Can a court award payment of the adjudicator’s valuation even if the adjudicator had no jurisdiction to order payment?

The notice of adjudication

The adjudication process is commenced under a construction contract by the referring party serving on the responding party a notice of intention to refer the dispute in question to adjudication (see section 108(2)(a) of the Housing Grants, Construction and Regeneration Act 1996 (as amended)).

The notice of dispute informs the responding party of the dispute that the adjudicator will be asked to decide, and thus defines the scope of the adjudicator’s jurisdiction to decide that particular dispute.

Typically the notice of dispute is required to state the nature and a brief description of the dispute and the redress sought (see, for example, section 1(3) of Part I of the Scheme for Construction Contracts (England and Wales) Regulations 1998).

Responding party’s counterclaims

Frequently, when a referring party refers a claim for money to adjudication under a construction contract, the responding party argues that the referring party is not entitled to the sum sought and/or argues that the responding party has a counterclaim which it is entitled to set off against the referring party’s claim.

It is well established that the responding party is entitled to raise all defences available to it. In Cantillon Ltd v Urvasco Ltd [2008] EWHC 282 (TCC) (at paragraph 54), Mr Justice Akenhead said:

“It is, I believe, accepted by both parties, correctly in my view, that whatever dispute is referred to the Adjudicator, it includes and allows for any ground open to the responding party which would amount in law or in fact to a defence of the claim with which it is dealing.”

Therefore, the adjudicator must consider all of those defences, including any counterclaim. Otherwise the adjudicator’s decision may not be enforceable on the basis that he or she has, by taking an erroneously restrictive view on his or her jurisdiction:

• failed to answer the question referred to him or her; or
• given rise to a breach of natural justice

(see Pilon Ltd v Breyer Group plc [2010] EWHC 837 (TCC)).

WRW Construction Limited v Datblygau Davies Developments Limited [2020] EWHC 1965 (TCC)

The case of WRW Construction Limited v Datblygau Davies Developments Limited [2020] EWHC 1965 (TCC) concerned an application for summary judgment to enforce an adjudicator’s decision. The case came before Recorder Andrew Singer QC, and the hearing was conducted remotely under the Covid-19 restrictions.

Datblygau Davies Developments Limited (DDD) and WRW Construction Limited (WRW) had entered into a contract based on the JCT 2011 design and build standard form for the latter to design and build nine residences in Twickenham, London. A number of differences arose between the parties, which gave rise to three adjudications.

In the second of those adjudications, the adjudicator decided that DDD had validly terminated the contract. DDD then referred claims in respect of the post-termination final account to a third adjudication. It was the adjudicator’s decision in that third adjudication that was the subject of the enforcement proceedings. However, it was the responding party, WRW, who sought to enforce that decision.

The parties’ submissions to the Adjudicator

In the notice of adjudication, DDD stated:

“DDD [the Defendant] is entitled to and claims payment from WRW [the Claimant] of the sum of £3,345,790.40 (or such other sum as the Adjudicator shall determined [sic] is owed by WRW to DDD) … DDD invites the Adjudicator to determine the sums due and payable by WRW to DDD and to order payment of such sum by WRW to DDD … ”

In its Response, WRW submitted:

“The proper valuation of the post-determination final account in accordance with Clause 8.7.4 of the Contract leads to a position in which DDD is indebted to WRW. Whilst WRW accept that the Adjudicator has no jurisdiction to order payment to be made to WRW, the Adjudicator has been asked by DDD to value the post-terminational [sic] final account … the Adjudicator should conclude that the sum due and payable by WRW to DDD is -£695,035.63.”

The Adjudicator’s decision

In his decision, the Adjudicator stated:

“ … the total value of the account due to Clause 4.7.4.1 is an amount due as a debt from DDD to WRW as is permitted by Clause 8.7.5 in the sum of £568,597.32.”

The Adjudicator went on to state:

“I decide that WRW shall pay to DDD the sum of -£568,597.32 (negative) within 7 days of the date of my Decision.”

The summary judgment application

However, DDD refused to make any payment to WRW, who therefore sought to enforce the Adjudicator’s decision by way of a summary judgement application. As Recorder Andrew Stringer QC noted, such an application required WRW to prove that DDD had no reasonably arguable defence to WRW’s claim.

DDD argued that the Adjudicator had not made a valid order for payment and that the Court was not permitted to order payment based on the Adjudicator’s decision, since that would amount to the Court making a determination on the merits of the post-termination final account. Furthermore, DDD would not be able to bring litigation to reclaim any overpayment since the doctrine of merger applied. DDD contended that WRW had to bring a further adjudication in order to obtain an adjudicator’s decision that DDD pay the relevant sum to WRW.

The Courts’ decision

Recorder Andrew Singer QC (at paragraph 18) accepted that the Adjudicator had no jurisdiction to award a sum of money to WRW as the responding party in the adjudication. However, he went on to hold (at paragraph 18) that that was not the relevant issue. It was:

“whether on the basis of a valid, binding valuation of the post-termination account a court’s enforcement of that valid award can include an order for payment of the sum due as a consequence of the binding valuation, or not.”

He held (at paragraph 19) that there was no bar to the Court proceeding in such a way, adding;

“Indeed, in my judgment it would be contrary to principle and established authority for the Court to effectively force a party who has the benefit of an award in its favour as far as a balance being due to it, thereafter to have to commence a further adjudication (to which there is no defence) for the purpose of obtaining an order for payment from the Adjudicator before returning to the Court if necessary, for further enforcement proceedings.”

As to the doctrine of merger, Recorder Andrew Stringer QC (at paragraph 21) quoted paragraph 5 of the judgement of the Court of Appeal in Clark v In Focus Asset Management and Tax Solutions Ltd [2014] EWCA Civ 118:

“Merger explains what happens to a cause of action when a court or tribunal gives judgment. If a court or tribunal gives judgment on a cause of action it is extinguished. The claimant if successful is enabled to enforce the judgment but only the judgment. The effect of merger is that a claimant cannot bring a second set of proceedings to enforce his cause of action even if the first tribunal awarded him less than he was entitled to … ”

However, Recorder Andrew Stringer QC noted that an adjudicator’s decision is temporarily binding and is not a judicial decision. The Court’s enforcement of the adjudicator’s decision would not amount to a final determination by the Court of the value of the post-termination final account. A cause of action of the right to be paid sums based on an adjudicator’s decision is not the same thing as a cause of action to reclaim monies paid out as a result of the Court enforcing that decision. The doctrine of merger therefore did not arise.

Accordingly, Recorder Andrew Stringer QC held that DDD had no reasonably arguable defence to WRW’s claim for payment of the sum of £568,597.32, and therefore WRW succeeded in its summary judgment application.

Conclusion

The decision of the Court in the WRW Construction case can be considered to have been the right result for practical and commercial reasons (WRW should not have had to obtain a further adjudicator’s decision simply to obtain payment of the previous adjudicator’s valuation).

The Court’s decision also illustrates the pitfalls of referring a claim for money to adjudication in circumstances where the responding party may have a counterclaim for a sum which is nearly equivalent to, or higher than, the amount claimed by the referring party. Typically, this might arise where contractors are making claims for loss and/or expense and/or amounts due to variations, where they may be met by claims from the employer for delay damages or defects claims. Another not uncommon scenario is where an employer terminates a construction contract and brings a claim for losses arising out of the termination, to which the contractor responds with claims as to the value of the account up to the date of termination (as happened in the WRW Construction case).

Where there is a counterclaim, no amount of sophistry in the framing of the notice of adjudication may prevent that counterclaim falling to be decided by the adjudicator.