Jumping the Gun: False Starts in Adjudications

Tony Clough – Director, Forensic Expert Witness

Adjudication as a process is quicker, cheaper and much less formal than going to arbitration or court. However, we shouldn’t be lulled into a false sense of security by the relative informality of the process or the fact that the complexities of the civil procedure rules can be safely ignored. The process is still subject to its own rules which will be applied – in some cases strictly.

In this article, we take a look at the recent battle of Lane End v Kingstone.1 We recall the punishingly strict way the timing of launching an adjudication was viewed in Vision Homes v Lancsville2 and consider the next steps either when commencing proceedings or when on the receiving end and believing that something may have gone awry.

There was nothing particularly unusual about the dispute in Lane End v Kingstone. Kingstone made an application for payment of around £350,000. No response was received until the final date for payment when Lane End belatedly issued a Payment Notice. Lane End’s Payment Notice was too late to constitute either a Payment Notice or a Pay Less Notice. The adjudicator therefore told Lane End to pay the full amount.

In the majority of cases, that would be that. Lane End would have had to hand over £350,000 and, thanks to S&T v Grove,3 start its own ‘true value’ adjudication to claw back any overpayment. However, Lane End noticed that there was an anomaly in the way that the adjudication proceedings had commenced. Kingstone went to court to seek enforcement of the adjudicator’s decision and Lane End went to court to seek a declaration that the decision should be set aside.

The Adjudication Starts

The adjudication was governed by the Scheme for Construction Contracts and there are two particular provisions of interest here:

Firstly, section 1(1) states that a party to a construction contract has the right to notify the other party of its intention to commence adjudication proceedings “at any time”. This is the notice of adjudication.

Secondly, section 2(1) dictates that the notifying party either requests that a person named as adjudicator in the contract accepts an appointment or (if none is named or if the named adjudicator cannot act) it makes an application to a nominating body for an adjudicator to be appointed. Crucially, this is to be done “following the giving of a notice of adjudication”.

The final date for serving a Pay Less Notice was 19th March 2020 and Kingstone was quick off the mark. The following morning, at around 7:45am, it made an application for the nomination of an adjudicator. Later that morning, it had a meeting with Lane End and, at around 11:00am, handed over a document titled “Notice of Referral”.

On 23rd March the adjudicator confirmed his nomination and gave his initial directions regarding the service of the referral and the response. Kingstone issued another “Notice of Referral” later that day which included substantial parts of the document handed over to Lane End at the meeting three days earlier.

The following day, Lane End complained that it hadn’t received a notice of adjudication. It contended that the Notice handed over in the meeting on 20th March couldn’t be considered a valid notice since it did not signify an intention to commence adjudication proceedings. The adjudicator decided that the document handed over at the 20th March meeting, although titled “Notice of Referral”, should be treated as a notice of adjudication. By the time they got to court, both Parties agreed with that view.

However, by this point, Lane End had a new line of defence – the application for an adjudicator was made before the notice of adjudication had been served. This, it said, conflicted with section 2(1) of the Scheme which requires an application to be made “following the giving of a notice of adjudication”.

A Matter of Minutes

Lane End relied on the 2009 judgment in Vision Homes, in which the Court confirmed (albeit with some misgivings) that the sequence set out in the Scheme must be strictly adhered to. In this case, a dispute had arisen when Lancsville rejected Vision’s claim for liquidated damages. The parties started a race to launch their own adjudication on the same subject matter.

Lancsville issued its notice of adjudication at 6:22am on 14th May 2009 and at 4:36pm, it applied to the RICS and asked them to nominate an adjudicator. It then took another look at its notice of adjudication. The relief section didn’t ask the adjudicator to decide that Vision Homes should pay their fees so, after adding that request, it served the updated notice at 4:54pm. The revised notice was issued just eighteen minutes after the application had been made to the RICS. It was accepted that the amendment to the notice was minor and did not substantially alter the scope of the actual dispute. It was also accepted that Vision Homes had not suffered any prejudice by the slightly late service of the updated notice.

However, the court didn’t want to open to the door for future battles over timing. If it decided that making an application eighteen minutes too early was OK, then where would the cut-off eventually be drawn? An hour, a day, a week? With some reluctance, the Court decided that a strict approach should be taken and that certainty in the adjudication process itself was more important than allowing exceptions to be made in the hard cases.

Armed with this judgement, it was argued in the Lane End case that Kingstone’s application to the RICS a few hours before handing over what was (eventually) agreed to be a notice of adjudication meant that the resulting decision was a nullity. The Court agreed that Vision Homes was the relevant starting point. An application to the RICS made before a notice of adjudication had been served meant that there was no valid appointment of the adjudicator. But that wasn’t necessarily the end of the story and Lane End’s actions during the adjudication were considered.

Waiver, Estoppel and a Secret Recording

On 24th March, Lane End invited the adjudicator to resign on the grounds that it considered that it had not, at this point, received an effective notice of adjudication. However, it did not argue that the notice was ineffective because it had been issued after an application for the nomination of an adjudicator.

Kingstone said that Lane End had been aware of the fact that an application had been made before the notice had been handed over and it therefore could and should have raised this objection with the adjudicator at the time. Late in the day, Kingstone also revealed the existence of a recording of the 20th March meeting in which it said that Lane End acknowledged that it was aware of the application. The recording was thrown out as evidence, chiefly because of the late revelation but also with reference to possible GDPR and Human Rights Act breaches.

