Natural Justice in Adjudication: CIB v Birse

This article is based on a paper given by the author to the Arbitration Club Law Courts Braneh Seminar on 11 January 2005.

The theme of this paper is the judgement of HH Judge Toulmin in the Technology and Construction Court in CIB Properties Ltd v Birse Construction [2005] BLR 173. Before turning to the facts of CIB v Birse, it would be instructive to recall the words of Lord Ackner in the House of Lords during the debate on what is now the Housing Grants Construction and Regeneration Act 1996 (HGCR Act) when he said:

"Adjudication is a highly satisfactory process. It comes under the rubric of "pay now argue later" which is a sensible way of dealing expeditiously and relatively inexpensively with dispute which might hold up completion of important contracts."

CIB v Birse was one of the more extraordinary examples of adjudications and as far removed from the intention behind the HBCR Act as one might get.

In the case, CIB’s costs of two adjudications, one relatively short and the other lasting 100 days by agreement of the parties, amounted to £973,732.41 and Birse’s costs amounted to £1,161,341 ex VAT. The parties were represented by Messrs Ramsey QC and Darling QC of Keating Chambers respectively. Mr. Uff QC of Keating Chambers was the adjudicator for the 100 day adjudication and the award ran into well over 100 pages. Counsel instructed in the shorter, first, adjudication, were Mr. Fernyhough QC of Keating Chambers and Mr. Coulson QC formerly of Keating Chambers (now HHJ Coulson). The adjudication was held in the arbitration suite at Keating Chambers.

The claim was from some £14m, and an award of over £2m was made by Mr. Uff QC. There was a hearing in front of HHJ Toulmin QC on 19^th October 2004 raising a number of issues.

The key issue for the purpose of this paper is that Birse argued that the size and complexity of the dispute meant that it could not be resolved fairly by adjudication.

The starting point for the analysis of HHJ Toulmin QC was section 108 of the HGCR Act.

Section 1 gives a party a right to refer a dispute or difference adjudication.

Section 2 requires the Adjudicator to reach a decision provided the conditions in the clause could be met.

This meant that the Adjudicator must be able to discharge his duty to reach a decision impartially and fairly within the time limit stipulated in section 2(c) and (d).

As is well known, the time limit is 28 days, extended by 14 days with consent of the referring party or (implicitly) such other time as may be agreed.

The Judge endorsed the approach of John Uff, who in turn had met the submissions of Birse by reference to the judgment of Judge Wilcox in London & Amsterdam v Watermans Partnership [2004] 94 Con LR 154, in which he said:

Mr. Uff QC set himself tests which could be transposed into questions which an adjudicator must be able to answer in the affirmative before he is capable of giving a decision compliant with the requirements of natural justice.

1. Have I sufficiently appreciated the nature of each issue referred to me so that I can give a decision on that issue?
2. Have I understood the case of each party in relation to the principal issues?
3. In relation to quantum, am I able to do substantial justice between the parties and arrive at an overall figure which reflects the merits of the case as I find them?

The conclusion of John Uff was that if he had not been able to satisfy these conditions, he would not have reached a decision in the Adjudication on some or all of the issues referred to him.

In the event, Birse had agreed to a number of extensions throughout the adjudication amounting to 100 days. In the time period in fact allowed, and on the basis of the hearing as it proceeded and the written submissions, Mr. Uff considered that he could answer the questions in the affirmative and therefore decided the matters before him.

The crucial finding of the judge was that a respondent is not bound to agree to any extensions of time, even if the refusal renders the task of the adjudicator impossible in relation to the dispute in the form in which it is referred to him.

Firstly, in the greater scheme of Adjudication, this decision is of little import. The vast majority of adjudications that go on day by day and week by week in the industry are not of sufficient complexity or value for this to be relevant.

However, a number of interesting points arise from it:

1. It seems clear that it is possible that an adjudicator can be in breach of natural justice by attempting to consider matters that are too complex or numerous properly to be decided within the period of time prescribed. In theory, therefore, a CIB V Birse plea might work.
2. It seems to me that the test must be an objective one rather than a subjective one. Just because the adjudicator in fact asks the relevant questions and answers in the affirmative does not mean that it is impossible for the Court to say otherwise;
3. however, the view of the adjudicator is likely to hold considerable weight. When an adjudicator of the stature of Mr. Uff QC says he has been able to understand and evaluate the respective cases in the time allowed, one would have thought the Court would be slow to contradict him;
4. In the absence of a demonstrable and significant error in the award itself, a Court is unlikely to say that an adjudicator had not been able to give the matter sufficient time. And as we have seen recently, in the Amec Capital Projects Ltd v Whitefriars City Estate Ltd [2004] 96 Con LR 142, the Court of Appeal is very reluctant to find any breaches of natural justice in the rough and tumble of adjudication. Where an adjudicator says he considered whether he could deal with it, it seems likely that the Court, at least an appellate court will agree.
5. Faced with an extremely large, complex dispute, the options are either:

1. To seek such extensions to the timetable as are considered necessary to a fair determination of the issues (i.e. say at the outset that 100 days is required). If the time is not given, then there is a better opportunity to be able to say that the lack of time gives rise to natural justice issues.

One of the problems Birse complained of was the piecemeal nature of the extensions to the adjudication period. If at the outset everyone knew it was to be 100 days, the procedure could have been structured accordingly, but it simply evolved that way. One way of avoiding these difficulties would be to agree at the outset a realistic period.

2. Alternatively, the best tactic for the respondent may be to restrict the time allowed to the adjudicator. It is interesting to speculate whether Mr. Uff would have been able to answer the questions in the same way if he had been given just 42 days to reach his decision rather than 100.

This probably stands the greatest chance of providing an argument that there has been a breach of natural justice; however it is obviously risky in that:

1. It is more likely than not that the adjudicator will go ahead anyway;
2. Restricting the time, necessarily prejudices the ability to answer fully a case at a crucial time.
3. It seems probable that a court would in fact be slow to say that a case was un-adjudicatable.

Conclusions

6. Justice comes in 3 dimensions:

1. Truth. The modern requirement for proportionality demands that the system does not require the truth at all costs.
2. Cost. The more money spent, the closer to the truth the parties are likely to get. However, the more it costs, the more phyrric any victory may be once the truth is established.
3. Time. The longer the time spent, the closer to the truth the parties are likely to get; however, the longer the delay in getting to the truth, the more prejudice suffered by those seeking it.

7. Because of the non-binding nature of adjudication, courts are happy that, in the short term at least, truth is potentially sacrificed on the altar of cost and time.
8. However;

1. The defendant has no choice in adjudication
2. The defendant does not have its cost paid if it succeeds
3. The procedure is not binding, so particularly in enormous disputes where adjudication is obviously only the first round of the contest, the parties are in fact no further on.

9. In CIB v Birse the claimant got £2 million out of £14 million. £2 million is presumably better than nothing. Without knowing the merits of the underlying case it is impossible to say whether this is £2 million more than they should have got or £12 million less.

The question remains whether the claimant might have got more, had a larger more structured procedure been put in place.

10. In looking forward, it can be said that whilst a possible avenue for unfairness has been identified, which is "flavour of the month" it may burn itself out. It is not certain that case will arise where, the adjudicator says he has answered the questions affirmatively, the court disagrees.
11. In seeking ways to deal with the very largest adjudications, one possibility would be to make adjudications after the end of the contract and/or in relation to a certain sum of money subject to a different set of rules.
12. Two possible rule changes are also worth considering;

1. The requirement of a payment into court and
2. Costs following the event.

The effect just might be to make the parties think again before embarking on such a course of action.