Cornerstone – Law and (getting the) Order (right)

The recent case of Lane End Developments Construction Limited v. Kingstone Civil Engineering Limited [2020] EWHC 2388 (TCC) serves as yet another vital reminder to parties considering referring a dispute to adjudication to ensure that they follow the steps of the referral procedure in the correct order to avoid an adjudicator’s appointment and any subsequent decision being unenforceable.

Invalid appointments

The defendant in this case, Kingstone Civil Engineering Limited (“Kingstone”), was a sub-contractor at a site in Winsford, Cheshire. The contractor was Lane Developments Construction Limited (“Lane End”). The parties had entered into a Minor Works Sub Contract Agreement under which there was no contractual right to refer a dispute to adjudication.

When Lane End failed to serve a payment notice or pay less notice in time in response to Kingstone’s interim payment application No.17, Kingstone requested the appointment of an adjudicator by the RICS by email on 20 March 2020 at 07:47am. At a meeting between Lane End and Kingstone later that same day, shortly after 11:00am, Kingstone served Lane End’s representatives with a document that was held by the court to constitute a notice of adjudication.

The RICS nominated Mr Jensen as the adjudicator who found in Kingstone’s favour and ordered Lane End to pay the amount notified in interim payment application No.17 – some £356,439.19.

As there was no right under the contract to refer a dispute to adjudication, the referral was subject to the terms of the Scheme for Construction Contracts. In holding that the adjudicator was not validly appointed under the terms of the Scheme, the judge emphasised that paragraph 2(1) requires a party to submit its request for the appointment of an adjudicator “following the giving of a notice of adjudication” to the other party. As noted above, Kingstone had requested an adjudicator before serving the notice of adjudication. Counsel for Kingstone had argued that the Scheme permitted a notice of adjudication to be served “at any time” but the court held this did not disturb the proper sequence of events under the Scheme: a party is expected to serve a notice of adjudication first and submit its request to an adjudicator or nominating body second.

Kingstone raised some legal arguments to try and convince the court to overcome these, based around the idea of waiver and estoppel. At its heart, Kingstone’s argument was that Lane End could not now query the timing of the application to the RICS because it had not raised it at the time. However, the court concluded that there could be no waiver or estoppel because Lane End hadn’t been given the chance to do this – as the adjudicator’s appointment was always invalid, because the notice was issued after the application to the RICS, it was as if it never happened. Inventive as some of the arguments were, the court dismissed them all.

Termination of an adjudicator’s appointment

Another point the court considered was that on 8 April 2020, during the adjudication, Mr Jensen had attempted to resign as the adjudicator after wrongly believing that Lane End had closed. An email Mr Jensen had sent to Lane End that day had received a bounce-back email saying “due to Government guidance relating to the COVID-19 pandemic, Lane End Group is currently closed for business until further notice.” Mr Jensen therefore responded to say that this “effectively terminates this adjudication”.

Although a somewhat moot point given the finding outlined above regarding the invalidity of Mr Jensen’s nomination, the court held that Mr Jensen had not resigned in a manner that was compliant with the Scheme and therefore his email purporting to terminate the adjudication was invalid. The provisions of the Scheme required Mr Jensen to serve his termination notice on both parties, and he had in fact only served his notice on Lane End. Additionally, the court held that Mr Jensen’s notice did not purport to resign in express terms but was merely an observation that the bounce-back email he had received from Lane End on 8 April had “effectively” terminated the adjudication.

Therefore, in adjudications subject to the Scheme, the High Court has made it clear that adjudicators seeking to resign should serve express notice of their intention to do so on both parties – a useful reminder for adjudicators.

Conclusion

When referring a dispute subject to the Scheme to adjudication, it is vitally important to follow the procedural steps in the correct order or the courts have shown they are willing to hold the decisions of invalidly appointed adjudicators to be void and unenforceable. This is probably the most common ground on which adjudication decisions are found to be unenforceable, and the court has made it clear on a number of occasions that timing is all-important. Referring parties really have no excuse for getting this wrong.

This article is from the December 2020 issue of Cornerstone, our newsletter for those working within the construction industry. For further information please contact a member of Birketts’ Construction Team. To download the latest issue, please visit the newsletter section of our website.