10/05/2021
The risks of challenging an adjudicator’s decision without sufficient grounds to do so is illustrated by the recent case of Faithdean Plc v Bedford House Ltd (No.1) [2021] 3 WLUK 62, in which the Defendant was ordered to pay the costs of the adjudication enforcement proceedings on an indemnity basis.
The general rule is that an adjudicator’s decisions can only be challenged in very limited circumstances. The Court will enforce the decision unless the paying party can show that:
- the adjudicator had no jurisdiction to make the decision;
- there was a material breach of the rules of natural justice, or
- there has been a fraud.
In the original Faithdean adjudication, the adjudicator’s decision was issued on 7 December 2020. The adjudicator had found that the liquidated damages deductions made by the Employer, Bedford House, were penalty clauses and had ordered that they should be paid back to Faithdean with interest – a figure of at least £1.5 million – by 12 December 2020.
No payment having been received, Faithdean Plc issued enforcement proceedings on 8 January 2021. Bedford House filed an acknowledgment of service, which indicated an intention to defend the whole claim. There were no jurisdictional challenges; nor did it put forward a defence. Instead, it justified its action by stating it wanted to make one payment so it needed to know the precise amount to pay. Bedford House said it was irrelevant that it had not provided a substantive response as the Claimant could be compensated with interest.
Decision
The Court found Bedford House did not put forward a justification or defence for non-payment, save for the “lame submission” that they wanted to make one payment.
The Court therefore awarded Faithdean its costs on an “indemnity” basis. Where the Court makes such an order, the successful party does not have to show its costs were proportionate, and the paying party has the burden of showing if the costs are unreasonably incurred or unreasonable in amount. Accordingly, the rate of the recovery for the successful party is typically higher than it would be on a “standard” basis.
The Court will only order indemnity costs where a party’s conduct is considered unreasonable. In this case, Bedford did not act reasonably by both refusing to pay, and by saying that it would defend the claim when, in reality, there was no justifiable defence.
This decision highlights the Court’s zero tolerance approach to defending adjudication enforcement claims where a defendant knew or ought to known it had no chance of success. Such conduct wastes both legal costs and the Court’s time.
The better course of action for a party faced with an unfavourable adjudication decision is to pay up first, and consider separately (and promptly) whether it has grounds to challenge the decision. However, a party embarking on adjudication should be aware that the options for challenging are likely to be limited.
