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Rough Justice

Jocelyn Lim examines three cases that explain the philosophy behind the statutory adjudication regime

 

The statutory adjudication process was first introduced in the United Kingdom through the Housing Grants, Construction and Regeneration Act 1996 (“HGCRA”) which became law on 1 May 1998. Ever since then, similar statutory provisions have been introduced in other jurisdictions, such as Australia, New Zealand and Singapore, and most recently, Malaysia. The Construction Industry Payment and Adjudication Act 2012 (“CIPAA”) was passed by the Malaysian Parliament in March 2012 and received the Royal Assent on 18 June 2012. However, as of the date of publication of this article, the CIPAA has yet to come into operation.

 

In the United Kingdom, the statutory adjudication process has become the key dispute resolution process for construction disputes, with the effect of reducing the number of disputes being referred to arbitration or court for final resolution. While the adjudication process has undoubtedly been a success in the United Kingdom, thanks in part to the rigorous approach taken by the English courts in its readiness to enforce adjudication decisions summarily, this came with a price. As HHJ Seymour QC put it in RSL(SW) Ltd v Stansell Ltd [2003] EWHC 1390:

 

“The price, which Parliament and to a large extent the industry has considered justified, is that the procedure adopted in the interests of speed is inevitably somewhat rough and ready and carries with it the risk of significant injustice. The risk can be minimised by Adjudicators maintaining a firm grasp on the principles of natural justice and applying them without fear or favour.”  

 

This article examines three important English decisions which demonstrate how the rules of natural justice are applied within the constraints of the statutory adjudication process.

 


BOUYGUES (UK) LTD v DAHL-JENSEN (UK) LTD1

 

Bouygues (UK) Ltd (“Bouygues”), the main contractor, retained Dahl-Jensen (UK) Ltd (“Dahl-Jensen”) as the mechanical subcontractor for the building works at Cornwall House, King’s College, London. The subcontract dated 25 June 1998 (“Subcontract”) provided for disputes resolution by adjudication under, inter alia, the HGCRA.

 

Disputes arose between the parties resulting in the termination of Dahl-Jensen’s employment under the Subcontract. Dahl-Jensen left the site. Bouygues employed a third party to complete the subcontract works.

 

On 20 August 1999, both Bouygues and Dahl-Jensen issued notices to adjudicate and the parties subsequently agreed that Bouygues’ claim should be treated as a counterclaim to Dahl-Jensen’s in the adjudication. Mr. Gard was appointed as the adjudicator. Having considered the statements of case and the numerous documents submitted by the parties, the adjudicator published his adjudication decision. There was no oral hearing.

 

In his award, the adjudicator erroneously included an amount due to Dahl-Jensen which should have been retained under the Subcontract pending the issue of certificates of completion under the main contract (“the Retention Sum”). Despite the error having been brought to the attention of the adjudicator, the adjudicator refused to revisit his adjudication decision.

 

Dahl-Jensen enforced the adjudication decision by way of summary judgment. Bouygues argued that in making the error the adjudicator had exceeded his jurisdiction and therefore the adjudication decision could not be enforced. The High Court judge granted the summary judgment holding that the adjudicator had not been in excess of jurisdiction, in that he had answered the right question but in the wrong manner, and that the adjudication decision could not be interfered with. Bouygues appealed.

 

Despite the acknowledgement of the error made by the adjudicator, the appeal was dismissed by the Court of Appeal and Dahl-Jensen’s claim for summary judgment was upheld. Lord Justice Chadwick said this:

 

“The first question raised by this appeal is whether the adjudicator's determination in the present case is binding on the parties … The answer to that question turns on whether the adjudicator confined himself to a determination of the issues that were put before him by the parties. If he did so, then the parties are bound by his determination, notwithstanding that he may have fallen into error … if the adjudicator has answered the right question in the wrong way, his decision will be binding. If he has answered the wrong question, his decision will be a nullity … 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.”

