Off on a frolic? Reining in adjudicators

Under the Housing Grants, Construction and Regeneration Act 1996 (as amended), an adjudicator is to be required “to act impartially”. This would seem an easy enough task, but is it? When an adjudicator makes an award, it is for the “losing” party to pay up and argue later. More frequently, the “losing” party refuses to pay and parties head off to court to deal with enforcement proceedings.

The courts' position on enforcement of adjudicators' awards is very clear. They will only intervene if an adjudicator has breached their jurisdiction or the rules of natural justice. If the adjudicator simply gets it wrong, the courts are not interested: the “losing” party has to pay up and argue the matter in a different forum by way of litigation or arbitration.

Within remit...

In the reported decision of Miller Construction (UK) Ltd v Building Design Partnership [2014] CSOH 80, Miller was appointed as the design and build contractor for a new facility at Motherwell College in Scotland. BDP was the lead consultant and architect for the project and its services included acoustic and building services engineering. After completion of the project, it was discovered that the ventilation system did not comply with the contractual requirements and a new system had to be installed.

Miller commenced an adjudication to recover the cost of the ventilation system from BDP. The adjudicator found that BDP was not involved in the actual selection of the ventilation units, but that that both Miller and BDP were involved in the process of managing the installation. The adjudicator found that as both parties shared responsibility, they should be liable on a 50-50 basis.

The broad issue before the adjudicator was whether BDP took responsibility for the design of the ventilation system which failed. This was supported by the exact wording used in Miller’s notice of adjudication: Miller alleged that BDP was in breach of contract, “and further in any event” failed to meet the standard of skill and care required of a competent M&E engineer by providing a defective design. It was held that the decision was within the adjudicator’s remit. To succeed, Miller did not have to prove negligence.

... but natural justice applies

However in the unreported case of Sim Building Group Ltd v (1) The Right Reverend Bishop Joseph Toal; (2) The Right Reverend Thomas O’Hare; and (3) The Right Reverend Thomas Canon Millar, in their joint capacity as Trustees for the Diocese of Motherwell, together as proprietors of St Mary’s Roman Catholic Church (July 2014), the court took a different view.

In this case Sim raised an adjudication against St Mary’s for payment under a building contract and sought redress for the net amount Sim claimed was due to be paid to it, or such other sum as to the adjudicator should seem proper. The adjudicator made an order of a few hundred pounds as the net amount due to be paid to Sim, and also released the retention sums. There was no redress in the adjudication for the release of the retention sums, the adjudicator did not seek the parties' views during the adjudication as to whether retention was payable, and Sim in its calculation of the net sum due had expressly excluded the retention sums.

St Mary’s refused to make payment of the adjudicator’s award on the basis that the adjudicator had breached their jurisdiction and/or the rules of natural justice. In considering St Mary’s representations in this regard, the court held that the adjudicator had jurisdiction to determine the release of retention sums. However no submissions had been obtained from either party as to whether the retention sums were due for release. As Sim had expressly excluded them from the sum it was claiming, the adjudicator should have asked the parties for submissions on the release of retention if he thought he could make an order in this regard. It was therefore held that the adjudicator had breached the rules of natural justice.

These decisions from 2014 show that it is all too easy for an adjudicator to go on a “frolic”, or a perceived frolic, and this results in increased costs for the parties. It is therefore essential that referring parties take advice on the drafting of their notice of intention to refer, to ensure that it achieves the result they require.