Adjudication under the Construction Contracts Act 2002 (CCA) is a commonly used procedure to determine disputes between parties to a construction contract. The recent decision of the High Court in Haskell Construction Ltd v Ashcroft (Haskell) discusses the scope of the powers an adjudicator has in determining a dispute.
The decision confirms the ability of an adjudicator to award statutory damages in an adjudication. It also confirms that an adjudication determination can form the basis for a defence of issue estoppel, preventing parties commencing multiple adjudications in relation to the same subject matter, although an adjudicator (rather than the Court) will be best placed to determine whether issue estoppel arises on the facts.
Alpine Prime Properties Ltd (Alpine) contracted Haskell Construction Ltd (Haskell) to build an architecturally designed house. A variation to the contract works was issued to incorporate structural steel framing. The parties disagreed on payment for the framing which led to Alpine purporting to cancel the contract. Haskell accepted the cancellation on a without prejudice basis.
Prior to the High Court proceedings, the parties had already been through two adjudications. In the first adjudication Alpine was to required pay Haskell a net sum of $133,619 for work completed up to cancellation of the contract. In the second adjudication, the same adjudicator determined that Haskell had breached implied warranties under the Building Act 2004 (Building Act), and the contract had accordingly been cancelled.
When Alpine did not pay the amount ordered in the first adjudication, Haskell issued a statutory demand for the $133,619. Alpine applied to set aside the statutory demand on the basis that it intended to commence a third adjudication claiming damages for Haskell’s breach of implied warranties under the Building Act. Haskell challenged the (new) adjudicator’s jurisdiction to consider the issue of damages under the Building Act.
Grounds for judicial review
Haskell applied to the High Court challenging the adjudicator’s acceptance of the third adjudication on two grounds:
- First, that the adjudicator’s jurisdiction was limited to contractual payments, and did not extend to damages or other statutory relief for breach of implied warranties under the Building Act; and
- Second, that the adjudicator was estopped from revisiting the issues that Haskell claimed had already been determined in the two previous adjudications.
Can an adjudicator award statutory damages?
Haskell argued that an adjudicator can only determine amounts payable “under the contract” and therefore cannot award common law or statutory damages which exist separately and are not rights, obligations or remedies under the contract.
The Court rejected Haskell’s argument. The Court drew support from existing High Court authorities and the legislative purpose of the CCA and Building Act in ruling that an adjudicator’s jurisdiction extends to determining payments in respect of the rights and obligations of the parties, including compensation for loss or damages under a relevant statutory remedy. The key conclusions reached by the Court were:
- The remedies under the Building Act in respect of the breach of implied warranties expressly include the award of damages and compensation to the client for reduction in value of the product of the building work and any foreseeable loss or damage resulting from the breach. These cannot be limited or contracted out of.
- In line with the existing authorities, nothing turns on the use of the “label” of damages in respect of statutory remedies or the fact the remedies for breaches of implied warranties are codified common law damages. The Court considered it would be overly “technocratic” or “formalistic” to prevent an adjudicator from making an award of damages under the Building Act for breach of an implied warranty.
Haskell also objected to a third adjudication being commenced on the basis that it considered the new adjudication amounted to an attempt to re-adjudicate the same matters as the earlier decisions, in an endeavour to obtain a more favourable outcome.
The Court had little difficulty in concluding that issue estoppel applies in the context of CCA adjudications. In line with the scheme of the CCA to provide speedy and flexible resolutions, serial adjudications which seek to re-litigate the same or substantially similar issues are not permitted. Whether a disputed issue is “substantially similar” to an issue previously raised is a question of fact and degree. The starting point is the notice of adjudication and what the adjudicator actually determined (having reference to the determination in question). A party cannot seek to introduce new evidence in support of the same particulars or grounds advanced in earlier adjudications.
An adjudicator will be in the best position to assess whether issue estoppel applies, by reference to the earlier notices of adjudication and what was, in fact, determined in those adjudications. The Court, on a judicial review application, will only interfere with the adjudicator’s assessment where there has been a clear error.
On the facts of the case, the Court was satisfied that the claims made in the third adjudication had not been sufficiently raised or advanced in the earlier adjudications, so there was no reason to interfere with the adjudicator’s assessment to embark on the third adjudication.
Practical implications for adjudication
The decision confirms an adjudication process is designed to be flexible, quick, but robust. The powers of an adjudicator are not strictly limited to “payments under a contract”. An adjudicator is able to determine whether there have been statutory breaches, such as breaches of implied terms under the Building Act, and award appropriate remedies in such a case.
Commencing adjudication proceedings requires careful consideration to ensure that all appropriate matters are put before the adjudicator in the first instance:
- Adjudicators can award statutory damages. Claimants should consider the full range of remedies available in an adjudication (both under the contract and statute) to avoid the difficulties that can be encountered with multiple adjudications.
- Parties must put their full case and “best” evidence forward in an initial adjudication. Parties cannot attempt to use future adjudications to fill any evidentiary gaps, or adduce any evidence as a collateral challenge on earlier binding adjudication determinations.
- The adjudicator is best placed to determine whether res judicata or issue estoppel apply to a subsequent adjudication. When seeking to rely on issue estoppel, as a starting point, parties should look to the notice of adjudication and what the adjudicator actually determined in the previous adjudications to determine whether the disputed issue is substantially similar.
- An application for judicial review of an adjudicator’s decision will only succeed where there has been a clear and obvious error by the adjudicator. If dissatisfied with a determination, a party will ordinarily be expected to refer the dispute to arbitration or an ordinary proceeding depending on the dispute resolution procedure specified in the construction contract.
If you have any questions about the issues raised by this judgment or the adjudication process, please get in touch with our Construction Team, or your usual contact at Hesketh Henry.
Disclaimer: The information contained in this article is current at the date of publishing and is of a general nature. It should be used as a guide only and not as a substitute for obtaining legal advice. Specific legal advice should be sought where required.