When justice prevails

A recent decision of the Technology and Construction Court in the case of Humes Building Contracts vs Charlotte Homes (Surrey) (4 January 2007) may reflect a greater willingness by the court to refuse to enforce a decision by an adjudicator that is deemed unfair.

A successful challenge to the enforceability of an adjudicator’s decision on the grounds of natural justice is rare. Yet many of us have been on the wrong (and sometimes the right) end of a decision by an adjudicator that is not only incorrect, but has also been arrived at by a manifestly unfair process.

Of particular concern is the adjudicator who takes a new point or adopts an intermediate position, for which neither party is contending, without putting it to the parties before giving a decision.

It is a fundamental principle of natural justice that each side is made aware of the case that has been made against it and has an opportunity to respond.

However, in Carillion Construction vs Royal Devonport, the Court of Appeal agreed with the judge in the first instance that it is often not practicable for an adjudicator to put their provisional conclusions to the parties for comment. Failure to do so would not (except in an exceptional case) constitute such a serious breach of the rules of natural justice that a court would decline to enforce the decision.

So what makes an exceptional case? How extreme should the unfairness be before the court refuses to enforce?

In the Humes case, the employer (Charlotte Homes) purported to terminate a design-and-build contract. The contractor (Humes) argued that this was unlawful. After the purported termination, the contractor issued a document, Valuation 14, which set out its alleged entitlements. These were not paid and the contractor referred the dispute for adjudication.

It is not uncommon for adjudicators to take points of their own without canvassing them first with the parties

Importantly, the contractor did not assert that a withholding notice should have been served in response to the valuation. The main issues in the adjudication were the valuation of the measured works and the extent of, and valuation of, defective works.

In his decision, the adjudicator found he was required to ignore entirely the existence of defective works as the employer had failed to serve a withholding notice against Valuation 14. There was, in fact, no requirement on the employer to serve a notice, not least because under the terms of the contract the contractor was only to be paid for works properly completed. So the adjudicator had got it badly wrong.

The error in itself would not have provided grounds to resist the enforcement of the decision. The contractor applied for summary judgment and the employer opposed the application on a number of grounds, including that the adjudicator had acted contrary to the principles of natural justice in taking a point not advanced by either party and has not raised the point with either of them before reaching his decision.

The judge held that there had been a breach of the principles of natural justice and the adjudicator’s decision would not be enforced. The judge held that the employer had been deprived of any opportunity to persuade the adjudicator that his view of the law was incorrect. As a result, the adjudicator had excluded a very substantial part of the defence without any consideration of its merits. The failure to raise the point about the withholding notice and to invite comments before issuing his decision was considered so unfair to the employer that the court should refuse to enforce the decision.

The Humes case may assist parties seeking to resist the enforcement of an adjudicator’s decisions in circumstances where an important point is taken by an adjudicator without first raising it with the parties.

It is not unusual for adjudicators to take points of their own without canvassing them first with the parties. In cases where the point taken is plainly wrong and the consequences are to deprive a party of part or all of the relief it seeks, the decision will be vulnerable – and rightly so.