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Simon Arnold discusses the Challenges to Enforcement of an Adjudicator’s Award: Want of Jurisdiction & Breach of Natural Justice

AECOM Design and Build Limited v Staptina Engineering Services Limited

This decision is a useful reminder that adjudication is a temporary resolution of a dispute and that it is only in the most obvious of cases that a Court will uphold a challenge to an adjudicator’s decision based on jurisdiction arguments or alleged breaches of natural justice.

The decision is helpful as it sets out a useful summary of the authorities on these points and warns practitioners against seeking to adjudicate issues which have been resolved in a previous adjudication (unless it is agreed that the decide dispute is binding upon the subsequent adjudicator).

 

A summary of the facts

AECOM was the main contractor to Thames Water for certain treatment works at Long Reach.  Staptina was its sub-contractor engaged on a NEC Engineering and Construction Short Subcontract form dated 23 May 2014, with amendments.

Following three previous adjudications between the parties, on 30 March 2016 AECOM terminated its subcontract with Staptina pursuant to clause 90.3 of the Subcontract, reason 5.  AECOM contended in that letter that there were certain defects to the works and if these were not corrected it would be entitled to have those alleged defects corrected by a third party and that Staptina would be responsible for those costs.

The question as to whether AECOM was entitled to make deductions from Staptina’s termination account was referred to adjudication on 24 November 2016 in which, amongst other things, the following relief was sought:

“a declaration that following termination pursuant to Reason 5 of the Sub-Contract [AECOM] was/is not entitled to make any deductions against [Staptina’s] termination account for alleged Defects not rectified or at all, or such declarations as the Adjudicator deems proper”

 

The adjudicator’s decision

Ms Gaynor Chambers, the Adjudicator, decided in her decision dated 10 January 2016 that AECOM were entitled to make deductions for defects from Staptina’s final account but that right is, “…however confined to a deduction of the sum (if any) it would have cost Staptina to carry out the relevant rectification works had the termination not taken place.”

The parties agreed (a pragmatic approach to the matter going forward, according to Staptina) for the offending parts (if so found by the Court) of the adjudicator’s decision, i.e. those reached in excess of alleged jurisdiction or in breach of rules of natural justice to be excised from the decision.

 

Excess of jurisdiction

AECOM’s case was the adjudicator should not have found that the deductions which AECOM were entitled to make were limited to the sums that it would have cost Staptina to remedy the relevant defects before the work was completed or during the defect limitation period.  Accordingly, the adjudicator had no jurisdiction on AECOM’s case to deal with that matter, all she was entitled to do was answer the dispute on a binary basis:  either “yes” or “no” to the question of whether AECOM was entitled to make deductions for defects.

Fraser J rejected this argument.  He held that the notice of adjudication expressly raised for determination the principle by which the deductions were to be assessed (but not the amounts).  Fraser J summarised and applied the principles in Carillion v Davenport Royal Dockyard [2005] EWCA Civ 1358  and Stellite Constuction Limited v Vascroft Contractors Limited EWHC 792 (TCC); [2016] BLR 402  namely that the courts (and adjudicators and arbitrators) should not adopt an overly legalistic analysis of what the dispute between the parties is.  Fraser J held that the dispute cannot be defined by its potential answers (the binary approach contended for by AECOM) but by the matters set out in the various documents which include the notice of adjudication and the pleadings in the adjudication but also the pre-adjudication correspondence claims and assertions and the evidence submitted to the adjudicator.

 

Breach of natural justice

AECOM said that even if the adjudicator did have jurisdiction to deal with the principle of the calculation of the deduction, there was a breach of natural justice because it did not have an opportunity to meet that case.   This argument was also rejected by Fraser J who applied the reasoning of Edwards-Stuart J in Roe Brickwork Ltd v Wates Construction Ltd [2013] EWHC 3417 (TCC) at [24]:

“there is no rule that a judge, arbitrator or adjudicator must decide a case only by accepting the submissions of one party or the other.  An adjudicator can reach a decision on a point of importance on the material before him on a basis for which neither party has contended, provided that the parties were aware of the relevant material and the issues which it gave rise had been fairly canvassed before the adjudicator”

Fraser J held that the relevant material was before the adjudicator:  the point was one of contractual construction and the way that deductions could be applied by AECOOM, given the termination that had occurred.  The parties were aware of all the relevant material, which comprised the subcontract, the termination letter dated 30 March 2016 and a letter dated 18 November 2016 (which included an appendix 3 which contained details of averaged third party costs for rectifying the alleged defects) and each of the parties provided submissions in relation to them.

 

Comment

Whilst this decision may not break new ground, it does reinforce the point (again) that an adjudication decision is a temporary resolution of a dispute and that such decisions will be enforced regardless of errors of fact or law and that the only way to avoid the temporary binding effect of a decision is to seek to challenge it on the basis of want of jurisdiction or breach of natural justice.  But, for the reasons set out, it is only in the most plain and obvious of cases that challenges to enforcement based on lack of jurisdiction or breach of natural justice are likely to succeed.

Before being called to the Bar, Simon Arnold was a solicitor and partner at DAC Beachcroft for a number of years specialising in claims concerning construction professionals. In addition to his significant construction dispute experience which spans over 18 years, Simon has a number of years experiencing advising insurers on coverage issues and conducting litigation involving coverage disputes. Latterly, Simon has been involved in a number of banking and finance disputes and has experience of complex foreign exchange derivative claims.

 

Contact Simon’s clerks

Francine Kirk on 0113 202 8605

Jordan Millican on 0113 213 520