The Not so Wild West: Generating Trust and Reducing Perceived Unfairness in Adjudication

Introduction

In a rare case where the TCC has found a breach of natural justice by an adjudicator, the Court has opted for civilisation over anarchy by highlighting how adjudication is not 'the Wild West'. The case involved B applying for declarations arising out of a decision following a second adjudication between it and V (BV II). There were allegations the adjudicator had breached the principle of natural justice by failing to disclose that he was involved in an adjudication between one of the parties and its sub-contractor on the same project, at the same time as conducting an adjudication between V and B.

Background

B and V had contracted for works to be performed by B at Gatwick Airport. V was the Main Contractor and B was the Sub-Contractor. B was appointed by V to perform the entire baggage handling system works. An Interim Final Account Statement was considered by an adjudicator, Dr Chern, in the first adjudication (BV I). The second adjudication was also conducted by Dr Chern. The subject matter of BV II was whether three instructions issued by V constituted Compensation Events under the Sub-Contract. Dr Chern decided that they were, and made certain declarations in B's favour. B sought summary judgment for declarations by the court commensurate with those decided by the adjudicator, and also payment to it by V of the sums paid by B to him as his costs.

B also had a sub-sub-contract with Daifuku Logan Ltd ("Logan") in relation to the works. B and V, and also Logan and B, each found themselves in dispute with their respective contracting parties about aspects of the works under the sub-contract and the sub-sub-contract respectively. There was an adjudication between Logan and B, the adjudicator being Dr Chern. He was one of three individuals identified in the Sub-Contract as being a potential adjudicator for disputes. Logan and B agreed between themselves that he should act as adjudicator on the first adjudication between them (BL I).

On the same day, B commenced BV II against V; it also commenced a second adjudication ("BL II") against Logan. That adjudication was also before Dr Chern and it concerned similar issues including delay. BL II was conducted at the same time as BV II. However, V did not know there was a simultaneous adjudication going on between B and Logan in which Dr Chern was adjudicator. Neither B nor Dr Chern notified V of the other adjudication, and Dr Chern did not disclose to V he was acting as adjudicator in a dispute to which B was party.

Dr Chern had been named by B as the potential adjudicator for the dispute in BV II, based upon his having been chosen by both B and V to be the adjudicator for BV I, the first adjudication between the parties, and because he was one of the three individuals named in the contract. He was in fact the only one of the three with availability at the time of BV I.

Submissions

V argued that by virtue of being the adjudicator in BL II, Dr Chern must have had, or acquired, background knowledge concerning the subject matter of BV II. V submitted it had no opportunity to consider that information and make submissions about it. V argued it was unfair that no disclosure was given to it by B of the material user relevant to its dispute with B from BL II. V also argued B advanced factually inconsistent cases in BV II and BL II. In BV II, B maintained that Airport Operational Readiness ("AOR"), an important date in the Sub-Contract relevant to completion, had been achieved by 16 December 2015. In BL II, part of B's case against Logan was that Logan's works (which formed part of B's works) had not achieved the condition of AOR by at least 12 April 2016, hence could certainly not have been in the condition of AOR on the date in December 2015 it maintained (to V) in BV II. These rather starkly contrasting positions taken by Beumer were not brought to the attention of Dr Chern during BV II by V in its submissions. Dr Chern would have known that B's position in the two adjudications was different, because he was conducting both adjudications.

One of the components of relief sought in BV II by B concerned a claim for an extension, or extensions, of time, and the date of AOR was an important ingredient in the length of extension sought. In BL II, one of the elements of relief sought was liquidated damages for delay and payment of costs and again the date of AOR was an integral component of considering the state of the works at particular dates so that delay could be considered, as delay affects the calculation of liquidated damages.

B submitted there was no obligation upon either B or Dr Chern to inform V either of the existence of BL II, or its content; that V had no right to see the documentation before Dr Chern in that adjudication; and that there was no breach of natural justice but that even if there were some isolated breaches of natural justice these were not material, and that Dr Chern plainly restricted himself in BV II to the material before him in that adjudication alone.

Judgment

Mr Justice Fraser began by highlighting that the rules of natural justice have two limbs: firstly, that a party must have an opportunity to present his own case and meet the case against him, and secondly, that the matter is decided by an impartial tribunal. It is the second of those two limbs that concerns bias, both actual and apparent.

The learned judge referred to Chadwick LJ's judgment at paragraph [85] of Carillion Construction Ltd v Devonport Royal Dockyard Ltd [2005] EWCA Civ 1358, which stated that a decision should be enforced: "…unless it is plain that the question which he has decided was not the question referred to him or the manner in which he has gone about his task is obviously unfair".

