THE courts have been very supportive of adjudication, and some would say have bent over backwards to ensure that decisions of adjudicators are enforced. However, there have been a few cases where the courts have refused to enforce an adjudicator’s decision on the grounds that the adjudicator departed from the rules of natural justice or just went on a frolic. This article examines some of the recent cases and identifies some of the pitfalls that may confront the adjudicator.
Natural justice, the judicial landscape
The 11th th edition of Keating on Construction Contracts explains by reference to the court appeal case of AMEC Capital Projects Ltd v Whitefriars City Estates Ltd the common law rules of natural justice applicable to adjudication as being two-fold. First, the person affected has the right to prior notice and an effective opportunity to make representations before a decision is made. Secondly, the person affected has the right to an unbiased tribunal. In Carillion Construction Ltd v Devonport Royal Dockyard Ltd the Court of Appeal emphasised that it would only be in the plainest cases that a challenge could be mounted because of a breach of the rules of natural justice.
In Cantillon Ltd v Urvasco Ltd (2008) EWHC 282 (TCC), Akenhead J reviewed the case law on adjudicators’ breaches of the rules of natural justice and concluded that the breach:
(a) Must be more than peripheral, it must be material; and
(b) Will be material if the adjudicator failed to bring to the parties’ attention a point or issue that they ought to have been given an opportunity to comment on if it is either decisive or of considerable importance to the outcome of the dispute and is not irrelevant or peripheral.
Recent case law
In Liverpool City Council v Vital Infrastructure Asset Management (Viam) Ltd (2022) EWHC 1235 (TCC) HHJ Stephen Davies sitting in the Technology and Construction Court Manchester refused to enforce an adjudicator’s decision on the grounds that he failed to follow the rules of natural justice.
First, the person affected has the right to prior notice and an effective opportunity to make representations before a decision is made. Secondly, the person affected has the right to an unbiased tribunal.The adjudicator had decided that Liverpool City Council (LCC) should pay Vital the sum of £128,500 and interest in relation to its maintenance of temporary fencing for highway works undertaken by Vital pursuant to a contract with LCC. He also decided that LCC be responsible for his fees and expenses. Vital went into administration the day before the decision.
LCC has not paid the amount decided by the adjudicator. LCC made an insolvency application seeking permission to bring part eight proceedings against Vital for declarations to the effect that the adjudicator had no jurisdiction. The judge permitted the adjudicator to participate in the proceedings if he wished to do so. The adjudicator declined to participate but did make written representations to the court and attended the court as an observer. The administrators for Vital decided to take no part in the court proceedings.
LCC put forward three grounds why the decision should not be enforced. The judge dismissed two of the grounds but upheld the third, which was termed the nullity issue/natural justice issue.
The case as advanced by LCC was that the adjudicator had failed to answer the questions put to him in the notice of adjudication and/or answered the wrong question so that his decision was thereby a nullity. In particular, the complaint was that the adjudicator had failed to engage with the individual declarations sought in the notice of adjudication as regards the terms of the framework agreement and, instead, had assessed the value of the maintenance of the temporary fencing by reference to the bill of quantities of the call-off contract and, thus determined a dispute which was not referred to him and for which he had no jurisdiction.
The complaint was that the adjudicator had failed to engage with the individual declarations sought in the notice of adjudication as regards the terms of the framework agreement.The judge considered the adjudicator’s decision and stated that the basis on which he reached his conclusion was clearly set out. He analysed the decision by reference to the numbered paragraphs
In paragraphs 28-30, the adjudicator referred to evidence put before him in the adjudication to the effect that LCC had issued a project manager’s compensation event notice valuing the temporary fencing in accordance with CECA rates. In paragraph 52.3 the adjudicator said that:
“The parties have agreed... by the belatedly issued project manager’s compensation event notice issued on 16 March 2021 that there was a typographical error in the framework agreement schedule of rates whereby the unit of measurement should have been stated as metres per day”.
