THE ‘MULTIPLE-DISPUTES’ DEFENCE

“One dispute good – two disputes bad” is the message approved strongly by the UK’s Court of Appeal in Bothma (T/A DAB Builders) v Mayhaven Healthcare Ltd [2007] EWCA Civ 527. In the past, scope for pleading the so-called ‘multipledisputes’ defence may have been limited. However, following this Court of Appeal decision, it is likely that there will be a rise in the number of (non-paying) parties challenging adjudicator’s decisions reached under the Scheme on the basis of a ‘multiple-disputes’ defence. Hamish Lal analyses how the defence works in practice.

THE ‘MULTIPLE-DISPUTES’ DEFENCE – THE STARTING POINT

The story starts with Section 108 (1) of the UK’s Housing Grants Construction and Regeneration Act (1996) (“the Act”) which states that:

“A party to a construction contract has the right to refer a aa dispute arising under the contract for adjudication under a procedure complying with this section.” [Our emphasis]

Where the Scheme applies to the adjudication, paragraph 8(1) provides that:

‘The adjudicator may, with the consent of all the parties to those disputes, adjudicate at the same time on more than one dispute under the same contract.’ [Our emphasis]

As such, for adjudications under the Scheme, the ‘multiple-disputes’ defence operates like this. Where an adjudicator adjudicates (or seeks to adjudicate) more than one dispute, without the consent of all the parties to those disputes, he is acting without jurisdiction as, without consent, an adjudicator only has jurisdiction to consider one dispute. This is clear from Pring & St Hill Ltd v C J Hafner (t/a Southern Erectors) [2002] EWHC 1775 (TCC) where His Honour Judge Humphrey Lloyd QC said, (of an adjudicator who carried out two Scheme adjudications in parallel in the absence of consent from all parties):

“He did not do what he ought to have done. In my judgment, his refusal to do so means that he proceeded without jurisdiction to determine this adjudication. That, in my view, provides SE with not only a defence, and for the purposes for Part 24 of the CPR, a realistic defence, and certainly not a fanciful defence, but also, in my judgment, an absolute defence to the claim.”

It is evident that, in such severance to determine which part of the decision should be discarded. In short, the whole decision is unenforceable.

There can be evidential battles as to what constitutes consent - has it been implied by conduct where the responding party responds without complaint to more than one dispute referred by the referring party? Or has consent been given where the responding party fails to raise specific complaint about the fact that ‘multiple-disputes’ have been referred, but instead generally reserves its right to challenge the adjudicator’s jurisdiction on any issue and at any point? The latter is discussed later in this Paper, but the issue to consider first is - when is there one dispute, two disputes, or more?

WHAT CONSTITUTES “A DISPUTE”?

The fundamental issue of “How many disputes are being adjudicated?” is, in practice, often not an easy question to resolve. This is because most disputes referred to adjudication in the construction industry ultimately relate to a bigger and broader dispute, commonly, money – how much is due to the contractor? Although the case law indicates that each case must be assessed on its own facts, it does provide very useful guidance on the judicial approach.

The judicial starting point is Fastrack Contractors Ltd v Morrison Construction

Ltd [2000] EWCH 177 (TCC) where His Honour Judge Thornton QC stated at paragraph 20:

“…During the course of a construction contract, many claims, heads of claim, issues, contentions and causes of action will arise. Many of these will be, collectively or individually, disputed. When a dispute arises, it may cover one, several or many of one, some or all of these matters. At any particular moment in time, it will be a question of fact what is in dispute. Thus, the “dispute” which may be referred to adjudication is all or part of whatever is in dispute at the moment that the referring party first intimates an adjudication reference. In other words, the “dispute” is whatever claims, heads of claim, issues, contentions or causes of action that are in then in dispute which the referring party has chosen to crystallise into an adjudication reference. A vital and necessary question to be answered, when a jurisdictional challenge is mounted, is what was actually referred? That involves a careful characterisation of the dispute referred to be made. This exercise will not necessarily be determined solely by the wording of the notice of adjudication since this document, like any commercial document having contractual force, must be construed against the underlying factual background from which it springs and which will be known to both parties.”

[Our emphasis].

