Quartzelec Ltd v Honeywell Control Systems [2008 EWHC 3315

This summary was provided by CMS Cameron McKenna LLP.

For more information visit http://www.cms-cmck.com/Construction/Construction-Disputes


The respondent in an adjudication is entitled to raise any defence open to him which relates to the claim, and failure by the adjudicator to consider it will amount to a significant jurisdictional error and a breach of natural justice.

His Honour Judge Stephen Davies, Queen’s Bench Division, Manchester District Registry, Technology and Construction Court


Honeywell, a sub-subcontractor on the Liverpool Paradise Street development, engaged Quartzelec as sub-sub-subcontractor to design, supply, install, document and commission communication systems.  The scope of Quartzelec’s works was varied and Quartzelec sought interim payment (in several consecutive applications) for the revised work scope and associated prolongation costs.  In response to these applications, Honeywell issued interim payment notices which did not allow Quartzelec any sums in respect of these claims, so Quartzelec commenced adjudication proceedings. 

After Quartzelec had served the notice of adjudication on Honeywell, Honeywell realised that, when issuing its interim payment notices in response to Quartzelec’s applications, it had failed to take into account certain omissions in Quartzelec’s scope of works which would have reduced the amount Honeywell considered payable.  It raised these omissions for the first time as a defence in the adjudication and argued that they should be deducted from any amount awarded to Quartzelec in respect of the scope change.  Honeywell claimed that it was entitled to have this dealt with in the adjudication because the Adjudicator had been asked to value Quartzelec’s payment claim and this was an argument for the reduction of that valuation and therefore within the Adjudicator’s jurisdiction. 

Quartzelec argued that the omissions defence fell outside the scope of the dispute referred to the Adjudicator, and that in any event it must fail since Honeywell had failed to issue a withholding notice in respect of those sums.  The Adjudicator agreed that he had no jurisdiction to consider Honeywell’s defence, as it had not been in play prior to the adjudication.  He therefore proceeded to award Quartzelec payment in respect of the scope change with no consideration of, or deduction for, Honeywell’s omissions.  Honeywell was also ordered to pay a significant proportion of Quartzelec’s costs and the Adjudicator’s fees.  Honeywell refused to pay and Quartzelec sought enforcement by summary judgment.  


Opposing Quartzelec’s application, Honeywell argued that the Adjudicator did have jurisdiction to consider the omissions defence and his failure to do so amounted to a serious breach of natural justice.  Honeywell claimed the breach rendered the whole award unenforceable, not merely the amount equivalent to the value of the omissions, because severance was not available in relation to a decision on a single dispute and further it was impossible to know how the Adjudicator would have awarded costs if he had considered the omissions defence.


The Court held that the respondent in an adjudication is entitled to raise, and the adjudicator has jurisdiction to consider, any defence open to him in fact or in law to the claim brought.  Accordingly, Honeywell was entitled to raise the omissions defence, regardless of whether it had been in play prior to the adjudication and regardless of whether it had issued a withholding notice (these were matters which concerned the merits of the defence, not the question of whether or not the adjudicator should consider the defence in the first place).  As the Adjudicator had not considered the defence which Honeywell was entitled to have had considered, the Court held that he had made a significant jurisdictional error and breached the rules of natural justice.   

The Court further agreed with Honeywell that in the case of an Adjudicator’s decision on a single dispute (as here), it was not possible to sever that part of the decision relating to the omissions defence from the rest of the award.  As a result, the Court struck down the entire award (including as to costs).  In doing so, the Court made it clear that there was a distinction between the dispute (which founds the adjudicator’s jurisdiction) and the various issues which need to be resolved as part of the process of deciding that dispute. Although there was more than one issue in this case (valuation of scope change on the one hand, omissions on the other), there was still only one dispute.

This summary was provided by CMS Cameron McKenna LLP.

For more information visit http://www.cms-cmck.com/Construction/Construction-Disputes



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