Adjudication: natural justice, enforceability of awards and costs

24 February 2017

Laurence Cobb considers how natural justice, enforceability of awards and the issue of costs apply in adjudication

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The case of Beumer Group UK Limited v Vinci Construction UK Limited [2016] EWHC 2283 (TCC) concerned the appearance of fairness when the same adjudicator was acting on simultaneous adjudications between parties in a related dispute.

Beumer had commenced 2 adjudications, one against Vinci under the main contract and also a second adjudication against the sub-subcontractor, Beumer itself being the subcontractor. Both adjudications were conducted at the same time.

Although separate, these went before the same adjudicator, but neither Beumer nor the adjudicator notified Vinci of the other process; furthermore, at no time did the adjudicator disclose to Vinci that he was acting simultaneously as an adjudicator on another dispute in which Beumer was a party.

Vinci challenged the award, arguing that the adjudicator's involvement in both processes meant that he must have had or acquired background knowledge that Vinci had no opportunity to consider or make submissions regarding, insofar as this may have affected its position in the adjudication with Beumer. In particular, it was Vinci's claim that Beumer had taken factually inconsistent positions in the 2 adjudications, of which the adjudicator must have been aware thanks to his double role.

Natural justice rules

Bearing in mind that following an adjudication either party can have a second bite at the cherry by going to court or arbitration, depending on the provisions in the contract as to the ultimate forum for dispute resolution, the starting point is nevertheless that both parties are generally reluctant to support an application to challenge adjudication enforcement, in accordance with the rules of natural justice.

These rules can be seen to have 2 elements: one being that a party must have an opportunity to present its own case, and the other that the matter is decided by an impartial tribunal. In this case, both elements were raised although the focus was on the former, fair hearing point.

Parties need to take great care in whom they appoint or agree to appoint as adjudicators, particularly if they are in a position where they may have claims both upstream and downstream

The judge found that the adjudicator should have disclosed to Vinci that he was also acting on another related matter at the same time as he was on its dispute. Therefore, his failure to disclose his appointment was a serious issue. Some appointing bodies such as RICS address this point by requiring the adjudicator to state that they "are required to disclose involvement or potential conflicts of interests to the RICS prior to nomination". Here, the adjudicator had been named as one of 3 potential adjudicators in the contract itself.

The judge found that Beumer had advanced factually inconsistent cases in each of the 2 adjudications, depriving Vinci of the opportunity of making any submissions in that regard; that Vinci should have been given the right to seek and see any material in the related adjudication; and that the adjudicator should have disclosed that he was acting on another matter at the same time that included the same party.

Unenforceable award

To be fair to the adjudicator, there was no criticism of his conduct in either adjudication or of his approach, but the lack of disclosure constituted a breach of natural justice and was an unenforceable award. Parties need to take great care in whom they appoint or agree to appoint as adjudicators, particularly if they are in a position where they may have claims both upstream and downstream.

Adjudicators may also be asked, before the agreement of their appointment, about their existing and previous involvement with the parties to the adjudication. One should also give due consideration, when adjudicators or adjudication boards are going to be named in contracts, as to whether it is sensible to name the same adjudicator in both main and subcontracts.

Perhaps of wider relevance is the proposition that not only must justice be done, it must also be seen to be done, not only in the context of an adjudication but also in that of the role of certifier or decision-maker under a construction contract. Great care should be taken when carrying out a role not to wear 2 hats or make different representations to different parties that are inconsistent.

Costs

The case of Lulu Construction Limited v Mulalley & Co Limited [2016] EWHC 1852 (TCC) centred on whether the issue of adjudication costs could be considered by an adjudicator, as these were not included in the wording of the original dispute referred. The judge took the view that the costs claim was clearly connected with and related to the referred dispute and therefore must be considered part of it. The adjudicator therefore had jurisdiction to decide the issue.

As well as emphasising the need to be very clear about what is being referred when a matter goes to dispute, the case also raised the issue of whether costs and interest are potentially recoverable in an adjudication. The conflict in this area relates to a mismatch in the legislation.

This pair of cases shows that while the law continues to evolve, there will remain inevitable areas of uncertainty around the edges of the adjudication process

Section 108A of the Construction Act 1996 in summary takes the position that, apart from the ability to allocate their own fees and expenses between the parties, an adjudicator does not have power to award wider costs, so that when a party embarks on an adjudication the general wisdom is that it must bear its own costs of that exercise regardless of the outcome.

However, section 5A(2A) of the Late Payment Of Commercial Debts (Interest) Act 1998, as amended by the Late Payment Of Commercial Debts Regulations 2013, potentially enables a claim that under such a provision it may be possible to recover adjudication costs.

There are various arguments as to the interpretation and precedence of these two potentially conflicting pieces of legislation. The more popular view is that subject to the contrary agreement of the parties, save for their fees and expenses an adjudicator does not have power to award costs in an adjudication. However, as matters currently stand, the case law is undecided in detail by the courts.

Lulu may not enable you to shout for costs, but these are clearly an area of which to be wary, both in considering the drafting of construction contracts and the overall financial consequences of embarking on an adjudication.

This pair of cases shows that while the law continues to evolve, there will remain inevitable areas of uncertainty around the edges of the adjudication process. So if you take a step back and ask yourself the question, “Does this instinctively feel wrong?” it may well mean that your instincts are correct.

Laurence Cobb is a partner at law firm Taylor Wessing

Further information

Related competencies include: Conflict avoidance, management and dispute resolution procedures

This feature was taken from the RICS Building Surveying journal (December 2016/January 2017)