Liverpool City Council v Vital Infrastructure Asset Management [2022] EWHC 1235 (TCC)

In a recent case heard of Liverpool City Council v Vital Infrastructure Asset Management, Liverpool City Council (“LCC”) succeeded in having an adjudicator’s decision declared unenforceable over a question of natural justice. This case is a stark reminder to adjudicators of the risks associated with not giving parties adequate opportunity to respond.

Following a dispute over the maintenance of fencing and associated costs, an adjudication was commenced, under which the adjudicator directed that LCC pay Vital Infrastructure Asset Management (“Vital”) £128,500 plus interest and fees. Interestingly, Vital went into administration the day before the decision was handed down.

LCC did not pay the sum awarded by the Adjudicator, and went further to bring Part 8 proceedings against Vital in an attempt to have the decision determined unenforceable.

LCC argued that the adjudicator had no jurisdiction, saying that he failed to serve LCC in accordance with the relevant contract, had decided a question which had not been referred to him (so his decision was a nullity), and had no jurisdiction to determine the dispute referred, due to it arising under two contracts.

On hearing the submissions, the Judge rejected LCC’s submissions regarding the two contracts issue and the service issue. He said the case being advanced was more of a breach of natural justice argument than a nullity argument and permitted LCC to advance the natural justice issue since it was closely connected to the nullity issue.

The main issue in the decision related to the approach adopted by the adjudicator in relation to a unit of measurement for pricing. When it became clear to the adjudicator that there was an error in the contract, but neither party had mentioned or admitted such an error, it was expected that the parties be asked to make submissions on the issue. However, the adjudicator unilaterally decided that there was an explicit or implicit acceptance of the error arising from a reference to no applicable rates in a notice given by LCC during the course of the project. LCC was not permitted the opportunity to comment, given that the adjudicator’s position appeared for the first time in his decision.

The judge found the conduct of the adjudication to be a “fundamental departure from the obligation to follow a fair procedure” because he had decided that LCC had agreed the existence of a typographical error in the contract – when the point was neither argued by Vital, was not conceded by LCC, and there was there any evidence in support of this conclusion.

The relevant parts of the judgment stated:

“[the Adjudicator] has not, in his supplemental observations, been able to explain in any way which I regard as convincing on what basis he considered that he was entitled to reach the decision he did without allowing LCC the opportunity to address him on the point.

He has not been able to suggest that these departures from natural justice have had no practical adverse effect upon LCC. Indeed, it is apparent that LCC has lost the opportunity to have the substantive arguments which it did put forward determined by him and there is no suggestion or obvious basis for my concluding that these arguments were incontrovertibly misconceived.”

There are some curious elements to this judgment. First, whilst (unsurprisingly) not a party to the proceedings or called by either party as a witness, the adjudicator, as an interested party, was invited to submit a witness statement in the Part 8 proceedings. Second, the court was willing to hear and find in favour of the natural justice argument without it having been raised by LCC in pleadings.  

Given the current trend in law there is a question as to whether Vital (in administration) would have been able to enforce the decision in any event). However, the court clearly thought that this was an instance which offended natural justice and was prepared to decide the case on this basis, despite LCC seemingly not having argued the point. This follows a trend we are seeing in adjudication proceedings of parties attempting to stretch the boundaries of natural justice to avoid the adjudication process. However, this case provides a helpful reminder that parties should be given an opportunity to consider and respond to submissions and arguments adequately to ensure uphold the principles of natural justice.

Full judgment can be found here.

This case report was written by Richard Adams and Oliver Macrae.