Adjudication enforcement: partial final determinations and insolvency

• Author: Heath Marshall
• Position: Benson Watkins & Co. Ltd, Cardiff, UK

1 Construction adjudication in England and Wales and the intended effect of an adjudication decision

The construction industry is multi-faceted. It spans across a wide range of fields, including residential and commercial property development, engineering, consultancy, energy, sustainable development, and oil and gas exploratory works. The construction process is also complex and disputes often arise. These can be resolved by a wide variety of means and whatever means are employed, the coercive power of the courts always lies at the root, whether in terms of supporting the process or enforcing the result ( Uff, 2005 ).

In England and Wales, statutory adjudication is a form of dispute resolution and is presently the most widely used form of dispute resolution in the UK construction industry ( Institution of Civil Engineers, 2011 ). Adjudication was recommended for all construction contracts in the Latham ( 1994 ) Report and the right to refer a dispute to adjudication, in England and Wales, is now conferred by Part II the Housing Grants, Construction and Regeneration Act 1996 (the “Construction Act”).

The UK Parliament's intention in enacting the Construction Act was to introduce a speedy mechanism for the settling of disputes in construction contracts on a provisional interim basis and requiring the decisions of adjudicators to be enforced pending the final determination of disputes by arbitration, litigation or agreement. Parliament did not abolish arbitration and litigation of construction disputes; it merely introduced an intervening provisional stage in the dispute resolution process¹.

This provisional stage was to encourage the resolution of construction disputes during the course of the works under the contract with the principal aim of maintaining the flow of cash to the various parties to a construction contract and project.

The intended effect of an adjudicator's decision was put by Lord Lucas during the pre-enactment debate in the House of Lords:

Our proposal was that an adjudicator's decision should be binding, which we consider essential, but that parties might reopen a dispute if they chose before an arbitrator or the courts. However, mindful not only of the views expressed in [the House of Commons], but also of the debate that had already taken place in this House, we finally concluded that the industry did not wish to be given the option of permanently binding adjudication. The Government also considered the representations of professionals who feared that rapid but permanent decisions on matters concerning professional competence might have a damaging effect on professional indemnity premiums. Accordingly I am now asking the House to agree, in Amendment No. 84, a provision which would make an adjudicator's decision binding but temporary. Although we hope that the vast majority of adjudicated decisions will effectively become permanent, we are proposing that this should be possible only with the agreement of parties after the event – or if arbitration or the courts reach the same conclusion ( Hansard, 1996 , Column 1,341).

This principle was further emphasised by LLoyd J. in the case of Herschell Engineering Limited v. Breen Property Limited², where he stated that:

[…] an adjudicator's decision is not therefore a decision for all time that the defendant owes the claimant a particular sum of money. It is merely a decision that, at the present time, for example, that the defendant owes the claimant a particular sum of money.

The objectives of the Construction Act were also clearly defined by the Court of Appeal in the seminal case of Carillion Construction Ltd v. Devonport Royal Dockyard Ltd³:

The objective which underlies the Act and the statutory scheme requires the courts to respect and enforce the adjudicator's decision unless it is plain that the question which he has decided was not the question referred to him or the manner in which he has gone about his task is obviously unfair. It should be only in rare circumstances that the courts will interfere with the decision of an adjudicator⁴.

Adjudication, as a form of dispute resolution in the construction industry, was in existence before the enactment of the Construction Act. For example, the Dispute Review Boards procedure was pioneered by the Americans, and first used in the USA in 1975 on the Eisenhower Tunnel ( Powers et al., 2007 ). In the UK, Dispute Adjudication Boards, a similar form of adjudicatory procedure, were introduced into the domestic sub-contractor standard forms even earlier, in 1970, and were subsequently incorporated by the International Federation of Consulting Engineers (FIDIC) into their suite of standard documents.

2 Objectives of the paper

The key focus of this paper is on two aspects of the enforceability of adjudication decisions, being first whether enforcement may be stayed pending final determination of a discrete issue relevant to the adjudication decision; and second, the extent to which it is necessary for a losing party seeking to stay enforcement to demonstrate not just the impecuniosity of the winner, but the fact that the adjudicator's decision is probably wrong. These two issues are explored through the lens of two decisions of Edwards-Stuart J. in the Technology and Construction Court (TCC), Geoffrey Osborne Ltd v. Atkins Rail Ltd⁵ and Anrik Ltd v. AS Leisure Properties Ltd⁶. In order to set this discussion in context, there is an initial consideration of the way that the Construction Act applies to construction disputes, and of the legal nature of adjudicators' decisions. There is also a discussion of the source and nature of the judge's power to grant a stay or deny enforcement in such cases.

The approach adopted in this paper is a black letter, doctrinal approach, which is limited to the law of England and Wales, albeit construction adjudication is, of course, present in other jurisdictions. Although the two decisions of Edwards-Stuart J. are only first instance, they are considered worthy of analysis because they buck the orthodoxy and provide an opportunity to re-assess conventional approaches to these questions.

3 Adjudication – an overview

Adjudication appears to have largely achieved one aim insofar as most construction disputes that are referred to a form of dispute resolution are referred to statutory adjudication and most decisions are followed, without the need for judicial intervention. Beaumont (2011) reports that at most 1 per cent of the total number of adjudications are subjected to review by the TCC. Moreover, the fact that the Construction Act has just been revised⁷, and in ways which extend its reach to encompass oral construction contracts, tends to be indicative of the success of the procedure.

However, there have been various types of criticisms raised by members of the construction industry against the failure of statutory adjudication to fulfil its key objectives; one such criticism is that it does not lend support to the collaborative working and “partnering” that can be found in certain contracts ( Griffiths, 2010a, b ). Partnering conveys an image of contractors, employers and their agents being part of an equation that delivers the best construction projects (rather than protagonists on either side of the battlefield) ( Griffiths, 2010a, b ). It has also been criticised for being inappropriate for factually complex disputes, such as professional negligence claims⁸. Brawn (2010) discusses additional circumstances where this may the case, including where joinder is required (i.e. the involvement of additional parties, not party to the construction contract).

A dispute⁹ cannot be referred to an adjudicator unless it arises from a “construction contract”, which is defined in ss. 104 and 105 of the Construction Act as an agreement for carrying out construction operations (as defined) including sub-contracted work and architectural design or surveying work or advice on building, engineering, decoration or landscape¹⁰. The right to invoke adjudication is set out in s.108 of the Construction Act. This sets out certain minimum standards for a contractual adjudication system, including a right to refer a dispute to adjudication at any time, with the stipulation that the adjudication decision shall be reached within 28 days of referral. If there are no adjudication procedures in the construction contract or any that exist fail to comply with the requirements of s.108, a complete statutory set of adjudication procedures, known colloquially as “the Scheme”, are automatically imported into the construction contract¹¹. This statutory implication of adjudication procedures is mandatory; cannot be contracted out of (save by providing a compliant adjudication mechanism); and is arguably the reason why adjudication has had such a huge impact on the resolution of construction disputes in the UK.

Perhaps surprisingly, the Construction Act does not expressly provide how an adjudicator's decision is to be enforced when the losing party fails to pay up. Consequently, this was resolved by the Courts with Dyson J. in Macob Civil Engineering Ltd v. Morrison Construction Ltd¹ establishing that a winning party should apply to court for summary judgment¹². Currently this court process is governed by Part 24 of the Civil Procedure Rules ( Ministry of Justice, 2011 ).

Part 24.2 of the...