The dance of debt: Costs of dispute

What is the scope of an adjudication, and why does it matter? The topic was looked at in OSC Building Services vs Interior Dimensions Contracts.

OSC was engaged by a main contractor called IDC to carry out £6,000-worth of drainage and site access works, to be done in 14 days. It was one of those contracts that grew like Topsy. The works at Leigh-on-Sea, Essex, dragged on for a year. Then, at last, OSC sent in an application for payment marked “draft final account”. It was knocking on the door of £300,000 instead of £6,000. That was 18 months ago.

The parties couldn’t see eye-to-eye on the amount due and began the merry dance of dispute. For 12 months. Then Derek Pye, an experienced adjudicator–barrister, came along, did his stuff and ordered IDC to pay OSC a lump of money. That was the end of his job.

But IDC said the award could not be enforced because the adjudicator had treated the dispute as an interim account dispute; also the adjudication was limited to whether or not a withholding notice was issued and nothing more. If all that was correct, there was no right to adjudicate on any other topic. The scope was “enlarged” without consent.

If an adjudicator is asked to decide a quarrel about apples, he can’t decide a quarrel about oranges

Scope is first laid down in the “notice of adjudication”. The judge looked at the referral bundle to see if it tied in with what the notice had said; then he put those two key documents into the context and background of the 12 months of dancing. He was satisfied that the dispute referred was all about the amount due according to both sides and any other figure the adjudicator might land on. It wasn’t only about withholding notices.

But – and here’s the rub – was the adjudicator entitled to treat a “draft final account” as an “interim account”? The technical knock-out that the main contractor was going for was to claim that the adjudicator was only entitled to decide a final account and since he had actually decided an interim account, the whole award should be void. If an adjudicator is asked to decide a quarrel about apples, he can’t decide a quarrel about oranges. Can you see how important it is to decide an interim account as distinct from a final account? The interim leaves open all the elements of the work for consideration in the final account. The judge was satisfied that the dispute referred was not a final account. OSC was saying for all purposes that more money was due at that stage … and the final account was not yet submitted. It was merely a developing final account. Meanwhile the main contractor had no option but to obey the adjudicator’s order.

There was another angle that IDC argued could upset the award; another technical breach. Snag here is that it didn’t shout about it to the adjudicator at the time. It is a very ambitious to call for a foul once you have allowed the game to continue. The judge gave it little houseroom.

There have been lots of previous occasions both in adjudication and arbitration, when it was explained that a protest about jurisdiction is vital. It is a way of saying that, for a specific reason, I will argue my case but regard myself as not being bound. If a protest is not raised, then it is highly likely that the court will say that everyone duly submitted to the authority of the adjudicator. That’s what happened here. IDC got on with it and nobody raised the jurisdiction challenge until afterwards. So it’s too late.

If you back off and ask yourself to be cool and objective there is a real chance of saving a great deal of grief

By now you would be forgiven for thinking that these two were fighting over billions or at least millions. No, it was about £24,000. I dread to think how much IDC has had to fork out for legal and court costs. It’s ever so easy for parties to dig in, become obstinate, fight to the death. But if you back off for a moment and ask yourself to be cool and objective, there is a real chance of saving a great deal of grief. This was a tiny complaint by OSC for more money. It would have paid to pay all of it on account as an interim payment. Nobody then need have called for an adjudicator and certainly not the High Court. True, it might mean that the payee is overpaid and has to repay. But for sums of money of this size, we on the outside doff our caps in grateful admiration for helping all of us understand a little more about the law.

Credit: Simone Lia