Highlands and Islands Airports Ltd v Shetlands Islands Council

[2012] CSOH 12

This case arose out of the construction of an extension to runways at Sumburgh Airport. After the adjudicator’s decision had been issued, SIC’s solicitors discovered by chance that before reaching his decision the adjudicator had taken advice from senior counsel in relation to the proper construction of clause 41.3 of the NEC Professional Services Contract. The adjudicator did not tell either of the parties that he had taken advice, nor did he tell the parties the terms of that advice, nor did he give the parties any opportunity to address him on the construction of clause 41.3. The adjudicator ordered SIC to pay some £2million. SIC refused to pay saying that there had been a breach of natural justice. HIAL denied this, saying that even if there was such a breach, it aff ected only the quantifi cation of the Future Remedial Works Cost, which was severable from the remainder of the decision. The court heard evidence from the adjudicator, who had telephoned one counsel who was confl icted. The advice then received had been in the course of a short telephone call in which the adjudicator had asked whether senior counsel agreed with the view he had formed of what clause 41.3 of the contract meant. The call lasted no more than 2 or 3 minutes and it was a freebie, no fee was charged.

The adjudicator further said that he did nothing with counsel’s response as he had already formed his own view of the meaning of the clause. In short he did not believe that he was seeking legal advice. In a previous adjudication, where he had required advice on an insurance matter, he had advised the parties of this and gave the parties the opportunity to comment on the identity of the proposed advisor and the advice itself. Indeed, in the adjudication in question, the adjudicator had instructed his own technical expert and again that report had been provided to the parties prior to the decision being given. SIC said that if an adjudicator is uncertain about a material issue and has taken advice from an independent source, he must tell the parties and give them an opportunity to make submissions. Neither of the parties knew that the adjudicator had a concern about the interpretation of the contract clause. If they had known this, they might well have wanted to make submissions about it.

To HIAC, the court should not be concerned with something which was at best a technical breach of natural justice. Here, SIC had the opportunity to respond to any issue (including the interpretation of clause 41.3) raised in the referral document. HIAC said that this was not something new, and the issue was not material to the determination of the dispute. Lord Menzies said that the rules of natural justice were designed to prevent the possibility of injustice. Here, the Judge considered that the confi rmation sought by the adjudicator was indeed advice. It was given informally, it did not take long to impart, and no fee was to be paid for it, but nonetheless it was legal advice. It was legal advice which was suffi ciently important to the adjudicator that when one counsel declined to speak to him because of a confl ict of interest, he went on to telephone another to obtain advice on the point. It was also “the foundation for any award in favour of HIAL for Future Remedial Works Costs.”

If the adjudicator had said that clause 41.3 was a matter which concerned him, or that he was intending to seek legal advice on this point, then either party might have made further submissions. You can only ignore non-material breaches of the principles of natural justice if there is a positive indication that the breach has not been material. If there is a signifi cant doubt about the matter, it must be presumed that the breach is material. Therefore, Lord Menzies considered that the question was indeed of considerable potential importance, and was far from peripheral or irrelevant. It was central to the quantifi cation of the largest part of the award made by the adjudicator. Therefore there was a breach and the decision was not enforced.

In relation to severability, HIAC noted that here the adjudicator had made a number of clear fi ndings, which could not be regarded as tainted in any way by what he did in relation to clause 41.3. One example of this was the decision that specifi ed defects either arose or did not arise in consequence of the design failure. Then there was the historic cost fi gure of £340,872.26 plus VAT. SIC said that this was a single dispute case with only one order for payment. There was a plain breach of natural justice which rendered the decision invalid, and it fell to be reduced in its entirety. It was not the job of the courts to rewrite the decision of an adjudicator. As Lord Menzies noted, Mr Justice Akenhead in the case of Cantillon Ltd v Urvasco Ltd had observed that:

(f ) in all cases where there is a decision on one dispute or diff erence, and the adjudicator acts, materially, in excess of jurisdiction or in breach of the rules of the natural justice, the decision will not be enforced by the court”.

Here, the parties had contracted to be bound by is the adjudicator’s decision, not a part of that decision nor the decision after the court had rewritten it. Then there was the question of costs. It was far from clear that the adjudicator would have found the pursuer substantially successful in a situation in which the large majority of the adjudicator’s award was tainted, and the pursuer only received a sum which was less than one-sixth of the total awarded. Therefore, no part of the decision could be severed.