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Too big for their natural justice breaches

23/05/2019
As the Technology and Construction Court stands firm on enforcing the Adjudicator's decision in a recent UK construction dispute, Fieldfisher construction specialists, David Thorne, Samantha...

A recent dispute over money owed to a contractor for a construction project in southwest London has once again focused attention on the (in)effectiveness of "natural justice" arguments in UK courts.

In the case of JJ Rhatigan & Co (UK) Ltd v Rosemary Lodge Developments Ltd [2019] EWHC 1152 (TCC), heard by Mrs Justice Jefford DBE in the Technology and Construction Court on 12 April 2019, Justice Jefford flatly rejected allegations of a breach of the rules of natural justice, and enforced the Adjudicator's decision that a sum agreed orally between the parties must be paid to the contractor.

Natural justice requires that every party has the right to a fair hearing and the right to be heard by an impartial tribunal.

This issue often arises during the adjudication process – a fixed 28-day procedure introduced by the Housing Grants, Construction and Regeneration Act 1996 – as its quick-fire nature leaves it open to allegations that the process did not comply with the principles of natural justice.

But despite the frequency with which these arguments crop up in adjudication of construction disputes, the number of cases in which they are successful remains relatively small.

Fieldfisher construction specialists, David Thorne and Samantha Thompson, successfully represented client JJ Rhatigan & Co (UK) Limited ("Rhatigan") in the enforcement of an Adjudicator's decision against Rosemary Lodge Developments Limited ("RDL").

Here, we consider the court's willingness to uphold adjudication decisions and the reasons for the unsympathetic approach taken to parties who claim natural justice breaches.

The Rhatigan v RDL dispute

In January 2016, RDL (as employer), and Rhatigan (as contractor) entered into a contract for the construction of six new-build residential units and the refurbishment of the Rosemary Lodge care home in Wimbledon, southwest London.

A dispute arose between the parties regarding the value of the final account (the amount to be paid to Rhatigan by RDL).

Rhatigan's primary case was that, at a meeting in May 2018, the parties reached an agreement of the final account at a sum of £8.6 million.

According to Rhatigan, this agreement was set out in an unexecuted draft Deed of Variation and associated correspondence between the parties.

RDL however argued that no agreement had been reached at the meeting.

They said that the fact the Deed of Variation was unexecuted demonstrated that there was no intent to create legal relations.

RDL also maintained that the Deed of Variation was subject to approval from its funders.

As a consequence, this dispute was referred to the Adjudicator for swift resolution.

The Adjudicator's decision

The Adjudicator decided that, notwithstanding the fact that the Deed of Variation was not executed, a binding oral agreement had been reached as to the £8.6 million value of the final account.

The Adjudicator found that the Deed of Variation was agreed, save for payment terms, as confirmed in correspondence between the parties in August 2018.

RDL's defence

RDL challenged the adjudicator's decision and attempted to resist payment, on the grounds that the adjudicator had breached the rules of natural justice.

It argued that the Adjudicator had "failed to deal with a potentially determinative matter", specifically, a witness statement – prepared by a Mr Morgan who had been present at the meeting at which the final account was agreed.

RDL said that Mr Morgan's witness statement corroborated an earlier witness statement served on RDL's behalf, by reaffirming that there was no intention to create legal relations, as there could not be a binding Deed of Variation without the approval of RDL's funders.

Technology and Construction Court's decision

The courts will only interfere with adjudication decisions in rare circumstances.

In her summary judgment rejecting RDL's natural justice arguments, Justice Jefford cited well-known passages from the Court of Appeal decision in Carillion Construction Limited v Devonport Royal Dockyard [2005] EWCA Civ 1358 (per Chadwick LJ), who cited Akenhead J in Cantillon Ltd v Urvasco Ltd [2008] EWHC 282 (TCC) at [57], stating the following requirements for a breach of natural justice:

a) It must first be established that the adjudicator failed to apply the rules of natural justice;

b) Any breach of the rules must be more than peripheral; they must be material breaches;

c) Breaches of the rule will be material in cases where the adjudicator has failed to bring to the attention of the parties a point or issue which they ought to be given the opportunity to comment upon, if it is one which is either decisive or of considerable importance to the outcome of the resolution of the dispute, and is not peripheral or irrelevant.

Justice Jefford decided that the apparent omission of any consideration of Mr Morgan's second statement, and therefore the 'key' defence that no legal relations were intended to be created, did not have any real prospect of success.

She also stated that the particular reliance placed on the omission of any reference to Mr Morgan's evidence did not take the matter any further.

The three reasons given for this decision are as follows:

1)            The Adjudicator may have rejected the point about funder approval, because it was not consistent with contemporaneous emails; or simply, because he did not accept the evidence.

However, even if the Adjudicator did not have this explanation in mind, that would amount to no more than failing to take into account an element of the evidence, rather than a crucial defence;

2)            The specific case that there could be no binding agreement without funder approval was not, on any view, a key defence; and

3)            Mr Morgan's evidence added nothing to the evidence previously submitted.

This meant that it did not amount to a key defence.

Justice Jefford went on to say that even if the apparent oversight of Mr Morgan's statement did equate to a breach of natural justice, it would not, in this case, be a material breach, because Mr Morgan's evidence was not in any sense crucial.

Conclusion

While natural justice remains a firm principle in English law, its efficacy in construction disputes is very limited.

The Rhatigan v RDL case once again confirmed the Technology and Construction Court's willingness to take a robust stance, where parties resist enforcement in reliance on natural justice arguments.

Further, even where an adjudicator has failed to apply natural justice rules, the court will enforce a decision unless such breach is material, which essentially means it is central to the outcome of the adjudication.

Such circumstances will be extremely rare.

 

David Thorne is a construction partner at Fieldfisher, assisted by senior associate Samantha Thompson and paralegal, Katie Bush. For more information on the firm's contentious and non-contentious construction expertise, please contact the authors or visit the relevant pages on the Fieldfisher website.

 

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