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Adjudicators making mistakes

Way back in the depths of time (or July 2000 to be precise), the Court of Appeal took its first look at adjudication in an appeal from a Dyson J judgment (Bouygues (UK) Ltd v Dahl-Jensen (UK) Ltd). The principles that were laid down in that case have stood the test of time and the rest, as they say, is adjudication history.

I was reminded of the judgment in Bouygues v Dahl-Jensen the other day when I was reading an Australian case that was featured on Keating Chambers’ website, CH2M Hill Australia PTY Ltd v ABB Australia Pty Ltd.

Before looking at CH2M Hill Australia in more detail, it is worth briefing mentioning the principles I’ve alluded to above.

Bouygues v Dahl-Jensen

This case concerned the mechanical sub-contract works that Dahl-Jensen had carried out for Bouygues. Following termination of the sub-contract, Dahl-Jensen referred a dispute over the sums due to it to adjudication. In the adjudication, Dahl-Jensen claimed an extension of time and Bouygues argued that the sub-contract works had been overvalued.

To decide the issues, the adjudicator reviewed the progress of the sub-contract works and carried out a valuation of those works, deciding that Dahl-Jensen was entitled to a further £208,000, which Bouygues disputed. Enforcement proceedings were resisted by Bouygues on the basis that the adjudicator was wrong in his calculations because he had not allowed for a 5% retention. This resulted in money allegedly being due to Dahl-Jensen when, in fact, it should have resulted in a payment of £141,000 to Bouygues.

Dyson J had to consider whether the adjudicator’s error in not allowing for the retention in his calculations was sufficient to allow Bouygues to resist enforcement of the adjudicator’s decision. (Dyson J had previously decided in Macob Civil Engineering v Morrison Construction that “decisions of adjudicators are binding and are to be complied with until the dispute is finally resolved”.)

Dyson J concluded that the adjudicator’s error was not sufficient and the Court of Appeal agreed, with Buxton LJ commenting that:

“I am satisfied that the judge was right in rejecting Bouygues’ argument… [the adjudicator] overlooked the fact that that assessment should be based on the contract sum presently due for payment, that is the contract sum less the retention, rather than on the gross contract sum. That was an error, but an error made when he was acting within his jurisdiction. Provided that the Adjudicator acts within that jurisdiction his award stands and is enforceable.”

Chadwick LJ said something similar too:

“I am satisfied… that in the present case the adjudicator did confine himself to the determination of the issues put to him. This is not a case in which he can be said to have answered the wrong question. He answered the right question. But, as is accepted by both parties, he answered that question in the wrong way. That being so, notwithstanding that he appears to have made an error that is manifest on the face of his calculations, it is accepted that, subject to the limitation to which I have already referred, his determination is binding upon the parties.”

And 16 years later, we all still rely on these principles, which brings me to the CH2M Hill Australia judgment. Although the law and court procedures in Australia differ somewhat from the Construction Act 1996 and the TCC’s enforcement procedure that we are all familiar with, I thought it was an interesting judgment to discuss.

CH2M Hill Australia PTY Ltd v ABB Australia Pty Ltd

This case concerned the supply of “major equipment” for a combined cycle power plant at the Ichthys onshore LNG facilities at Blaydin Point, Darwin in Australia’s Northern Territory.

Earlier this year a payment dispute arose between the parties. In June 2016, ABB referred the payment dispute to adjudication and Mr Bond was appointed as the adjudicator (in fact, there were two adjudications, but it is only the second one that I’m interested in). That claim related to a number of variations, some of which depended on ABB establishing its entitlement to an extension of time. To do this, ABB had to show that it had complied with the contract’s notice provisions, which were expressed as conditions precedent to any entitlement. CH2M rejected the extension of time claim, arguing that ABB had failed to complete deliveries by the due dates under the contract. This lead to a claim for liquidated damages, which (it argued) it could set off against sums said to be due to ABB.

The adjudicator decided that AUS $3.3 million was due to ABB. Thereafter, CH2M took steps to stop ABB from enforcing the adjudicator’s decision (it issued judicial review proceedings and obtained an interim injunction).

So far, it all sounds just like any other construction dispute.

In the judicial review hearing, CH2M argued that the adjudicator’s decision should be quashed or declared to be of no effect because (among other things) the adjudicator had:

  • Failed to deal with “a number of critical issues”, including whether:
    • there had been delays that CH2M was responsible for and (if so) the extent of those delays;
    • the contract’s notice provisions had been complied with; and
    • ABB was responsible for concurrent delay, which would disentitle it to an extension of time under the contract.
  • Adopted a report that ABB relied on.
  • Not considered CH2M’s submissions and its evidence on these crucial issues.

CH2M argued that these were either a failure to comply with the basic requirements of the Construction Contracts (Security of Payments) Act 2004 (section 38 requires the adjudicator to provide reasons) or to act bona fide, or were a substantial denial of natural justice. This all led to the adjudicator failing to exercise his jurisdiction. (There was also an issue over whether the overlap between the issues in adjudication one and adjudication two meant it was an abuse of process for the second adjudicator to continue.)

I don’t think I’d like to be in Mr Bond’s shoes. The judgment looks critically at what he did or, more importantly, what he did not do, suggesting that his reasoning on these issues was “fundamentally inadequate”. The judge noted that an adjudicator is:

“…obliged to make a bona fide attempt to perform the functions conferred on him by the Act. That includes making a bona fide attempt to provide reasons for the determination.”

The judge concluded that:

“…one sees not simply a failure to provide details of some part of the reasoning process, but a failure to provide reasons at all.”

This failure amounted to a jurisdictional error.

The judge went even further than this, concluding that the adjudicator had also failed to consider the issues and failed to consider CH2M’s material relating to those issues. This meant he had not “meaningfully engaged”

“…and thus not made a bona fide attempt to deal with critical issues in the adjudication.”

Accordingly, the adjudicator’s decision was not a determination within the meaning of the Act. Therefore, it was void and of no effect. For the sake of completeness, the judge also found that the failure to address CH2M’s contentions and material was a breach of the rules of natural justice.

What do I take from this?

I accept that this isn’t the easiest judgment to read, not least because of my unfamiliarity with the procedure, the cases and the Australian statute referred to.

Those of you that bother to click through and read the judgment will quickly see that it isn’t couched in terms of the adjudicator making a mistake (which is where I started this piece). However, it seems to me that one way of looking at the adjudicator’s decision is to say that Mr Bond made a mistake in not addressing the issues in sufficient detail in his decision to satisfy the applicable statutory requirements of giving reasons. Certainly, it was not sufficient to say something along the lines of “I have considered everything submitted to me, I prefer the evidence of X over Y and reject the evidence of A, B and C”. More was required, like findings of fact, coupled with reasons on each of the issues. Put simply, the adjudicator should have written more. Brevity was the adjudicator’s mistake.

I can’t begin to speculate on how an application in the UK might turn out, with similar facts, if one was to argue that Bouygues v Dahl-Jensen applied. In that case, the Court of Appeal did not have to consider the extent of the mistake the adjudicator made, given it was one discreet issue arising out of the valuation of the works that the adjudicator got wrong. In CH2M v ABB, arguably the adjudicator did answer the right question. His mistake was not in getting the law or the facts wrong, it was simply not addressing the issues in sufficient detail in his decision.

As I see it, this judgment is also a reminder to adjudicators that we need to address each and every issue that is raised in an adjudication and that, if reasons are required, they should be provided. We may not have a statutory requirement to provide them in the UK, but the applicable adjudication rules or the parties may expect them.

MCMS Ltd Matt Molloy

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