Adjudication Matters – July 2019

22nd July 2019

Too little, too late… Does an Adjudicator’s failure to consider a witness statement amount to a breach of natural justice?

J J Rhatigan & Co (UK) Limited – and – Rosemary Lodge Developments Limited

Introduction

Despite finding that the Adjudicator had failed to consider witness evidence, the Court enforced an Adjudicator’s decision on the basis that the evidence which had not been considered was not crucial.

Background

In January 2016 Rosemary Lodge Developments Limited (RLD) employed JJ Rhatigan & Co (UK) Limited (JRR) as contractor under a JCT Design and Build (2011) Contract for the construction of 6 residential units in Wimbledon.

A meeting took place between the parties in May 2018 (the May 2018 meeting) during which a figure of £8,600,000 was discussed in settlement of the final account.

In September 2018 JRR made a payment application for this sum. RLD claimed that there was no legally binding agreement regarding the final account, and refused to make payment. JRR subsequently made an application for £12,400,000, reflecting its valuation of the final account without reference to the May 2018 meeting.

RLD again disputed the sum claimed by JRR, and referred the matter to adjudication.

In its Response in the adjudication RLD denied that a legally binding agreement had been reached at the May 2018 meeting. RLD claimed that the parties did not intend to be legally bound by the figure discussed in the meeting and that a deed of variation was required for the agreement to become binding..

A further argument was made by Mr Morgan, an attendee at the May 2018 meeting on behalf of RLD, whose witness statement formed part of RLD’s Surrejoinder and stated “… our hands were tied by what our funders would sign off on and so we could only really deal with principles. Any terms would need to be run passed the funders and lawyers.”

The Adjudicator found that the parties had reached a binding oral agreement during the May 2018 meeting. It was not necessary for the parties to have recorded the precise terms of this agreement in writing. RLD was therefore directed to pay JRR £8,600,000 pursuant to this agreement.

RLD refused to comply with the Adjudicator’s decision, and JRR commenced court enforcement proceedings.

RLD argued that the decision should not be enforced because the Adjudicator had acted in breach of natural justice by failing to consider key elements of RLD’s defence. Specifically, RLD argued that the Adjudicator failed to take into account the evidence provided by Mr Morgan, which it claimed was crucial to the dispute.

Decision

The Court found that the Adjudicator had indeed appeared to overlook the evidence of Mr Morgan in coming to his decision. However, this was not sufficient to persuade the Court not to enforce the decision.

The Court held that, where an Adjudicator fails to take into account an element of evidence, this will not constitute grounds to resist enforcement unless the piece of evidence constitutes a crucial defence.

The argument that RLD could not have agreed to any revised payment plan at the May 2018 meeting without funder approval was not a key defence in this case. In fact, the point did not feature in either the Reply or in the main body of the Surrejoinder, both of which instead emphasised the requirement for any agreement to take the form of an executed deed of variation.

Further, it was only mentioned briefly in the statement of Mr Morgan that funder approval would be required and

Mr Morgan’s evidence added nothing in practical terms to the other witness statements provided by RLD which argued principally the same point – that there was no intention to be legally bound. The Adjudicator expressly referred to the other witness statements in his decision so had considered this argument generally.

Consequently, the Adjudicator’s decision was enforced and the final account was valued at £8,600,000.

Practical Implications

This case illustrates the Court’s robust approach to enforcement of an Adjudicator’s decision in all but exceptional circumstances.

It also highlights the importance of providing all potentially relevant information to the Adjudicator at the earliest opportunity. Had RLD raised the funder approval argument earlier, the Court may have been persuaded that this argument was crucial to RLD’s case.

Crucial elements of a party’s claim should be included in its submissions, rather that solely being contained in a witness statement. Here the Court’s decision was influenced by the fact that RLD failed to raise the issue regarding funder approval in its Response, Reply or Surrejoinder documents.

Finally, the case serves as a helpful reminder to always record the outcome of settlement discussions by way of meeting minutes, and/or a follow up email or letter to confirm any matters which were (or were not) agreed.