 

The mere fact that the decision itself might be unfair is not a ground for resisting enforcement. The adjudicator determined the issues which were put before him by the parties. There was no breach of the rules of natural justice as the parties were given a reasonable opportunity to be heard.

 


CARILLION CONSTRUCTION LTD v DEVONPORT ROYAL DOCKYARD LTD2

 

Carillion Construction Ltd (“Carillion”) was retained by Devonport Royal Dockyard Ltd (“Devonport”) as the subcontractor to carry out the upgrading of 9 Dock which included replacing the dock walls and base and construction of 4 new buildings. The contractual completion date was 21 March 2001. The parties also entered into an alliance agreement which provided that the payment mechanism under the subcontract was to be calculated on a target costs basis with a gain/pain share element. All in all, the target cost was integral to the calculation of the amount payable to Carillion.

 

There were substantial delays during the course of the works as a result of design issues for which Carillion was not responsible. Subsequently, a dispute arose between the parties as to whether any further sums were due to Carillion in respect of the subcontract works and in particular, the calculation of the target costs. The dispute was eventually referred to adjudication. Carillion sought, inter alia, for the payment of £10,451,237.61 in respect of further amount due to it and as damages for breaches of the relevant subcontracts, as well as a bonus of £1,500,000.

 

Cause papers between the parties ran up to hundreds of pages. The parties also sent lengthy letters to the adjudicator and served numerous witness statements, expert reports and appendices which in total amounted to about 29 lever arch files of materials. No oral hearing was held.

 

In his decision, the adjudicator awarded, inter alia, the payment of £10,451,237.61 and the bonus of £1,500,000 to Carillion. The adjudicator also awarded Carillion £1,199.905 as interest. The adjudicator directed Devonport to pay Carillion within 7 days. Devonport did not do so and challenged the adjudication decision on, inter alia, the basis that (i) the adjudicator disregarded certain submissions that was made in relation to the calculation of the target costs; (ii) the adjudicator disregarded Devonport’s additional defects claim; and (iii) the adjudicator failed to allow the parties to submit on the 20% deduction made thereto. Devonport argued that the adjudicator’s decision was made on an unfair basis in breach of the natural justice.

 

In dismissing Devonport’s challenges, Jackson J set out the following four basic principles:

 

(1)    The adjudication procedure does not involve the final determination of anybody's rights (unless all the parties so wish);

 

(2)    The Court of Appeal has repeatedly emphasised that adjudicators' decisions must be enforced, even if they result from errors of procedure, fact or law;

 

(3)    Where an adjudicator has acted in excess of his jurisdiction or in serious breach of the rules of natural justice, the court will not enforce his decision; and

 

(4)    Judges must be astute to examine technical defences with a degree of scepticism consonant with the policy of the 1996 Act. Errors of law, fact or procedure by an adjudicator must be examined critically before the Court accepts that such errors constitute excess of jurisdiction or serious breaches of the rules of natural justice.

 

On appeal, Chadwick LJ upheld the High Court’s decision and further stated that:

 

“It should be only in rare circumstances that the courts will interfere with the decision of an adjudicator … It is only too easy in a complex case for a party who is dissatisfied with the decision of an adjudicator to comb through the adjudicator's reasons and identify points upon which to present a challenge under the labels "excess of jurisdiction" or "breach of natural justice" … the majority of adjudicators are not chosen for their expertise as lawyers. Their skills are as likely (if not more likely) to lie in other disciplines. The task of the adjudicator is not to act as arbitrator or judge. The time constraints within which he is expected to operate are proof of that. The task of the adjudicator is to find an interim solution which meets the needs of the case … The need to have the "right" answer has been subordinated to the need to have an answer quickly.”

 

The principles in this case have been consistently applied in subsequent cases. It is clear that, unless the breach of natural justice is material, as long as the adjudicator has considered each of the parties’ arguments, errors arising from the adjudicator’s decision will not be a breach of natural justice so long as the adjudicator had answered the right question referred to him.

