HGCR Act 1996 - Conduct of Adjudication Proceedings

© Daniel Atkinson 2001 02 October 2001

Practice Note

The Rules of Natural Justice do not apply strictly, but

1   Each party should receive all information – whether law or fact - submitted to or obtained by the Adjudicator

2   Parties should be given the opportunity to make submissions on all issues of fact and law on which the Adjudicator relies for his decision

3   A hearing is not necessarily required

The Referring Party must present a full case, openly and honestly

The Adjudicator is required

1   To be independent of the parties

2   To be impartial in his dealings with the parties

3   To avoid being manifestly unreasonable

4   To act in good faith

5   To give reasons for his decision unless the parties agree otherwise after referral of the dispute

1. Attacks on the Adjudication Process

Attacks on adjudication as inherently contrary to the Human Rights Act have failed. It is now clear however that an Adjudicator must be fair and adopt the rules of natural justice in the conduct of the adjudication proceedings, so far as the restrictions of the timescale of adjudication allow otherwise the decision will not be enforced. The parties also have a duty in the adjudication proceedings.

2. Substantive Challenge to Adjudication Itself

Two decided cases have examined whether Adjudication itself is contrary to the Human Rights Act. By far the most important and well considered is Austin Hall which is also authority that the rules of natural justice apply.

Case 1:  In Elanay Contracts Limited ––v- The Vestry (2000) TCC it was held that if Article 6 of the Eurpoean Convention on Human Rights did apply to proceedings before an adjudicator, a coach and horses would be driven through the whole of the Housing Grants Construction & Regeneration Act.

It was held that Article 6 of the European Convention on Human Rights did not apply to an adjudicator’s award or to proceedings before an adjudicator and that is because, although they are the decision or determination of a question of civil right, they are not in any sense a final determination. The determination is itself provisional in the sense that the matter can be reopened.

In those circumstances, therefore, it was held that the fact that the procedure before the adjudicator was very much a rough and ready procedure it could not of itself be regarded as a reason for not ordering summary judgment.

Case 2:  In Austin Hall Building Limited v Buckland Securities Limited (April 2001) TCC His Honour Judge Bowsher QC held that assuming that the Convention applies to an adjudicator’s function, enforcement of his decision cannot be defeated based solely on the timescale of the process, if the adjudicator has in fact followed the timescales of the 1996 Act.

Judge Bowsher also held that adjudication was not a legal procedure. Litigation resulted in a judgment which could be enforced directly. Arbitration proceedings were close to litigation resulting in an award which could in some circumstances be registered and enforced without a judgment of the court. The decision of an adjudicator was different. It was like the decision of a certifier. The adjudicator’s decision, like the decisions of a certifier, could be relied on as the basis for an application to the court for judgment, but they were not in themselves enforceable. The proceedings before an adjudicator were not legal proceedings but a process designed to avoid the need for legal proceedings. An adjudicator exercising functions of the sort required by the 1996 Act was not therefore acting as a public authority.

Even if the adjudicator was a public authority for the purposes of the Human Rights Act the whole process necessary to enforce his decision had to be examined, not just his decision taken alone. The whole process included the court proceedings necessary to enforce the decision. On that basis there was the necessary public hearing before the decision is enforced (if enforcement was necessary) and all the other requirements of Article 6 were satisfied.  Accordingly, the lack of publicity in the adjudication process could not defeat enforcement.

The problem of "ambush" was seen as one of real concern, but there was no evidence of "ambush" in this case. Buckland had ample opportunity to make its own assessment of the Final Account before commencement of adjudication.

Judge Bowsher then turned to the issue of natural justice. Judge Bowsher considered that in practice, adjudications are governed by rules of natural justice that are not very far different from Article 6 of the Convention except for the requirement of a public hearing and public pronouncement of the decision. The time limits were also subject to the rules of natural justice, but there was no question of an Act of Parliament being attacked in the courts as being in breach of the rules of natural justice. The adjudicator was constrained by Act of Parliament to impose the time limits that he did, so he could not be criticised for breaching the rules of natural justice. Judge Bowsher agreed with the statement of His Honour Judge Humphrey Lloyd Q.C. in Glencot Development and Design Co. Ltd. v. Ben Barrett & Son (Contractors) Limited Unreported 13 February, 2001 that, 

"It is accepted that the adjudicator has to conduct the proceedings in accordance with the rules of natural justice or as fairly as the limitations imposed by Parliament permit".

For all those reasons, Judge Bowsher held that the decision of the adjudicator should be enforced by summary judgment.

3. Procedural Challenge to a specific Adjudication

Three cases show the approach the Courts now take to the issue of natural justice in Ajudication.

Case 1:  In Woods Hardwick Ltd v Chiltern Air Conditioning (2000) TCC the Scheme applied and in particular paragraph 17 which required the adjudicator to consider any relevant information submitted to him by any of the parties to the dispute and to make available to them any information to be taken into account in reaching his decision.

It was held that the Adjudicator was in clear breach of the statutory requirements.

It was held that there was no rule preventing an adjudicator giving evidence in a witness statement at the request of, and in support of, one party's case against the other in subsequent enforcement proceedings.

The adjudicator should scrupulously ensure that his evidence was confined to a neutral factual account of what transpired in the adjudication. In this case the adjudicator exceeded the requirement of neutrality. He showed that he had taken strongly against Chiltern at an early stage in the process. secondly he sought to argue the case of Woods Hardwick in his witness statement.

