Adjudication – Separate decisions – Enforcement – Parties referring disputes to two adjudicators – Adjudicators producing two decisions – Whether both decisions enforceable – Whether adjudicator having requisite jurisdiction – Whether adjudicator breaching rules of natural justice – Claims allowed
The claimant was a civil engineering company that carried out construction works in the utilities sector. The defendant was a utilities contractor that Thames Water retained in March 2004 to carry out clean water and network repair and maintenance services. By a written subcontract dated 1 February 2006, the claimant was employed by the defendant to carry out construction work that involved repair, reinstatement and resurfacing of highways.
Following completion of the subcontract works and the termination of the subcontract by early 2008, issues arose between the parties in respect of the evaluation of the final account and to a number of contra-charges that were said to be due to the defendant. Two adjudications involved two adjudicators, who produced two separate decisions.
In the first decision, the adjudicator decided that the defendant should pay £1,835,252.26 interest plus VAT and the adjudicator’s fees. In the second decision, the adjudicator decided and declared that the proper valuation of the subcontract works that allowed for contra charges was £23, 253, 931.09 due to the defendant. That second decision could mean that all or part of the sum decided to be due under the first decision should be repaid, if paid at all. Each party argued that the decision that was adverse to its interests was an invalid decision on the ground of jurisdiction or natural justice. The parties brought claims to enforce the adjudications and issued summary judgment applications. The court directed that the determination of both applications should be made at one hearing.
With regard to the first adjudication, the defendant argued that the decision was unenforceable because the adjudicator had failed to address the merits and make findings in respect of the contra-charges that it had put forward. The adjudicator was bound jurisdictionally to address the alternative case put by the claimant in its referral, and by the defendant in its response, to the effect that the contra-charges claim was to a greater or lesser extent a good or bad one, respectively. Further, the adjudicator had failed to follow the rules of natural justice to deal with the contra-charges claim on its merits.
In respect of the second adjudication, the claimant objected to the jurisdiction of the adjudicator on the ground that the dispute had not crystallised and that the referral and the redress sought was in breach of natural justice.
Held: The claims were allowed.
Adjudicators’ decisions were to be enforced summarily and expeditiously unless a valid jurisdictional or natural justice ground rendered enforcement inappropriate. As a general rule, when two enforceable decisions might or did affect each other, the first decision should be enforced: YCMS Ltd v Grabiner [2009] EWHC 127 (TCC) applied.
However, an issue arose as to how, if at all, the court should deal simultaneously with two adjudication enforcements that decided different things but that might affect on each other. Where the parties to a construction contract engaged in successive adjudications, each focused upon the parties’ current rights and remedies, the correct approach was that, at the end of each adjudication, absent special circumstances, the losing party had to comply with the adjudicator’s decision. It could not withhold payment on the ground of its anticipated recovery in a future adjudication based upon different issues: Interserve Industrial Services Ltd v Cleveland Bridge UK Ltd [2006] EWHC 741 (TCC) applied.
Where two decisions competed, the court had no reason to favour one side or the other if each had a valid and enforceable decision in its favour. How each decision was enforced was a matter for the court. It might be inappropriate to permit a set off of a second financial decision as such where the first decision was predicated upon a basis that there could be no set off.
It was necessary to determine in broad terms what the disputed claim or assertion being referred to adjudication or arbitration was. One had to look at the essential claim made and the fact that it had been challenged as opposed to the precise grounds upon which it had been rejected. The adjudicator or arbitrator had to resolve the referred dispute, which was essentially the challenged claim or assertion but could consider any argument, evidence or other material for or against the disputed claim or assertion in resolving that dispute.
The rules of natural justice would be breached where the adjudicator had failed to bring to the parties’ attention a point or issue that they ought to have been given the opportunity to comment upon and that was either decisive or of considerable potential importance to the resolution of the dispute and was not peripheral or irrelevant. That was a question of degree to be assessed by the court. It was only if the adjudicator went off on a frolic of his own, wanting to decide a case upon a factual or legal basis that had not been argued or put forward, without giving the parties an opportunity to comment or produce further evidence, that the breach of the rules of natural justice came into play: CIB Properties Ltd v Birse Construction Ltd [2004] EWHC 2365 (TCC); [2005] 1WLR 2252, William Verry (Glazing Systems) Ltd v Furlong Homes Ltd [2005] EWHC 138 (TCC) considered.
With regard to the first adjudication, the defendant’s objections had not been made out. The adjudicator’s jurisdiction was defined by the notice of adjudication and the nature of the dispute referred to him. It could not be incumbent upon an adjudicator, at least generally, to include in his or her decision a commentary, let alone findings, upon every issue that arose in the reference, save to the extent that it was necessary to provide reasons and explanations for what he or she did decide. It followed that the first adjudication decision should be enforced.
With regard to the enforceability of the second adjudication decision, the dispute referred to adjudication had crystallised beforehand. The parties were and remained in dispute before and throughout the first adjudication in respect of the contra-charges. Courts should not adopt an over-legalistic analysis of the disputed claim between the parties; the disputed claim was not necessarily defined or limited by the evidence or arguments submitted by either party to each other before the referral to adjudication: Cantillon Ltd v Urvasco Ltd [2008] EWHC 282 (TCC) considered.
It had not been established that this was one of those exceptionally rare cases where the adjudicator had failed to act fairly or apply the rules of natural justice in effect by not resigning and by continuing to issue his decision. He was an experienced adjudicator and there was no hint or suggestion in his decision or in any other evidence that he thought that he could not act fairly in producing the decision he did.
Accordingly, both adjudicators’ decisions were valid and enforceable. The parties and the court were required to give effect to both decisions. On balance, the court would exercise its discretion and direct that the orders should be drawn to reflect the net effect of its judgment upon the pragmatic basis that it would be pointless, at least administratively, for the defendant to hand over the net sum due pursuant to the first adjudication decision to be followed by the claimant having to hand back to the defendant all or the bulk of what had been paid to it.
Steven Walker (instructed by Donald Pugh) appeared for the claimant; Simon Lofthouse QC (instructed by HBJ Gateley Wareing LLP, of Birmingham) appeared for the defendant.
Eileen O’Grady, barrister