 


KIER REGIONAL LTD v CITY & GENERAL (HOLBORN) LTD3

 

Kier Regional Ltd (“Kier”), a building contractor, entered into a contract dated 6 November 2001 to carry out refurbishment and rebuilding works at the site of the Former Patent Office Library in London for City & General (Holborn) Ltd (“C&G”). The contract sum was £11,650,000. There were delays and Kier contended that the sum which was due to it on the final account amounted to approximately £30 million.

 

There were a number of adjudications between the parties. In adjudication no. 2, the adjudicator awarded Kier an extension of time of 28 weeks. This was in addition to an extension of time of 31 weeks previously granted by the contract administrator. Following that, Kier made an application for loss and expense amounting to £1,330,012. Nevertheless, the interim certificate of valuation no. 32 issued by the contract administrator did not include the loss and expenses in respect of the extension of time awarded in adjudication no. 2.

 

Dissatisfied with the sums in interim certificate of valuation no. 32, Kier initiated adjudication proceedings no. 3 against C&G. Having considered the parties’ arguments, the adjudicator delivered his decision on 28 October 2004. Kier was awarded a total of £719,295.40.

 

However, the adjudicator, in making the decision in favour of Kier, considered the 2 expert reports tendered by C&G as evidence in evaluating the loss and expense of Kier to be irrelevant. He found that these 2 expert reports were new evidence which were not known by the parties at the time when the dispute had crystallised and therefore, the adjudicator did not take the reports into consideration.

 

C&G refused to pay Kier. Kier applied for summary judgment in respect of its claim. During the hearing, Kier’s solicitors raised a preliminary objection against the admission of supplementary documents lodged by C&G’s solicitors. The judge dismissed Kier’s preliminary objection. The judge took the view that, although the supplementary documents should have been served within the specified time, it had not taken anyone by surprise. The Court was not willing to allow technical breaches to stand in the way of justice and the supplementary documents were received in evidence.

 

The main issue was this: “That the Adjudicator at paragraph 3.2(d) of the decision (page 6) wrongly refused to pay any regard to two expert reports submitted by C&G in its response to the reference. As a result the process leading to the decision was manifestly unfair and the decision is a nullity.”

 

C&G’s solicitors submitted that the failure of the adjudicator to take into consideration the 2 expert reports amounts to “the plainest case” of breach of the rules of natural justice. On the other hand, Kier’s solicitors characterised the production of the new evidence at a late stage of the adjudication proceedings as “defence by ambush”.

 

Jackson J held that the case was certainly not one of the “plainest case” of breach of natural justice as submitted by C&G’s solicitors. In fact, His Lordship held that “the error allegedly made by the Adjudicator is not one which could invalidate his decision. It can be seen from the decision as a whole that the Adjudicator considered each of the arguments advanced by C&G in its written response. At worst, the Adjudicator made an error of law which caused him to disregard two pieces of relevant evidence, namely the expert reports … In the light of the Court of Appeal's decision in Carillion, that error would not render the Adjudicator's decision invalid.”

 

For this reason, Kier’s application for summary judgment was allowed.

 


CONCLUSION

 

Undeniably, “rough justice” is the feature that underpins the statutory adjudication process. The mere fact that the adjudication decision is wrong is not, without more, sufficient to constitute a breach of natural justice.

 

The English principles on the rules of natural justice as demonstrated in the aforesaid three cases would be instructive to our adjudicators when conducting adjudication proceedings under the CIPAA. They will also provide guidance to our courts when called upon to determine whether an adjudicator has acted in breach of the rules of natural justice.

 

 

 

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1 [2001] 1 All ER (Comm) 1041

2 [2005] All ER (D) 202 (Nov)

3 [2005] EWCA Civ 1358

 

 
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