In 2023, the Court of Appeal provided a useful summary of the relevant principles from case law which apply when considering potential overlap between serial adjudications (Sudlows Ltd v Global Switch Estates 1 Ltd [2023] EWCA Civ 813).
While, in the words of Lord Justice Coulson, the basic rules are “crystal clear”,[1] the issue of whether a dispute has already been decided in an earlier adjudication arises quite frequently. In the last year, the issue has been considered in two decisions of the Technology and Construction Court.
Sonia Ginders outlines the basic principles to consider when determining the effect an earlier decision may have on a later adjudication; and, then considers the two recent decisions of the Technology and Construction Court on this issue from the past 12 months.
Determining what has already been decided: the basic principles
Section 108(3) of the Housing Grants, Construction and Regeneration Act 1996 requires that a construction contract must provide, in writing, that the decision of an adjudicator is binding until the dispute is finally determined, by legal proceedings, agreement, or by arbitration (if the contract provides for arbitration or the parties otherwise agree to arbitration).
This means a party to a construction contract is debarred from referring successive applications to adjudication where they concern a dispute that has already been determined in adjudication.
The consequences of referring such a dispute can include a subsequent adjudicator declining to decide on specific matters that are referred to it, or resigning where it is the only matter they are asked to decide,[2] or, where they incorrectly proceed to give a decision on the matter, the decision not being enforceable.
As to what constitutes a “decision of an adjudicator”: this is a question of fact and degree.[3] Parties are bound by the essential components of, or basis for, an earlier decision,[4] and the search for those components should not be too granular.[5]
In the Court of Appeal’s decision in Sudlows, Coulson LJ recited the three over-arching principles to be applied by an adjudicator, or an enforcing court, when considering arguments about overlap between adjudications:
- The issue of whether a particular dispute has already been decided should not be a complex question of interpretation of documents and citation of authority. The need for speed and the importance of at least temporary finality means the adjudicator (and, if necessary, the court on enforcement) should be encouraged to give a robust and common-sense answer to the issue.
- Any assessment should look at what the first adjudicator actually decided to see if the second adjudicator has impinged on the earlier decision. While it can be relevant to consider the adjudication notice, referral notice, and so on, the form and content of the documentation is of lesser relevance compared to what was, in reality, decided and can sometimes be misleading.
- Flexibility is critical to the test of fact and degree, which should prevent a party from re-adjudicating a claim (or a defence) on which they have unequivocally lost, but also ensure that what is essentially a new claim or a new defence is not shut out.
Recent Decisions
Wordsworth Construction Management Ltd v Inivos Ltd t/a Health Spaces[6]
This was a case which concerned the summary enforcement of two adjudication decisions, each made in either parties’ favour. Both parties respectively said the decision in their favour should be enforced and the other decision should not.
The first adjudication
The first adjudicator’s decision ordered Inivos Ltd t/a Health Spaces (“HS”) to pay Wordsworth Construction Management Ltd (“WCM”) the sum of £170,562.69 (the “First Decision”).
WCM’s claim sought damages arising from HS’s repudiatory breach due to it terminating the contract. WCM also sought payment for the balance due under the contract.
In response, HS claimed that the contract was properly terminated, and sought to recover its claims for loss and/or damage caused by the termination, as well contra charges for alleged breaches by WCM prior to the termination. The latter were referred to as “Item B” claims in HS’s claim summary table, which included two columns: one for HS’s valuation if the contract was terminated due to WCM’s default, and another for HS’s valuation if the contract was terminated for convenience. The Item B claims were not separated as freestanding claims in the summary table.
The first adjudicator decided that HS had repudiated the contract and, on that basis, decided that all of HS’s claims, including the Item B claims for breaches prior to termination, failed.
The second adjudication
The second adjudicator’s decision ordered WCM to pay HS the sum of £192,772 and £4,978.54 interest (the “Second Decision”).
In the second adjudication, HS claimed substantial counterclaims against WCM, which had been included as part of the Item B claims in the first adjudication.
The second adjudicator awarded sums to HS, and found he was not bound by the First Decision because, in that decision, the contra charges were rejected as they were not part of the determination of the account, rather than being addressed as freestanding breaches of contract.
The Court’s analysis
The first issue the Court was asked to decide was whether the First Decision was unenforceable against HS due to a breach of natural justice. HS argued in its defence that the first adjudicator had consciously failed to decide its counterclaims (including the Item B claims), or give reasons for his decision on those counterclaims, and dismissed them instead on a ground neither party had argued.
The Court agreed that the First Decision on the counterclaims was expressed “extremely briefly”, and that the adjudicator had not engaged at all in considering the quantum of those items (simply recording a value of £0.00). The Court also found the first adjudicator had failed to consider the merits of the counterclaims, based on the incorrect assumption that, once the termination issue was decided in WCM’s favour, it disposed of the counterclaims.
However, the Court held the first adjudicator’s approach to the counterclaim had been an error of law, not a breach of natural justice, and the mistake was inadvertent. The Court did not consider the error was such that the adjudicator effectively refused to consider the issue at all, or that he stepped outside the case before him at all or in any material respect.
