AT Stannard Ltd (“Stannard”) was employed to repair carriageways and footpaths following underground work carried out by or on behalf of Thames Water. Between 2007 and 2009, it was employed by two brothers, Thomas and James Tobutt, trading as JT Tarmac (“the firm”). In February 2010, the Tobutt brothers incorporated their business as a limited company, JT Tarmac Ltd (“the Company”). From May 2009, Stannard was employed by the firm on behalf of the company, or by the company once it was formed.

Stannard claimed it was entitled to retention monies due to it under the contract with the firm for the period up to May 2009, amounting to approximately £41,200 plus VAT. The Stannard's notice of adjudication was issued in June 2014 and RICS appointed an adjudicator.

The firm was represented by Mr Scott of ISA Management Consultants. Mr Scott's property flooded and there were delays in his receipt of the notice and then the referral. The firm did not serve a formal response, although Mr Scott wrote to the adjudicator on 25 June 2014, advising that his client would participate in the adjudication. He wrote again on 3 July 2014, setting out his client's "initial response", denying any liability for the repayment of the retention money and alleging a counterclaim exceeding £75,000.

The adjudicator issued his decision on 14 July 2014, finding that Stannard was entitled to the retention. He took Mr Scott's letter of 3 July 2014 into account in reaching his decision.

The firm did not pay the sums the adjudicator awarded and the contractor issued enforcement proceedings on 28 August 2014 against the firm. The hearing was fixed for 17 October 2014. Evidence was due to be served by 18 September and, on 14 September, the firm served three witness statements (one from each brother and Mr Scott). James Tobutt said that with his brother he traded as JT Tarmac as a partnership which in 2-12- changed its status to that of a limited company. However, none of the statements suggested Stannard's contract was with anyone other than the firm.

At the hearing before Mr Justice Akenhead, the firm argued that due to a novation, either "inferentially or possibly expressly", Stannard had no contractual right to pursue the firm for the retention. This gave rise to a threshold jurisdictional issue, which meant the adjudicator did not have jurisdiction. The firm sought an adjournment in order to file a further witness statement from Mr Scott and some further written evidence.

Stannard argued that, if this was a jurisdictional challenge, it had not been raised before the court hearing, which meant the firm had waived its right to raise it to challenge the enforcement of the adjudicator's decision.

Akenhead J rejected the jurisdictional challenge and granted summary judgment in the Stannard's favour. However, an application for indemnity costs was rejected as there was "just about an arguable point" that there was a threshold challenge.

The Judge noted that:

(1) On a number of occasions, the Court of Appeal has warned against spurious challenges to adjudicators' decisions (Chadwick LJ in Carillion Construction Ltd v Devonport Royal Dockyard [2005] EWCA Civ 1358);

(2) While the onus is on a claimant in a summary judgment application to show the defendant has no real prospect of successfully defending the claim, if a defendant raises a defence for the first time at the enforcement proceedings, then it must identify that there is some realistically arguable defence. If that defence is a challenge to the enforceability of an adjudicator's decision, it must advance some credible evidence or basis, even if it does not have to prove the defence on a balance of probabilities at the summary judgment stage.

(3) The firm's position was that, as there had been a novation, the adjudicator did not have jurisdiction to deal with the retention claim. As the parties to the construction contract were no longer the firm and Stannard, but the Company and Stannard, there could not be an adjudication between the firm and Stannard. The firm argued that this was a threshold issue, not a jurisdictional issue.

Stannard had submitted that there was no proper evidential basis on which the court could conclude that there had been a novation (or even that there was a realistic prospect of the Defendants establishing at trial that there had been a novation) and that, in any event, having participated in the adjudication without raising any jurisdictional challenge, the Defendants had waived any such challenge. Stannard relied on GPS Marine Contractors Ltd v Ringway Infrastructure Services Ltd [2014] in which Ramsey J said:

"If the party does not raise any objection and participates in the adjudication then, even if there is a defect in the jurisdiction of the adjudicator, that party will create an ad-hoc jurisdiction for the adjudicator and lose the right to object to any decision on jurisdictional grounds."

Akenhead J disagreed with the firm's view that the novation argument was a threshold issue, concluding that it was an argument that "could and should" have been raised in the adjudication. The firm had participated in the adjudication, through Mr Scott, and there was "not one hint or suggestion" that the firm's rights and obligations had been transferred to the Company.

Akenhead J agreed and held that by participating without a reservation meant the firm had waived its right to raise a jurisdictional (or some form of threshold) challenge. Even if the firm could raise the novation issue to prevent enforcement of the adjudicator's decision, it had not put forward an "effective evidential basis". The Judge’s reasoning included the following:

• None of the original witness provided any evidence of novation.
• Mr Scott's second witness statement, served on the day of the hearing, only belatedly referred to the novation.
• Accepting payment from the Company did not demonstrate inferentially that Stannard had agreed to a novation.
• If novation was to be relied on, the firm should have properly pleaded its case.
• There was no good explanation as to why the firm needed a further adjournment to provide evidence of the novation, which would undermine the policy of the Housing Grants, Construction and Regeneration Act 1996 (Construction Act 1996) to provide prompt resolution of disputes arising in connection with construction contracts.

Commentary

This case is a stark reminder of the importance of raising any jurisdiction challenge during the adjudication process and should not be left to be raised in enforcement proceedings. Thus, in any adjudication, a responding party should raise all known defences and challenges during the adjudication and reserve its position to raise the same defences and challenges at the enforcement stage, otherwise the court may view any failure as a waiving of the responding party’s right.