UK: Court of Appeal Rules on the Application of Rules of Natural Justice to Adjudication

Last Updated: 14 December 2004
Article by Peter Cassidy

Originally published November 2004

On 28 October 2004, the Court of Appeal, in its decision in AMEC Capital Projects Ltd v Whitefriars City Estates Ltd [2004] EWCA (Civ) 1418, overturned the decision of His Honour Judge Toulmin QC of 27 February [2004] EWHC 393 (TCC). The key message from the decision is that, if the purpose of adjudication under the HGCRA 1996 is to be fulfilled, it is only where a defendant has advanced a properly arguable objection based on apparent bias that he should be permitted to resist enforcement of an adjudicator's award on that ground. Further, the court has held that the rules of natural justice do not apply to decisions as to adjudicators' jurisdiction.

The issues

The Court of Appeal (Lord Justice Kennedy, Lord Justice Chadwick and Lord Justice Dyson) was faced with a Scheme adjudication where the same dispute had been referred to the same adjudicator for a second time, the first decision having been held to be invalid for want of substantive jurisdiction.

The court had, firstly, to decide whether the Scheme applied and, secondly, if it did, whether or not the adjudicator's decision should be declared invalid on the ground of apparent bias.

Factual background

The case concerned a two-stage tender for the construction of a complex office project in London, stage one being for the preconstruction services and procurement of the second stage tender for the construction phase. AMEC was appointed to carry out the stage one works under the terms of a letter of intent dated 18 October 2000, which incorporated the JCT Standard Form of Contract With Contractors Design 1998 Edition together with amendments agreed between the parties ("the contract").

The parties were unable to agree the price for the construction phase, so, on 31 July 2001, Whitefriars terminated the contract. In accordance with the terms of the contract, AMEC submitted its final account to Whitefriars's quantity surveyors for payment. No payment was forthcoming and AMEC commenced an adjudication under the contract. In June 2003, the adjudicator, Mr Biscoe, decided that AMEC was entitled to payment of the full amount claimed. On the enforcement hearing, His Honour Judge Humphrey LLoyd QC held that that decision was invalid for want of substantive jurisdiction.

AMEC sought to commence fresh adjudication proceedings in relation to the same dispute, but found that the adjudicator named in the version of contract, as decided by Judge LLoyd, had died in October 2003. Therefore, as the mechanism under the contract was unworkable, AMEC commenced a Scheme adjudication. In the interests of saving time and costs, AMEC requested that RIBA nominate Mr Biscoe again, which it duly did.

Mr Biscoe again decided the dispute in AMEC's favour. Both during the adjudication and in the subsequent enforcement proceedings, Whitefriars raised a number of jurisdictional challenges and allegations that the second decision of Mr Biscoe was made in breach of the rules of natural justice.

First instance

On the enforcement hearing, His Honour Judge John Toulmin QC dismissed AMEC's claim. Judge Toulmin held that, despite Whitefriars's submissions to the contrary, Mr Biscoe had the requisite substantive jurisdiction. However, he ultimately decided that "the fairminded and informed observer, having considered the facts, would conclude that there was a real possibility that the adjudicator was biased" (this being the test for apparent bias set out in Porter v Magill [2001] UKHL 67). So, the judge held the adjudicator's decision to be invalid. AMEC appealed.

Court of Appeal

The Court of Appeal refused Whitefriars's cross appeal, which challenged Judge Toulmin's finding on the adjudicator's substantive jurisdiction. Unsurprisingly, the court held that there was no reason why the words used in the contract should not be given their plain and ordinary meaning.

The court then turned to deal with the alleged breaches of natural justice. As Lord Justice Dyson explained, the common law rules of natural justice are two-fold. The first being the right to prior notice and an effective opportunity to make representations before a decision is made. The second being the right to an unbiased tribunal. Whilst Whitefriars had previously alleged breaches of both rules, it ultimately only relied upon alleged apparent bias. It was never submitted that the adjudicator was in fact biased.

Before dealing with the facts of the case, the court provided a detailed résumé of the law in relation to apparent bias and, in particular, considered whether it necessarily followed that there would be a real possibility of bias where the same dispute was referred to an adjudicator for a second time:

"…the mere fact that the tribunal has previously decided the issue is not of itself sufficient to justify a conclusion of apparent bias. Something more is required. Judges are assumed to be trustworthy and to understand that they should approach every case with an open mind. The same applies to adjudicators, who are almost always professional persons. That is not to say that, if it is asked to redetermine an issue and the evidence and arguments are merely a repeat of went before, the tribunal will not be likely to reach the same conclusion as before…There needs to be something of substance to lead the fair-minded and informed observer to conclude that there is a real possibility that the tribunal will not bring an open mind and objective judgment to bear."
(Lord Justice Dyson)

Importantly, and as a warning to practitioners for the future, Lord Justice Dyson added:

"It is easy enough to make challenges of breach of natural justice against an adjudication. The purpose of the scheme of the 1996 Act is now well known. It is to provide a speedy mechanism for settling disputes in construction cases on a provisional interim basis and requiring the decisions of adjudicators to be enforced pending final determination…The intention of Parliament to achieve this purpose will be undermined if allegations of breach of natural justice are not examined critically…It is only where the defendant has advanced a properly arguable objection based on apparent bias that he should be permitted to resist summary enforcement…"

Whitefriars accepted that Mr Biscoe's reappointment was not in itself sufficient to found a case of apparent bias, but it contended that the decision of Judge Toulmin should be upheld for other reasons. The two main arguments relied upon by Whitefriars were that Mr Biscoe's decision in the first adjudication was made without jurisdiction and that the legal advice he received in that adjudication, which was not disclosed to the parties, was "carried forward" into the second adjudication.

