A review of the Adjudication Update given by Harry Smith of Keating Chambers on 3rd September 2020

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A review of the Adjudication Update given by Harry Smith of Keating Chambers on 3rd September 2020

October, 2020
Matthew Britcliffe

Harry Smith of Keating Chambers kindly agreed to provide an adjudication update to members of the Adjudication Society & Chartered Institute of Arbitrators, given online on 3rd September 2020.  No recording was made, so this review is my attempt to set out the key points of the update for those interested.

Harry presented the update with reference to a set of slides which are enclosed with and may be read alongside this review.

The update covered three main topic areas: ‘Covid-19 & Adjudication’, ‘Insolvency & Adjudication (Bresco v Lonsdale)’ and ‘True-Value Adjudications’.

Covid-19 & Adjudication

Harry started off with the observation that the host of natural justice challenges some predicted would arise during adjudications as a consequence of the Covid-19 lockdown does not as yet appear to have materialised. 

The one relevant judgement to this topic, MillChris Developments Ltd v Waters [2020] EWHC 1320 (TCC) was reviewed. In her judgement, Mrs Justice Jefford did not accept MillChris’s grounds for the adjudication to be restrained by an injunction, and was sceptical as to the Responding party’s claim that their inability to meet the adjudication timescales was caused by the constraints of the Covid-19 lockdown and not by other factors. 

Harry commented that one potentially surprising aspect of the judgement was how the court dealt with the natural justice issues surrounding a planned site visit. MillChris complained that if a site visit took place, they would be unable to attend due to the lockdown, and there would be a risk of unilateral communication (and therefore a breach of natural justice) as a result. 

Jefford J rejected that argument, saying that parties had no right to attend a site visit, which could be recorded in any event. Harry commented that this did give rise to at least the potential for a breach of natural justice, and consequently an unenforceable decision. He also noted that virtual hearings tended to increase the risk of unilateral communications (for example if one party stayed on an online meeting after the other left) and suggested that recording such meetings could mitigate that risk.  

Post-update note

Noting the recent case of Lane End Developments Construction Ltd v Kingstone Civil Engineering Ltd [2020] EWHC 2338 (TCC) regarding recordings of meetings, I would suggest that any party to an adjudication who is considering making a recording of a meeting, online or otherwise, to do so only with the advance consent of the other parties.

Insolvency and Adjudication

Harry focussed this part of the update upon the Supreme Court’s decision from June of this year in Bresco Electrical Services Ltd v Michael J Lonsdale (Electrical) Ltd [2020] UKSC 25. His first comment was that Lord Brigg’s judgment was largely concerned with “high principle”, which made it difficult to discern which aspects of the judgment are obiter and which are binding and intended to change the existing law.  

Prior to Bresco it was assumed that the process of setting off mutual claims between parties was incompatible with the Insolvency Rules 2016, r. 14.25. Readers will no doubt be familiar with the Bresco judgment [and can review a case report from Fenwick Elliott in the August 2020 issue – ed] but Harry provided the following useful comment as to questions that have been left open:

  • Following the judgement, the question of whether Lord Briggs’ finding that an adjudication brought by an insolvent party would or would not be a futile exercise, i.e. where the decision is not summarily enforceable was, to an extent, only an academic one;
  • Lord Briggs appears to jump in his reasoning from on the one hand saying that an adjudicator’s decision is not deprived of its utility by the fact that it is only temporarily binding, to on the other hand saying that an adjudicator’s decision is not deprived of its utility despite it not being enforceable;
  • Perhaps in certain circumstances an unenforceable adjudicator’s decision could be of value to a liquidator, but in most cases it was difficult to see how such a decision would be of material value to them;
  • Much of the utility of an adjudicator’s decision is derived from the fact it will, generally, be enforced by the courts. In the absence of enforceability, it was uncertain as to the precise circumstances where such a decision could be useful;
  • What is now clearly established following Bresco is that an adjudication will not now be restrained by the courts on the premise of it being a futile exercise.

Cross-claims

Harry then moved on to consider the impact of the finding of Lord Briggs at [65] regarding cross-claims. 

Lord Briggs identified 3 distinct scenarios in that paragraph:

1. Where the cross-claim was not disputed. 

2. Where the disputed cross-claim was of no substance.

  • Here, Harry considered what change this might make to the applicable test for disputed cross-claims, making reference to the test established by Lord Akenhead in Westshield v Whitehouse [2013] EWHC 3576 (TCC).
  • In Westshield it had been asserted the cross-claim had been ‘cobbled together’ purely to resist enforcement. Akenhead LJ considered that the applicable test was whether the cross-claim was: 
    'so lacking in support as to not be bona fide”
  • Following Bresco, Harry considered that the courts may now subject disputed cross-claims to a greater level of scrutiny and apply a “real prospect of success” threshold to these claims, or at least a test higher than the “bona-fide” test of Westshield. It was noted that, from a practical perspective, it may be difficult to achieve this within the time constraints applied by the courts.

