Factual and Procedural Background
This case concerns the enforceability of an adjudicator's decision relating to unpaid design costs and fees under a subcontract for works on a major power upgrade for a public transportation network. The main contractor ("Company A") engaged a subcontractor ("Company B") under a contract substantially in NEC3 form. The dispute arose over a compensation event regarding additional survey and design works, specifically a lump sum figure of £1.5 million allegedly agreed for work up to 31 January 2011, and further claims for design work after that date.
Company B referred the dispute to adjudication, claiming that Company A had accepted a late quotation for additional design costs for work performed after January 2011 by operation of contractual provisions. The adjudicator decided in favor of Company B, treating the late quotation as accepted and awarding payment, interest, and costs.
Company A then commenced proceedings seeking a declaration that the adjudicator's decision was invalid due to breaches of natural justice. Company B sought summary judgment to enforce the adjudicator's decision.
Legal Issues Presented
- Whether the adjudicator breached the rules of natural justice by relying on a contractual clause (Clause 11.1A) which neither party had raised or been given the opportunity to address before the adjudicator's decision.
- Whether such breach was material and affected the enforceability of the adjudicator's decision.
- The extent to which errors of law or fact by an adjudicator affect the enforcement of their decisions under the statutory scheme.
Arguments of the Parties
Appellant's Arguments (Company A)
- The adjudicator committed material breaches of natural justice by deciding key issues based on Clause 11.1A, a contractual provision neither party had mentioned in submissions or discussions, nor had the adjudicator raised with the parties before issuing his decision.
- The adjudicator was indiscriminate in his use of Clause 11.1A, relying on it to reject Company A's arguments on waiver and acceptance of quotations.
- The adjudicator failed to address several issues properly, including whether the compensation event CE002 and its sub-element CE002.2B had been properly notified.
Respondent's Arguments (Company B)
- The adjudicator's reference to Clause 11.1A was part of his factual finding that there was no binding agreement on the scope of the £1.5 million lump sum, representing an alternative pleaded case.
- Even if reliance on Clause 11.1A was a breach, it was immaterial because the adjudicator later found that the compensation event CE002 was a single event, and that the late quotation was accepted by operation of contract, rendering earlier findings unnecessary.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Carillion Construction Ltd v Devonport Royal Dockyard Limited [2005] EWCA 1358 |
Established principles on adjudicators' need to observe natural justice; decisions enforceable despite errors unless there is excess of jurisdiction or serious breach. |
Confirmed no challenge to these principles; guided court's approach to breaches of natural justice. |
| Bouygues (UK) Limited v Dahl-Jensen (UK) Limited [2001] All ER Comm 1041 |
Adjudicators' decisions must be enforced even if erroneous in fact, law, or procedure. |
Reinforced the policy of enforcing adjudicator decisions despite errors. |
| Cantillon Ltd v Urvasco Ltd [2008] BLR 250 |
Materiality test for breaches of natural justice: breach must be more than peripheral and relate to decisive or important issues. |
Applied to determine whether adjudicator's failure to raise a clause was material. |
| Herbosch-Kiere Marine Contractors Ltd v Dover Harbour Board [2012] EWHC 84 (TCC) |
Material breach occurs when adjudicator decides on a basis not argued or put to parties without opportunity to comment. |
Supported finding of material breach where adjudicator went "on a frolic of his own". |
Court's Reasoning and Analysis
The court emphasized that adjudicators must observe the basic rules of natural justice, which require that if an adjudicator intends to rely on a point or clause not raised by the parties, the parties must be given an opportunity to address it. The adjudicator in this case relied on Clause 11.1A, a contractual clause neither party had mentioned or been invited to comment on before the decision.
The court rejected speculation about what the adjudicator might have done had the clause not been relied upon, noting that the court's role is not to substitute its own view but to assess whether there was a serious procedural failure.
The adjudicator's decision that there was no binding agreement on the lump sum was significantly based on Clause 11.1A and Clause 66, which the parties had not raised. This reliance constituted a serious breach of natural justice because it concerned a decisive issue central to the dispute.
The court acknowledged that errors of fact or law alone do not amount to a breach of natural justice, but here the procedural failure was serious and material, as it deprived the parties of the opportunity to address a key basis of the adjudicator's decision.
Arguments that the breach was immaterial due to other findings were dismissed because the adjudicator's reliance on Clause 11.1A was not incidental but fundamental. The adjudicator also failed to analyze alternative factual scenarios that could have significantly affected the outcome.
The court noted that the adjudicator's acceptance of late quotations and rejection of alleged unwritten agreements was also influenced by Clause 11.1A, compounding the breach.
Overall, the court concluded that the adjudicator's failure to comply with natural justice in this material respect rendered the decision unenforceable.
Holding and Implications
The court held that the adjudicator's decision was affected by a material breach of the rules of natural justice due to reliance on Clause 11.1A without giving the parties an opportunity to address it.
As a result, the court granted the declaration sought by Company A that the adjudicator's decision was invalid and unenforceable. Company B's application for summary judgment to enforce the decision was dismissed.
The decision directly affects the parties by invalidating the adjudicator's award but does not establish any new legal precedent beyond reaffirming established principles regarding natural justice in adjudication.