UK: Adjudication Round-up: Key Decisions and Developments 2004-2006

INTRODUCTION

  1. This paper covers the following issues:
  2. I: Adjudication Round-up: key decisions and developments 2004-2006.

    1. Areas of challenge of adjudication decisions: jurisdiction.
    2. Areas of challenge of adjudication decisions: natural justice.

    II: Focus on special topics in adjudication.

    1. Proactive Adjudicators – the extent to which adjudicators can take the initiative in procedure.
    2. Confidentiality and disclosure in adjudication proceedings.

I. Challenge Of Adjudicator’s Decisions - Jurisdiction

  1. There have been recent cases in relation to two aspects of the jurisdiction of adjudicators:
    1. The existence of a dispute
    2. Whether a contract is in writing within the meaning of the Housing Grants etc. Act 1996

The Existence of a "Dispute"

  1. In AMEC Civil Engineering Ltd v Secretary of State for Transport [2004] EWHC 2339 (TCC), Jackson J. analysed the authorities on the existence of a dispute and summarised the legal position as follows:
  2. 1. The word "dispute" which occurs in many arbitration clauses and also in section 108 of the Housing Grants Act should be given its normal meaning. It does not have some special or unusual meaning conferred upon it by lawyers.

    2. Despite the simple meaning of the word "dispute", there has been much litigation over the years as to whether or not disputes existed in particular situations. This litigation has not generated any hard-edged legal rules as to what is or is not a dispute. However, the accumulating judicial decisions have produced helpful guidance.

    3. The mere fact that one party (whom I shall call "the claimant") notifies the other party (whom I shall call "the respondent") of a claim does not automatically and immediately give rise to a dispute. It is clear, both as a matter of language and from judicial decisions, that a dispute does not arise unless and until it emerges that the claim is not admitted.

    4. The circumstances from which it may emerge that a claim is not admitted are Protean. For example, there may be an express rejection of the claim. There may be discussions between the parties from which objectively it is to be inferred that the claim is not admitted. The respondent may prevaricate, thus giving rise to the inference that he does not admit the claim. The respondent may simply remain silent for a period of time, thus giving rise to the same inference.

    5. The period of time for which a respondent may remain silent before a dispute is to be inferred depends heavily upon the facts of the case and the contractual structure. Where the gist of the claim is well known and it is obviously controversial, a very short period of silence may suffice to give rise to this inference. Where the claim is notified to some agent of the respondent who has a legal duty to consider the claim independently and then give a considered response, a longer period of time may be required before it can be inferred that mere silence gives rise to a dispute.

    6. If the claimant imposes upon the respondent a deadline for responding to the claim, that deadline does not have the automatic effect of curtailing what would otherwise be a reasonable time for responding. On the other hand, a stated deadline and the reasons for its imposition may be relevant factors when the court comes to consider what is a reasonable time for responding.

    7. If the claim as presented by the claimant is so nebulous and ill-defined that the respondent cannot sensibly respond to it, neither silence by the respondent nor even an express non-admission is likely to give rise to a dispute for the purposes of arbitration or adjudication."

  3. This summary of the law has been supported on two occasions by the Court of Appeal (see AMEC Civil Engineering Ltd v Secretary of State for Transport [2005] EWCA Civ 291 and Collins (Contractors) Ltd v Baltic Quay Management (1994) Limited (2004) EWCA Civ 1757).
  4. The wording of the first paragraph of Jackson J.’s summary also appears to confirm that the meaning of dispute is the same in relation to both adjudication and arbitration proceedings.
  5. The Court of Appeal in Collins (Contractors) Ltd v Baltic Quay Management (1994) Limited (supra) added a further gloss to the question of when a dispute will be found to exist by stating a preference for the view that negotiations or discussions are generally consistent with a dispute being in existence as opposed to the alternative view that no dispute crystallises until negotiations or discussions have concluded without success.

