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Newsletter March 2011
The theme of this newsletter could be Adjudicators behave! Shona
Frame and Fritha Wheeler-Ozanne start the ball rolling with an
article on bias in adjudication which highlights something everyone
hopefully already knows – alleging bias is a sign of desperation
and almost never works. This is followed by a far less alarmist
article from Murray Armes considering when it is good practice for
an adjudicator to hold a hearing and the nature of hearings that
may be held.
Finally, reverting to a cautionary note, regular contributor J R
Hartley notes the importance of addressing the parties evidence and
arguments fully and, perhaps just as importantly, demonstrating
that the matters have been considered in the decision.
Elsewhere in the newsletter, James Golden considers the future
of adjudication in Ireland and I write my first article for the
newsletter on the importance of checking the financial position of
the
other party before spending money on adjudication. What more
could you possibly ask for.
In the quest for routes to resist enforcement of an
Adjudicator’s decision, parties often turn to the issue of bias of
the Adjudicator as a potential ground.
The Court of Appeal decision in In re Medicaments and Related
Classes of Goods (No 2) (2001) established the current test for
bias. The issue which arose there was whether a lay member of the
Restrictive Practices Court was biased. She had applied for a job
with a consultancy firm, a director of which was an expert witness
in a case she was involved in. The Appeal Court stated that what
was required was first to ascertain all the circumstances which had
a bearing on the suggestion of bias then to ask whether those
circumstances would lead a fair-minded and informed observer to
conclude that there was a real possibility or danger of bias. In
this case it was thought there was such a danger. There was no
suggestion of actual bias,
the issue was an apprehension of bias. That test was approved in
the later decision of Porter v Magill (2002).
The underlying principle is that the “overriding public interest
[is] that there should be confidence in the integrity of the
administration of justice” (per Lord Goff of Chieveley in R v
Gough, 1993) or put another way “that it is of fundamental
importance that justice should not only be done, but should
manifestly and undoubtedly be seen to be done” (per Lord Hewart CJ
in R v Sussex Justices, 1924).
There has been considerable judicial discussion of the various
arguments related to bias being mounted as a defence to actions for
the enforcement of Adjudicators’ decisions.
For instance, is the Adjudicator biased if he is aware of a
without prejudice settlement offer before issuing his Decision?
This was the question
put to Justice Coulson in the case of Volker Sevin Limited v
Holystone Contracts Limited (September 2010).
Holystone argued that an Adjudicator’s decision was
unenforceable, amongst other things, because during the
adjudication proceedings and before the decision, Volker had
wrongly made the Adjudicator aware of Holystone’s without prejudice
offer of settlement. The without prejudice offer had been made at a
meeting. Both parties made reference to the meeting during the
course of the Adjudication but it was Volker who wrote to the
Adjudicator to let him know that an offer to settle had been made
at it. This, Holystone argued, was improper and resulted in the
Adjudicator being (however unconsciously) biased against them.
In order to assess whether there was any bias, Justice Coulson
applied the test established in
In this issueShona Frame and Fritha Wheeler-Ozanne: Bias in
Adjudication – the Courts’ Approach
Murray Armes: Meetings - To Have and To Hold
James Golden: Will They Won’t They – Statutory Adjudication in
Ireland
William Webb: No Money, No Enforcement
J R Hartley: “He Didn’t Consider Our Evidence?”
Nicholas Gould’s Case Notes Corner
Announcements
Events and Regional News
EditorialWilliam Webb
Bias in Adjudication – the Courts’ ApproachShona Frame and
Fritha Wheeler-Ozanne
October 2009
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Adjudication Society Newsletter Page 2March 2011
Re Medicaments and ultimately rejected Holystone’s argument.
The Court found that there was no doubt that a fair-minded and
informed observer would not reach the conclusion that there was a
real possibility or danger of bias and any suggestion to the
contrary was considered entirely unrealistic. The Adjudicator made
clear in his Decision that he was indifferent to the fact that an
offer had been made, and that the bulk of his decision had already
completed by the time he was told about it.
In response to whether there was any unconscious bias, it was
held that in any construction dispute, the Adjudicator, just like
any Court judge, would tend to expect that negotiations had
occurred. This was particularly so in this case where the question
of liability had been dealt with in a previous Adjudication and the
remaining issue was therefore how much was due.
Reference was also made to old arbitration cases, when the
Arbitrator would be made aware of the existence of a sealed
envelope containing a without prejudice offer. There was no
suggestion that the Arbiter in those cases was biased as a result
of his knowledge of the fact that an offer was made.
In an earlier case, Specialist Ceiling Services Northern Limited
v ZVI Construction (2004), the Adjudicator had been made aware of
the existence of a without prejudice offer to settle and the fact
that a breakdown accompanied this offer (although he did not see
the breakdown). In that case, liability was still in dispute. The
Adjudicator declined to resign on the basis that he did not
consider his impartiality was affected by this knowledge. He
expected without prejudice negotiations to occur and noted that in
his experience, offers were
often made for commercial reasons to avoid the need for
Adjudication and not necessarily due to any admission that sums
were due. In that case also it was found that there was no
indication of bias or unfairness in the Adjudicator’s decision and
the decision was enforced. A different issue arose in Fileturn Ltd
v Royal Garden Hotel Ltd (July 2010). There, an application for
enforcement of an Adjudicator’s decision was resisted on the basis
that the Adjudicator had been a director (in 2001 – 2004) of the
firm of claim consultants who were representing Fileturn in the
Adjudication. The individual representing Fileturn was also a
director of the firm at that time. Further, there were around 10
Adjudications (out of 250 the Adjudicator had conducted) where he
had acted as Adjudicator when his previous firm were acting for a
party. On 12 occasions, the firm had requested that particular
Adjudicator’s appointment.
