1. Court enforcement of an adjudication award - can a challenge send the decision to arbitration?
An employer applied to the court to enforce an adjudication award for £2.2million, but the contractor asked the court to stay the enforcement proceedings, on the basis that there was a dispute that should be referred to the agreed tribunal, arbitration, under the 1996 Arbitration Act. The court noted that a stay will not be granted under s.9 of the Act if the dispute in question does not fall within the scope of the relevant arbitration provision. The fundamental issue was consequently one of construction. What matters were to be referred to arbitration under the relevant construction contract?
The court ruled that the relevant provisions of both the CIC model adjudication procedure (paragraphs 4, 5 and 31) and the Scheme (paragraph 23(2)) expressly exclude from the matters that can be referred to arbitration, any challenge to an adjudicator's decision. Those provisions are intended to give effect to the requirement in s.108 (3) of the Construction Act that an adjudication decision "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". These provisions all make clear that an adjudicator's decision is binding on the parties, and provisionally enforceable, until the substantive dispute is finally determined by litigation, by arbitration (if there is an arbitration provision in the construction contract) or by agreement, and despite the existence of any pending reference to arbitration.
The court does not refuse a stay because of the 'pay now, argue later' policy of the Construction Act but because the parties have agreed (consistently with the Act) that to give effect to that policy, the arbitration provisions of their contract do not extend to any challenge to an adjudication decision. The underlying philosophy of s.9 of the Arbitration Act is the contractual autonomy of the parties, to which the court is giving effect when it refuses a stay for arbitration where the dispute falls outside the scope of an arbitration clause. This conclusion was entirely consistent with the case law and views of leading construction adjudication practitioners .
In The Metropolitan Borough Council of Sefton v Allenbuild Ltd the contractor under an NEC2 based contract gave Notice of Dissatisfaction that said it "...relates to the entirety of the Adjudicator's Decision including all of the Adjudicator's conclusions, reasoning, and decisions." But did that wording make clear that a challenge was being made to the validity of the adjudicator's decision, on jurisdictional grounds, in addition to a challenge to its substantive merits?
The court said that, whilst a notice of dissatisfaction does not need to go into the details of any substantive challenge to an adjudicator's decision, the issue of the decision's validity is of a fundamentally different character from its substantive merits and a notice of dissatisfaction needs to make it clear whether a challenge is being made to the validity of an adjudicator's decision on jurisdictional grounds, instead of, or in addition to, a challenge to its substantive merits.
In this case, the court ruled that the contractor's Notice of Dissatisfaction did not make clear that a challenge was being made to the validity of the adjudicator's decision, on jurisdictional grounds, in addition to a challenge to its substantive merits. Because of the court's findings elsewhere in the judgment, however, this issue made no difference to the outcome of the case.
3. Liquidated damages provisions: when might they be void for uncertainty? If not, might they operate as a cap on general damages?
A contractor asked the court for declarations that the construction contract liquidated damages provisions were void for uncertainty and unenforceable and that the financial cap on liquidated damages for delay operated as a cap on liability for general damages for delay.
In rejecting the contractor's claims, the judge noted that the court is reluctant to find a contract provision is void for uncertainty and, if it can find an interpretation which gives effect to the parties' intentions, then it will do so. It is only if the court cannot reach any conclusion as to what was in the minds of the parties, or where it is unsafe to prefer one possible meaning to other equally possible meanings, that the provision would be void. In this case, the court ruled that it was possible to find an interpretation of the provisions which gave clear effect to the parties' intention.
As none of the contractor's challenges to the liquidated damages provisions succeeded, it was unnecessary for the court to consider the contractor's alternative argument, that any liability it might have for general damages for delay was subject to the cap on maximum liquidated damages in the liquidated damages schedule. It did, however briefly address, and reject, the argument.
The court agreed with the judgment in Eco WorldBallymore Embassy Gardens Company Ltd v Dobler UK Ltd that the Supreme Court decision in Cavendish Square Holding BV v Makdessi provides persuasive support for the view that, if a liquidated damages provision is void, it is wholly unenforceable. The next question is whether it also operates as a parallel general limitation of liability provision which could be enforced, even if the liquidated damages were void or penal. One simply had to consider whether the language of the provision was broad enough to encompass any alternative liability that could arise in respect of general damages. The question is determined by reviewing the particular clause in question on traditional principles and limited benefit is to be gained from seeing how a different clause in a different contract was interpreted. At best, Eco World demonstrates that it is possible, in principle, for a clause to operate as a general limitation of liability provision, even though it is literally expressed as applicable only to liquidated damages.
In this case, the focus was entirely on the expression: "Cap on Maximum LADs 7.5% £1,928,253.77". The language of the provision was quite clear. The cap was "on Maximum LADs", not on anything other than LADs, and no part of the liquidated damages schedule was concerned with liability for general damages. There was, therefore, no cap on liability for general damages for delay.
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Originally published September 2022
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