Serial Adjudication in 2023: some like it hot

C&C Blog 24Nov23

After more than 25 years in use, it is interesting, sometimes surprising, to see that there is still much to occupy the Courts when it comes to issues arising from serial adjudications under the Housing Grants, Construction and Regeneration Act 1996 (as amended) (“HGCRA”).  Let’s look at a recent example of this issue.

Mounting serial adjudications is a popular strategy with clients but the bane of the lives of most adjudicators and judges.  What did Adjudicator 1 say and how does that impact on the issues then referred to Adjudicator 2 in a subsequent adjudication?  How do we avoid the pitfalls of serial adjudications?  The simple answer might be, just not to have them, but under a statutory regime where a party is permitted to refer only one dispute at a time, in all but the simplest and briefest of construction contracts, how likely is that?  A sensible alternative is to appoint the same adjudicator for each dispute but human nature is such that when a decision is given against a party, there is often objection from that losing party to the same adjudicator’s appointment to act in later referrals.  It gets messy.

The established principle or test is that if a later referral to adjudication includes the same or substantially the same dispute already decided in an earlier adjudication, the Adjudicator in the later referral will have no jurisdiction.  This principle is rooted in section 108(3) of the HGCRA which provides:

“The contract shall provide that the decision of the adjudicator is binding until the dispute is finally determined by legal proceedings or by arbitration…or by agreement.” 

The principle is also supported by the provisions of paragraphs 9(2), 20 and 23(2) of the statutory Scheme.  Together they provide that a second adjudicator cannot decide a dispute which is the same or substantially the same as a dispute that has already been decided in an earlier adjudication.

In addition, where an earlier adjudicator has decided certain matters of principle relevant to a later referral, the adjudicator in the later referral will be bound by those earlier decisions and their jurisdiction will be limited accordingly.  An example would be where a dispute on liability has been decided in one adjudication, and the issues of quantum are referred for decision in a later adjudication.  Another, less straightforward example is where the underlying issues are concerned with delays to a project.  In such cases there is a greater risk of disagreement about whether a dispute involving delay claims has already been decided or whether it is a fresh dispute.  It is not hard to appreciate the principle, the difficulty arises when it comes to understanding and applying it to the decisions of the earlier adjudicator[s].  

A dispute meeting this dilemma head-on was the subject of the Court of Appeal’s recent judgment in Sudlows Ltd v Global Switch Estates 1 Ltd [2023] EWCA Civ. 813.  The issue before the Court was whether Adjudicator No. 6 acted in breach of natural justice by deciding that he was bound by certain findings made by Adjudicator No. 5.

As Coulson LJ said: 

“33.  The practice of serial adjudication, involving repeated references of disputes to adjudication under the same contract, is not always easy to reconcile with the emphasis on speed and proportionality.  Put more shortly, it is harder to adhere to the principle of ‘pay now, argue later’ when you are constantly arguing now…”

He also referred to his judgment in the case of Benfield Construction Ltd v Trudson Ltd [2008] EWHC 2333 (TCC) where he had observed: 

“[57]  …adjudication is supposed to be a quick one-off event; it should not be allowed to become a process by which a series of decisions by different people can be sought every time a new issue or a new way of putting a case occurs to one or other of the contracting parties.”

He makes a good point.  He noted that the statutory limitation to the referral of a single dispute to adjudication was ameliorated by the decision in the case of Fastrack Contractors Ltd v Morrison Construction Ltd (2000) 75 Con LT at [20] which held that a single dispute could be made up of many claims.  However, and as in this case, from time to time the Court has had to consider what actually makes up an adjudicator’s decision.  This could include what the adjudicator did or did not do, as in the case of Hyder Consulting (UK) Ltd v Carillion Construction Ltd [2011] EWHC 1810 (TCC) where Edwards-Stuart J explained that the adjudicator’s decision included not only the actual award but also “…any other finding in relation to the rights of the parties that forms an essential component of or basis for that award.”

