Adjudicator’s decision unenforceable based on a breach of natural justice

Published 17 December 2019

Executive Summary

1.  In Corebuild Ltd v Cleaver and another [2019] EWHC 2170 (TCC), the Technology and Construction Court refused to enforce an adjudicator’s decision by reason of a material breach of the rules of natural justice. In reaching its decision, the Court held that the adjudicator had determined a question of repudiatory breach on the basis of a factual finding that had not been argued in submissions, and which the responding party had not had opportunity to respond to or adduce evidence.

Facts

2.  The Defendants had engaged the Claimant under a JCT Immediate Form with Contractor’s Design 2016, for the design and construction of extension works to a residential property in London.

3.  Pursuant to the terms of the contract, two notices were required to terminate the contractor’s employment. The first to put the contractor on notice that the works were not proceeding regularly and diligently, giving time for that to be corrected. The second notice to terminate the contract.

4.  During the course of the works, the Contract Administrator sought to terminate the contract on those terms. The first notice advised that the contract would be terminated in 14 days if the Claimant continued to fail to proceed regularly and diligently with the works. When, in the Contract Administrator’s opinion, the default continued, and matters failed to improve, a second notice was served, terminating the contract.

5.  The Claimant referred the dispute to adjudication, arguing that the Defendants had invalidly terminated the contract and were in repudiatory breach. The Defendants argued that, even if the termination had been invalid, it was not a repudiatory breach as they had relied on the expertise and judgement of the Contract Administrator when terminating the contract.

6.  Importantly, the Claimant did not dispute the fact that the Defendants’ had relied on the Contract Administrator; they instead argued that any such reliance was irrelevant and would constitute repudiatory breach in any event.

7.  The adjudicator found in the Claimant’s favour, finding as a matter of fact that the Defendants had not relied on the Contract Administrator not least as they were both “very much involved” in the administration of the Contract.

8.  The Claimant subsequently applied for summary judgement to enforce the adjudicator’s decision. The Defendants resisted the enforcement, arguing that the adjudicator:

     8.1  Answered the wrong question in relation to contractual termination, with the result that he failed to address the Defendant’s actual case (Ground 1);

     8.2  Had no regard to any of the Defendants’ evidence going to the progress of the works (Ground 2);

     8.3  Rejected the Defendants' submission as to whether wrongful termination was repudiatory on the basis of a point which was unargued and which the Defendants had no opportunity to address (Ground 3);

     8.4  Proceeded to determine an extremely complicated quantum case, so that the adjudicator was considering a dispute which had not crystallised and/or one which the Defendants did not have fair opportunity to deal with (Ground 4).

Decision

9.  The court rejected the arguments put forward in respect of grounds 1, 2 and 4. However, it found under ground 3 that the adjudicator’s decision was unenforceable as a breach of natural justice.

10.  This was because the adjudicator had determined the question of repudiatory breach, not on the basis advanced by the Claimant, but on the factual finding that the Defendant had not relied on the Contract Administrator’s judgment when terminating the contract. This point had not been argued, denying the Defendant the opportunity to address it. The decision was in line with the principles set out in the Court of Appeal decision in Cantillion Limited v Urvasco Limited [2008] EWHC 282.

11.  The Court noted that, although there may be circumstances in which it is possible to demonstrate on summary judgment that the answer the adjudicator arrived at was so obviously correct, that the failure to have allowed the point to be properly ventilated is not material, generally, it is sufficient for a party to show that the substance of the point with which they were deprived of the opportunity to engage with, was properly arguable i.e. it had reasonable prospects of success. Beyond that, the Court should not determine the merits of the point itself on the summary judgment application.

Lessons for the construction industry

12.  The Court’s decision is not unsurprising given that the adjudicator had made decision based on facts, which neither party had argued, and the Defendants had no opportunity to address.

13.  That said, the Courts are generally keen to enforce adjudication decisions. It will, therefore, remain difficult for parties to defend applications to enforce adjudicator’s decisions based on breach of natural justice, where threshold to be overcome is typically high.

14.  The case also acts as a reminder that an adjudicator should decide the dispute based on the submissions which have been made by the parties, otherwise there is a risk that the decision may be challenged and deemed unenforceable.