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OUTER HOUSE, COURT OF SESSION
[2022] CSOH 30
CA127/21
OPINION OF LORD BRAID
in the cause
VAN OORD UK LIMITED
Pursuer
against
DRAGADOS UK LIMITED
Defender
Pursuer: Moynihan QC; Burness Paull LLP
Defender: G Walker QC, M Steel; CMS Cameron McKenna LLP, Nabarro LLP and Olswang LLP
7 April 2022
Introduction
The issue
[1]
The issue in this action is whether the adjudicator in a construction dispute reached
his decision on a basis not canvassed with the parties, and, if so, whether there was a
material breach of the principles of natural justice such that the decision cannot stand.
Background
[2]
On or about 16 March 2018 the parties entered into a sub-contract agreement,
whereby the pursuer was to provide the dredging of silts, sands, gravel and glacial till for
the Aberdeen Harbour Expansion Project, for which the defender was the main contractor.
On 6 March 2020 the defender gave the pursuer notice of termination of the sub-contract.
Various disputes have arisen following termination. Seven adjudications have taken place,
of which the present was the sixth. In it, the pursuer claimed that it was entitled to an
extension of time (EOT) and prolongation costs in respect of four compensation events, the
material ones for present purposes being CEN 048 Delayed Access to Open Quay Work;
and CEN 055 Late Delivery of Remaining Caissons. The pursuer also claimed method-
related charges, and that it was entitled to equipment costs for various weather events, the
latter being dubbed the "weather compensation events".
[3]
On 14 September 2021 the adjudicator issued a corrected decision in the pursuer's
favour, awarding it an EOT and prolongation costs for CEN 048 but not CEN 055 (or the two
other compensation events). He also awarded the pursuer the weather compensation events
and the method related charges.
[4]
The pursuer originally sought enforcement of the adjudicator's decision in its
entirety. The defender resisted enforcement, contending (a) that the decision in relation to
CEN 048 was vitiated by a breach of natural justice; (b) that the decision in relation to the
weather compensation events was vitiated by a failure to address all of the defender's
submissions; and (c) that the decision was not severable. Both parties' positions have
evolved during the course of the action. The pursuer now accepts that the part of the
decision which relates to weather compensation events cannot be supported, and must be
reduced. The defender accepts that the decision is severable, and that, in principle, the
remainder of the decision would not require to be reduced if reached in accordance with
natural justice.
[5]
Consequently, the action called before me for a debate on the sole remaining
question, namely, whether the adjudicator's decision in respect of CEN 048 is enforceable, or
whether it too falls to be reduced.
The adjudication
The parties' respective positions
[6]
Although voluminous papers were lodged for the adjudication, the essential facts are
straightforward. The pursuer's claim in the adjudication was that it was denied access to
carry out the open quay excavation works by reason of the defender's lack of progress in
carrying out piling works, and that this had caused critical delay, from 2 August 2019, to the
subcontract completion date of 31 July 2019. The genesis of the pursuer's claim was a notice,
CEN 048, issued on 20 September 2019. (In that notice, the pursuer asserted that the date of
the compensation event was 10 September 2019 but the defender came to accept that it was
nonetheless open to the pursuer to argue, and the adjudicator to find, that the event had
occurred on an earlier date.) In support of its claim the pursuer founded upon two reports
by its expert, Mr Wilsoncroft, in whose opinion CEN 048 had caused critical delay from
2 August 2019 to 11 October 2019. He also expressed the view (a) that from 11 October 2019
CEN 048 was superseded as the cause of delay by CEN 055, but (b) that if CEN 055 was held
not to be a cause of critical delay, CEN 048 was a continuing cause of critical delay beyond
that date.
[7]
The defender disputed that the cause of the delayed access was its piling works and
maintained instead that the cause was the pursuer's failure to commence, and thereafter to
complete, revetment works. It relied on two reports from its own expert, Mr Zucconi, in
support of this position, and in support of its assertion that there had been no critical delay
caused by any failure by the defender to carry out piling works, the event said to give rise to
CEN 048.
