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Do You Understand the Ramifications of Entering Into a Contract Adjudication?

Anyone who engages in contract adjudication proceedings would be wise to assume that the outcome – regardless of whether it is right or wrong – will be legally binding and swiftly enforceable on a 'pay now, argue later' basis. As a High Court ruling made plain, attempts to avoid such enforcement rarely succeed.

A public authority engaged a construction company to carry out works on a historic residence. The contract sum agreed was a little under £480,000, exclusive of VAT. The authority had, however, paid in excess of £900,000. Its contracts manager issued a final statement in respect of the works executed, demanding that the company repay more than £400,000 of that sum.

After the company responded with a pay less notice, the authority issued a notice of adjudication. The adjudicator found that the company was liable to repay £314,264, plus interest of £25,368, his fees and any VAT due. The authority sought summary judgment against the company in the amount of the award.

Resisting the claim, the company contended that the final statement was invalid and that the adjudicator had exceeded his jurisdiction. It asserted that the statement had not been served in accordance with the contract and that the contracts manager held no genuine belief that it represented a sum that was actually due.

Ruling on the matter, the Court noted that adjudication proceedings are intended to provide a speedy mechanism for settling contract disputes. Save in cases where there is a want of jurisdiction or a serious breach of natural justice, adjudicators' awards are binding. They must generally be satisfied in full before entering into arguments as to whether they were made in error.

In granting the authority's application, the Court found that a crystallised dispute had been placed before the adjudicator which he had jurisdiction to resolve. Whether or not he was mistaken in finding that the final statement was valid, his award was enforceable. To accede to the company's plea that enforcement of the award should be stayed pending further proceedings to determine the true value of the works performed would offend against the 'pay now, argue later' principle.

The company argued that it would be plunged into severe cashflow difficulties were it required to satisfy the entire award straight away. However, the Court found that, even if such hardship were established on the evidence, it would not make it manifestly unjust to order the award's summary enforcement.

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.