Farrelly (M & E) Building Services Ltd v Byrne Brothers (Formwork) Ltd

In adjudication enforcement proceedings, a natural justice challenge is waived only by a clear and unequivocal act, undertaken with knowledge of the relevant ground of challenge. An adjudicator does not ordinarily breach natural justice by reaching an intermediate conclusion for which neither party contended, provided the decisive issue has been sufficiently raised and the parties have had a fair opportunity to address it. Summary enforcement remains the norm. A stay based on the successful party’s financial position requires persuasive evidence of probable inability to repay, assessed against the circumstances existing when the contract was made and the effect of the responding party’s own non-payment.

The claimant, a mechanical and electrical subcontractor, obtained an adjudicator’s decision requiring the defendant main contractor to pay sums arising from compensation events and delay under an NEC3 subcontract. The defendant resisted summary judgment, alleging that the adjudicator had breached natural justice by adopting a prospective assessment of direct costs and by rejecting a concurrent-delay defence on a basis not specifically put to the parties. It also sought a stay because of the claimant’s alleged financial weakness.

The court had to determine waiver, the two alleged natural justice breaches, and whether the evidence justified a stay of enforcement.

1. Natural justice and waiver. A party may waive a natural justice objection, but waiver requires knowledge, or imputed knowledge, of the ground and a clear and unequivocal act showing an intention not to rely on it. Continuing with an adjudication does not, without more, amount to waiver. The agreed limited purpose of the draft decision meant that the defendant’s failure to raise its objection at that stage was not such an act.
2. Prospective assessment. The adjudicator had expressly invited submissions on the prospective or retrospective operation of clause 63.1 of the NEC3 subcontract. His conclusion that the relevant “switch date” remained the original date was reached by analysing clauses 62.3 and 64.1, which had been referred to in the parties’ submissions or supporting material. The adjudicator was not required to invite further submissions on every intermediate conclusion. The challenge therefore did not approach the exceptional case where an adjudicator decides the dispute on an entirely unargued basis.
3. Concurrent delay. The general issue of prospective and retrospective assessment had been sufficiently aired. Having concluded that the assessment had to be prospective, the adjudicator was entitled to find that the defendant’s evidence was retrospective and therefore did not establish concurrent delay. That conclusion did not breach natural justice.
4. Stay. The defendant failed to show that the claimant was insolvent or that its financial position had materially worsened since the subcontract was made. Conflicting evidence concerning disputed commercial debts could not establish probable inability to repay. The court therefore granted summary judgment enforcing the adjudicator’s decision and refused a stay.