The Court decided that there could be no waiver on the part of Lane End. A right is waived when a party is presented with a choice and chooses to give up a right. Lane End could not waive a right to object to a procedural misstep in the adjudication when there was no valid adjudication process for there to be a misstep in. The adjudicator had not been properly appointed and that was the end of the matter.

The Court then considered some hypothetical points about whether or not Lane End had done enough to reserve its rights with the objection raised on 24th March (the lack of an effective notice). It had, after all, participated in the adjudication process which it later said was not an adjudication process at all.

It was decided that “a party will generally be taken to have waived any jurisdictional objection and thus lose its right of election if it participates in the adjudication without reserving its position in clear and appropriate terms” and that such reservation should refer to the specific challenge being raised. A general statement that the adjudicator’s jurisdiction was not accepted would not be sufficient on its own and the nature of the challenge must be referred to. In that way, the adjudicator is able to review the merits of the challenge and consider whether or not they should proceed.

The point in this case wasn’t quite clear cut and the Court decided “on balance” that the 24th March objection would have been sufficient to protect Lane End’s jurisdictional challenge. Although the objection didn’t quite specify the actual defect, Lane End was correct (albeit for the wrong reason) to say that the Adjudicator hadn’t been validly appointed.

That left estoppel. Was there any good reason why Lane End should be prevented from relying on its right to say that the adjudicator lacked jurisdiction? The Court considered multiple types of estoppel, but they boiled down to this:

  1. Did Lane End lead Kingstone to believe that it was giving up its right to say that the adjudicator was not properly appointed because of the timing of the application to the RICS?
  2. Did Kingstone then act to its detriment as a result of that representation?

The estoppel arguments failed. There was no express statement from Lane End that it was not going to seek to rely on its rights. At best, there was silence on this narrowly defined objection to the adjudicator’s jurisdiction. This was not a case where Lane End failed to make any jurisdictional challenge at all during the proceedings. In any event, even if there had been a representation that Lane End would not enforce its rights, could Kingstone be said to have relied upon it to its detriment, i.e. by continuing with a flawed adjudication process? Again, the Court said ‘no’. Kingstone continued with the adjudication even in the face of Lane End’s jurisdictional challenge and there was nothing to suggest that it would have behaved any differently had the challenge been phrased in a slightly different way.

The result was therefore one of those rare occasions where the adjudicator’s decision was not enforced. At the end of August 2020, the parties were back in the same place as in the middle of March when the whole process started. The reason for the wasted time, effort and cost was that an application for an adjudicator had been made a few hours before a notice of adjudication had been served, rather than a few hours (or even minutes) afterwards.

Wait for the Starting Pistol

There are a number of lessons to be taken from all of this:

Firstly, there is no advantage in making an application for the nomination of an adjudicator before serving the notice of adjudication. It is the date of service of the notice which sets the remainder of the adjudication timetable running.

There is no harm in making sure that the notice has been served – and even received – prior to making the application. If the notice is served by post, for example, then requiring a signature will confirm the time received and will mean that there can be no possible argument for the prematurity of the application.

In some cases, a referring party wishes to secure an adjudicator’s appointment quickly and get its referral submitted as soon as possible to cut down the responding party’s time to respond. In such an event, the referring party should perhaps consider the merits of its case. If its hopes are pinned on the other side having a little less time to respond, then the case may have more fundamental issues.

There are further valuable lessons for those commencing or responding to adjudications:

Parties should make themselves aware of the rules. Does the Scheme apply to your adjudication, or is there a bespoke process set out within the contract? If the latter, does that process comply with the requirements of the Construction Act? If not, then the Scheme may apply instead.

If you’re about to commence an adjudication, consider that the contractual process is non‑compliant and intend to rely on the Scheme instead, set out your position clearly in advance. This way the responding party and the adjudicator can consider the issues and correct process at the outset, rather than five or six months later in a court room.

In short: identify the rules, perhaps draw up a timeline or chart which illustrates the process and then follow that process, treating every deadline or sequencing issue as critical.

When responding, raise any jurisdictional challenges as early and in as much detail as possible. In this case, Lane End’s challenge was eventually found to be sufficient, but only after careful consideration in court.

Adjudication has its formalities and its own peculiarities. Distinctions can be drawn between adjudication and arbitration when it comes to the reservation of rights. Those intending to enter into an adjudication need to make themselves aware of those formalities and ensure that they are complied with.

In the cases of Lane End and Vision Homes, decisions for £350,000 and £500,000 respectively were not enforced because of what appear to be relatively minor procedural missteps. This came down to a question of hours in Lane End and mere minutes in Vision Homes. Substantial sums were found to have been due, but the courts didn’t enforce payment of those sums simply because two documents were sent by email in the wrong order.

1 Lane End Developments Construction Ltd v Kingstone Civil Engineering Ltd [2020] EWHC 2338 (TCC)
ii Vision Homes Ltd v Lancsville Construction Ltd [2009] EWHC 2042 (TCC)
iii S&T (UK) Ltd v Grove Developments Ltd [2018] EWCA Civ 2448