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On 23 April 2007, due to continuing demand, we held the 13th in our series of ever-popular Adjudication Update Seminars. Our keynote speaker was Mr Justice Ramsey who provided an invaluable view of adjudication from a TCC judge’s perspective. Our other guest speaker was Matt Molloy of MCMS who gave an insight into the role of the adjudicator. Matt had been the adjudicator in the case of Cubitt Building Interiors Ltd v Fleetglade Ltd where Dr Julian Critchlow had acted on behalf of the successful party. Not entirely coincidentally, Julian was another of our speakers. This is an extract of what he had to say.
The issues I want to cover are, first, the importance of time limits in adjudication, and what happens when they are not met; and, secondly, what time limits tell us about the legal relationship between the adjudicator and the parties.
I am actually going to start with a point of principle, namely that provided they do not make an arrangement that runs counter to the Housing Grants Act, the parties can agree whatever adjudication rules they want. It is a principle that has sometimes been overlooked. But it was expressly affirmed in Cubitt where Judge Coulson said:
“Ms McCredie contended that the juridical nature of this adjudication was contractual, and not statutory. She said that the 1996 Act required that every construction contract had to contain adjudication provisions which complied with Section 108. If they did not, then the statutory scheme for construction contracts would be implied. If they did, then what mattered were the express terms of those contractual adjudication provisions. The 1996 Act only mattered if the contractual provisions were not compliant… I agree with those submissions. It seems to me that if the contractual adjudication provisions comply with the Act, then they must be at the forefront of the court’s consideration of the parties’ respective rights and liabilities. I would respectfully venture the opinion that, in some of the reported cases, the focus has been too much on the 1996 Act (and section 108 in particular) and not enough on the relevant terms of the parties’ contract.”
I will start by having a look at the facts in Cubitt. There were two main issues which were decided at the same time. To make things as clear as possible I will deal with them separately. Cubitt was Fleetglade’s main contractor. Disputes arose, but before they had been sorted out, the contract administrator issued the final certificate. The contract contained the familiar provision that the final certificate would become conclusive of work done, money payable and extensions of time unless proceedings were commenced within 28 days of its issue. Neither party accepted the accuracy of the final certificate so, to make sure they did not lose their rights, both parties started proceedings – in Cubitt’s case by adjudication.
At this point it’s necessary to go into some detail because the precise timing of what happened next had a big impact on the final result that nobody really expected at the time. Cubitt issued an adjudication notice and then, the following day, sent an application to the RICS for an adjudicator to be appointed. However, the RICS did not make a nomination of an adjudicator until after 5 p.m. on the seventh day after service of the adjudication notice. At about 5:35 p.m. the adjudicator confirmed he would act.
This gave Cubitt a problem. The JCT Adjudication Rules applied. They say that if an adjudicator is appointed within seven days of the adjudication notice then the referral, which sets out the claim in full, must also be served within seven days. If the appointment is made after seven days, it just needs to be served “forthwith”. That is, on its face, stricter than the 1996 Act which only says that there must be a timetable that has “the object” of referring the dispute to the adjudicator within seven days of the Notice. The 1996 Act wording suggests to me that provided the Rules intend there to be a referral within seven days, there will not be a serious problem if that limit is not complied with strictly.
The difficulty Cubitt faced was that it was now already after business hours on the seventh day and there were 12 lever arch files of material. We offered to serve the main referral document at once by fax or email and send the supporting documents the next day. This offer was refused. So, we served the whole lot the next day – the eighth day after service of the notice. Fleetglade said that the referral was late so the adjudicator did not have jurisdiction. We disagreed, but, in any event, had no option but to push on because the final certificate had by this time become conclusive except for proceedings that had already been issued. We could not just start a fresh adjudication. But we did not want the jurisdiction issue hanging over our heads while the adjudication proceeded. So, we started proceedings in court for a declaration that the referral had been properly served and that the adjudicator did have jurisdiction.
By the time the declaration case came to court, Cubitt had already got a reasonably favourable decision from the adjudicator, so we combined the declaration with an enforcement application. We made a number of points about the late service issue. First, we said that we had served the original Notice after 4p.m. and, in accordance with the Civil Procedure Rules, it should be deemed to have been served the next day. That would mean that the referral had been served within seven days. The judge disagreed. Cubitt had wanted to serve the notice on the day it was actually sent and he could see no reason to use the analogy of CPR to deem service the following day.
The next point was that when the JCT Rules said that the referral was to be served within seven days, it was only directing what ought to happen – it was not mandatory. Failure to comply would not make the referral invalid. After all, except where time is expressly made of the essence, missing a time limit in building contracts is not usually fatal. We did not get anywhere with that, either. Judge Coulson said that compliance with the timetable is essential to ensure that the adjudication runs “like clockwork”. The most important feature of adjudication was speed. We then said that the adjudicator had not actually been appointed within seven days because the RICS had only notified of the appointment after 5 p.m. on the seventh day and the adjudicator only contacted us after 5:30 p.m. – after normal business hours. Therefore, Cubitt did not have to serve the referral within seven days of the notice, but only “forthwith” after the appointment. We lost on this one as well. Again, Judge Coulson said that a day for these purposes was an actual day, not a business day.
