The rules of natural justice are that a party to a dispute should be given the right to be properly heard and to respond to the allegations made against them. If new facts and allegations are raised in an Adjudication that were not presented prior to the notice of adjudication, is this a breach of natural justice, with the consequent result that any Adjudicator decision will be unenforceable?
In William Verry (Glazing Systems) -v- Furlong Homes in 2005 the Court asked themselves this question, in particular can a responding party raise for the first time an entirely new defence not argued before the start of the adjudication? If so, can the scope of the dispute be extended by such defence or otherwise be extended beyond the basis identified in the notice of adjudication? In this case Furlong commenced an Adjudication against the contractor William Verry on the whole final account, seeking confirmation that the extension of time granted was correct. William Verry included an updated extension of time claim as part of its defence to Furlong Homes claims for Liquidated Damages. Furlong Homes objected but the Adjudicator decided to allow the new claim by way of defence. Furlong did not like the decision and argued at enforcement that the Adjudicator had no jurisdiction to reach his decision on the basis of the new claim.
HHJ Peter Coulson found that since William Verry was the responding party there was nothing to stop it from submitting a new claim by way of defence. He said “In my judgement Verry were entitled to take whatever points they liked to defend themselves against the assertion that their extension entitlement was limited in the way advanced by Furlong and the Adjudicator was obliged to consider all the points which they raised”.
Importantly he found Furlong had sufficient time to deal with those new submissions and therefore the Adjudicator’s decision was binding upon the parties.
This decision was followed in the case of Quietfield -v- Vascroft of 2007 when Vascroft persuaded the Court of Appeal that a High Court Judge was right not to give Quietfield summary judgment in their application to enforce an Adjudicator's Decision to award liquidated damages. The Court of Appeal decided the Adjudicator had been wrong in deciding that a refusal to award an extension of time (“an EOT”) in an earlier adjudication stopped him from considering new arguments raised by Vascroft as to their EOT entitlement by way of a defence to a second adjudication claim for Liquidated Damages.
In the first adjudication, Vascroft failed to be awarded the full EOT sought because they had not given evidence on reasoned analysis in support of it. Quietfield then started a second adjudication to claim resultant liquidated damages they argued they were entitled to in consequence of the first Adjudicator’s decision. . The Adjudicator refused to consider Vascroft’s new evidence as to their EOT entitlement as a defence to that claim. The Court of Appeal decided that this failure to consider new evidence in support of Vascroft's defence was a breach of natural justice and that the High Court Judge was therefore right not to enforce Quietfield’s claim for summary judgment and accordingly ruled against the payment of liquidated damages by Vascroft to Quietfield as had been ordered by the Adjudicator.
The case of Quartzelec Limited -v- Honeywell Control Systems Limited of 2008 followed the established principle that a responding party can offer any relevant or arguable defence in an Adjudication and that an Adjudicator is obliged to consider such defence, irrespective of whether those arguments had been previously raised. This entitlement was subsequently reinforced by the Judge in the Cantilllion Limited -v- Urvasco Limited case in which it was decided that the Adjudicator is bound to consider “any arguable defence in adjudication whether propounded before the adjudication or not....”
The Quartzelec case developed the courts’ approach to the obligations of Adjudicators to consider defences not raised before Adjudication proceedings had commenced. Honeywell in its defence to Quartzelec’s claims argued for the first time that that there had been significant omissions on the project which Quartzelec had failed to consider previously when valuing the works and which substantially reduced the amount claimed. Quartzelec countered this by arguing that Honeywell was attempting to widen the jurisdiction of the Adjudication beyond that set out in the Notice of Adjudication and that the Adjudicator did not have jurisdiction to consider such a defence.
The Adjudicator agreed and decided that he was constrained by the wording of the Notice of Adjudication and so could only consider the matters which were defined by the Notice of Adjudication as being in dispute. Quartzelec subsequently sought summary judgement to enforce the Adjudicator’s decision in their favour but Honeywell resisted enforcement on the basis that the Adjudicator failed to consider their omissions defence, arguing this was a serious jurisdictional error and breach of natural justice.
The Judge relied upon the rationale of the v- Urvasco case to overrule the Adjudicator’s decision and said:
“Where the dispute referred to adjudication by a claimant is one which involves a claim to be paid money, it is difficult to see why a respondent should not be entitled to raise any defence open to him to defend himself against that claim, regardless of whether or not it was raised as a discrete ground of defence in the run up to the adjudication. The adjudicator has jurisdiction to, and should, consider any such defence”. According to the judge a failure of the Adjudicator to consider such defence was contrary to the rules of natural justice.
The party on the receiving end of an Adjudication will often complain at the short period of notice that is required to respond and to defend it. In the 2009 case of The Dorchester Hotel Limited -v- Vivid Interiors Limited the Dorchester applied for declarations to request a more realistic time table to comply with a Referral Notice to Adjudication where huge amounts of material had been served, some of which was entirely new and showed figures that had changed from what had previously been submitted. They complained that they had been “ambushed” and this led to a risk of a breach of natural justice in the Adjudication.
The TCC decided that although the rules of Natural Justice apply to Adjudications and the courts have the power to intervene in Adjudications to prevent a breach of its principles, they will do so only rarely . This is because the court recognised that Adjudication is a “rough and ready” process and they will treat with scepticism arguments of breaches of natural justice especially where the breach might but has yet to occur as in this case.
The court said it is for the Adjudicator to decide on whether or not he has enough time to conduct an Adjudication fairly. This robust approach was followed in the Bovis Lend Lease -v- The Trustees of the London Clinic case in which the Judge rejected the argument of the defendant employer who tried to resist enforcement in the court by summary judgement because it said that it had been presented with too much material to be considered in the time available. In addition the court criticised them for not raising this point in the Adjudication itself.
The moral of the story is that if a party wishes to resist enforcement of an Adjudicator’s decision on the grounds of a breach of natural justice, they must raise those arguments at the time during the course of the Adjudication.
The courts will not interfere with the right to Adjudicate “at any time” and arguments based on natural justice are not likely to be successful where a defendant to an adjudication claims to have been “ambushed” or swamped with material to deal with within the extremely tight time frame. Whilst there may have been an “ambush” this did not necessarily result in a breach of natural justice, the whole purpose of Adjudication being to ensure that an early resolution of a dispute will be achieved.
Anthony Philpott
11 August 2016
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