The court found that the Adjudicator had not known of the
requests made for his appointment. Further, the number of occasions
on which the Adjudicator had acted when his previous firm was
involved was only a small proportion of his practice and he
therefore did not depend on that business. The Adjudicator had had
no interest in his previous firm since 2004. Further, the court saw
no difficulty with representatives of parties being well known to
the decision maker whether that be a judge or Adjudicator. In
specialist courts like the TCC this is a frequent occurrence.
Adjudicators are professional people with their own codes of
conduct and that should not present a problem.
Taking account of the above, it was considered “inherently
unlikely” that a fair minded and informed observer would conclude
that the Adjudicator’s involvement with the firm
6 years earlier would give rise to bias. In fact the court
considered this to be “fanciful speculation”.
In Makers UK Limited v The Mayor and Burgesses of the London
Borough of Camden (2008) the allegation was of apparent bias due to
a telephone call having taken place with the Adjudicator to check
his availability to act. An application was then made to the RIBA
suggesting the Adjudicator be appointed, if available. The court
found no apparent bias in this case but did suggest that, as
practical guidance, parties and Adjudicators should limit
unilateral contact before, during and after an Adjudication due to
the potential of any such contact being misconstrued. If there is
any such contact, it is better to be in writing rather than verbal.
Nominating bodies should consider their rules about whether they
will accept suggestions of nominees from parties and, if so,
whether notice of the suggestions should be given to the other
party.
In AMEC Capital Projects v Whitefriars City Estates (2004) the
allegation was of apparent bias based on the Adjudicator having
previously made a decision on the same issue. This was not upheld
and it was said there needed to be something of substance to lead
to the conclusion that there is bias.
The Courts’ default position in disputes concerning enforcement
of Adjudicators’ decisions is to enforce and it tends to be an
uphill struggle to convince them otherwise. To succeed in relation
to bias will require clear factual evidence supporting the
allegation as well as a clear apprehension, on reasonable grounds,
of potential bias. It is evident that the courts are giving short
shrift to what they regard to be spurious allegations of bias in an
attempt to avoid enforcement.
Meetings – To Have and To HoldMurray Armes
IntroductionHearings or meeting are an integral part of almost
all dispute resolution processes, particularly where evidence is to
be given orally and tested by cross examination or questioning.
Adjudication was always intended to be a quick and economical
method of dispute resolution but for it to be a well respected and
successful process the most appropriate techniques allowable under
the legislation and rules of adjudication must be applied.
Although a documents only procedure may appear to be the
cheapest and quickest way to decide a dispute it is not always the
best and so adjudication, as an inquisitorial procedure is not
always a paper only exercise. When that is the case, the
adjudicator can choose to hold a meeting, although some
adjudicators and party representatives prefer to call these
“hearings”. Without diluting the serious nature and importance of
them I prefer the term meetings because this
reflects the less formal procedures in adjudication compared to
say, litigation and to promote less defensive attitudes in the
parties themselves, some of whom may be unrepresented.
The evidence suggests that the use of meetings as part of
adjudication has declined. The data gathered by the Glasgow
Caledonian University1 shows that documents only adjudications are
in the majority whereas interview and
1 Glasgow Caledonian University, Adjudication Reporting Centre,
Report No1, June 2010
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Adjudication Society Newsletter Page 3March 2011
hearing procedures are both fewer than they were when they
reached their peak in 2005. It is possible that in part this
decline is as a result of the popularity of conference calls as an
alternative to actual meetings, although in my view these are never
as effective as meeting with everyone sat in the same room.
Meetings are particularly useful where oral evidence is to be
tested, where physical evidence needs to be seen (such as on site),
where the parties have few documents, or where the facts are
unclear and in all these cases a meeting will assist the
adjudicator. The provisions of the soon to be introduced Local
Democracy, Economic Development and Construction Act 2009 will
allow oral contracts to be referred to adjudication. As a result I
anticipate that use of meetings will need to increase to allow the
adjudicator to hear conflicting evidence and to question the
parties in place of reviewing written contracts. A meeting may also
help to reassure the parties the rules of natural justice are being
followed and that they are being given a proper opportunity to
present their case.
There are sometimes good reasons why a meeting should not be
held. Ultimately the choice lies with the adjudicator2 and the
parties are not entitled to expect a meeting will be held, even if
they ask for one.3 It is possible the dispute may be for a very
small amount or that the issues are very straightforward and there
is no need for a meeting other than for the parties to say they
have had “their day in court”. Sometimes even when the amount in
dispute is small a meeting can be the most effective way for the
adjudicator to obtain the facts he needs, but in many cases the
costs of a meeting may simply not be proportional to the claim.
This may also be the case for higher value disputes, that have
attracted a large team involved in the process, all of which are
perceived to be needed at the meeting. In such instances I think
the adjudicator should take the lead in making sure that only those
who are essential to the meeting attend, although ultimately the
adjudicator has no powers to actually exclude anyone.
