Watch the small print

One teeny-weeny point in a footnote in JCT 98, that will almost certainly be ignored by real people, says of adjudication: "The arbitration or court proceedings are not an appeal against the decision of the adjudicator, but are a consideration of the dispute or difference as if no decision had been made by the adjudicator."

That, says Scottish judge Lord MacFadyen in City Inn Ltd vs Shepherd Construction Ltd (case No 70 in our series), is a correct statement of the law. The reason for getting your mind around this is to watch out for a jumbo-size trap if the adjudication stumbles onwards and upwards into litigation or arbitration, as it did here.

When I said "ignored by real people", I meant ignored by the people doing construction. Lawyers read footnotes but they aren't real constructors. Would JCT make up its mind: is the document for lawyers or for constructors? Is it a handbook for managing the project? If so, it is hopeless; if not, why not?

Now to the story. Shepherd is the well-known and highly respected contractor. The job is a hotel in Bristol for City Inn Ltd. The architect awarded four weeks' extension of time, but the work continued beyond that. City Inn thumped Shepherd for the usual liquidated damages … a cool £30,000 per week. Shepherd called for adjudication. It said the architect's four weeks was measly and the adjudicator agreed. Another five weeks was added. You can see big money here. Nine weeks damages is £270,000. It represents the loss to City Inn for being deprived of its hotel for nine weeks. Shepherd was pleased: each week of extension gave relief from the liquidated damages claim. But City Inn, miffed, took the debate into court.

City Inn said that the nine-week extension was wrong. Its case was that Shepherd was entitled to no extension of time. In other words, it wanted the £270,000 damages paid or deducted or repaid. Shepherd said, in effect: "Go on then, prove that the nine-week extension given by the adjudicator was wrong. Present your case to show we are to blame for the delays and you are entitled to the damages." Shepherd pointed to JCT 98 adjudication rules, which say: "The decision of the adjudicator shall be binding on the parties until the dispute or difference is finally determined by arbitration or by legal proceedings." It was up to City Inn to prove the adjudicator was wrong or partly wrong, said Shepherd.

But City Inn replied that it wasn't up to it to prove the adjudicator wrong. The fact that this referee had made a decision in Shepherd's favour was, it said, neither here nor there. City Inn pointed to the footnote in teeny-weeny print: the legal proceedings were a consideration of the dispute as if no decision had been made by an adjudicator. And, said City Inn, that being so, the burden of proof to show any extension of time, any relief from damages under the contract, rests on the contractor's shoulders. Put another way, the contract publishes a completion date and

Whoever has the burden of proof in the adjudication has the same burden to prove the case in litigation

if the contractor runs past the date, it, not the employer, has the burden to prove it is entitled to be forgiven a claim for liquidated damages.

The judge accepted that the footnote in JCT 98 was a correct statement of the law. He stated: "The function of adjudication … is to provide a speedy means of reaching a binding interim determination of disputes arising under contracts. It goes no further than that. It is … no part of the function of an adjudicator's decision to revise the onus of proof in any arbitration or litigation to which the parties resort to obtain final determination of the disputes between them."

He went on to say that it was "reading too much into JCT 98 and Section 108 of the Construction Act" to construe an adjudicator's decision as affecting the burden of proof in any legal action that might follow. He noted that any legal action would be "unaffected by the terms of the adjudicator's decision".

In other words, the litigation is fought as if no adjudication took place. Whoever has the burden of proof in the adjudication has the same burden to prove the case in litigation.