Judge Thornton decided he did not need to decide what effect a failure to comply with the basic principles of natural justice would have on the enforcement of an adjudicator's award, in view of the failure to afford Chiltern the opportunity to consider and comment on the additional information obtained by the adjudicator.

It was held that the adjudication was conducted in breach of the provisions of the Scheme. The adjudicator failed to make available additional information and obtained legal advice without notifying the parties of his intention of taking advice. He also submitted a witness statement in terms which left Chiltern with the impression, which objectively it could reasonably hold, that he was not impartial.

It was held that no party is entitled to expect an oral hearing, but the adjudicator must not make up his mind to shut out further comments from a party, merely because he believes that any comment he receives on newly acquired and material information from other sources will not affect his view as to that party's position. The basic statutory requirements of fairness are to be complied with.

It was held that the adjudicator, in order to make a valid and enforceable decision, must act in conformity with the rules of the Scheme. There will be occasions when an adjudicator's departure from these rules is insignificant and not such as to preclude enforcement. Where the departures are significant, the decision is one taken outside the framework of the Scheme and is not one which a court will ordinarily enforce. The application for summary judgment was dismissed.

Case 2:  In Karl Construction (Scotland) Ltd v Sweeney Civil Engineering (Scotland) Ltd (2000) Crt of Session the Adjudicator decided that the Sub-Contract terms and conditions do not make adequate provision for time of payment as required by section 110 of the 1996 Act and accordingly the adjudicator decided the Scheme applied. Karl Construction argued that the compliance of the Sub-Contract with the 1996 Act was never an issue referred to adjudication. 

The essence of Karl Construction’s case was that the Adjudicator’s decision was not confined to the contentions advanced by the parties, but based on an issue not referred to adjudication. The express contentions advanced by the parties in the adjudication procedure contained competing views of the construction and applicability of the payment provisions for interim payments which are contained in the Sub-Contract. It was held that the adjudicator therefore was required to give consideration to the relevant provisions of the Sub-Contract to see what was to be made of them. The adjudicator rightly or wrongly concluded that the Sub-Contract did not provide an adequate mechanism for deciding when instalment monthly payments become due. In the circumstances the adjudicator's position seems to be that in order to answer the central issue in the referral it was necessary to make a finding explaining why one or other of the paths suggested by the parties was not followed. It was held that such a finding would be an integral part of the decision on the reference.

Prima facie when a case is decided even provisionally, on a point which the parties may have had no opportunity to address, the Court is left feeling uncomfortable. 

Lord Caplan rejected the challenge on the adjudicator’s jurisdiction.

It is clear that adjudicators should attempt at an early stage to identify the legal issues to be resolved. It makes good practical sense for the adjudicator to invite submissions of law so as to avoid mistakes of law and to avoid the feelings of unfairness when a decision is made on a legal basis which has not been argued by the parties. The decision of Lord Caplan is consistent with other decisions in avoiding the attempt to categorise mistakes, whether of fact law or procedure, as actions in excess of jurisdiction. It is suggested however that the decision is not clear authority allowing the adjudicator to decide questions of law which are not disputed and which the parties have not had an opportunity to argue.

Case 3:  In Discain Project Services v Opecprime Development Limited (2000) TCC it was held that because there is no appeal on fact or law from the Adjudicator's decision, it is all the more important that the manner in which he reaches his decision should be beyond reproach. At the same time, one has to recognise that the Adjudicator is working under pressures of time and circumstance which make it extremely difficult to comply with the rules of natural justice in the manner of a Court or an arbitrator. Although repugnant to the Court’s approach to judicial decision making, it was held that the system created by the Housing Grants Construction and Regeneration Act could only be made to work in practice if some breaches of the rules of natural justice which had no demonstrable consequence are disregarded.

In this case, if the rules of natural justice had been complied with, the Adjudicator might have reached a different decision. If he had reached his decision, different or not, after complying with the rules of natural justice, it would have been enforced. Since the Adjudicator did not comply with the rules of natural justice, and since compliance with those rules might have produced a different decision on his part, the decision was not enforced.

4. Conduct of the Parties

In Shepherd Construction Limited v Mecright Limited (2000) TCC  the referral notice stated only that no payment notice was received in relation to an application. Nothing was said about the circumstances leading to the payment as a result of a settlement agreement.

In its response Shepherd pointed out that there had been the agreement whereby the disputes had been settled. Mecright wrote to the adjudicator in which it was maintained for the first time that the agreement reached had been under duress, namely that Shepherd had taken advantage of Mecrights straightened financial circumstances by compelling it to take effectively what it was being offered. This submission was quite long.

His Honour Judge Lloyd QC stated that it appeared that the request for adjudication was lacking in candor and was misleading as to what was in reality Mecright’’s real complaint, a dispute which had not apparently existed at the date of the request for adjudication. This manoeuvre, as well as the casual approach to the preparation of the main witness statement, called into question the way in which a party such as Mecright was being served.

It was held that if the purpose of adjudication was to provide a swift and summary decision about matters in dispute, then a party seeking adjudication would be expected to present its case in full, not to hold anything back and to be open and honest in its presentation. This was all the more so, if there was no provision for a statement in reply.

It was held that any disputes that existed had been extinguished by the settlement agreement, and no new dispute had arisen thereafter, and certainly not the dispute that was the subject of purported notice of referral. The settlement agreement plainly bound both parties. Mecright had no right to seek adjudication and acted in breach of the subcontract in doing so.

It was held that it was wrong of Mecright to seek adjudication until it had established that the settlement agreement was not only voidable but was of no effect.