…the application of the law with regards to the scope of “breach of natural justice” defences to the enforcement of adjudicator’s awards. It also provides a reminder of both the degree of freedom allowed to adjudicators to decide the dispute referred and the obligation of parties to spell out their case (particularly if that case is fraud) rather than just alluding to it in roundabout terms.
The dispute in the present case was just one of the four that had been referred to adjudication in respect of the contract works undertaken by RGB in respect of the Victory House hotel situated in Leicester Square. At issue in this case was the proper assessment of the Final Statement. The parties were around £4 million apart in their respective assessment, which arose at least in part from the parties’ differing views as to the correct adjustment to be applied to the completion date for the works.
The adjudicator awarded RGB the sum of £1,161,123.57 (plus VAT) – a sum that had be subject to a deduction of £62,142.86 by way of liquidated damages for delay. On enforcement Victory House complained that the adjudicator had acted in breach of natural justice in that he had applied his own analysis of the delay claim without allowing the parties the opportunity the challenge his reasoning and second in respect of sums claimed by RGB for sub-contractors the adjudicator failed to address significant aspects of Victory House’s defence.
Jefford J.’s approach to the law with regards to breaches of natural justice (sufficient to justify the refusal of an enforcement application) was to apply the judgment of Akenhead J. in Cantillion Ltd. Urvasco Ltd. [2008] 282 (TCC).
In so far as jurisdiction challenges Akenhead J. had confirmed that jurisdictional (and natural justice) challenges must be “…plain, clear and relatively comprehensible” and that “The Court should not take an over-analytical approach to questions of jurisdiction and natural justice arising in adjudications under the HGCRA 1996.”
Whilst the test to be applied where the conduct of the adjudicator is impugned as being contrary to natural justice was as follows:
“57…, I conclude as follows in relation to breaches of natural justice in adjudication cases:
(a) It must first be established that the adjudicator failed to apply the rules of natural justice;
(b) Any breach of the rules must be more than peripheral; they must be material breaches;
(c) Breaches of the rules will be material in cases where the adjudicator has failed to bring to the attention of the parties a point or issue which they ought to be given the opportunity to comment upon if it is one which is either decisive or of considerable potential importance to the outcome of the resolution of the dispute and is nor peripheral or irrelevant
(d) Whether the issue is decisive or of considerable potential importance or is peripheral or irrelevant obviously involves a question of degree which must be assessed by the judge in a case such as this.
(e) It is only if the adjudicator goes off on a frolic of this own, that is wishing to decide a case upon a factual or legal basis which has not been argued or put forward by either side, without giving the parties an opportunity to comment or, where relevant put in further evidence, that the type of breach of the rules of natural justice with which the case of Balfour Beatty Construction Company Ltd. v The London Borough of Lambeth was concerned comes into play. It follows that, if either party has argued a particular point and the other party does not come back on the point, there is no breach of the rules of natural justice in relation thereto.”
Extension of Time
The complaint by Victory House was that the adjudicator had conducted his own analysis of the critical pathway, without giving the parties the opportunity to comment on his approach and the fact that he chose to re-work the RGB baseline programme for assessing delay by modifying (as he thought appropriate) the changes to the logic links in that programme inserted by a Ms Turner who had determined RGB’s claim. It was those independent modifications to RGB’s critical pathway that was the source of Victory House’s allegation that there had been a breach of natural justice.
Whilst Jefford J. stated that there might be some apparent merit in Victory House’s case she concluded that that only arose on the basis of a misunderstanding as to what the adjudicator had actually done. As Jefford explained the true position was not that the adjudicator has substituted his view (for that of RGB):
“[38]…. It was rather the product of his decision as to the changes to the baseline programme that Ms Turner has made, and which he rejected, and the subsequent re-running of the programme. The overall extension of time claim was no different but the difference lay in the criticality of relevant events.”
The judge concluding that it must have been self-evident from the adjudicator’s questions and request for the baseline programmes in native format that he intended to conduct his own evaluation of the modifications made by Ms Turner – and whether he would or would not accept her new logic links and the whether to add those of his own. And in those circumstances what the adjudicator did “[44] … could not properly be described as adopting a methodology which he had given the parties no opportunity to comment on.”
