Second chances: Court of Appeal allows two adjudications on same payment application

Unsuccessful parties in adjudication often look for ways to avoid the consequences of the adjudicator’s decision. A common complaint is that the adjudicator has answered the wrong question or has not addressed all of the issues. Yesterday’s Court of Appeal decision in Matthew Harding t/a M J Harding Contractors v Paice [2015] EWCA Civ 1231 confirmed that if this is indeed the case, parties are entitled to commence a second adjudication on any issues that were not decided the first time around.

What was the issue?

In the first instance decision of Matthew Harding t/a M J Harding Contractors v Paice [2014] EWHC 3824 (TCC) Mr Justice Edwards Stuart refused to grant an injunction to restrain an employer from seeking a declaration as to the true value of sums due to a contractor on a payment application made on termination under clause 8.12.3 of the JCT Intermediate Form of Building Contract 2011 edition.

Although there had already been an earlier adjudicator’s decision which had found that the contractor was entitled to the full amount applied for (on the basis that the employer had failed to serve an effective pay less notice), Mr Justice Edwards Stuart decided that the employer was entitled to start a second adjudication to have the contractor’s entitlement properly determined. This was because the first adjudicator had not reached a decision on the true value of the contractor’s entitlement. Rather he had simply decided that the contractor was entitled to payment because of the employer’s failure to issue an effective pay less notice.

The contractor appealed to the court of appeal on the basis that Justice Edwards Stuart had incorrectly interpreted paragraph 9(2) of the Scheme for Construction Contracts which provides:

“An adjudicator must resign where the dispute is the same or substantially the same as one which has previously been referred to adjudication and a decision has been taken in that adjudication”.

The contractor argued on appeal that paragraph 9(2) meant that all that is required in order to trigger the resignation of the second adjudicator was the existence of a decision in a previous adjudication and that an issue that was being referred to the new adjudicator was one that was covered by the Referral Notice in the first adjudication, regardless of whether or not that issue had actually been decided in the first adjudication.

What did the Court of Appeal decide?

The Court of Appeal unanimously rejected the appeal. The court endorsed the first instance judge’s interpretation and has confirmed that the dispute or disputes referred to the first adjudication should not be looked at in isolation. The key consideration is what the first adjudicator actually decided, which will then determine how much or how little remains available for consideration by a second adjudicator.

As Lord Justice Jackson explained: 

“Parliament cannot have intended that if a claimant refers twenty disputes or issues to adjudication but the adjudicator only decides one of those disputes or issues, future adjudication about the other matters is prohibited”.

The Court of Appeal did not comment on the “reservations” that Mr Justice Edwards Stuart expressed about whether or how the provisions of the Scheme for Construction Contracts (as amended), should apply to the contractual mechanism under this JCT contract for payment following termination under clause 8.12.3 of that contract. This is unfortunate, as clarity on this issue would have been welcomed by contractors and employers alike. However, this was not a point that the parties were arguing in this case, so we will have to wait for another case in which the courts are called on to determine this issue.

What does this mean for contractors and employers?

In recent years, the Technology and Construction Court has hammered home the importance that an adjudicator’s decision must stand, and be complied with, in the first instance, even if it is then re-opened in High Court litigation. The Court of Appeal’s judgment in Harding v Paice is legally sound and sensible in the context of this case. Nevertheless, this is likely to be seized upon by unsuccessful parties to adjudication, who may look to commence fresh adjudications where there is any doubt as to precisely which issues have been determined by adjudicators. Adjudicator’s decisions, always critically examined, look set to be subjected to ever more scrutiny. One thing that is clear is that more litigation will follow on this issue.