Contracts in writing

  1. In Trustees of Stratfield Saye Estate v AHL Construction Ltd [2004] EWHC 3286, Jackson J. clarified the extent to which a contract must be in writing before falling within the mandatory adjudication provisions of the Housing Grants, Construction and Regeneration Act 1996 ("HGCRA").
  2. He considered the Court of Appeal decision in RJT Consulting Engineers Ltd v DM Engineering Ltd [2002] EWCA Civ 270 and held that its ratio was that all the express terms of the contract had to be in writing for the HGCRA to apply. However, the contract need not be found in a formal document and on the facts the contract was adequately evidenced in writing by letters, drawings and meeting minutes.

II. Challenge Of Adjudicator’s Decisions – Natural Justice

General

  1. In AMEC Capital Projects Limited v Whitefriars City Estates Limited [2004] EWCA Civ 1418, the common law rules of natural justice were described as being two fold:
    1. The right to proper notice and an effective opportunity to make representations before a decision is made
    2. The right to an unbiased tribunal

  2. In Carillion Construction Ltd v Devonport Royal Dockyard Ltd [2005] EWHC 778 (TCC), Jackson J. summarised the authorities on the requirements of natural justice as follows:
  3. 1. If an adjudicator declines to consider evidence which, on his analysis of the facts or the law, is irrelevant, that is neither (a) a breach of the rules of natural justice nor (b) a failure to consider relevant material which undermines his decision on Wednesbury grounds or for breach of paragraph 17 of the Scheme. If the adjudicator's analysis of the facts or the law was erroneous, it may follow that he ought to have considered the evidence in question. The possibility of such error is inherent in the adjudication system. It is not a ground for refusing to enforce the adjudicator's decision…

    3. It is often not practicable for an adjudicator to put to the parties his provisional conclusions for comment. Very often those provisional conclusions will represent some intermediate position, for which neither party was contending. It will only be in an exceptional case such as Balfour Beatty v London Borough of Lambeth that an adjudicator's failure to put his provisional conclusions to the parties will constitute such a serious breach of the rules of natural justice that the Court will decline to enforce his decision.

    5. If an adjudicator is requested to give reasons pursuant to paragraph 22 of the Scheme, in my view a brief statement of those reasons will suffice. The reasons should be sufficient to show that the adjudicator has dealt with the issues remitted to him and what his conclusions are on those issues. It will only be in extreme circumstances… that the court will decline to enforce an otherwise valid adjudicator's decision because of the inadequacy of the reasons given. The complainant would need to show that the reasons were absent or unintelligible and that, as a result, he had suffered substantial prejudice.

  4. This summary indicates that the Courts will be reluctant to allow a party to resist enforcement on the basis of a breach of the principles of natural justice.

Right to proper notice

  1. In Ardmore Construction Limited v Taylor Woodrow Construction Limited [2006] CSOH 3 an adjudicator’s decision was set aside as it was based upon an argument which the Outer House concluded had not been run at the adjudication hearing. The defenders had not, therefore, received proper notice and opportunity to respond.
  2. The case is noteworthy because the Outer House, while acknowledging the strict approach to arguments of natural justice advocated in Carillion v Devonport (supra), appeared to retreat somewhat from Jackson J.’s position, stating:
  3. "if [adjudicators] behave, in reaching their decisions, in a manner which, on an objective basis, involves a disregard of fair play, the consequence of which appears to have had a substantial and material effect on the adjudicator’s decision, then the Court should be prepared to intervene."

Bias

  1. In A&S Enterprises Limited v Kema Holdings Limited [2005] BLR 76 an adjudicator drew adverse inferences from the non-participation of a particular witness at a meeting. HHJ Seymour QC found there had been a breach of natural justice both because the adjudicator had failed to make clear in advance the importance he was attributing to the non-participation of the witness and because his actions indicated a real possibility of bias.
  2. Both these findings turn to some extent upon the facts of the case. In particular, the finding of bias stems from the adjudicator’s statement that he had viewed the Responding Party’s submissions and arguments in the light of the unexplained non-attendance of the witness at the meeting. HHJ Seymour QC considered this to mean that the non-attendance influenced legal findings as well as factual findings and equated this with bias.