In paragraph 56 the adjudicator identified that in consequence there were three valuation options for him to consider:
- First, on the basis of that ‘belated acceptance’, a rate of £2 per metre per day (being the rate per metre in the schedule of rates corrected to refer to a rate per metre per day);
- Second, on the basis of Vital’s bespoke tender for the call-off contract, a lesser rate of £1 metre per day; and
- Third, on the basis of the build-up in the compensation event notice, a much lower rate of £0.08 per metre per day.
The adjudicator concluded at paragraphs 60 that option (2) should apply, because this was the agreement reached between the parties in relation to the call-off contract from which LCC ought not to be permitted to renege.
In the Scottish case of Van Oord UK Ltd v Dragados UK Ltd (2022) Scot CSOH 30 the issue before the judge, Lord Braid, was whether the adjudicator in a construction dispute reached his decision on a basis not canvassed with the parties, and, if so, whether there was a material breach of the principles of natural justice such that the decision cannot stand.
If the adjudicator has simply adopted an intermediate position, fairness will not require that the parties be given an opportunity to make further submissions.Van Oord was employed by Dragados to undertake dredging of silts, gravels and glacial till for the Aberdeen Harbour Extension Project. There have been seven adjudications. The decision in adjudication number six was before the court. In essence the dispute was that Van Oord claimed that it was denied access to carry out piling works, and this caused critical delay from 2 August 2019 (the critical date). This was denied by Dragados. In the adjudication both parties employed planning experts and produced reports to support their case.
In the event the adjudicator did not accept the opinions of either expert in their entirety. He selected a baseline programme which not only was not contended for by either expert, but which both experts had given reasons for rejecting. In doing so he determined that the critical date was 31 July 2019, a date not contended by either party.
The judge said in his decision that the line between an adjudicator going off on a frolic of their own, on the one hand, and, on the other, making legitimate use of their experience to analyse material which has been lodged, and commented on by parties, before reaching a decision not contended for by either party, is not always an easy one to draw, particularly when it is remembered that an adjudication decision reached by an adjudicator who has embarked upon the latter exercise will be enforced by the courts even if wrong.
The common theme running through the arguments put before the court is that the procedure adopted by the adjudicator must be fair. That is the acid test. Where an adjudicator has departed from the four corners of the submissions made by parties, was it fair not to seek further submissions? If the issues have been fairly canvassed, or if the adjudicator has simply adopted an intermediate position, fairness will not require that the parties be given an opportunity to make further submissions.
The court was concerned with the enforceability of a decision where it was argued that the adjudicator had failed to consider fully the arguments put forward by the responding party.Conversely, if the adjudicator proposes a novel approach on a significant issue which has not been canvassed, fairness will point in the opposite direction. The conclusion of the judge was that the adjudicator did not give the parties a fair opportunity on his adoption of the baseline programme and the determination of the critical date as a consequence the decision is vitiated by a breach of the principles of natural justice and cannot stand.
My final case is another from the Scottish courts. In Barhale Ltd V SP Transmissions PLC (2021) ScotCS CSOH 2 the court was concerned with the enforceability of a decision where it was argued that the adjudicator had failed to consider fully the arguments put forward by the responding party. Barhale were employed by SP Transmissions (SPT) for the civils work at an electricity sub-station at Currie, Edinburgh as part the switchgear modernisation.
The contract was NEC3 main option B, with CESMM3 being the method measurement. The works undertaken by Barhale included the construction of several foundations in an area of existing made ground. To construct the foundations, Barhale was required to carry out excavations and remove the made ground down to competent strata at a minimum excavation level indicated on the drawings in the works information. Barhale was then required to bring levels back up in imported fill, constructing the foundations as it brought up the levels. Barhale executed the works by carrying out a bulk excavation of an area greater than the area of the foundations to be constructed, down to a level where adequate bearing capacity was found. In most places the surface achieved acceptable bearing at the formation level for the foundations. In a limited number of areas, where the bearing was inadequate, Barhale continued further excavations in stages, testing until good bearing was achieved and then backfilling to the underside of foundations.
Adjudicators have a tough job to do. Unintentional errors can and do get made.
A dispute arose between the parties as to the amount due to Barhale for the excavation and filling work that it had carried out. Barhale sought payment for the remeasured quantities based upon the actual bulk excavation, disposal and filling carried out, applying the relevant rates from the bill of quantities. SPT refused to make payment on this basis, contending that Barhale was only entitled to be paid on the basis of the net volume of excavation for the foundations constructed, including excavation and fill directly beneath or above those foundations, but excluding the remaining area excavated and backfilled as a consequence of the bulk excavation.