[8]
It was not in dispute that in order to assess critical delay it was first necessary to
establish a baseline programme against which to assess it. That process was complicated in
the present case by the fact that there was no agreed baseline programme, although
numerous programmes had been prepared during the course of the sub-contract. The
experts disagreed as to which of those should be used as the baseline. Mr Wilsoncroft
favoured one from October 2018, whereas Mr Zucconi selected the 15 April 2019 programme
as his baseline. Both had considered, but rejected, a programme prepared on 15 March 2019.
Having selected their respective baselines, both experts then conducted a windows analysis
of critical delay. Mr Wilsoncroft's window 3 showed the critical delay caused by CEN 048,
taking 2 August 2019 as the critical date. Since Mr Zucconi had formed a different view on
the facts as to the event which had caused delay, his critical dates were different: 15 June to
15 July 2019 (his window 4) and 15 July to 15 August 2019 (his window 5). Neither of those
showed the impact of CEN 048 since on his approach, as it was not a compensation event, it
did not cause any critical delay. His analysis attributed the delay to the revetments.
The adjudicator's approach
[9]
In the event, the adjudicator did not accept the views of either expert in their
entirety. He selected the March 2019 programme as the baseline. Thereafter, having
considered the evidence, he found that it was the defender's failure to progress the piling
works, rather than any failure by the pursuer to complete the revetments, which had
prevented the pursuer from accessing the open quay works, and which had caused critical
delay. To that extent, he preferred Mr Wilsoncroft's approach to Mr Zucconi's. However,
he accepted Mr Zucconi's windows analysis and delay periods in preference to those of
Mr Wilsoncroft. Consequential upon his attributing the delay to the piling and not the
revetments, he then necessarily had to change Mr Zucconi's allocation of liability for
windows 4 to 7. The outcome of this exercise was that, for reasons which are not entirely
clear, the adjudicator found that the critical date of CEN 048 was 31 July 2019 (and, further,
that it extended beyond 11 October 2019, the claim for CEN 055 having been refused).
[10]
In short, the adjudicator selected as a baseline a programme which not only was not
contended for by either expert, but which both experts had given reasons for rejecting; and
he made an award to the pursuer based upon a critical date 31 July 2019 which was two
days earlier than the date of 2 August 2019 proposed by the pursuer for CEN 048. Neither
the date of 31 July 2019, nor the consequences of selecting it as the critical date, was
canvassed with the parties. It is this which has given rise to the present controversy
between the parties.
The defender's case
[11]
The defender's case is that the adjudicator was not entitled to adopt the course he did
without first intimating to the parties an indication of what he had in contemplation, giving
them an opportunity to address him further. Had he done so, the defender asserts that it
would have advanced a time bar argument based upon clause 61.3 of the subcontract,
CEN 048 having been issued more than 7 weeks after the critical date of 31 July 2019.
[12]
Clause 61.3 is in the following terms:
"The Subcontractor notifies the Contractor of an event which has happened or which
he expects to happen as a compensation event if
the Subcontractor believes that the event is a compensation event and
the Contractor has not notified the event to the Subcontractor.
If the Subcontractor does not notify a compensation event within seven weeks of
becoming aware of the event, he is not entitled to a change in the Prices, the
Subcontract Completion Date or a Key Date unless the event arises from the
Contractor giving an instruction, issuing a certificate, changing an earlier decision or
correcting an assumption."
[13]
The defender argues that since it had no inkling that the adjudicator had in
contemplation a critical date of 2 August 2019, it was deprived of the opportunity of arguing
that clause 61.3 provided a complete defence to the CEN 048 claim. It is this which is said to
constitute a breach of natural justice.
