REUTERS | Brian Snyder

Read all about it: adjudicator commits serious breach of natural justice rules

So, after many months of waiting we’ve finally got the news we had been waiting for: it’s a boy or, as one tabloid newspaper put it, “The Regal has landed”. The media has whipped the public into a frenzy and created Royal baby hysteria.

Similar hysteria sometimes results in the construction law world when significant case law is published. Some of the hysteria is warranted due to the significance of the case, for example Walter Lilly v Mackay, and some of isn’t, for example PC Harrington v Systech International. After the latter case was published, some commentators created a false hysteria claiming that “…adjudicators are no longer entitled to their fees if they issue unenforceable decisions…”. However, on reading the case that was clearly wrong and the impact of the case was much more limited, as I said in my blog at the time, and now confirmed by Ramsey J in Wilmott Dixon v Newlon (see paragraph 79).

My fear is that similar false hysteria might be created about the recent adjudication enforcement case of ABB Ltd v BAM Nuttall Ltd.

ABB v BAM

I won’t bore you with the minutiae, but it was common ground that the parties had met in December 2010 to discuss BAM’s quotation for additional surveying and design work, and that an agreement had been reached. However, the parties were in dispute about the scope of the agreement. BAM referred this dispute to adjudication, and requested a declaration confirming the scope of the agreement or, alternatively, that the parties had not reached a binding agreement on the scope.

The adjudicator, who Akenhead J only referred to as “Mr H”, accepted BAM’s alternative case that no binding agreement had been reached on the scope. However, his reasoning for doing so was based on clause 11.1A of NEC3 which, as Akenhead J put it:

“neither party argued let alone mentioned to him and which he did not refer to the parties before issuing his decision.”

Clause 11.1A states:-

“No alterations or amendment may be made to this subcontract except where expressly recorded in writing by a document expressed to be supplemental to this subcontract and signed by the parties…”

It’s clear that, as any agreement had not been recorded in writing, Mr H considered that it could not be binding because:

“Such an agreement would be contrary to the provisions of clause 11.1A.”

Akenhead J was in no doubt that Mr H had breached the rules of natural justice by relying on clause 11.1A. He made the point that issues often occur to judges, arbitrators and adjudicators that have not been mentioned by the parties, but the appropriate course of action is for the tribunal to raise this with the parties and invite comment, argument and/or evidence. The critical point is that Mr H had failed to canvass the parties’ views on clause 11.1A.

Having decided that there had been a breach of the rules of natural justice, Akenhead J went on to consider whether the breach had been material (the decision would only be unenforceable if the breach was material). Akenhead J considered the part that clause 11.1A played in Mr H’s decision making process, and decided that:

“the circumstances which the issues to which the breach went was at least of considerable importance to the outcome of the resolution of the dispute and it could well have been decisive; it is certainly not peripheral or irrelevant.”

The court therefore found that Mr H committed a serious breach of the rules of natural justice, and refused to enforce his decision.

Don’t believe the hype

Akenhead J stressed that this is one of those “relatively rare cases” where the court found that there had been a material breach of the rules of natural justice, and I hope that commentators and parties to adjudications take cognisance of this. The key finding in Mr H’s decision turned on a clause that neither party had mentioned or even argued, and this constituted a material breach of natural justice. This must be distinguished from other cases where the adjudicator’s alleged “frolic” doesn’t go to the heart of their decision and would not have made any difference to the outcome of the adjudication, for example Vision Homes v Lancsville Construction and Hyder Consulting v Carillion Construction. In the latter case, Edwards Stuart J made the point that:

“If a judge or adjudicator has heard full argument on the construction of a particular clause or set of provisions in a contract and reaches a conclusion that is different from the submissions put forward by each of the parties, there is no obligation upon him or her to canvass that view with the parties before making his decision.”

Even though Akenhead J found that the adjudicator had committed a material breach in Herbosh-Kiere Marine Contractors Ltd v Dover Harbour Board, he also made the point that, even if an adjudicator goes on a frolic this may not result in a decision being unenforceable. He gave the following example:

“Thus, an adjudicator who refers to a legal authority which neither party relied upon, may have his or her decision enforced nonetheless if the application of that legal authority obviously makes no difference to the outcome. The breach of the rules of natural justice has to be material.”

Don’t get me wrong, I’m not suggesting that adjudicators should be encouraged to go off on a frolic, far from it. I just want to stress that it’s important to remember that it will only be if the frolic goes to the heart of the decision that it will result in the decision being unenforceable.

Royal baby

So, let’s keep the hysteria for the Royal baby. As for the names, my money is on George…

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