Meetings may take two forms. The first and most formal is where
the parties meet the adjudicator around a table. The second is the
site visit where the primary objective is normally for the
adjudicator to be shown, and to understand, the physical elements
of the dispute. A possible third is the conference call which may
be better than no meeting at all, especially where the adjudicator
requires clarification of certain points, although in my experience
there is no substitute for a meeting where the adjudicator meets
the parties face to face, and they in turn meet each other.
Adjudicator’s Powers under the HGCRA and SchemeAdjudication is
an inquisitorial process and therefore the various rules under
which it operates have to have the flexibility to enable it to be
so. The adjudicator has a wide range of powers to enable him to
take the initiative in ascertaining the facts and the law4. For
instance under Paragraphs 13(c) and (d) of the Scheme for
Construction Contracts, the adjudicator is empowered to “meet and
question any of the parties to the contract and their
representatives” and “...make such site visits and inspections he
considers appropriate, whether accompanied by the parties or
not”.
In the interests of natural justice though, where an adjudicator
is accompanied by the parties there must be representatives of both
present, unless one party has refused to take part in the
adjudication. If a party fails to attend the meeting, although
Paragraph 15 of the Scheme allows the adjudicator to make
inferences about the non attendance, the adjudicator must be
careful he does not criticize the party in way that might be
construed as apparent bias5. In the case of a site visit, where one
party takes no part in the proceedings, it may be preferable for
the adjudicator to visit the site alone if that is possible.
ProcedureThe meeting is for the benefit of the adjudicator,
whether or not he calls the meeting or it is at the request of one
or both of the parties. Its purpose will be to enable the
adjudicator to gather
information and to test the evidence of the parties, and
hopefully to help narrow the issues.
In very complex cases there may be a need for a number of
meetings which may involve extending time for the adjudication6,
but such complex cases are very rare and normally it should be
possible to incorporate a meeting within the normal timetable.
Except for the smallest and most straightforward adjudications it
is worthwhile for the adjudicator to reserve time for a meeting
early on in the process. This will enable the parties to make sure
the parties have the right people available for the meeting,
although it might not necessarily avoid the unfortunate
circumstances in A&S Enterprises Limited v Kema Holdings
Limited unless the adjudicator makes it clear who it is he wants to
attend the meeting and his reasons for doing so. Openly criticizing
a party for not attending is likely to lead to a breach of natural
justice and if, for any reason a party is unable to attend it is
probably safer for the adjudicator to try to obtain consent to
extend time for the adjudication to enable them to attend than it
would be to make inferences about the non attendance.
It is a good idea to try to get the parties to agree a venue. If
that is not possible the adjudicator may arrange the venue, or
possibly the meeting may be held at the premises of one of the
parties, especially if this reduces travelling time, distance and
costs. In Barrie Green and GW Integrated Building services Ltd and
G&M Floorlayers (Derby) Ltd7 it was asserted that the
adjudicator had acted unfairly by suggesting the meeting be held at
the venue of one of the parties. The Court, however, did not agree.
In my experience parties generally do agree the venue and accept
that it is often the best option to hold it at the premises of one
party or the other, or possibly on completely neutral territory, at
the offices of the adjudicator.
Whatever venue is decided upon, the adjudicator is not normally
permitted to meet with one party without the other8, although that
may depend on the adjudication rules9. For a formal meeting this
should not present a problem, but
2 Rok Building Limited v Celtic Composting Systems Limited (No.
2) [2010] EWHC 66 (TCC)3 Woods Hardwick Ltd v Chiltern Air
Conditioning(2000) TCC4 The Scheme for Construction Contracts,
paragraph 135 A&S Enterprises Limited v Kema Holdings Limited
(2004/2005) CILL 21656 CIB Properties Ltd v Birse
Construction[2004] EWHC 2365 (TCC)7 Barrie Green and GW Integrated
Building services Ltd and G&M Floorlayers (Derby) Ltd [2001]
Adj.L.R. 07/188 Glencot Development & Design Co Ltd v Ben
Barrett & Son (Contractors)Ltd [2001] BLR 207 in Dean &
Dyball Construction Ltd v Kenneth Grubb Associates Ltd [2003] EWHC
2465 (TCC) it was held that the CIC Model Adjudication procedure
allowed for separate meetings 9 In Dean & Dyball Construction
Ltd v Kenneth Grubb Associates Ltd [2003]EWHC 2465 (TCC) it was
held that the CIC Model Adjudication procedure allowed for separate
meetings In such a case the adjudicator must ensure that if
evidence is gleaned from one party, the other must have an
opportunity to deal with it.
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Adjudication Society Newsletter Page 4March 2011
the adjudicator must tread carefully during site visits and make
sure that he is always in the presence of both parties. An
adjudication meeting is not a substitute for mediation, but a good
reason for holding one may be to try to narrow the issues with both
parties present. I did once have two parties who were able to agree
on a large proportion of their dispute as a result of a lengthy
meeting, leaving me to decide only those parts they could not agree
on.
A question may arise about who should attend the meeting.
Clearly representatives from each of the parties should be present
and also any experts the adjudicator wishes to question. If the
parties are represented by lawyers or even barristers they may want
them to be present. In the UK the adjudicator has no direct control
over who attends unlike in Australia where apart from in the
Northern Territories and Western Australia lawyers are excluded
from adjudication meetings. If they do attend there is a risk the
proceedings could revert to the more formal procedures of
litigation where cross examination is the norm. The adjudicator
needs to use his judgment. In most cases the presence of lawyers
should pose no problems and in fact may even be advantageous.