There has been some concern expressed with HHJ Thornton’s characterisation of a dispute. For example, in Barr Ltd v Law Mining Ltd CA55/2001 Lord MacFayden made the following comments in respect of HHJ Thornton’s analysis:

“There is in my view, some force in Mr Currie’s criticism of His Honour Judge Thornton’s analysis in Fastrack Contractors Ltd of what constitutes a dispute. If everything in dispute between the parties forms a single dispute, paragraph 8(1) is severely restricted in scope or perhaps even deprived of content.”

It is, however, possible to reconcile the analysis in Fastrack with Bothma on the basis that all the claims that were referred to the Adjudicator related to a single issue and therefore formed a single dispute. HHJ Thornton recognised the fact that a referring party does not have free-rein:

“a referring party might decide to cut out of the reference some of the preexisting matters in dispute and to confine the referred dispute to something less than the totality of the matters then in dispute. So long as that exercise does not transform the preexisting dispute into a different dispute, such a pruning exercise is clearly permissible. However, a party cannot unilaterally tag onto the existing range of matters in dispute a further list of matters not yet in dispute and then seek to argue that the resulting “dispute” is substantially the same as the pre-existing dispute.”

His Honour Judge Humphrey Lloyd QC in Sindall Ltd v Solland [2001] 3 TCLR 30 suggests that there will invariably be “sub-disputes” within a single dispute, stating at paragraph 16:

“Where a dispute is referred, there is comprehended within it all its constituent elements, including sub-disputes, contentions, issues (some of which might have been referred separately) — in other words all the ingredients which go into the dispute referred.”

But, again, Sindall is reconcilable with Bothma as, on the facts, the issue of the repudiation was the sole issue in the dispute and the extension of time (which had been granted and the extent to which a further extension was justified) was inextricably bound up with repudiation and was simply a subhead of that particular dispute.

“(i) The date for completion of the Contract;
(ii) Scope and validity of Architect’s Instructions issued to date;
(iii) The issue and non-withdrawal of the Notice of Non-Completion; and
(iv) The sum of valuation number 9 …”

Bothma (T/A DAB Builders) v Mayhaven Healthcare Ltd [2007] EWCH Civ 527 is the leading authority on ‘multiple-disputes’, so it is worth reflecting on the facts of the case. The Referring Party (the Contractor) gave a Notice of Adjudication that identified the following four disputes and sought a decision from the adjudicator in respect of each:

In summary, the Adjudicator held that (i) the date for completion was 1 March 2006; (ii) an extension of time had been granted, leading to a revised date for completion of 1 May 2006;

(iii) the certificate of non-completion was invalid; (iv) the Contractor was entitled to a further net amount of £13,579 in respect of Interim Valuation number Nine; and (iv) the Employer was liable to pay a net sum of £6,668.25, being 85% of his fees. The Employer was therefore directed to pay the Contractor a total of £21,247.25, excluding VAT.

That sum was not paid and the Contractor therefore, commenced summary judgement proceedings to recover that sum. The Judge at first instance held that the Adjudicator’s decision was unenforceable since he had determined two unrelated disputes. The Contractor made an application for leave to appeal this decision.

It is essentially a question of fact whether more than one dispute has been referred, but in this case, the Court of Appeal agreed with the Judge at first instance. In the learned Judge’s view there was one dispute dealing with an extension of time (and inter-connected issues) and there was another discrete dispute concerning valuation number nine. There was no interconnection or link between the extension of time and/or non-completion and the valuation of payment under valuation number nine. It should be noted however that, on the facts, valuation number 10 and the extension of time dispute were linked because that valuation involved additional preliminaries. Dyson LJ stated at paragraph 7:

“When the matter came before me as a paper application for permission to appeal, I expressed the view that the judge’s reasoning ... was correct. I said that if Interim Claim 9 had included a claim for extended preliminaries and any other time related sums, there would have been a clear link between the figure claimed for Valuation 9 and the claimant’s claim in relation to extensions of time and the validity of the certificate of non-completion…”

It is the issue of a ‘clear link’ between ‘disputes’ that parties should focus upon. Naturally, in the context of money, this relies upon a tangible understanding of the distinction between, for example, fixed charges, method related charges and time related charges. It follows that challenging parties will seek expose the lack of inter-connection in and between the issues in dispute.