The pursuer's response
[14]
The pursuer's response is that the adjudicator was entitled to adopt the course he
took, which was to do no more than adopt an intermediate position between the parties'
respective cases. The defender had been aware during the adjudication process that the
pursuer contended that the delay caused by the defender's failure to complete the piling
works had occurred before 2 August 2019. Not only had it been open to it to advance a time
bar argument, it had in fact done so (as senior counsel for the defender acknowledged) at
paragraph 9.9 of its rejoinder, where it had argued that the pursuer having become aware of
delays to the piling works in April 2019, clause 61.3 had the effect of defeating the claim.
The defender had therefore been aware of the issue. It mattered not that it had advanced the
wrong argument, or wished that it had advanced a different one.
The law
[15]
The underlying legal principles are not in dispute. As a starting point, the courts will
in general summarily enforce decisions of adjudicators: Carrillion Construction Ltd v
paragraph 86, the need to have the "right" answer is subordinated to the need to have an
answer quickly. Having regard to that statutory objective, it was said that challenges to an
adjudicator's decision on the ground of breach of natural justice were likely to succeed only
in the plainest of cases.
[16]
Nonetheless, where an adjudicator is found to have acted contrary to the interests of
natural justice, enforcement will be refused: Gillies Ramsay Diamond v PJW Enterprises Limited
[17]
The application of the principles of natural justice to the process of adjudication, and
the extent to which an adjudicator may fairly decide a case other than by accepting the
submissions of one or other party, has been the subject of much judicial discussion.
Lord Drummond Young considered the interaction of natural justice and adjudication in
Costain Limited v Strathclyde Builders Limited 2004 SLT 102, in particular at paragraph [20];
and the following cases were also referred to in submissions: Roe Brickwork Ltd v Wates
Construction Ltd [2013] EWHC 3417; Balfour Beatty Engineering Services (HY) Ltd v Shepherd
Construction Ltd [2009] EWHC 2218; and Miller Construction (UK) Ltd v Building Design
[18]
These cases give rise to the following propositions, which to some extent overlap, but
none of which is controversial:
(i)
Each party must be given a fair opportunity to present its case: Costain.
(ii)
If the adjudicator makes investigations and inquiries of his own, or proposes
to use his own knowledge and experience to advance significant propositions of fact
or law which have not been canvassed by the parties, it will normally be appropriate
to canvas those propositions with the parties before a decision is made: Costain.
(iii)
The adjudicator should not decide a point on a factual or legal basis that has
not been argued or put forward before him: Roe Brickwork, per Edwards-Stuart J at
paragraph 22.
(iv)
However, an adjudicator can reach a decision on a point of importance on the
material before him on a basis for which neither party has contended provided that
the parties were aware of the relevant material and that the issues to which it gave
rise had been fairly canvassed: Roe Brickwork at 24.
(v)
For a breach of natural justice to vitiate a decision, it must be a material
breach. A breach is likely to be material where the adjudicator has failed to bring to
the attention of parties a point or issue which they ought to have been given the
opportunity to comment on, if it is one which is either decisive or of considerable
potential importance to the outcome of the resolution of the dispute: Balfour Beatty
Engineering Services at paragraph 41 (quoting from Cantillon Ltd v Urvasco Ltd
[2008] BLR 250 at paragraph 57). The question comes to be whether, in deciding the case,
the adjudicator went off on a frolic of his own.
(vi)
An adjudicator is afforded considerable leeway and is entitled to adopt an
intermediate position not contended for by either party without giving notice of his
intention to do so: Miller Construction (UK) Ltd v Building Design Partnership Ltd
[19]
In applying these principles, and asking whether there has been a breach of natural
justice, the words of Lord President Clyde in Barrs v British Wool Marketing Board 1957 SC 72
at 82 must be borne in mind:
"The test is not `Has an unjust result been reached? but `Was there an opportunity
afforded for injustice to be done?' If there was such an opportunity, the decision
cannot stand."
