Keywords: employer's challenges, adjudicator's award, penalty clauses
1. Court Demolishes Employer's Challenges to Adjudicator's Award
Seventeen years after the Construction Act went live, the ground rules of adjudication are still being tested. In Wycombe v. Topevent the employer challenged enforcement of an adjudicator's decision, claiming that there was more than one dispute and that there were breaches of natural justice, because the adjudicator did not have a site visit or meeting and did not decide the dispute on the basis of the parties' submissions. In dismissing the challenges, Mr. Justice Coulson restated some key principles of adjudication.
He decided that a demolition contractor's claim for the costs of an allegedly wrongful termination and its overall claim for all outstanding sums were not separate disputes. There was a clear and obvious link between them. Even if they were separate disputes, under the applicable TecSA rules the parties could agree to include further matters in the adjudication and the employer had acquiesced in, and not objected to, the adjudicator dealing with both claims.
The adjudicator did not have to have a site visit or meeting. Organisation of an adjudication, the procedure and the steps required before the decision is issued, are all matters uniquely for the adjudicator. It is up to them to decide what they need in order to reach their decision.
The judge also ruled that the adjudicator's valuation decision had been based on both parties' submissions. More widely, the judge said that an adjudicator has to do their best with the material provided and has considerable latitude to reach their own conclusions based on that material. In his view, that latitude is inevitably even wider, now that the original Construction Act requirement of a written contract has gone. An adjudicator's conclusion about the nature and terms of the contract could affect their approach to valuation issues. What an adjudicator cannot do, however, and certainly not without warning the parties in advance of the decision, is to make good deficiencies in the claiming party's case or to plug what they see as a gap in that case, by having regard to something they have been told to ignore.
2. Challenging Jurisdiction But Paying the Adjudicator – Not Waiving But...?
A defendant in adjudication proceedings challenged the adjudicator's jurisdiction and fully reserved its rights. It also paid the adjudicator's fees, without any covering letter or explanation, but did that payment sink its challenges to jurisdiction?
The adjudicator's terms had not been expressly accepted by the parties but the court ruled that they had been accepted by the defendant, by conduct. Under those terms the adjudicator's fees were payable by the parties, jointly and severally, even if the adjudicator's decision was found to be unenforceable because of a lack of jurisdiction. In the judge's view, both the defendant's reservation of its rights and the relevant clause of the adjudicator's terms permitted the defendant to challenge jurisdiction on enforcement, regardless of the payment of the adjudicator's fees. Even if the judge was wrong on that, in the absence of proper evidence about the basis upon which the fees were paid by the defendant, the judge was not persuaded that the circumstances were sufficiently clear cut in the case to conclude that the defendant had lost the ability to challenge jurisdiction. This was a fact specific issue in this particular case, and should not be seen as authority or encouragement to parties not to follow previous authorities that did not apply in this case.
The defendant did, however, fail in its jurisdictional challenges. In the judge's view, the case was an example of a party "scrabbling around" trying to find reasons not to comply with an adjudicator's decision.
3. Supreme Court Takes Another Look at Penalty Clauses – 100 Years On
The Supreme Court has, for the first time since the House of Lords' ruling in 1915, reviewed the law on penalty clauses. In a 110 page judgment, it has decided to keep the rule, but not to extend it. The real question when a contractual provision is challenged as a penalty is, according to the Supreme Court, whether it is penal, not whether it is a pre-estimate of loss. These are not natural opposites or mutually exclusive categories. A damages clause may be neither or both. The fact that the clause is not a pre-estimate of loss does not therefore, at any rate without more, mean that it is penal, and to describe it as deterrent does not add anything.
The true test is whether the impugned provision is a secondary obligation which imposes a detriment on the contract-breaker out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation.
Originally published 26 November 2015
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