New guidance on deciding when an adjudicator is bound by the decision in an earlier adjudication
In Sudlows Limited v Global Switch Estates 1 Limited (12 July 2023), the English Court of Appeal has overturned a decision of Mr Justice Waksman and found that, in the particular circumstances of the case, an adjudicator had been correct to find that he was bound by the decision of an adjudicator in an earlier adjudication.
The general rule is that an adjudicator cannot determine a dispute which has already been determined in an earlier adjudication. The test is whether the dispute in the second adjudication is the same or substantially the same as the dispute that was decided in the first adjudication. That is a matter of fact and degree. While the test is relatively easy to state, it is not always easy to apply it in the particular circumstances of a given case. Where parties engage in serial adjudication, there is a greatly increased risk of arguments about upon which side of the line any subsequent dispute might fall. This was just such a case. Some might argue that the decision of the Court of Appeal refines yet further the approach that needs to be taken by adjudicators and the courts in addressing the test.
Background
Global engaged Sudlows under a JCT Design and Build Contract to carry out the fit-out of their data hall. Under that contract, the provision of ductwork was the contractual responsibility of Global, whilst the procurement and installation of the cables through the ductwork was the responsibility of Sudlows.
The adjudicator in Adjudication 6 between the parties decided that he was bound by certain findings of the adjudicator in the earlier Adjudication 5. Those findings related to the issue which the Court of Appeal described as – who was contractually liable for the cabling and ductwork issues (‘the issues’)?
The importance of the decision of the adjudicator in Adjudication 6 that he was so bound meant that Global (the Responding Party) was contractually liable for the issues and should, in consequence, pay Sudlows, the Referring Party, just under £1 million. Had he not been so bound, the adjudicator in the later adjudication said that he would have come to a different conclusion on the issues, with the result that Sudlows would have had to pay Global in excess of £200,000.
In essence, the judge at first instance found that the disputes referred to adjudication in Adjudication 5 and Adjudication 6 ‘…were not the same or substantially so’. The adjudicator in Adjudication 6 had been wrong to decide that he was bound by the decision of the adjudicator in Adjudication 5. He did have jurisdiction. As a result, there had been ‘a consequent breach of natural justice’ and the judge refused to enforce the principal decision in Adjudication 6. Sudlows appealed.
Adjudication 5
Adjudication 5 had concerned the disputed claim of Sudlows for an extension of time (‘eot’) of 509 days. The focus was an eot claimed until 18 January 2021. It was the case of Sudlows that the delays were due to defective ductwork and were, therefore, the contractual responsibility of Global. It was Global’s case that there was nothing wrong with the ductwork and that the problems were due to the cabling or its installation, for which Sudlows were responsible. After considering detailed evidence, including no fewer than 14 witness statements and the reports of 16 experts, the adjudicator found in favour of Sudlows, indicating that the ductwork was ‘defective and not fit for purpose’ and that, accordingly, ‘Global are culpable for the resulting delays…’.
Global had engaged new contractors to install new cables and instructed Sudlows to connect those cables to the electrical system and to test and energise it. Sudlows refused to do so. The adjudicator in Adjudication 5 found that Sudlows were correct and entitled to refuse to do so and that ‘Global are culpable for any delays that flow from this issue’.
Events after Adjudication 5
After the decision was issued in Adjudication 5, Global proceeded to omit the testing and energising from the scope of work of Sudlows. That allowed Practical Completion to be certified as having been achieved on 7 June 2021. Sudlows sought an eot from 19 January 2021 to the date of Practical Completion. The claim of Sudlows was refused.
Adjudication 6
Sudlows commenced a new adjudication, Adjudication 6. In the Referral Notice, Sudlows made clear that they founded on the same Relevant Event as in Adjudication 5 for the claimed eot. They also founded upon the adjudicator’s finding that the defective ductwork had damaged the cables and caused the delay. Sudlows contended that a ‘natural consequence’ of the adjudicator’s decision in Adjudication 5 was that they were entitled to the additional eot sought.
In their lengthy Response, Global contended that Sudlows should not have been awarded the eot granted by the adjudicator in Adjudication 5. There was no Relevant Event because Sudlows were contractually responsible for the issues. Global founded upon all the documentation and evidence they had (unsuccessfully) adduced to persuade the adjudicator in Adjudication 5. They did, however, produce two additional expert reports which, it was contended, showed that there was nothing wrong with the ductwork.
The decision of the Court of Appeal
In delivering the leading opinion of the Court, Lord Justice Coulson, a recognised authority on adjudication and author of the leading textbook on the subject ‘Coulson on Construction Adjudication,’ stressed that the critical issue between the parties was very narrow. There was no dispute that the delay was caused by anything other than the issues. Somewhat unusually, there were no other competing Relevant Events and no other critical path analysis. The delay caused by the issues was agreed. So, the only dispute between the parties was which of them was contractually responsible for the issues.