Defender's submissions
[20]
Senior counsel for the defender submitted that the adjudicator had gone off on a
frolic of his own. It was not open to him to adopt the March 2019 programme which had
been disavowed by both experts, without putting that to parties and asking what the
consequences might be. Nor was it open to him to take the critical date for CEN 048 as
31 July 2019, when that had not been contended for by the pursuer. One of the purposes of
putting a novel hypothesis to parties was to afford them the opportunity of pointing out
difficulties in the proposed approach. Had that been done here, and had the defender been
aware that the adjudicator was considering adopting 31 July as the critical date, it could and
would have argued that the entire claim was time barred by virtue of clause 61.3. Parties
could not be expected to raise in submissions every point which might hypothetically arise.
The defender did not require to show that its time bar argument would have succeeded,
simply that it was tenable. There had been an opportunity for injustice. The resultant
breach of natural justice was material. The adjudicator could not be said to have adopted an
intermediate course where, as here, he had gone beyond the position argued for by the
pursuer.
Pursuer's submissions
[21]
Senior counsel for the pursuer submitted that it had been open to the adjudicator to
adopt the March 2019 programme as the baseline. As paragraph 9.19 of his report made
clear, he had in fact given the experts the opportunity to comment on it at an adjudication
meeting held on 6 September 2021. [That paragraph reads: "At the adjudication meeting
held on 6 September 2021 I questioned the Delay Experts on what should be considered the
baseline programme for the works going forward from 15 April 2019". The adjudicator does
not record in that paragraph what the experts' responses were.] He had explained why h e
had used the March programme. In any event the narrative of Mr Zucconi's approach was
largely founded upon the March 2019 programme. As for the critical date, it was wrong to
suggest that only two dates 10 September 2019 (the date in the CEN 048 notice) and
2 August 2019 had been in play. It was clear from the evidence before the adjudicator that
the pursuer had first been aware of the delay which gave rise to CEN 048 in April 2019. An
early warning notice (EWN) had been issued on 19 June 2019. The defender had been aware
of the time bar issue. The issue had not been when the delay had occurred, or when the
pursuer had been aware of it, but when it had become critical. The adjudicator had been
entitled to select Mr Zucconi's windows, but Mr Wilsoncroft's apportionment of blame, as
he had done as described above, without giving the parties the opportunity to make further
representations. The adjudicator had significant leeway and was entitled to adopt an
intermediate position.
Decision
[22]
As noted above, there is no dispute between the parties as to the applicable legal
principles. Rather, they disagree as to how those principles fall to be applied in this case.
[23]
The line between an adjudicator going off on a frolic of their own, on the one hand,
and, on the other, making legitimate use of their experience to analyse material which has
been lodged, and commented on by parties, before reaching a decision not contended for by
either party, is not always an easy one to draw, particularly when it is remembered that an
adjudication decision reached by an adjudicator who has embarked upon the latter exercise
will be enforced by the courts even if wrong.
[24]
So, it is of no benefit to ask whether the adjudicator was wrong to take 31 July 2019
as the critical date. Since neither party had argued for that date, and since on the pursuer's
own expert evidence, the date did not occur before 2 August 2019, it seems likely that he
was, although his reasoning, as both parties acknowledged, was at times opaque. However,
it does not follow that the decision was reached by unfair means.
[25]
Nor is this a case where the adjudicator has based his decision on information
gleaned by him as a result of his own inquiries. All of the material taken into account by
him had been lodged by the parties, who had an equal opportunity to make submissions
about it. The question is whether they had a fair opportunity to do so.
[26]
The common theme running through the propositions outlined in paragraph [18] 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 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.
[27]
At the core of the controversy is whether the adjudicator can be said to have adopted
an intermediate position, as the pursuer argues he did. In this regard it is instructive to
consider the facts in Miller Construction (UK) Ltd, above. There, the dispute revolved around
the installation of a ventilation system which failed to meet the required contractual
standard. The defenders, who were responsible for the design of the system, had specified
that one type of ventilation unit be used, whereas the pursuer, who were the contractors,
used a different (cheaper) type. Each party asserted that the other was wholly responsible
for the failure. The pursuers argued in the adjudication that the defenders, as lead design
consultants, should take full responsibility; the defenders, that the pursuers were to blame
for instructing a cost-saving measure. While rejecting the pursuer's argument that the
defenders had been professionally negligent, as they had argued, the adjudicator
nonetheless ruled that neither party could place all of the responsibility for the selection of
the different system on the other and found that each was 50% to blame. Before
Lord Malcolm, the defenders argued that by deciding the matter on the basis of which party
bore responsibility, the adjudicator had not decided the issue which had been remitted for
determination. The defenders should have been given an opportunity to address that
approach.
