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Scottish court rejects allegations of breaches of the rules of natural justice

It’s been some time since we’ve blogged about a case involving allegations of breaches of the rules of natural justice against an adjudicator. However, fear not because the Outer House of the Court of Session’s judgment in Bell Building Projects Ltd v Arnold Clark Automobiles Ltd contains some juicy natural justice arguments. It’s a story of weekend working, last minute evidence and threats of resignation by the adjudicator.

Have I whetted your appetite?

Bell Building v Arnold Clark

Arnold Clark had engaged Bell to design and build a new car showroom in Glasgow, but the contract was terminated. In the first adjudication, the adjudicator (Ms Lindy Patterson QC) decided that Arnold Clark had been in repudiatory breach. Therefore, in the second adjudication, Bell sought damages from Arnold Clark. Mr Len Bunton was appointed as the second adjudicator. He decided that Bell was entitled to payment of just over £1 million. However, Arnold Clark didn’t pay and so Bell commenced enforcement proceedings.

Arnold Clark argued that Mr Bunton’s decision should not be enforced on the grounds that it was arrived at in breach of the rules of natural justice, in particular the manner in which he had dealt with Bell’s loss and expense claim and Arnold Clark’s contra-charges for the rectification of defects.

The second adjudication: weekend warriors

The dispute was referred to the second adjudicator on 30 September 2016 and a number of extensions to the timetable were agreed, resulting in a decision date of 21 November 2016. Between 12 and 21 November 2016 considerable correspondence passed between the adjudicator and the parties’ representatives concerning Bell’s loss and expense claim and Arnold Clark’s contra-charges. In a nutshell:

  • On Saturday 12 October 2016, Bell invited the adjudicator to attend its offices to inspect the evidence to support the staff costs included in its loss and expense claim.
  • On Tuesday 15 November 2016, the adjudicator confirmed that he wished to visit Bell’s offices to inspect the evidence, and invited Arnold Clark to attend as well.
  • On Thursday 17 November 2016, Arnold Clark’s in-house counsel wrote to the adjudicator contending that he was “in effect building [Bell’s] case for them” by proposing to visit Bell’s offices to inspect evidence, and that this made the process unfair.
  • Given that the visit clearly wasn’t going to proceed, on Friday 18 November 2016 Bell sent an electronic copy of the evidence by email timed at 20.34, with the hard copies being delivered that evening. However, while the hard copy reached the adjudicator, it did not reach Arnold Clark’s representative. Arnold Clark said that its expert would be unable to comment on the evidence over the weekend in any event, and that it should be rejected by the adjudicator.
  • On Sunday 20 November 2016, having considered the evidence, the adjudicator confirmed that it validated the staff costs claimed in the referral.
  • The adjudicator’s attention then turned to Arnold Clark’s contra-charges for rectification works. On Sunday 20 November 2016, he raised a number of queries, and confirmed that he had not seen proof of payment of various sub-contractors engaged by the main contractor, and that he needed to be provided with a copy of “the signed final account with each subcontractor, and verification of payment”. Arnold Clark did not provide this evidence, instead it provided evidence of the main contractor’s final account.
  • Early on the morning of Monday 21 November 2016 (the decision date) the adjudicator very sensibly asked the parties to extend the date for his decision until 23 November 2016 to allow the parties to comment on the evidence submitted over the weekend and for Arnold Clark to submit further evidence. Bell agreed to this extension, but Arnold Clark did not. Clearly frustrated, the adjudicator threatened to resign unless he was given the requested extension. There was further email correspondence and it is clear that the adjudicator did not resign, and instead proceeded to reach and issue his decision later that day.

In his decision (issued on 21 November 2016) the adjudicator awarded Bell £28,751.09 for loss and expense against a claimed sum of £289,491.42. He also rejected the entirety of Arnold Clark’s claim for cost of the rectification works on the grounds that no build-up to the costs had been provided or evidence of the payments made to sub-contractors.

The enforcement proceedings

In the enforcement proceedings, Arnold Clark argued that the adjudicator had breached the rules of natural justice because it had not been given any meaningful opportunity to respond to the evidence concerning Bell’s staff costs. Furthermore, Arnold Clark said that it was unfair of the adjudicator to leave his request for evidence of sub-contractor costs until the day before his decision was due.

After considering a number of relevant cases, Lord Tyre rejected Arnold Clark’s allegations that there as a breach of the rules of natural justice because:

  • Arnold Clark’s refusal to participate in the visit to Bell’s offices was a major contributing factor in the evidence having to be considered over the weekend prior to the adjudicator’s decision.
  • Arnold Clark had sufficient time to consider the evidence of Bell’s staff costs, and that having declined to consider it and/or agree to the adjudicator’s suggestion of a further extension of time, it was unable to now complain of unfairness.

Lord Tyre said that there was no obligation on the adjudicator to request sight of the evidence of sub-contractor payments for the rectification works: he could have simply refused to award any contra-charges due to the lack of evidence. The judge also clearly had difficulty in accepting that Arnold Clark could raise any complaints concerning the lack of time given to provide the evidence when the adjudicator had suggested extending the date for his decision and Bell had agreed to this.

Interesting points

I think there are a number of interesting points arising out of this case:

  • The exchanges between the adjudicator and the parties’ representatives set out above were, on any view, late in the adjudication process. The judge was quick to say that no criticism could be levelled at the adjudicator for this but, in hindsight, it might have been helpful if the adjudicator had identified the evidence required earlier in the process, particularly the evidence of the sub-contractor payments. Giving the parties adequate time to provide and/or respond to evidence gives them confidence in the process and avoids allegations of breaches of natural justice.
  • This case is a salutary reminder that natural justice challenges are rarely successful. While evidence was being requested by the adjudicator late in the day, as the judge highlighted, the adjudicator had sensibly suggested a further extension to the timetable in order to allow Arnold Clark sufficient time to deal with the issues raised. In the circumstances it is difficult to see how Arnold Clark’s challenge could have jumped the high hurdle set for natural justice challenges. As Coulson J said in The Dorchester Hotel v Vivid Interiors:

    “A court has to approach an alleged breach of the rules of natural justice with a certain amount of scepticism”.

  • I sometimes have parties inviting me to come and inspect documents, but it is something I discourage for a number of reasons. Parties normally have an obligation to provide the adjudicator and the other party with the evidence on which they rely, rather than an obligation to give them the opportunity to inspect that evidence if they want to. For example, the Scheme for Construction Contracts 1998 states that the referral shall be accompanied by copies of the contract and “such other documents as the referring party intends to rely upon”. Inspections are also time consuming for the adjudicator and the other party, not only in travelling to and from the offices in question, but also recording the evidence inspected. It is far simpler for all involved if parties just provide copies of the evidence.

And finally

It is often difficult to determine from a judgment why an adjudicator has followed a particular course of action as we only get half the story (if that). However, I was quite surprised by the request for evidence of sub-contractor payments for the rectification works, and that the lack of such evidence was one of the primary reasons for the adjudicator rejecting the claim for contra-charges in circumstances where he appears to have accepted that the rectification works had been undertaken. Arnold Clark had entered into a main contract for the rectification works and therefore is unlikely to have been provided with evidence of the sub-contractor payments, or had any right to have sight of such evidence (unless it was open-book). Surely if the main contractor had been paid for the rectification works and the sums claimed appeared reasonable given the adjudicator’s extensive experience, this should have been sufficient?

MCMS Ltd Jonathan Cope

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