Kompetenz-Kompetenz for adjudicators? The effect of Air Design v Deerglen

Air Design allows an adjudicator much wider scope in determining the issues referred to him, even those relevant to questions of jurisdiction.

The growth of adjudication has, perhaps inevitably, seen a corresponding rise in the number of court challenges to adjudicators’ decisions at the enforcement stage.

It is, of course, well known that a decision cannot be impeached on the grounds that the adjudicator made incorrect findings of fact or erred in law. Given this, and the high hurdle litigants need to overcome to establish a breach of natural justice, parties seeking to resist enforcement often do so by challenging the adjudicator’s jurisdiction. Part of the allure of a jurisdictional challenge was that the existing orthodoxy has dictated that an adjudicator could not give a binding decision on his own jurisdiction.

In Air Design (Kent) Limited v Deerglen (Jersey) Limited [2008] EWHC 3047(TCC), the issue arose as to whether the matters Air Design had referred to adjudication originated out of a single contract. Deerglen argued that some of the disputes arose out of subsequent separate contracts in respect of which the adjudicator did not have jurisdiction, and so he should decline to determine the reference.

Air Design contended that the later agreements were variations to the original contract, and so fell within the adjudicator’s jurisdiction. The adjudicator, conscious that he could not determine his own jurisdiction, made a ‘non-binding’ investigation into the issue and concluded that he ‘should continue’ with the adjudication. He eventually found that Deerglen should pay Air Design £139,964 (excluding VAT and interest).

When Air Design sought to enforce that decision, Deerglen renewed its argument that the adjudicator had no jurisdiction. On the facts, Mr Justice Akenhead held that there had been a single contract that was subsequently varied, and so he did have jurisdiction.

However, Mr Justice Akenhead went on to consider ‘two further factors’ which ‘overrode considerations as to whether or not there were one, two, three or four contracts’.

The first was that the issue of whether there was more than one contract was part of the ‘substantive decision-making process’. The fact-finding process embarked on by the adjudicator necessarily involved deciding whether there were one or more contracts. This was, therefore, a case ‘where substance and jurisdiction overlap’. Deerglen could not challenge the adjudicator’s jurisdiction in the courts without thereby challenging the facts as established by the adjudicator. As an adjudicator’s findings of facts could not be impeached, such a challenge was impermissible.

Second, the adjudication clause was drawn widely, relating to any ‘dispute or difference... under this sub-contract’. Applying Fiona Trust v Privalov [2007] UKHL 40, Akenhead J held that the clause should be construed widely, so as to cover any dispute arising out of the contractual relationship which was not specifically excluded. The judge went on to suggest that there might be instances where there were obviously separate contracts with distinct dispute resolution clauses, in which case separate dispute resolution processes would be appropriate. This was not one of them.

Substance and jurisdiction Air Design offers a welcome solution to the conundrum posed when questions of substance and jurisdiction overlap. A party might argue, for instance, that a contract is void because it was procured by misrepresentation. This issue would impact not only on the merits but also on any question of jurisdiction, since the adjudication clause would also be potentially voided. An adjudicator who found that the contract had or had not been voided would also be making a finding on the validity of the adjudication clause, and thereby illegitimately purporting to make a decision on his own jurisdiction. One view might have been that an adjudicator could not give a binding ruling in such circumstances. Such a view can no longer be sustained in light of Air Design. It is now clear that an adjudicator can give a binding decision on issues in which substance and jurisdiction overlapped.

The Fiona Trust principlesPerhaps more controversial is the importation of the Fiona Trust principles into adjudication. Depending on how broadly the individual adjudication clause is drafted and construed, the adjudicator might be empowered to resolve any dispute even arguably arising out of the construction contract. Parties to a construction contract might be surprised to see an adjudicator ruling on, for example, issues of rectification or fraud. Such facts are far removed from those considered in Air Design itself, and it remains to be seen how Air Design might be applied in radically different factual scenarios, but it is certainly open for parties to contend that an adjudicator has jurisdiction in such circumstances.

No one can pretend that Air Design will put an end to jurisdictional challenges. Arguments might be rephrased to consider whether there was a substance/jurisdiction overlap, or perhaps how a particular adjudication clause should be construed with reference to Fiona Trust. Equally, the adjudication considered in Air Design was not a statutory one, so it is unclear whether this decision will be applied to statutory adjudications under the Housing Grants, Construction and Regeneration Act 1996 (though I tentatively suggest that it will).

Nonetheless, it is certain that Air Design allows an adjudicator much wider scope in determining the issues referred to him, even those relevant to questions of jurisdiction. The ability for adjudicators to give binding decisions on a wider range of issues previously thought possible can only increase the popularity of adjudication - and at a time when cashflow problems in the construction industry are all the more acute.

Alex Wright is a barrister at 4 Pump Court chambers, London, which acted for the claimant in this case