You can’t always get what you want

Published in Property Law Journal, 24 May 2010

The title of this article should perhaps read “You can’t always restrict the parameters of an adjudicator’s jurisdiction solely to the issues you want decided”, but that seems a bit wordy and the Rolling Stones would never have had a hit with it.

Anyone considering going to adjudication needs to be careful not to try to be too clever when it comes to defining the ambit of the dispute.

It’s long been accepted that an adjudicator’s jurisdiction is defined by the notice of adjudication, which is to say that the adjudicator can only decide what he’s been asked to decide. That’s all very well, but it does mean that referring parties have taken to referring narrower and narrower disputes to adjudication. For example, a contractor might want the adjudicator to decide how much he’s due to be paid under an interim application, but without troubling himself with any claims the employer might have in respect of defects or damages for delay.

Until recently, it hasn’t been entirely clear how far an adjudicator can go in restricting what he reaches a decision on and the extent to which he takes notice of submissions.

The Scheme for Construction Contracts (England and Wales) Regulations 1998, which underpins the adjudication provisions of the Construction Act, says that the adjudicator “shall consider any relevant information submitted to him by any of the parties to the dispute”, but what if that information appears to relate to a different dispute? Is it still relevant?

Mr Justice Coulson, in the recent case of Pilon Limited –v- Breyer Group plc, clarified the position by saying that “adjudicators should be aware that the notice of adjudication will ordinarily be confined to the claim being advanced; it will rarely refer to the points that might be raised by way of a defence to that claim, but…a responding party is entitled to defend himself…by reference to any legitimate available defence (including set-off)”. In other words, narrow wording in the notice of adjudication won’t help to keep out other claims by the responding party.

In that case, Pilon, a specialist refurbishment contractor, carried out work for Breyer on a site in Ealing. Disputes arose between the parties. Pilon left site and subsequently issued an interim application for £337k which remained unpaid. They commenced adjudication.

In their notice of adjudication, Pilon sought to limit the scope of the adjudication to their interim application and the fact that Breyer had failed to serve a withholding notice. Breyer denied that they were obliged to serve a withholding notice and said that they were entitled to set off the sum of £148k in respect of an earlier overpayment.

The adjudicator decided that he didn’t have jurisdiction to consider Breyer’s set-off because his jurisdiction was limited to the issues set out in the notice of adjudication. He awarded Pilon £206,600. Breyer refused to pay up, arguing that the adjudicator’s refusal to consider their defence was a breach of natural justice. Pilon commenced enforcement proceedings in the Technology and Construction Court.

Mr Justice Coulson agreed with Breyer and refused to enforce the adjudicator’s decision. He said that, although mistakes by an adjudicator in reaching his decision won’t necessarily be enough to prevent enforcement, it’s a completely different matter when an adjudicator chooses not to consider an important element of the dispute referred to him. Although the set-off wasn’t referred to in the notice of adjudication (and you wouldn’t expect it to be), that didn’t prevent the responding party from raising it in his defence and having it considered by the adjudicator as part of the overall dispute. He said “An adjudicator should think very carefully before ruling out a defence merely because there was no mention of it in the claiming party’s notice of adjudication. That is only common sense: it would be absurd if the claiming party could, through some devious bit of drafting, put beyond the scope of the adjudication the defending party’s otherwise legitimate defence to the claim”.

Furthermore, not only did Pilon’s “devious bit of drafting” fail to exclude Breyer’s set-off defence, it also effectively prevented their own defence to Breyer’s overpayment argument from being run in the adjudication and it couldn’t then be considered by the court on enforcement either. As Coulson J put it, “It seems to me that it is now too late for Pilon to complain about that. It is a direct result of their own deliberate strategy”.

The moral of the story is that referring parties should consider carefully the scope of the dispute that they refer to an adjudicator, particularly if they want to refer a narrow and discrete issue. By seeking to exclude Breyer’s defence, Pilon not only ended up with an unenforceable decision, but they also never gave the adjudicator the opportunity to consider their own perfectly valid response to that defence.

Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.

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