It was therefore clear that for breaches of natural justice to be sufficient to justify the court declining to order summary judgment enforcing an adjudicator's decision, they must be the plainest of cases; the adjudication proceedings must have been obviously unfair. Combing through what has occurred, or concentrating on the fine detail of the material before the adjudicator, to allege a breach of natural justice, would neither be encouraged nor permitted by the court. Adjudications are conducted very quickly, and this speed is part of the process imposed by Parliament on those who enter into construction contracts. The framework within which adjudicators have to reach decisions has to be taken into account when complaints are made by losing parties.

A central element of the dispute between B and V in BV II concerned delay, and this encompassed or included consideration of the date upon which the works had (or had not) achieved the condition of AOR. However, it was clear that the adjudicator was being told by B in BV II that the works had reached that condition on 16 December 2015. The same adjudicator was being told by B in BL II that the works had not reached that condition, even by April 2016. The learned judge therefore found that the two cases advanced by Beumer in each of the adjudications were clearly factually inconsistent.

The judge rejected the argument that B could have argued what it chose, for example, in a mediation leading to a settlement with Logan, and nobody would have been any the wiser. The judge drew a distinction between mediation and adjudication, stating that the latter was still a formal dispute resolution forum with certain basic requirements of fairness: "Although adjudication proceedings are confidential, decisions by adjudicators are enforced by the High Court and there are certain rules and requirements for the conduct of such proceedings. Adjudication is not the Wild West of dispute resolution.”

The learned judge therefore held Dr Chern should have disclosed to V he was acting as adjudicator on another matter, involving B, at the same time as he was acting as adjudicator in the dispute between B and V. This was the case regardless of the fact that the other matter concerned Beumer and Logan on the same project.

The judge referred to the recent (and no doubt now notorious) decision of Cofely Ltd v (1) Anthony Bingham (2) Knowles Ltd [2016] EWHC (Comm) [2016] which concerned a successful application to remove a certain arbitrator. While acknowledging that adjudicators are not arbitrators, the judge held that they are governed broadly by the same principles so far as disclosure is concerned. "Adjudicators are acting as impartial tribunals and although involvement in other adjudications does not of itself constitute a conflict of interest, that involvement should be disclosed." It was important, the judge said, that adjudicators should not only act, but be seen to act, fairly. It was for this reason, as an example, that unilateral telephone conversations should be avoided.

V also sought to rely upon a decision of HHJ Humphrey Lloyd QC in Pring & St Hill Ltd v CJ Hafner trading as Southern Erectors [2002] EWHC 1775 (TCC), arguing that had BL II been conducted slightly early and resulted in a decision prior to the adjudication in BV II, Pring made it clear that V would have been entitled to see the decision in BL II. The test was relevance to the issue or issues in BV II i.e. would such an earlier decision have given V the 4 ability to make further, different, or alternative submissions which the lack of disclosure denied? The judge accepted those submissions: if V would have been entitled to see any such earlier decision in BL II, had the timing been different, the position was no different because the adjudications were commenced at the same time. If, as here, the adjudications took place at exactly the same time, then the decision cannot be provided because it did not exist. But at the very least, in my judgment, the Referral document, the Response, and so on – what are conventionally referred to as the pleadings in the adjudication – should have been provided to V. This is because the disputes were so closely connected and the issues so similar.

Conclusion

Perhaps off the back of decisions such as the Knowles decision, there is a greater sensitivity within the judiciary to issues around the external perception of decision-makers; therefore the decision is perhaps not surprising when contextualized within the current legal climate. The case brings to mind the sentiments recently expressed by Mr Justice Coulson in the case of GB Minerals Holdings Ltd v. Michael Short [2015] EWHC 1387 (TCC), which dealt with the issue of contempt of court by a witness. Mr Justice Coulson stated: “those of us who are familiar with international construction work are aware of the regular complaints about corruption… These allegations are often leveled at local officials and representatives. It is important therefore, and the public plainly have an interest in ensuring, that the conduct of United Kingdom firms and companies, when carrying out such work abroad, is of the highest standard.”

In the present case, what we see is perhaps a manifestation of a desire for the English system of third party decision-making, whether it be by way of arbitration, adjudication or litigation, to be beyond reproach whether in actual fact or merely by appearance. Not only are English companies expected to be held up to the highest standard, but so is the English legal/decisionmaking system. With the continued growth of international construction, the English system of decision-making continues at present to be a heavy-weight contender for dispute resolution, whether by way of adjudication, litigation or arbitration. Unfairness, or the perception of the same, is a real concern for many international contractors and employers, and it is decisions like this which are designed, it is submitted, to ease such concerns across the range of dispute resolution that England and Wales has to offer.

The judgment can be found here.