Coronavirus: Court refuses to stop an Adjudication

The Technology and Construction Court has just handed down its first decision in relation to coronavirus and construction adjudication - so naturally time for an opportunistic article. 

I am referring to the decision in MillChris Developments Ltd v Waters [2020] 4 WLUK 45 which was handed down on 2 April 2020. In this case a developer asked the court to grant an injunction in an on-going adjudication because it believed that certain Covid-19 related issues would result in a breach of natural justice. 

In this article, I explain what the case is all about, what the court decided and what I think the decision will mean moving forward for everyone involved in adjudication. I also go into a bit of general detail on how the courts make decisions in relation to granting or refusing injunctions.  

The facts of the case

The facts of the case are relatively straightforward, so I have bullet pointed them below for ease of digestion:

• In September 2017, the Applicant (who was a developer) carried out works at the Respondent’s property (the Respondent was a homeowner).
• In November 2019, the developer ceased trading.
• In March 2020, the homeowner commenced an adjudication against the developer claiming that she had been overcharged by ￡45,000 and that some of the developer’s works were defective.
• An adjudicator was appointed and set a timetable which required the developer to submit evidence by 3 April 2020. The adjudicator also requested permission to carry out a site inspection on 14 April 2020.
• On 26 March, the developer wrote to the adjudicator and claimed that it was not possible for it to comply with the deadline due to the Covid-19 pandemic. 
• The developer asked for the process postponed until the UK Covid-19 lockdown measures were relaxed.
• The adjudicator proposed a two-week extension to the timetable instead.
• The developer did not agree to the extension.

The developer’s arguments

The developer made an application to the court for an injunction to stop the adjudication process. It argued that this was necessary because, if the adjudication went ahead, it would be conducted in breach of the rules of natural justice because it would not have had sufficient time to prepare its evidence due to the Covid-19 induced ‘lockdown’. To be more specific, the developer argued that:

• It could not obtain evidence from several factual witnesses within the adjudicator’s proposed time frame;
• Its solicitor was self-isolating which made it difficult to give them the necessary papers; and
• It did not have time to instruct an expert to attend the adjudicator’s site inspection.

For anyone who is not that familiar with adjudication, the concept of ‘natural justice’ is a big deal. Not only that, it is an absolute cornerstone of our entire legal system. Natural justice essentially equates to ‘fairness’ in the process of decision-making. The common law recognises two fundamental rules required by a fair procedure:

that a man may not be a judge in his own cause, and that a man’s defence must always be fairly heard

Sorry ladies, the rules above are so old that they bear masculine nomenclature from the courts. They obviously have universal application!

The point is, if a decision offends either of the rules above, the decision will be outside of the jurisdiction of the decision-maker's authority. In other words, the decision would be unlawful.

In the context of the MillChris v Waters case, the developer was essentially arguing that, because it could not properly prepare its evidence due to Covid-19, that its defence would not be fairly heard by the adjudicator and hence the adjudication process would breach the fundamental rules outlined above. 

What the court decided and why

The court applied the American Cyanamid guidelines, rejected the developer’s application and did not grant the injunction.

You might think this runs against the grain of what we discussed above with respect to natural justice, but that is before you hear the court’s very clear reasoning. Before looking at that reasoning, I first want to explain to the non-lawyer reader what the American Cyanamid guidelines are, because I do enjoy divulging important legal knowledge!

The American Cyanamid guidelines

The ‘American Cyanamid guidelines’ is a reference to the guidance set out by the House of Lords (now the UK Supreme Court) in the case of American Cyanamid v Ethicon [1975] AC 396. This guidance is generally used by the courts to help them decide whether or not to grant an injunction. 

The guidelines are not in bullet point form (for good reason), but I have tried my best to do this below:

• The court will ask itself is there a serious question to be tried? – in other words, is there something serious that the court needs to look at in detail – if the answer is no then they will not grant an injunction, if the answer is yes then they move to the next step.
• The court will then consider if the balance of convenience lies in favour of granting the injunction or refusing it – this one is very difficult to explain in a few sentences. In short, the court will take into consideration the effect the injunction would have on both parties and the court will do its best to minimise the risk of doing an injustice by granting or refusing the injunction. The courts take lots of factors into consideration when making this decision. To quote Lord Diplock in the American Cyanamid case “it would be unwise to attempt to even list all of the various matters which may be taken into consideration”. 
• If the balance of convenience does not clearly favour one party over the other, then the deciding factor will be the preservation of the status quo ante – in other words, the courts will make a decision that maintains the state of affairs just before the alleged wrong. This usually means letting the wrong continue and refusing the injunction. 

So to summarise that, the courts do not just grant injunctions willy-nilly. They will only do so if a high threshold has been met by the facts of a case.

The decision in MillChris v Waters

The court began by confirming that it had the power to grant an injunction in an on-going adjudication process, particularly when one party is no longer trading, but that it would only do so rarely and in very clear-cut cases. For anyone who wishes to read around this point, I recommend looking at the recent Court of Appeal decision in Bresco Electrical (in liquidation) v Michael J Lonsdale (2019) EWCA Civ 27.

In terms of the developer’s core arguments (which are bullet pointed in section above) the court decided that:

• The developer’s difficulties in contacting its factual witnesses (a project manager and a former managing director) was not a consequence of the covid-19 outbreak;
• The developer did not provide any suitable reasons as to why the necessary papers could not have been scanned or delivered to its solicitor (or why it didn’t just appoint another one); and
• The parties to the adjudication did not have a right to be present at the Adjudicator’s site inspection.

In light of the above, the court had no difficulty in deciding that there would not be a breach of the rules of natural justice if the adjudication was allowed to continue. Because there was no serious issue to be tried, the injunction was refused (applying our American Cyanamid guidelines).

So what does this decision mean moving forward?

I am sure that the developer in this case must have faced logistical issues in preparing its evidence due to the Covid-19 outbreak. I regularly represent parties in adjudication (sales pitch!) and I know how time consuming preparing evidence can be. That said, the developer was clearly not prejudiced by an inherently ‘unfair’ process as it had the ability, albeit in slightly unusual circumstances, to ensure that its defence was heard. I find it hard to imagine a scenario where the two-week extension proposed by the adjudicator would not have been sufficient for the developer to gather the required evidence in a ￡45,000 dispute.

This case, as ever, turned on its own specific facts. 

What if the key factual witnesses were hospitalised with Covid-19? What if there was physically no way to scan or deliver the papers to the solicitor? What if the Adjudicator requested a hearing and wouldn’t let someone attend because they were displaying symptoms of Covid-19?

Depending on the answers to the hypothetical questions above, the outcome of this case could have been very different. The court noted that it is unprecedented to have an adjudication injuncted because of a pandemic. However, the court also noted that there might be circumstances where an injunction may be granted.

I think that is the key take away here. This case is NOT authority to say that the courts will shy away from giving injunctive relief in an on-going adjudication due to Covid-19. They will if the circumstances warrant it and the high threshold has been met. This case is simply another authority which demonstrates that the courts only grant injunctions in adjudication in rare and very clear-cut cases. 

The next ‘big court decision’ I expect to see is one which relates to a party resisting enforcement of an adjudicators’ decision on the grounds that Covid-19 resulted in a breach of natural justice. If I was a betting man, I would say you should expect to see an article on that within the next 3 months or so!