Piggy in the middle - project adjudicators and natural justice

A decision of the TCC last week has important implications for the use of a single adjudicator or panel of adjudicators for disputes across multiple contract tiers. Such arrangements are used to ensure the consistent resolution of disputes on a project-wide basis, but can give rise to natural justice concerns as this decision shows. The case will also be of relevance to international projects using a single Dispute Adjudication Board to determine disputes between multiple stakeholders.

Mitigating the risk of inconsistent decisions

Adjudication poses unique challenges for contractors and subcontractors. They may be subject to adjudication proceedings from two directions: “upstream” from their employer or main contractor and “downstream” from their supply chain. Different adjudicators may arrive at different decisions, leaving the contractor or subcontractor to cover any shortfall. For example, an adjudicator might award liquidated damages against a main contractor for delays attributed to a subcontractor. A subsequent adjudication by the main contractor against the subcontractor in question could then exonerate the subcontractor and leave the main contractor without a means of recovery short of court proceedings. Similar issues arise for international projects with regard to decisions from Dispute Adjudication Boards.

The approach taken to deal with these issues in standard form contracts varies:

• The clearest way to ensure consistency of outcome is for the parties to allow a “joinder” or consolidation of related adjudications or their parallel determination. Option W1 in the NEC3 contract adopts this solution by allowing the contractor to refer related subcontract disputes to the main contract adjudicator at the same time as a main contract adjudication and for the two adjudications to be decided together. Option W2 has a similar mechanism but is subject to the consent of the subcontractor.
• The subcontract may provide for the subcontractor to be bound by the result of an adjudication under the main contract, either immediately or in the event that a notice disputing the decision is not given. In exchange, the subcontractor will ordinarily be given a right to participate or have submissions made on its behalf in the main contract adjudication. This approach is also frequently adopted in PFI contracts and under the FIDIC standard form of subcontract.
• A “project adjudicator” or panel of adjudicators may be agreed to determine disputes under the main contract and subcontracts. By having the same adjudicator determine both main contract and subcontract disputes, the scope for inconsistent decisions is intended to be reduced. This approach is also adopted in PFI contracts and on some major projects.

The appointment of a project adjudicator or panel of adjudicators avoids many of the disadvantages of the other two approaches. Joinder provisions complicate dispute resolution at main contract level and are often unacceptable to employers (because they do not want to concern themselves with what they see as domestic issues between their contractor and its subcontractors). On the other hand, subcontractors will usually be unwilling to agree to be bound by a decision in an adjudication between an employer and its contractor, where they have only a limited ability to affect the outcome. The appointment of a project adjudicator or panel of adjudicators therefore preserves control over the process for all parties, whilst at the same time offering a measure of consistency in decision making.

As the present case shows, however, project adjudicators also bring difficulties of their own.

Beumer Group UK Ltd v Vinci Construction UK Ltd

Vinci was employed by Gatwick Airport Ltd as the main contractor to undertake a package of works at the airport. The works included a baggage handling system, which Vinci subcontracted to Beumer. Beumer further subcontracted certain parts of the works to Logan. Both the main contract and the subcontracts were based on an NEC3, Option A contract and listed the same panel of three adjudicators to decide any disputes under the main contract and subcontract respectively.

A dispute arose between Beumer and Vinci regarding three instructions issued by Vinci and whether these constituted Compensation Events entitling Beumer to extensions of time. Dr Chern was appointed as adjudicator and decided the adjudication in Beumer’s favour on 17 June 2016. This was the second adjudication between Beumer and Vinci and was referred to by the court as “BVII”.

In parallel to BVII, Beumer commenced an adjudication against Logan on the same day. Beumer claimed liquidated damages from Logan in the relation to the same delay for which it was seeking an extension of time in BVII. This was also the second adjudication between Beumer and Logan and was referred to by the court as “BLII”. Dr Chern was also appointed in BLII, as he had previously been appointed by Beumer and Logan in their first adjudication by reference to the list of adjudicators in the main contract and Beumer subcontract. Vinci was not made aware of BLII until after the decision in BVII.

Vinci resisted enforcement of the decision in BVII on the basis that Dr Chern’s simultaneous appointment in BLII gave rise to breaches of a natural justice. Vinci claimed that Dr Chern would have had knowledge of matters relevant to its dispute with Beumer (in BVII) which Vinci was not aware of and, as a result, Vinci was denied a proper right to respond. Vinci also emphasised the fact that Beumer had advanced factually inconsistent arguments in BVII and BLII, claiming that the works were completed on time as against Vinci in BVII and claiming that they were late in BLII. Vinci contended that it should have been given the opportunity to rely on Beumer’s position in BLII in support of its own position in BVII.

The court agreed with Vinci and refused to enforce the decision in BVII. The court found that Dr Chern ought to have disclosed to Vinci that he had been appointed as adjudicator in BLII. Had he done so fairness is likely to have required that he order the disclosure of the submissions made to him in BLII so that Vinci could comment on them in BVII. The court noted in passing that had BLII been decided in advance of BVII, disclosure of Dr Chern’s decision in BLII would have been required to ensure the fairness of Dr Chern’s appointment in BVII.

Conclusion and implications

The court’s decision emphasises the care needed by contractors and subcontractors in co-ordinating upstream and downstream adjudications on any given project. Contractual provisions for joinder or parallel proceedings are unlikely to be obtainable on many projects, but parties should carefully consider the implications of agreeing to a project adjudicator or panel of adjudicators to determine disputes on a project-wide basis across multiple contract tiers.

The court’s decision may also have wider implications. Responding parties are now likely to request confirmation from adjudicators as to whether they have been appointed in previous adjudications involving the referring party. The reasoning of the court’s decision applies with greatest force to situations where relevant factual submissions may have been made to the same adjudicator in another adjudication on the same project. It is not inconceivable, however, that responding parties may seek to argue for the disclosure of decisions in any previous adjudications involving the referring party where submissions were made to the same adjudicator in relation to similar factual or legal issues.

Something not fully explored in the court’s judgment is the relevance of adjudication confidentiality in such situations. For example, if Dr Chern had disclosed his appointment in BLII to Vinci and had ordered Beumer to disclose to Vinci the submissions made to him in BLII, Logan may have objected to such an order on confidentiality grounds. It is unclear whether in the absence of such disclosure an adjudicator would be required to resign or whether he could fairly proceed on the basis of the referring party’s failure to comply with his order (pursuant to a power such as contained in W2.3(5) of the NEC3 or paragraph 15 of Part 1 to the Scheme). Proceeding in the absence of disclosure would require the adjudicator to put out of his mind the submissions made to him in the other adjudication which in some circumstances may not be realistic.

References:

Beumer Group UK Ltd v Vinci Construction UK Ltd [2016]EWHC 2283 (TCC)