Hutton Construction Ltd v Wilson Properties (London) Ltd 2017
March 31, 2017
By James Malam
Where now for those dissatisfied with the merits of an adjudicator’s decision? The decision in Caledonian Modular Ltd v. Mar City Developments Ltd  EWCH 1855 (TCC) seemed to offer the holy grail of a mechanism to challenge an adjudicator’s decision on its merits in the course of defending enforcement proceedings. But in the recent case of Hutton Construction Ltd v Wilson Properties (London) Ltd  EWHC 517 (TCC) the court has sought to cut down use of this tactic.
In Caledonian (at para. 12) Coulson J. said that “If the issue is a short and self-contained point, which requires no oral evidence or any other elaboration than that which is capable of being provided during a relatively short interlocutory hearing, then the defendant may be entitled to have the point decided by way of a claim for a declaration” at the application for summary judgment on the enforcement claim, thereby preventing or at least nullifying enforcement of the adjudicator’s award. Coulson J. thought that “this procedure will rarely be used, because it is very uncommon for the point at issue to be capable of being so confined” and indeed that “in 99 cases out of 100” the normal rule that an error on the merits of the dispute does not prevent enforcement of the adjudicator’s decision would apply.
However it seems that the procedure was significantly more popular than anticipated. In Hutton Coulson J. sought to give further guidance on attempts to address the merits of the adjudicator’s award at the enforcement stage. Coulson J. made the point that the general rule is that an error in the adjudicator’s decision on the merits does not prevent enforcement of that decision, citing well known cases such as Bouygues (UK) Ltd v. Dahl-Jensen (UK) Ltd  BLR 522 and Carillion Construction Limited v Devonport Royal Dockyard Limited  BLR 15 to the effect that “the need to have the ‘right’ answer has been subordinated to the need to have an answer quickly”. Coulson J. said (Hutton at 4) there were “two narrow exceptions” to that general rule. The first exception is where there is an admitted error by the adjudicator and the court had jurisdiction to make a final decision on the point; even where there is an admitted error however if the contract contained an arbitration clause the court would not be entitled to refuse to enforce the adjudicator’s decision. Whereas “The second exception concerns the proper timing, categorisation or description of the relevant application for payment, payment notice or payless notice” (Hutton at 5). Coulson J. commented that in a number of cases falling into this second category the parties had reached some form of agreement regarding enforcement, such as agreeing that the defendant to the enforcement claim would pay the award if it lost its claim to have the matter finally determined by the court; and Coulson J. sought to confine his guidance to those cases where the parties had not agreed whether the merits of the adjudicator’s award should be finally determined at the enforcement stage.
Under this new guidance (at 17 to 20 in Hutton):
a. The party resisting enforcement must have issued a claim under CPR Part 8 for a declaration as to the relevant matters, or “at the very least” set out in a defence and counterclaim in the enforcement proceedings precisely what declarations it seeks. This needs to be done promptly, and in Hutton the defendant was criticised for its failure to issue a Part 8 claim until 7 days before the summary judgment hearing even though it had filed a witness statement attempting to set out the basis of its challenge some 20 days before the hearing.
b. As set out in Caledonian and quoted above, the Part 8 claim must raise a short, self-contained issue which arose in the adjudication; and the issue must require no oral evidence or other elaboration beyond that which can be given in the summary judgment hearing on the enforcement.
c. In an addition to the requirements in Caledonian, the point must be “one which, on a summary judgment application, it would be unconscionable for the court to ignore”.
d. Finally “such an issue could still only be considered by the court on enforcement if the consequences of the issue raised by the defendant were clear-cut. …If the effect of the issue that the defendant wishes to raise is disputed, it will be most unlikely for the court to take it into account on enforcement”.
Coulson J. sought to explain the effect he envisaged the guidance summarised at 1-3 would have in practice as (absent agreement) limiting such applications to cases where “the adjudicator’s construction of a contract clause is beyond any rational justification, or … the adjudicator’s calculation of the relevant time periods is obviously wrong, or … the adjudicator’s categorisation of a document as, say, a payment notice when, on any view, it was not capable of being described as such a document. In a disputed case, anything less would be contrary to the principles in … Bouygues and Carillion” (Hutton at 18).
