How far are adjudication decisions binding on subsequent adjudicators? 

United Kingdom

A recent TCC decision has considered the extent to which adjudication decisions are binding on a subsequent adjudicators. In this particular case, an initial adjudication decision which awarded an extension of time based on two Relevant Events was found not to preclude a subsequent adjudicator from reaching opposite views as to the contractual status of those events, provided the extension of time itself was maintained. This judgment is likely to increase debate over this important, but uncertain, area of adjudication law. 

The rule in Hyder: what comprises the “decision”?

It is well understood that adjudication decisions are binding on parties until their dispute finally determined by court or arbitration proceedings: see section 108(3) of the Housing Grants Construction and Regeneration Act 1998 (as amended).  A related principle often found in adjudication rules, including paragraph 9 of the Scheme, is that a dispute cannot be referred to adjudication where it is the same or substantially the same as one which has previously been referred and decided upon.

Both of these principles affect the jurisdictional competence of any subsequently appointed adjudicator. Moreover, the binding nature of a previous decision extends beyond disputes which are the same or substantially the same. As explained by the TCC in Balfour Beatty v Shepherd Construction Ltd: “The second adjudicator must be astute to see that he or she decides nothing to override or undermine the first adjudicator's decision; jurisdictionally, a later adjudicator's decision cannot override an earlier valid adjudicator's decision.”

It is important to note that only the adjudicator’s “decision” is binding and not the reasons which are given in support of the decision. What, then, comprises the decision? In Hyder Consulting (UK) Ltd v Carillion Construction Ltd, the TCC elaborated as follows: “an adjudicator's decision consists of (a) the actual award (i.e. that A is to pay £X to B) and (b) any other finding in relation to the rights of the parties that forms an essential component of or basis for that award”. The Court gave as an example a decision to award £X on the basis that a contractor was entitled to an extension of time of Y weeks with a weekly prolongation cost of £Z. Although the actual award is £X, the extension of time finding was said to be an essential component of that award and was equally as binding. Accordingly, it would not be permissible for an adjudicator in subsequent proceedings to deny or reduce the amount of that extension.

Global Switch Estates 1 Ltd v Sudlows Ltd

Global Switch engaged Sudlows to upgrade a specialist data centre in East London under an amended JCT Design and Build 2011 contract. The project saw a number of adjudications between the parties, one of which (the “Second Adjudication”) resulted in an extension of time award to Sudlows for 292 days on the following grounds:

  • 81 days for additional strip out works which were found to be a Change and therefore a Relevant Event;

  • 211 days for structural enhancement works instructed pursuant to an undefined provisional sum and therefore a Relevant Event.

Global Switch subsequently commenced a further adjudication (the “Fourth Adjudication”) as to the proper valuation of one of Sudlow’s interim payment applications. This included the valuation of Sudlows entitlement to loss and expense in respect of the extension of time of 292 days awarded previously, as well as the valuation of the underlying events which gave rise to the extension (i.e. the additional strip out works and the structural enhancement works).

A different adjudicator was appointed and, whilst accepting he was bound by the extension of 292 days awarded previously, determined that the additional strip out works were not a Change and that the structural enhancement works did not give rise to a Relevant Event. The adjudicator considered these works to be included within the original Contract Sum. The adjudicator also rejected most of Sudlows’ loss and expense claim (presumably for prolongation costs in relation to the 292 days) due to a lack of substantiation.

Sudlows challenged the decision in the Fourth Adjudication on a number of grounds including that the decision had impermissibly trespassed on findings in the Second Adjudication as to the contractual status of the additional strip out works and the structural enhancement works. This particular challenge was rejected by the TCC. Justice O’Farrell commented that, “even if [the adjudicator] was wrong in his contractual analysis of the claims, or in his assessment of the evidence in support of the claims, such errors would amount to errors of law and/or fact which on their own would not render the decision unenforceable.”

Conclusion and implications

This decision poses significant implications for the binding nature of adjudication decisions. Viewed in terms of the principles enunciated in Hyder, the effect of the decision appears to be that only the actual award of extension of time in the Second Adjudication was binding, not the subsidiary findings as to Relevant Events which gave rise to that extension. Although Hyder was cited in the judgment, no explanation is given by the court as why the Relevant Event findings were not an “essential component” of the extension of time award, or if they were, on what basis the adjudicator in the Fourth Adjudication was able to reach a valuation on the basis they were not Relevant Events.

On a more practical level, it may come as a surprise to those involved in adjudication business that a subsequent adjudicator is at liberty to disagree with the grounds on which an extension of time has been awarded in a prior adjudication, as long as he or she upholds the extension itself. This may pose difficulties for the valuation of loss and expense claims. For example, a prolongation claim in relation to an extension of time awarded for a Change requires identification of the indirect or preliminary costs which are prolonged by the Change. This may be only a part of the total indirect or preliminary costs. However, if the contractual basis for the Change is rejected (as it was in this case) a meaningful evaluation of these costs becomes difficult, if not impossible. The value of the original extension of time award may thereby be limited to relief from liquidated damages and not provide a gateway to the recovery of loss and expense.

One way in which parties may seek to avoid this result is to include requests for more detailed relief within their Notices of Adjudication. For example, rather than seeking only a decision as to its entitlement to extension of time, a contractor might also seek separate declarations that each of the events relied upon are Relevant Events. This will lead to greater complication in the drafting of such Notices, but may enable parties to confer a greater degree of binding force to adjudication decisions, if the requested declarations are granted by the adjudicator. Whether the court will permit the binding force of an adjudication decision to be extended in this way remains to be seen.

References:

Balfour Beatty v Shepherd Construction Ltd [2009] EWHC 2218 (TCC)

Hyder Consulting (UK) Ltd v Carillion Construction Ltd [2011] EWHC 1810 (TCC)

Global Switch Estates 1 Ltd v Sudlows Ltd [2020] EWHC 3314