“It is only too easy in a complex case for a party to comb through the adjudicator’s reasons and identify points upon which to present a challenge under the labels “excess of jurisdiction” or “breach of natural justice”. So said Chadwick LJ in Carillion v Devonport [2005] EWCA Civ 1358. On the other hand, “save in the plainest cases” the judge went on, such a challenge “is likely to lead to a substantial waste of time and expense”.

A recent decision of the Scottish courts, again involving a Carillion company (against SP Power Systems), may encourage parties considering such a move to feel that the odds are now rather more in their favour.

Background

The case was one of two which were concerned with a dispute as to how works carried out by Carillion under a utilities framework agreement should be valued. The dispute was referred to adjudication and the adjudicator decided that nearly £3 million was due to Carillion. SP refused to pay and resisted enforcement on the ground that the method which the adjudicator had adopted to quantify Carillion’s claim had resulted in a breach of natural justice.

In SP’s view the adjudicator was guilty of two sins:

  • First, in the absence of definitive factual information he had based his calculations on assumptions which he had made as to the work content of the very large number of work orders on which the claim was based.
  • Second, he had applied to this assumed workscope what he considered to be appropriate commercial rates. In both cases the adjudicator had, the court accepted, arrived at his conclusions by applying his own knowledge and experience, as he was entitled to do. The question was whether his failure to share this thinking with the parties prior to his decision so that they could provide him with their comments amounted to a sufficiently serious breach of natural justice to preclude enforcement of the decision.

Some cases are clear cut. In Balfour Beatty v Lambeth [2002] EWHC 597 (TCC), for example, the adjudicator relied in deciding on extensions of time on a delay analysis which he had obtained from a programming expert without the knowledge of either party.  Similarly, in Primus Build v Pompey [2009] EWHC 1487 (TCC), the adjudicator, again without prior reference to the parties, had made use in his decision of figures taken from documents which both parties had indicated to him were not relevant for this purpose. In both cases it was held that the failure of the adjudicator to consult the parties before reaching a decision based on the material concerned amounted to a breach of natural justice which rendered his decision invalid.

Here the court exonerated the adjudicator from SP’s first charge. It found that the adjudicator had in effect derived from the parties’ submissions his view of the work content to be used as the basis for his calculations. He was not therefore required to give the parties an opportunity to comment on this reasoning before making his decision.

The rates he then applied to this workscope were, in the court’s view, a different matter. While the court made no finding as to their reasonableness or otherwise, it held that there had been no evidence in the adjudication as to these. They were therefore new to the parties, who were entitled to be made aware of and to comment on them. As the rates concerned were a significant element in the decision this failure meant that the decision should not be enforced.

Comment

This decision has caused widespread comment. While each case necessarily turns on its own facts, and Scottish decisions have persuasive rather than binding force in England, a number of commentators have suggested that the adjudicator was entitled and indeed required to apply his expertise in such a situation without a further time-consuming and expensive round of further submissions. Adjudication represents pragmatic fast track rough justice and, faced with complex facts and a substantial claim, the adjudicator made a decision which ought to have been enforced.

These arguments could be said to reflect the courts’ generally robust approach to enforcement. The fact that disputes are often (for practical purposes) finally decided by adjudication despite its provisional character may have had a bearing on what in the Carillion v SP Power Systems case was certainly a rigorous approach to issues of natural justice. Whether other courts will follow suit is currently far from clear. 

Reference: Carillion Utility Services Ltd v SP Power Systems Ltd [2011] CSOH 139