Taking a knife to adjudicators' decisions
As readers may be aware, the courts are keen to enforce adjudicators’ decisions, even if they contain errors. As Chadwick LJ put it back in 2006 in Carillion Construction Ltd v Devonport Royal Dockyard: “the need to have the right answer has been subordinated to the need to have the answer quickly”.
However, as George Boddy discusses, there are circumstances where the courts will refuse to enforce all or part of an adjudicator’s decision.
Corebuild Ltd v Cleaver and Another
In Corebuild, the Court held that the adjudicator had gone off on a “frolic of his own” rendering his decision unenforceable because he had breached the rules of natural justice. Corebuild demonstrates that while the Court will enforce an adjudicator’s decision if he or she gets the answer to the question wrong, it will refuse to enforce if he or she answers the wrong question entirely.
The Employers, Mr Cleaver and Ms Omolska, engaged Corebuild Limited to carry out works to a residential property. The Employers, via the Contract Administrator, had served the Contractor with notice that they would terminate the contract in 14 days if it continued to fail to progress the works regularly and diligently. When in the Contract Administrator’s view the situation did not improve, he served a further notice after the expiry of the 14-day period purporting to terminate the contract.
In the adjudication that followed, the Contractor argued that the Employers’ termination was wrongful and amounted to a repudiatory breach of contract. The adjudicator therefore had to decide (1) whether there had been a repudiatory breach; and (2) if so, what losses flowed from that. The Employers argued that as they had relied upon the expertise of the Contract Administrator in connection with the termination of the contract, the termination could not be repudiatory, even if it was wrongful. The Contractor did not dispute the Employers’ reliance on the Contract Administrator but argued that this was not relevant to the question of repudiation.
However, the adjudicator determined the question on a completely different basis. He decided there had been no reliance by the Employers on the Contract Administrator; he expected the Employers had sanctioned the course of action that had been taken by the Contract Administrator. However, the question of the Employers’ reliance on the Contract Administrator had not been in dispute. Neither party had made submissions on this point or been canvassed by the adjudicator in relation to it. The adjudicator decided the outcome of the adjudication against the Employers on a basis not argued for by the Contractor.
The Court held that this was a clear breach of natural justice, falling within the principles in Cantillon v Urvasco. The breach was material, it related to a decisive issue and, in fact, it was one of the examples of a clear breach given by Akenhead J in Cantillon: the adjudicator decided the case on a basis not argued by either party.
The Court gave short shrift to Corebuild’s contention that the breach of natural justice was immaterial because the adjudicator should have adopted its argument that Cleaver’s reliance on the Contract Administrator was irrelevant. The Court noted that, per ABB Ltd v BAM Nuttall, it should be slow to speculate on what an adjudicator should have done if it had not embarked upon the frolic about which complaint is made.
Willow v MTD
In Willow, the Court found that the adjudicator made an error in relation to part of his decision but was able to sever the part that contained the error and enforce the remainder of the decision. In doing so, the Court applied the principles in Hutton v Wilson: if an adjudicator incorrectly decides a short self-contained issue that the losing party continues to contest, if it can be resolved in a short hearing with no oral evidence and if it would be unconscionable to ignore, then the CPR Part 8 procedure can be used to challenge the decision.
In 2015, Willow engaged MTD to design and build a hotel in Shoreditch. The Project was delayed and in June 2017 the parties agreed to formalise various matters including a revised date for practical completion of 28 July 2017 (the “June Agreement”). The June Agreement stated as follows:
- clause 4 stated that the remaining areas were to be completed by 28 July 2017, save for those detailed in a schedule to the June Agreement;
- paragraphs 2 to 4 of the schedule detailed the areas that would be completed after 28 July 2017; and
- paragraph 5 of the schedule stated that practical completion was to be achieved by 28 July 2017 and that an agreed list of outstanding work would
However, the works were not completed until 13 October 2017 and there were various disputes concerning payment and delay.
MTD commenced an adjudication seeking sums claimed in its final application for payment. Willow had served a pay less notice alleging defects and an entitlement to liquidated damages (“LDs”) due to MTD’s delay. The adjudicator was required to construe the provisions in the June Agreement concerning practical completion.
MTD argued that the June Agreement required practical completion to be certified on 28 July 2017 provided that a list of outstanding works could be agreed. Willow argued that on a true construction of the June Agreement, it was not required to certify practical completion simply upon the agreement of a list of outstanding works; rather MTD was required to achieve practical completion by 28 July 2017.
The adjudicator preferred MTD’s argument regarding the construction of the June Agreement and, since there was an agreed list of outstanding works, found that practical completion should have been certified on 28 July 2017, rejected Willow’s claim for LDs and ordered it to pay MTD £1.2m.
Willow issued Part 8 proceedings seeking a declaration of the true meaning of the June Agreement. One of Willow’s arguments was that MTD’s interpretation did not make commercial sense as it would leave MTD with no incentive to finish the works before 28 July 2017. The Court agreed that this was an issue that could be dealt with using the Part 8 procedure and agreed with Willow that the adjudicator had interpreted the June Agreement incorrectly. In the view of the Court, the natural and ordinary meaning of clause 4 of the June Agreement and paragraph 5 of the schedule was that MTD was required to achieve practical completion by 28 July 2017 save for the items set out in the schedule. The requirement to agree a list of outstanding works did not mean that MTD was not obliged to reach practical completion by 28 July 2017.
Having found this part of the adjudicator’s decision to be wrong, the question then arose as to whether the Court would enforce any of the decision. The Court approached this question by considering whether, once the part of the Decision containing the flawed reasoning had been disregarded, there was anything that remained that could safely be enforced. While the Court agreed that it can be difficult to separate a flaw in the decision from the rest of it in the context of a single dispute or difference, the Court decided that the effect of the adjudicator’s error of law was limited to the dismissal of Willow’s claim for liquidated damages and that the error did not infect or cross into the balance of the decision. It therefore severed the part of the decision that contained the error and enforced the remainder, which resulted in the success of Willow’s claim for liquidated damages.
At first glance, the Court’s chopping down of the decision in Willow appears odd. While the adjudicator did make an error, he only answered the right question wrongly, rather than the wrong question altogether. He certainly did not go off on a frolic of his own as the adjudicator did in Corebuild v Cleaver, which the Court rightly took a knife to. Notwithstanding this, the Court refused to enforce all of the decision in Willow.
While the approach advocated by Chadwick LJ in Carillion will apply in “99 cases out of 100” (Coulson J in Caledonian Modular Ltd v Mar City Developments Ltd 2015), the Court in Willow considered that this was one of those 1 in 100 cases where the Hutton principles applied and so the Court was able to chop down the bad part of the decision and enforce the rest of it.
Whether it should have done so in the light of Hutton, however, is open to question. In Hutton, Coulson J gave some examples of the situations where he considered the Part 8 procedure could be used. One of these was if an adjudicator’s construction of a contract clause is “beyond any rational justification”. This test does not appear to have been applied in Willow (if it had been, it may well have produced a different outcome because it is a very high threshold to meet). This perhaps indicates an erosion of the principles set out by Coulson in Hutton, which may open the door for more Part 8 challenges to adjudication enforcements in the future.