Adjudication
Ferson Contractors Limited v Levolux A. T. Limited (2003) Court of Appeal

© Daniel Atkinson 2003      23 January 2003        

Whenever an alternative form of dispute resolution is considered by the Court, it is necessary to decide the legal status of the procedure. This is now taking place in relation to mediation for instance, which has achieved higher prominence because of the recent court reforms. The most recent case is Cable & Wireless v IBM (2002).

The status of an adjudicator’s decision under the Housing Grants Construction and Regeneration Act 1996 has proved more difficult. The status of the decision in relation to the Court itself and in relation to arbitration was quickly established. It is now well established that the adjudicator’s decision is provisional in nature and binding until final determination by the Courts or if the contract requires, arbitration. It was confirmed in the Court of Appeal Bouygues v Dahl-Jensen 2000 that adjudication was intended to enable a quick interim, but enforceable, award to be made in advance of what was likely to be complex and expensive disputes. The adjudicator’s award could therefore give rise to an immediate payment obligation which could be enforced by the Court.

The problem that has now arisen is the exact status of the adjudicator’s decision in relation to the other provisions of the Contract on which he made his decision. There have been a number of decisions on this issue which appear to conflict. This is now resolved by a decision of the Court of Appeal on 22nd January 2003 in Ferson Contractors Limited v Levolux A. T. Limited.

The particular contract was a subcontract under the GC/Works form. Levolux commenced adjudication for Ferson’s failure to pay in full. Ferson relied on a notice of withholding.

The Adjudicator identified that the dispute referred was whether or not the Withholding Notice complied with the requirements of section 111 HGCRA. He concluded that it did not and ordered payment. Levolux applied for summary judgment for the amount of the award inclusive of costs, of VAT and fees.

Ferson submitted that summary judgment should not be given. Ferson’s primary case was that prior to the adjudication it had determined the sub-contract between the parties in accordance with Clause 29 of the Subcontract. Ferson had sent a letter to Levolux dated 4th March 2002 giving notice that it required Levolux to recommence work. On 22 March 2002 Ferson sent a further letter recording that Levolux was continuing to suspend the carrying out of the subcontract works and purported to determine the contract.

Ferson submitted that Clauses 29.9 and 29.10 of the contract provided that Ferson was not bound to make any further payment to Levolux until after the works and making good of the defects had taken place and the payment application procedure referred to at 29.10 had been complied with. Ferson submitted that these provisions provided a complete code for the rights and liabilities of the parties upon determination of the sub-contract.

His Honour Judge Wilcox giving judgment observed that the dispute referred to the adjudication did not expressly include issues as to the purported determination of the contract. Judge Wilcox held crucially that it was a necessary implication of the Adjudicator’s decision, that Levolux was entitled to suspend the works and that the purported determination based on wrongful suspension had no contractual effect.

Ferson appealed to the Court of Appeal against Judge Wilcox’s order to enforce the adjudicator’s decision.

Ferson referred to recent authority and argued that it did not necessarily follow that the adjudicator’s decision should be accorded supremacy over clear provisions contained elsewhere in the contract. Ferson argued that where the terms of the contract override the apparent obligation to pay on the adjudicator’s decision or where the decision is overriden by another applicable adjudication, then the adjudicator’s order of payment is not binding and enforceable. Ferson relied upon the well known statement of HHJ Lloyd QC in KNS Industrial Services (Birmingham) Limited and Sindall Limited TCC 17 July 2000 that if by the time an Adjudicator makes a decision requiring payment by a party the contract has been lawfully terminated by that party (or that party has real prospects of success in supporting that termination) or some other event has occurred which under the contract entitles the party not to pay then the amount required to be paid by the decision does not have to be paid. Ferson also relied upon the decision of Judge Thornton in Bovis Lend Lease v Triangle Developments Ltd (2nd November 2002) which extended the principle in KNS that where other contractual terms clearly have the effect of superseding, or provide for an entitlement to avoid or deduct from a payment ordered by an adjudicator, then those terms prevail.

The Court of Appeal firmly closed the door on any expansion of the principle in KNS. It was held that if Ferson and Judge Thornton were right then the intended purpose of adjudication under the Housing Grants Construction and Regeneration Act 1996 would be defeated. The contract must be interpreted to achieve that purpose. If not, then the offending clause must be struck down. In this case Clauses 29.8 and 29.9 had to be read as not to apply to monies due by reason of an adjudicator’s decision. The obligation to pay the amount stated in the adjudicator’s decision had to take precedence over Clauses 29.8 and 29.9 of the contract.

The situation is now clear, if not entirely satisfactory. Many adjudication decisions are made in relation to interim applications, and decided at a time when events have moved on. The result of the Court of Appeal judgment will increase the number of counter-adjudications, already becoming a regular feature of this form of dispute resolution.