Is an adjudication decision binding on the parties for the purpose of subsequent adjudication proceedings?

In Essential Living, the court confirmed that where an adjudicator's decision determines a discrete issue of entitlement and/or valuation, a subsequent adjudicator is bound by that decision until the issue is determined by the court or a claim is made on new grounds and therefore amounts to a new cause of action.

Background

Essential Living (Greenwich) ltd (Essential) engaged Elements (Europe) Ltd (Elements) to design and construct modular pods to be used in a mixed used development known as Greenwich Creekside (the Site).
The form of contract was an amended JCT Construction Management Trade Contract 2011 (the Contract).

The First Adjudication

Elements issued its final interim application on 11 March 2019 (the Application). However, as the works were significantly delayed, Essential issued a payless notice that sought to levy contra charges and deduct liquidated damages, in the sum of £11,368,610.76, from the Application. A dispute arose in relation to the final interim payment application and Essential commenced an adjudication to determine the true value of the Application.

In reaching his decision, Dr Franco Mastrandrea (the Adjudicator), assessed the variation account, entitlement to a claimed extension of time, loss and expense and, where appropriate, Essential's entitlement to claim liquidated damages.

In reaching his decision, the Adjudicator determined that the true value of the Application was minus £1,842,360.64 and Elements were to pay Essential that sum within 14 days of that decision.

Essential commenced enforcement proceedings against Elements, but an agreement was reached prior to the conclusion of those proceedings whereby Elements agreed to pay the Adjudicator's award less the cost of remediating water damage at the Site (Essential was no longer entitled to this sum as determined by separate adjudication proceedings).

The Second Adjudication

On 10 May 2021, and following practical completion of the Works, Elements issued its submissions on the adjustment to the Completion Period under clause 2.27.5 of the Contract, and a provisional calculation of the Final Contract Sum, pursuant to clause 4.6.2. The submissions included increased claims for variations, full extensions of time (based on a new delay analysis report) additional prolongation and disruption costs and, accordingly, no deduction for liquidated damages.

Essential's position was that the award in the First Adjudication, including the adjudicator's valuation and determination in respect of adjustments to the Contract Sum, variations, liquidated damages and extensions of time, were binding on the parties.

Elements took a different view and claimed that the valuation and determination of those matters for the purpose of the Adjudication Decision was limited to the disputed interim payment application and, therefore, did not affect the determination of the Final Contract Sum.

In a bid to head off further additional claims, Essential commenced Part 8 proceedings in the Technology and Construction Court (TCC) seeking declaratory relief to the extent it was entitled to retain the sums awarded to it in the First Adjudication until that decision is overturned, modified or altered by the Court.

The Decision

Mrs Justice O'Farrell ultimately sided with Elements. She confirmed that the parties are bound by the Adjudication Decision on any dispute or difference determined therein until it is finally determined by the court or by subsequent settlement.

She also confirmed that the parties could not seek a further decision by an adjudicator on a dispute or difference if that dispute or difference has already been the subject of the Adjudication Decision. This essentially reinforces Article 7 of the Contract and Paragraph 9(2) of the Scheme for Construction Contracts (England and Wales) Regulations 1998 (the Scheme) which provides:

"An adjudicator must resign where the dispute is the same or substantially the same as one which has previously been referred to adjudication and a decision has been taken in that adjudication."

Mrs Justice O'Farrell went on to confirm that the Adjudicator's Decision was binding in respect of variations (or any other discrete matter) considered and assessed by the adjudicator, unless and until it was overturned, modified or altered by the court. That is, unless either party identifies a fresh basis of claim that permits such variation claims to be opened up and reviewed under the terms of the Contract. This again, broadly reinforces Paragraph 23(2) of the Scheme that provides:

"The decision of the adjudicator shall be binding on the parties, and they shall comply with it until the dispute is finally determined by legal proceedings, by arbitration (if the contract provides for arbitration or the parties otherwise agree to arbitration) or by agreement between the parties."

However, and distinguishing this case from the earlier decision in Mailbox (Birmingham) Ltd v Galliford Try Building Ltd [2017] Bus LR 2103 where the contract was terminated and therefore the interim assessment of liquidated damages was considered to be final, in Essential Living a post completion assessment of liquidated damages could be undertaken.  

Mrs Justice O'Farrell confirmed that the Construction Manager was entitled to review previous decisions / assessments on extensions of time post-completion and reach a different assessment by virtue of the express power of review in clause 2.27.5 of the Contract

Fieldfisher comment

The consequence of the binding effect of an adjudication decision reinforces the fact that an adjudicator has no jurisdiction to determine matters, which are the same or substantially the same as a subsequent adjudication. 

To allow this may open the floodgates to endless adjudication proceedings disputing the same points. This would go against the underlining objective of the Construction Act to bring a swift, cost effective resolution to construction disputes.

Whether or not a decision is binding is to be determined as a matter of fact and degree, requiring careful analysis of the evidence and argument on each disputed item.

Whilst an adjudication decision is an interim remedy, it is nonetheless binding until determined by the Court. However, this does not operate in the same way as the court system insofar where court is bound by the decision of the higher courts. In an adjudication, the binding nature of an earlier decision will be limited to the dispute originally decided.