BAL (1996) Ltd. v Taylor Woodrow Construction Ltd [2004] HT 03 337

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His Honour Judge Wilcox, Technology and Construction Court

In determining whether the procedure adopted by an adjudicator is consistent with the principles of natural justice, a court can have regard to the acquiescence to the procedure of the parties by omission or conduct.  However, in order to maintain confidence in the adjudication system, acquiescence will only be relevant to the issue of a breach of natural justice if it is "clear, informed and unambiguous."  

23 January 2004

The claim arose out of a project for remedial works to Nationwide Anglia Property Services Limited, Corporate Headquarters. The claimant ("BAL") and the defendant ("Taylor Woodrow"), respectively sub-contractor and contractor, entered into a sub-contract on the basis of a letter of intent which incorporated an adjudication procedure compliant with the requirements of the Housing Grants Construction and Re-Generation Act 1996.  Disputes arose as to what sums were due to BAL for the sub-contract works carried out to date and their proper valuation.  The letter of intent provided for a cap on payment for completed works and Taylor Woodrow refused to pay more than the capped sum without further justification than that which BAL had given. BAL referred the matter to adjudication.

The Adjudicator requested written representations from both parties on the issue of the cap and alerted them to the possibility that he might require his own legal advice in order to decide the issue and asked for the parties' consent in the event that this was necessary. The written submissions were provided, BAL gave their consent to the Adjudicator's recourse to legal advice and Taylor Woodrow did not object.  The Adjudicator obtained its own legal advice but the parties were not advised when the meetings with the lawyers were to take place, what material the Adjudicator intended to provide the lawyers with or whether their advice would be in writing.

The Adjudicator found in favour of BAL without disclosing the advice he had received to either party.  Taylor Woodrow refused to honour the adjudicator's award and BAL applied for summary judgment to enforce it. Taylor Woodrow contended that summary judgment should not be granted on the basis that the Adjudicator lacked jurisdiction on the grounds that he breached the principles of natural justice; he came to a conclusion on a material question of law after receiving legal advice from third parties without disclosing the advice he had received or the facts and matters comprising his instructions.

In response, BAL argued that the Adjudicator's procedure was transparent and fair on the grounds that he had received submissions from both parties on the cap issue; he had alerted them to the fact that he might seek legal advice on the cap issue and submissions, and neither party asked the Adjudicator to disclose his instructions or advice prior to, or after, he had sought advice.  Further BAL contended that the parties had acquiesced to the Adjudicator's proposed procedures by not taking advantage of the opportunity to object to them. 

Judge Wilcox, finding in favour of Taylor Woodrow and thereby refusing BAL's application for summary judgment, ruled that there was a strong arguable case that there had been a breach of the principles of natural justice.  Judge Wilcox considered RSL Southwest Limited v Stansell [2003], in which Judge Seymour refused the claimant's application for summary judgment on the basis that neither party had been given the opportunity to consider the contents of a specialist's final report, and found it 'significant' that the principal ground for that decision was the Adjudicator's obligation to give the parties an opportunity to comment upon any new material, and the general principles of natural justice, and not the defendant's request to comment on the report.

-  Judge Wilcox found that, with regard to procedural fairness, the duty to disclose the relevant third party advice lies with the adjudicator and therefore Taylor Woodrow's failure to ask the adjudicator to disclose his instructions and advice could not be characterised as a waiver.

-  Turning to the acquiescence argument, Judge Wilcox applied Costain Limited v Stathclyde Builders Ltd [2003] and took the view that the role of natural justice was of the utmost importance and could only be derogated from where the procedure proposed by the Adjudicator was clearly accepted as fair, whether expressly or by implication.  Further, an undue burden would be placed on the parties' advisors if too much emphasis was placed on a failure to object to a proposed procedure, especially given that the significance of a proposed procedure might not be immediately apparent. (Try Construction Limited v Eaton Town House Group [2003], where a similar approach was adopted was also considered).  The judge held that there was no relevant acquiescence by omission or conduct and therefore the conclusion was that the procedure followed was not fair and in breach of the principles of natural justice: that acquiescence would have to be "clear, informed and unambiguous".

-  On the facts, a fair minded and informed observer would have concluded that there was a real possibility of unfairness. Judge Wilcox based his decision on the importance of maintaining confidence in the adjudication procedure in general and in relation to individual cases, and concluded that "adjudicators should clearly be seen to give parties a fair opportunity to present their arguments and deal with the material matters upon which an adjudicator may be basing his decision."

Judge Wilcox ruled that the whole of the adjudicator's award had been tainted by the jurisdictional challenge and therefore the award could not be reversed to award an interim payment relating only to that part of the adjudicator's award that fell within the cap. 

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