Canada: Adjudication Watch - April 2016

In this latest 'Adjudication Watch' our construction team reviews key cases relating to adjudication from the last few months.

Consider carefully any challenge to an adjudication award - risk of adverse order: high interest award and indemnity costs

AMD Environmental Ltd v Cumberland Construction Company Ltd [2016]

The background to this Technology and Construction Court (TCC) decision is that Cumberland engaged AMD to carry out mechanical and electrical sub-contract works at the Hilton Hotel on Park Lane in London. In March 2015, AMD claimed a final account sum of £527,770.33. Cumberland did not agree with the amount claimed and after several months of correspondence about the claim, AMD issued a notice of adjudication on 2 September 2015.

AMD was largely successful in its claim - the adjudicator determined the value of the sub-contract works was £464,448.34 and that Cumberland was required to make payment to AMD for the outstanding balance plus interest. As these sums were not then paid by Cumberland, AMD applied to the TCC for enforcement of the adjudicator's decision.

In the TCC, Cumberland argued that the dispute had not "crystallised" before the adjudication notice was issued and raised a further jurisdictional point contending that the adjudicator had failed in his decision to address certain important matters.

The TCC gave Cumberland's arguments short shrift describing both challenges as "hopeless".

Significant points

On crystallisation of the dispute:

• Cumberland had made no attempt to reserve its rights on this point in correspondence with AMD or the adjudicator.
• Months of correspondence between the parties concerning the final account sum provided "ample evidence" that a dispute had crystallised.
• For a dispute to have crystallised, it is not necessary for "every last particular of every last element of the claim" to have been provided - in the TCC's view, this was very far from being a nebulous claim.

On the alleged failure by the adjudicator to address certain matters in issue:

• In the view of the TCC, the adjudicator had not failed to address the issues and even if this was wrong, there was no material breach of natural justice.
• Cumberland's attempt to challenge the reasoning of the adjudicator was contrary to established case law.

TCC's decision - in addition to enforcement of the adjudicator's award:

• Interest was ordered to be paid to AMD at 6% under the Late Payment of Commercial Debts (Interest) Act 1998, higher than the typical award of 4-5%. The TCC stated that this was on the basis that the adjudication decision should have been honoured some time before and to reflect a concern that too many adjudication decisions are being disputed despite the grounds of challenge being "without merit".
• Indemnity costs were awarded for the same reason.

The decision highlights the need to consider the weaknesses of any defence to adjudication enforcement and, if possible, take an early view on prospects and settlement. Otherwise, you risk being ordered to pay a high rate of interest and indemnity costs.

Under the Scheme, an adjudicator can only deal with one dispute at a time, unless both parties have consented

Deluxe Art & Theme v Beck Interiors [2016]

This dispute largely related to the interpretation of paragraph 8(1) of the Scheme for Construction Contracts 1998 (as amended) which states:

On 7 March 2014, Beck (as the main refurbishment contractor) engaged DATL as a sub-contractor to supply and install joinery items in the Lanesborough Hotel at Hyde Park Corner, London. Disagreements arose and various adjudications followed, all involving the same adjudicator:

1. DATL was successful in Adjudication 1 relating to variations and acceleration; Beck paid the sum awarded.
2. DATL started Adjudication 2 on 22 October 2015 (seeking a further extension of time and prolongation costs). On 4 December 2015, DATL was awarded £120,559.56 plus VAT and interest and an extension of time.
3. DATL had by now already started Adjudication 3 (Notice dated 9 November 2015) - concerning the partial release of retention allegedly due. On 11 December 2015, the adjudicator awarded DATL the sum of £38,491.64 plus VAT and interest.

Shortly after DATL commenced Adjudication 3, Beck objected to the adjudicator dealing with two disputes at the same time and as a result, did not pay the sums awarded in Adjudications 2 and 3.

In enforcement proceedings, the TCC enforced the decision resulting from Adjudication 2 but not Adjudication 3.

Key points of the decision

• Mr Justice Coulson was in no doubt that Adjudications 2 and 3 related to two separate disputes.
• Paragraph 8 of the Scheme applies to two disputes in the same adjudication notice and alternatively, two disputes dealt with in two separate adjudication notices.
• As both parties had not consented to the adjudicator dealing with more than one dispute at one time, the adjudicator had no jurisdiction in respect of the issues raised in Adjudication 3, as he was already appointed on Adjudication 2. The decision from Adjudication 3 was therefore unenforceable.

Where the Scheme for Construction Contracts applies, this case serves as an important reminder of the need to obtain the consent of all parties if commencing two adjudications at the same time or a single adjudication covering two separate disputes - otherwise you risk significant wasted costs.

Comply with contractual payment provisions as adjudication decisions remain hard to challenge

RMC Building & Civil Engineering Ltd v UK Construction Ltd [2016]

RMC was engaged as ground works sub-contractor by UKC for a housing project in Bedfordshire. On 6 May 2015, RMC submitted an application for payment claiming £248,053. No pay less or other notice was served by UKC (to challenge the application) and RMC claimed it was therefore entitled to payment.

After "four or five months of fruitless negotiation", RMC commenced adjudication and on 18 November 2015, the adjudicator ordered UKC to pay the sum claimed, together with further sums by way of costs and interest. UKC refused to pay and enforcement proceedings followed.

In short, RMC won and UKC failed to obtain a stay of enforcement. Notably, in the adjudication, UKC had disclosed some e-mails between the parties during negotiations over the disputed application despite RMC's contention that those e-mails were "without prejudice". UKC argued that no dispute had existed at the time of the adjudication as RMC had in some way withdrawn the application during the negotiations. The TCC held that on the facts, RMC had not withdrawn the application and that in any event, the correspondence relied on by UKC was privileged and should not have been disclosed to the adjudicator.

On the question of staying the enforcement, UKC sought to rely on the decision in Galliford Try v Estura [2015] arguing that to enforce the adjudicator's decision would result in "manifest injustice". Mr Justice Edwards-Stuart (who was also the Judge in Galliford Try) referred to paragraph 21 of his judgment in Galliford Try:

He went on to confirm that the dispute now before him was certainly not one of those "rare cases" that would necessitate a stay of enforcement.

It is clear that the TCC has used this opportunity to make it clear once more that the court will seek to give effect to the intent of the payment and adjudication provisions of the Housing Grants, Construction and Regeneration Act 1996 (as amended) and the Scheme for Construction Contracts - that intent was to maintain cashflow.

So, protect your position by knowing and operating the payment provisions in your contract and ensuring you comply with the notice requirements - by doing this, you reduce your exposure to "smash and grab" adjudications resulting in decisions that are hard to challenge.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.