Natural Justice

Victory House General Partner Ltd v RGB P&C Ltd15

The Claimant (“VH”) employed the Defendant (“RGB”) under a construction contract made in 2015, (the Contract) for the development and conversion of an existing office building into an 87 bed hotel in Leicester Square, London (the Project).

RGB obtained an adjudicator’s award for the payment of its interim payment application 30 (the Decision). VH sought a declaration that the Decision was invalid for breach of natural justice and certain other declarations relating directly to the substance of the Decision. RGB by way of additional claim sought to enforce the Decision.

At the outset the Court concluded that the claim by VH for a Part 8 declaration on the substantive claim was unsuitable for Part 8 determination. They included matters of disputed fact and could not be decided on the basis of assumed fact which might be challenged at later date.

That left the issue of natural justice to be dealt with in the enforcement proceedings. The Project suffered from delays and the parties entered into a memorandum of understanding (MOU), executed as a deed, which provided for three future stage payments. The essential issue was whether these stage payments were in addition to or substitution for payment under the Contract. VH made the first two payments and then RGB made application 30 under the Contract which VH refused to pay. This dispute was referred to adjudication during which following exchange of written submission, the adjudicator said he would be assisted by “greater detail on the terms/effect of any binding [MOU] (on the assumption at this stage, but without deciding upon the existence of such)”. There was to have been a meeting to explore this enquiry but it proved abortive. The adjudicator emailed certain questions to the parties. Both parties responded. VH asked the adjudicator if there was anything in RGB’s responses that the adjudicator would like them to respond to. He did not reply. In the decision the adjudicator rejected RGB’s primary case that the MOU was not legally binding. However he also rejected VH’s case that the MOU superseded the Contract. He held that the true effect of Recital D of the MOU was to suspend payment of the interim payment obligations under the Contract until such time as one of the provisions (as to the transformer being installed and operational) was satisfied; it did not extinguish the contract payment obligations.

Therefore he determined that interim payment application 30 was properly made and in the absence of a payment or pay less notice was payable.

VH’s case on natural justice was simply that his conclusion as to the true effect of the MOU was not one advanced by either party.

The Court decided there was no breach of natural justice as:

a) The parties knew from the outset that a central question concerned the true and proper construction of the MOU and made detailed submissions on the issue;

b) The adjudicator’s questions made clear he was inviting submissions on Recital D;

c) RGB responded and grappled with the issue. The parties were not ad idem so the question of its construction remained in issue;

d) VH did not respond directly to two of the adjudicator’s questions but reasserted the factual background relied on in its earlier submissions (i.e. its Response). It could not complain now it did not have the opportunity to address the point;

e) It could have sought permission to respond to RBG’s answer to the adjudicator’s questions but chose not to do so;

f) The circumstances fell within the guidance in earlier authority16 namely if either party has argued a point and the other party does not come back on the point, there is no breach of the rules of natural justice in relation thereto. The adjudicator was not on a frolic of his own, and there was no breach of natural justice. Even if the Court was wrong about that, the point raised was one of contractual interpretation and the adjudicator was entitled to arrive at a  conclusion that did not necessarily reflect the parties’ submissions.

This article was originally written and published on the internet by Slater Heelis in June 2018.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.

 

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