GSEL v Sudlows: Adjudication enforcement, natural justice and challenging a decision

Introduction

Adjudication can be a frustrating experience, particularly for those who have been faced with a decision of the adjudicator that is quite obviously (to you) wrong, but nonetheless enforceable.

This situation arises because it has long been accepted that, in adjudication, “the need to have the “right” answer has been subordinated to the need to have an answer quickly…” per Chadwick LJ in Carillion v Devonport Royal Dockyard [2005] EWCA 1358.

The Court’s stance on this issue is born from the original intent of the statutory scheme, which was to provide a means for contractors and subcontractors to address cash-flow problems caused by illegitimate delays or refusals to pay. In order to achieve that, adjudication decisions have to bear the weight of authority, otherwise every adjudication decision would immediately be challenged by the losing party.

The Courts also take into account the fact that the adjudicator is tasked with deciding often very complex and detailed disputes in a very short period of time. Errors in decision-making from time to time are therefore inevitable, but the Courts have determined that that shouldn’t be allowed to undermine the process.

The losing party can of course always re-open the dispute by referring it to arbitration or legal proceedings. However, that is often scant consolation for parties who may have to part with monies related to an (incorrect) adjudication award, even if only on a temporary basis, and (as is usually the case) also have to pay all or a substantial part of the adjudicator’s fees.

Challenging a Decision

Nevertheless, there are limited circumstances where an adjudicator’s decision may be unenforceable, whether it is right or wrong. Generally that will be if the adjudicator has exceeded his or her jurisdiction, or if there has been a breach of natural justice. Natural justice in this context refers to the right to a fair hearing, so to prove that there has been a breach of natural justice, a party needs to show some element of unfairness on the part of the adjudicator.

The scope of such challenges are very limited: “to seek to challenge the adjudicator’s decision on the ground that he has exceeded his jurisdiction or breached the rules of natural justice (save in the plainest cases) is likely to lead to a substantial waste of time and expense” (ibid.). In most cases, therefore, there is unlikely to be any utility served in bringing such a challenge.

GSEL v Sudlows

However, the recent case of Global Switch Estates 1 Limited (GSEL) v Sudlows limited (Sudlows) [2020] EWHC 3314 (TCC) demonstrates that such claims, though difficult, are possible.

GSEL referred to adjudication a dispute about the true value of parts of an interim application for payment made by Sudlows and claimed that, taking into account sums already paid, Sudlows owed around £6.8 million to GSEL.

However, GSEL sought to narrow the scope of the adjudication to exclude issues of whether Sudlows were entitled to further extensions of time and to loss and expense due to the GSEL’s delays. In its response, Sudlows disputed the legitimacy of GSEL’s attempt to confine the scope of the adjudication on the basis that those claims formed part of the interim application that was the subject of the dispute.

The adjudicator considered that GSEL was entitled to limit the scope of his jurisdiction to specified parts of the interim payment application. He therefore concluded that he did not have jurisdiction to award further extensions of time and decide whether Sudlows was entitled to additional loss and expense. The adjudicator’s decision directed Sudlow to pay GSEL approximately £5million. Sudlows refused to pay and GSEL applied to Court for enforcement of the decision.

Sudlows resisted enforcement on the primary ground that the adjudicator had breached natural justice by failing to consider matters relied on by Sudlows in defence of GSEL’s claim, namely its claims for extensions of time and associated loss and expense.

In her judgment, Mrs Justice O’Farrell noted that had GSEL limited the adjudication to considering the valuation of specific elements of the works, it would not have been open to Sudlows to raise defences outside of those specific elements. However, GSEL had also requested the adjudicator to order payment of the net sum considered due. That claim for payment meant that Sudlows were entitled to raise in its defence all matters that would affect GSEL’s entitlement for payment – including any issues outside the specific elements referred by GSEL. As a result, the adjudicator was required to consider the claims for extensions of time and loss and expense raised by Sudlows.

The adjudicator’s error by failing to take into account Sudlows’ defence amounted to a breach of natural justice. That breach was a material breach as it deprived Sudlows of its right to rely upon a substantial part of its defence. Mrs Justice O’Farrell held that the decision was thus unenforceable.

Analysis

The referring party in an adjudication is always entitled to define the dispute to be referred to adjudication; if it wishes to do so, it can confine the adjudication to specific parts of a wider dispute.

Equally, it is not uncommon for the referring party to attempt to frame the dispute being referred in terms intended to avoid consideration of certain points of dispute that may, perhaps, be less favourable for the referring party.

This is a perfectly legitimate tactic, and is often deployed for very good reasons. For example, narrowing a dispute to issues of liability, and excluding quantum, can assist in avoiding the adjudicator being flooded with documentation, and can avoid wasted costs if the issues of liability are determined in such a way as to render issues of quantum irrelevant.

However, a referring party cannot exclude a responding party’s legitimate defences to the claims made against it. Where the relief sought by the referring party is for money (as opposed to mere declarations on certain specific points), it is very likely that the adjudicator will also have to consider any counterclaims the referring party may wish to raise.

GSEL v Sudlows therefore highlights the pitfalls for any referring party that attempts to exclude legitimate defences or counterclaims. GSEL will very likely have incurred significant costs in obtaining and then seeking to enforce a valueless decision.

GSEL and Sudlows are unlikely, however, to have to pay the adjudicator’s fees, which amounted to £81,588 plus VAT. In Systech International Ltd v PC Harrington Contractors Ltd [2012] EWCA Civ 1371, the Court of Appeal held that an adjudicator’s fees are not payable if the decision is unenforceable. Lord Dyson held that the parties’ bargain with the adjudicator was for an enforceable decision.

Small consolation, no doubt, for the parties.