UK court: natural justice breach after adjudicator 'misled'

Mrs Justice O'Farrell said that the adjudicator had been "misled" as to his jurisdiction by the employer in the case, Global Switch Estates 1 Ltd (GSEL), which had been seeking to enforce the adjudicator's decision before the court. The jurisdictional error by the adjudicator "precluded any consideration of a very substantial part of the defence" which the contractor, Sudlows Ltd, had sought to lead during the adjudication, she said.

Adjudication expert Michael Hopkins of Pinsent Masons, the law firm behind Out-Law, who acted for Sudlows in the case, said that by seeking a monetary sum in an adjudication based on 'true value', GSEL was not permitted to seek to exclude any matters of defence.

"If a party is going to seek a true value adjudication and a payment it has to refer the whole application to which the true value relates, and which goes to money," he said. "The adjudicator has to be allowed to deal with the whole application plus any other defences and cross-claims, such as set-off defences, that the other side might raise," he said.

GSEL had contracted Sudlows to fit out and upgrade its specialist data centre in the listed former Financial Times print works building at East India Docks in London. The work included the installation of five chillers along with connections for an additional eight chillers, along with a full fit out of one of the halls in the building.

The decision to which the judgment applied was the fourth matter between the parties to be decided by an adjudicator. Two of the previous adjudications were so-called 'smash and grabs' in which a party, in this case Sudlows, claimed for the full amount set out in an interim payment notice due to GSEL's failure to serve a valid pay less notice in time. The third adjudication dealt with an application by Sudlows for a contractual extension of time.

GSEL had also made a separate demand under a bank guarantee procured by Sudlows in respect of what it claimed was a breach by Sudlows of its contractual obligations.

In its referral for the fourth adjudication, GSEL had asked the adjudicator to determine the true value of an interim application (interim application 27) made by Sudlows claiming sums in respect of additional works and loss and expense. However, GSEL explicitly excluded other matters that were the subject of the same interim application, including applications for further contractual extensions of time along with loss and expense in respect of delay and disruption related to those further extensions of time.

The adjudicator, in his decision, concluded that GSEL was entitled to limit the scope of his jurisdiction to the specified parts of the interim application. He also concluded that he did not have jurisdiction to award further extensions of time or to decide whether Sudlows was entitled to additional loss and expense.

In her judgment, Mrs Justice O'Farrell re-stated the relevant legal principles in respect of adjudication enforcement. These include that courts will not generally interfere with adjudicators' decisions, as these are intended to be speedy and do not involve the final determination of anybody's rights unless agreed by the parties. Courts can, however, refuse to enforce an adjudicator's decision where the adjudicator "has acted in excess of his jurisdiction or in serious breach of the rules of natural justice".

It was the judge's view that there had been such a breach of the rules of natural justice in this case. This was because Sudlows was not seeking to widen the scope of the adjudication by adding further disputes arising out of the underlying contract with GSEL in its response, but rather "engaging with and responding to the issues within the scope of the adjudication" by raising what it considered to be properly arguable defences.

"Sudlows' additional loss and expense claims were clearly relevant to the valuation of the interim application for the purpose of any payment," the judge said. "They raised a potential defence to GSEL's claim for payment in the adjudication."

"It was a matter for the adjudicator to determine whether, as submitted by GSEL, the loss and expense claims were unsubstantiated and invalid, or whether, as submitted by Sudlows, they amounted to a defence to the sum claimed by GSEL. Unfortunately, the adjudicator did not consider these arguments because he assumed, wrongly, that he did not have jurisdiction to do so," she said.

"The adjudicator was entitled to limit the declaratory relief to the issues of valuation identified by GSEL but determination of the claim for payment required him to consider all of the matters raised by Sudlows in support of its case that it was entitled to additional sums as part of the valuation. The adjudicator's failure to take into account Sudlows' defence based on its additional claims for loss and expense amounted to a breach of the rules of natural justice," she said.