The Court also noted that HS’s response in the first adjudication may have created some “degree of equivocality” about whether the termination issue would dispose of its counterclaims, by claiming its counterclaim in brief terms and not separating out freestanding claims which would be unaffected by the decision on termination.[7]
In the case, the Court noted that parties must “live with decisions made on an erroneous basis unless and until challenging them later, if they choose to do so”.[8]
As to whether the Item B claims were already decided in the First Decision, the Court noted that although, on the face of it, a second adjudication awarding some of HS’s counterclaim would seem to offend the basic principles outlined by Coulson LJ in Sudlows, it is important to consider what precisely was decided. On that basis, the Court held that the First Decision did not decide the merits or quantum of HS’s Item B claims as individual breaches of contract, because they were not decided or even considered by the first adjudicator on that basis at all.[9]
Dawnvale Café Components Limited v Hylgar Properties Limited[10]
In this case, the Court was asked to consider whether a proposed referral to adjudication was impermissible, because it claimed losses arising from a repudiatory breach of contract that had already been determined in an earlier adjudication.
The first adjudication
In the first adjudication, the property developer Hylgar Properties Limited (“Hylgar”) had referred its claim for the true value of works caried out by the contractor Dawnvale Café Components Limited (“Dawnvale”) and sought a repayment from Dawnvale of £180,322.92. Dawnvale denied any amount was due and advanced its own counterclaim for £147,298.25, which relied on the absence of a payless notice.
The contract had been terminated in or around November 2020, which was not in dispute between the parties. However, both parties alleged that the other had committed the relevant repudiation.
In his decision, the first adjudicator decided that Dawnvale had repudiated the contract. In regard to the parties’ financial claims, the adjudicator determined the true value of the works at termination, and found that Dawnvale had been overpaid and its counterclaim had no effect on Hylgar’s claim.
Following an enforcement action commenced by Hylgar, a settlement was reached between the parties and Dawnvale paid the awarded sum in tranches between August 2021 and February 2022.
The second adjudication
Two years later, by letter of claim dated 31 August 2023, Hylgar sought further losses arising from the same repudiatory breach and intimated an intention to refer a claim for these losses to adjudication. Hylgar’s claim included additional build costs, remedial works and delays arising from and following the repudiation, lost rent and lost profit.
Dawnvale then commenced Part 8 proceedings to prevent Hylgar from referring the new claim to adjudication. One of the grounds advanced by Dawnvale was that Hylgar was seeking referral to adjudication that had already been determined. In response, Hylgar claimed that it was not seeking to determine again the question of whether Dawnvale repudiated the contract; rather, it was seeking to determine its entitlement to additional heads of loss and their quantum.
The Court’s analysis
In its judgment on the issue, the Court held that there was no overlap between the decision of the first adjudication and the matters intended for referral to a second adjudication.
Although Dawnvale argued that cause of action was the same in both cases, and the Court agreed that may in many cases be “a strong pointer as to whether the disputes are substantially the same”,[11] in this case, it was not determinative of any overlap.
The question decided in the first adjudication was whether Dawnvale was in repudiatory breach and the true value of work undertaken before that time. The second adjudication was intended to determine the recoverability and value of certain heads of loss consequential upon the repudiation. The Court held there was no overlap between these matters. In reaching its conclusion, the Court noted the purpose of adjudication, which is to avoid undue technicality, facilitate cashflow and pay now, argue later:[12]
“If the position were otherwise, a referring party would be required to bring its entire claim encompassing all its heads of loss to adjudication at the same time. But (as with the consequential losses in this case) some heads of loss (for example delay) may not become apparent for some time. Such an approach would lead to delay in referring matters to adjudication and could obstruct rather than promote cashflow. That would not be consistent with the overriding approach to adjudication …”
Conclusion
Both decisions of the Technology and Construction Court in Wordsworth and Dawnvale highlight a key difference between adjudication and litigation when it comes to guarding against repetitive proceedings on the same matters, which is the focus on the substance of what is decided by the adjudicator.
While the authorities have, on occasion, when considering potential overlap in adjudication, drawn analogies with Henderson v Henderson abuses, or cause of action estoppel,[13] the principles which apply to adjudication are not the same as litigation. As explained by Mr Justice Stuart-Smith in Hitachi Zosen Inova AG v John Sisk & Son Limited,[14] this is not least because adjudication is, by its very nature, an interim procedure for protecting and promoting cashflow in the construction industry, whereas litigation is designed to ensure finality from the outset.
In the cases of Wordsworth and Dawnvale, which both contained factual scenarios that would – on the face of it – seem to offend some of the principles of cause of action estoppel in litigation, the focus on the substance of what was ultimately decided, rather than what was referred, meant, in both cases, that the later adjudications were permissible.
[1] [2023] EWCA Civ 813, per Coulson LJ at [55].
[2] In HG Construction Ltd v Ashwell Homes (East Anglia) Ltd [2007] EWHC 144 (TCC) at [38] – [39].
[3] Quietfield Limited v Vascroft Construction Limited [2007] BLR 67, at [47] per Dyson LJ. See also paragraph 9(2) of the Scheme for Construction Contracts (England and Wales) Regulations 1998.
[4] See Hyder Consulting (UK) Limited v Carillion Construction Limited [2011] EWHC 1810 (TCC); [2011] 138 Con LR 212 at [38].
[5] Per O’Farrell J in Global Switch Estates 1 Ltd v Sudlows Ltd [2020] EWHC 3314 (TCC) at [66] – [74].
[6] [2024] EWHC 617 (TCC)
[7] At [52].
[8] At [47].
[9] At [58].
[10] [2024] EWHC 1199 (TCC)
[11] At [38], citing the court in Carillion Construction Ltd v Smith [2011] EWHC 2910.
[12] At [36].
[13] See for example, the judgment of Mr Justice Coulson (as he was then) in Benfield Construction Limited v Trudson (Hatton) Limited [2008] EWHC 2333 (TCC) at [29] – [31], and [51] – [55].
[14] [2019] EWHC 495 (TCC). As endorsed by Coulson LJ in Sudlows at [51] – [52].