UK: Adjudication Watch - November 2016

In this latest 'Adjudication Watch' our construction team reviews key cases relating to adjudication from the last few months.

Key point: Can an adjudicator decide an issue that neither party has raised?

Stellite Construction Ltd v Vascroft Contractors Ltd [2016]

The background to this Technology and Construction Court (TCC) decision is that Stellite engaged Vascroft to construct the shell and core of a house in Hampstead, London under a contract which incorporated the terms of the JCT Standard Building Contract Without Quantities 2011 (the Contract).

The Contract provided that Vascroft was entitled to extensions of time for "Relevant Events" and Stellite was entitled to liquidated damages in the event that the Works were delayed. The completion of the Works was delayed and Stellite claimed liquidated damages. When Vascroft refused to pay, the dispute was referred to adjudication. The adjudicator made the following findings:

  1. time for completion had been set at large;
  2. no liquidated damages were therefore due to Stellite; and
  3. having decided that time was at large, a reasonable time for completion was by no later than 5 March 2016

In Part 8 proceedings, Stellite sought declarations that the adjudicator's decision was unenforceable on the basis that the adjudicator had breached the rules of natural justice and acted outside of his jurisdiction.

Ground 1: Natural justice

On the first ground of challenge, Stellite contended that the adjudicator was in breach of the rules of natural justice for having decided that time was at large without allowing either party to comment on the issue. The question of whether parties have been given a fair opportunity to set out their respective positions will depend on the facts - if the adjudicator acts in breach of the rules of natural justice, the courts will not enforce the decision.

Mrs Justice Carr held that both parties had been given sufficient opportunity to comment on the issue of whether time was at large, so there was no breach of the rules of natural justice.

Ground 2: Jurisdiction

Stellite further contended that the adjudicator had acted outside of his jurisdiction by determining a reasonable time for completion, arguing that this was not an issue that the parties had asked to be decided and was outside the scope of a claim for liquidated damages.

The principle of what falls within the scope of an adjudicator's jurisdiction is determined by the nature, scope and extent of the dispute identified in the Notice of Adjudication.

The Judge found that the adjudicator had exceeded jurisdiction in this case by holding that a reasonable time for completion was 5 March 2016. Whilst the Court considered that it was a "logical next step" to determine a reasonable completion date, the adjudicator did not have the requisite jurisdiction as it would only be relevant to a claim for unliquidated damages. This part of the adjudication decision was therefore severed from the rest of the decision, which would survive.

The decision highlights:

  1. the difficulty that a party faces when it seeks to argue that there has been a material breach of the rules of natural justice. The Judge highlighted that it would be a rare case where there has been a breach of the rules of natural justice. To be able to succeed with this type of challenge, a party will need to show that the adjudicator has strayed significantly outside the ambit of the matters referred to adjudication and without giving the parties an opportunity to comment on the information intended to be relied upon in coming to any decision; and
  2. that, where practical and possible, a party may be able to sever an adjudicator's decision, allowing the uncontroversial parts to stand. 

Key point: the enforcement of adjudication decisions remains hard to challenge successfully

Ground Developments Ltd v FCC Construccion SA [2016]

This long and detailed judgment provides a helpful summary of previous authorities on the enforcement of adjudicators' decisions and reaffirms the approach of the TCC to enforcement.

Ground Developments Ltd (GDL) was engaged by Merseylink Civil Contractors Joint Venture (JV) to carry out ground engineering works on the Mersey Gateway project, a new six-lane toll bridge to be constructed over the Mersey. GDL started work without a formal contract in place but did write, setting out the terms under which it was carrying out those works. The JV failed to respond to this letter or to challenge the terms which GDL had cited.

GDL subsequently commenced an adjudication for payment of sums applied for, but acknowledged the position regarding the nature of the contract between the parties. The JV challenged the appointment of the adjudicator on a number of jurisdictional grounds and reserved its position regarding enforcement proceedings. The adjudication continued, however, and the adjudicator awarded GDL the sums applied for. It was also decided that the parties' contract was based on the letter sent by GDL to the JV which they had failed to acknowledge.

The JV sought to challenge the adjudicator's decision on the basis of seven defences. Mr Justice Fraser rejected each of these defences in turn deciding that the adjudicator had not breached the rules of natural justice and had not exceeded his jurisdiction.

The decision highlights:

  1. the difficulties an unsuccessful party faces when challenging an adjudicator's decision; and
  2. the familiar scenario where parties are in dispute as to the existence and form of a contract and the impact this has on the adjudicator's decision.

