Adjudication injunctions: will Covid-19 develop the law?

United Kingdom

The first recorded case of an adjudication injunction sought as a result of the Covid-19 pandemic emerged earlier this month in the TCC. The law as to such injunctions is presently unsettled. In this Law-Now we consider the extent to which further Covid-19 cases may help to clarify the law.

Adjudication injunctions: the story so far

Injunctions to prevent the continuance of an adjudication generally fall into two categories. In Dorchester Hotel Ltd v Vivid Interiors Ltd, a Responding Party sought to injunct a final account adjudication commenced just before Christmas on the basis that the adjudicator could not fairly deal with the detailed nature of the dispute in the time available. Mr Justice Coulson (as he then was) found that the court had jurisdiction to stop an ongoing adjudication, but that the jurisdiction would only be exercised “very sparingly” and only in “clear-cut cases”. Although the court had sympathy for the Responding Party’s position, the adjudicator had indicated that he was able to determine the dispute within the time available and it was not clear that the adjudication was incapable of giving rise to a fair result.

The difficulty faced by parties seeking such injunctions is that a certain amount of ambush and even unreasonableness is implicit in the adjudication process itself. As noted by the court in Twintec Ltd v Volkerfitzpatrick Ltd:

“It has to be remembered that the conduct that must be condemned as unreasonable - the referral of a dispute to adjudication - is conduct that has been sanctioned by Parliament. That is why the facts of the particular case must be exceptional before the court would be justified in concluding that a referral of a dispute to adjudication is unreasonable, even though it may be oppressive. Parliament has in effect expressly approved a party's right to start an adjudication in circumstances that can effectively amount to an ambush of the responding party. That, of itself, does not justify the interference of the court.

An injunction was granted in Twintec, but not on fairness grounds. Instead, the court concluded that the adjudicator did not have jurisdiction as he had not been validly appointed under the applicable contractual provisions. No useful purpose would be served in allowing the adjudication to proceed in those circumstances and it was therefore an “exceptional case” where an injunction was justified.

An injunction on jurisdictional grounds was also upheld by the Court of Appeal in Bresco Electrical Services Ltd v Michael J Lonsdale (Electrical) Ltd in the following terms:

“the court will grant such an injunction if the court concludes that the nascent adjudication is a futile exercise. This is an important power in the context of adjudication. Adjudication is a quick process which can require a responding party to spend a good deal of money in a short space of time, to defend itself from claims which may prove to be utterly hopeless, yet with no prospect of recovering those costs (because adjudication is cost-neutral). It is therefore important that, whatever the theoretical jurisdiction position may be, a responding party has the right to try and put a stop to the adjudication process at an early stage.”

It may be thought in light of these two cases that a strong jurisdictional objection would provide a sound basis for seeking an injunction. However, that appears to have been placed in doubt by Billingford Holdings Ltd v SMC Building Solutions Ltd, a decision issued soon after Bresco. In that case, an injunction was sought on the basis of what was said to be a very clear jurisdictional objection as to the appointment of an adjudicator by the wrong adjudicator nominating body. Mr Justice Fraser refused to consider the substance of those objections. The argument that it would be wrong for the court to allow an adjudication to proceed if there was no prospect of it reaching a binding decision was in his view not “the correct approach, nor is it the correct test. This is not an unusual case. The claimant challenges the jurisdiction of the adjudicator on grounds which are, if I may say so, entirely run of the mill. There is nothing in this dispute about the jurisdiction of the adjudicator and whether the correct nominating body was the body that appointed the adjudicator to take this out of the conventional case.”

The suggestion in this decision appears to be that even a very strong jurisdictional objection will not be sufficient to found an injunction unless it is an unusual objection or a very rare case. It is unclear how the peculiarity of an objection is to be assessed or why that should be of critical importance where a strong jurisdictional case is advanced.

MillChris Developments Ltd v Waters

The Covid-19 pandemic has placed greater strain on the logistical and financial resources of a wide variety of businesses. In the construction sector, this has led to the commencement of adjudications as parties seek to shore-up cashflow. Those responding to such adjudications have complained of opportunistic behaviour, suggesting that adjudication is being used to apply greater pressure at a time when they are already under immense strain. An injunction has recently been unsuccessfully sought by a Responding Party on this basis.

The court’s judgment is not yet available in full, but the summary shows that the injunction was sought on fairness grounds. The adjudication had been brought by a home-owner against a contractor. The contractor complained that it did not have sufficient time to prepare for the adjudication due to the pandemic and the fact that it was no longer trading. Its solicitor had been forced to self-isolate and the contractor would not be able to secure representation at a site visit proposed by the adjudicator.

The court rejected the application, noting that such an injunction would only be given in rare and clear-cut cases, and that the contractor was required to show a serious case that the adjudication would necessarily be conducted unfairly in breach of the rules of natural justice (i.e. not just that this might occur). None of the matters relied upon rose to this level. The contractor’s solicitor could work remotely, as could the relevant witnesses. Natural justice would not always require a party representative to be present during a site visit: the visit could be recorded and the contractor could direct the adjudicator’s attention to certain areas of the site in advance.

Conclusions and implications

In the present climate, there will often be a tension between Referring Parties wanting a decision as quickly as possible (as some will rely on this for financial survival) and Responding Parties wanting more time to prepare their submissions (as often documents and personnel will be less accessible). However, it is for the parties and ultimately the adjudicator to find a pragmatic and fair balance.

The contractor in this case failed to show any real unfairness resulting from an adjudication proceeding in the current circumstances. Each of the instances of disruption relied upon were readily able to be overcome and the impression was one of the pandemic being used as an excuse to forestall a genuine adjudication. Other more compelling cases may arise in the future, however, and the conduct of Referring Parties is likely also to be of relevance.

It is expected that an increase in such cases may provide an opportunity for the law in this area to be clarified. The position in relation to injunctions on natural justice grounds is reasonably clear: a party must show a good case that the adjudication will necessarily be conducted in breach of the rules of natural justice. That is a very hard ask given the ability for logistical issues to be overcome in a variety of ways (as this case illustrates). It is not difficult to understand why such injunctions will be given only in very rare cases.

Less clear is whether an injunction on jurisdictional grounds can be given where a series issue or even a strong case is present. Such objections can often be determined summarily, as in Twintec. The decision in Billingford suggests, however, that the court may not be willing to consider such objections unless an additional element is present which takes the case outside of the ordinary. It is unclear how such an additional requirement would be squared with the Court of Appeal’s comments in Bresco that Responding Parties ought to have the right to be spared the costs of an adjudication rendered futile due to jurisdictional failings.

References:

Dorchester Hotel Ltd v Vivid Interiors Ltd [2009] EWHC 70 (TCC). 

Twintec Ltd v Volkerfitzpatrick Ltd [2014] EWHC 10.

Bresco Electrical Services Ltd v Michael J Lonsdale (Electrical) Ltd [2019] EWCA Civ 27.

Billingford Holdings Ltd & BFL Trade Ltd v SMC Building Solutions Ltd [2019] EWHC 711.

MillChris Developments Ltd v Waters [2020] 4 WLUK 45 (unreported).