The Sudlow judgment discusses the leading cases on the binding nature of previous decisions.  Quietfield Limited v Vascroft Construction Limited [2007] BLR 67, also a decision of the Court of Appeal, was also a case concerning applications for extension of time.  May LJ gave the main judgment and contrasted the first adjudicator’s decision, which was based on Vascroft’s claim for an extension of time based on grounds set out in in two letters, and the second referral which was a claim for an extension of time which formed the basis of Vascroft’s defence to Quietfield’s claim for liquidated damages, in which Vascroft’s case/defence relied on a lengthy document called “Appendix C”.  The second adjudicator decided that he was bound by the earlier decision and therefore did not consider Appendix C, but Jackson J [as he then was] decided that he was not bound by it.  The principles he set out were later approved by the Court of Appeal.  May LJ pointed out that because Vascroft’s Appendix C contained a number of causes of delay not previously advanced in the two letters, it was substantially different from the claims for an extension of time which were advanced, considered and rejected in the first adjudication.  Agreeing, Dyson LJ [as he then was] added that he saw no reason to construe the contractual provisions as prohibiting the contractor from relying on the same Relevant Event that he had relied on in support of the previous application for an extension of time, giving materially different particulars of the expected effects and/or a different estimate of the extent of the expected delay.  He said that there was nothing in the express language of the contract which prevented the contractor making good earlier deficiencies in a later application.  He drew an analogy with the leading cases on abuse of process and stated:

“[47] Whether dispute A is substantially the same as dispute B is a question of fact and degree.  If the contractor identifies the same Relevant Event in successive applications for extensions of time, but gives different particulars of its expected effects, the differences may or may not be sufficient to lead to the conclusion that the two disputes are not substantially the same.  All the more so if the particulars of expected effects are the same, but the evidence by which the contractor seeks to prove them is different.”

In Harding (Trading as MJ Harding Contractors) v Paice & Anr [2015] EWCA Civ 1231 [2016] 1 WLR 4068 the contractor tried to injunct a further adjudication on the basis that it sought to adjudicate a dispute which had already been decided.  The Court concluded it was a different dispute.  In so doing Jackson LJ said:

…one does not look at the dispute or disputes referred to the first adjudicator in isolation.  One must also look at what the first adjudicator decided.  Ultimately it is what the first adjudicator decided, which determines how much or how little remains available for consideration by the second adjudicator.”

Coulson LJ went on to consider other cases, both at appellate level and first instance.  He referred in particular to a decision of Akenhead J in Carillion Construction Ltd v Smith [2011] EWHC 2910 (TCC), where he decided that the dispute referred to the adjudicator in the third adjudication was the same or substantially the same as that referred in the second adjudication.  The judge identified some guidance about the comparison exercise required for this type of case.  In Hitachi Zosen Inova AG v John Sisk & Sons Ltd [2019] EWHC 495 (TCC) Stuart-Smith J [as he then was], doubted some elements of Akenhead J’s guidance which appeared to focus on what was referred in the earlier adjudication rather than what was decided.  His emphasis in Hitachi was on the importance of what was decided and not on what had been referred.  In Lewisham Homes Ltd v Breyer Group PLC [2021] EWHC 1290 (TCC) Waksman J also summarized the applicable principles focusing on the key elements before and the decision of the previous adjudicator.

In his conclusions on the relevant principles Coulson LJ stated:

“56.  The first is… if the parties to a construction contract do engage in serial adjudication… the adjudicator (and, if necessary, the court on enforcement) should be encouraged to give a robust and common-sense answer to the issue.  It should not be a complex question of interpretation of documents and citation of authority.

57.  The Second is the need to look at what the first adjudicator actually decided to see if the second adjudicator has impinged on the earlier decision… what matters for the purpose of s.108 and the paragraphs of the Scheme… is what it was, in reality, that the adjudicator decided.

58.  The third critical principle is the need for flexibility.  That is the purpose of a test of fact and degree.  

59.  …one way of… testing whether the correct approach has been adopted is to consider whether, if the second adjudication is allowed to continue, it would or might lead to a result which is fundamentally incompatible with the result in the first adjudication.”

Applying the principles of law discussed, and overturning the decision of the court below, the Court of Appeal unanimously concluded that the dispute decided in Adjudication 5 was indeed the same or substantially the same as that referred in Adjudication 6, so that the Adjudicator’s decision based on his finding that he was bound by the decision in the earlier adjudication was correct (thus he was not in breach of the principles of natural justice).  

If there is a lesson to be learned from this case, it is that engaging in serial adjudication is a risky business.  It matters not whether you are referring or defending a dispute in a case which involves serial adjudications.  Notwithstanding more than two decades of experience and numerous contested cases, the outcome is by no means predictable.