Key point:  the test for "apparent bias" is objective and demanding

Paice & Anor v Harding (t/a MJ Harding Contractors) [2016]

This is the latest (and hopefully the last) chapter in a long-running dispute. This time it was the attempt by the employers (Mr Paice and Ms Springall - PS) to enforce the adjudicator's decision in what was the fifth adjudication between the parties.

The contractor, Harding, challenged the adjudicator's decision, with the substantive challenges being that:

  1.  the adjudicator's decision was late; and
  2. the adjudicator showed apparent bias.

Ground 1:  Late decision

Harding argued that it had not agreed to extend the time for the adjudicator (Mr L), to make his decision, and therefore the decision was given out of time.

Harding did not accept Mr L's jurisdiction, having challenged his appointment on the basis that the employers had referred the dispute under the wrong procedural rules. In terms of the extension of time for provision of Mr L's decision, Harding sought to argue that although it had confirmed that it would agree to an extension for a non-binding determination, it had otherwise reserved its position.

The TCC dismissed this argument. An agreement to extend time for an adjudicator's decision is likely to be taken at face value, whatever reservations continue to be expressed by a party in relation to the adjudicator's jurisdiction. 

Ground 2: Apparent bias

This contention arose from the complex history of the dispute.

The adjudicator in the fourth adjudication (Mr S) had decided that the value of the final account had been overstated in the third adjudication and ordered Harding to repay £325,484 to PS (out of the £397,012 awarded).  However, Harding had successfully resisted enforcement of Mr S' decision on the grounds of apparent bias and subsequently made a formal complaint to the nominating body, the RICS, in respect of Mr S' conduct of the adjudication. 

In the RICS disciplinary proceedings that arose from Harding's complaint, Mr L gave a character reference for Mr S and Harding argued that Mr L was therefore guilty of apparent bias.

The TCC held that Mr L did not have an obligation to disclose the fact he had provided a character reference for Mr S and his view of Mr S could not reasonably be considered to impact upon his position as adjudicator in the fifth adjudication.

The test for apparent bias is objective and is whether an informed and fair minded observer, with knowledge of all the relevant circumstances, would conclude that there was a real possibility of bias. The TCC found this not to be the case here and rejected Harding's challenge on this basis.

Key point: the adjudication process has a basic requirement of fairness 

Beumer Group UK Ltd v Vinci Construction UK Ltd [2016]

Beumer (the sub-contractor) sought to enforce an adjudicator's decision against Vinci (the main contractor) in relation to works Vinci had engaged Beumer to undertake on the South Terminal baggage handling system at Gatwick Airport under an NEC3 subcontract. Vinci challenged the adjudicator's decision on the grounds that there had been a breach of the rules of natural justice and the adjudicator showed apparent bias.

Beumer had engaged the services of Daifuku Logan (sub-sub-contractor). A dispute arose between Beumer and Vinci at the same time as a disagreement between Beumer and Logan. Beumer referred both disputes to adjudication on the same day. The same adjudicator was appointed to act in both adjudications. Vinci was not told about the adjudication between Beumer and Logan, nor was Vinci informed that the same adjudicator was appointed in both adjudications.

The TCC held that the adjudicator was in breach of the rules of natural justice. The adjudicator should have told Vinci that he was acting as adjudicator in another dispute involving Beumer, regardless of the fact that it related to the same project. Beumer had put forward inconsistent cases on the completion date (the "Airport Operational Date" under the contract) in the two concurrent adjudications; this factual inconsistency could have been relied on by Vinci, who were denied the opportunity of making this submission.

Mr Justice Fraser was critical of Beumer's actions in the two adjudications:

"I take a very dim view of the propriety of behaviour where Party A says in one set of adjudication proceedings with Party B "the works were complete on 16 December 2015" and, in relation to the very same works (or at least a sub-set of the works) on the same project states in another set of adjudication proceedings with Party C "the works are not yet complete, you are liable to pay liquidated damages" "(Paragraph 25).

The decision highlights:

  1. the court's view that it is difficult, if not impossible, for an adjudicator to be permitted to conduct another adjudication involving one of the same parties without disclosing the existence of that appointment from the outset. There is an obvious risk that a failure to do so will result in a finding of apparent bias; and
  2. the extent of the requirement of disclosure by parties in adjudication. Mr Justice Fraser stated that it was appropriate for there to be disclosure of the relevant materials pertaining to Beumer's inconsistent case. Whether this applies in other cases will be a matter of fact and degree.

If you have any queries on these cases, or adjudication generally, please call Ashley Pigott or Lindsay Hammond.

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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