Adjudicating account claims
It has long been established in adjudication cases, such as Carillion v Devonport Royal Dockyard and Pilon v Breyer, that the scope of an adjudicator’s jurisdiction is determined by the notice of adjudication. The responding party cannot widen the scope of the adjudication by raising other disputes in defence.
The adjudicator must answer the dispute referred to him otherwise, he is in breach of natural justice. However, there is a difficulty when the defences that the respondent might wish to raise bring other disputes into question. How can this be resolved when determining the extent of the adjudicator’s jurisdiction? This was a matter raised in Global Switch Estates 1 Ltd v Sudlows Ltd  EWHC 3314 (TCC).
The extent of the adjudicator’s jurisdiction and scope of a dispute: principles from Global Switch v Sudlows
Global Switch commenced their claim for £6.8m from Sudlows, which included an instruction on the adjudicator to “open up, review and revise” but it also included a list of “excluded matters” which did not form part of the dispute.
This was challenged by Sudlows who said that they could raise any defence available to them. Sudlows said that the adjudicator had wrongly concluded that it lacked jurisdiction to deal with the “excluded matters”.
In considering the matter, the Judge, O’Farrell LJ concluded the following principles:
- A referring party is entitled to define the dispute being referred to adjudication by its notice of adjudication and it is entitled to confine the dispute to specific parts of a wider dispute, such as the valuation of particular elements of work forming part of an application for interim payment (paragraph 50(i)).
- 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). A responding party can commence separate adjudication proceedings in respect of other disputed matters (paragraph 50(ii)).
- A responding party is entitled to raise any defences it considers properly arguable to rebut the referring party’s claim. 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 (paragraph 50(iii)).
- 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 (paragraph 50(iv)).
- 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 (paragraph 50(v)).
- 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 (paragraph 50(vi)).
- If the adjudicator asks the relevant question, it is irrelevant whether the answer arrived at is right or wrong. The decision will be enforced (paragraph 50(vii)).
- 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 (paragraph 50(viii)).
- 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 (paragraph 50(ix)).
- If there is a material breach of the rules of natural justice, the adjudicator’s decision will not be enforced (paragraph 50(x)).
O’Farrell LJ concluded that, “The adjudicator's jurisdictional error precluded any consideration of a very substantial part of the defence. In those circumstances, that amounted to a material breach of the rules of natural justice and renders the decision unenforceable.”
Practically using adjudication for account disputes
In adjudication, it is common to refer isolated parts of an interim or final account to adjudication. The entirety of these accounts would be considerable work, particularly if measured works, variations, time and loss and expense were all in dispute. Often both parties are happy to restrict the dispute to an isolated part of the account to save time and money in adjudication. However, Global Switch Estates v Sudlows shows that it is important for party representatives and the adjudicator to give careful consideration to such matters.
Practically, if there is an account dispute it might be better to seek a declaration of the value of specific elements of the works, rather than claiming payment. As O’Farrell LJ made clear in paragraph 50 iv) of her judgment, in those circumstances, “it is not open to the responding party to seek a declaration as to the valuation of other elements of the works”.
If the referring party does seek payment in respect of specific elements of the works, then the referring party and adjudicator must appreciate that 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 payment. O’Farrell LJ makes this clear at paragraph 50 v) of her judgment, and it is consistent with what Coulson LJ said in Pilon v Breyer.
This case was also a useful reminder that if a jurisdictional issue arises during the adjudication, the adjudicator should address this. There is also always the possibility to apply to the court for a declaration on the jurisdiction issue before a potentially unenforceable decision is reached.
Adjudication is meant to be a fast-paced form of dispute resolution. Neither party will want to unnecessarily broaden the scope of the adjudication so that it becomes additionally complex and therefore more at risk of an unsatisfactory decision. When dealing with account claims, it may be important to narrow the issues to the value of certain items, rather than the payment of them, so that the dispute does not broaden into more complicated areas.
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