Statutory adjudication in construction disputes was introduced in the UK over 25 years ago. Its success is largely down to the fact that it provides a quick, and relatively cheap, decision which is binding until a final decision is reached in litigation or arbitration. Often, the decision will be accepted and it will be the end of the matter; a survey in 2022 found that less than 5% of cases proceed to litigation or arbitration.
To ensure the process remains effective, the courts have adopted a pro-enforcement policy. It is acknowledged that an adjudicator is faced with a difficult task in trying to resolve what is often a very complex dispute under great time pressures. It is accepted that sometimes the adjudicator will get the answer wrong. Case law quickly established that a decision should nevertheless be enforced unless the adjudicator has exceeded his jurisdiction or there has been a breach of natural justice.
Until this year, cases in which the courts refused to enforce an adjudicator's award for a breach of natural justice were few and far between.
In our previous article on LMND Group Ltd v John Henry Group Ltd (LMND decision), we reported on a rare decision of the TCC in which enforcement of an adjudication award was refused on the basis of a breach of natural justice. Surprisingly, this was swiftly followed by the decision in Premier Modular Limited v Maidstone and Tunbridge Wells NHS Trust (PML decision), in which the court considered similar arguments and again refused to enforce an adjudicator's decision on the basis that the decision had been reached in breach of natural justice.
Similar learning points can be drawn from the two decisions but it is first helpful to look at the PML decision in more detail.
Background to PML decision
Premier Modular Limited ("PML") and Maidstone and Tunbridge Wells NHS Trust ("the Trust") entered into a NEC4 Option A (Priced contract with activity schedule) contract for the design and construction of a new barn theatre. A dispute arose as to whether a compensation event had arisen under the NEC4 contract which PML referred to adjudication.
PML asserted that there was a requirement that the permanent mains water supply be made available no later than 30 October 2023 for testing and commissioning of elements of its work. The supply was not made available until 20 February 2024 causing delay. The Trust's position was that there was no contractual requirement to provide it by any particular date.
PML argued that a compensation event arose under clause 60.1 of the contract. The Trust's defence was that no compensation event had arisen under clause 60.1, and even if there was, any claim for a compensation event would have been time-barred due to a failure to comply with clause 61.3, which covered the notice requirements for a compensation event.
Both parties proceeded on the basis that the only Accepted Programme was the version at Appendix 3 of the contract. PML conceded this in its referral to adjudication but contended that, in some way, delay should be assessed by reference to a later, unaccepted programme.
The Adjudicator concluded that Contract Programme Rev3 30.10.23 became an Accepted Programme even though it had not been accepted in accordance with the procedures set out in the contract. This set the date on which the water main was required as 30 October 2023.
The Adjudicator determined that a compensation event had arisen under clause 60.1(3) when the Trust failed to provide the water main on the date on the Accepted Programme. Notably, neither party had advanced a case on clause 60.1(3) during the adjudication (the parties had addressed only clauses 60.1(1), 60.1(14) and/or 60.1(18)).
The Adjudicator further held that there was no time bar. He accordingly awarded PML c. £1.65 million (and other relief).
The Trust did not pay and PML issued an application for summary judgment to enforce the Adjudicator's decision.
The Trust relied on three grounds in support of their submission that the central findings in the Adjudicator's decision were reached in breach of natural justice:
i) The Adjudicator’s central finding that there had been a Compensation Event was made on a contractual basis that had not been raised by the parties and on which neither party had made submissions.
ii) The Adjudicator failed to address one of the Trust’s defences, namely that PML had failed to comply with a condition precedent relating to notification.
iii) The Adjudicator made a finding that the Accepted Programme had been updated which was contrary to the position of both parties.
Decision in PML
Taking grounds (i) and (iii) together, the court found that the Adjudicator decided the central issue of this case, on a basis that:
"(i) was not argued by either party;
(ii) was directly contrary to the common position that the only Accepted Programme was that at Appendix 3 to the contract;
(iii) was not put by the Adjudicator to the parties."
