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Adjudication: The rules of natural justice

Citation: PC Harrington Contractors Ltd. v Tyroddy Construction Ltd. [2011] EWHC 813 (TCC)

Keywords: Adjudication, enforceability, breach of natural justice, retention

Issue: 

Facts: PC Harrington (“PCH”) were subcontractors on three projects, one of which was Wembley Stadium.  PCH engaged Tyroddy (“TCL”) as sub-subcontractors for the provision of labour and small tools.  The construction contract provided for retention to be paid at a rate of 5%, which was subsequently reduced to 3%.  The payment certificates showed retention to be deducted at 3% and identified the retention as being held “on account.”  Following the completion of the works, no final accounting process was undertaken, but the retention remained as retention.  Four and a half years later, TCL referred a number of contracts to adjudication to claim the outstanding retentions.  Akenhead J was only asked to deal with the Wembley adjudication, as the parties agreed that the issue to be determined was representative of the other projects. 

The notice of referral asked the Adjudicator to determine whether the retentions should have been repaid by reason of an implied term and, if so, what that term should be.  PCH argued that the amount of retention could not be calculated until the final account had been established and, therefore, until then TCL had no basis for asserting that the amount of money retained on the basis of an on-account valuation had become due.  The Adjudicator refused to consider TCL’s arguments regarding the final account as he considered these to be another dispute outside of the matter referred.  As a result, he decided that the retention should have been repaid in accordance with an implied term that half of the retention monies should have been paid at completion of the subcontract works and the remainder 12 months later.  Before Akenhead J, PCH argued that as a matter of law or pursuant to the terms of the contract, PCH was entitled to raise the true value of the final account as a defence by way of abatement, set off or otherwise, to defeat the claim for payment of the retention.  In construing his jurisdiction so narrowly so as to fail to take into account PCH’s defence, the Adjudicator had breached the rules of natural justice.

Held (Akenhead J):  Documents exchanged between parties in adjudication should not be construed as if they were commercial contracts or pleadings.  There are no strict rules as to how the documents should be drafted, but they should set out in a comprehensible form what each party’s case and defence respectively is.  It was sufficiently clear from PCH’s response that they were taking two broad points; (i) the final account had to be ascertained for retention to fall due and (ii) the true value of the final account could reduce the value of the retention.  PCH’s case was that the true value of the work done was less than the gross sums previously certified and, as a result, was a defence to TCL’s claim.  As such, it was incumbent on the Adjudicator to adjudicate upon it.  By ruling on his jurisdiction in such a way as to fail to consider issues regarding the final account, the Adjudicator had failed to consider the merits of the exercise which PCH had asked him to determine in defence to the claim and, therefore, had committed a breach of natural justice.  In addition, in ruling on his jurisdiction without giving the parties the opportunity to be heard on the point, the Adjudicator had committed a further breach of natural justice.  As a result, the Adjudicator’s decision could not be enforced. 

Case report by Catherine Piercy