Arcadis UK Ltd v May and Baker Ltd (t/a Sanofi)
This is one of those relatively rare disputes involving the NEC3 contract. Here again, we have successive adjudications (with different adjudicators) but no breach of the rules of natural justice. The second adjudicator was entitled to consider the first adjudication decision. Consequently, the second adjudication decision was enforced.
The parties' contract incorporated the NEC3 Engineering and Construction Contract and the contract provided for adjudication. Arcadis was employed to carry out remediation works. The dispute concerned the issue and subsequent withdrawal of PMIs (Project Manager (PM) Instructions). During the contract, it became clear that work was necessary beyond the Northern and Southern boundaries of the worksite, albeit on land owned by Sanofi. The extra work related to landfill or contaminated material which required treatment.
The PM instructed Arcadis to carry out the Northern work. He initially accepted that the work amounted to a Compensation Event (CE) and certified (on his own assessment) over £300k for the work which was done. Arcadis encountered similar ground conditions at the Southern boundary and issued an Early Warning. The PM issued a PMI instructing Arcadis to proceed with the work but in a lesser figure proposed by Arcadis, and excluding costs associated with prolongation. The PM later rejected Arcadis' revised quotation.
The PM, for reasons which were unclear to the court, purported to withdraw the PMI relating to the Southern boundary and three of the four PMIs for the Northern boundary work. He later adjusted payment certification by removing what had been allowed for the Northern boundary work. He did not certify anything for the Southern boundary work.
The first adjudication related to Arcadis' entitlement to the Northern boundary work. The adjudicator found that the PM was not entitled to withdraw his acceptance of the Northern boundary work as a CE, nor reassess its effect on the contract prices. Sanofi honoured this decision.
Second adjudication (different adjudicator)
Southern boundary work - Arcadis included the first adjudication decision in the referral. It said that the first adjudication decision had not been put aside by the courts and was therefore binding on the parties and because the same principles applied in the second adjudication it considered that the second adjudicator was bound by the first decision (section 23(2) of the Scheme for Construction Contracts). Arcadis sought a declaration that the Southern boundary work constituted a CE; payment and an EOT. Sanofi argued that the first decision had no relevance and was not binding save for the EOT.
The second adjudicator found for Arcadis but the award was not honoured by Sanofi.
Sanofi resisted enforcement on four grounds:
- The second adjudicator took an erroneously restrictive view of his own jurisdiction. As a result he decided he was bound by the first decision and by the first adjudicator's reasoning and that Arcadis had brought about the adjudicator's error by a misguided attempt to seek a tactical advantage or otherwise influence him.
- The second adjudicator "went off on a frolic of his own" in relation to quantum by "splitting the difference" between the PM's figure and the Arcadis' forecast figure and deciding the case upon a basis that had not been argued by either side, without giving the parties an opportunity to comment.
- The second adjudicator failed to consider Sanofi's defence on delay.
- The decision was invalid on grounds of apparent bias in effect because the adjudicator was put in the position in which he had to have regard for the first adjudication decision.
Akenhead J rejected all four grounds, as follows:
There was nothing improper or contrary to the rules of natural justice either in the first adjudication decision being put before the second adjudicator or by virtue of the fact that the second adjudicator having regard to the first decision: "the First Adjudicator's findings on what the contract meant were at the very least germane and could well be thought at the very least to be persuasive" and "Adjudicators must be trusted, generally at least, to be able to reach honest and intelligible views as to the extent to which such earlier decisions are relevant or helpful or not." It was clear that the second adjudicator did not consider he was bound by the first decision and that he had decided the issues on their own merits.
The court should not encourage losing parties in adjudications to scrabble around to find some (tenuous) argument to resist payment - Carillion Construction Ltd v Devonport Royal Dockyard Ltd (2006). The judge also referred to Cantillion Ltd v Urvasco Ltd (2008) - reviewing breaches of the rules of natural justice, and Pilon Ltd v Breyer Group Ltd (2010) - adjudicators taking an overly restricted view of the jurisdiction.
Despite Sanofi's reliance on Herbosh-Kiere Marine Contractors Ltd v Dover Harbour Board (2012), this case was very different. Herbosh was a relatively extreme (albeit clear) case in which the adjudicator departed from the quantum methodology put forward by both parties without giving either the opportunity to address his eventual approach. The adjudicator's approach made a very significant difference to the outcome of the decision.
In this case "Although in one sense, his [the adjudicator] 'splitting the difference' was Solomon-like in its simplicity, he was effectively choosing between two figures, both of which had an evidential basis... The fact that he was persuaded that the proper answer lay between the two adjusted forecast figures and that he happened to split it down the middle can not be considered to be a breach of the rules of natural justice."
- The judge found, based on the facts, that it could not be said that the second adjudicator had not considered the defence on delay (the adjudicator having recorded in his decision that he studied the material advanced by Sanofi). Sanofi could be in no doubt why it lost on that point.
- There was no bias. Generally, it would be wrong of an adjudicator to ignore any material put before him. A previous adjudication decision does not fall into an exceptional category of material (such as without prejudice correspondence) which should not be put before the adjudicator.
This is yet another example of the court's robust stance on challenges to the enforcement of adjudication decisions. It does not matter how many different natural justice arguments are constructed, it is still very difficult to resist enforcement. Of course, this reflects the court's view of adjudication as an interim and speedy dispute resolution procedure which is about meeting the needs of the case.
The decision also touches upon an interesting topic which is the extent to which an adjudication decision binds successive adjudications. There are some ground rules. If an issue has already been adjudicated, it cannot be adjudicated a second time. Also, an adjudication decision is binding until it is finally determined by legal proceedings, arbitration or by agreement. It is not easy but one needs to establish the scope of the adjudication and then consider carefully the nature and extent of the adjudicator's decision.