3. If the disputed cross-claim can be determined in the adjudication, it may no longer be possible to rely on it as a defence to summary enforcement (from the last two sentences of [65]).

Harry commented that: 

  1. If it does turn out that cross-claims determined in the adjudication cannot be relied up on as a defence in summary enforcement, this would be a significant and potentially problematic change in the law;
  2. In Bouygues, all of the claims and cross-claims had been dealt with in the adjudication. However, if Lord Brigg’s third scenario was applied to Bouygues, then in that case the adjudicator’s decision should have been enforced, which was the precise opposite of what actually happened;
  3. At Bresco [64] and [67], Lord Briggs appears to endorse Bouygues, however at the last two sentences of [65], he then appears to suggest the reasoning of Bouygues was wrong – which was considered to be at least somewhat problematic; and
  4. In the light of these two sentences at [65], a potentially undesirable situation was set out where a party does not raise a disputed cross-claim in adjudication so that they may then be free to raise such a cross claim as a defence to enforcement. The findings of the first-instance courts following this will be of interest.

True-Value Adjudications

Harry considered the question as to whether an employer can avoid the outcome of a ‘smash and grab’ adjudication by relying on the decision of a subsequent ‘true-value’ adjudication. Harry’s starting point was the well known case of S&T v Grove, and Sir Rupert Jackson’s conclusion that the adjudication provisions of the Act were subordinate to the payment provisions: pay now, argue later. 

Harry then moved on to the ‘pragmatic’ application of S&T v Grove by Stuart-Smith J in M Davenport Builders Ltd v Greer [2019] EWHC 318 (TCC), where it was found the payment notice obligation must be discharged before a subsequent decision in a true-value adjudication could be relied upon. Thus, the right to refer a dispute to adjudication “at any time” is preserved, and the question of whether a true-value decision can be relied upon becomes an enforcement issue for the courts, rather than a jurisdictional issue for the adjudicator to decide.

Moving to this year, Harry considered the judgement from April of Broseley London Ltd v Prime Asset Management Limited [2020] EWHC 944 (TCC). In that case, an attempt was made to stay an enforcement of a smash and grab decision in order that an adjudication to establish the valuation of the party’s account following termination could be undertaken. 

Roger ter Haar QC sitting as a Deputy High Court Judge rejected this attempt, describing it as “a remarkable intrusion into the principle established in S&T: (which) would permit the adjudication system to trump the prompt payment regime”. Harry noted that the Court in Broseley did not appear to have been referred to the Davenport judgment. As such, he considered there was a conflicting message from the Courts as to whether a party could commence a true value adjudication before paying a smash and grab award, although it was certainly clear that no reliance could be placed on a true value decision before the earlier award was payed. 

It was put forward that an adjudicator appointed in circumstances such as these would have no jurisdictional issue to deal with, but the court would have the discretion to halt the adjudication should it see fit to do so. The question then raised was: in what circumstance would the court exercise such a discretion? 

In Bresco [EWCA] Coulson LJ held that the court will grant an injunction where a nascent adjudication is a futile exercise. As such, if it can be argued that a true-value adjudication was a futile exercise then the court may restrain an adjudication, although Harry noted Lord Briggs’ statement that:

“it would be entirely inappropriate for the court to interfere with the exercise of that statutory and contractual right[A1] ”

Finally on this topic, Harry considered Kew Holdings Ltd v Donald Insall Associates Ltd [2020] EWHC 1862 (TCC).  Kew had not paid the judgement sum arising from an enforced adjudicator’s decision, and the court agreed with DIA’s key submission that Kew were not entitled to commence a fresh claim in litigation until the judgement sum was paid.

Harry identified two problems with the support for Kew’s position:

  1. Authority from S&T v Grove related to the question of whether an adjudicator’s decision should be enforced, but in this case the adjudicator’s decision had already been enforced; and 
  2. Other authority from S&T v Grove was regarding the question of whether an employer could commence a true-value adjudication without first paying the notified sum, whereas in this case, the question was whether the employer could commence court proceedings without first paying the notified sum.

O’Farrell J rejected the positions of Kew at paragraphs 22-23, and the proceedings were stayed until after the judgement sum was paid.

Summary

Harry provided an incredibly useful and insightful update on these topics, which generated a chorus of positive feedback from the collected delegates.  Since the update, Harry has been identified by the Legal 500 as a “Rising Star” in Construction, with appropriate feedback:

‘His written advice is stellar, matched by his skills in court. Would not hesitate to put Harry's intellect against any other more senior member of the Bar.’ 

Since the update, the case of Styles & Wood (In Administration) v GE CIF Trustees [2020] has been handed down by the TCC. It is hoped that this judgement and the others following Bresco will answer more questions than they pose during what is a uniquely challenging period for the construction industry in the UK.

Finally, on behalf of the Adjudication Society, thanks go to Harry Smith for this excellent adjudication update. Please look out for further events of a similar quality in the near future.


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