Practical Law

In Aecom Design Build Ltd v Staptina Engineering Services Ltd, Fraser J held that an adjudicator had not acted outside of her jurisdiction or in breach of the rules of natural justice by deciding how deductions for alleged defects should be assessed under an NEC Engineering and Construction Short Subcontract.

The decision provides a powerful reminder that adjudication is merely a temporary resolution of any particular dispute and that, only in the plainest of cases, will the court uphold an enforcement challenge on the grounds of excess of jurisdiction or a breach of the rules of natural justice.

Aecom Design Build Ltd v Staptina Engineering Services Ltd

AECOM was the main contractor to Thames Water Utilities Ltd for certain treatment works at the Long Reach treatment works. AECOM entered into a sub-contract with Staptina dated 23 May 2014 whereby AECOM engaged Staptina to undertake mechanical installation works at Long Reach. This sub-contract was on the NEC Engineering and Construction Short Subcontract form June 2005, with amendments dated September 2011, and other bespoke amendments.

By a letter dated 30 March 2016, AECOM terminated its sub-contract with Staptina.  Thereafter, the parties were in dispute about the amount due to Staptina on termination.

One of the issues in dispute was whether AECOM was entitled to make deductions from Staptina’s termination account for alleged defects in Staptina’s work. This was referred to an adjudication by Staptina in what was the third adjudication between the parties.  Staptina’s claim was for a declaration that, following termination:

“AECOM was not entitled to make any deductions against [Staptina’s] termination account for alleged defects not rectified or at all, or such declaration as the Adjudicator deems proper.”

The adjudicator’s decision

The adjudicator (Ms Gaynor Chambers) decided that, contrary to Staptina’s claim, AECOM was entitled to make deductions from Staptina’s termination account for alleged defects in Staptina’s work. However, the adjudicator went on to find that those deductions were limited to the sums that it would have cost Staptina to rectify the relevant defects. It was this second part of the adjudicator’s decision that AECOM challenged by way of a Part 8 declaration.

If AECOM’s challenge was upheld, it was common ground between the parties that the offending parts of the decision would be severed from the balance of the decision.

AECOM argued that, by going on to decide that deductions for alleged defects were limited to the notional cost to Staptina of correction, the adjudicator exceeded her jurisdiction and/or acted in breach of the rules of natural justice.

Excess of jurisdiction

In respect of jurisdiction, AECOM argued that the issue of how deductions should be assessed in the event that (contrary to Staptina’s claim) they fell to be made, was not referred in the notice of adjudication, and nothing raised by AECOM by way of defence or by the parties’ conduct during the adjudication operated to extend the adjudicator’s jurisdiction to encompass this issue.

Fraser J rejected this argument. He found that the notice of adjudication expressly defined the dispute by reference to how, in principle, the deductions were to be assessed.  However, even if he was wrong about that, the judge held that the adjudicator’s jurisdiction was widened by the contents of the response, which he found included a submission relating to how the deductions were to be assessed.

Breach of rules of natural justice

In respect of natural justice, AECOM argued that it did not have a reasonable opportunity of addressing the issue of how deductions for defects should be assessed. In short, AECOM contended that this issue had not been fairly canvassed during the adjudication.

Fraser J rejected this argument. He held that the adjudicator decided a point of importance on the basis of the material before her, and on a basis for which neither party had contended, and she was entitled to do so. The adjudicator was not bound to accept only one of the two alternatives put to her by the parties. As the judge said:

“Questions of contractual interpretation in particular will often (if not usually) be capable of more than two possible answers, and so the correct answer (as the adjudicator may see it) may not have been expressly proposed by either one of the parties. That does not mean that by choosing a different answer, the adjudicator is breaching natural justice by failing to notify the parties of this and inviting further submissions. I reject the notion that an adjudicator in particular, with the very tight timescales that govern the process, must inevitably consult the parties again on her draft findings. Ms Chambers did not, in my judgment, go off on a frolic of her own in the Decision, of the type that Akenhead J was referring to in [57](e) of Cantillon Ltd v Urvasco Ltd. She simply chose what she considered to be the correct answer, which was not one of the two potential answers that had been urged on her, one by either party.”

Comment

As Edwards-Stuart J aptly observed in Roe Brickwork Ltd v Wates Construction Ltd, the rule that an adjudicator should not decide a point on a factual or legal basis that has not been argued or put forward in the submissions made to him is often easier to state than to apply.

In AECOM v Staptina, the adjudicator did decide a point on a factual or legal basis for which neither party had contended, but this did not mean that her decision on this point was unenforceable. This was because the court found that the parties were aware of the relevant material and the issue to which it gave rise had been fairly canvassed before the adjudicator.

Parties to adjudication who feel aggrieved at having a point decided against them on a basis for which neither party contended will now need to think very carefully before pursuing an enforcement challenge.

Charles acted for AECOM Design Build Ltd.