However, the adjudicator needs to take charge of the proceedings
and it is my preference to question the parties directly and
generally not to allow cross questioning except through me, and
certainly no cross examination by the lawyers of the other party.
This becomes particularly important when one party is represented
and the other is not. The adjudicator can try to encourage the
parties to bring roughly equally balanced teams but cannot ban
anyone from the meeting. However, the adjudicator can
use procedures which limit the role of the lawyers and I usually
make sure the ground rules are clearly set out at the time the
meeting is arranged.
I think it is good practice to always set out a draft agenda and
send this to the parties, if possible several days, but at least
twenty four hours before the meeting. This allows the parties to
properly prepare which can save a lot of time at the meeting and
provides them with the best opportunity to present their case.
Agendas vary, but principally set out the list of questions that I,
as the adjudicator, wish to ask the parties. The meeting also
provides a good opportunity to confirm with the parties what the
issues are. I personally like to allow the parties to comment on
the agenda and to contribute agenda items to it. This often means a
party is not taken by surprise by a question which the other party
wants to raise. Importantly it may provide an early warning that a
party is trying to introduce evidence without notice to the other
party not previously introduced in the proceedings. If such
material or evidence is presented either before or at the hearing,
the adjudicator must give the other party a proper opportunity to
address it10.
In JW Hughes Building Contractors Ltd v GB Metalwork Ltd11 it
was claimed that a meeting was unfair because one of the parties
had not been provided with certain documents and the adjudicator
had proceeded with the meeting, despite knowing about the problem.
The documents had been served on the party’s lawyers and on that
basis the Court held that it was not the responsibility of the
adjudicator to make good any deficiency in the documents that was
really the fault of the lawyer who had received them.
In contrast to litigation and arbitration,
having progressed through the various agenda items it is a good
idea to give the parties time to raise any further questions they
might have. Although I do not encourage the parties to cross
examine each other, sometimes allowing them to question each other
can be useful and may help to extract evidence that might not
otherwise have been forthcoming, provided always that the
adjudicator does not let this get out of hand. I recall one
particularly difficult case where I found it was hard to decide who
was right on a specific point. The contractor was very expansive by
allowing him to continue and carefully listening and to the
employer’s responses it gave me an insight into the issues that I
would not have obtained by simply asking questions myself.
ConclusionMeetings in adjudications are a valuable tool and are
not to be avoided unless there are good reasons for doing so. The
parties also seem to like them and they can be very cost effective
especially where there is a shortage of documentary evidence. A
meeting is also a good way to allow the parties to present their
cases and at the end it is my practice to ask the parties before
they leave if they think they have had an ample opportunity to
present their case. I have never yet had anyone who said no. I also
ask them if, having met, they now feel able to resolve the dispute
themselves, but I have never yet had anyone that said yes!
Nonetheless I believe that meetings held, where appropriate, as
part of an adjudication do assist the parties both to present their
evidence and allow the adjudicator to better understand the issues
and to reassure the parties they have had a proper opportunity to
present their cases.
Will They Won’t They – Statutory Adjudication in IrelandJames
Golden
This is a short note on things across the Irish Sea for those
not aware. There are moves afoot for the introduction of statutory
adjudication in the Republic of Ireland. This looks to be one of
the positive upshots from the deep recession engulfing Ireland.
A bit of background to the current position may be helpful.
Despite the success of adjudication in the UK and its introduction
to Northern Ireland in 1998,
there was little enthusiasm for statutory adjudication south of
the border during the boom years of the Celtic Tiger. The situation
has changed dramatically as the recession has taken hold in the
Republic and the property bubble burst, leaving many
sub-contractors and main contractors in serious financial
straights. In May 2010, Senator Feargal Quinn introduced a private
members Bill in the Upper House of the Irish Parliament
(the Seaned) to introduce statutory adjudication. The original
bill was of in an extremely simple format and its introduction took
many by surprise. However, Senator Quinn’s timing was perfect and a
considerable enthusiasm for the Bill has developed within the
Construction Industry. The enthusiasm is not universally shared but
to date the Government has supported Senator Quinn’s actions.
10 Ardmore Construction Ltd v Taylor Woodrow Construction Ltd
[2006] CSOH3 Crt Session 11 JW Hughes Building Contractors Ltd v GB
Metalwork Ltd [2003] TCC
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Adjudication Society Newsletter Page 5March 2011
To have a private members Bill started in the Seaned become law
is highly unusual in Ireland but not without precedent. It will
need the support of the Government to succeed and, for it to become
law in the present Dáil, the Bill will need widespread support.
Given that the present coalition which forms the Government in
Dublin is now teetering without a majority and a general election
is widely forecast to happen before April or May this year, it is
very optimistic to think that statutory adjudication will become
law in Ireland this side of a general election. However, it would
seem that the impetus for some form of payment protection
incorporating adjudication provisions has
now developed to such a stage that it is almost certain to
happen.
The exact form that the adjudication process will take is not as
yet clear. The committee stage for the Bill is imminent but the
draft to be presented to the Committee is not, at the time of my
writing, public information. The Adjudication Society has been
involved in the development of the Bill. A number of members,
including particularly Rudi Klein, have worked very closely with
Senator Quinn in developing the Bill and advising him and the
Government in relation to the provisions. A number of members of
the Northern Ireland Region
have also been involved in contributing to the debate and
educating those interested in the Republic, but clearly a great
deal is still to be fixed.
One obvious point is that these developments all take place
against the background of judicial support for contractual
adjudication particularly highlighted in Clarke Quarries v PT
McWilliams Ltd [2009 No. 5957P] 24 August 2009.