The dispute was referred to adjudication. In its referral to the adjudicator Barhale submitted that it was apparent that the drafter of the bill of quantities had had in mind that (in line with the works information) the made ground would be removed and replaced in bulk, thus forming the ‘platform’ for construction of the foundations. Reference was made to clause 11.2 (28) of NEC3, option B, which stated:
“The price for work done to date is the total of the quantity of the work which the contractor has completed for each item in the bill of quantities multiplied by the rate”.
SPT’s response included five significant points, three of which were relevant.
Point 1 concerned rule M6 of CESMM3
M6: The volume measured for the excavation of a structure or foundation shall be the volume which is to be either occupied by or vertically above any part of the structure or foundation.
Point 3 took issue with Barhale’s interpretation of the bill of quantities
SPT argued that the bill did not provide for a bulk excavation, and that accordingly bulk excavation had been nothing more than Barhale’s chosen methodology.
Point 5 concerned rule M16 of CESMM3
M16: Filling of excavations around completed structures shall be measured only to the extent that the volume filled is also measured as excavation in accordance with rule M6.
There was a reply, rejoinder and surrejoinder. At the close of submissions, the adjudicator sent an e-mail to the parties saying:
“The principal decision that I’m to make is ‘does the works information require the bulk excavation and filling work that was undertaken by Barhale, or not?’ Both parties have advanced their best case in respect of their contentions, but neither party has advanced a contention that should I decide for the opposing party in principle then the quantities stated in Barhale’s application for payment dated 17 April 2020, or the project manager’s assessment of 1 May 2020, are incorrect. Therefore, unless a party challenges the quantities contended for by the opposing party, then I shall accept them at face value…”
In reply SPT said:
“Please note that SPT considers the primary dispute in this matter concerns the applicable contractual method of measurement. Whilst it is relevant to determine whether or not bulk excavation was required, the true question is what is Barhal entitled to be paid for those works, whether required or not, and this is to be determined by applying the method of measurement stated I the contract.”
The adjudicator issued his decision and found in favour of Barhale and awarded them the sum of £196,606.33 for the bulk excavation disposal and filling work to construct the platform. However, the adjudicator’s decision failed to consider SPT’s primary arguments as to the proper contractual basis for assessment and payment for the excavation and associated disposal and filling works. The judge, Lord Tyre, concluded that the dispute before the adjudicator raised four issues for determination, namely:
- Whether the works information required Barhale to carry out a bulk excavation, disposal and fill;
- If so, how that work was to be measured in terms of CESMM3;
- The quantities that Barhale had to be valued and paid; and
- SPT’s counterclaim.
The judge concluded that the adjudicator addressed issues (1), (3) and (4) in his decision but however, in the Judge’s opinion, he did not effectively address issue (2), or indeed address it at all. The judge went on to say that point (2) was a critical issue raised by SPT in its response to the referral, and in the email sent to the adjudicator. SPT had emphasised that its primary contention was that even if Barhale was correct that the works information required a bulk excavation, disposal and filling, CESMM3 was applicable and restricted the volume measured for both the excavation and the filling to the volume occupied by (including beneath) or vertically above any part of the foundation. The judge decided that the adjudicator simply did not address that argument, and in failing to do so, he failed to exhaust his jurisdiction, and his decision could not be enforced.
Adjudicators have a tough job to do. Decisions have to be made within 28 days of receiving the referral, (unless extended by agreement of the parties). There can be significant documentation to from both parties to consider. Unintentional errors can and do get made. But what these three cases highlight is that:
1. In coming to a decision, the adjudicator must ensure that the parties are given the opportunity to comment on any points in the decision that have not been argued in the parties’ submissions; and
2. The adjudicator must consider the major points argued by the parties and include his conclusion in the decision.
W J Edwards FICE, FCIHT, MCInstCES FCIArb Director, W J Edwards & Associates, and Chair, Contracts & Dispute Resolution Panel