“... an adjudicator should think very carefully before ruling out a defence merely because there was no mention of it in the claiming party’s notice of adjudication. That is only common sense: it would be absurd if the claiming party could, through some devious bit of drafting, put beyond the scope of the adjudication the defending party’s otherwise legitimate defence to the claim.” (Coulson J in Pilon Limited v Breyer Group plc 2010)
It is surprising how often adjudicators go wrong by failing to heed the above words of Coulson J (as he was). Other courts have repeated the point, including the Supreme Court (Bresco Electrical Services Ltd (In Liquidation) v Michael J Lonsdale (Electrical) Ltd 2020). Yet adjudicators have frequently decided, wrongly, that they have no jurisdiction to hear a responding party’s cross-claim because it was not within the scope of the notice of adjudication. Two such cases, both heard by His Honour Judge Eyre QC have recently featured in the London Technology and Construction Court.
In Downs Road Development LLP v Laxmanbhai Construction (UK) Limited, the adjudicator was asked by a contractor to value (and then order payment on) “the correct sum due to the Referring Party in Interim Payment Nr 34”. The adjudicator correctly recognised that the employer’s rights of defence could not be constrained by the contractor’s notice of adjudication. However, he thought (mistakenly) that he was required to take a “snapshot” of the position between the parties at the time of interim account No. 34. At that time, the employer had not developed a defence that it later advanced in the adjudication, namely that the contractor had incorrectly designed and installed a capping beam. The adjudicator therefore declined to consider it. This meant that the employer was effectively deprived of a defence that it was entitled to run. That, the judge held, was a material breach of natural justice, rendering the decision unenforceable.
In the second case, CC Construction Limited v Raffaele Mincione, the same judge declined to enforce the decision of a different adjudicator. He noted that the adjudicator had said in terms that he would not consider the employer’s set-off for liquidated damages for delay, because it was not part of the dispute that had been referred to him. The judge held that he had failed to consider a defence that was properly open to the employer, whether or not that defence had previously been a subject of a dispute, and however the notice of adjudication purported to limit what the adjudicator was being asked to deal with.
Claims for declarations versus claims for payment
It seems that, in CC Construction, the adjudicator failed to appreciate the distinction between a claim in adjudication for payment and a claim merely for a declaration. In this tricky area of jurisdiction, the distinction is critical.
If, say, a referring party seeks a declaration as to the value of Variations 1-10, then the responding party cannot (without the referring party’s agreement) ask the adjudicator to also value Variations 11-20. The responding party would have to start its own separate adjudication to get these variations considered.
But if the referring party seeks not just a declaration, but also payment, for Variations 1-10, the responding party can bring in any cross-claim in respect of sums that it says should be set off against any sum otherwise found to be due.
This was reinforced by O’Farrell J in Global Switch Estates Limited v Sudlows Limited (TCC 2020).
“Where the referring party seeks a declaration as to the valuation of specific elements of the works, it is not open to the responding party to seek a declaration as to the valuation of other elements of the works... However, where the referring party seeks payment in respect of specific elements of the works, the responding party is entitled to rely on all available defences, including the valuation of other elements of the works, to establish that the referring party is not entitled to the payment claimed.”
Tactical issues - the benefits of claims for declarations
It follows that, provided a referring party can resist the understandable attraction of getting an order for an immediate cash payment, actions for declarations have a lot to be said for them. The referring party does not have to prepare a defence, which it will have to serve on short notice, against a potentially enormous cross-claim for sums due, which it may never have previously seen. Instead, it can focus its efforts on the limited dispute that it has chosen to refer.
Launching such adjudications can also be very effective, tactically. In a large, complex claim, a series of victories for one party on carefully-chosen issues can force the other party to the negotiating table in respect of the entire dispute.