In a recent decision of the Outer House of the Court of Session, the principles underpinning the adjudication system have once again been clarified. Lord Malcolm in the case of Pihl UK Limited v Ramboll UK Limited 2012 [CSOH] 139, stated that "an adjudicator's award is not expected to demonstrate the same quality of reasoning as a judge." An unsurprising statement given previous case law perhaps, but Lord Malcolm made a number of interesting statements in the case which are worth further analysis.
The Facts of the Case
Ramboll were appointed by Pihl to provide engineering services for a project on the Isle of Wight. The parties had already been to two adjudications in respect of various disputes over payment by the time a third dispute came before a different adjudicator, a Mr Bunton. The second adjudication concluded that the payment mechanism in the contract between the parties included stage payments and the work had reached stage five. As a consequence of the second adjudication, Pihl reviewed the sums that it had paid to Ramboll and discovered that they had overpaid by some £272,354.78 plus VAT.
Mr Bunton in the third adjudication decided that he was bound by the decisions reached in the second adjudication as to the payment mechanism and what was properly due under the contract and ordered that amount to be repaid.
The case came before the Court of Session when Pihl sought enforcement of the adjudicator's award after Ramboll failed to pay within the 7 days stated in the decision. Ramboll sought to resist the award on the grounds that the adjudicator's decision was invalid. Ramboll's case was that the adjudicator had breached the rules of natural justice because:-
- the adjudicator failed to explain the legal source of the obligation to repay the sum and
- the adjudicator failed to explain the basis on which the sum was calculated.
In other words, Ramboll were not satisfied with the adequacy of the reasons given by the adjudicator for his decision.
The Judgement of the Court
Lord Malcolm's response when rejecting this argument and concluding that there was no breach of natural justice can be summarised as follows:-
- This "attack" on the validity of the adjudicator's decision was "without merit";
- An adjudicator's award is not expected to demonstrate the same quality of reasoning as that of a judge;
- If challenged, an adjudicator's award should not be subjected to an overly analytical or critical scrutiny;
- Quoting the case of Diamond v PJW Enterprises, the Court must adhere to the case law which warns against a strict approach to the reasons given for an adjudicator's decision. It would otherwise be too easy to "slip into a review of the merits of an award"; and
- An adjudicator is entitled to be wrong both in fact or in law - as long as "the correct question had been asked, the decision could not be challenged, even if the adjudicator answered the question incorrectly."
Effect of the Decision
Given previous case law in this area, the decision in this case is not surprising and the case re-affirms the Court's approach where a losing party attempts to avoid an award on the basis that the adjudicator has breached the rules of natural justice. The Court will be unwilling to intervene with an adjudicator's decision except in exceptional circumstances. The adjudicator is in essence entitled to be wrong as long as he has put his mind to the correct question.
A party that is unhappy with the decision of an adjudicator may well be better advised to accept that the decision is temporarily binding and look to arbitration or Court proceedings to have the decision reviewed and a final determination made. The Court of Appeal already stated in the 2005 case of Carillion Construction v Devenport Royal Dockyard that:-
"To seek to challenge the adjudicator's decision on the ground that he has exceeded his jurisdiction or breached the rules of natural justice is likely to lead to a substantial waste of time and expense."
Lord Malcolm seemed to agree in his judgement where he stated that "the purpose of an adjudication is to provide a swift yet provisional decision. An award can be opened up and reviewed at a later date".
The case law suggests that in all but the most exceptional cases, arbitration or Court proceedings may be the better forum for the final resolution of an unsatisfactory decision of an adjudicator. Challenging an adjudicator's decision in the Courts is not likely to be successful.