UK: Natural Justice Reminder

Last Updated: 9 February 2006
Article by Fraser McMillan

The recent decision of the Court of Session in the case of Ardmore Construction Limited v Taylor Woodrow Construction Limited is a useful reminder that while it remains the courts' stated policy not to interfere with adjudication awards, where there has been a clear breach of natural justice, they will refuse to enforce the decision.

The facts of the case are also a salutary lesson to all those involved in the adjudication process - particularly adjudicators.

Ardmore and Taylor Woodrow entered into a contract for the carrying out of certain ground works at a site in Glasgow. In May 2004 Ardmore made an application to Taylor Woodrow for payment in respect of various heads of claim. There were five heads of claim, one of which related to overtime. Taylor Woodrow refused to make payment in respect of these items and the resulting dispute between parties was referred to adjudication. On 8 October 2004, having received written submissions from the parties and having held a hearing on 10 September 2004, the adjudicator issued a decision ordering that Taylor Woodrow make payment to Ardmore in respect of each of the various heads of claim.

The claim in relation to overtime was based on an argument that a letter issued by Taylor Woodrow dated 2 July 2003 amounted to an instruction to accelerate which had been issued in accordance with the parties' contract. This was the sole basis of Ardmore's claim for overtime. Taylor Woodrow, in response, argued that the letter did not amount to a valid instruction, but if it did, then it was limited in relation to its scope and it did not amount to an instruction that would allow Ardmore to be paid for all extra hours worked by them.

The adjudicator, in his decision, said the following in relation to overtime:

"The referring party's working of weekend overtime was referred to in the respondent's letter of 2 July 2003 to the referring party. The respondent contends that this was not an instruction, but on the plain reading of the letter, I find an acceptance of a proposal is an instruction. I find the instruction was limited to the areas for which the programmes had been prepared, at that time. I also find that there was sufficient evidence thereafter by way of correspondence, further programmes, Minutes of Meetings and respondent's interim payment notices, that the respondent either verbally instructed the referring party to continue working weekends and other areas or acquiesced and agreed to that additional weekend working in other areas."(Emphasis added).

Ardmore issued proceedings in the Court of Session to enforce the adjudicator's decision. This action was defended by Taylor Woodrow on the basis that no submissions had been made to the adjudicator either in writing or at the hearing on 10 September to the effect that they had either acquiesced in the working of overtime or issued verbal instructions. Taylor Woodrow argued that to decide the dispute on either of these two alternative bases, without having heard submissions, amounted to a breach of natural justice by the adjudicator, rendering the whole decision unenforceable.

The alleged breach of natural justice related only to that part of the decision on overtime and in January 2005 Ardmore successfully persuaded Lord Clarke that even if there were an issue regarding the overtime part of the award the other aspects of the decision were severable and that they could be enforced notwithstanding any issues regarding overtime. The court accepted these submissions (although no written judgment was issued) so the remaining issue between the parties related to the part of the award in respect of overtime.

The case proceeded to a hearing with evidence at which the important issue for the court was whether or not submissions had been made to the adjudicator regarding either the issuing of verbal instructions or acquiescence on the part of Taylor Woodrow. It was accepted by Senior Counsel for Ardmore that unless the evidence showed that such submissions had been made the adjudicator would have been guilty of a breach of natural justice and that part of the decision relating to overtime would be unenforceable.

Taylor Woodrow called as witnesses the people who had attended the meeting with the adjudicator on 10 September 2004. Their evidence was that there had been no discussion of either acquiescence or verbal instructions. They said that had such matters been raised then they would have objected and had that objection not been sustained they would have required an opportunity to investigate the new claim which was being made.

Ardmore called as witnesses the solicitor who had represented them at the hearing and the adjudicator himself. The adjudicator's evidence was to the effect that the word 'acquiescence' had not been used at the hearing but that he had understood the general tenor of the Ardmore submission to be that because Taylor Woodrow had made payment in respect of overtime there had been 'passive assent' on their part which he took to be akin to acquiescence. He considered that this was a running feature of the submissions made by Ardmore at the hearing although he did not have any notes to confirm this. The solicitor who had acted for Ardmore at the hearing gave evidence to the effect that he had made submissions based upon personal bar at the hearing (such that Taylor Woodrow, by their words or conduct, were barred from asserting that they had not instructed or agreed to Ardmore working weekend overtime) and that he was confident they had been understood by the adjudicator.

The court preferred the evidence of Taylor Woodrow's witnesses and found that submissions of the sort described by the adjudicator and the solicitor acting for Ardmore had not been made at the hearing and, having formed that view, refused to enforce that part of the decision relating to overtime.

In refusing to enforce the adjudicator's decision on overtime Lord Clarke said the following:

"I would like to stress, in conclusion, that I very much hope that this is a rare case, peculiar to its facts. I need no persuasion that, on the whole, the courts should be generally resistant to invitations to pick over adjudicator's decisions and to analyse over closely, and critically, their procedures. Nevertheless elementary and basic principles of natural justice have to be observed by adjudicators…and if they behave, in reaching their decisions, in a manner which, on an objective basis, involves a disregard of fair play, the consequences of which appear to have had a substantial and material effect on the adjudicator's decision, then the court should be prepared to intervene. The present case is, in my judgment, on the facts, one such situation. It involves a clear and substantial breach of natural justice in relation to matters which were determinative of the adjudicator's decision."

As Lord Clarke indicated, this was an unusual case given that the adjudicator himself gave evidence and that there was such a stark difference between the parties' evidence regarding what had been said at the hearing.

The case serves to remind us that notwithstanding the less formal nature of the adjudication process (at least when compared to court or arbitration) there may be a limit to which a less formal approach is appropriate. However, it will be interesting to observe whether, in light of this case, adjudicators move towards more formal hearings where, for example, submissions and evidence are transcribed or minutes of the meeting are circulated for agreement.

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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