Adam Mathewson is a solicitor and Karen Morean is a partner at Devonshires
Statutory adjudication has been a fixture of the construction industry for 25 years. Its success and acceptance within the industry is perhaps best demonstrated by how few adjudication decisions are challenged in the Technology and Construction Court (TCC) in enforcement proceedings.
In 2022, the Adjudication Society and King’s College reported that a quarter of respondents had never experienced an adjudicated dispute being referred to litigation or arbitration, and that out of 189 enforcement cases that year, the TCC declined enforcement on only 40 occasions.
That trend appears to have continued this year, and we discuss key takeaways from recent enforcement decisions.
A bit about the law
By way of a reminder, the limited grounds on which an adjudicator’s decision may be challenged at enforcement are: a breach of natural justice, and the adjudicator lacking jurisdiction.
If a decision is enforceable, a party may nonetheless seek to stay (suspend) enforcement of the decision. However, the grounds for obtaining a stay are limited to financial impecuniosity. In other words, one would have to demonstrate insolvency of the enforcing party and a lack of other appropriate security.
Breach of natural justice
In Lidl Great Britain Ltd v Closed Circuit Cooling Ltd (2023), the judge noted that “any breach of the rules of natural justice must be more than peripheral; they must be material breaches”. He further stated that adjudicators ought to bring an issue or point to the attention of parties to give them an opportunity to comment on it, only if it is of considerable potential importance to the outcome.
“The rise of insolvency in the construction industry will inevitably lead to a growing number of attempts to stay enforcement of adjudicators’ decisions”
Given that the parties made submissions on the contract as a whole in the adjudication, the adjudicator’s reliance on a clause that neither party referred to did not breach natural justice. It was part and parcel of what the adjudicator had to decide and he had not gone off on a “frolic of his own”.
The judge enforced the adjudicator’s decision, finding that Lidl’s arguments fell short of establishing a breach of natural justice, and that such a breach would have been material.
Parties alleging that adjudicators did not consider their submissions will face an uphill battle to resist enforcement, as Bexhill Construction Ltd v Kingsmead Homes Ltd (2023) demonstrates. The adjudicator expressly said that he had considered all submissions in reaching his decision. A court will be slow, absent evidence to the contrary, to interfere with an adjudicator’s decision given such express words.
Likewise, parties arguing that cases are too complex, or they have not been afforded a fair opportunity to respond to the case put before them, will find it difficult to resist enforcement. In Home Group Limited v MPS Housing Limited (2023), the judge enforced the adjudicator’s decision, finding that there was no breach of natural justice on those grounds.
In AZ v BY (2023), the judge found that the circumstances of the case amounted to “one of the few cases in which a breach of natural justice, by reason of apparent bias, dictates that the decision should not be enforced”.
This arose by AZ putting without-prejudice communications in front of the adjudicator, aimed at demonstrating that BY’s position in the adjudication was contrary to the position adopted in the without-prejudice communications.
The judge found that there was a real possibility that the adjudicator was unconsciously biased by having seen that correspondence.
Stay of enforcement
In Alun Griffiths (Contractors) Limited v Carmarthenshire County Council (2023), the council sought a stay on the grounds that the contractor was insolvent and its parent company’s guarantee was inadequate to safeguard the council’s position.
The judge found that “there was no merit whatever in [the council’s] application to stay judgment”. He decided that the parent-company guarantee was more than sufficient to protect the council’s position should it succeed on a subsequent ‘true value’ adjudication.
The cases demonstrate the TCC’s continued robust approach to the enforcement of adjudication decisions. Parties seeking to challenge enforcement need to think carefully about satisfying the requirement for materiality, which the case law shows is a high bar.
It remains the case that challenges based on bias are rare, as they rely on a specific set of facts and adjudicators are alive to potential issues. Parties would be well advised to raise any suspicions as early as possible in the adjudication process.
We are all aware of the concerning rise of insolvency in the construction industry. In our view, this will inevitably lead to a growing number of attempts to stay enforcement of adjudicators’ decisions. Expert opinion from forensic accountants will be crucial to establishing or defending such applications. The starting position remains ‘pay now, argue later’.