In practical terms it would not be unreasonable for referring parties to set out expressly in the Notice of Adjudication the various ‘links’ between the various issues/disputes and/or remedies sought. The way that referring parties frame the dispute(s) is now very likely to occupy legal/judicial attention and so reinforces the need for referring parties to be particularly watchful.

THE TECHNICAL TWIST

The other important point concerns so-called ‘technical challenges’ and whether the challenging party has adequately reserved its position to enable a ‘multiple-dispute’ defence to succeed at enforcement stage. The level of clarity and the timing of such a reservation made by responding parties has been the subject of judicial scrutiny.

In The Project Consultancy Group v The Trustees of the Gray Trust [1999] All ER (D) 842 Lord Justice Dyson stated at paragraph 9:

“I conclude, therefore, that it is open to a defendant in enforcement
proceedings to challenge the decision of an adjudicator on the grounds that he was not empowered by the Act to make the decision.”

Later, at paragraph 14, Dyson LJ refers to the principles of Devlin J in

Westminster Chemicals & Produce Ltd v Eicholz & Loeser [1954] 1 Lloyds’ Rep 99, 105-6 and states that:

“Although that case concerned an arbitration, I agree that what Devlin J said was equally applicable to an adjudication. He said that if two people agree to submit a dispute to a third person, then the parties agree to accept the award of that person, or, putting it another way, they confer jurisdiction on that person to determine the dispute. If one of the parties thinks that the dispute is outside the agreement that they have made, then he can protest against the jurisdiction of the arbitrator. “If he protests against the jurisdiction of the arbitrator, which is merely an elaborate way of saying: “I have not agreed to abide by your award,” if he protests in that form it is held that he can take part in the arbitration without losing his rights, and what he is doing, in effect, is that he is merely saying: “I will come before you, but I am not by my conduct in coming before you and arguing the case, to be taken as agreeing to accept your award, because I am not going to do so”.. It is a question of fact whether a party submits to the jurisdiction of a third person...”

In Bothma the Employer had not taken the point (during the adjudication) that the Contractor purported to refer to the adjudicator more than one dispute, so as to engage the provisions of clause 8(1) of the Scheme. This did not prove fatal since the Employer had made a general reservation of its right to take any point to the adjudicator’s jurisdiction. This stated:

“The following submissions are made entirely without prejudice to Mayhaven’s contention that you have no jurisdiction in this matter and that by making the following submissions Mayhaven do not in any way consent to your determining your own jurisdiction. Further, Mayhaven reserve their right to raise any jurisdictional issues and/or any other issues, whether mentioned below or not, in due course, whether within the forum of adjudication proceedings, arbitration proceedings or court proceedings.”

If this general reservation had been absent it is likely that the consent by conduct argument would have prevailed. Indeed, Waller LJ appears to suggest that it was good fortune that this wide reservation trumped the technical point, stating:

“No point was expressly taken by the employer as to the adjudicator’s jurisdiction to deal with more than one point, but unfortunately the employer made it clear that he reserved his position in relation to jurisdiction in very wide terms…’

“The way that referring parties frame the dispute(s) is now very likely to occupy legal/judicial attention”

So… Each case essentially needs to be assessed on its own facts as to whether one or multiples disputes have been referred under the Scheme and/or whether a challenging party has adequately reserved its position. These issues have not been dealt with as part of the Government’s 2nd Consultation on the Construction Act, so the message for the time being from the Common Law is clear:

A general reservation in pleadings is sensible and can be beneficial for responding parties. It is likely that the ‘Bothma reservation’ will achieve ‘boiler plate’ status.

The lesson for referring parties is to seek to define ‘the dispute’ in the Notice of Adjudication in broad terms to reduce the ability of responding parties to use the ‘multiple-disputes’ defence.

For adjudicators, where multiple ‘issues’ have been referred, it would be prudent to clearly demonstrate in the decision that the question of whether there was a sufficient connection among the various issues to enable them to be treated as ‘a dispute’ has been addressed, or alternatively set out the reasons for holding that they could be so treated.

Hamish Lal is a Partner at Dundas & Wilson LLP’s Construction & Engineering Team, London. (email: hamish.lal@dundas-wilson.com)