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Adjudicators have their reasons

The TCC’s recent judgment in Thermal Energy Construction Ltd v AE&E Lentjes UK Ltd must have given some adjudicators a bit of a fright. The TCC refused to enforce an adjudicator’s decision despite previous case law (upheld in the Court of Appeal) that an adjudicator’s decision can only be challenged for a failure to give reasons in “extreme circumstances”.

So what made this case so extreme and are there any lessons to be learnt?

The adjudicator’s mistake

The adjudicator’s mistake in Thermal Energy was failing to address a key part of the responding party’s defence in his decision, namely that it had a set-off or counterclaim that exceeded the amount claimed from it. The adjudicator’s omission was particularly stark because the decision was very detailed, running to 23 pages. Despite the length of the decision, the court denied enforcement because it could not identify any part of the decision that dealt with the defence, whether expressly or by implication.

Lesson 1: An adjudicator should address claims and defences

Although the requirement for an adjudicator to give reasons for his decision is not mandatory, many adjudication procedures give the parties the right to ask for a reasoned decision. Most parties ask for reasons because it allows them to understand the decision and, if necessary, challenge it. I usually give reasons even if I haven’t been asked to. Only once have I been specifically asked not to give reasons – I think the parties hoped my decision would be more difficult to challenge if they couldn’t see the reasoning behind it!

Thermal Energy emphasises that adjudicators must deal with all the arguments before them. This means addressing the claims made by the referring party and the defences put forward by the responding party. In the limited timescale of an adjudication, it is easy to overlook an issue, particularly if the adjudicator is faced with a mountain of documents.

Some adjudicators safeguard their position by sending the parties a “list of issues” before writing their decision. This may help clarify the issues, but can be problematic, particularly if the parties decide to comment on the list and eat into the adjudicator’s limited time for writing his decision.

Lesson 2: An adjudicator should not ignore an argument, no matter how bad

One interesting argument, on which the court refused to give an express opinion, was whether an adjudicator’s decision could be enforced if the argument he had failed to address was so “devoid of merit” that it was bound to fail anyway.

Although the court did not have to decide this point, it seems unlikely that such an argument would succeed. The courts do not look at the merits of a case in enforcement proceedings: if an adjudicator has addressed a point, they will not go behind his decision to check if he was right. It follows that if an adjudicator fails to address a point, they will not go behind his decision to examine its merits either.

Lesson 3: An adjudicator’s decision does not have to be as detailed as that of an arbitrator

The court was asked to consider whether an adjudicator’s duty to give reasons could be compared with that of an arbitrator under the Arbitration Act 1996. While acknowledging similarities, the court highlighted that there were important differences because an adjudicator operates under a restricted timescale and his decision in only temporarily binding.

This must be the right decision. While the skills used by an adjudicator and an arbitrator are very similar, it would be unfair to expect an adjudicator’s reasons to be as detailed as those of an arbitrator or a judge. The golden rule for me is that the reasons should be sufficient to give the parties an understanding of the logic behind my decision. If a party is left asking “why?”, then I have failed. In most cases, a short summary identifying the key points should be sufficient to satisfy the parties (and, if necessary, the court).

Lesson 4: Longer is not necessarily better

What makes the Thermal Energy case so disappointing is that the adjudicator clearly took great care to issue a detailed decision, when a far shorter decision may have been enforceable (as long as it mentioned the responding party’s defence). As a result, the referring party was left with an unenforceable decision, even though it was completely innocent of any wrong-doing.

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