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Appointing Adjudicators - Play by the rules [September 2020]

Lane End Developments Construction Ltd v Kingstone Civil Engineering Ltd [2020] EWHC 2388 (TCC)


The main issue in the case was whether the adjudicator had been validly appointed under the Scheme for Construction Contracts (England and Wales) Regulations 1998 (as amended) (the “Scheme”) so as to afford him with jurisdiction to decide the dispute between the parties. The court held that the referring party had served the notice of adjudication on the responding party after making its application to the adjudicator nominating body for the appointment of an adjudicator. It, therefore, followed that the adjudicator had not been validly appointed and the adjudicator's decision was unenforceable. The principles of waiver and estoppel could not defeat that.

Background

Lane End Developments Construction Ltd engaged Kingstone Civil Engineering Ltd to carry out enabling works on a housing development (the “Subcontract”). The Subcontract did not contain an express adjudication provision. The adjudication provisions of the Scheme, therefore, applied.

Lane End failed to issue a pay less or payment notice in response to Kingstone’s interim application for payment. Kingstone commenced adjudication proceedings by making an application to the RICS for the appointment of an adjudicator. Later that same day, Kingstone issued to Lane End its notice of adjudication.

Lane End challenged the adjudicator’s jurisdiction on the ground that Kingstone had failed to give Lane End notice of the adjudication under the Scheme. Lane End’s challenge to the adjudicator’s jurisdiction did not specifically take issue with the timing of such notice.

The adjudicator decided on a non-binding basis that he did have jurisdiction to decide the dispute, following which Lane End sent to the adjudicator an automatically generated email which stated “due to the Government guidance relating to the Covid-19 pandemic, Lane End Group is currently closed for business until further notice”. The adjudicator responded to Lane End’s email to the effect that this “effectively terminates this adjudication. You are of course responsible for my fees and an invoice will be sent later from staff working at home” (the “Termination Email”). The adjudicator did not send that response to Kingstone, although the adjudicator’s invoice for his fees was addressed to both parties.

Lane End notified Kingstone of the apparent termination of the adjudication, however, on the basis that it had not received from the adjudicator formal notification of such termination, Kingstone requested the adjudicator to continue with the adjudication. The adjudicator proceeded to decide the dispute and found in favour of Kingstone.

Was the adjudicator validly appointed under the Scheme?

Lane End argued that, under paragraph 2(1) of the Scheme, the referring party must submit its request for the appointment of an adjudicator “following the giving of a notice of adjudication”.

The court held that, since Kingstone had submitted the request for the appointment of an adjudicator prior to giving Lane End the notice of adjudication, the adjudicator had not been appointed under a request duly issued under Paragraph 2(1) of the Scheme. Accordingly, the court held that the adjudicator did not have jurisdiction to decide the dispute. The findings of the court in that regard was subject to Kingstone’s submissions based on waiver and estoppel (summaries of which are set out below).

Did Lane End waive by election the defect in the adjudicator’s appointment?

A person waives, by election, its right to assert a substantive right by acting inconsistently with the right when presented with a choice. The court referred to Kammins Ballrooms Co Ltd v Zenith Investments (Torquay) Ltd [1971] AC 850, in which the House of Lords were satisfied that this principle is capable of applying to statutory procedural requirements if imposed solely for the protection or benefit of one party.

The court held that the adjudicator’s appointment was not procedural only and, in any event, it did not present Lane End with the opportunity to make a relevant election. In particular, Lane End was not presented with the relevant choice because there could be no adjudication until a notice of adjudication had been validly served.

The relevant defect in the appointment of the adjudicator arose from paragraphs (1)(1) and (2)(1) of the Scheme, in relation to which there was an “obvious logic” in providing for the service of the notice of adjudication to the responding party prior to the referring party making a request to a nominating body for the appointment of an adjudicator. Paragraphs (1)(1) and (2)(1) of the Scheme provided a measure of protection to the responding party, however, the court held it would be “unduly simplistic” to characterise those provisions as procedural requirements contemplated in the Kammins case. As such, the defect in the adjudicator’s appointment was not susceptible to waiver by election.

In any event, the court held that Lane End had successfully reserved its rights to challenge the adjudicator’s appointment.

Was Lane End estopped from challenging the adjudicator’s jurisdiction?

Kingstone contended that Lane End was estopped from challenging the adjudicator’s jurisdiction because Lane End had represented that it would not challenge the adjudicator’s decision other than on the challenges it had previously made in the adjudication (which did not extend to the timing of the notice of the adjudication).

The court held that, even if Kingstone could identify a promise, representation or mistaken belief with which to advance a case based on estoppel, it would remain necessary for Kingstone to show that it acted to its detriment in reliance upon it or, in relation to estoppel by convention, it would have acted differently. Kingstone’s case based on estoppel failed for the following reasons. Firstly, Kingstone had maintained that the adjudicator had jurisdiction despite the estoppel argument and there was, therefore, no detriment. Secondly, it was “highly unlikely” that Kingstone would have acted any differently had it known that Lane End may advance revised or additional jurisdiction challenges.

Did the adjudicator cease to have jurisdiction after the Termination Email?

Despite having decided that the adjudicator had not been validly appointed, the court considered the validity of the adjudicator’s Termination Email. The court considered paragraph 9(1) of the Scheme which requires a notice of resignation to “the parties” and held that the Termination Email did not constitute a valid resignation on the basis that it was served only to Lane End. If his appointment had been valid, the adjudicator would have remained in office following the Termination Email.

Summary

In acting as party representative, Kerrigans has on numerous occasions successfully challenged the jurisdiction of an adjudicator on the same ground as decided in this case, namely that the application to the nominating body was premature. The outcome of this case was, therefore, of no surprise to us.

However, for the construction industry, this decision should be welcomed. The case highlights the importance of parties ‘playing by the rules’ of the contract and the law, no matter how insignificant those rules may seem. The case also helpfully addresses the applicability of the principles of waiver and estoppel in light of challenges to the jurisdiction of adjudicators.

Should you wish to discuss any matter concerning the appointment of an adjudicator and/or an adjudicator’s jurisdiction, please contact us and we will be happy to assist.

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