New guidance on challenging an adjudicator’s decision during TCC enforcement (Hutton Construction v Wilson Properties)

In Hutton Construction v Wilson Properties, Coulson J issued guidance superseding the guidance found in the TCC Guide concerning when the court will consider a dispute over an adjudicator’s findings in the course of enforcement by way of TCC summary judgment. Matthew Thorne of 4 Pump Court Chambers considers the judgment and its implications.

This article originally appeared on Lexis®PSL on 20 March 2017. Subscribers can enjoy earlier access and a full-range of related guidance. Click here for a free trial.

What are the practical implications of this case?

Unless the parties agree a consensual approach to resolution of the disputed issue:

• a defendant to a TCC adjudication enforcement must issue a prompt Part 8 claim setting out the declarations it seeks or, at the very least, indicate in a detailed defence and counterclaim to the enforcement claim what it seeks by way of final declarations. The former is the preferred option.
• the defendant must be able to demonstrate that:
  • there is a short, self-contained issue which arose in the adjudication which it continues to contest
  • the issue requires no oral evidence or any other elaboration beyond that which is capable of being provided during the interlocutory hearing set aside for the enforcement

A defendant who unsuccessfully raises this sort of challenge on enforcement will almost certainly have to pay the claimant’s costs of the entire action on an indemnity basis. Conversely, where a claimant does not agree to deal with the issues on enforcement, but the court finds that it does fall within the exception, also runs the risk of cost penalties.

This guidance supersedes that in paragraph 9.4.3 of the TCC Guide.

What were the facts?

The parties entered into a contract dated 12 November 2014 on the JCT Standard Building Contract Without Quantities 2011 form. On 17 August 2016, the claimant served an application for payment. A dispute arose, and the issues in the adjudication were whether there was a valid interim certificate or pay less notice in response. The defendant argued that its pay less notice was an interim certificate, alternatively was a valid and effective pay less notice. The defendant’s case was rejected by the adjudicator.

Following commencement of TCC enforcement proceedings, the defendant raised issues of fact, identified conversations said to be relevant but not raised in the adjudication, and failed to identify what declarations were sought. It subsequently issued a Part 8 Claim Form, but again failed to seek any specific declarations.

The judge permitted the Part 8 claim to continue at a later date, but refused to consider the defendant’s challenge to the adjudicator’s decision during the earlier TCC enforcement proceedings. Coulson J indicated that the Part 8 Claim Form was issued late in the day and was incomplete; new factual matters were being raised; and there was nothing unconscionable in refusing to consider the challenge at this stage. On the contrary, permitting a challenge would mean that, instead of being the de facto dispute resolution regime in the construction industry, adjudication would simply become the first part of a two-stage process, with everything coming back to the court for review prior to enforcement. That is completely the opposite of the principles outlined in Macob Civil Engineering v Morrison Construction , Bouygues (UK) v Dahl-Jensen (UK) and Carillion Construction Limited v Devonport Royal Dockyard and cannot be permitted.

What is the relevant process when seeking to dispute an adjudicator’s findings during TCC enforcement?

The court noted that the starting point is that, if the adjudicator has decided the issue referred to him or her, and has broadly acted in accordance with the rules of natural justice, the decision will be enforced.

There are two narrow exceptions to this rule:

• the first involves admitted error: namely, where the error is collectively admitted, and where there is no arbitration clause, the court has jurisdiction and can correct the error, such as in Geoffrey Osborne v Atkins Rail
• the second concerns the proper timing, categorisation or description of the relevant application for payment, payment notice or pay less notice, following Caledonian Modular Limited v Mar City Developments Limited

Where the claimant has succeeded and seeks to enforce an award, the point in dispute is often straightforward, to the effect that the adjudicator was wrong and that, either with regard to its timing or content, the relevant payment notice was invalid and/or that the pay less notice was valid and prevented payment.

Often, the defendant will issue a Part 8 claim challenging the decision, and the parties will reach agreement that the matter will be put to the court, and the sum paid if the award is upheld. The existence of the Part 8 claim also means that the TCC knows from the outset what is likely to be involved at a subsequent hearing. This process has worked relatively well to date.

In circumstances where the parties do not reach such consensus, on the other hand, the following approach must be adopted:

1. The defendant must issue a prompt CPR Part 8 claim setting out the declarations it seeks or, at the very least, indicate in a detailed defence and counterclaim to the enforcement claim what it seeks by way of final declarations. A prompt Part 8 claim is the better option due to the speedy nature of the enforcement proceedings.
2. the defendant must be able to demonstrate that:
   1. there is a short, self-contained issue which arose in the adjudication and which it continues to contest
   2. that issue requires no oral evidence or any other elaboration beyond that which is capable of being provided during the interlocutory hearing set aside for the enforcement, and
3. the issue is one which, on a summary judgment application, it would be unconscionable for the court to ignore

The judge went on to suggest that, in practice, this means that the adjudicator’s construction of the clause should be 'beyond rational justification', the calculation of time periods should be obviously wrong, or a document be categorised in a way which, on any view, it could not be described as.

Furthermore, such an issue could only be raised on enforcement if the consequences were clear-cut. If the effect of the issue is disputed as well, it is unlikely that the court would take it into account on enforcement.

Are there any costs implications?

A defendant who unsuccessfully raises this sort of challenge on enforcement will almost certainly have to pay the claimant’s costs of the entire action on an indemnity basis.

Conversely, a claimant who does not agree to deal with the issues on enforcement, where the court finds that it does fall within the exception and can be considered, also runs the risk of cost penalties.

This article originally appeared on LexisPSL. Subscribers can enjoy earlier access and a full-range of related guidance. Click here for a free trial.