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Natural justice and adjudication

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Posted on 25 September 2013

When a party loses in adjudication, it has to decide whether to comply with the adjudicator’s decision, which often involves paying money to the other side. Sometimes a great deal of money. Equally the successful party has to consider whether he can enforce the decision, in the event the other side does not comply with it.

The courts have made clear that adjudicator’s decisions will be enforced unless the adjudicator lacked jurisdiction, or there has been a breach of the rules of natural justice. This article is concerned with the latter scenario.

What is “natural justice”?

Essentially it involves the right to a fair hearing, and to be heard by an impartial tribunal. Breaches can include the following:

  • Procedural irregularity
  • Failure to act impartially
  • Bias or apparent bias

The issue of an adjudicator breaching the rules of natural justice arose in a case decided in July this year. It was ABB Ltd v Bam Nuttall Limited, in the specialist Technology and Construction Court.

ABB Ltd v Bam Nuttall Limited

The contract between the parties was in the form of an amended NEC3 contract. A dispute arose between the parties concerning, as is often the case, a claim for payment by the sub-contractor, Bam.  Bam referred the dispute to adjudication.  It was seeking £1.5m.

Bam was successful, being awarded just under £1m. So far, so good for Bam.  

However the main contractor, ABB, was not happy with the decision. It went to court to seek a declaration that the adjudicator’s decision was invalid. ABB argued that the adjudicator, in reaching his decision, had relied on a clause in the contract (clause 11.1A) that neither party had referred to in its submissions, and which had not been put to the parties for comment by the adjudicator. ABB said that that amounted to a breach of the rules of natural justice.

When the matter came to court the judge made clear that the mere fact that an adjudicator makes a mistake of law or fact in his decision is irrelevant to the enforceability of that decision.  

The judge also made clear that if an issue arises that has not been put forward by either of the parties, it is perfectly legitimate for the adjudicator himself to raise it with the parties, and to seek their views.

Bam argued that clause 11.1A formed part of the scope of the dispute referred to the adjudicator, and therefore there was no breach of the rules of natural justice.  

However the judge disagreed on that scope argument. He found that the adjudicator had relied upon clause 11.1A in reaching his decision, in circumstances where that clause had not been raised by either of the parties in their submissions. Nor had the adjudicator raised that clause as an issue and sought the parties’ comments on it.

The judge also found that that clause had a significant impact on the decision. It was not some mere technical breach.

The decision

As a result the judge found that there had been a serious breach of the rules of natural justice by the adjudicator. So the judge refused to enforce the decision. It was a costly outcome for Bam. Not only had it seen an award for £1m slip through its grasp, but it would also have had to pay ABB’s costs of the court proceedings.

Had the adjudicator raised the issue of clause 11.1A with the parties prior to issuing his decision, then this may have avoided the above scenario. This case does highlight one of the risks of adjudication, namely that through no fault of either of the parties, the adjudicator does something which renders his decision unenforceable. In large cases such as this the wasted costs can be very significant.  

Thankfully cases such as this are relatively rare, and the vast majority of adjudicators’ decisions are enforced by the courts. Nevertheless parties should consider any adjudicator’s decision carefully before either taking steps to enforce it, or refusing to comply with it.

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