Defences in adjudication: Quartzelec -v- Honeywell

Adjudicators are obliged to consider all relevant defence by a responding party.

Summing up

The case: Quartzelec Limited -v- Honeywell Control Systems Limited TCC10908

The issue: Whether a responding party can raise defences in an adjudication which had not been rehearsed previously.

The implication: An adjudicator is obliged to consider any arguable defence submitted in an adjudication, even if not propounded previously, if it is relevant to the referred dispute.

A recent unreported case in the TCC has highlighted the dangers of an adjudicator failing to consider a defence offered in an adjudication, where that defence had not been rehearsed previously.

It is settled law that a responding party can offer any relevant or arguable defence in an adjudication and that the adjudicator is obliged to consider such a defence. In the case of Cantillion Limited -v- Urvasco Limited earlier last year, Akenhead J held that an adjudicator is bound to consider "any arguable defence in adjudication whether propounded before the adjudication or not".

The recent case of Quartzelec Limited -v- Honeywell Control Systems Limited has reinforced and developed the court's approach to the obligation of adjudicators to consider defences not raised before adjudication proceedings had commenced.

In this case, Quartzelec had initiated an adjudication against Honeywell in which it sought an increased valuation of the works carried out for Honeywell on a major project in central Liverpool. In the Notice of Adjudication, Quartzelec asked the adjudicator to find that it was entitled to the sum of £465,000 arising from a changed scope of work and for prolongation costs caused by changes to the scope of work.

In its defence, Honeywell argued for the first time that there had been significant omissions on the project which it had failed to consider previously when valuing the works for interim payment purposes.

The effect of these omissions was to reduce substantially the amounts which could be found in Quartzelec's favour.

Quartzelec's position was that Honeywell was attempting to widen the jurisdiction of the adjudication beyond that set out in the Notice of Adjudication. Accordingly, they contended that the adjudicator did not have jurisdiction to consider such a defence. Moreover, they argued that Honeywell's failure to issue an appropriate withholding notice, in respect of the alleged omissions, prevented the matter from being considered in the adjudication.

Increased scope of work

The adjudicator was not persuaded by Honeywell's arguments. He decided that he was constrained by the wording of the Notice of Adjudication and that consequently he could only consider the matters which were said to be in dispute: i.e. the value and payment of the increased scope of work. The omissions relied upon by Honeywell were, according to the adjudicator, of no direct relevance to the claim for payment of the increased scope of work.

In turn, Quartzelec sought summary judgement to enforce the adjudicator's decision in which it was held that Honeywell was liable to pay £135,000 for the change in the scope of works. Honeywell resisted enforcement on the basis that the adjudicator's failure to consider the omissions defence was a significant jurisdictional error and was also a serious breach of natural justice.

The matter came before HHJ Stephen Davies in the Manchester District Registry of the TCC. He reviewed the legal authorities and found the case of Cantillion -v- Urvasco to be of great relevance and assistance.

In adopting the rationale of Akenhead J, HHJ Davies said: "Where the dispute referred to adjudication by a claimant is one which involves a claim to be paid money, it is difficult to see why a respondent should not be entitled to raise any defence open to him to defend himself against that claim, regardless of whether or not it was raised as a discrete ground of defence in the run-up to the adjudication.

"The adjudicator has jurisdiction to, and should, consider any such defence". According to the judge, a failure of the adjudicator to consider such a defence was contrary to the rules of natural justice.

It was of no consequence that a withholding notice had not been issued in respect of the omissions. The judge reasoned that Honeywell was entitled to bring into account, at the interim payment stage, any savings attributable to a variation omitting part of the works.

In his judgement, there was no need to issue a withholding notice to reflect omissions to the scope of the works which had been instructed in accordance with the conditions of contract.

HHJ Davies, in refusing to enforce the adjudicator's decision, declined to sever the value of the omissions from the sum found by the adjudicator. He said that although there were different issues for the adjudicator to decide, there was only one dispute.

According to him, there was a material error of jurisdiction and a breach of natural justice in respect of a single dispute as to the sum due.