In Van Oord UK Ltd v Dragados UK Ltd [2022] CSOH 30, Scotland’s Outer House, Court of Session held that the adjudicator in a construction dispute had reached his decision on a basis not canvassed with the parties. There was, therefore, a material breach of the principles of natural justice, such that the decision could not stand.
Background
The parties entered into a sub-contract under which Van Oord was to provide the dredging of silts, sands, gravel and glacial till for a project, on which Dragados (the dredger) was the main contractor.
Dragados gave Van Oord notice of termination of the sub-contract and various disputes arose following the termination. Seven adjudications had taken place and in the sixth adjudication, Van Oord claimed it was entitled to an extension of time (EOT) and prolongation costs in respect of compensation events (including CEN 048 – Delayed Access to Open Quay Work). Van Oord also claimed method-related charges, and that it was entitled to equipment costs for various weather events (weather compensation events).
Adjudicator’s decision
The adjudicator issued a decision in Van Oord’s favour, awarding it an EOT and prolongation costs and also the weather compensation events and method-related charges. In arriving at his decision, the adjudicator had selected as a baseline, a programme which not only was not contended for by either expert, but which both experts had given reasons for rejecting. He made an award to Van Oord based upon a critical date – 31 July 2019 – which was two days earlier than the date of 2 August 2019 proposed by Van Oord for CEN 048. Neither the date of 31 July 2019, nor the consequences of selecting it as the critical date, was canvassed with the parties.
The issue before the court was whether the adjudicator’s decision in respect of CEN 048 was enforceable, or whether it was vitiated by a breach of natural justice. Dragados’s case was that the adjudicator was not entitled to adopt the course he had taken without first intimating to the parties an indication of what he contemplated, giving them an opportunity to address him further. Had he done so, it said, it would have raised a time-bar argument.
The Law
The court referred to the underlying principles applicable to enforcement of adjudicator decisions, namely:
- As a starting point, the courts will in general, summarily enforce an adjudicator’s decision.
- Challenges to an adjudicator’s decision on the ground of natural justice were likely to succeed only in the plainest of cases.
- Nonetheless, where an adjudicator is found to have acted contrary to the interests of natural justice, enforcement will be refused.
The court referred to the application of principles of natural justice to the adjudication process as follows:
- Each party must be given a fair opportunity to present its case.
- If the adjudicator makes investigations and inquiries of his own, or proposes to use his own knowledge and experience to advance significant propositions of fact or law which have not been canvassed by the parties, it will normally be appropriate to canvas those propositions with the parties before a decision is made.
- The adjudicator should not decide a point on a factual or legal basis that has not been argued or put forward before him.
- However, an adjudicator can reach a decision on a point of importance on the material before him on a basis for which neither party has contended, provided that the parties were aware of the relevant material and that the issues to which it gave rise had been fairly canvassed.
- For a breach of natural justice to vitiate a decision, it must be a material breach. A breach is likely to be material where the adjudicator has failed to bring to the parties’ attention, a point or issue which they ought to have been given the opportunity to comment on, if it is one which is either decisive or of considerable potential importance to the outcome of the resolution of the dispute. The question is whether, in deciding the case, the adjudicator went off on a frolic of his own.
- An adjudicator is afforded considerable leeway and is entitled to adopt an intermediate position not contended for by either party, without giving notice of his intention to do so.
The court said that in applying these principles and asking whether there has been a breach of natural justice, the test is not whether an unjust result has been reached, but rather whether there was an opportunity afforded for injustice to be done. If there was such an opportunity, the decision cannot stand.
Court’s decision
The court said that the line between an adjudicator going off on a frolic of his own, on the one hand, and, on the other, making legitimate use of his experience to analyse material which has been lodged and commented on by parties before reaching a decision not contended for by either party, is not always an easy one to draw, particularly when it is remembered that an adjudication decision reached by an adjudicator who has embarked upon the latter exercise will be enforced by the courts even if wrong.
The court said that the common theme running through the above principles was that the procedure adopted by the adjudicator must be fair. That is the acid test: where an adjudicator has departed from the four corners of the submissions made by parties, was it fair not to seek further submissions? If the issues have been fairly canvassed, or if the adjudicator has simply adopted an intermediate position, fairness will not require that the parties be given an opportunity to make further submissions. Conversely, if the adjudicator proposes a novel approach on a significant issue, which has not been canvassed, fairness will point in the opposite direction.
The court said that the adoption of a critical date which was not only different from, but earlier than, that argued for by Van Oord, took the case into a different sphere. Accordingly, it could not be truly said in the circumstances, that the adjudicator had adopted an intermediate course. Having decided that it was the appropriate baseline (something which could not have been foreseen by the parties), and having formed the view that the critical date was earlier than that contended for by Van Oord, fairness demanded that he give the parties a further opportunity to address him on those issues. This was underlined by the fact, the court said, that the adjudicator did not address the time bar argument which was advanced, in a slightly different context, by Dragados. It could not be known whether he simply overlooked that argument, overlooked the significance of finding that the critical event arose more than 7 weeks before the date of CEN 048 or considered, and rejected, the argument.
The court added that one reason for giving parties an opportunity to comment on novel matters not canvassed by them is so that they might point out any unforeseen problems in the proposed approach. Submissions by Dragados might have had the effect of causing the adjudicator to depart from his approach, either by selecting a different critical date or by dismissing the entire claim; or he may have carried on with his proposed course of action regardless. Dragados was not required to show that the time bar argument would have succeeded, but simply that it was deprived of the opportunity of making it. In these circumstances, the adjudicator had not given the parties a fair opportunity to comment on his proposed adoption of the March 2019 programme as the baseline, and the consequences he considered that had for the critical date – an opportunity was afforded for injustice to be done. The decision in relation to CEN 048 was therefore vitiated by a breach of the principles of natural justice, and could not stand.
Comments
Adjudication has to be done within a tight timetable. Many adjudicators who may not be lawyers experienced in dispute resolution may face various problems when adjudication is still new to Hong Kong. This case provides useful guidance to adjudicators on the correct approach to be adopted when he/she does not follow the case of either party in reaching his/her decision, which adjudicators may face from time to time.
For further information, please contact:
Justin Yuen, Partner, Deacons
justin.yuen@deacons.com
