Adjudication enforcement refused due to decision departing from submissions

A recent decision of the Scottish Court of Session has refused enforcement of an adjudicator’s decision which departed from submissions made by both parties to the adjudication in material respects not previously canvassed by the adjudicator. Since the failure to canvas had significant consequences in depriving the responding party of the opportunity to make an argument which could have provided a complete defence to the claim, there was a material breach of natural justice. Adjudicators are generally given significant latitude to adopt intermediate positions between those advocated by the parties and this decision therefore provides a rare example of an adjudicator going a step too far.

Van Oord UK Limited v Dragados UK Limited

Van Oord subcontracted with Dragados to carry out dredging and other works on the Aberdeen Harbour Expansion Project. The subcontract was an Option B NEC3 Engineering and Construction Subcontract (April 2013 edition) with bespoke amendments.

Van Oord commenced adjudication proceedings claiming, among other things, that it had been critically delayed, from 2 August 2019 onwards, in carrying out part of its works as a result of delays to piling works carried out by another subcontractor to Dragados. It relied on a compensation event notification issued on 20 September 2019 seeking an extension to the Subcontract Completion Date of 31 July 2019 and associated prolongation costs (“CE48”). Dragados argued that the causes of delay to Van Oord’s works lay with Van Oord.

There was no agreed baseline programme against which to assess critical delay. The parties’ respective delay experts took differing views as to which programme should be used as the baseline and reached different conclusions about where the critical path lay. In his decision, the adjudicator selected a programme which neither party had put forward – and which both experts had given reasons for rejecting - as the baseline programme. He concluded that delays to Dragados’s piling works had caused critical delay to Van Oord’s works and, as the apparent result of applying that conclusion to the analysis of Dragados’s delay expert (whose Windows analysis he preferred) that the critical date for CE48 was 31 July 2019, a date not put forward by Van Oord.

Dragados resisted enforcement on one ground only: that the adjudicator had breached the principles of natural justice by reaching his decision on a basis not canvassed with the parties. If Dragados had been aware that the adjudicator was considering adopting 31 July 2019 as the critical date for CE48, it would have been open to it to make an argument in terms of clause 61.3 of the Subcontract. Clause 61.3 requires the subcontractor to notify a compensation event within seven weeks of becoming aware of the event; since Van Oord notified the event on 20 September 2019, the date of 31 July 2019 fell two days outside this period. Since this issue was not canvassed, Dragados was deprived of an opportunity to make an argument that would have been a complete defence to Van Oord’s claim.

Van Oord argued that the adjudicator had taken an intermediate position between the cases advanced by the parties, which he was entitled to do, citing Miller Construction (UK) Limited v Building Design Partnership Ltd. It also contended that a time bar argument would not have been successful.

A “frolic of his own”

The enforcement proceedings came before the Scottish Court of Session which found in favour of Dragados and refused enforcement of the adjudicator’s decision. The Court noted that the line between an adjudicator making legitimate use of his or her experience in reaching a decision not contended for by the parties and embarking upon a “frolic of his own”, is a difficult one to draw. Having considered the relevant case law on the topic, the court concluded that:

“The common theme is 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 the 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”.

Focussing on whether the adjudicator could be said to have adopted an intermediate position, the court held that the case was very different to that of Miller, where the adjudicator had been held to have decided the issue put to him. Here, by not giving the parties the opportunity to comment on his selection of both a programme advanced by neither party and an earlier commencement date for the crucial compensation event, the adjudicator’s actions were in a “different sphere” to those of the adjudicator in Miller and “afforded the opportunity for injustice to be done”.

The court also accepted Dragados’ position that it did not need to show that the time bar defence would have succeeded, only that the choice of a critical date not advanced by Van Oord was a material issue on which the parties should have been given an opportunity to comment, and which could have altered the outcome.

Conclusions and implications

Success in resisting enforcement of an adjudicator’s decision is rare, since adjudicators have considerable leeway in decision-making given the rough and ready nature of the process. However, it is clear from this decision that where an adjudicator is minded to depart in a significant respect from the cases advanced, and in particular where this would result in expanding the scope of the claim made beyond that advanced by the referring party, an opportunity should be given to the parties to address the issue. The adjudicator otherwise risks crossing the line between making legitimate use of his or her experience in reaching a decision not contended for by the parties on the one hand and unfairly taking a novel approach on the other.

The materiality of the issue in question is – as always – key. Here, the loss of the opportunity to make an argument which could have provided a complete defence to the relevant aspect of the claim if accepted, was clearly determinative in taking the decision over the line. It was not necessary for it to be shown that the time bar argument would ultimately have been successful; the opportunity for injustice was created when the adjudicator proceeded without canvassing the parties, and this was fatal to the decision.

* CMS acted for the successful party in this case.

References:

Miller Construction (UK) Limited v Building Design Partnership Ltd [2014] CSOH 80

Van Oord UK Limited v Dragados UK Limited [2022] CSOH 30