However, having demolished all our arguments, Judge Coulson went ahead to find in our favour! Although he decided that the provisions for service of the referral had to be adhered to strictly, he said that here late service did not make the referral a nullity.
First, he said that the rules had to be operated in a “sensible and commercial way”. The rules did not say what was to happen if the adjudicator were appointed so late that it was not practicable to serve the referral on the same day. A sensible interpretation of the Rules was that if that happened the referral must simply be served as soon as possible. Service on the eighth day would be good enough. Any different conclusion would be absurd. It would mean that if the adjudicator were appointed at 11:55 p.m. on the seventh day, the referring party would have to serve the Referral in just five minutes. The judge was also persuaded by the fact that it would be unfair to penalise Cubitt for the RICS’s delay in making the appointment. He said:
“In my view, that delay was unacceptable. Bodies like the RICS have generated considerable revenue from their nominating function, and some of their members derive the majority of their income from their practice as adjudicators. In such circumstances, the parties are entitled to expect the nominating body to act promptly to nominate an adjudicator. In this case I consider that the RICS failed to act promptly.”
He went on to say that it would be wrong to penalise Cubitt for the RICS’s delay, given that we had, within an hour of being notified of the appointment, offered to fax Fleetglade a copy of the Referral. So what Judge Coulson was doing was making it very clear that adjudication timetables have to be adhered to strictly. However, in the very special circumstances of this case he was going to let Cubitt slip under the wire in the interests of justice and fairness and hold that the referral was properly served.
However, in the course of the adjudication another problem had arisen. The time for making a decision had been extended well beyond the initial 28 days up to 24 November 2006. Just before the decision was due, the adjudicator told the parties that he had completed his decision subject only to final proofing and an arithmetical check. However, he pointed out that his terms allowed him to hold a lien over his decision until he was paid. The parties responded that adjudicators are not entitled to exercise liens and a little after noon the next day, a Saturday, he released the decision.
The decision was published 12 hours or so late, and Fleetglade resisted enforcement saying that the delay made it invalid. Judge Coulson agreed that the timetable for making the decision had to be adhered to strictly. He also confirmed that an adjudicator is not entitled to exercise a lien over a decision, even if his terms of acting say that he can.[1] However, Judge Coulson said that the making of the decision and the sending of it to the parties were two separate acts. In this case, on the evidence, the adjudicator had made his decision on time – that is, by 24 November, and he had then communicated it forthwith, i.e. about 12 hours later on the next day. So the decision was valid. That said, the judge made it absolutely plain that where the Rules talked about sending out a decision “forthwith”, that meant within just a few hours. If the decision here had been sent any later, it would have been invalid. Again, the court made it clear that there must be strict compliance with adjudication timetables. If not, the decision will be invalid. Cubitt only succeeded on the unusual facts of the case.
Judge Coulson also suggested that if the decision had been late the adjudicator could have been in trouble personally. Although an adjudicator cannot be sued in negligence provided he acts in good faith, if he acts outside his jurisdiction, for example by giving a late decision, he effectively ceases to be an adjudicator and so may be liable in damages. If the decision had been invalid here, because the final certificate had become conclusive, those losses could have been huge.
Now, it is useful to compare Cubitt with a case with broadly similar facts heard just a month later, Epping Electrical Company Ltd v Briggs and Forrester (Plumbing Services) Ltd. Here where an adjudicator held on to his decision for two days, it was held that when he did release it, it was invalid. That was so even though the relevant CIC Adjudication Rules said that adjudicators’ decisions would generally be valid even if made late.
Judge Havery decided that in this respect the CIC Rules ran contrary to the 1996 Act, and were invalid. The Rules could not save a decision that had been made out of time.
Conclusion
So, these cases are very important. Up to now the courts have tended to do their best to ensure that adjudicators’ decisions are upheld and not defeated by technicalities. These cases show that in matters of timetabling they will take a much tougher approach. This means that it is essential when involved in adjudications, in whatever capacity, to ensure that time limits are adhered to strictly.
We have looked at some interesting black letter law, but where does that leave us on the point of principle raised at the beginning: that is, that the parties can make whatever arrangements they like provided they do not conflict with the HGCRA? It seems to me arguable that the Cubitt and Epping decisions do not actually apply that principle at all. For example, in the Epping case, the parties, by adopting the CIC Rules, had decided that a late decision would usually still be valid. It might be thought that this, again, merely amounted to an agreement that had the effect of extending the time for making the decision. Therefore, the decision should be valid when delivered.
So why has the court not upheld what the parties seem to have agreed freely? It seems to come down to policy. The court is moving away from the idea that decisions must be upheld wherever possible and is substituting a new priority – to ensure that adjudications are decided as quickly as possible by adhering to a strict timetable. If, however, the parties have freely agreed a different policy, it is not obvious to me why the courts should seek to subvert that agreement.
[1] This is a view shared by other TCC judges. See for example HHJ Thornton QC in the case of Mott Macdonald v London & Regional Properties Ltd [2007] EWHC 1055.