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What happens when you ignore a notice of adjudication

Notice of adjudication. Robert Goodlad looks at what happens when there is no statutory right to adjudication and no agreement between the parties to refer the dispute to adjudication.

Discussion

We are all familiar with the adjudication of disputes in relation to contracts either under a statutory right (if the agreement is a “construction contract” falling within Part II of the Housing Grants, Construction and Regeneration Act 1996) or under an express right agreed in the contract. However, what happens when there is no statutory right to adjudication and no agreement between the parties to refer disputes to adjudication, but one of the parties nevertheless serves a notice of adjudication.

If the receiving party does anything other than simply ignore the purported notice of adjudication, will he be taken to have conferred ad hoc jurisdiction upon the adjudicator? That was the issue before the Court in Clark Electrical Limited v JMD Developments (UK) Limited [2012] EWHC 2627 (TCC).

JMD Developments (UK) Limited (“JMD”) had appointed Clark Electrical Limited (“CEL”) to carry out electrical works at the premises of Sedacol UK Limited. The site was being developed as an alcohol distillery. JMD was itself a sub-contractor to the main contractor.

CEL had carried out works on site but, it claimed, had not been paid in full by JMD. There was a dispute between the parties also as to whether the works fell within one of the exceptions identified in Section 105 of the Housing Grants, Construction and Regeneration Act 1996 (“HGCRA”) such that neither party had a statutory right to adjudication.

CEL nevertheless served notice of adjudication against JMD advising its intention to claim the remaining sums said to be due to it, and also sought the nomination of an adjudicator. The CIC appointed an adjudicator, who promptly wrote to the parties providing an outline timetable for the adjudication (which provided a date for JMD to respond to the Referral) and enclosing a schedule of his conditions. Those conditions required each party to contribute equally an appointment fee of £6,000 as security for the adjudicator’s fees. The Adjudicator subsequently rendered a fee invoice for £6,000 plus VAT in accordance with that condition to each party (fee invoices which both parties paid).

Following receipt of the Adjudicator’s initial letters, an employee of JMD wrote to the Adjudicator by email, with a copy to CEL, noting its unfamiliarity with the process of adjudication and requesting guidance as it was not yet represented. JMD’s email recorded that it had not yet received the Referral from CEL, but it appeared that further time than had been proposed by the Adjudicator would be needed for JMD to respond to the allegations, not least as CEL’s claim appeared to be for a different sum to that previously advised to JMD in CEL’s correspondence. JMD asked for the Adjudicator’s proposals for moving matters forward.

Shortly after this JMD instructed claims consultants to act for it in relation to the Adjudication. The claims consultants’ first action was to write to the Adjudicator drawing attention to Section 105 of the HGCRA. It was submitted on behalf of JMD that the electrical work was excluded from the statutory provisions for adjudication, and therefore the Adjudicator had no jurisdiction to proceed with the Adjudication. Although the Adjudicator’s fee invoice had been paid that was not, it was argued, an acceptance of the Adjudicator’s jurisdiction by JMD.

Following exchanges between JMD and CEL’s respective representatives as to the statutory jurisdiction, the Adjudicator considered his position and made his own detailed non-binding decision on jurisdiction. He held that there was indeed no statutory jurisdiction, but that there was an ad hoc adjudication agreement arising out of the payment of the £6,000 fee by both parties which was said to be an acceptance by conduct of the Adjudicator’s terms and conditions.

JMD wrote to the Adjudicator challenging the non-binding conclusion reached as to jurisdiction, and noting that JMD would take no further part in the adjudication process nor would it pay the Adjudicator’s further fees.

Subsequently, the Adjudicator awarded CEL the vast majority of its claim. Needless to say JMD did not pay the sums said to be due by the Adjudicator, and CEL was forced to commence litigation and seek summary judgment in an effort to enforce the Decision.

 

During the proceedings, CEL conceded that there was no express contractual right to adjudicate and that it was arguable that there was no statutory right to adjudication either. The judgment therefore relates solely to CEL’s submission that there had been a clear agreement by JMD to be bound by the Adjudicator’s decision in the full sense of the word (i.e. in respect of the decision itself and in respect of the Adjudicator’s jurisdiction to make the decision).

His Honour Judge Behrens, sitting as a Judge of the High Court in Leeds, reviewed the caselaw dealing with ad hoc agreements of this nature. The Court considered that it was a question of fact in each case whether a party had submitted to the jurisdiction of a third party. The Court held that the communications between the parties had to be interpreted as a reasonable adjudicator would have interpreted them; in this case the reasonable adjudicator would know from the email referred to above that JMD had not received all of the relevant documentation, that it was unrepresented and that it was unfamiliar with the adjudication process. The Court also took note of the fact that the Adjudicator himself had not interpreted the parties’ communications as submitting to his jurisdiction in the full sense of the word (the Adjudicator’s ruling as to his jurisdiction had been described as “non-binding”; had there been a full submission to his jurisdiction then the Adjudicator’s decision would have been binding). Further, the Adjudicator’s decision as to jurisdiction did not refer to JMD’s email at all.

Whilst a clear and unequivocal representation to submit to the jurisdiction may not be necessary, the Court found that the communication in this case from JMD was at the opposite end of the spectrum.

The Court also reviewed the decision in Linnett v Halliwells [2009] EWHC 319, in which an adjudicator had claimed for payment of his fees from a party which had contested his jurisdiction. The Court particularly considered the distinction drawn in that case by Ramsey J between the adjudicator’s contract (which is between the adjudicator and the parties) and the adjudication agreement between the parties themselves. The Court noted that a party could be liable for the adjudicator’s fees (under the adjudicator’s contract) even if it contested jurisdiction. Payment of the adjudicator’s appointment fee invoice by JMD therefore did not amount to a submission to the Adjudicator’s jurisdiction in the full sense, as CEL had contended (and as the Adjudicator had found).

In light of the above, the Court found that there had been no submission to the jurisdiction of the Adjudicator in the full sense. The Adjudicator’s Decision as to his jurisdiction was wrong, and CEL’s application for summary judgment to enforce the Adjudicator’s Decision was dismissed.

Whilst the Court’s decision in this case was in favour of JMD, it is not difficult to see how a different result could have arisen had JMD taken further action in relation to the adjudication process prior to being properly advised. Parties are advised always to tread carefully!

Contact

For further information please contact Robert Goodlad, Senior Associate on +44 (0)20 7280 8829 or email robert.goodlad@dwffishburns.co.uk

By Robert Goodlad

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This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

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