Right, for wrong reasons

judgment eight in the chain of cases about adjudication and the Construction Act, John Cothlliff vs Allen Build (North West), caused controversy when the judge upheld an adjudicator’s decision to make the winner pay legal costs. He said the Scheme for Construction Contracts gave such power.

Earlier this month, judgment 16 in the series was published. The judge in Northern Developments (Cumbria) vs J&J Nichol also upheld the award of costs to the winner but, in passing, disagreed with the route taken by the judge in Cothliff. More on this in a minute.

Before the dispute got to court, the Northern adjudication was interesting for two reasons. First, because it focused on green, amber and red payment notices (a lot of folk haven’t yet understood their importance). Second, because the adjudicator refused to settle a quarrel about something called “repudiation of the contract” as he said that he could deal only with things “arising under the contract”. He claimed that repudiation was only “in connection with” the contract, rather than arising under it. But let’s come back to that, too.

Nichol was the roof sheeter on Davenby Hall in Cumbria. Northern was the main contractor. The subcontractor completed its interim application for payment as usual. This application is the subbie’s version of sums due on the due date. The cheque should follow by the final date for payment. Those periods, or key dates, are in the standard form DOM2 or in the scheme, which applied in this case.

Northern now made a common mistake. It failed to send a green notice to the subcontractor telling it in advance of payment how much it would get and when and how this was calculated. (Previously we had mushroom culture: keep the bloke in the dark, then chop his legs from under him.) Northern also made another error. It sent an amber “withholding notice”. If it had been correctly compiled, Northern would have been entitled to withhold cash from sums otherwise due. But the cladding man said the amber notice was defective, so there was no right to withhold money. He therefore issued a red notice, signalling his intention to postpone work on the grounds that Northern failed to pay money due by the final date for payment.

The contractor said it had done everything correctly and the subcontractor had committed a serious breach of contract that indicated an intention not to perform. Northern said this breach amounted to a “repudiation” of the contract, which was enough to entitle Northern to terminate it.

Nichol called for an adjudicator. It wanted its money and, additionally, a refund of the costs incurred using advisers to obtain the adjudication.

Barristers agreed that the adjudicator was wrong about his jurisdiction. Northern said this made the decision null and void

The adjudicator examined the amounts due.

He agreed with the main contractor that some work was defective and that the subcontractor was late. He deducted for these, but rejected Northern’s request to deduct for the consequences of late completion, as the amber notice was defective. He also refused to deal with the alleged repudiation, saying he had no jurisdiction to deal with something unless it arose under the contract.

But he was wrong. Repudiation does arise under the contract. So, he had the power to deal with that topic but didn’t. He ordered Northern to pay the balance to Nichol. It refused, so Nichol went to court.

Barristers for both sides agreed that the adjudicator was wrong about his jurisdiction. Northern argued that the whole decision was therefore null and void. The judge said the absence of a valid notice to withhold (the amber notice) meant that the adjudicator was right to ignore the allegations of loss. So, he was right, but for the wrong reasons.

In any case, the adjudicator was entitled to exercise discretion in dealing with allegations put forward as a form of defence. Under the rules of the scheme, a judge would be acting wrongly if he refused to entertain such a defence in principle but acting correctly if he considers such a defence and then exercises his discretion to rule it out. It is unclear whether an award would be void if a judge did transgress in this respect.

The judge could find no express or implied terms in the scheme that costs could be awarded against the loser. He therefore disagreed with the Cothliff judgment. But he agreed with Cothliff that if both sides asked for costs, then this gives jurisdiction to the adjudicator to award them.