Moreover, the judge went on to confirm that the adjudicator’s jurisdiction in adopting (and adopting) the RGB baseline was far wider than contended for by Victory House. Specifically, she concludes that:
“[44] … Victory House’s case amounts to saying that the scope of the adjudicator’s legitimate decision making, in this respect, was severely constrained. For example, if he had decided that even a single Turner logic link was invalid, he would either have had to reject the baseline programme and the RGB claim in its entirety or go through the process of notifying the parties of the view he had formed and seeking further submissions. The adjudicator went somewhat further in imposing his own logic link but that, in my view, was within the bounds of what he had been asked to do….”.
The Sub-Contractor Claims
The second breach of natural justice claim in the enforcement proceedings arose in respect of sub-contractors’ claims for loss and expense, these had all been challenged within the adjudication as not genuine or “manufactured”. However, it was not until the enforcement proceedings that Victory House was prepared to nail its colours to the mast and actually expressly challenge these sub-contractor claims as fraudulent, although on Victory House’s case that allegation should have been clear to the adjudicator in any event from the substance of its pleaded case and as that defence was allegedly not considered by the adjudicator, when determining the loss and expense claim, and therefore any enforcement of that decision would be unfair [58].
The grounds for Victory House’s allegations that the sub-contractor claims were not genuine or were manufactured rested mainly on a claim that the claim letters were all suspiciously similar and that there was inadequate supporting evidence to justify such claims [63]. There was also an allegation that one of the named sub-contractors simply did not exist at the time and therefore could not possibly have a claim to loss and expense [68].
At [52] Jefford J. referred to the principles set out by Coulson J. (as the judge then was) in Pilon v Breyer Group Plc [2011] EWHC 2846 (TCC):
“22.1The adjudicator must attempt to answer the question referred to him. The question may consist of a number of separate sub-issues. If the adjudicator has endeavoured generally to address those issues in order to answer the question, then, whether right or wrong, his decision is enforceable …
22.2 If the adjudicator fails to address the question referred to him because he has taken an erroneously restrictive view of his jurisdiction (and has, for example, failed even to consider the defence to the claim or some fundamental element of it), then that may make his decision unenforceable, either on grounds of jurisdiction or natural justice ….
22.3 However, for that result to obtain, the adjudicator’s failure must be deliberate. If there has simply been an inadvertent failure to consider one of a number of issues embraced by the single dispute that the adjudicator has to decide, then such failure will not ordinarily render the decision unenforceable …
22.4 It goes without saying that any such failure must also be material …. In other words the error must be shown to have had a potentially significant effect on the overall result of the adjudication …
22.5 A factor which may be relevant to the court’s consideration of this topic un any given case is whether or not the claiming party has brought about the adjudicator’s error by a misguided attempt to take a tactical advantage.”
Having carefully reviewed the adjudicator’s decision Jefford J. was entirely satisfied that he had dealt with the defences raised in the adjudication and the evidence put forward by Victory House. Moreover, the learned judge was clear that the allegations made by Victory House in the adjudication fell “…far short of an allegation of fraud.” [74]. Merely claiming that the claims were not genuine or independently produced was more akin to a challenge to the merits of the claims. And that this was “….certainly an inadequate basis on which to argue that Victory House’s case in the adjudication failed to address that defence.”
In the circumstances the adjudicator addresses the questions referred and the defences proffered by Victory House. In those circumstances there was no basis for refusing to enforce the sub-contractor claims by reason of alleged breaches of natural justice.
Conclusions
Where an adjudicator’s decision is tainted by breaches of natural justice / absence of jurisdiction then the court will, of course, refuse enforcement. However, it must be appreciated that case cases will be few and far between and there is nothing in the judgment of Jefford J. to displace that general principle.
It is clear from Jefford J.’s judgment that assertions of breach of natural justice arising from the conduct of adjudicator will be difficult to maintain where the adjudicator’s intended means to answer the question referred should have been clear to the parties. Parties must be astute to the possible consonances of an adjudicator’s questions and requests for further information rather than passively awaiting the decision and then complaining that the adjudicator had failed to give it the opportunity to address the issue.
In relation to the question of the alleged failure of the adjudicator to address a defence raised in the adjudication, then it is obvious that the defence must have been clearly and expressly put. Particularly if that allegation is one of fraud. It is not open to a party to impugn an adjudicator’s decision for failing to address a defence that has not actually been put to him or her but is said simply to have been implicitly raised.