The Court of Session has ruled that in certain circumstances an adjudicator's award may be successfully challenged if it breaches a party's right to peaceful enjoyment of his possessions under Article 1 Protocol 1 ("A1P1") of the European Convention on Human Rights ("ECHR"). The case is Whyte & Mackay Ltd v. Blyth & Blyth Consulting Engineers Ltd, reported here.
Blyth & Blyth ("B&B") was engaged by Whyte and Mackay ("W&M") as engineers in respect of a new bottling plant facility in Grangemouth. Following completion of the works a dispute arose in connection with the foundations, which W&M alleged were defective. The dispute was referred to adjudication on 2 March 2012. The adjudicator issued his decision on 9 April 2012 and awarded W&M almost £3 million pounds in damages. W&M sought to enforce the adjudicator's award in the Court of Session. B&B resisted enforcement.
B&B relied on traditional grounds of challenge (inadequate reasoning / breach of natural justice) as well as advancing grounds under the ECHR. In this connection it relied on its right to peaceful enjoyment of its possessions under A1P1 and Article 6 rights.
The Lord Ordinary refused to enforce the award on traditional grounds. Applying the principles set out in Diamond v. PJW Enterprises (2004). He upheld an argument that the adjudicator had not addressed a 'key part of the defenders' case' namely that in the circumstances it ought to be inferred that W&M would not have been prepared to incur the delays and additional costs as a result of piling. This the judge characterised as a breach of natural justice. He went on, however, to explain that B&B's rights under A1P1 were engaged and that it would have been wrong to enforce the award on those grounds in the particular circumstances of this case.
The Court rejected the argument that there had been a breach of Article 6 rights. Article 6 was only engaged when a civil right or obligation is being determined. The adjudicator's decision and enforcement could not be considered as finally deciding the civil right or obligation at stake. Article 6 was not engaged.
The decision is one which gives some assistance on how the principles set out in Diamond will be applied. The views expressed on the ECHR arguments are more interesting.
The Court's reasoning on A1P1 would appear to open up a new avenue of challenge to those looking to resist adjudicators' awards. That said, much of the Court's reasoning appears to have turned on the specific circumstances of this particular case.
A1P1 sets out that every natural or legal person is entitled to peaceful enjoyment of his possessions. The article goes on to permit and regulate certain interference with that right by member states.
The legal test applied to determine whether any interference is in fact permissible, is that any interference should comply with the principle of lawfulness and pursue a legitimate aim by means that are reasonably proportionate to the aims sought to be achieved; and that a fair balance has been struck between the demands of the general interest of the community and the requirements of the protection of the individual's fundamental rights.
The dispute in this particular case was referred to adjudication around 6 years following completion of the works. There was no obvious requirement for a quick answer to the dispute. It involved allegations of professional negligence and complex issues of fact and law. On the decision itself, B&B contended that cost savings enjoyed by W&M had not been properly taken into account and a head of claim which formed a significant part of the adjudicator's award was, on the adjudicator's own findings, not likely to be incurred by W&M until around 2035. The decision nonetheless provided that all of a very substantial award was to be paid immediately.
The Court considered the general interest benefits and underlying purpose of adjudication (i.e. the aims sought to be achieved). Drawing on earlier authority it noted that adjudication is intended to encourage co-operation between parties to a construction contract and preserve cashflow during the contract. It reasoned that in the present case these benefits were largely absent. Consequently, against that backdrop it thought it wrong to enforce the award in this particular case. Having regard to the legal test the Court thought it disproportionate and that enforcement in the circumstances of this case would not strike a fair balance between protection of the defender's fundamental rights and the protection of any public interest reasons for the interference.
Some will argue that this decision may give referring parties cause to pause for thought when considering the timing and suitability of a reference to adjudication. Others will still argue that any perceived need for that type of analysis does not, perhaps, sit easily against the backdrop that a party to a construction contract is entitled to refer a dispute to adjudication at any time.