In reaching that conclusion, the court considered that the Adjudicator had "gone off on a frolic of his own" and had decided the case upon a basis which had not been put forward by either side, without giving the parties an opportunity to comment.
The Adjudicator had relied on clause 60.1 (3) and treated Contract Programme Rev3 as an Accepted Programme, despite neither forming part of the parties' cases. The Adjudicator had formed the view that the case he devised under clause 60.1(3) provided a solution which was “that simple”, even though it had not occurred to either party. Critically, clause 60.1 (3) was not put to the parties for comment before the Adjudicator's decision was issued, depriving them of the opportunity to make submissions on an issue that proved central to the outcome.
With regard to ground (ii), the court held that the Adjudicator had considered the lack of notification defence. The court found that the Adjudicator may have misunderstood the Trust's case or confused the contractual regime for Early Warnings and the notification provisions of clause 61.3. However, that did not amount to a breach of natural justice. That the decision may be wrong was not enough.
Based on the findings to grounds (i) and (iii), the court concluded that the Trust had a real prospect of succeeding in its argument that the Adjudicator's decision was reached in breach of natural justice and dismissed PML's application for summary judgment.
What can we learn from the two recent decisions?
There have now been two recent judgments, where enforcement of an adjudicator's decision has been refused by the court due to a breach of natural justice.
In the LMND decision, the adjudicator had relied on an argument that had not been advanced by either party, including a case that neither party had cited, when dismissing the defendant's defence of estoppel. Further, he had not given either party the opportunity to make submissions on those matters. The court held that this amounted to procedural unfairness. The estoppel argument was potentially decisive and, accordingly, the court held that there had been a material breach of natural justice.
Key takeaways include:
- Adjudicators must act fairly in determining the dispute: Although adjudicators are entitled to take initiative in analysing disputes, they must not decide a case on the basis of a point which the parties have not had an opportunity to address. Where an adjudicator intends to rely on an alternative case or a new line of reasoning, the parties should be afforded an opportunity to make submissions before a decision is reached. The adjudicator must also act fairly by considering all the issues and defences raised. However, provided the correct issues are considered, the court will not, in enforcement proceedings, "pick over a decision and consider which parts are correct and which are more doubtful".
- The breach of natural justice must be serious and material: A breach of natural justice will only prevent enforcement if it could realistically have affected the outcome of the adjudication.
- Adjudication decisions will usually be enforced, but not always: The courts will usually enforce adjudication decisions, but they will refuse them in the rare cases where there has been obvious unfairness.
Both decisions serve as a very important reminder that even though adjudication is designed to be a time effective, and robust process for resolving disputes, this should not be at the expense of procedural fairness.
Has there been a change in law or approach?
Do the two recent cases mark a trend or a change in the law? The short answer is no. The key authority remains Carillion Construction Limited v Devonport Royal Dockyard Limited (2006) in which the Court of Appeal held that the courts should "respect and enforce the Adjudicator's decision unless it is plain that the question which he has decided was not the question referred to him or the manner in which he has gone about his task is obviously unfair. It should be only in rare circumstances that the courts will interfere with the decision of an Adjudicator."
Despite both cases finding against enforcement, the hurdle remains high and the cases should be regarded as merely a coincidence in timing. It will remain rare for an adjudicator's award not to be enforced on the grounds of a breach of natural justice.
Provided that the adjudicator has answered the 'right' question in a fair manner, the court will enforce the decision even if the answer appears to be wrong. The losing party must pay up and then proceed to resolve the issues in court proceedings or arbitration to establish the true position. It is only in the clearest case, that an adjudicator's decision should be challenged on the ground that he has breached the rules of natural justice or exceeded his jurisdiction. To do otherwise is likely to lead to a substantial waste of time and money. The maxim, "pay now, argue later", remains true.