III. Pro-Active Adjudication

  1. Section 108(2) of the HGCRA states:

The contract shall…

  1. enable the adjudicator to take the initiative in ascertaining the facts and the law
  1. This section therefore requires that adjudicators be granted broad ranging inquisitorial powers similar to those provided to arbitrators under s.34(2)(g) of the Arbitration Act 1996.
  2. In principle, there do not appear to be any limits on the powers of adjudicators to take the initiative in determining the procedure of hearings other than the general limits relating to natural justice.
  3. For adjudications governed by the Scheme for Construction Contracts, Paragraph 13 provides for certain specific powers:
  4. The adjudicator may take the initiative in ascertaining the facts and the law necessary to determine the dispute, and shall decide on the procedure to be followed in the adjudication. In particular he may –

    (a) request any party to the contract to supply him with such documents as he may reasonably require, including, if he so directs, any written statement from any party to the contract supporting or supplementing the referral notice and any other documents given under paragraphs 7(2).

    (b) decide the language or languages to be used in the adjudication and whether a translation of any document is to be provided and if so by whom

    (c) meet and question any of the parties to the contract and their representatives

    (d) subject to obtaining any necessary consent from a third party or parties, make such site visits and inspections as he considers appropriate, whether accompanied by the parties or not,

    (e) subject to obtaining any necessary consent from a third party or parties carry out any tests or experiments,

    (f) obtain and consider such representations and submissions as he requires and, provided he has notified the parties of his intention, appoint experts, assessors or legal advisors

    (g) give directions as to the timetable for the adjudication, any deadlines, or limits as to the length of written documents or oral representations to be complied with, and

    (h) issue other directions relating to the conduct of the adjudication

  5. These provisions give the adjudicator quite broad discretion as to the procedure to be adopted. Further, the wording of the paragraph suggests that these are "particular" instances of the adjudicator’s powers and not an exhaustive list.
  6. One key procedural limitation can be found in Paragraph 17:
  7. The adjudicator shall consider any relevant information submitted to him by any of the parties to the dispute and shall make available to them any information to be taken into account in reaching his decision.

  8. For non-Scheme adjudications, the powers of the adjudicator will often be less clear. However, in the absence of express limitations, the adjudicator will be constrained primarily by natural justice. Although the Scheme will not apply directly in such instances, Paragraphs 13 and 17 appear to give a good indication of the extent to which an adjudicator can be pro-active without breaching any principles of natural justice.

Independent Advice

  1. One common manner in which adjudicators behave in a pro-active manner is by obtaining advice and assistance independently from the parties. This particularly happens where the adjudicator is part of a large organisation which is capable of replicating and independently confirming analyses carried out by one or both parties.
  2. In principle, there seems nothing objectionable about this course of action, at least where the parties agree to it (see Try Construction Ltd v Eton Town House Group [2003] EWHC 60 (TCC)).
  3. In such circumstances, the key limitation is the principle of natural justice (also found in paragraph 17 of the Scheme) which requires that the adjudicator provide the parties with any findings obtained so that they can comment upon and challenge them.
  4. For example, in BAL (1996) Ltd v Taylor Woodrow Construction (2004) (Lawtel) even though the parties agreed that the adjudicator could obtain legal advice from third party solicitors and Counsel the adjudicator was held to have breached the principles of natural justice by failing to disclose in the contents of the advice to the parties in advance of his decision.
  5. The position where the parties do not consent to the adjudicators proposed use of independent advice is less clear. The better view is probably that, as with other procedural issues, the adjudicator has a general power to seek such advice and is solely limited by the principles of natural justice and the rules governing the arbitration.
  6. In Balfour Beatty Construction v London Borough of Lambeth [2002] EWHC 597 (TCC) a further argument was raised that the adjudicator’s use of assistants rendered the determination unenforceable because it was contrary to the JCT rules governing the adjudication. HHJ Lloyd QC considered that in order to resist enforcement on this basis, it was necessary not only to show a breach of contract by the adjudicator, but also material prejudice or substantial injustice flowing from the breach. If this obiter statement correctly reflects the law, arguments as to breach of contract and/or adjudication rules appear to add little or nothing to the basic requirements of natural justice.

