to the adjudication is weak. Such arguments are better made (if made at all) in the adjudication itself (albeit probably to be rejected by the adjudicator) under a reservation of rights. The point can then be argued on the question of enforcement, if relevant. The only advantage of taking the point in advance of an adjudication is the added credibility the point may be perceived to have if the argument is not being run in the face of an unfavourable adjudication award.

During the adjudication

9.5 In theory, it is open to a party to obtain injunctive relief to restrain the adjudication process once it has started on grounds which otherwise would give reason to refuse to enforce the decision (for example, where there is no construction contract or where the adjudicator has not been appointed properly). However, caution should be exercised: it is to be noted that injunctive relief is a discretionary remedy and therefore the existence of a potential ‘jurisdictional’ argument may not, of itself, be sufficient to persuade a Judge in the TCC to exercise that discretion. In Workplace Technologies Plc v E Squared Ltd,3 HHJ Wilcox held, in face of an argument that an injunction should be granted to prevent a potentially void adjudication procedure continuing, that the balance of convenience favoured allowing the adjudication process to continue. The Court considered that if it granted an injunction without determining the issue of the date of the contract (and whether the scheme for adjudication under the Act applied), then it inexorably followed that it may be interfering in a valid adjudication to its detriment, frustrating the statutory scheme of the giving of an early decision as to who shall hold the money pending litigation or arbitration. By contrast, if the defendant was right about the date of the contract, it would at the most mean that he or she was subjected to a pointless adjudication (which it could choose not to participate in, if it considered its arguments about validity sound), but in any event the

Page 123

adjudication decision would then be unenforceable. In the more recent decision of Twintec Ltd v Volkerfitzpatrick Ltd,4 the Court concluded that the appointment was made under a purported provision of a contract which had not in fact been incorporated into the agreement, and thus was invalid. While stating that it was only in ‘exceptional’ circumstances that the Court would injunct a party, Edwards-Stuart J considered that this was a proper case for the power to be exercised, concluding that it was difficult to see how it could be either just or convenient to permit an adjudication to continue in circumstances where the decision of the adjudicator will be incapable of enforcement. The Court therefore rejected the submission that the appropriate time for the Court to intervene is at the enforcement stage. While it may be uncommon, therefore, it does seem that if the Court is satisfied that the appointment is invalid, it will take the ‘exceptional’ course of injuncting the adjudication from continuing. This is a different ‘default’ position from that taken by HHJ Wilcox, and took express account of the diversion of valuable resources and substantial irrecoverable expenditure dealing with the issues in the adjudication. Where the question is one of validity, this is likely to be the approach of the Court. 9.6 More difficult is the situation where a party argues that the adjudication should be restrained by the Court because it is oppressive and unreasonable. Alternative arguments on these grounds were advanced before Edwards-Stuart J in Twintec and they were rejected. The Court emphasised that these two requirements are disjunctive.

A referral to adjudication may be unreasonable (for example, if deliberately delayed until shortly before Christmas) without necessarily being oppressive. Alternatively, it may prove to be oppressive – perhaps because, unknown to the referring party, the relevant personnel within the responding party have just been posted abroad – without having been unreasonably started. Both elements must be present and, in my judgment, to a fairly high degree.

The rest of this document is only available to i-law.com online subscribers.

If you are already a subscriber, click Log In button.