Costain Limited v Strathclyde Builders Limited [2003] ScotCS 316

This summary was provided by CMS Cameron McKenna LLP.

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An adjudicator's failure to disclose the substance of legal advice given to him and to give the parties an opportunity to comment thereon amounted to a breach of the principles of natural justice.  In such circumstances it does not matter that the adjudicator has treated both parties equally.  It is sufficient to prevent enforcement of the decision by the Courts that the mere possibility of injustice is shown rather than actual injustice.

Court of Session (Scotland). Lord Drummond-Young

17 December 2003

In this Scottish decision the question of natural justice in the context of adjudication proceedings has again come under the spotlight. 

Costain took Strathclyde Builders to adjudication and sought, amongst other things, an order that Strathclyde Builders should pay to them various amounts withheld by way of liquidated damages.  The adjudicator found in favour of Costain and ordered payment as requested.  Strathclyde Builders failed to make payment as ordered so Costain raised Court proceedings to enforce the adjudicator's decision.  The defence to those proceedings put forward by Strathclyde Builders was that the adjudicator's decision should not be enforced as it had been vitiated by a breach of the principles of natural justice.

The facts giving rise to this defence were as follows:

  • Three days before the adjudicator was due (under the parties' contractual adjudication clause) to issue his decision he wrote to both parties asking Costain to grant an extension of four days to the time within which he was required to reach his decision.
  • He explained that he sought the extension because he wished "to discuss one point in particular with [his] appointed legal adviser".
  • Under the parties' contract Costain – as the referring party - was entitled to grant such an extension and duly did so.  The adjudicator then issued his decision within the extended time limit.
  • The result of the adjudicator's discussions with his legal adviser was not made known to either of the parties.  Neither party was told of the terms of the discussion, which had taken place between the adjudicator and his legal adviser.  Neither party made any request to be told the terms of the discussion or the result of it.  Neither party was invited by the adjudicator to comment or make submissions on the advice tendered by the legal adviser and neither party requested an opportunity to do so.

In these circumstances, argued Strathclyde Builders, the advice given to the adjudicator was material to which the adjudicator was minded to attribute, and would probably have attributed, significance in reaching his decision.  Consequently the adjudicator's failure to disclose the substance of the legal advice given to him and to invite comments or submissions thereon prior to arriving at his decision was a breach of the principles of natural justice.  It was possible the decision might have been influenced by advice that was erroneous, incomplete, irrelevant or otherwise exceptionable, but which the parties had no opportunity to counter or correct.

The Court accepted this argument and found there had been a breach of the principles of natural justice in this case.  Furthermore, it was not necessary that actual injustice be shown before the Courts, as a matter of law, would refuse to enforce an adjudicator's award where a breach of the principles of natural justice was alleged.  It was sufficient that there was the mere possibility of injustice.  In this case advice had been sought by the adjudicator and had been given to him.  No one knew whether the point under discussion was important or not.  It could have been crucial.  On that basis, the possibility of injustice could not be excluded.  The judge agreed with the observations of Judge Bowsher QC in Discain that:

"…an unsuccessful party in a case of this sort must do more than merely assert a breach of the rules of natural justice to defeat the claim.  Any breach proved must be substantial and relevant".

Nevertheless, in the absence of knowledge about what had been discussed between the adjudicator and his legal adviser, it was impossible to know whether the breach of the principles of natural justice was substantial and relevant.  Consequently enforcement would be refused.

This decision largely follows the approach of the English courts in the cases of Balfour Beatty Construction Ltd v London Borough of Lambeth [2002] BLR 288, Try Construction Ltd v Eton Town House Group Ltd [2003] BLR 286 and RSL (South West) Ltd v Stansell Ltd [2003] EWCH 1390.  As well as ensuring that input by programming specialists (Try and RSL) is properly put to the parties, adjudicators must ensure that the parties have an opportunity to comment on input from legal advisers, or indeed any other source.

An adjudicator's failure to disclose the substance of legal advice given to him and to give the parties an opportunity to comment thereon amounted to a breach of the principles of natural justice.  In such circumstances it does not matter that the adjudicator has treated both parties equally.  It is sufficient to prevent enforcement of the decision by the Courts that the mere possibility of injustice is shown rather than actual injustice.

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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