Admission of late evidence and issues

  1. Paragraph 17 (supra) of the Scheme requires the adjudicator to consider all relevant information submitted to him by the parties to the dispute. In non-Scheme adjudications, it is likely that the principles of natural justice would require a similar result.
  2. However, where evidence is admitted late, the adjudicator must sometimes be pro-active in excluding it on the basis that it would be contrary to the principles of natural justice to allow its admission.
  3. An example of this can be found in London & Amsterdam Properties v Waterman Partnership [2003] EWHC 3059 (TCC) where the claimant sought to rely on late material brought forward only after the defendant’s response. Although the respondent had a week to reply to this new evidence, it was in the circumstances an inadequate amount of time and the Court regarded the new material as an evidential ambush the admission of which was contrary to the principles of natural justice.
  4. The same principle applies to the introduction of new issues. In McAlpine v Transco [2004] EWHC 2030 (TCC) the permitted McAlpine to introduce new issues into the adjudication which had not been included in the Notice of Adjudication or Referral Notice.

IV. Confidentiality And Disclosure

  1. Many sets of adjudication rules provide specifically for confidentiality:
    1. Paragraph 18 of the Scheme provides that:
    2. The adjudicator and any party to the dispute shall not disclose to any other person any information or document provided to him in connection with the adjudication which the party supplying it has indicated is to be treated as confidential, except to the extent that it is necessary for the purposes of, or in connection with, the adjudication.

    3. Paragraph 30 of the TeCSA adjudication rules provides:
    4. The Adjudication and all matters arising in the course thereof are and will be kept confidential by the Parties except insofar as necessary to implement or enforce any decision of the Adjudicator or as may be required for the purpose of any subsequent proceedings.

    5. Paragraph 19.4 of the TECBAR adjudication rules provides:

    Unless otherwise agreed, the Decision and the documents and other information and materials prepared for use in the adjudication, and any documents predating the adjudication produced or exchanged between the parties but relating to the matters in dispute in the adjudication, shall remain confidential to the parties, and shall not be used for any purpose other than the adjudication, except that nothing herein shall (a) bar their use by any party in any connected arbitration, litigation or other dispute resolution process or (b) bar their production by any party to any person or body that has a financial or commercial interest in the contract itself and/or is (or is contemplating) providing facilities to one or other of the parties.  

  2. As these clauses demonstrate, adjudication rules which provide for confidentiality generally provide that the whole hearing is confidential with a minor exception for the purposes of enforcement proceedings.
  3. The position where the adjudication is conducted under rules which do not provide for confidentiality is unclear. In such situations, the party resisting disclosure would perhaps be best advised to refuse disclosure unless an undertaking as to confidentiality is received. This would seem to be a reasonable request and if the undertaking were not forthcoming it could be considered contrary to the principles of natural justice to draw any adverse inferences from the refusal to provide the confidential documents.

Disclosure

  1. In CIB Properties Limited v Birse Construction [2004] EWHC 2365 (TCC), HHJ Toulmin QC stated that the adjudicators power to take the initiative in ascertaining the facts and the law (s.108(2)(f) HGCRA) extended to orders relating to disclosure.
  2. Accordingly, it would appear to be a matter for the individual adjudicator, constrained by the principles of natural justice, as to which documents he requires to be disclosed.
  3. Where a party makes an application for disclosure, the adjudicator is entitled to refuse the application if the size and nature of the request is inappropriate given the size and nature of the dispute, particularly if the purpose of the application is predominantly tactical (see CIB v Birse (supra at 196)).
  4. It is not clear what powers the adjudicator has in the event that disclosure is resisted. The proper response is probably for the adjudicator to simply draw an adverse inference. This was the view taken by the adjudicator in CIB v Birse (supra at para 129) which appears to have been supported by HHJ Toulmin QC.

The articles and papers published by Keating Chambers are for the purpose of raising general awareness of issues and stimulating discussion. The contents must not be relied upon or applied in any given situation. There is no substitute for taking appropriate professional advice.

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