As to the first of those arguments, the court held that it was misconceived. The fact that Mr Biscoe's first decision was a nullity did not make him any more or less likely to approach the second decision with a closed mind.

Turning now to the second argument. The adjudicator had taken legal advice on an aspect of Whitefriars's defence in the first adjudication, however, that defence had been discarded for a new defence in the second adjudication. Whitefriars argued that the adjudicator had failed to deal explicitly with the new defence in the second adjudication and that he had come to the same conclusion on the basis of that undisclosed legal advice. The court rejected this submission on the basis that:

"The mere fact legal advice had been obtained in the first adjudication would not have led the fair-minded informed observer to conclude that there was a real possibility that Mr Biscoe would have approached [the new defence] with a closed mind…if Whitefriars had been genuinely concerned about Mr Biscoe's failure to deal explicitly with it, I would have expected it to ask him to supplement his decision by giving his reasons for rejecting the [new] defence."
(Lord Justice Dyson)

The court also had to decide whether or not Mr Biscoe's failure to give the parties an opportunity to comment on the substance of legal advice which he received as to his jurisdiction amounted to a breach of natural justice. The court held it did not, on the basis that Mr Biscoe had notified the parties that he had received legal advice, he had set out the gist of that advice and the parties had made representations on it prior to Mr Biscoe accepting jurisdiction.

Lord Justice Dyson then looked at the more fundamental question as to whether adjudicators are, in any event, obliged to give parties the opportunity to make representations in relation to questions of jurisdiction. The court disagreed with Judge Toulmin's view that the requirements of natural justice apply without distinction to decisions as to jurisdiction and to those on the merits of the dispute. The reason for the right to prior notice and an effective opportunity to make representations is to protect parties from the risk of decisions being reached unfairly. Having said that, procedural fairness did not require that parties should have the right to make representations in relation to decisions as to jurisdiction which are of no legal effect and cannot affect the rights of the parties.

The court added that, if time permits, an adjudicator would be well advised to give the parties the opportunity to make representations, but if he did not do so he would not be acting in breach of natural justice.

There were two further arguments raised by Whitefriars which were dealt with shortly. It was alleged by Whitefrirars that there was a real possibility of bias because, during a telephone conversation with Mr Biscoe, AMEC's lawyer had remarked that the reason the matter was coming back to him was that his familiarity with the facts would save time and costs. The court held that this remark did not amount to an invitation to reach the same decision as before, still less that there was real possibility that Mr Biscoe would reach the same decision by reason thereof.

Whilst communications should ordinarily be in writing with copies to the parties, the court could see nothing in the circumstances of the conversation between the adjudicator and AMEC's lawyer, which arose out of an innocuous telephone call to the adjudicator's office, that would lead the fair-minded and informed observer to conclude that there was a real possibility of bias.

The final argument related to Whitefriars's request in a letter from its lawyers to the adjudicator, during the adjudication, that he recuse himself on the basis that his ability "to act impartially and unbiased in this matter has been compromised" inter alia "because you may be liable for some of our clients' costs". It was said by Whitefriars that the threat of a claim against the adjudicator would lead the fair-minded and informed observer to conclude that there was a real possibility of bias.

In response, the adjudicator said:

"Both parties may be assured that I shall act in this case if I consider the correct course is for me to do so. I shall act impartially and in accordance with the correct procedure. I shall not be deterred from discharging my duties as an adjudicator and find it improper that solicitors representing [Whitefriars] should attempt to deter me from acting by threats of action for damages and accusations of bias which are without substance."

The court held that there was nothing in the circumstances of the case which would have led the fair-minded and informed observer to doubt that Mr Bisoce would act precisely as he said he would in his letter. Lord Justice Dyson went on to say that an observer would interpret this letter "…as showing no more than that Mr Biscoe was showing a resolute refusal to succumb to some rather crude bullying."

If the threat of proceedings were, without more, to lead to a conclusion of apparent bias, the integrity of the Scheme would be undermined simply by making such a threat. Counsel for Whitefriars recognised the danger of such abuse and, so, only relied on this argument in combination with his other submissions. The court went on to say that it is difficult to conceive of circumstances where such a threat would, of itself, lead to such a conclusion.

The Court of Appeal held that none of Whitefriars's arguments, whether taken individually or in combination, justified the conclusion that there was apparent bias in this case. AMEC's appeal was allowed. Whitefriars's application for permission to appeal was refused.

Comment

The Court of Appeal has delivered a much welcomed warning to those who participate in adjudications of the dangers of alleging apparent bias. The purpose of the HGCRA 1996 is to provide a speedy mechanism to resolve disputes. So that that purpose is not frustrated, such allegations will be examined critically and only properly arguable objections based on apparent bias will avoid the enforcement of awards. Likewise, the guidance received on the question of procedural fairness in relation to decisions on jurisdiction has provided much needed clarification.

Perhaps this decision will herald a new approach to adjudication, where adjudicators, the parties and their advisers are diverted, as little as possible, from the primary task in hand, namely, the speedy resolution of disputes.

AMEC was represented by Pinsent Masons in this case.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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