No more surprised parties

The Construction Centre Group undertook to design, construct and maintain the Small Isles and Inverie Ferry Scheme for the Highland Council. A dispute arose, the adjudicator came on board, and his decision required £246,000 to be paid to the contractor. Ordinarily the employer would obey, and a cheque would wing its way. But the employer argued that since it had a claim for liquidated damages, and since it had now served the "notice of withholding" (albeit after the adjudicator's decision), it could set off the damages against the £246,000. The judge rejected the right to set off and ordered the employer to pay up.

Let me tell you the story. The all-important "notice of intention to adjudicate" lays down the scope of the adjudication to come. Here, the contractor had quarrelled with the engineer, which said nothing was due under interim payment certificate 21. The notice of adjudication asked the adjudicator to decide what sum, if any, was payable under that certificate. This is precisely what adjudication is all about, if I may say so. The engineer said the amount was nil; the contractor disagreed. Apparently the engineer claimed that nothing was due because the liquidated damages were deductible.

Now then, that to me sounds like a completely crystallised dispute. The parties have canvassed their respective views and taken their positions, and if one of them wishes to put that dispute to an adjudicator, it is entitled to do so. It is that party's job to refer the whole dispute, not just its version. It must include the arguments and position of the other party.

Frequently it happens that the bundle of documents served on the adjudicator (the "referral") is a statement of claim telling the referring party's story only. I think that is not at all what is intended in this 28-day process.

But that's what the claiming party did in this adjudication. In other words, it left the responding party to enter the defence – and if that's the way both parties proceed with the adjudication, so be it. It's the way we used to do it, and it didn't work. The result was that the parties spent the 28 days finding out what each other had to say, leaving the poor old adjudicator with half an hour on day 28 to make a guess at the truth.

If the parties elect to use the 28 days for a truncated piece of lunatic litigation and if the adjudicator shrugs his shoulders, then on their own heads be it

The referral by the contractor didn't mention the employer's claim to liquidated damages, nor did the employer complain about that; nor did it enter a defence about its right to those damages. Counsel for the employer told the court why that response wasn't made. He said that some adjudicators would not allow set-off to be used by a respondent if they thought it fell outside the scope of the "notice of intention" and therefore was not part of the dispute. He also argued that there was no procedure to enable a responding party to ensure that all issues it wished to rely on would be entertained by the adjudicator. In which case, he said, he could raise those issues at enforcement stage.

The judge didn't accept that as the right approach. He explained that the adjudicator must entertain any relevant defence and have it put forward. It would be wrong not to permit the responding party to put it in. But I do hope the judge wasn't encouraging responding parties to put in a defence out of the blue. I hope he was encouraging adjudicators to accept defences that were already part of the pre-adjudication dialogue. That's because they were part and parcel of the crystallised dispute but had, in error, been missed out of the referral. We have a string of cases in adjudication that explains that the 28 days is not the time for setting the agenda for the dispute. That is done by the pre-adjudication positions taken by both sides. If new defences are allowed, the dispute referred is distorted. It is not the same dispute.

Adjudication requires the referring party to refer the whole dispute; that is, both sides' positions. If the claimant fails to do that and the responding party objects, the referral is defective and the 28 days can't start. But if the two parties elect to use the 28 days for a truncated piece of lunatic litigation and if the adjudicator shrugs his shoulders, then on their own heads be it.