A number of obvious points present themselves for discussion, the first being the permissible subject matter of potential challenges on the merits. In Hutton (at paragraph 5, quoted above) the ‘second exception’ to the general rule that awards should be enforced is expressly limited to challenges arising in relation to the operation of the payment mechanism under the contract. However in Caledonian (at 12, also quoted above) there was no limit suggested to the subject matter of the challenge on the merits, albeit in that case the challenge did in fact relate to the payment mechanism. Further the guidance given in Hutton and summarised above as to when a merits-based challenge may be mounted does not expressly limit the subject matter of such challenges. It is difficult to see why in principle the proper interpretation of part of the contract not related to the payment mechanism (eg. whether an item was within the agreed specification or was a variation) could not properly be the subject matter of a merits-based defence to an adjudicator’s award, provided it fitted the other requirements of the guidance. Nor, putting the matter the other way, is there an obvious reason why challenges to the payment mechanism ought to stand apart from other disputes about the contract, or even other disputes generally. Thus it is respectfully suggested that in principle the scope of merits-based challenges can and should go beyond challenges to the operation of the payment mechanism, subject only to compliance with the guidance given in Hutton at 17-20 and summarised above.
Second the effect of the examples given in Hutton (at 18, quoted above) is also worth consideration. It may well be that in practical terms the defendant is unlikely to succeed in its merits-based defence of enforcement proceedings unless (paraphrasing) it is ‘obviously’ right in its complaint about the award. But it is respectfully suggested that there is no reason in principle to limit challenges to those where the defendant’s contention is obviously correct. Even where the adjudicator’s decision is ‘obviously’ wrong that is no answer to the successful party’s entitlement to enforce the award it has obtained (see eg. Bouygues). Instead the limited availability of a merits-based challenge to enforcement seems to come from the obvious good sense in finally determining a matter which has to date only been determined on an interim basis, if final determination is possible in the course of the hearing of proceedings to enforce the interim decision. If the matter can be dealt with in the timescale for the enforcement proceedings and in the time allotted for the summary judgment hearing it is submitted that there is nothing inconsistent with the principles in Bourges and Carillion in doing so even if the answer is not obvious. Coulson J. made the point in Hutton (at 37) that, even if time-pressured, adjudications take place over days and weeks, and that it “cannot be right, absent any consent from the claimant, to let the defendant shoehorn into the time available at the enforcement hearing the entirety of that adjudication dispute”; again however it is suggested this is a point which goes to the practicality of dealing with the point on the merits in the time available during the enforcement proceedings and ought not to shut out an otherwise suitable, but not obvious point. Nor, it is suggested, is it any more or less unconscionable to decline to deal with a merits-based defence which is not obviously right than it is to refuse to deal with one which is, again assuming time is available properly to determine the matter in the course of the enforcement proceedings.
It seems that the real point to come from the Hutton judgment is that (absent consent) a defendant to an adjudication enforcement claim should not attempt to resist enforcement by challenging the merits of the award unless the point is a free standing one which will determine the dispute in its favour and can be demonstrated to be so, and dealt with, in the course of the usual summary judgment application. Any merits-based defence which does not fulfil those criteria, whether because its effect depends on the outcome of other aspects of the dispute, because it requires consideration of extensive oral evidence or because it cannot be dealt with as part of the usual ½ day enforcement hearing will not assist. Resisting enforcement of an adjudicator’s award on its merits will be a high risk tactic from now on, with Coulson J. making the point (Hutton at 21) that complaints about the merits of the award in enforcement proceedings are often an abuse of process and that those unsuccessfully relying on such defences are likely to have to pay the costs of the claim on the indemnity basis. Whether this costs guidance applies only to those who raise inappropriate (as opposed to appropriate but unsuccessful) merits-based defences remains to be seen, but in terms it does not appear to be so.