Adjudication comes home to roost for the professional team

The fears of Professional Indemnity Insurers that adjudication would hasten some sort of Armageddon never really came to pass. Most adjudications have been Employer/Contractor or Contractor/Sub-contractor disputes, with the professional team either acting for the Employer or merely watching from afar. And in the time since 1st May 1998, Insurers have begun to relax; adjudication was not going to be an affliction they would have to bear. The decision of the Scottish Court of Session in Gillies Ramsay Diamond v PJW Enterprise Ltd (unreported) should serve to reawaken their interest and rekindle their early fears. Inevitably, too, it will also focus the attention of the Employer and Contractors on the PI policies of their professional team.

The facts

In the Gillies Ramsay Diamond case, the Employer (PJW) instructed a firm of surveyors (Diamond) to act as contract administrator during extension and refurbishment works carried out by a contractor. Their appointment did not contain an adjudication clause. However both the adjudicator and Lady Paton (on the subsequent hearing of the judicial review application in the Court of Session) held that the contract for professional services between PJW and Diamond was a construction contract, thereby automatically implying the statutory adjudication scheme.

The adjudicator found that the Employer had suffered loss due to a breach of the usual implied term of the contract; Diamond had not exercised the degree of skill and care to be expected of an ordinarily competent surveyor. He proceeded to award damages to the Employer on the basis that:

• the Employer had suffered loss
• the contract was clearly a construction contract
• the adjudicator had authority to make an award for damages under the Housing Grants, Construction and Regeneration Act 1996, and
• n their failure to issue appropriate instructions, Diamond had failed to exercise the degree of skill and care to be expected of an ordinarily competent surveyor. From the evidence placed before him and on reading the contract, the adjudicator believed Diamond were not correct in granting an extension of time (EoT) to the contractor after practical completion had been achieved.

Diamond sought judicial review of the adjudicator’s decision arguing that:

• it was not a construction contract
• the statutory scheme did not allow the adjudicator to make an award of “damages (as distinct from contractual entitlement)
• the adjudicator failed to take account of material submissions, and
• the adjudicator failed to give intelligible reasons for rejecting Diamond’s submissions.

When addressing the third and fourth petitions, the Court looked at several points, including the ability of the adjudicator to form a view as to professional negligence, and the underlying reasons for his decision. Although the Court found that an adjudicator would be entitled to reach conclusions regarding the manner in which a professional has carried out his/her duties, this process should still be subject to the Hunter v Hanley [1955 SLT 213] test which confirmed that in order to find professional negligence, the following tests had to be satisfied:

• it must be proved that there is a usual and normal practice
• it must be proved that the defender has not adopted that practice, and
• (and this is of crucial importance), it must be established that the course the defending professional adopted is one which no professional of ordinary skill would have taken if he had been acting with ordinary care – without all three, the claimant’s case will fail.

The Court went on to find that the adjudicator had failed to disclose adequate reasons for his finding of professional negligence. The Court felt that, to have found Diamond professionally negligent, it should have to be established, inter alia, that no ordinarily competent surveyor exercising reasonable skill and care, would, in those circumstances, have done what Diamond did. The Court indicated that the adjudicator should clearly indicate how he thought that the component parts of the Hunter v Hanley test had been satisfied. And yet, despite these failings by the adjudicator, the errors were within the adjudicator’s jurisdiction and, so, the Court could not overturn the adjudicator’s finding. Therefore, whilst not agreeing with the process by which the adjudicator appeared to have found professional negligence (due to the lack of adequate reasoning), the Court was unable to ensure the correct tests were applied; the adjudicator’s decision therefore stood.

Adjudicators are often chosen for their experience within the profession to which the dispute relates. The Adjudicator in Gillies Ramsay was himself a surveyor. Although this has many advantages, there are two difficulties:

• the adjudicator is not necessarily familiar with legal practices and procedures (sometimes a benefit) and
• the adjudicator may have a strong personal feeling as to how he/she would have acted, if he/she were in the position of the defending professional. Inevitably, this may influence the adjudicator’s perception of the standard of reasonable skill and care the defending professional should satisfy.

The “Sansom principle

To avoid this, it is crucial that the defendant professional cites, amongst others, the 1997 Court of Appeal decision in Sansom & Anor v Metcalf Hambleton & Co which clearly states that, in order to find professional negligence, the evidence of an independent expert from the same profession as the defending professional, should be available to the tribunal to establish that the defendant fell below the standard of reasonable skill and care for that particular profession. Without the evidence of such an expert, in all but the most obvious of cases, the adjudicator should, by reference to the Sansom case, find that the claimant has not discharged the burden of showing the defendant has fallen short of the requisite standard.

The inability of courts to intervene with an Adjudicator’s decision where, although wrong, it has been made in good faith and is within the Adjudicator’s jurisdiction (leaving only litigation and arbitration as a means of overturning the adjudicator’s finding) serves to reinforce the need to ensure that it is the adjudicator who is made aware of the prerequisite that evidence from an independent expert of the same profession/discipline as the defendant, is cited as evidence to the effect that the defendant has fallen below the standard to be expected of the ordinarily competent member of that profession.

As the decision in Gillies Ramsay shows, the “Sansom principle must be deployed in the adjudication if it is to protect the professional: if left until enforcement proceedings, it will be too late.

For further information please contact Monica Lesny at [email protected] or on +44 (0)20 7367 2873.