Case Nos: HT-2024-CDF-000004 - [2024] EWHC 933 (TCC)

In Global Switch Estates Ltd v Sudlows Ltd [2020] EWHC 4796 (TCC), [2021] BLR 111, (“Global Switch”), O’Farrell J considered the relevant authorities in detail. At [47] she cited the conclusion of Coulson J in Pilon Ltd v Breyer Group plc [2010] EWHC 837 (TCC), [2010] BLR 452:

“22.

As a matter of principle, therefore, it seems to me that the law on this topic can be summarised as follows:

1.

The adjudicator must attempt to answer the question referred to him. The question may consist of a number of separate sub-issues. If the adjudicator has endeavoured generally to address those issues in order to answer the question then, whether right or wrong, his decision is enforceable: see Carillion v Devonport (Footnote: ²).

2.

If the adjudicator fails to address the question referred to him because he has taken an erroneously restrictive view of his jurisdiction (and has, for example, failed even to consider the defence to the claim or some fundamental element of it), then that may make his decision unenforceable, either on grounds of jurisdiction or natural justice: see Ballast (Footnote: ³), Broadwell (Footnote: ⁴), and Thermal Energy (Footnote: ⁵).

3.

However, for that result to obtain, the adjudicator’s failure must be deliberate. If there has simply been an inadvertent failure to consider one of a number of issues embraced by the single dispute that the adjudicator has to decide, then such a failure will not ordinarily render the decision unenforceable: see Bouygues (Footnote: ⁶)and Amec v TWUL (Footnote: ⁷).

4.

It goes without saying that any such failure must also be material: see Cantillon v Urvasco and CJP Builders Ltd v William Verry Ltd [2008] EWHC 2025 (TCC). In other words, the error must be shown to have had a potentially significant effect on the overall result of the adjudication: see Keir Regional Ltd v City and General (Holborn) Ltd [2006] EWHC 848 (TCC).

5.

A factor which may be relevant to the court’s consideration of this topic in any given case is whether or not the claiming party has brought about the adjudicator’s error by a misguided attempt to seek a tactical advantage. That was plainly a factor which, in my view rightly, Judge Davies took into account in Quartzelec (Footnote: ⁸) when finding against the claiming party.

…

26.

… an adjudicator should think very carefully before ruling out a defence merely because there was no mention of it in the claiming party’s notice of adjudication. That is only common sense: it would be absurd if the claiming party could, through some devious bit of drafting, put beyond the scope of the adjudication the defending party’s otherwise legitimate defence to the claim.”

In Global Switch, after her consideration of the Pilon case and other authorities, O’Farrell J offered her own conclusions:

“50.

Applying those legal principles to the circumstances that arise in this case, I make the following observations.

(i)

A referring party is entitled to define the dispute to be referred to adjudication by its notice of adjudication. In so defining it, the referring party is entitled to confine the dispute referred to specific parts of a wider dispute, such as the valuation of particular elements of work forming part of an application for interim payment.

(ii)

A responding party is not entitled to widen the scope of the adjudication by adding further disputes arising out of the underlying contract (without the consent of the other party). It is, of course, open to a responding party to commence separate adjudication proceedings in respect of other disputed matters.

(iii)

A responding party is entitled to raise any defences it considers properly arguable to rebut the claim made by the referring party. By so doing, the responding party is not widening the scope of the adjudication; it is engaging with and responding to the issues within the scope of the adjudication.

(iv)

Where the referring party seeks a declaration as to the valuation of specific elements of the works, it is not open to the responding party to seek a declaration as to the valuation of other elements of the works.

(v)

However, where the referring party seeks payment in respect of specific elements of the works, the responding party is entitled to rely on all available defences, including the valuation of other elements of the works, to establish that the referring party is not entitled to the payment claimed.

(vi)

It is a matter for the adjudicator to decide whether any defences put forward amount to a valid defence to the claim in law and on the facts.

(vii)

If the adjudicator asks the relevant question, it is irrelevant whether the answer arrived at is right or wrong. The decision will be enforced.

(viii)

If the adjudicator fails to consider whether the matters relied on by the responding party amount to a valid defence to the claim in law and on the facts, that may amount to a breach of the rules of natural justice.

(ix)

Not every failure to consider relevant points will amount to a breach of natural justice. The breach must be material and a finding of breach will only be made in plain and obvious cases.

(x)

If there is a breach of the rules of natural justice and such breach is material, the decision will not be enforced.”

For Birkemp, Mr Wygas made two submissions. First, in his skeleton argument but not in his oral submissions, he submitted that Morganstone had no defence to the Part 7 claim because the adjudicator had considered the cross-claims but had decided as a matter of law that Morganstone could not rely on them as they had not been included in the pay less notices. He relied on the basic principle set out at paragraph 8.01 of Coulson on Adjudication (4^th edition):

“As Edwards-Stuart J put it in Urang Commercial Ltd v Century Investments Ltd, ‘it is now firmly established that an error of law or fact made by an adjudicator when deciding an issue referred to him is no defence to an application to enforce the award’.”

I reject both of those submissions.

As to the first submission, Mr Wygas was right not to maintain it in oral argument. The passages in the Decision set out above show that the adjudicator did not address the substance of the cross-claims, because he made the preliminary decision that their consideration fell outside the scope of his jurisdiction. Such a decision is potentially within propositions 2 and 3 in Coulson J’s judgment in the Pilon case at [22].

As to the second submission, Birkemp was not merely seeking a ruling on the appropriate of specific deductions in the pay less notice. It was seeking, and it obtained, an award of payment. Whether or not Birkemp’s drafting could fairly be characterised as “devious” (see the Pilon case at [26]), Birkemp’s manner of drafting the Notice of Adjudication and its subsequent reliance on the confines of that drafting clearly sought to “put beyond the scope of the adjudication the defending party’s otherwise legitimate defence to the claim”—that is, the claim for payment. Birkemp’s tactic amounted to the use of a fallacious argument that, once the validity of the deductions in the pay less notice had been determined, it was entitled to payment of the resulting amount. Morganstone was not seeking to widen the scope of the adjudication by raising other, freestanding disputes. It was engaging with and responding to the issues in the adjudication by raising cross-claims as a defence of set-off to Birkemp’s claim for payment. The matter falls not within O’Farrell J’s propositions (ii) and (iv) but within propositions (iii) and (v). As Lord Briggs JSC stated in Bresco Electrical Services Ltd (In Liquidation) v Michael J Lonsdale (Electrical) Ltd [2020] UKSC 25, [2020] BLR 497, at [44]:

“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.”

It follows that, in my judgment, the adjudicator took an erroneously restrictive view of his jurisdiction. The relevant considerations are, therefore, those in propositions (viii), (ix) and (x) in O’Farrell J’s judgment in Global Switch and principles 2-5 in Coulson J’s judgment in the Pilon case. In the present case, the adjudicator’s failure was deliberate rather than inadvertent, in that he specifically addressed his mind to the question whether the cross-claims could be raised on the adjudication and decided that they could not be raised as they fell outside the scope of the adjudication. The error was material, in that the cross-claims would, if upheld, have had a very significant effect on the overall result of the adjudication. Moreover, the error was brought about by Birkemp’s deliberate attempt to achieve a tactical advantage by confining the scope of the adjudication in such a manner as to exclude potentially relevant defences to the claim for payment.

In these circumstances, I hold that the Decision is unenforceable as having been made on the basis of an error as to the adjudicator’s jurisdiction and in breach of the principles of natural justice.