UK: Can Adjudicators Get Involved?

Last Updated: 12 November 2001

One of the most obvious temptations for anyone practical and fair-minded who comes across a stubborn and deeply-entrenched dispute is to try to "sort it out". Secure in the knowledge that, personally, they would never be so unreasonable, and often sure of their expertise and insight, professionals can underestimate the difficulties. Certain professionals make a living "sorting out" inchoate or incipient discord anyway – quantity surveyors for instance. When they come across a fully-fledged dispute the instinct may be simply to approach it as a commercial problem.

This can be a dangerous way to proceed if you are a statutory adjudicator under the Housing Grants Construction and Regeneration Act 1996 ("the Construction Act"), as a recent case shows only too clearly. The risk is that the impartiality required of all adjudicators may be undermined or removed, which leads to the eventual decision being of no use to anyone. It may involve extra delay and expense for all parties and a not inconsiderable risk of being involved (as a witness) in subsequent litigation. In Glencot Development and Design Co. Limited v. Ben Barrett & Son Contractors Limited (Action HT-00-401) the result was High Court proceedings.

The facts were essentially simple. The parties had met (as planned) with the Adjudicator for an adjudication hearing at a hotel. Before the adjudication hearing began, the parties negotiated and (so they thought) reached substantial agreement on a figure. They told the adjudicator about their agreement. They then discovered that they had not agreed one further issue, which was whether a discount should be applied to the figure. They both asked the adjudicator to mediate between them. He yielded to the temptation to "sort it out" and agreed to mediate, adding that if negotiations broke down he would resume his role as adjudicator. He then presided over six hours of talks, which failed to bring about an agreed resolution of the dispute. He later attempted to resume the adjudication and purported to give a decision. Ben Barrett & Son resisted enforcement of that purported decision on the ground that, as a matter of law, the adjudicator could not after having acted as mediator in the interim I, act "impartially" as required by the contract in conformity with the Act (S. 108 (2) (e)). There was no criticism of the adjudicator personally – the Court found that he had done as he had been asked by the parties and acted with propriety and concern for the best interests of the parties. The question was much more abstract – was he capable as a matter of law of acting "impartially" as required by the terms of the contract between the parties implied by the Act? Was he capable as a matter of law of acting "impartially" as required by the terms of his own engagement, which (the Court found) would contain an implied term of impartiality because the contract between the parties did? This was a case involving a question of "apparent bias" rather than one of "actual bias".

So, we already have our first answer to the question in the title of this article. Because the requirement of impartiality is only an implied contractual term – although it is implied both into the basic construction contract between the parties and into the contract of retainer of the adjudicator – it can be waived by a party, and/or varied or modified by the parties. This is clear from HHJ Lloyd QC’s remarks in Glencot, although strictly it was not what happened in that case.

It is also in accordance with principle – why should the parties not ask someone adjudicating for them to abandon that role and decide their dispute as, for example, an arbitrator on the one hand or an expert determiner or valuer on the other? However, the principal question in each case is whether, having made that change, the parties are entitled to press ahead on the basis that the statutory consequences attaching to adjudication are still attached to their procedure as varied. It is still open to doubt that any procedure where impartiality was by consensus of the parties removed could remain an adjudication as such.

Returning to the issues in Glencot’s case, the key issue in that case was not whether the parties asked the adjudicator to mediate – it was accepted that they could and did – but whether after doing that one of them could again ask him to adjudicate over the objections of the other. There was no pre-existing case on the issue in relation to statutory adjudication.

HH Judge Humphrey Lloyd QC decided that the issue of impartiality in relation to judges and arbitrators had recently been authoritatively re-stated by the House of Lords in Director General of Fair Trading v. Proprietary Association of Great Britain [2000] All ER (D) 2425 HL, (esp. at para. 86) following in part the decision of the High Court of Australia in Webb v. The Queen (1994) 181 CLR 41. The Fair Trading case re-examined earlier authorities such as R. v. Gough [1993] AC 646 HL and Locabail (UK) Ltd v. Bayfield Properties Ltd [2000] QB 451 CA and took into account the Human Rights Act 1998 bringing the European Convention on Human Rights into domestic English Law. The principle in the Fair Trading case, distilled to its essence, was that a court confronted with an allegation of apparent bias should:

  1. Ascertain all the relevant circumstances; and
  2. Ask whether a "fair-minded and informed observer" would conclude that there was a "real possibility or real danger" (the two being the same test) of bias.
  3. Any explanation given by the tribunal accused of bias can be taken into account, and if the party alleging bias accepts it, it can be assumed to be true.
  4. If not, it becomes another matter to be considered from the point of view of a fair-minded observer.

In Glencot’s case HH Judge Humphrey Lloyd QC decided that the words "impartial" and "impartially" in section 108 of the Housing Grants Regeneration and Construction Act 1996 and in the Scheme for Construction Contracts are to be given the same meaning as in the context dealt with in the Fair Trading case – in other words a statutory adjudicator under the Act may not be a classic judicial tribunal but the rules applicable to such tribunals apply to such adjudicators. This was by no means a necessary conclusion – it would have been possible to argue that Parliament instituted the adjudication precisely to be a "quick and dirty" dispute resolution mechanism and that the appropriate remedy in Ben Barrett & Son’s position was to attempt to reverse or overturn the adjudicator’s substantive decision by litigation rather than to impugn the manner of the making of the adjudicator’s decision.

The reasons HH Judge Humphrey Lloyd QC gave for his decision were that:

  1. In practice an adjudication will be closer to an arbitration than an expert determination (this appears to have been the Court taking judicial notice of current practice – no evidence was adduced on this issue);
  2. Although not in public, and reversible by subsequent litigation or arbitration, the decisions of an adjudicator nonetheless have immediate practical and potentially far-reaching effect.
  3. Not uncontroversially, the Court assumed that the adjudicator was subject to the rules of natural justice or fairness (citing the recent TCC first instance decision in Discain Project Services Ltd v. Opecprime Development Ltd [2000] BLR 402, which decision gives no reasons for its conclusion).
  4. The words in s. 108 of the Construction Act were intended to bear their ordinary meaning – which would be fixed by the decision in the Fair Trading case.
  5. There was no reason to suppose that words in the contract between the parties in Glencot’s case should bear any other than that same ordinary meaning.
  6. Insofar as the Human Rights Act 1998 applied – something which the Court did not examine – the meaning that that Act gave to the word "impartiality" should apply and this meaning was fixed by the Fair Trading case.

Having decided the law, applying it to the facts in Glencot’s case the Court decided that in effect the adjudicator’s conduct was such that there was a danger of apparent bias and accordingly the adjudicator’s decision could not stand. This was because the adjudicator could have heard facts and matters in his role as mediator that would not have been appropriate for him to know as adjudicator – whether or not he did was not necessary to decide, although he probably did in relation to the issue of a discount referred to above. Since the decision was on application for summary judgment to enforce the adjudicator’s decision, it is not necessarily the case that the same result would occur on a full trial of the issue of apparent bias, even on identical facts. However, such a full trial is very unlikely since it will almost always be a better use of the Court’s time to turn to an investigation of the actual facts of the substantive dispute.

The result, in Glencot’s case, of a commendable flexibility and commercial approach on the part of the skilled and experienced adjudicator, was significant delay and extra expense for the parties. It is possible that the parties could have avoided this by formalising an agreement that the adjudicator would mediate, but then reassume his role as adjudicator, but the Court left this issue open.

 

"© Herbert Smith 2002

The content of this article does not constitute legal advice and should not be relied on as such. Specific advice should be sought about your specific circumstances.

For more information on this or other Herbert Smith publications, please email us."

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