Temporary finality in adjudication: Why you must pay now, argue later

ISG Retail Ltd (ISG) was ordered by several adjudicators to pay up various whopping lumps of cash to its roofing and cladding contractor, FK Construction Ltd (FK), on its Avonmouth subcontract. ISG didn’t obey. The fuss that properly followed took the combatants into the High Court, and I want to focus on the status of adjudicators’ decisions. The relevant term here is “temporary finality”, which means that the adjudicator’s decision is binding (even if wrong) and is to be obeyed unless or until the High Court hears the same dispute all over again; then the court’s decision will trump and extinguish the adjudicator’s decision.

Five adjudicators nailed ISG to pay up £1.7m to FK. The High Court came to a very different decision. ISG admitted the adjudication results were binding and it ought to have obeyed, but it argued in court that they were only temporarily binding and that the adjudication awards were wrong. The court agreed with all that.

Just pause there. The great attraction when construction adjudication was being conceived and given the parliamentary thumbs-up was that this super-fast, 28-day knockabout by construction folk produced a result that was always temporarily binding. Twenty-eight days isn’t enough for a trial; it’s enough for a rough and ready result about who holds the cash pro-tem. Then it would go up to the Technology and Construction Court, where a judge would carry out an old-fashioned in-depth job on the dispute. True, true, most folk stopped the quarrel at adjudication level, licked their wounds, paid up and got on with the job. ISG didn’t. It took the adjudications into the TCC. No criticism of that.

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Adjudication #1, then #2, then #3 were about interim accounts #13, #14 and #16. They were payment-notice adjudications. FK complained ISG had not paid the interim account applications and had issued neither payment notices nor pay less notices. All three (separate) adjudicators agreed with FK. Adjudication #4 was brought by ISG for a true-value adjudication asking for a declaration of gross sums due (a valuation).

This bundle of adjudication awards was first taken into court by FK, whereupon the judge agreed that ISG had no defence and instructed it to stump up £1.7m to FK, because adjudicators’ decisions are pro-tem binding – and also because the question or challenge as to whether the adjudicators were right was not yet due to come before the court. It did so in August.

Don’t get grumpy about the adjudication awards being wrong. It is to be expected in this 28-day dash. It is a real possibility that the responding party didn’t spot the one-day timetable glitch

ISG wanted repayment of the £1.7m from FK – and got it! Let’s recap. Interim account #16 was for £4.6m gross, said FK, giving net £1.7m cash due. No payment notices issued resulted in the £1.7m nicely landing in FK’s bank account as enforced in the High Court in May 2023. But now ISG started afresh in the TCC arguing that FK had boobed when compiling its interim account applications. ISG’s counsel argued that FK had failed to comply with the rules in the ISG in-house/homemade subcontract about the timetable for issuing its interim accounts; they were one day late each time. The judge agreed!

Oh dear. FK had not got out of the blocks in the smash-and-grab payments race. A failure to properly issue the interim application destroyed the efficacy of the whole payment regime. It then didn’t matter that ISG itself had failed to issue those payment notices, because no proper interim application had been made. It was a technical failure by FK, and it meant that those adjudicators who decided ISG had failed to issue payment notices and must therefore pay what FK applied for were completely wrong. The temporary binding status of the adjudicators’ awards now came to a crashing halt. And aha, that £1.7m paid to FK was to be repaid to ISG.

Don’t get grumpy about the adjudication awards being wrong. It is to be expected in this rough and tumble 28-day dash. It is a real possibility that the responding party in the adjudication didn’t spot the one-day timetable glitch. A much more relaxed and focused timetable was available for the subsequent proceedings in court. In any case, the issues were rehearsed in the adjudication, stones lifted, lights shone.

Adjudication was always intended to be merely a preliminary step to decide who will have the money in the bank pro-tem. That feature is called “pay now, argue later”. But the way things have turned out, the parties serve all sorts of detailed information on the adjudicator as though he or she is a judge. And then the adjudicator does their best at breakneck speed to weigh up evidence, facts, the law and the odd fib to announce the result in a fully reasoned award. Not cheap, but it has resulted in frequently putting an end to the dispute, instead of sending it into the High Court.

By the way, the judgment of May 2023 includes a useful analysis on the subject of set-off (see FK Construction Ltd vs ISG Retail Ltd [05 May 2023] TCC judgment). I recommend reading it. The court has some discretion about allowing an adjudication result being brought into the account and giving a net result, but the rules are very tight.

Tony Bingham is a barrister and arbitrator at 3 Paper Buildings, Temple