Once the provisions of the Bill are clearer I shall provide an
update.
No Money, No EnforcementWilliam Webb
It is easy to view adjudication as a quick and easy way to get
money. The HGCRA was, after all, designed to aid cash flow so what
better way to do that than by diving in with an adjudication the
moment you are kept out of your money. If a client comes to his
lawyer or other consultant and asks how he can get his money back,
a good lawyer would also consider adjudication as a primary option.
A good lawyer would also consider the financial position of the
other party before starting an adjudication – there’s no point
getting a decision if you can’t then get your money. In
adjudication, however, another consideration arises and that is the
financial position of your own client. An adjudicator’s decision
may be rendered worthless not just because the unsuccessful party
has no funds, but also because the successful party has no
funds.
For some time now, unsuccessful parties have known that they may
be able to obtain a stay of execution of judgment on a decision if
they can establish that the successful party would be unable to
repay the money following final resolution of the dispute. The most
important case in this area is probably Wimbledon Construction
Limited v Derek Vago [2005] EWHC 1086 (TCC) which made clear that
the option was available, but imposed certain hurdles which meant,
in practice, it would be extremely hard to stay execution of the
judgment on this basis. The two key hurdles were:
(1) The stay would not be granted if the successful party was in
a poor financial position at the time the parties contracted. In
such circumstances, the other party was
said to have taken the risk that it would have to pay over money
which it would not be able to recover; and
(2) The stay would not be granted if the reason for the
impecuniosity was the failure by the other party to properly make
payments under this contract.
It was always difficult for unsuccessful parties to overcome
both these hurdles. In particular, for small companies not doing a
great many projects at one time, if they were in good financial
health at the time of contracting but not at the time of the
adjudication, the reason would invariably be that they were not
being properly paid under this contract – there being few other
potential sources of impecuniosity. As a result, the defence was
only liable to work against substantial contractors whose financial
health had deteriorated greatly over the course of the works as a
result of losses on other contracts.
It has, however, always been the case that these cases represent
the tip of a much larger iceberg. Wimbledon v Vago considered those
instances where one party was still officially trading and had not
taken any insolvency steps, but nevertheless it could be shown from
its accounts that it was probable it would be unable to repay any
sum awarded. With the economic downturn, there were a much greater
number of cases where the successful party affected went into
administration or liquidation after the decision.
The reason this matters is that it brings with it a whole body
of law on setting off debts against insolvent companies which
conflicts somewhat with the HGCRA such that the Court doesn’t even
enjoy the
discretion afforded in Wimbledon v Vago. In short, whereas
various provisions of the HGCRA require money to be paid over
irrespective of the availability of set-off defences, insolvency
law generally says that the insolvent company need not pay or be
paid by anyone else until the overall amount due between the
parties has been finally resolved.
The recent case of Straw Realisations (No.1) Ltd v Shaftesbury
House (Developments) Ltd [2010] EWHC 2597 (TCC) has clarified the
position on the enforceability of decision in a variety of such
circumstances. Firstly, as has been clear for some time from the
case of Bouyues v Dahj-Jensen, if a successful party is actually in
liquidation it will not be able to enforce any decision by way of
summary judgment. It will have to wait until the matter has been
finally determined and all cross-claims resolved whether or not
those cross-claims were considered at the adjudication. Secondly,
the same applies if a party is in administration and a notice of
distribution has been given because that party falls to be treated
the same way as a party in liquidation for these purposes. The
third instance considered by the Court was of a party who was in
administration but where no notice of distribution has been given.
Here, the situation gets more tricky. The judge again held that the
decision will not be enforced by way of summary judgment, but this
was subject to a caveat which was that if the decision has for any
reason become finally binding, it may be enforced but is liable to
be subject to a stay of enforcement. Finally, the judge confirmed
that in circumstances less than administration the Wimbledon v Vago
test continues to apply.
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Adjudication Society Newsletter Page 6March 2011
The law in this area is relatively clear and it demonstrates
that adjudication is not a tool which can be used to circumvent
the
insolvency rules in this country. If either the referring party
or the responding party are in very poor financial health, it
may be necessary to look elsewhere.
Complaints Series - No. 9 “He Didn’t Consider Our Evidence?”J R
Hartley
A complaint that sometimes arises is that the adjudicator has
failed to consider a party’s evidence.
The question of whether an adjudicator has failed to consider
evidence or, perhaps more frequently, submissions, has been
considered by the courts on a number of occasions. Specifically,
the cases of Quartzelec Ltd v Honeywell Control Systems Ltd [2008]
EWHC 3315 (TCC), Thermal Energy Construction Ltd v AE & E
Lentjes UK Ltd [2009] EWHC 408 (TCC), Pilon Limited v Breyer Group
Plc [2010] EWHC 837 (TCC), RBG Ltd v SGL Carbon Fibers Ltd [2010]
CSOH 77 and CSC Braehead Leisure Ltd v Laing O’Rourke Scotland Ltd
[2008] CSOH 119 all give a clear indication that an adjudicator’s
failure to consider submissions or evidence as part of a defence
can amount to a breach of the principles of natural justice and
result in a decision not being enforced. Therefore an adjudicator’s
failure to consider evidence can have serious and costly
consequences.