The three main arguments advanced for Global were as follows.
(i) The binding decision in adjudication 5 only dealt with the claim of Sudlows to be entitled to an eot for a particular period, rather than any question of contractual responsibility for the issues.
This argument was rejected as ‘an elevation of form over substance.’ It ignored the reality of the decision in Adjudication 5 on contractual responsibility for the issues and sought ‘to reduce that part of the Decision which is binding simply to the quantum of its final result’.
(ii) Since Sudlows were, in Adjudication 6, claiming an eot for a period different from that in Adjudication 5, the adjudicator in Adjudication 6 had an unfettered right to consider the issue of contractual responsibility, afresh.
This argument was also rejected. It was recognised that, in most cases, a claim for an eot for a period (X) will ‘self-evidently’ be a different claim from a claim for a period (Y), in respect of which a second adjudicator will not be bound by a decision on the earlier claim. This case was different.
The Court of Appeal’s reasoning was that although the eot claimed in Adjudication 6 was different from that claimed in Adjudication 5, nothing else had changed. Sudlows did not carry out any further work after 18 January 2021 nor at any time before Practical Completion. ‘Very unusually,’ it said, the certification of Practical Completion was a purely administrative act, resulting directly from the Decision in Adjudication 5 and Global’s subsequent removal of works from the scope of works of Sudlows. Sudlows were quite right to say that the delay claim in Adjudication 6 ‘was the logical extension of the Decision in Adjudication 5. It was the remainder of the delay which had been triggered by the ... issues which [the adjudicator in Adjudication 5] had decided were Global’s contractual responsibility’.
The Court stressed that a ‘logical extension’ of a successful first eot claim will rarely be an accurate description of a second claimed eot for a different period, because of the almost inevitable factual differences that will exist between the two claims. As the Court said, ‘That is what the authorities show. But here it [the position of Sudlows] was an accurate description of the claim in Adjudication 6.’
(iii) The new evidence produced before the adjudicator in Adjudication 6 (the new reports) could not have been produced in Adjudication 5 because it did not then exist, and it would be wrong to shut it out.
This argument, too, was rejected on the basis that if the adjudicator in Adjudication 6 could not re-investigate the question of contractual responsibility for the issues because the decision on that matter in Adjudication 5 was binding upon him, then the new evidence was irrelevant and inadmissible in Adjudication 6. It was lodged to challenge the decision of the adjudicator in Adjudication 5 on that matter but that could only be done in court or arbitration proceedings.
In summary, the Court of Appeal held that:
- the dispute in Adjudication 6 was the same or substantially the same as that in Adjudication 5. The ‘only significant dispute’ in Adjudication 5 was which of the parties was contractually responsible for the issues. That self-same dispute was also at the heart of Adjudication 6.
- It was a very unusual delay case. Both parties were agreed that the issues were the only cause of the relevant delay. The period of that delay was also agreed. The only substantive dispute was who was responsible for the issues and, therefore, the delay. The adjudicator in Adjudication 5 had decided that Global were responsible. The view of the adjudicator in Adjudication 5 as to Global’s contractual responsibility for the issues was binding on the parties and binding on any subsequent adjudicator. If Global wanted to challenge the decision on that matter, as they had every right to do, it had to be by court or arbitration proceedings, not by way of another adjudication.
Lord Justice Coulson said there were three over-arching principles to be applied by an adjudicator, or a court, when considering arguments of overlap.
- The true purpose of construction adjudication is not easy always to reconcile with serial adjudication. If parties engage in serial adjudication, they will inevitably get drawn into debates about whether a particular dispute has already been decided. The need for speed and ‘the importance of at least temporary finality’ mean that adjudicators and, if necessary, courts in enforcement proceedings ‘should be encouraged to give a robust and common-sense answer to the issue.’ The court should be slow to interfere with an adjudicator’s decision that an earlier decision is binding unless it concluded that the decision was clearly wrong.
- It is necessary to look at ‘what the first adjudicator actually decided to see if the second adjudicator has impinged on the earlier decision.’ What matters is what, in reality, the adjudicator had decided. It is that which cannot be re- adjudicated.
- The ‘need for flexibility.’ That is the purpose of a test of fact and degree. It is to prevent a party from re-adjudicating a claim (or a defence) on which they have unequivocally lost but to ensure that what is essentially a new claim or defence is not shut out.
Comment
In considering the approach taken by the Court of Appeal in this particular case, it is hard to avoid the conclusion that applying the test of what is ‘the same or substantially the same dispute’ may be a relatively straightforward matter in the majority of cases but that will not always be the case and arguments are likely to continue.
