The decision in LMND Group Ltd v John Henry Group Ltd, handed down at the end of last year, is a rare example of a court refusing to enforce an adjudicator's decision due to a breach of natural justice.
Adjudication is intended to provide a quick, interim resolution to construction disputes, which will remain binding until the dispute is finally decided by litigation or arbitration. Generally, the Technology and Construction Court (TCC) will adopt a strong pro-enforcement stance and an adjudicator's award will be enforced unless the court is satisfied that the adjudicator lacked jurisdiction or there has been a material breach of natural justice.
Background
In May 2023, LMND Group Ltd ("LMND") and John Henry Group Ltd ("JHG") entered into a framework agreement for the provision of sub-contract services. Two sub-contract works directions were issued with the completion of works taking place in 2024.
Following the completion of work under the contract, LMND brought a chain of five separate adjudications against JHG between 2024 and 2025. The fifth adjudication (the subject of these proceedings), was brought by LMND to recover payment on a notified sum basis in respect of fifteen separate applications. The adjudicator decided in favour of LMND and awarded £238,000.00 plus interest in the region of £40,000.00.
LMND issued Part 7 proceedings to enforce the adjudicator's award. JHG resisted enforcement on two grounds, both framed as breaches of natural justice, namely, that the adjudicator:
- Dismissed an estoppel defence by JHG, citing an authority that had not been cited by either party, and not allowing the parties to make submissions in relation to that authority; and
- Failed to consider JHG's interim payment to date in the sum of £209,000.00, which should have off-set any liability.
The court had to consider whether either complaint disclosed a material breach of natural justice sufficient to prevent enforcement of the adjudicator’s decision.
Decision
The TCC dismissed JHG's second argument in relation to the prior interim payments but upheld JHG's first argument in relation to the adjudicator's dismissal of their estoppel defence.
The key issue concerned how the adjudicator dealt with the estoppel defence. In rejecting the defence, the adjudicator relied on an argument that had not been advanced by either party, including a case that neither party had cited. Further, he had not given either party the opportunity to make submissions on those matters. This amounted to procedural unfairness. The estoppel argument was potentially decisive; if it had been accepted by the adjudicator, the court considered that it would have been an end of the case for LMND. Accordingly the court held that there had been a material breach of natural justice and declined to enforce the adjudicator's decision in the fifth adjudication between the parties.
The court emphasised that 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 had not had an opportunity to address. The judge accepted that the adjudicator had effectively decided a case the parties did not argue, which amounted to procedural unfairness.
Key Takeaways
This case serves as a particularly 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. Key takeaways from this judgment include:
- Adjudicators must act fairly in determining the dispute: If an adjudicator puts reliance on an argument or authority which forms the basis of their decision, all parties should be given the opportunity to make submissions on the same.
- 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. This is likely to remain a high hurdle to overcome.