Whilst the fact that an adjudicator’s decision is rendered
unenforceable may not, in itself, result in a complaint being
upheld against an adjudicator, it may be a relevant factor. In view
of the
adjudicator’s immunity (assuming the absence of bad faith), the
complaint process may be the only “remedy” (I use the term loosely)
to an aggrieved party. However, in investigating a complaint of
this nature, there may well be factors to consider which go beyond
the scope of an enforcement hearing. For example, an honestly held
view that the evidence or submission was inadmissible. Indeed, just
because one judge held an adjudicator to be wrong does not mean
that another judge would have found the same way. Another factor
may be the time pressures imposed by the process and/or the
parties. In this regard, the courts have reminded us that
adjudication is a quick and, sometimes, “crude” process which may
be subject to inadvertent failures on the part of an adjudicator to
consider evidence and/or miss things. Interestingly, one school of
thought is that whilst a deliberate, but mistaken, exclusion of a
defence may be fatal in enforcement proceedings, an inadvertent
failure to consider a submission may not be.
Potentially of more interest to an investigation into a
complaint is whether the adjudicator had allowed sufficient
time and/or had sufficient capacity to deal with the
adjudication in question. Whilst there may be some sympathy towards
an adjudicator who had no control over the situation, e.g. where
the adjudication develops into a larger beast during the course of
proceedings by virtue of an available, but previously unadvanced,
defence, it is suggested there may be little sympathy if the view
was formed that the adjudicator had not allowed sufficient time to
consider the evidence by virtue of taking on too much work.
Perhaps the concluding message for adjudicators to take away in
relation to potential of complaints of this nature, is the
importance of ensuring that the decision covers all the issues that
have been referred. An adjudicator needs to bear in mind that this
is not only in the interests of natural justice, but also a matter
of good practice. If part of a submission or evidence has been
overlooked (intentionally or inadvertently), this may well provide
fertile ground for the losing party to successfully challenge the
enforcement of that decision and/or advance a successful
complaint.
Redwing Construction Limited v Charles Wishart
2010] EWHC 3366 (TCC), 22 December 2010, TCC, Mr Justice
Akenhead
Multiple adjudicators’ decisions – the slip rule
Volker engaged Holystone to carry Redwing was employed by
Wishart to complete a refurbishment of a domestic property relating
to four floors of a mews
house. The contract was a standard JCT Prime Cost Building
Contract form (2006 Revision 1 with amendments). The contract
provided that Redwing would be paid the Prime Cost, the Contract
Fee and any direct loss and/or expense ascertained pursuant to the
contract (all defined terms). Redwing did not complete the Works by
the original Date for Completion and submitted an application for
extension of time after Practical Completion was achieved.
Redwing issued the first Notice of Adjudication seeking an
extension of time and payment for Redwing’s Contract Fee and/or
loss and expense (the “First Adjudication”). During the course of
the First Adjudication the adjudicator sent a note to the parties
in relation to the contract conditions concerning the Fixed Fee. In
this note, the adjudicator stated that, on his reading of the
Contract, any difference between the estimated Prime Cost and the
actual Prime Cost
Nicholas Gould’s Case Notes CornerFenwick Elliott LLP, Case
EditorCo Editors: Charlene Linneman Fenwick Elliott LLP, Chris
Farrell Fenwick Elliott LLP and Jourdan Edwards Fenwick Elliott
LLP
Transcripts of these cases, if available, can be downloaded from
the Society’s website (www.adjudication.org). Simply go to the case
summaries.
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Adjudication Society Newsletter Page 7March 2011
would generate a pro-rata adjustment to the Fixed Fee. He asked
the parties if this was correct. Wishart’s solicitors replied that
Redwing had not advanced an argument that they were entitled to
adjustment of the Fixed Fee and therefore the adjudicator did not
have jurisdiction in relation to this issue. Redwing did not
respond.
The adjudicator issued his Decision awarding Redwing an
extension of time and some associated monies, both not for the full
amount sought by Redwing.
At paragraph 5.2 of the Decision, the Adjudicator addressed the
question as to how the Contract Fee should be calculated. Following
receipt of the Decision, Redwing noted that the decision precluded
any adjustment of the Contract Fee but this was not a matter
referred to the Adjudicator. Rather, the matter referred was for
the payment of the Contract Fee for the period of the extension of
time and not for the adjustment of the Contract Fee which was a
separate matter.
Redwing then commenced a second adjudication in relation to the
Final Account (the “Second Adjudication”). One of the issues was
whether the Contract Fee could be adjusted. Mr Wishart’s solicitors
made a number of jurisdictional complaints and stated that the
First Adjudicator should be treated as having dealt with and
decided the issues in relation to the Contract Fee. Redwing
disagreed.
After the decision in the Second Adjudication was made,
Redwing’s solicitors emailed the adjudicator advising of an
“arithmetical error” in the decision’s appendix. Wishart’s
solicitors disagreed that it was a figure that could be corrected
under the slip rule. The adjudicator corrected his error and
revised his decision.
At enforcement, there were two issues
1 Had the First Adjudicator already decided the issue to which
the outstanding balance relates?
2 Was the Second Adjudicator entitled to amend his decision as
he did?
In relation to the first issue, the Judge cited with approval
the principles set out in Benfield Construction v Trudson (Hatton)
Ltd and Barr Ltd v Klin Investment UK Ltd and proposed the
following principles at paragraph 27:
(a) One needs to determine what the dispute referred in the
first or earlier
arbitration was. That dispute may be wide or narrow.
