For want of a nail the shoe was lost.
For want of a shoe the horse was lost.
For want of a horse the rider was lost.
For want of a rider the battle was lost.
For want of a battle the kingdom was lost.
And all for the want of a horseshoe nail. (Anonymous)
Lane End Developments Construction Ltd v Kingstone Civil Engineering Ltd [2020] EWHC 2338 (TCC)
The lesson of this case is clear – the smallest slip can have serious, and expensive, consequences in the fast and brutal world of construction adjudication.
Adjudication is an intense, hard fought and ruthless method of dealing with construction disputes. Time limits are short, and even if an adjudicator gets it wrong, in most cases, the decision will stand and be enforced by the courts. To counteract this gladiatorial character, adjudication has been hedged around with strict procedures and rules, set out in the Construction Act and the Scheme for Construction Contracts, which must be followed, not only by the parties, but also by the adjudicator.
One of the key sets of rules governs how an adjudication may be started.
An adjudication is started by the referring party giving written notice of her intention to refer a dispute to adjudication, and this notice is called the notice of adjudication. It is also sometimes called a notice of intention to refer.
The notice of adjudication must set out, briefly, the nature and a description of the dispute and the parties involved; details of where and when the dispute has arisen; the nature of the redress which is sought; and the names and addresses of the parties to the contract.
Following the giving of the notice of adjudication, and subject to any agreement between the parties to the dispute as to who shall act as adjudicator, the referring party must request the person (if any) specified in the contract to act as adjudicator, or ask the specified nominating body to select an adjudicator, or in default of these options, a nominating body to select an adjudicator.
It was these key steps, and the order in which they were undertaken, which were in issue in this case. The court also considered whether it is possible for one of the parties to waive any of these key steps.
Along the way, the case also looked at the effect of an “out of office” email, a purported termination of his appointment by the adjudicator, followed by a change of mind “unterminating” the appointment, plus the covert recording of business meetings, and the judge had interesting things to say about these.
Straightforward cases rarely reach court, and the background to this one needs to be considered carefully.
Kingstone was applying to the court under Part 7 CPR for payment of an adjudicator’s award of £358,970.39. Lane End were asking for a declaration under Part 8 that the award should be set aside.
The Factual Background
The adjudication in issue was started by Kingstone.
The contract between the parties did not refer to adjudication, so the Scheme for Construction Contracts applied. Kingstone issued an interim application for payment, which was not paid, and pay less and payment notices were not served. Straightforward so far, the classic “smash and grab” scenario.
Not so fast - the events on two key dates, 20 March and 8 April, before and after the national coronavirus lockdown, were the triggers to complicate matters.
The events of 20 March 2020 were critical.
At 7.46am, Kingstone submitted an email request to the RICS for the appointment of an adjudicator.
At 10am, there was a meeting between the parties. At that meeting, at around 11am, Mr Barker of Kingstone handed over a “Notice of Referral” which the parties subsequently agreed would amount to notice of adjudication. Unbeknownst to Lane End, Mr Barker had covertly recorded the meeting.
Kingstone had got things in the wrong order – it had requested the nomination of an adjudicator before giving the notice of adjudication, albeit only by around three hours, and both had been done on the same day.
On 23 March, Mr Paul Jensen advised the parties that he had been nominated by the RICS as adjudicator.
On 23 March, the government imposed the coronavirus lockdown.
On 24 March, Lane End challenged the adjudicator’s nomination on the grounds that it had not been given a proper notice of adjudication, the document it had been given was insufficient. It did not raise any points about the timing of the notice and the nomination, but did add a general reservation as to the adjudicator’s jurisdiction. The adjudicator did not accept the challenge to his jurisdiction.
By 8 April, Lane End was sending automatic email replies saying “due to the Government guidance relating to the Covid-19 pandemic, Lane End Group is currently closed for business until further notice”. When he received one of these emails, the adjudicator advised the sender at Lane End, Mr Anders, that the email effectively terminated the adjudication and asked for payment of his fees. Lane End duly paid up. The adjudicator, mysteriously, neglected to say anything to Kingstone about termination.
On 15 April, Kingstone discovered the purported termination, and asked the adjudicator to continue with his appointment, saying that the termination was null and void.
On 16 April, the adjudicator changed his mind and decided that Lane End was not closed for business after all and that he would continue with the adjudication. He did so, gave further directions, and reached his decision.
The judgement
The judge found that the appointment of the adjudicator was void. The steps required by the Construction Act to commence an adjudication had been taken in the wrong order. Accordingly he did not have, and could never have had, jurisdiction to reach his decision.
These steps are not procedural and are so fundamental to the nature of adjudication that any failure to comply cannot be waived by the parties. It is not possible to waive defects in the appointment machinery, even where it is only a matter of a few hours.
The judge also considered whether Lane End had reserved its position effectively.
Lane End had challenged the jurisdiction of the adjudicator in March. It had done this on the basis that the notice of adjudication was incorrect, but it had crucially also added a general reservation of its rights. It had not challenged on the timing point, because it had not been aware of it in March, it only came to light later.
As a general rule the courts will frown upon general reservations of rights in adjudication, they much prefer specific reservations. However, in the particular circumstances of this case, the general reservation made by Lane End was sufficient to allow it to maintain its jurisdictional objection.
The court also considered the purported termination, and resurrection, of his appointment by the adjudicator. Unsurprisingly, the termination was not effective, because it was not served on both parties.
The meeting on the morning of 20 March was recorded by Mr Barker of Kingstone, without the knowledge of the other people attending. Kingstone attempted to submit evidence of the recording to the court. However, the court found this evidence to be inadmissible, primarily because the evidence surrounding the recording was served late. However, the court briefly looked at the legal considerations which might be applied when trying to adduce evidence of covert recordings. These include the right to privacy of the others attending the meeting, and the potentially unlawful processing of personal data within the meaning of GDPR Article 4(1). Taking, or using, secret recordings of meetings is not recommended, it can lead to all sorts of legal complications.
Summary
The lesson from this case could not be clearer – give the notice of adjudication first, before making any attempts to have an adjudicator appointed.
A failure to do this will be fatal to your claim, however clear cut it might be.