UK & Europe
Global Switch Estates 1 Limited v Sudlows Limited
Anyone who has had the pleasure of reading submissions or correspondence in an adjudication will know that a reference to the rules of natural justice is never far away. As a result there is sometimes an air of resignation when this type of point is made, or even the suggestion of an act of desperation. The TCC has recently had cause to consider an argument of this sort and Mrs Justice O'Farrell's decision shows that these points can still be well worth making.
In the case of Global Switch Estates 1 Limited v Sudlows Limited, GSEL sought to enforce a circa £5 million award made in adjudication against Sudlows. Sudlows resisted that enforcement based on three arguments:
In the underlying adjudication, Sudlows was engaged to carry out fit out and upgrade works to GSEL's specialist data centre in East London which included chiller upgrade works. The total price for the works was just under £15 million. A series of adjudications was fought between the parties, culminating in the fourth which concerned the correct value of an interim valuation. GSEL attempted to exclude consideration of Sudlows' entitlement to extensions of time and loss and expense from the adjudicator's jurisdiction while simultaneously seeking a decision as to the true value of Sudlows' works for the interim valuation. Sudlows made the point that those issues would have to be considered in the adjudication in order for a true valuation to be reached. The adjudicator decided that his jurisdiction was limited as GSEL had contended, and found that a sum of over £5 million was payable to GSEL by Sudlows. No payment was made and the enforcement proceedings came to be heard in the TCC.
The judgment in this case is notable because it has long been the practice of the Court to enforce adjudication decisions regardless of whether the adjudicator has erred in fact or law. Indeed, this point is made by Mrs Justice O'Farrell herself in her judgment. The TCC's approach has sometimes seemed to hint that if parties want justice they can rely on, they should have come to Court and not adjudicated. The Court of Appeal has previously confirmed that the grounds for challenging adjudication enforcement are limited1. However, those grounds do include where "the manner in which an adjudicator has gone about his task is obviously unfair".
Mrs Justice O'Farrell also referred to Akenhead J's judgment in Cantillon2 where the rules of natural justice for adjudication were considered. In particular, Akenhead J stated that whatever dispute is referred to an adjudicator, it includes any ground which would be a defence in either law or fact to the claim made. Perhaps most convincingly, Mrs Justice O'Farrell also quoted from Lord Briggs JSC's judgment in Bresco3:
“However narrowly the referring party chooses to confine the reference, a claim submitted to adjudication will nonetheless confer jurisdiction to determine everything which may be advanced against it by way of defence, and this will necessarily include every cross-claim which amounts to (or is pleaded as) a set-off".
The Court therefore found, in light of this previous authority, that GSEL had sought to artificially limited the scope of the adjudication so as to deny Sudlows the ability to properly defend itself. The fact that the adjudicator allowed this fetter on Sudlows' defences was a breach of natural justice and therefore rendered the decision unenforceable. The Court found that Sudlows' argument concerning the bank guarantee was not made out as the adjudicator had made findings of fact which disposed of that argument, but in any event the Court refused to enforce any part of the adjudicator's decision.
This judgment shows that the Court will intervene where there is manifest injustice in the way in which adjudications are run and that the rules of natural justice still bite. The judgment is also a warning to adjudication practitioners that trying to be too clever in order to shut off avenues of defence for your opponent might very well backfire.