[28]
In rejecting that argument, Lord Malcolm held (at paragraph [14]) that the defenders
had taken too narrow a view of the issue remitted to the adjudicator, and further that the
defenders had recognised in their rejoinder to one of the submissions to the adjudicator that
they fully appreciated that the pursuer's case was not dependent on proof of negligence. It
was in that context that he went on to say, at paragraph [17], that the adjudicator was not
required to adopt one or other of the parties' submissions but could adopt an intermediate
position without giving notice of his intention to do so. There had been no "frolic", and no
unfairness by not giving the defenders an opportunity to comment further.
[29]
The circumstances in the present case are very different. An analogy with Miller
Construction might more readily have been drawn if the adjudicator had found, say, that
both the piling works, and the revetments, had caused concurrent critical delay. For that
matter, if the sole complaint made by the defender had been that the adjudicator had
adopted the March 2019 programme as the baseline, I might have been persuaded that
viewed in isolation, and in the absence of any change to the critical date, that was a course
which he was entitled to take.
[30]
However, the adoption of a critical date which was not only different from, but
earlier than, that argued for by the pursuer, takes the case into a different sphere.
Accordingly, it cannot truly be said in the circumstances here that the adjudicator adopted
an intermediate course in the sense that the adjudicator did in Miller Construction, where he
was found to have decided the very issue remitted to him. The case is closer on its facts to
Inland Revenue Commissioners v Barrs 1961 SC (HL) 22 (referred to by Lord Drummond
Young at paragraph [11] of Costain) where a tribunal had issued loss certificates in amounts
greater than contended for by the taxpayer without giving the Crown the opportunity to
state objections, which was held to be a breach of natural justice. It is in this context that the
adoption of the March 2019 programme as the baseline comes into play, since it appears that
the adjudicator used that programme as the basis for his finding that the critical date was
31 July 2019. Having decided that it was the appropriate baseline (something which could
not have been foreseen by the parties), and having formed the view that the critical date was
earlier than that contended for by the pursuer, fairness did demand that he give the parties a
further opportunity to address him on those issues. That this is so is underlined by the fact
that the adjudicator did not address the time bar argument which was advanced, in a
slightly different context, by the defender. It cannot be known whether he simply
overlooked that argument; overlooked the significance of finding that the critical event arose
more than 7 weeks before the date of CEN 048; or considered, and rejected, the argument.
One reason for giving parties an opportunity to comment on novel matters not canvassed by
them is so that they might point out any unforeseen problems in the proposed approach.
Submissions by the defender might have had the effect of causing th e adjudicator to depart
from his approach, either by selecting a different critical date or by dismissing the entire
claim; or he may have carried on with his proposed course of action regardless. But, as
senior counsel for the defender submitted, the defender does not require to show that the
time bar argument would have succeeded, simply that the defender was deprived of the
opportunity of making it.
[31]
In these circumstances, I do not consider that the adjudicator gave parties a fair
opportunity to comment on his proposed adoption of the March 2019 programme as the
baseline, and the consequences he considered that had for the critical date. Reverting to the
words of Lord President Clyde, and the question posed by him, quoted above, an
opportunity was afforded for injustice to be done. The decision in relation to CEN 048 is
therefore vitiated by a breach of the principles of natural justice, and it cannot stand.
Disposal
[32]
For the foregoing reasons, I will sustain the defender's second and third pleas in law,
reduce the adjudicator's decision in its entirety, and grant decree of absolvitor, reserving all
questions of expenses.
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