Picture this scenario. The parties’ contract provides that when there is a dispute, an adjudicator is to be appointed from a panel of three, which the parties have already agreed on. In the alternative, if the parties cannot agree the identity of the three panel adjudicators, they will be nominated by the President of the Chartered Institute of Arbitrators (CIArb) as the adjudicator nominating body (ANB). In the event, the parties fail to agree on who the three should be, and then one of them is unhappy with who the CIArb selects.
This scenario played out before Jefford J earlier this year. It was, in effect, a dispute about a dispute, but led to some interesting comments from the judge about adjudicator nomination.
Equitix ESI CHP (Sheff) Ltd v Veolia Energy & Utility Services UK plc
The dispute concerns a biomass energy plant in Holbrook, Sheffield, which Equitix owns. In June 2015, it entered into an EPC contract with Kantor Energy Ltd for the plant’s design and construction. It also entered into an O&M contract with Veolia for the plant’s operation and maintenance.
The Taking Over Certificate under the EPC Contract was issued in May 2018, which gave the Operational Start Date and the Actual Taking Over Date under the O&M Contract. Since then, Veolia has notified 31 Alleged Defects to Equitix. This is important because, under the O&M contract, there are requirements for service levels and provision for deduction of performance-related damages. Veolia says the reason for the problems is the 31 Alleged Defects and the supply of non-compliant biomass fuel.
This has led to a complicated dispute between Equitix and Veolia, starting with who the adjudicator should be in an adjudication that Veolia wanted to start.
This issue arose because the parties failed to agree to any panel members within the time frame envisaged by the contract, and the proposals subsequently made by Veolia “did not find favour with Equitix”.
Initially, Equitix was successful in getting an interim injunction to stop Veolia applying to the CIArb but, when that injunction was discharged, it applied itself to CIArb for three panel members to be appointed.
“Experts in the field of biomass energy plants”
The key element of who the three panel members should be is that they are “experts in the field of biomass energy plants”. The sticking point between the parties is what this phrase means, and whether those experts should have technical expertise.
The CIArb selected three individuals:
- Appointee 1, a quantity surveyor who is also qualified as a barrister (non-practising) (and not me!). He said that he:
“… had some involvement with biomass power generation and disputes arising therefrom (one such case). However I would not hold myself out as a technical expert in that area.”
- Appointee 2, a QC with a specialist practice in construction and engineering, who said she had experience in biomass disputes and was currently a panel adjudicator on a waste to energy project.
- Appointee 3, a barrister with further technical qualifications. He said he was not:
“… an expert in the field of biomass energy plants although I have dealt with a disputes (sic) concerning such matters, including a dispute between a plant operator and supplier of feedstock for such a plant.”
Equitix did not like who the CIArb selected, arguing that they did not meet the contractual specification, which meant their appointments were invalid. It suggested (for the first time) three alternative panel members: two mechanical engineers and a person described as “specialising in heat generation and transfer technologies, particularly biomass and energy from waste”.
What does “experts in the field of biomass energy plants” mean?
Jefford J noted that, in isolation, the phrase probably didn’t cover lawyers:
“… one would be surprised if a lawyer were to profess such expertise.”
However, the phrase wasn’t being looked at in isolation. The context of the phrase’s use was that it was included within a dispute resolution clause. Consequently, that:
“… militates in favour of a meaning which relates the nature of the expertise to dispute resolution. By that I do not mean that additional words about expertise in dispute resolution should be read in but rather that who may be an expert in the field of disputes is wider than those who have a specific technical qualification or expertise.”
Importantly (in my view) she added that:
“… it is fair to say that the disputes that may arise in respect of defects are likely to be of a technical nature but they are not so limited. They may well extend to health and safety issues, performance measurement and other issues relating to liquidated damages, cost of remedial works, other loss and damage, and so forth.”
In other words, on any project, there is the potential for a range of disputes, and being an engineer or someone with “technical expertise” may mean that person does not have the right “expertise” for a particular dispute. As such, adopting a restrictive interpretation like the one Equitix argued for actually worked against it.
Veolia also made the point that the parties had agreed that the ANB was CIArb, and not an engineering institution or other technical body. That is also an interesting point, since my initial thought was that by doing so, the parties were primarily looking for someone with arbitration experience to be on their panel (even if selected from the CIArb’s adjudication panel and they selected someone with a technical background). As Jefford J says, it wasn’t a determinative point, but it does suggest that a technical expert was not being sought.
There is also an interesting discussion about Leggatt LJ’s judgment in Allianz Insurance plc v Tonicstar, which is about insurance and reinsurance and whether a QC had the requisite “no less than ten years’ experience of insurance or reinsurance” (Leggatt LJ held he did). As Jefford J notes:
“… the contrast is not as marked in this case where what is required is not ‘an expert in biomass energy plants’ but ‘an expert in the field of biomass energy plants’. There are no clear words to limit those experts to those who have particular technical qualifications (whatever they may be) or to exclude those whose expertise consists of or is derived from dispute resolution in that field. I note also that, although Leggatt LJ was not in any sense being asked to construe the same expression as is used in this case, when articulating the point that the pool of potential arbitrators did not exclude lawyers, he referred to a barrister who has specialised ‘in the field of insurance and reinsurance’, naturally giving a wider meaning to those words.”
Do the three appointees meet the contractual criteria?
In other words, did the President of CIArb follow his instructions and appoint individuals with expertise in the field of biomass energy plants?
Since Jefford J had held the appointees were within the terms of the contractual clause, this point was somewhat academic – the President had complied with his instructions. However, she did make the point that:
“… there is good reason why parties should be discouraged from challenging appointments made by adjudication appointing bodies. This process is vital to the process of adjudication as we know it and it would run contrary to policy if parties were able to thwart an adjudication by readily challenging whether the adjudicator was an appropriate appointee.”
She also made the important point that:
“Provisions of this nature are rare. The norm is for a person to be named or a nominating body to be named with no more. Assuming that such limiting provisions comply with the [Construction Act 1996]… the courts would be cautious not to allow such a provision to thwart the appointment of an adjudicator in the time required by the Act. Under the Scheme, where a nominating body is named or no nominating body is named there is simply no provision for any limitation on the description of the person to be appointed as adjudicator.”
It seems to me that the clear take away from this judgment is about knowing what you are agreeing to, when you agree wording such as this. I’m sure the parties did not anticipate a dispute over the identity of the three panel members but, if they wanted individuals with “technical expertise”, they ought to have expressly specified that is what the phrase meant. Better still, why not include reference to an engineer or other technical professional?
As Jefford J says, since adjudication is about resolving disputes, it is possible to be an expert in the field even though you are a lawyer. It is also likely to be a rare case when issues such as this arise, particularly where parties are simply relying on the Scheme for Construction Contracts 1998. But this is adjudication that we are talking about, and we all know how enthusiastically some parties approach a challenge to the adjudicator’s jurisdiction, or seek to throw other hurdles in the way of dispute resolution.