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What amounts to a breach of natural justice in adjudication?

2019 has seen a myriad of cases before the Technology and Construction Court where parties have sought to prevent enforcement of adjudication decisions on the basis that the Adjudicator has breached natural justice. The Court has now given some useful guidance as to the evidence necessary to overcome the burden of proof in establishing a breach of natural justice.

Adjudicator fails to consider evidence?

The case of J J Rhatigan & Co (UK) Ltd v Rosemary Lodge Developments Ltd [2019] EWHC 1152 (TCC) concerned the final account for a contract regarding the design and construction of six new build residential units and refurbishment works. The Referring Party alleged that the Adjudicator had failed to consider key evidence regarding the final account agreement and, as such, the Adjudicator’s decision was wrong.

Rhatigan claimed that the parties agreed the total sum on the final account would be £8.6m. However, when Rhatigan made an application for payment reflecting this agreement, Rosemary Lodge disputed the existence of such agreement and referred the dispute to adjudication.

The Adjudicator decided that the parties had agreed Rhatigan would be paid the sum of £8.6m. Rosemary Lodge alleged that, in coming to the decision, the Adjudicator had failed to consider the key defence that there was no intention to create legal relations regarding the final account as the Deed of Variation had not been signed and that the Adjudicator had failed to consider a witness statement in support of the defence.

Court’s Decision

The Court was not persuaded on either point. The Court considered that the Adjudicator had indeed considered the Deed of Variation issue but was not persuaded by this as the Adjudicator found there was a binding oral contract. The Adjudicator had also considered all witness evidence and, whilst a statement was not specifically referred to in the decision, the witness statement was simply used to corroborate another witness statement and added nothing substantial. There was therefore no real prospect of successfully arguing that the adjudicator failed to address a key defence.

Adjudicator goes beyond the evidence?

RGB P&C Ltd v Victory House General Partner Ltd  [2019] EWHC 1188 (TCC) concerned claims for extensions of time and loss and expense as part of a final account for a contract relating to the conversion of a building in Leicester Square.  It was alleged that the Adjudicator had both i) gone beyond the evidence presented to him regarding the programming evidence and ii) failed to consider evidence in relation to allegations of fraud.

RGB submitted a final statement adjusting the contract sum to over £11m. This figure included loss and expense based upon an extension of time of 67 weeks. The extension of time claim was rejected by Victory House (VH) and they assessed the contract sum to be under £6m. RGB commenced adjudication. Both parties relied heavily on expert programming evidence. The delay analysis submitted by RGB’s expert was disputed by VH and VH claimed RGB’s sub-contractor claims were suspicious.

The Adjudicator criticised RGB’s expert evidence as lacking rigour and adequate explanation and as such based his decision on his own review of the facts and the parties’ responses to his questions including reviewing the native format programmes and adding in his own logic links. The Adjudicator awarded RGB an extension of time of 46 weeks and identified the adjusted contract sum as £9.7m. The Adjudicator did not comment on VH’s claims that the sub-contactor claims were suspicious.

Court’s Decision 

The Court held that there had been no breach of natural justice simply because the Adjudicator had revised the programme and added his own logic links. The Court added it would have been self-evident that the Adjudicator issued his questions and requested the native programme to be able to interrogate his own logic links. The express issues of the baseline programme and RGB’s adjusted programme meant that the Adjudicator was well within his jurisdiction to reach his own conclusions on the issue.

The challenge in relation to the sub-contractor claims also failed. The Court decided that VH’s argument that the claims were essentially fraudulent was not a clear enough case. A fundamental problem was that VH’s arguments had not gone as far as alleging fraud. In any event, the Court considered that a failure to consider every sub-issue or element of evidence, if there was such a failure, did not render the decision as one reached in breach of the rules of natural justice.

Adjudicator decides on basis of unargued point?

In the case of Corebuild Ltd v Cleaver and another [2019] EWHC 2170 (TCC), concerning the termination of a contract for the design and construction of a single storey rear extension and internal and external refurbishment works to a residential property in London, it was alleged that the Adjudicator had decided the matter on the basis of a point that the parties had not had an opportunity to respond to.

Mr Cleaver and Ms Osmolska, the defendants, on the advice of their Contract Administrator, terminated the contract on the basis that Corebuild was failing to proceed regularly and diligently with the works. Corebuild brought adjudication proceedings disputing the termination. In the adjudication, Cleaver argued that even if the termination had been invalid, it was not a repudiatory breach as they relied on the opinion of their Contract Administrator. Corebuild did not dispute such reliance but considered it irrelevant to the issue of repudiation.

The Adjudicator, however, found that as a matter of fact Cleaver had not relied on the opinion of their Contract Administrator and thus the Adjudicator decided the termination was repudiatory. At no point during the Adjudication had the parties been invited to make further submissions on this point. Cleaver argued that the Adjudicator had breached natural justice and tried to resist enforcement of the decision.

Court’s Decision

On this occasion, the Court decided that there had been a breach of natural justice on the grounds that the Adjudicator had decided the dispute on the basis of a factual ground that had been unargued by either party (indeed, whether there was reliance was not disputed between the parties) and which Cleaver had not been provided the opportunity to comment on.

What do these decisions mean for you?

It is clear from these recent cases that there is a high threshold to overcome to successfully allege a breach of natural justice to prevent the enforcement of an Adjudicator’s decision. The Courts are keen to enforce adjudication decisions save in the most exceptional circumstances and it seems that unless the circumstances are very particular, it may be difficult to succeed with an allegation of a breach of natural justice.

For any more information please contact Lianne Edwards from our Construction & Infrastructure Team on Li.edwards@ashfords.co.uk

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