Legal case study: Respect the decision

The case: Gray & Sons Builders (Bedford) -v- Essential Box Company, TCC, 11 October 2006.

The issue: Enforcement of adjudicators' decisions.

The implication: Anybody seeking to resist the enforcement of an adjudicator's decision without very good grounds for doing so can expect to fail and have to pay the other party's costs on an indemnity basis.

Adjudication has now been a part of life in the construction industry for more than eight years, and it was very quickly established that once a decision had been given then there were very few ways in which it might be effectively challenged.

The first decision enforced by the courts was one given by Eric Mouzer in January 1999 in relation to a dispute between Macob Civil Engineering and Morrison Construction, and that enforcement has formed the basis of all subsequent ones.

Although many arguments have been advanced before the courts as to why a decision should not be enforced, just about the only ones that have any prospect of success concern whether the adjudicator actually had jurisdiction to make a decision at all or, if he had jurisdiction, whether there had been any breach of the rules of natural justice such as to make that decision unsafe.

Case study

In the 2005 case of Carillion Construction -v- Devonport Royal Dockyard, the Court of Appeal stressed the approach implicit in the Act, stating: “The objective that underlies the Act and the statutory scheme requires the courts to respond and enforce the adjudicator’s decisions unless it is plain that the question which he has decided was not the question referred to him or the manner in which he has gone about his task is obviously unfair. It should be only in rare circumstances that the courts will interfere with the decision of an adjudicator.”

In the same case, the court also stressed that it was not concerned with whether the decision was correct as “the need to have the ‘right’ answer has been subordinated to the need to have an answer quickly…”.

Clear guidance

In the light of such clear guidance, anyone refusing to give effect to an adjudicator’s decision must anticipate that they will have an uphill struggle to convince the courts that the decision should not be enforced.

In the recent case of Gray & Sons Builders (Bedford) -v- Essential Box Company the defendant, which was resisting an application to enforce an adjudicator’s decision, came to the realisation the day before the hearing that there was little point in doing so, presumably because it appreciated that its prospects of success were slim.

As a consequence, it told both the court and the claimant that it no longer opposed the application made, and the court therefore gave judgment enforcing the adjudicator’s decision.

All that was then left for the judge to concern himself with was the question of the claimant’s costs in seeking enforcement.

Normally, when costs are awarded it is on the standard basis, meaning that one party is able to recover a reasonable amount in respect of all costs reasonably incurred, with any doubt being resolved in favour of the party that was ordered to pay the costs. This approach leads to the party whose costs are being reimbursed recovering somewhat less than it has actually paid out.

Indemnity basis

When costs are dealt with on an indemnity basis, the same basic rule is adopted (a reasonable amount in respect of costs reasonably incurred), but with any doubt being resolved in favour of the party being reimbursed its costs. This leads to a higher, but not necessarily full, recovery of the costs actually incurred.

In this case, the claimant sought payment of its costs on an indemnity basis on the grounds that the defendant should have honoured the adjudicator’s decision when it was made, that it should not have been necessary for the claimant to commence the proceedings, and that the defendant had no defence to the application for enforcement.

Earlier decisions

Referring to one of his earlier decisions, the judge in this case noted that “… to maintain a claim that you know, or ought to know, is doomed to fail on the facts and on the law, is conduct that is so unreasonable as to justify an order for indemnity costs”. He concluded that any party who avoided honouring an adjudicator’s decision until the last moment or beyond could anticipate having to pay the other party’s costs of enforcement on an indemnity basis as a matter of principle.

The only reason the defendant could offer as to why it should not have to pay costs on an indemnity basis was that, because of seasonal cashflow difficulties, it could not honour the decision at the time, but had offered to do so at the end of January 2007, meaning that there was no need for the claimant to have commenced these proceedings.

The judge was unimpressed by this argument, noting that cashflow was just as important to contractors as to anyone else, and was one of the considerations that had given rise to the introduction of adjudication in the first place.

Judge’s decision

The position taken by the judge in this case should make all parties who are contemplating ignoring an adjudicator’s decision think twice before doing so.

Not only are they unlikely to succeed in resisting any enforcement proceedings (unless there are clear issues of jurisdiction or natural justice), but they are also likely to end up paying the other party’s costs on an indemnity basis, in addition to the whole of their own costs.

[Contract Journal, 15 November 2006, p 37]