Breaches of natural justice in adjudications

Two recent cases help demonstrate where the threshold lies in a key area for natural justice arguments – consideration of defences and/or counterclaims.

Adjudications are often unpredictable, and the decisions can be difficult to take. Understandably, parties on the wrong end of a decision may seek to push back however possible to avoid enforcement of such decisions. One avenue to explore is whether there has been a breach of natural justice.

Understanding breaches of natural justice

Adjudicators are under a duty to comply with the rules of natural justice. . As such, it is crucial that parties regularly involved in adjudications understand what these rules mean, and how an alleged breach will be assessed.

The rules of natural justice concern principles such as the right to prior notice, to have an effective opportunity to make representations, and to be heard by an impartial tribunal. As such, breaches may include, for example, situations of bias or apparent bias, procedural irregularity or impropriety, or a failure to consider defences.

Successfully arguing a breach of these principles is no easy feat. Courts are uninterested in examining the contents of an adjudicator’s decision with a fine-tooth comb and are generally sceptical when considering arguments that errors by the adjudicator amount to a breach of the rules of natural justice. It is well established that for a breach of natural justice to invalidate a decision, the breach must be ‘material’, which often proves a difficult threshold to reach. An alleged breach may be considered ‘material’ if it is decisive or of ‘ and not simply peripheral or irrelevant.

Recent cases illustrating breaches of natural justice

Two recent cases in the Technology and Construction Court show where the courts will, and won’t, be prepared to accept that an error by an adjudicator is a breach of natural justice. The cases specifically apply these principles in the context of defences and counterclaims, a key area where such breaches are argued, and highlight some important factors to consider when assessing whether enforcement of an adjudication may be avoided due to a breach of natural justice.

Wordsworth Construction Management Ltd v Inivos Ltd t/a Health Spaces [2024] EWHC 617 (TCC)

The defendant was unsuccessful in arguing for a breach of natural justice in this case, and the relevant adjudicator’s decision was therefore enforced. Health Spaces argued that a breach of natural justice had occurred as they believed the adjudicator had not considered aspects of their counterclaim.

The adjudicator’s decision on the counterclaim was “extremely briefly expressed”, and it was clear that they “did not engage at all in consideration of the quantum of those items”. The judge considered this indeed constituted an error of law, but did not amount to a breach of natural justice. The judge made an important distinction between making an error in law and refusing to make a decision at all – which would be a breach of natural justice.

In this case, the adjudicator had mistakenly believed that the counterclaim points failed because of the finding that Health Spaces had repudiated the contract. This was, therefore, not a deliberate failure to consider issues. The reasons for deciding against the counterclaim points were clear, although erroneous. The judge stated that even if there was a failure to consider those issues, it was at most inadvertent, but not deliberate.

Morganstone Ltd v Birkemp Ltd [2024] EWHC 933 (TCC)

In Morganstone, however, the claimant successfully avoided enforcement of an adjudication decision because of a breach of natural justice. This decision was also based on a lack of consideration of cross-claims by the adjudicator, but with key factual differences.

judge considered that there had been a deliberate failure by the adjudicator not to consider the cross-claims. The adjudicator had specifically addressed whether the issues could be considered, and incorrectly found that they fell outside of the scope of the adjudication.

This demonstrates a clear distinction with Wandsworth, where the adjudicator understood the issues were within the scope, did consider them (even if only to a very limited extent), but wrongly believed they failed.

The judge decided the failure in Morganstone to consider the cross-claims was material, in that it would have had a very significant impact on the result. It was also noted by the judge that the adjudicator’s error was due to a deliberate attempt by the other party to try to exclude the relevant issues to gain a tactical advantage, which was again not a factor present in Wandsworth.

It follows therefore that in Morganstone, unlike in Wordsworth, the judge held that a breach of natural justice had occurred, and the decision was unenforceable.

Our five key takeaways:

• Although it is possible to successfully argue that a breach of natural justice has occurred, the threshold remains high. An adjudicator’s decision will be assessed very closely before the court will be prepared to accept there has been a breach.
• Breaches may include bias or apparent bias, or a failure to consider defences or counterclaims.
• A breach will need to be material for the court not to enforce a decision. This means it had a potentially significant impact on the outcome.
• If an alleged breach is a result of a failure to consider defences or counterclaims, consider whether this failure was deliberate, or inadvertent. If only inadvertent, the court is less likely to decline enforcement of the decision.
• A breach is more likely to be found if it is the result of a misguided attempt by the other party to gain a tactical advantage in the adjudication.

Ewan Anthony is a Trainee Solicitor and David Owens is a Partner at Sharpe Pritchard LLP.

This video is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published. If you would like further advice and assistance in relation to any issue raised in this article, please contact us by telephone or email enquiries@sharpepritchard.co.uk