Adjudication not subject to lockdown
A party to a construction contract has the right to give notice ‘at any time’ of his intention to refer a dispute to adjudication[1], including during the current pandemic.
In the recent case of Millchris Developments Ltd v. Waters[2], Jefford J refused to grant an injunction restraining an adjudication on an application by the Respondent contractor who argued that to allow the adjudication to continue would result in a breach of natural justice because it did not have the time or means to properly prepare its case because of the impact of COVID-19.
The Court said that, whilst the court has jurisdiction to grant an injunction in respect of an ongoing adjudication, it will only do so very rarely and in very clear-cut cases. The question was whether the adjudication would necessarily be conducted in breach of natural justice, with the inevitable consequence that it would be unenforceable.
The Court took the view that the evidence fell far short of establishing any breach of natural justice.
The Judge said that no explanation had been given as to why papers could not be transported or scanned to the responding party’s solicitor or anyone else instructed in the matter. The fact that the responding party had been unable to contact its former managing director within the short time available had nothing to do with the lockdown and no attempt had been made to contact its former project manager for the purposes of the adjudication. The responding party could and should have accepted the adjudicator’s offer of a two-week extension to the adjudication process, which would have ameliorated any issues it encountered in terms of contacting witnesses and obtaining evidence.
The decision is not surprising. Whilst parties are of course entitled to a fair hearing, it has to be recognised that adjudication is a rough and ready form of dispute resolution process which, by its nature, requires both parties to do the best they can to present their case at speed and often with limited resources. The lockdown may make it more difficult to collate and compile evidence within the time available, but any such difficulty is unlikely to amount to a breach of natural justice.
Moreover, as the courts themselves become more accustomed to conducting virtual trials, they are likely to become increasingly less impressed with arguments about the difficulties of defending adjudication claims in current circumstances. The more so when one considers that, in the majority of cases, adjudications are mostly paper based and relatively limited both in scope and value. Therefore, although it has been widely suggested we can expect to see many challenges in enforcement proceedings following decisions made during the current lockdown on the grounds of breach of natural justice, there must be serious doubt as to how many will succeed.
That being so, fear of such a challenge should not prevent a party from commencing an adjudication. Particularly when one considers that there will be a number of disputes which were either ready or close to being ready for referral when the lockdown began. In those cases, most if not all of the evidence will have already been collated and there is, or should be, no reason why they should not proceed.
Indeed, in relation to any crystallised dispute, whether arising before or after the start of lockdown, one would expect both parties to have investigated and set out their respective positions before any referral takes place. In those cases too, therefore, one might expect both parties to be reasonably well prepared for the ensuing adjudication, at least in terms of having the relevant paperwork. Of course, they may still need to obtain witness statements, but unless those concerned have been furloughed, that should not prove an insurmountable problem.
The logistical difficulties involved in presenting a party’s case in the current circumstances will be well recognised and understood by adjudicators. They can be expected to be flexible and reasonable in their approach, as was demonstrated by the adjudicator in Millcress, who offered the responding party an extra 14 days within which to produce its evidence. Nor will it be in the referring party’s interest to refuse any reasonable request for an extension of time for the making of the decision if, by doing so, it increases the risk of a successful challenge on the grounds of breach of natural justice, thereby rendering any decision in its favour unenforceable.
The Construction Leadership Council issued a statement on 8 April 2020 urging parties not to invoke contractual clauses to the detriment of other firms, suggesting that instead they should focus their efforts on sustaining the industry at this difficult time. Whilst one might applaud the sentiment, the fact is that sustaining the industry is likely to depend very largely upon maintaining cash flow, which is precisely what adjudication is designed to achieve. The longer the lockdown continues, the more likely it must be that contractors and employers will start to consider adjudication as a means of addressing their increasing cashflow problems. As demonstrated above, there is no good reason, at least in law, why they should not do so.
[1] Section 108(2) of the Housing Grants, Construction and Regeneration Act 1996
[2] LTL 3/4/2020 (ex tempore)
Written by David Sears KC.
