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Sat September 21 2019

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Challenging an adjudicator’s decision

30 Aug George Mills of the law firm Irwin Mitchell finds lessons in the case of JJ Rhatigan & Co (UK) Limited v Rosemary Lodge Developments Limited.

The Rosemary Lodge development, as seen on JJ Rhatigan's website
The Rosemary Lodge development, as seen on JJ Rhatigan's website

There are very few grounds on which someone can resist enforcement of an adjudicator’s decision and the recent case of JJ Rhatigan & Co (UK) Limited v Rosemary Lodge Developments Limited [2019] EWHC 1152 (TCC) provides a useful clarification of the law, at least where breach of natural justice is relied on. 

 Rhatigan was the contractor for Rosemary Lodge Developments (RLD)on the construction of six new-build residential units and the refurbishment of a care home in Wimbledon for around £6.2m.

The parties met in an attempt to agree the final account. Believing an agreement had been reached, Rhatigan submitted an application for payment of £8.6m. Rhatigan followed up by sending a draft deed of variation to RLD. Unfortunately, the parties never executed the deed of variation and RLD disputed an agreement had been reached. Consequently, Rhatigan made a further application claiming a gross sum of £12.4m.  RLD disagreed with this and commenced a true valuation adjudication.

The adjudication

Rhatigan’s primary argument was that at the meeting it was agreed the total amount due was £8.6m. Its alternative argument was that £12.4m was due. RLD disputed that an agreement had been reached because Rhatigan had been informed that RLD needed approval from its funder before anything could be legally agreed.

The adjudicator decided that although the deed of variation had not been executed, the parties had agreed at the meeting that Rhatigan would be paid £8.6m.

Enforcement

RLD did not pay and so Rhatigan applied to the court to enforce the adjudicator’s decision.  RLD’s main defence was that the adjudicator’s decision was reached in breach of natural justice.

RLD argued that the adjudicator’s decision showed he had considered the witness statements of four of the parties who had attended the meeting but not the statement of its own witness, Mr Morgan. In so doing, RLD claimed that the adjudicator had failed to address a key defence to the extent it amounted to breach of natural justice. RLD attached great importance to Mr Morgan’s statement because it was the only one that expressly stated that Rhatigan was made aware in the meeting of the need for funder approval.

What amounts to a breach of natural justice?

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In this case the court set out the starting position on what is needed to prevent enforcement of an adjudicator’s decision, on the grounds of breach of natural justice being:

(i)            there was some plain breach of the rules of natural justice;

(ii)           the breach was material to the outcome of the adjudication; and

(iii)          that because of this material breach it would be unfair to enforce the decision.

The decision

Mrs Justice Jefford held that, even if the adjudicator had not had Mr Morgan’s evidence in mind, this did not amount to more than failing to take into account ‘an element’ of evidence.

On the facts, the court found RLD’s argument that there could be no binding agreement without funder approval was not key defence. It also found that the missed witness statement added nothing to the evidence already given in other witness statements. Consequently, the court could not see how the adjudicator had failed to take into account part of the evidence that would amount to a breach of natural justice. This could only be a minor mistake and one that the court would not be concerned with.  The witness statement was not crucial and therefore the adjudicator’s not taking it into consideration could not be a material breach of natural justice. As such, the court enforced the adjudicator’s original decision.

Final thoughts

This decision provides further clarification for what amounts to a breach of natural justice and how high the threshold is for this defence. It is now clear that an adjudicator’s error in not taking into account a single piece of evidence is not sufficient to satisfy the threshold.

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MPU

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