UK: Judgments Based On Adjudicators´ Mistakes And Unjust Enrichments

Last Updated: 3 August 2001

A solicitor sitting in his office one day receives a telephone call from a client who is a contractor. The client states that he has successfully adjudicated a substantial matter. The adjudicator has decided in his favour. He now wishes to enforce the adjudication decision through the courts.

The adjudicator has made a huge mistake in his decision. The result is that the employer is ordered to pay £500,000 for work which was never carried out. The solicitor's contractor client acknowledges and accepts the mistake. He is, however, anxious to get to court as quickly as possible to enrich himself by half a million pounds for work which he never carried out.

The solicitor considers his position. On the face of it, what his client wishes to do appears unethical. It appears to be a misuse of the process of the court to seek judgment for a huge sum of money for work which was never carried out. In legal language the contractor has failed to give contractual consideration for the money payable under the adjudicator's decision. The contractor will be enriched by a mistake within the contractual process of adjudication. That seems to be unjust enrichment.

Any cross-claim made by the employer for unjust enrichment may be defeated on the grounds that public policy requires the enforcement of the adjudicator's decision. Nevertheless both parties to the court proceedings and the judge will know that the decision is mistaken and if the decision is enforced, an unfair enrichment of the contractor will have occurred.

A quick review of the recent case law reassures the solicitor that he can get his unscrupulous client judgment for half a million pounds even if his client admits that the adjudicator made a mistake and with the full knowledge of the judge who gives judgment that he is enforcing an adjudication process in which there is a fundamental mistake.

The judge at first instance will simply follow the Court of Appeal's decision in the case of Bouygues (UK) Ltd v Dahl-Jensen (UK) Ltd.

The present state of the law under which judgment is given for payment of money arising out of known mistakes in adjudicators' decisions is shameful.

Not all of those who want to see an immediate reform of the law to correct this are enemies of adjudication. Some people who groaned inwardly at the court's emasculation of the set off and adjudication provisions in DOM/1 in cases such as Cameron v Mowlem and Acsim (Southern) v Dancon, again groan inwardly as the courts make a perverse nonsense of the adjudication process.

The Problem

Section 108(3) of the Housing Grants, Construction and Regeneration Act 1996 states "The contract shall provide that the decision of the adjudicator is binding until the dispute is finally determined by legal proceedings, by arbitration (if the contract provides for arbitration or the parties otherwise agree to arbitration) or by agreement".

The requirement that the decision of the adjudicator remains binding until the dispute is finally determined means that the court, or an arbitrator, cannot review an adjudicator's decision on a temporary or interim basis (even to remove obvious mistakes) before finally making a decision on the matters referred to adjudication.

What is urgently needed is a redrafting of section 108(3) of the Act and a redrafting of paragraph 23(2) of the Scheme for Construction Contracts which says more or less the same thing. The wording needs to allow the rapid review by the courts or arbitrators of adjudicators' decisions, pending any final decision on the matters referred to adjudication, so as to allow corrections of manifest errors which would cause injustice.

It must be recognised that many adjudicators' decisions are not, in any practical sense, temporary. If an early review by the courts to correct mistakes cannot take place, then the consequences of the decisions may be irreversible. An adjudicator may declare, for example, the extent of necessary remedial works and order compensation accordingly. If he makes an error in declaring work to be out of tolerance which is actually within tolerance, the other party may be happy to remove large sections of work and rebuild them and gain some betterment by doing so. The successful party may even terminate the contract on the strength of the adjudicator's decision and such consequences may be irreversible.

Given that mistaken decisions are legally binding, what can a fair minded judge do to alleviate hard-ship, bearing in mind that our courts are courts of common law and of equity and the need to be fair to the individuals who come to the court cannot be ignored?

One practical solution is for judges to give summary judgment to enforce the defective decision but at the same time allow a cross-application from the defendant for an accelerated trial which will finally resolve the matters referred to adjudication.

In the alternative the court could grant summary judgment, staying the enforcement of the judgment pending an accelerated trial or arbitration of the matters adjudicated.

If the contract requires disputes over adjudications to be referred to arbitration, then it is imperative that all the bodies which nominate arbitrators, have in place a system for expedited arbitration proceedings to resolve disputes over adjudications. Any such expedited system clearly must not conflict with the rules of arbitration applying to that particular building contract, so if necessary contracts and arbitration rules must be amended to allow rapid review.

Another course of action available to a judge may be to simply refuse to give summary judgment. Summary judgment can be given under part 24 rule 2 of the Civil Procedure Rules where there is no real prospect of defending the claim and there is no other reason why the case or issue should be disposed of at trial". The court could decide that in the particular circumstances of this particular case the extent of the injustice to the defendant (especially where both parties have agreed that the adjudicator's decision is wrong) amounts to a reason sufficient to justify refusing summary judgment. Presumably, however, the court would have to satisfy itself that the injustice in this particular case was worse than the injustice in the Bouygues case or that the present case differs from Bouygues so that that case does not have to be followed.

Finally, where there is no arbitration clause in the contract a brave judge might grant summary judgment in relation to the adjudicator's decision on the one hand but immediately after that hear and grant the defendant's application for repayment of the monies adjudged payable under the adjudicator's decision. Several obstacles lie in the way of somebody's counterclaiming for unjust enrichment and immediate repayment. Firstly, both parties agreed to adjudicate and therefore voluntarily conferred the benefit of adjudication on the other. Even so, it is still possible to succeed in an application for unjust enrichment even though you voluntarily confer a benefit on the other party. Secondly, as stated earlier, public policy may defeat a claim for unjust enrichment. In a series of cases the court has upheld adjudicators' decisions on grounds of policy even though the result in the specific case is unfair.

Thirdly, perhaps the biggest obstacle is that, once the court has given judgment on the adjudicator's decision the matter has become "res judicata". In other words the Claimant's entitlement to be paid is established as a matter of law. The question then is how can the court give judgment on the one hand and, minutes later take away the effect of the judgment by declaring that there has been unjust enrichment? However, in the old case of Moses v MacFerlan, it was decided that a party who had been judged liable to pay another could still bring an action for money had and received, against the successful party, to recover the amount of the judgment. Lord Mansfield said, "the ground of this action is not 'that the judgment is wrong' - but 'that the defendant ought not in justice to keep the money'". That particular case has always been regarded as exceptional and its authority has been doubted. Nevertheless, if we can find a judge brave enough to grant summary judgment on the counterclaim for unjust enrichment in the context of adjudication, that may be sufficient to demonstrate to Parliament that there is injustice within the present legislation with calls out for reform.

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.

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