The success of adjudication for resolving contractual construction disputes is due to the ability to obtain a relatively quick and cost-effective result. Its effectiveness has depended on the courts adopting a pro-enforcement approach. It is accepted that sometimes the adjudicator will get it wrong. However, provided that an adjudicator has answered the right question, the courts will generally enforce that decision by summary judgment regardless of errors of procedure, fact or law, unless the adjudicator has acted in excess of their jurisdiction, or there has been a serious breach of natural justice.
The ruling in BDP Construction Ltd ("BDP") v Cygnet Behavioural Health Ltd ("Cygnet") reinforces the courts' established pro-enforcement approach and should be a reminder that only in the most exceptional circumstances would an adjudicator's decision not be enforced as long as the adjudicator has acted within their jurisdiction and not in breach of natural justice.
This decision is of particular importance due to the two recent decisions in LMND Group Ltd v John Henry Group Ltd and Premier Modular Limited v Maidstone and Tunbridge Wells NHS Trust. In both these cases, the court reached the unusual result of refusing to enforce an adjudicator's decision as the court found that there had been a breach of natural justice.
BDP v Cygnet therefore, not only reinforces the courts' pro-enforcement approach but also provides useful guidance on the clear distinction between when an adjudicator improperly decides a case on a new basis not advanced by either party, and when an adjudicator simply concludes that neither party has proven its case.
Background
BDP was engaged by Cygnet under an amended JCT Design and Build Contract 2016 for the design and construction of a hospital in Wolverhampton. Practical Completion was achieved on 18 July 2024.
A dispute arose between the parties shortly after practical completion as to Cygnet's entitlement to liquidated damages (LADs), and consequently its entitlement to retain the retention monies. This resulted from a disagreement between the parties as to which amendments to the contract had been agreed.
BDP's position was that the contractual completion date was 26 April 2024 and that the applicable rate for LADs was £14,500 per week. Cygnet contended that the contractual completion date was 29 February 2024 with LADs at £1,000 per day, leading to a claim of £141,000 for LADs for the period between the contractual completion date and the practical completion date.
BDP referred the dispute to adjudication and the adjudicator concluded that neither party had established a clear enough case to prove their alleged rate of LADs had been incorporated into the contract. Accordingly, the adjudicator found that Cygnet had failed to establish any entitlement to LADs, and should release the retention monies to BDP.
The sums awarded were not paid and BDP commenced enforcement proceedings against Cygnet.
Challenge to enforcement
Cygnet resisted enforcement, arguing that the adjudicator had exceeded his jurisdiction and breached the rules of natural justice.
Cygnet argued that the adjudicator had in effect decided that no mechanism for LADs existed, when both parties agreed that it did, and the only dispute was as to the applicable date and rate. Cygnet also argued that the adjudicator was presented with a binary choice when forming his final decision, either BDP's position was correct, or Cygnet's position was correct. By dismissing both positions and instead reached a third outcome, the adjudicator's decision was not within the scope of the dispute referred to him. Further, if the adjudicator did not believe that either party had proved its case, the adjudicator should have afforded both parties an opportunity to make further submissions. Cygnet's view was that this amounted to the adjudicator acting in breach of natural justice.
The decision in BDP v Cygnet
The Technology and Construction Court (TCC) rejected all challenges made by Cygnet, and granted summary judgment in line with the adjudicator's original decision.
The fact that each party advanced a single contractual position in regards to the two competing liquidated damages regimes, did not oblige the adjudicator to accept one of them. An adjudicator was entitled to conclude that neither party had met the evidential burden to establish its case.
The judge rejected Cygnet's challenge that the adjudicator had decided the dispute on a new or unargued basis. It was noted that the adjudicator had not invented an alternative liquidated damages regime, nor did he make a wider finding that no mechanism for LADs existed, he simply decided that neither party had proven the contractual position for which it contended.
The judge also rejected Cygnet's challenge that the adjudicator had been in breach of natural justice. The adjudicator had not relied on evidence which had not already been canvassed by the parties; he had, instead, rejected evidence that had been canvassed. Where an adjudicator was merely determining that neither party had come up to proof in respect of its respective contentions, he was not required to flag this up in advance and to give the parties an opportunity to comment.
Accordingly, the judge ruled that the adjudicator had not exceeded his jurisdiction nor breached the rules of natural justice, and awarded summary judgment to BDP.
What can we learn from the BDP v Cygnet decision?
- An adjudicator is not constrained to a binary choice: Unless required by the terms of the referral to decide between two set outcomes, an adjudicator is entitled to conclude that neither party has established its case, as long as the positions advanced by the parties have been considered. Advancing opposing positions does not mean that one of those positions must succeed.
- Burden of proof is paramount: Establishing a weakness in an opposing party's case will not automatically determine success; a party must still positively prove their own case.
- The distinction between the creation, and the rejection of a case: Provided that the adjudicator has decided the dispute referred to him, he can reach a decision which differs from that put forward by either party without exceeding his jurisdiction. However, if an adjudicator intends to decide the dispute on a new point or basis not argued by either party, rather than merely rejecting the evidence presented, the adjudicator should invite further submissions from both parties to avoid a potential challenge of breach of natural justice.
Courts approach to enforcment of adjudicators' decisions
As already mentioned, this summer saw two cases of the courts refusing to enforce an adjudicator's decision for breach of natural justice. In LMND Group Ltd v John Henry Group Ltd, it was held that there had been a material breach of natural justice as the adjudicator had rejected the defendant’s defence using arguments and legal authority that neither party had raised, and without giving the parties an opportunity to comment.
In Premier Modular Limited v Maidstone and Tunbridge Wells NHS Trust, the court also held that there had been a material breach of natural justice where the adjudicator decided the case on a contractual basis that neither party had argued, without giving the parties the proper opportunity to address those points.
Both cases are examples of an adjudicator straying significantly outside the ambit of the materials and matters advanced before him without giving the parties an opportunity to comment. We suggested in our article in July that these decisions should not be viewed as a trend or change of approach by the courts but that they were two rare examples which had coincidentally been decided this summer.
This view appears to be borne out by the more recent decision in BDP v Cygnet, and several other decisions of the Technology and Construction Court over the last couple of months. For example, in Coventry & Warwickshire Development Partnership LLP v Avison Young (UK) Ltd, there had been no breach of natural justice where the adjudicator had proceeded on a basis not advanced by either party (and disavowed by both), where the adjudicator had given clear forewarning of his intention, and had received detailed submissions from the parties in response.
A challenge was also unsuccessful in Westgreen Construction Ltd v Mrs Irina Kiryukhina, as the court held that the defendant had been given sufficient opportunity and time to respond to issues decided by the adjudicator. The latest case law makes it clear that the courts will continue to adopt a robust pro-enforcement approach and that it will be only be in rare circumstances that the courts will interfere with the decision of an adjudicator.
