Adjudication and the requirement for natural justice
A look at ‘Bias’
Everybody knows that Section 108 of the Housing Grants, Construction and Regeneration Act 1996 requires adjudicators to act impartially. Indeed, there have been a number of cases where adjudicators’ decisions have been attacked, sometimes successfully, because the adjudicator has failed to comply with this requirement. Usually the grounds for such attacks have been that the adjudicator conducted the proceedings in an unfair manner, or in breach of the “rules of natural justice”.
Bias
There is, however, another sense in which an adjudicator may be said not to be impartial: this is where the adjudicator has or appears to have a pre-existing bias for or against one of the parties or a particular outcome. In one of the leading cases, , bias was described as “an attitude of mind which prevents the judge from making an objective determination of the issues that he has to resolve. A judge may be biased because he has reason to prefer one outcome of the case to another…. because he has reason to favour one party rather than another….because of a prejudice in favour of or against a particular witness which prevents an impartial assessment of the evidence of that witness.”
This type of failure to be impartial has been considered by the Technology and Construction Court in relation to adjudication. In (February 2001), the adjudicator took part in settlement discussions, acting as an informal mediator, and meeting with each party separately. No settlement was reached. The adjudicator therefore continued with the adjudication and made an award in favour of Glencot. Barrett resisted enforcement, arguing that the adjudicator’s participation in the settlement discussions meant that he was no longer impartial and his decision was therefore invalid. Judge Humphrey Lloyd QC held that “the words ‘impartial’ or ‘impartially’ in HGCRA and the Scheme are to be given the same meaning as they have at common law or in Article 6 of the Human Rights Convention as applied by the Human Rights Act 1998”. He concluded that Barrett had a real prospect of succeeding in establishing that the adjudicator was no longer impartial. In reaching this conclusion, he applied the test for bias laid down in (which has since been approved by the House of Lords, with a minor modification, in (December 2001)): “Whether the circumstances would lead a fair-minded and informed observer to conclude that there was a real possibility or a real danger, the two being the same, that the tribunal was biased”. The Judge noted that the adjudicator had met the parties separately as part of the informal mediation. “We do not know what he heard or learned. He was under no obligation to report it, nor given that the content was “without prejudice” and confidential ought there to be any inquiry as to what happened. Those private discussions could have conveyed material or impressions which subsequently influenced his decision”. Further, and more importantly, the settlement discussions were heated so that: “it would have been only understandable if some view had been formed about some people or a party.” In the adjudication the adjudicator had to: “decide certain points about which there was no documentary evidence, in other words to form a view about the credibility of the applicant’s case. These are areas where unconscious or insidious bias may well be present.” Since the Human Rights Act 1998 came into force in October 2000, there have been a number of other reported cases on this kind of bias, and whilst none of them has concerned Construction Act adjudications, and each case depends very much on its own facts, a review of some of these cases is nevertheless instructive.
Prospects of employment?
In the case (December 2000) a member of the Restrictive Practices Court had approached a company, a director of which was an expert witness in the proceedings before the Court, with a view to seeking employment. The Court of Appeal held that “the fair-minded observer would be concerned that if [that member of the Court] esteemed [the expert witness’ company] sufficiently to wish to be employed by them, she might consciously or unconsciously be inclined to consider them a more reliable source of expert opinion than their rivals”. The fact that her approach had been rejected did not assist. “The fair minded observer would not be convinced that all prospects of [her] working for [the company] at some time in the future had been destroyed, nor that she might not still hope, in due course, to work for [the company]”. The Court of Appeal held that she should have recused herself upon objection being taken.
With or without prejudice?
In (December 2001), “without prejudice” correspondence in which one of the parties offered to pay a part of the amount claimed by the other was inadvertently disclosed to the judge. The Court held however that this would not compel the judge to recuse himself. The amount involved in the admission was relatively small. “Parties regularly compromise or admit liability to claims on a basis which is not restricted to consideration of the merits or lack of merits of the law or of the relevant facts on their … case. They regularly do so because costs and risks do not justify fighting the issues”. The Court saw no difficulty in a judge being able to determine fairly the issues between the parties, notwithstanding disclosure of the correspondence, and saw no reason: “why a fair-minded and informed observer should consider that there was a real risk of the defendant
not having a fair trial in such circumstances”. Clearly, there is a distinction to be drawn between this type of case and the position in Glencot where the adjudicator had become involved in heated settlement discussions.
Stocks and shares?
In (February 2002) one of the members of an employment tribunal remembered that she had inherited 50 shares in Lloyds TSB, the holding company of one of the parties in a claim brought before it. The Tribunal recused itself and ordered that the claim should proceed before a differently constituted tribunal. On appeal, the Employment Appeal Tribunal held that the Tribunal should not have recused itself. Such an insignificant holding did not give rise any question of apparent bias.
Doing business?
In (May 2002), two companies appealed to the New Zealand Court of Appeal against a decision of the High Court upholding the public status of certain roads. The Court of Appeal dismissed the appeal and allowed a cross appeal by the City Council. The appellants then asked the Court of Appeal to set aside its judgment on the ground that one of the members of the Court was disqualified from sitting by reason of his undisclosed acquaintance and association with the City Council’s principal witness, IG, who was the son of MG, the judge’s former employer and long-term partner, and the brother of BG, who had been a partner of the judge for some 11 years. The Court of Appeal dismissed the application and the appellants appealed to the Privy Council. The Privy Council dismissed the appeal. The judge and IG were not personal friends. IG had not spoken to the judge for eight years. The firm of which the judge had been a partner had acted for the firm of which IG had been a partner but the judge had never acted for IG personally. There was no direct contact between the judge and IG on a professional basis. No fair-minded observer could possibly have doubted the neutrality and objectivity of the judge.
Business relationships, for example former or potentially new clients or customers, could be troublesome for adjudicators in this area. The Privy Council’s decision shows, however, that a realistic approach has to be taken to the application of the “fair minded observer” test. Some cases of alleged bias may arise from facts which are no more than the “ordinary incidents of commercial life” in the relatively small world of a particular industry, where prior dealings are to be expected.
Use it or lose it
A party who has a right to object or complain of bias in a tribunal can lose that right by waiver. Thus, in (March 2003) the claimant, a name at Lloyds, commenced proceedings against the former chairman of Lloyds alleging that he was personally liable to her in damages for losses she had suffered. The defendant applied for the proceedings to be struck out. At the commencement of the hearing the judge declared an interest in Lloyds. The claimant, having listened to his remarks confirmed that she was happy for the hearing to continue. The judge struck out her claim. The claimant applied for permission to appeal on the basis, inter alia, that the judge might have been affected by bias. The Court of Appeal refused her permission to appeal. One way in which adjudicators can protect themselves if they are concerned about the possibility of an allegation of bias is to adopt the course followed by the judge in Noels.
Help
As the Privy Council observed in the Man O’War case: “this is a corner of the law in which the context, and the particular circumstances, are of supreme importance”. However, the recent cases illustrate some of the types of situations which could arise in construction adjudications; many of these are quite tricky. In such situations, adjudicators can and should, of course, avail themselves of the provisions often found in adjudication clauses which entitle them to take legal advice.
For further information please contact Peter Long at peter.long@cms-cmck.com or on +44 (0)20 7367 2507
