Adjudication in drag

There is some very good guidance from His Honour Judge Humphrey Lloyd QC in the recent case of KNS Industrial Services (Birmingham) Ltd vs Sindall Ltd.1 I will tell you about it in a minute. First, though, will some of you adjudicators get your act right? There are signs of judgitis creeping in. More than a few new boys are behaving as though the adjudicator is a magistrate in a big hat and low-cut dress. There is a bit of “lording it over” going on. They are playing at being adjudicator as if it were a Gilbert and Sullivan court process. Witnesses are heard; hearings held; expert reports ordered; some even ask for affidavits. There are formal submissions on law, opening statements, closing reports. Worse still is the idea of being terrified of meeting or even talking to one party without the other being present. That’s not the idea at all.

Where was I? Ah yes, the guidance in KNS: “An adjudicator is appointed to decide whether in the circumstances of the dispute a particular right exists and should be enforced. Unless the parties specifically agree, an adjudicator is not appointed to adapt the terms of the contract or to vary, add or take away from the terms of the contract. An adjudicator’s powers are limited to those conferred by the contract and thus no more than those of a contract administrator, such as an architect, engineer or surveyor, when entrusted with the resolution of disputes. Their role is to apply the terms of the contract. An adjudicator does the same, but decisions of an adjudicator are now more immediately enforceable pending the result of litigation or arbitration.”

Underline, please, that the job is no more than an architect deciding extensions of time, an “engineer’s decision” on a roadworks, or a QS valuing variations or interim or final accounts. The difference is the pro tem binding status of the adjudicator’s decision, plus one other thing. The adjudicator must be impartial, even-handed and independent and must be seen to be so. The architect, the employer’s engineer and the QS are not, which is understandable. But the adjudicator’s independence should not stop him or her acting in a relaxed manner when rooting out the facts and applying the rules in the contract. So, in an extension of time dispute, behave like an impartial contract administrator: dig for facts and apply the rules for extension of time.

KNS vs Sindall is about a dispute over the amount due in an interim account, the amount said to be entitled to be “withheld” by Sindall from the right amount due, and the fact that KNS postponed performance. KNS put in an interim account but the gross paid was £155k short of the amount claimed. Sindall had not issued any withholding notice (the amber notice) in time, so that sum, said KNS, was due. KNS also complained that Sindall had not sent a notice (the green notice) of the amount proposed to be paid. Thus, the way was clear all round to postpone performance. The adjudicator said that by the time the cheque ought to have been paid, Sindall had issued a good notice of withholding for £44k, so the amount is a good contra. But Sindall also defended the adjudication by what I think is a surprise item. It said that KNS’ value was incorrect by £107k for “non-compliant work”. The adjudicator agreed with that. It left KNS with a mere £5k instead of £155k.

More than a few new boys are behaving as though the adjudicator is a magistrate in a big hat and low-cut dress

KNS complained to the court that the adjudicator had no jurisdiction to deal with that “non-compliant work” defence. But two things are clear. First, a withholding notice is not required for non-compliant work. If money isn’t “due” in the first place because it is

non-compliant, you are not withholding; you cannot withhold what is not due. Second, when a party comes to adjudication complaining about unpaid money, it is open to the defending party to put up any legitimate ground that justifies not paying. A late withholding notice won’t work as a defence, of course, but the discovery of defective work is open as a defence. It has to be proved, of course. But it is within the jurisdiction of the adjudicator to consider that type of response. The adjudicator, Harvey Mason, properly considered the claim and defence and his decision to order £5k to be paid was to be obeyed. Sindall had obeyed, so nothing more was due to KNS in this interim claim in the adjudication.

Not only did KNS have its application for summary judgment for cash dismissed; the judge gave Sindall summary judgment in its favour. It would, said the judge, be a waste of time to allow this action to proceed further in the courts.

Not for one moment can I see Mr Mason in a big hat and low-cut dress; he is one of the better adjudicators, but as for some of the others …