Does an arbitration clause make an adjudication award unenforceable without arbitration?

This was the question before the court in the case of Northumbrian Water Ltd v Doosan Enpure Ltd and another [2022] EWHC 2881 (TCC).

This case involved an application by the claimant, Northumbrian Water Ltd (NWL), against the defendant joint venture (the JV) for summary judgment to enforce an adjudication decision, awarding them £22,458,540 plus interest and 90% of the adjudicator’s fees and expenses.

The High Court decided in favour of the claimant that the adjudication decision was valid and that there was no valid reason to stay the proceedings for arbitration.  

Facts of the case

NWL is a statutory body responsible for water collection, treatment, and supply, as well as sewerage.

The defendants are Doosan Enpure Limited and Tilbury Douglas Construction Limited who formed a joint venture for the purpose of contracting with NWL.

A contract was entered into by NWL and the JV in March 2016. Within the contract, there was a ‘Dispute Resolution Option W2’ (the dispute clause), which made provision for disputes to be handled by adjudication. Significantly it included the following provisions:

“The adjudicator’s decision is binding on the parties unless and until revised by the tribunal and is enforceable as a matter of contractual obligation between the parties and not as an arbitral award”

“If, after the adjudicator notifies his decision, a party is dissatisfied, that party may notify the other party of the matter which he disputes and state that he intends to refer it to the tribunal”.

Within the contract, “the tribunal” is specified as “arbitration”.

A dispute arose between the parties due to increasing costs, delays to works and quality issues. NWL terminated the contract on 7 May 2021, which the JV claimed amounted to repudiatory breach of contract.

The matter was referred to adjudication.

The adjudication

At the adjudication, the adjudicator rejected the position of the JV and found that the termination by NWL was indeed valid.

They made declarations to that effect and awarded NWL £22,458,540 (including VAT and interest).

The JV then served on NWL – as they were entitled to under the contract – a Notice of Dissatisfaction disputing the adjudicator’s decision.

In response, NWL issued proceedings to enforce the adjudicator’s original decision.

The proceedings issued by NWL

Responding to the proceedings issued by NWL, the JV claimed in a letter that NWL was in breach of contract by starting proceedings without referring to arbitration and that, as a result, a stay was required for the parties to pursue arbitration first. The JV subsequently served an application to stay proceedings under section 9 of the Arbitration Act 1996.

NWL argued that the adjudication decision was valid and should be enforced. They contended that:

• The JV did not raise any jurisdictional challenges nor did they raise any claims of breach of natural justice in order to challenge the validity of the decision;
• The JV had not indicated any intention to refer the decision to the tribunal;
• The Notice of Dissatisfaction indicated that the JV’s intention was to refer parts of the decision to arbitration, therefore accepting the validity of the decision.

In turn, the JV relied on the dispute provision in the contract; which in their interpretation entitled them to a stay of the claim to allow for arbitration.

The judge’s decision

The judge decided in favour of NWL, refusing the JV a stay of proceedings. There were two main reasons for this decision:

1. The JV had not raised any jurisdictional challenges, and
2. That there had been a breach of natural justice.

The court highlighted that these are the only two instances where an adjudicator’s decision will not be upheld by the court, regardless of whether the adjudicator was correct in law, fact or procedure.

The court said that the JV had not identified any grounds for a jurisdictional challenge to the adjudication decision and therefore has lost any further right to challenge.

Furthermore, referring to the contract, the court considered that the effect of the dispute clause was to render the adjudicator’s decision binding until and unless revised in arbitration, where the adjudicator’s decision could be considered on the merits.

Significance of this case

This case serves as a useful reminder of how adjudicators’ decisions are treated in court.

The High Court in this case restated what is trite law; that the adjudicator’s decision will only be deemed unenforceable in specific circumstances. Namely, where the adjudicator was acting outside of their jurisdiction or where they had breached natural justice (often by failing to answer a question or an issue posed in the adjudication). Therefore, as demonstrated in this case, if one wishes to argue that the decision is invalid for any other reason, it is highly unlikely to succeed.

Rather, arbitration would be how a party may challenge the decision on its merits; the decision itself, however, is not rendered unenforceable by the anticipation that arbitration might follow.

This is a complicated and very technical case, and if nothing else it should highlight the importance of getting good legal advice when a dispute arises during the performance of a construction contract.

Birkett Long has many construction specialists within our Dispute Resolution Team who will be able to provide effective and measured advice should such disputes occur.

Suryen Nullatamby – Senior Associate and Adjudicator

[email protected]