Arcadis UK Limited v May and Baker Limited (t/a Sanofi) [2013] EWHC 87

This summary was provided by CMS Cameron McKenna LLP.

For more information visit http://www.cms-cmck.com/Construction/Construction-Disputes

summary

(1) It is not improper for a party to an adjudication to refer a previous adjudicator’s decision to a later adjudicator or for the later adjudicator to consider it. (2) It may be a breach of the rules of natural justice for an adjudicator to decide a dispute on a basis that was not put forward by either party and without allowing the parties to comment. However, the fact that the adjudicator was persuaded that the correct answer lay between two figures put forward by the parties on an evidential basis and decided to split the difference down the middle could not be considered a breach of natural justice. (3) An adjudicator is not required to refer in his decision to every point raised by each party except in so far as it is necessary to do so to determine the dispute.

Technology and Construction Court, Mr Justice Akenhead

Background

By a contract dated 16 March 2011, May and Baker Limited, trading as Sanofi (“Sanofi”), engaged Arcadis UK Limited (“Arcadis”) to carry out remediation works at a site in Dagenham. The contract required Arcadis to remove concrete and tarmac and excavate up to 14,400m3 of landfill material for washing and chemical treatment. The form of contract was the NEC3 Engineering and Construction Contract June 2005.

In late 2011, it became apparent that work might be required to areas beyond the Northern and Southern boundaries of the site. In accordance with the terms of the contract, Arcadis provided a quotation for the work beyond the Northern boundary. The Project Manager appeared to have accepted that the work constituted a Compensation Event, certifying over £300,000 for the Northern Boundary Work. Arcadis also submitted quotations for the work beyond the Southern boundary and indicated that an extension of time would be required. The Project Manager issued an Instruction to proceed with the Southern Boundary Work but assessed the amount due as £326,877, in contrast to the quotation of £456,111 submitted by Arcadis. Arcadis submitted a revised quotation which was subsequently rejected.

On 27 January 2012, the Project Manager purported to withdraw the Instructions issued in respect of both the Northern and Southern Boundary Works. In October 2012, the Project Manager adjusted the payment certification by removing the amount that had previously been allowed for the Northern Boundary Works. No amount was ever certified in respect of the Southern Boundary Works.

On 18 August 2012, Arcadis served a Notice of Adjudication seeking resolution of a number of issues in respect of the Northern Boundary Works. In particular, the issues to be determined were:

  • Whether the Project Manager was entitled to reverse his decision that the work constituted a Compensation Event and/or his assessment of the effects of the Compensation Event; and
  • If the Project Manager was entitled to reverse his decision, whether the Northern Boundary Works did in fact constitute a Compensation Event.

In the event that the Adjudicator answered both questions in the affirmative, Arcadis also sought an assessment by the Adjudicator of the change to the prices and the completion date as a result of the Compensation Event.

The Adjudicator determined that the Project Manager was not entitled to reverse his decision after the Compensation Event had been implemented as defined in the contract. He found that the Northern Boundary Works did constitute a Compensation Event and awarded £98,111.54 plus interest to Arcadis.

On 23 October 2012, Arcadis served another Notice of Adjudication, this time in relation to the Southern Boundary Works. The issues to be determined were virtually identical to those in the Northern boundary adjudication. A different adjudicator (“the Second Adjudicator”) was appointed and Arcadis, as an appendix to its Referral Notice, provided the Adjudicator with a copy of the decision from the Northern boundary adjudication (“the First Decision”). Arcadis submitted that the Second Adjudicator was bound by the finding in the First Decision that the Project Manager could not reverse his assessment of the Compensation Event after it had been implemented.

The Second Adjudicator considered that if he found that the Southern Boundary Works had been properly implemented under the contract as a Compensation Event, then he was bound by the previous Adjudicator’s decision that the Project Manger was not entitled to withdraw his acceptance of that Compensation Event. He went on to find that the Southern Boundary Works Compensation Event had not been implemented in accordance with the Contract and that these works were a Compensation Event in respect of which Arcadis were entitled to an extension of time of 29 days and an increase in the Prices of £480,231.44 together with interest of £15,324.81. Sanofi failed to honour the decision and Arcadis issued proceedings to enforce it.

Issue

The Court was asked to address the following questions:

  • Did the Second Adjudicator take an erroneously restrictive view of his own jurisdiction by deciding that he was bound by the First Decision?
  • Was the Second Adjudicator’s decision invalid on the grounds of apparent bias as a result of being put in the position where he had to have regard to the First Decision?
  • Did the Second Adjudicator breach the rules of natural justice by:

(a)                deciding the issue of quantum on a basis that had not been put forward by either side without giving the parties an opportunity to comment?

(b)                failing to consider Sanofi’s defence on delay?

Decision

The Court held that:

  • It was neither improper nor contrary to the rules of natural justice for the First Decision to have been put before the Second Adjudicator. Adjudicators must be trusted in general to reach honest and intelligible views as to the extent to which such earlier decisions are relevant or helpful.
  • It was clear from the Second Adjudicator’s decision that he did not consider himself bound by the First Decision. The Second Adjudicator had specifically stated that he would only consider himself bound by the First Decision if he found that the Southern Boundary Work had been properly implemented as a Compensation Event under the contract (as had been found in the First Decision in respect of the Northern Boundary Work). He later found that the Southern Boundary Work had not been properly implemented and so he was not bound.
  • The question to be asked when considering whether an adjudicator’s decision is invalid on the grounds of apparent bias is whether a “fair-minded and informed observer, having considered all the circumstances in this case, would conclude that there was no real possibility that he was biased as a result.” It was not improper for the Second Adjudicator to have regard to the First Decision. Generally it would be wrong of an adjudicator to ignore any material put before him unless for example the material was genuinely “without prejudice”. The decision of a previous adjudicator did not fall within this exceptional type of category. Any fair-minded and informed observer, having considered all the circumstances in this case, would conclude that there was no real possibility that the Second Adjudicator was biased as a result of his consideration of the First Decision.
  • There may be a breach of the rules of natural justice where an adjudicator decides a case on a factual or legal basis that was not argued by either party, without giving the parties an opportunity to comment. However, the Second Adjudicator had not “gone off on a frolic of his own” in respect of the issue of quantum. Faced with a fundamental difference in the approaches taken by the parties, the Second Adjudicator preferred the forecast approach taken by Arcadis. The fact that he was then persuaded that the correct answer lay between the two adjusted forecast figures put forward by the parties and decided to split the difference down the middle could not be considered a breach of natural justice.
  • An adjudicator is not required to address each and every point and piece of evidence raised by a party unless, and then only to the extent that, it is necessary to do so to resolve the dispute. In the circumstances, it could not be said that the Second Adjudicator had failed to consider Sanofi’s defence. The Second Adjudicator had taken the view that the Southern Boundary Work was on the critical path and had taken 29 days to carry out. It was therefore not necessary to make specific findings as to the details of the culpable delay points raised by Sanofi.
  • The Second Adjudicator had not acted with bias or breached the rules of natural justice in any respect. Summary judgment was given for Arcadis in the full amount claimed.

This summary was provided by CMS Cameron McKenna LLP.

For more information visit http://www.cms-cmck.com/Construction/Construction-Disputes

 

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