Eurocom Ltd v Siemens PLC [2014] EWHC 3710 (TCC)

Rent review surveyors who have applied to the RICS Dispute Resolution Service over the past month for the appointment of a third party, will have perhaps noticed a new warning in the notes to the form. Under ‘Conflicts of interest’ the notes now refer to the above case, and warn that misrepresentation in filling in this section of the form could invalidate the appointment process, and make any decision or award unenforceable. What’s it all about?

The case concerned adjudication of a construction dispute, which is one of several dispute resolution procedures dealt with by RICS. The application form for the appointment of an adjudicator, like that for appointment of a third party to determine a rent review, contains provision for the applicant to identify any potential appointees who would, in the applicant’s view, have a conflict of interest, stating brief reasons.

In this case, the applicant specified a number of people, as is common in rent reviews. The appointment was made, and the adjudicator in due course made an award which was favourable to the applicant, which they subsequently attempted to enforce by way of summary judgment. In defending the application for summary judgment, the other party challenged the validity of the adjudicator’s appointment. The objection was that the applicant had for the most part simply named people who would be unwelcome appointees because they were thought for one reason or another to be unlikely to reach a favourable decision, and had no objection to them which was actually based on conflict of interest. This was based on having asked the named people whether they had any conflict, but the applicant also candidly admitted that that was the case.

In the court’s view, this was a misrepresentation, and the effect was to nullify the appointment, and thereby the award also. In the alternative, the judge held that the contract between the parties contained an implied term that the parties would not act dishonestly, which had been breached, and again the effect was to deprive the adjudicator of jurisdiction.

The RICS has been commendably quick in amending the guidance to its forms. In passing, the ‘Conflicts of interest’ section appears on only four out of the thirteen ‘application for appointment’ forms, and the new warning appears only for the rent review and construction adjudication forms. Presumably the view has been taken that a misrepresentation as to a conflict of interest would be less likely to invalidate an appointment under the other two forms (expert witness, and mediator).

It is noteworthy that the form does not require the applicant to certify that they have identified all persons with a conflict of interest. An applicant might omit an objection to a third party who they believe has a conflict of interest which would make them likely to give a favourable decision. That would involve no misrepresentation.

Also, the form requires that reasons be given for any alleged conflict, and if a stated reason appears obviously inadequate or mistaken, or if no reason is given (which was the case here as regards several of the named persons), one might think that it would be open to the RICS to disregard the objection to that potential appointee.

For those reasons, the court’s apparent view that an applicant who includes an objection on non-conflict grounds is misusing the system of appointment is perhaps not altogether convincing.

Also open to question is the court’s decision as to an implied term. This looks very much like an implied term of good faith, something which other countries recognise, but which has been consistently resisted in our courts.

While the decision may be open to criticism, it is plainly right that the RICS should have warned of its implications, and rent review surveyors will have to take account of it or face criticism from their client, if an arbitrator is removed for lack of jurisdiction or his arbitration award is successfully challenged on this ground. It is the form’s requirement to specify objections based on conflict of interest which gives rise to the problem, and perhaps this will need to be re-thought.