Key takeaways
Rejecting both positions is not outside an adjudicator’s scope
An adjudicator will not exceed their jurisdiction merely by concluding neither party has proved its case.
Resisting enforcement remains a high bar
The courts will continue to take a robust approach to enforcing adjudicators’ decisions absent a clear jurisdictional breach.
Contract is king
The absence of a fully executed contract is a recipe for disputes even after project completion.
In the recent case of BDP Construction Ltd (BDP) -v- Cygnet Behavioural Health Ltd (Cygnet), the Technology and Construction Court (TCC) considered the distinction between an adjudicator exceeding his jurisdiction and simply finding that neither party had proved its case.
The facts
The relevant background facts of the case are as follows:
BDP was engaged by Cygnet to carry out the design and construction of a hospital in Wolverhampton under an amended JCT Design and Build Contract (2016 edition).
Following practical completion of the works, a dispute arose regarding BDP’s entitlement to retention due to alleged delays and defects in the works.
This dispute arose following the issue of a ‘notice of liquidated damages deductions’ by Cygnet after practical completion, alleging a delay of 141 days.
Applying what Cygnet considered to be the agreed rate of £1,000 per day in liquidated damages (LDs), this equated to a claim of £141,000 in total (which it sought to offset against c£170,000 in outstanding retention, along with amounts due to make good defects by others).
It was argued by BDP in response that, whilst it was entitled to an extension of time in any event, the notice of liquidated damages deductions issued by Cygnet was invalid, as it stated an incorrect daily rate of LDs (amongst other things), notwithstanding that on BDP’s own case, the rate was significantly higher at c£14,000 per week.
BDP’s position was underpinned by its contention that a different schedule of amendments to the standard form was regulating the arrangement between the parties.
Following Cygnet’s failure to pay the outstanding retention the dispute was referred to adjudication, with the Adjudicator deciding that, whilst BDP had not demonstrated its entitlement to an extension of time, neither party had persuaded him that there was an agreed rate of LDs.
It was decided by the Adjudicator that Cygnet was not entitled to claim LDs at the rate claimed, or at all, meaning, BDP was entitled to the retention sought.
Following Cygnet’s failure to release the retention monies in line with the adjudicator’s decision, BDP commenced enforcement proceedings in the TCC.
In seeking to resist the enforcement of the decision, it was contended by Cygnet that the Adjudicator’s treatment of the LD rate issue involved an excess of jurisdiction and/or a serious breach of the rules of natural justice.
The issues
The key issues for the court to consider were as follows:
Did the Adjudicator have jurisdiction to decide that neither party had established the agreed rate of LDs, meaning there was no entitlement to claim LDs whatsoever?
Was it a breach of natural justice for the Adjudicator to reach that conclusion without first giving the parties a further opportunity to make submissions?
Could the Adjudicator decide that neither party had proved its case in circumstances where, on the face of it, both parties had put forward competing contractual positions?
The decision
In essence, the case advanced by Cygnet to resist enforcement was that the Adjudicator had decided that there was no mechanism for LDs in the parties’ contract, despite both parties agreeing that the contract contained an LD mechanism and that the dispute only concerned the applicable date and rate.
In support of its position, the following hypothetical argument was put to the court by Cygnet: where a notice of adjudication calls for the adjudicator to decide whether a building is red or yellow, the appointed adjudicator may have various possible answers open to them. However, whilst they may decide that the building is red, yellow, orange or even purple, they could not determine that neither party had persuaded them that no building exists.
Despite the imaginative submissions advanced, the court enforced the Adjudicator’s decision in full, concluding that:
It was ordinarily open to an adjudicator, in assessing the evidence, to conclude that a party had not proved the case asserted.
Clear wording would be required in the relevant documents establishing an adjudicator’s jurisdiction to remove the potential of this finding from an adjudicator.
The restriction of an adjudicator’s jurisdiction may also come about from an assertion followed by an admission.
For example, in this case, Cygnet was not contending that, if its case was wrong, BDP’s case must be correct in the alternative (ie that the LD rate was c£14,000 per week).
The Adjudicator was therefore not confined to a binary choice between two competing LD rates.
Equally, BDP was not contending that if it was wrong about what documents formed the contract it accepted Cygnet’s case on this issue.
Whilst the fact that there were single opposing contentions advanced may well have limited the Adjudicator from reaching a positive answer contended by neither (ie that the LD rate was £10,000 per month), it did not preclude the Adjudicator from finding that each side’s contentions about the other’s case was correct.
In this case, the Adjudicator had effectively accepted what each party said about the other’s case.
This did not amount to a finding that the building did not exist (adopting the hypothetical scenario advanced), it was merely that neither side had persuaded the Adjudicator what the colour of that building was.
Accordingly, the Adjudicator had not exceeded his jurisdiction.
The court was also satisfied that the Adjudicator was not relying on evidence that had not been canvassed by the parties in reaching his decision. He was rejecting evidence the parties had canvassed. On that basis there was no breach of natural justice by the Adjudicator in failing to revert to the parties before making his determination.
Commentary
This decision provides a useful reminder of the distinction between an adjudicator deciding a dispute that has not been referred (which would usually give rise to a jurisdictional challenge) and an adjudicator rejecting factual and/or legal arguments advanced by the parties (which ordinarily would not).
The judgment also reinforces the TCC’s robust approach to the enforcement of adjudicator awards. Parties seeking to resist enforcement are therefore reminded that they face a high threshold and are unlikely to succeed unless they can demonstrate a clear and compelling excess of jurisdiction and/or a material breach of natural justice.
From a practical perspective, the decision also highlights the risks that can arise in proceeding without a fully executed agreement. Employers and contractors should ensure that there is no ambiguity as to the contractual terms governing key issues, including liquidated damages, at the outset of a project.
More broadly, parties to an adjudication should be mindful that, unless the parties have agreed to narrow the dispute by way of admissions or agreed facts, an adjudicator is not necessarily confined to choosing between competing positions advanced. They may decide that neither has been proven.
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