Adjudication enforcement: arbitration provisions
In two recent cases, the adjudication awards were enforced by the TCC, but what lessons can be learned?
Adjudication is a short form dispute resolution procedure for qualifying “construction contracts” under the Housing, Grants Construction and Regeneration Act 1996 (“the Act”). It is a fundamental principle that an adjudicator’s decision is binding on an interim basis unless and until it is finally determined in litigation or arbitration (as the parties choose in the building contract). If the losing party does not comply with the decision before any final determination, the successful party can apply to the court for it to be enforced. The Technology and Construction Court (“the TCC”) has a fast-track procedure under which, if the award is successfully enforced, there will be an order for summary judgment. A decision might not be enforced if, for example, the adjudicator did not have jurisdiction to hear the dispute or there had been a breach of the rules of natural justice. In other words, a decision is made by the court as to whether there is a valid decision which can be enforced.
What happens, however, if the parties choose to resolve their disputes through arbitration? Does this mean that the court does not have the power to enforce the adjudication award? In two recent cases on the point, the adjudication awards were enforced by the TCC, but what lessons can be learned?
In Sefton MBC v Allenbuild Limited  EWHC 1443 (TCC) Weightmans LLP acted for the successful party. Sefton had engaged Allenbuild under an amended NEC2 contract for the construction of a leisure facility. Following construction, a number of defects were identified and ultimately Sefton referred to adjudication a dispute as to the liability for, and the cost of the remediation works. Sefton was awarded £2.2 million but the contractor did not pay the award, leaving Sefton to apply for enforcement. The contractor argued those proceedings should be stayed pursuant to Section 9(4) of the Arbitration Act 1996 on the basis that the parties had decided to resolve all disputes through arbitration. In other words, it argued that the court had no power to enforce the adjudication award.
As the judge recognised, he had to reconcile the tension between (1) the “pay now argue later” policy which lies behind adjudication; and (2) the contractual autonomy of the parties to agree to refer disputes to arbitration if they wanted.
Before being able to consider the commencement of arbitration proceedings the contract requires the “dissatisfied” party to file a “Notice of Dissatisfaction” (“NOD”) within a defined time period after the decision is made. If it doesn’t, the decision becomes final and binding. Sefton argued that the contractor’s NOD only took issue with the substantive merits of the decision and not the validity of the decision itself (i.e. whether the decision should be enforceable or not). This meant that it was for the court to determine if the decision was valid or not.
The contractor said that its NOD disputed the ”entirety of the Adjudicator’s Decision” including all “conclusions, reasoning and decisions”. It argued that this wording was wide enough to include any challenge in relation to the decision. Previous cases (Transport for Greater Manchester v Kier Construction Limited  EWHC 804 (TCC) and Prater Limited v John Sisk & Son (Holdings) Limited  EWHC 1113 (TCC)) had decided that an NOD had to be clear and unambiguous in its wording but did not necessarily need to go into detail or set out specific grounds of dissatisfaction. However, in Sefton, the judge said that the decisions were not authority to say that a challenge to the validity of a decision did not have to be made clear. It did because such a challenge was so fundamentally different to a challenge on the substantive merits. This was supported by previous decisions which highlighted that a party cannot say, on the one hand, that there is a dispute which it can refer to arbitration, but then afterwards, on the other hand, try to argue that there was no valid decision in existence at all. Given that the NOD did not make clear that it sought to challenge the validity of the decision, the question of enforcement did not fall within the scope of the arbitration provisions which the parties had agreed.
Perhaps more fundamentally, the judge also looked at the adjudication provisions to which the parties had signed up. These rules, in accordance with the requirements of the Act, made it clear that an adjudicator’s decision is interim binding and therefore provisionally enforceable until the substantive dispute is finally determined. In other words, the parties had contractually agreed that the arbitration provisions of the contract did not extend to any challenge to the validity of an adjudication decision. Indeed, the judge said, as a result “...the court will always have jurisdiction to enforce an adjudicator’s decision and will never grant a stay for arbitration”. In his view, it was not a question of seeking to uphold public policy, but rather seeking to uphold the bargain the parties had agreed consistent with the Act, i.e. “pay now, argue later”.
Sefton was followed a number of months later by Northumbrian Water Limited v (1) Doosan Enpure Limited (2) Tilbury Douglas Construction Limited  EWHC 2881 (TCC). Again, the case related to an adjudication enforcement, but this time the dispute was worth some £22 million. Again, enforcement was resisted on the grounds that there should be a Section 9 stay, as the parties, this time under an NEC3 contract, had agreed to resolve disputes through arbitration. The defendant joint venture (JV) argued that the term “dispute” in the contract was expressed in wide terms and could therefore allow an arbitrator to consider the issue of the enforcement of an adjudicator’s decision.
Again, the court considered the wording of the NOD which had been served by the JV. Unlike in Sefton, the NOD stated that the JV did not admit the validity of the decision. However, it did not go further than that. The judge noted that no particular grounds of challenge were set out e.g. breach of the rules of natural justice or want of jurisdiction. Whilst in TFGM (see above) it was said that detailed grounds of challenge did not need to be set out, it seems here that the judge was making the point that there was no evidence at all of the grounds on which the validity of the adjudication decision might be called into question. No specific or general reservations had been raised during the adjudication and the NOD itself contained only general non-admissions and reservations which were not effective . Therefore, the NOD did not properly set out any grounds of challenge and the JV had now lost its right to challenge the validity of the adjudication decision. Also, the NOD said that the JV accepted some parts of the decision and not others. The effect of this was that, by implication, the underlying validity of the decision must have been accepted in any event.
More importantly, and as with Sefton, the judge said that the parties had specifically agreed in their contract (Option W2 of the NEC3) that any adjudication decision was interim binding until finally determined. It was therefore enforceable as a matter of “contractual obligation”. In any event, having to enforce the decision through arbitration would deprive the adjudication decision of any “efficacy” at all. As such, and giving effect to the intention of the parties, it was the court that must enforce the decision.
These decisions, made within a number of months of each other, deal with a point which had not otherwise troubled the court for a number of years. The key point is that that if parties sign up to standard adjudication procedures, or elect to use, say, option W2 in the NEC form, these provisions make clear that an adjudication decision is interim binding. The court will therefore strive to give effect to the contractual bargain the parties have reached. This is how the court has resolved the tension between the policy of the scheme and the freedom of the parties to refer disputes to arbitration. The JCT form of contract is explicit in that, where parties elect to refer disputes to arbitration, they can do so, save for on the question of adjudication enforcement. In any event, the parties can of course make their intentions clear in the contract if they so wish to avoid having to bring or address disputed enforcement proceedings. As the judge said in Sefton “Given that practical completion of this construction project was certified almost 15 years ago, I recognise that the 'pay now, argue later' policy that underlies the adjudication provisions of the Construction Act has something of a hollow ring in the present case. However, in this court, hard cases do not make bad law.”
If you would like further guidance around adjudication, please contact one of our expert construction and engineering solicitors.