Quartzelec Ltd v Honeywell Control Systems Ltd

An adjudicator determining a money claim has jurisdiction to consider any defence open to the responding party, even if the defence was not raised before the adjudication began. Whether the defence succeeds, including whether a withholding notice was required, is ordinarily a decision on the merits within that jurisdiction. Refusing to consider an available defence is a material jurisdictional error and a breach of natural justice. Where one dispute has been referred, a material failure of this kind normally renders the adjudicator’s decision unenforceable as a whole. The court will not sever the decision merely because the omitted defence appears discrete or financially limited.

The claimant sought summary judgment to enforce an adjudicator’s decision awarding approximately £134,708 for a change in the scope of works, together with costs and adjudicator’s fees. The defendant had raised, for the first time in its adjudication response, an omission defence valued at approximately £36,500. It contended that the omission should reduce any amount due on the claimant’s interim payment applications.

The adjudicator held that he lacked jurisdiction to consider the defence because it had not been in play before the notice of adjudication. The issues were whether that conclusion involved a jurisdictional error and breach of natural justice, whether the decision could nevertheless be enforced on the withholding-notice issue, and whether the decision could be severed.

1. Jurisdiction and available defences. The court agreed with the general approach in Cantillon v Urvasco [2008] EWHC 282 (TCC). Where the referred dispute is a claim for payment, the responding party may raise any defence open in law or fact, subject to natural justice. The adjudicator has jurisdiction to consider it, even if it was not previously raised as a discrete ground of defence. The defence may be accepted or rejected in whole or in part.
2. Merits are distinct from jurisdiction. A conclusion that a defence fails because no withholding notice was required, or because its late introduction undermines its evidential merits, is a decision within the adjudicator’s jurisdiction. It is not a jurisdictional ruling preventing consideration of the defence. The adjudicator therefore made a significant jurisdictional error by refusing to consider the omission defence.
3. Natural justice. The defendant was entitled to have its available defence heard. By declining to consider it, the adjudicator failed to perform the task for which he had been appointed and acted contrary to natural justice.
4. Withholding notice. The issue was not independently decided by the adjudicator. The court nevertheless indicated that no withholding notice would have been necessary. Savings arising from an omission could be brought into account in valuing an interim application. If the contract did not require a withholding notice for that valuation, it did not require one before the defence could be raised in a later adjudication concerning the amount properly payable.
5. Severance and outcome. The court followed the conclusion in Cantillon v Urvasco [2008] EWHC 282 (TCC) that, where one dispute has been referred and the adjudicator materially exceeds jurisdiction or breaches natural justice, the decision is not enforceable. The omission defence was an issue within the single referred dispute, not a separate dispute. It was also impossible to be confident that the omitted issue could not have affected the other findings or the costs order. The application for summary judgment therefore failed and the adjudicator’s decision was unenforceable in its entirety.