The recent case of Global Switch Estates 1 Limited (GSEL) v Sudlows Limited (Sudlows) highlights an exception to the courts’ normal practice of enforcing adjudication decisions, based on a breach of natural justice.

Background

Sudlows was engaged in 2017 by GSEL in a project to fit out and upgrade GSEL’s specialist data centre located at East India Dock House in London.

Four adjudications arose following disputes between the parties. These concerned whether particular payment notices were issued on time, applications for extensions of time, whether a further payment notice was valid, and a determination of the true value of parts of certain interim applications.

The decision in the fourth adjudication concerning the true value of parts of certain interim applications was issued on 17 July 2020 (and was later corrected on 21 July 2020). GSEL persuaded the adjudicator that the scope of his jurisdiction was limited to the parts of Sudlows’ interim applications referred to adjudication by GSEL and to the equivalent parts of the payment notices issued by GSEL in response. The adjudicator held that this prevented him from considering, among other things, whether Sudlows was entitled to a further extension of time and related loss and expense as these matters were not included in GSEL’s referral, though they formed part of the relevant applications.

GSEL was ultimately successful in the adjudication, and sought to enforce a multi-million pound award made against Sudlows.

Sudlows resisted enforcement on the ground that the adjudicator had breached natural justice by failing to consider Sudlow’s claims for extension of time, loss and expense and other items included in the interim applications that were the subject of the adjudication.

The case was brought to the Technology and Construction Court, before Mrs Justice O’Farrell.

Decision

Mrs Justice O’Farrell held that the decision of the adjudicator was unenforceable. Sudlows’ claims for loss and expense were clearly relevant and raised a potential defence to GSEL’s claim for payment, but the adjudicator had wrongly assumed he did not have jurisdiction to consider them. 

GSEL had sought to artificially limit the scope of the adjudication to prevent Sudlows having the opportunity to properly defend itself, and as a result, a breach of natural justice was plain and obvious on the face of the adjudicator's decision.

GSEL’s claims for declaratory relief did restrict the adjudicator’s jurisdiction to the parts of the interim applications that those dealt with. However, GSEL’s claim for a net payment in respect of the applications meant the adjudicator was required to consider all matters raised by Sudlows in support of Sudlows’ case that it was entitled to additional sums as part of the interim applications, which included Sudlows’ claims for loss and expense. The adjudicator’s failure to do so was a breach of natural justice.

Implications

The courts will generally respect and enforce adjudicators’ decisions. As stated in Carillion Construction v Devonport Royal Dockyard Ltd [2005] EWCA 1358: “The Court of Appeal has repeatedly emphasised that adjudicators’ decisions must be enforced, even if they result from errors of procedure, fact, or law.”

However in the present case, the concern was not with an error of procedure, fact, or law, but with a breach of natural justice. Essentially, natural justice requires that every party has the right to a fair hearing and the right to be heard by an impartial tribunal.

It was stated in Carillion that entertaining challenges to adjudicators’ decisions on the grounds of an alleged breach of natural justice (“save in the plainest cases”) was likely to lead to “a substantial waste of time and expense”. This left open the possibility that in the ‘plainest cases’ an adjudicator may be found to have taken an unduly restrictive view of jurisdiction leading to the decision being found to be unenforceable, on grounds of natural justice. The present case is an example of this.

It is worth noting that the Scottish courts tend to regard these circumstances as a failure by the adjudicator to exhaust jurisdiction, rather than a breach of natural justice. This highlights that there can be some differences in approach in this area as between the Scottish and English courts.

Conclusion

This case serves as a reminder that it may be more difficult than it first appears for a Referring Party to restrict the scope of an adjudication, and that the principles of natural justice apply to ensure the Responding Party in the adjudication has a fair hearing of its defence, albeit with consequences only for  the ‘plainest cases’.

For tailored advice on this or a related matter, please contact Iain Drummond, Partner in our property and infrastructure disputes team, or your usual Shepherd and Wedderburn contact.

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