Ad Hoc Adjudication & How It Affects Residential Occupiers

Challenges In Construction & Property

Published on December 9, 2019

For those of you who are familiar with adjudication procedure, you will know that pursuant to section 106 of the Housing Grants, Construction and Regeneration Act 1996 (the “Act”), adjudication will not apply to a construction contract which relates to operations on a dwelling which one of the parties occupies or intends to occupy as his residence. However, this was not the case for the Defendant in the case of ICCT Ltd v Sylvein Pinto [2019] EWHC 2134 (TCC).

Adjudication 

Without any previous experience or knowledge of adjudication, the parties participated in an adjudication in relation to the contractor (the Referring Party) claiming unpaid monies for the works undertaken to stop some leaks at the residential owner’s (Responding Party) basement. 

Unfortunately for the Responding Party, the Adjudicator found in favour of the Referring Party and awarded a sum of £6,456 plus his fees amounting to a total of £10,182, which the Responding Party did not discharge to the Referring Party. 

On the basis that the Referring Party is the winning party, it sought to enforce the award in early 2019 together with its costs of dealing with such.   

Enforcement

The enforcement hearing appeared before Waksman J. who found that there is no real prospect of a successful defence and there ought to be judgment for the Claimant (the Referring Party) in the sums claim. Waksman J. dealt with the Defendant’s (the Responding Party and a litigant in person) arguments under three heads and dealt with each separately. His reasoning is as follows:

  • Jurisdiction: it was a day or two before the hearing that the Defendant found out that adjudication does not apply to residential occupiers. The judge noted section 106 of the Act and explained that there would not have been jurisdiction for the adjudicator to undertake the adjudication process. However, because both parties fully engaged in the adjudication process without reservation of rights, an ad hoc jurisdiction can arise. Waksman J. at paragraph 36 of the judgment stated that:

“These are perhaps subtle points but I am quite satisfied Mr Pinto’s argument is wrong here. There is no blanket ban against adjudications for work done to residential premises and they are quite often agreed in the context of residential construction contracts. It is simply the fact that the mandatory scheme will not cover such disputes. So it does all turn on whether there has been full engagement in the process without any suitable reservation of rights.

The judge further stated that ignorance of the law is no excuse and the fact that the Defendant was not aware of the position under section 106 did not help him. The Defendant fully engaged in the adjudication process and on that basis, an ad hoc adjudication came into being and any jurisdictional point was waived. In addition, the judge dealt with the fact that the adjudicator was not under a duty of care to advise the Defendant of such and was under no obligation to inquire any further specially in cases where there is no reservation of rights. 

  • Natural Justice:  the question of natural justice arose due to the fact that the Defendant thought the adjudicator was known to the Claimant in the past because the Claimant addressed the adjudicator by his first name during the adjudication. Further, the Defendant found out that the adjudicator had been the subject of some dispute in terms of his role. The judge noted that there was absolutely no evidence to support such allegations and that the dispute against the adjudicator in another matter, had nothing to do with the current proceedings. 
  • Merits: the Defendant was of the opinion that the adjudicator was wrong in his decision as he lacked understanding of what the claim was about and had misunderstood the points raised by the parties during the adjudication. Waksman J. stated that just because the Defendant thought the adjudicator got the decision wrong and badly wrong was not sufficient to prevent enforcement. The adjudicator was perfectly entitled to draw conclusion based on the evidence before him rather than assuming what would/could have been necessary to do in terms of the works carried out to the basement. 

It was on the above basis that the judgment for the Claimant was granted in the sums claimed plus costs. 

Appeal 

The TCC and the Court of Appeal has repeatedly said that parties cannot avoid the obligation to pay an adjudicator’s decision to raise arguments on its merits. This goes back to the point of the Act where the process generally is pay now, litigate later. Any appeal merely restating the arguments to the lower court is bound to fail, especially when faced with a well-reasoned judgment as in this case.

What Next?

The law has a habit of changing every day and decisions can be made on a case by case basis. The circumstances of the case of ICCT Ltd v Sylvein Pinto was such that it allowed exceptions under the Act (ie ad hoc adjudication) on the basis that the parties fully engaged in the process without any reservation of rights. Further, the parties cannot play the card of lack of understanding the adjudication process as ignorance of law is no excuse. Adjudication is designed to protect cash flow during construction and is often described as a pay first, argue later mechanism for resolving disputes in the construction industry. Therefore, it is simply not possible for the parties to avoid making payments and/or engaging in adjudication unless under very exceptional circumstances. 

Author Sabra Farmand has several years of experience in complex litigation and international arbitration matters. She has vast knowledge of English procedural rules and has dealt with clients from South America, Middle East and Europe and speaks several languages; Farsi (native), English (professional and legal level), Arabic, Chinese (elementary level)

Author Sabra Farmand
Sabra has several years of experience in complex litigation and international arbitration matters. She has extensive knowledge of English procedural rules (CPR) and has dealt with clients from South America, Middle East and Europe.

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