To decide or not to decide: burden of proof findings and subsequent adjudications

A recent decision of the Scottish Court of Session has considered whether the failure to prove a delay damages claim in one adjudication prevented the claimant from renewing the claim in a subsequent adjudication. In finding that the claim could not be re-adjudicated, the Court sought to distinguish a previous TCC decision in England where a failure of proof did not prevent a subsequent adjudication on the same claim. The Court’s comments suggest that adjudicators might have the ability to avoid deciding a claim where burden of proof issues exist, effectively reserving the claim for a subsequent adjudication.

Burden of proof findings and the Hitachi case

The nature of adjudication as a swift and temporarily binding dispute resolution procedure lends itself to submissions that a party has not satisfied the burden of proof. Such submissions are often made in response to extensions of time claims or in relation to the valuation of variations and claims for loss and expense.

Where an adjudicator finds that the burden of proof has not been satisfied, a party will not usually be permitted to commence a further adjudication with improved evidence. For example, paragraph 9 of the Scheme for Construction Contracts states that a dispute cannot be referred to adjudication where it is the same or substantially the same as one which has previously been referred and decided. So in Carillion Construction Ltd v Smith, a claim for delay and disruption had initially been rejected by an adjudicator due to a lack of evidence proving loss or expense. A further adjudication with improved evidence and different analysis was held to be impermissible, as it was essentially the same claim which had been rejected by the earlier adjudicator.

By contrast, in Quietfield Limited v Vascroft Construction Limited, a contractor had failed to establish an extension of time in an earlier adjudication. It then sought to establish the same extension of time in defence of a subsequent adjudication by the employer claiming liquidated damages. It was permitted to do so because different delay events were relied upon alongside more detailed programming evidence so that the dispute was not the same or substantially the same as in the prior adjudication.

In one notable case, Hitachi Zosen Inova AG v John Sisk & Son Ltd, the effect of the rule was mitigated by the adjudicator seeking to confine his findings to a specific interim application. In the context of a broader interim valuation dispute, the adjudicator had valued a specific variation as “£nil” but only “for the purposes of” of the interim application. This finding was found not to be binding in a subsequent adjudication where the claimant had made good the evidentiary failings which led to the nil valuation. For our Law-Now on the Hitachi decision, please click here.

Permission to appeal against the decision in Hitachi was granted by the Court of Appeal, but the case settled before the appeal was heard. A recent case on similar facts before the Scottish Court of Session has now sought to clarify the approach taken in Hitachi.

Engenda Group Ltd v Petroineos Manufacturing Scotland Ltd

Engenda agreed to carry out certain works at the Petroineos oil refinery in Grangemouth. The parties entered into an NEC3 Option C contract, specifying certain Key Dates and a Completion Date, but without liquidated damages under Secondary Option X7.

A dispute arose as to delay in reaching a Key Date referred to as the “Feed In Date”. There had also been a delay in reaching Completion. Petroineos commenced an adjudication claiming that Engenda had caused the delay to the Feed In Date, that it had failed to complete the Works by the Completion Date and that Petroineos was entitled to withhold £1.1m in unliquidated delay damages as a result.

Petroineos submitted expert delay evidence seeking to establish Engenda’s responsibility for the delay to the Feed In Date, but did not attempt separately to prove Engenda’s responsibility for delay to completion. The adjudicator noted that clause 25.3 of the NEC3 contract limited Petroineos’ right to claim for delay to Key Dates to any additional costs incurred in carrying out the Work (or having it carried out). Any claim for delay damages more generally would need to prove responsibility for delay to completion. As Petroineos had not done this, the adjudicator considered that he was “not able to find that Petroineos is entitled to payment”, but nevertheless made a general declaration that Engenda was in breach of contract by not meeting the contractual Completion Date.

Relying on the adjudicator’s decision, Engenda commenced an adjudication seeking to recover the £1.1m withheld by Petroineos on account of delay. Petroineos defended the adjudication by renewing its claim to delay damages, this time with fresh expert evidence to prove Engenda’s responsibility for delay to completion. Engenda objected to jurisdiction on the basis that the claim for delay damages had already been determined in the previous adjudication. The adjudicator disagreed and ultimately upheld the claim to delay damages permitting Petroineos to retain the amount withheld. In the adjudicator’s view, Petroineos were “advancing a different legal argument … with a new expert report” based on delays to completion rather than the Feed In Date.

Engenda brought proceedings before the Court of Session to challenge the validity of the adjudicator’s second decision.

First decision binding

The Court of Session disagreed with the adjudicator’s assessment of the earlier adjudication. The Court considered it clear that Petroineos had claimed damages both for a breach of the Feed In Date and also for a failure to complete by the Completion Date. The fact that it had focused its evidence on the Feed In Date did not take away from the dual nature of its case and the adjudicator’s finding that its damages claim for delay to completion had not been proved. In accordance with the approach taken in Carillion Construction Ltd v Smith, the adjudicator in the second adjudication had no jurisdiction to consider an improved version of Petroineos’ claim.

The court also rejected parallels drawn by Petroineos with the Hitachi decision. In the Court’s view, Hitachi was a “somewhat unusual case on its facts” and the usual position where a party seeks and fails to prove its loss due to a lack of evidence will be that a further adjudication seeking to establish the loss will be barred.

Although not directly criticising the approach taken in Hitachi the court noted that the approach rested on a “subtle distinction, effectively distinguishing between a situation where the decision maker says that the lack of appropriate evidence is such that he or she is not making any decision on the issue at all, and a situation where the decision maker makes a decision that the claim has failed due to lack of proof.” In the Court’s judgment, the adjudicator in this case had made clear in the first adjudication that Petroineos’ claim had failed.

Conclusions and implication

The Court’s unwillingness to apply the approach in Hitachi is notable given the similarities between the two cases. In both Hitachi and the present case, the adjudicators acknowledged that amounts were likely to be due to the Referring Party, but that the evidence did not permit a valuation to be arrived at. In Hitachi a “nil” valuation was given for the purpose of a specific interim application, whereas in this case the claim was simply declined without any nil valuation being made. In those circumstances, the Court’s suggestion that the approach in Hitachi rests on a distinction between “not making any decision” and a “decision that the claim has failed” is difficult to understand. The nil valuation in Hitachi seems just as much a finding that the claim in that case had failed as the refusal to award damages in this case.

The distinction proposed by the Court also raises a question as to the basis on which an adjudicator could justifiably refuse to make a decision as to the valuation of a claim before it. A refusal to decide matters properly referred to adjudication is ordinarily a breach of natural justice and/or a failure to exhaust jurisdiction. Moreover, such a question only arises once an adjudicator has assessed the evidence and determined that the burden of proof has not been satisfied. A decision taken at that point not to make any decision, as opposed to a decision to reject the claim, may be open to suggestions of bias or arbitrariness. Whether such criticisms could be addressed by suitable drafting in a Notice of Adjudication which empowers an adjudicator not to make a decision in such circumstances remains to be seen.

One aspect of the Hitachi decision not explored by the Court was whether the context of an interim payment dispute makes any difference to the debate. On one view, an approach which allows under-proved claims to be re-visited in subsequent adjudications makes more sense for interim applications than for claims at the final account stage.

References:

Quietfield Limited v Vascroft Construction Limited [2007] BLR 67

Carillion Construction Ltd v Smith [2011] EWHC 2910 (TCC)

Hitachi Zosen Inova AG v John Sisk & Son Ltd [2019] EWHC 495 (TCC)

Engenda Group Ltd v Petroineos Manufacturing Scotland Ltd [2024] CSOH 36