(b) One also needs to determine whether and to what extent the
parties gave the adjudicator in that adjudication jurisdiction to
address matters which were not obviously within the ambit of the
referred dispute. This could cover a defence which had not been
raised before the referral but can legitimately be raised as a
defence to the referred claim. The adjudicator will need to rule on
that.
(c) One must then examine what the adjudicator has decided,
first in relation to the referred dispute and any arguable defence
put up and secondly if he has purported to decide something which
has not been referred or which has not become within his or her
jurisdiction.
(d) Any decision which can be described as deciding the dispute,
as referred or as expanded effectively within the adjudication
process, is binding and cannot be raised or adjudicated upon again
in any later adjudication.
(e) In contrast, any decision or part of a decision which can be
described as not deciding the dispute, as referred or as expanded
effectively within the adjudication process, is not binding and can
be raised or adjudicated upon again in any later adjudication.
Thus, where an adjudicator who, in court terms, offers an obiter
opinion on a point or topic which is not part of the dispute for
which he does have jurisdiction, that opinion is not
jurisdictionally part of his decision.
In this case, the dispute in the First Adjudication did not
involve a claim for an adjustment of the Contract Fee’s weekly
“rate” and the parties did not give the First Adjudicator
jurisdiction to rule upon any issue regarding the adjustment of the
Contract Fee rate. The First Adjudicator’s reasoning in relation to
the implied term was a wholly unnecessary part of the decision and
was not reasoning that underpinned or supported his findings about
the weekly rate or the period which it related to. That is, this
paragraph of the adjudicator’s decision was obiter to what the
adjudicator was required to and in fact did decide on the dispute
actually referred to him. Therefore the Second Adjudicator had
jurisdiction to rule upon the issue as to whether Redwing was
entitled to an adjustment of the Contract Fee rate.
In relation to the slip rule, the Judge cited and approved the
principles set
out in YCMS Ltd v Grabiner. In this case, the essential
reasoning of the Second Adjudicator’s decision both before and
after revision of the decision remained the same. This reasoning
was not disputed by the parties and the Second Adjudicator was
correcting a very obvious arithmetical error within a reasonable
time (the correction was made 2 days after the decision). Therefore
the Second Adjudicator was applying the Slip Rule and there was an
implied term that the Second Adjudicator within a reasonable time
could revise his decision for patent errors.
...................................................................................
WH Malcolm Limited, Re Judicial Review
[2010] Scot CSOH 152, 10 November 2010, Outer House, Court of
Session, Opinion of Lady Smith
Judicial review – Jurisdiction – Same dispute – Subsequent
decision
Amec engaged WH Malcolm as subcontractor on works carried out at
Calderglen High School in East Kilbride. WH Malcolm had previously
commenced adjudication, receiving a decision in its favour
(“Adjudication 1”). Adjudication 1 was concerned with the valuation
of 14 items. Part of the Adjudicator’s decision included reasoning
that SMM7 did not apply to the subcontract.
A second adjudication was commenced by WH Malcolm, claiming
payment for three items (“Adjudication 2”). As part of its
response, Amec submitted that SMM7 was the correct method of
measurement for the three items. WH Malcolm asserted that the issue
of SMM7 had already been determined in Adjudication 1, and it was
not open for Amec to raise the issue again. After receiving further
submissions from the parties, the second Adjudicator stated that he
was not bound by the first Adjudicator’s comments in respect of
SMM7. Prior to the end of Adjudication 2, WH Malcolm applied for
judicial review of that decision. Clause 38 of the TeCSA
Adjudication Rules, which were incorporated into the subcontract,
stated:
“No party shall, save in case of bad faith on the part of the
adjudicator make any application to the courts whatsoever in
relation to the conduct of the adjudication or the decision of the
adjudicator until such time as the adjudicator has made his
decision or refused to make a decision and until the party making
the application has complied with any such decisions.”
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Adjudication Society Newsletter Page 8March 2011
There were three issues to be decided:
1 Was WH Malcolm entitled to commence judicial review
proceedings prior to the determination of Adjudication 2? If
so:
2 What was the dispute that was referred to Adjudication 1?
and
3 What was decided in Adjudication 1?
The Judge determined that WH Malcolm was not entitled to
commence judicial review proceedings prior to the determination of
Adjudication 2. Clause 38 was written in clear terms, and to
commence proceedings whilst the adjudication was ongoing was a
breach of the subcontract.
The judge went on to comment that, in any event, the issue of
SMM7 was not part of the dispute or the decision in Adjudication 1.
It was part of the reasoning used to make the Adjudicator’s
decision, and the distinction was an important one. The judge’s
decision did not prevent WH Malcolm from arguing that SMM7 did not
apply. The Adjudicator in Adjudication 2 had only stated that he
did not believe he was bound by the first Adjudicator’s comments,
not necessarily that he disagreed with them. Therefore, WH Malcolm
had not been prejudiced by the decision.
...................................................................................
Straw Realisations (No 1) Limited (formerly known as Haymills
(Contractors) Limited (in administration) v Shaftsbury House
(Developments) Limited
[2010] EWHC 2597, 20 October 2010, TCC, Mr Justice
Edwards-Stuart
Insolvency – Balancing of accounts - Stay - Jurisdiction
Shaftsbury engaged Haymills to construct a mixed-use residential
and commercial development. After completion Haymills went into
administration. Prior to the administration, Haymills had been
successful in two adjudications.
