Birketts recently acted for Barry M Cosmetics Limited (Barry M) to enforce a decision against Merit Holdings Limited (Merit). Barry M had engaged Merit on a large construction project, but had been forced to pay in excess of the true value of the works following a ‘smash and grab’ adjudication by Merit: this dispute related to a valuation of Merit’s true entitlement at final account stage.
Merit resisted enforcement on two grounds.
- That the adjudicator had acted in breach of the rules of natural justice.
- That no right to payment had arisen at the commencement of the adjudication and, therefore, there was no dispute. His Honour Judge Bird rejected those arguments and decided that the adjudicator’s decision should be enforced in full.
A party attempting to resist enforcement proceedings on the grounds of natural justice often find that they face an uphill battle.
The general law on breach of natural justice in adjudication is now-well established, and was summarised in Carillion Construction Ltd v Devonport Royal Dockyard :
- "The adjudication procedure does not involve the final determination of anybody’s rights (unless all the parties so wish).
- The Court of Appeal has repeatedly emphasised that adjudicators’ decisions must be enforced, even if they result from errors of procedure, fact or law: see Bouygues, C&B Scene and Levolux.
- Where an adjudicator has acted in excess of his jurisdiction or in serious breach of the rules of natural justice, the court will not enforce his decision: see Discain , Balfour Beatty and Pegram Shopfitters.
- Judges must be astute to examine technical defences with a degree of scepticism consonant with the policy of the 1996 Act. Errors of law, fact or procedure by an adjudicator must be examined critically before the court accepts that such errors constitute excess of jurisdiction or serious breaches of the rules of natural justice: see Pegram Shopfitters and Amec.”
Merit argued that the adjudicator had not afforded it a fair hearing because he had limited in length and scope the rejoinder and denied them the opportunity to fully respond to Barry M’s delay analysis.
Barry M argued that Merit’s natural justice argument should fail on a number of grounds. These included the existing case law, the adjudicator’s broad powers to control the adjudication procedure, the necessary time restraints that adjudication brings, and perhaps most significantly, that the adjudicator had considered and referred to Merit’s rejoinder, which in fact went beyond the limited scope permitted by the adjudicator in any event. That final point was recognised by the judge, who noted that “It is clear that the rejoinder does not comply with the adjudicator’s direction that it be limited to the ‘fudged concessions’, but in fact, as Merit had forecast …it dealt with the claimant’s delay analysis”.
The judge, as is often the case with natural justice challenges, did not consider that this amounted to a breach of natural justice. Mr Justice Bird concluded that “the adjudicator’s direction that the rejoinder should be limited was perfectly fair and proper... I can see no basis upon which it can properly be said that the adjudicator’s decision was reached otherwise than in accordance with the principles of natural justice”.
The judge also reinforced that parties to construction adjudication are entitled to a fair hearing. A fair hearing entitles each party to know the case against them and have an opportunity to meet it. However, the opportunity to meet the case against him is not an unlimited right and properly understood “the rule simply ensures that the adjudicator has both sides of the argument”.
Merit’s second ground for resisting enforcement was that there was no dispute at the time of Barry M’s referral. Merit’s argument was that because the reference had been made before the final date for payment of the relevant payment, no dispute could have crystallised.
This argument was given short shrift. The judge concluded that “There is nothing in the language of the scheme which suggests that a dispute may only be referred to adjudication once an entitlement to payment has arisen” and that “There was a clear dispute between the parties as to the correct value of the final account and it was entirely appropriate to refer the matter to adjudication”.
A failure to comply with adjudicator’s directions on scope will be something that anyone with experience of adjudication will recognised – but here, it is clear that it may affect any challenge later. Many will also have experienced adjudications where submissions appear never ending with each party vying to have the last word. This case provides a welcome boost to adjudicators who call time or limit submissions when they consider that they have heard both sides of the argument.
It also stands as another stark warning to those parties attempting to resist enforcement proceedings as this case follows the general trend of adjudicator’s decisions being enforced, even where jurisdictional and natural justice arguments are advanced. Absent something extraordinary, it will often be most cost-effective to follow the ‘pay now, argue later’ mantra that the Construction Act was founded on.
For further information, please contact Ben Burt or a member of our Construction and Engineering Team.
This article is from the March 2019 edition of Cornerstone, our newsletter for those working in the construction industry. To download the latest issue, please visit the newsletter section of our website. Law covered as at March 2019.
To keep up-to-date with the latest news, legal updates and seminar information, please register and select the areas that are of interest to you.