Adjudication: Jurisdiction and Severability

In the following case, the court refused to enforce a decision of the adjudicator on the grounds that the adjudicator made a material jurisdictional error in deliberately declining to consider the employer's set -off defence; and that the deliberate decision amounted to a breach of natural justice.

Pilon Limited v Breyer Group plc [2010] EWHC 837 (TCC)

The employer engaged a contractor to carry out refurbishment work on a redevelopment project in Ealing. The work was divided into two separate sections, batches 1-25 and batches 26-62.

Disputes arose between the parties and the contractor left the site in October 2008. In January 2009 the contractor entered into a company voluntary arrangement. Nine months later in September 2009 the contractor issued a payment application in respect of batches 26-62. Adjudication proceedings followed with the adjudication notice expressly limiting the claim to batches 26-62.

The contractor argued that in the absence of a payment or withholding notice it was entitled to £337,000. The employer argued that the contract did not oblige it to serve such notices; and that it was entitled to set-off a sum of approximately £47,000 which it had over-paid in relation to batches 1-25 (the Over-payment).

The adjudicator found that the absence of payment notices or withholding notices did not mean that the detailed valuation exercise should not be carried out. However, the adjudicator accepted the contractor's submission that he should not consider the set-off for the Over-payment because the notice of adjudication was limited to batches 26-62. After the valuation exercise the adjudicator awarded approximately £207,000 to the contractor.

The employer failed to pay and the contractor issued enforcement proceedings. The employer submitted that:

the decision was unenforceable because the adjudicator had committed a breach of natural justice in failing to consider the Over-payment; in the alternative, that enforcement of the adjudicator's decision should be stayed due to the financial position of the contractor. Did the adjudicator take an overly restrictive view on his own jurisdiction?

The judge summarised the principles as follows:

The adjudicator should attempt to answer the question in front of him. If he has endeavoured to do this then, whether right or wrong, his decision will be enforceable. If the adjudicator took an erroneously restrictive view of his jurisdiction and failed to address the question referred to him...