The contract provided:
(a) that in the event of Haymills’ insolvency, Haymills would
not be entitled to any further payment; and
(b) if a party was dissatisfied with a decision of an
Adjudicator then that party had to serve a notice of
dissatisfaction within three months, otherwise the decision
would
become final. In respect of the first adjudication, Shaftsbury
did not serve a notice of dissatisfaction within the correct time,
but it did in respect of the second adjudication.
The central issue was whether the contract provisions on
insolvency could supersede the intention of parliament that
Adjudicators’ decisions should be honoured – “pay now, argue
later”.
The judge put forward the following relevant principles:
1 A contract clause that purports to supersede the obligation to
comply with an Adjudicator’s decision cannot prevail over an
obligation to comply with the decision of an Adjudicator;
2 If at the date of an enforcement hearing, the successful party
is in liquidation or was the subject of the appointment of
administrative receivers, subject to limited exceptions, then the
decision will not be enforced;
3 If a party is in administration or a notice of distribution
has been given, an Adjudicator’s decision will not be enforced;
4 If a party is in administration, but no notice of distribution
has been given, an Adjudicator’s decision which has not become
final will not be enforced by way of summary judgment;
5 If the circumstances are as in 4 above but the Adjudicator’s
decision has become final, the decision may be enforced by way of
summary judgment, (subject to a stay of enforcement);
6 There is no rule of English law that the fact that a party is
on the verge of insolvency triggers the operation of bankruptcy
set-off. If a party is insolvent in a real sense, or its financial
circumstances are such that if an Adjudicator’s decision is
complied with, the paying party is unlikely to recover its money,
or at least a substantial part of it, the court may grant summary
judgment but stay the enforcement of that judgment.
In this case, the question of whether an Adjudicator’s decision
had become final or not, was determined by the existence of a
notice of dissatisfaction. Therefore, the judge decided that the
decision in the first adjudication was final, but the decision in
the second adjudication was not. Accordingly, Adjudication 1 was
enforced, but Adjudication 2 was not.
However, the judge decided that it was
appropriate in this case, to order a stay of enforcement of the
decision in the first adjudication, as Haymills was so heavily
insolvent that it would have gone into administration regardless of
the payment of the award.
...................................................................................
Gibraltar Residential Properties Ltd v Gibralcon 2004 SA
[2010] EWHC 2595, 19 October 2010, TCC, Mr Justice
Edwards-Stuart
Jurisdiction of the court – Insolvency - Stay
GPRL, a company registered in Gibraltar, engaged Gibralcon,
registered in Spain, to construct 500 new dwellings and retail
units in Gibraltar. Pursuant to a JCT 98 Private with Quantities
contract with bespoke amendments. The applicable law of the
contract was Gibraltar and the parties submitted to the exclusive
jurisdiction of the Courts of England and Wales.
Disputes arose resulting in Gibralcon receiving favourable
decisions in the two adjudications. Shortly thereafter Gibralcon
became the subject of insolvency proceedings in Spain. After the
insolvency proceedings were commenced, GPRL brought two actions
against Gibralcon in the High Court. In each action Gibralcon
applied for a declaration that the English court had no
jurisdiction to hear the claims.
The Judge stated that because Gibralcon was the subject of
insolvency proceedings in Spain, an English court would not order
that Gibralcon would have to pay GPRL anything. Instead, what it
would do is make the declarations sought but then order a stay so
that GPRL could prove that debt in Spanish insolvency proceedings.
If, however, a net sum was found to be due to Gibralcon, it would
order that that sum be paid to the administrators in Spain or order
a stay of such payment in order to permit the administrators to
seek the appropriate order from the English court. In short: the
English court would not prejudice or interfere with the Spanish
insolvency proceedings. There was no question that the Court would
permit GRPL to make claims in the Spanish insolvency proceedings
without making proper allowance for the sums awarded by the
Adjudicator.
...................................................................................
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Adjudication Society Newsletter Page 9March 2011
Nicholas Gould is the case note editor for the Adjudication
Society. Please assist him by forwarding judgments to him for
inclusion in future Newsletters. Credit will
be given to the source of any judgments that are published as
case notes. Nicholas can be contacted on +44(0)20 7421 1986 or
ngould@fenwickelliott.
co.uk. The assistance of the co-editors Charlene Linneman, Chris
Farrell and Jourdan Edwards of Fenwick Elliott LLP, is gratefully
acknowledged.
London region: Jonathan [email protected]
Scottish region: Neil Kelly [email protected]
North West region: Andrew Milner [email protected]
South West region: Peter O’Brien
peter.o’[email protected]
Midlands region: Tim Willis [email protected]
Ireland region: James Golden [email protected]
Co-ordinators and contacts
Shona Frame is a partner at MacRoberts LLP
Fritha Wheeler-Ozanne is an solicitor at MacRoberts LLP
Murray Armes is an adjudicator at Armes Associates
James Golden is Director of Quigg Golden
J R Hartley is the author of Fly Fishing
Glenn Godfrey is an Associate at Mott MacDonald Ltd, Contracts
and Business Advisory Services sub-unit
Nicholas Gould is a partner at Fenwick Elliott LLP.
William Webb is a barrister at Keating Chambers.
ContributorsMany thanks to our contributors this edition:
Forthcoming Events and Regional News
Adjudication case law – recent developments and trendsSpeakers:
The Honourable Mr Justice Edwards-Stuart
Venue: Osborne Clarke, 2 Temple Back East, Temple Quay, Bristol
BS1 6EG
Date and Time: Wednesday, 25 May, 2011 5.30 for 6.00pm
