NEC adjudicators and natural justice

NEC adjudicators and natural justice

A decision of the UK Technology and Construction Court in September 2016 has important implications for the use of a single adjudicator or panel of adjudicators for disputes across multiple NEC contract tiers.

Mitigating risk of inconsistent decisions
Adjudication poses unique challenges for NEC contractors and subcontractors. They may be subject to adjudication proceedings from two directions: ‘upstream’ from their employer and ‘downstream’ from their supply chain. This may create difficulties – for example, an adjudicator might award liquidated damages against a main contractor for delays attributed to a subcontractor.
A subsequent adjudication could then exonerate the subcontractor and leave the main contractor without a means of recovery short of court proceedings.

The approach taken to deal with these issues in NEC contracts varies.
  • One option is to allow a ‘joinder’ or consolidation of related adjudications. Option W1 in the NEC3 Engineering and Construction Contract (ECC) adopts this solution by allowing the contractor to refer
    related subcontract disputes to the main contract adjudicator at the same time and for the two adjudications to be decided together. Option W2 has a similar mechanism but is subject to the consent of the subcontractor.
  • The NEC subcontract – whether under ECC or the NEC3 Engineering and Construction Subcontract (ECS) terms – may provide for the subcontractor to be bound by the result of the adjudication under the main contract. In exchange, the subcontractor will ordinarily be given a right to participate in the main contract adjudication.
  • A ‘project adjudicator’ or panel of adjudicators may be agreed to determine disputes under tiered NEC contracts. By having the same adjudicator, the scope for inconsistent decisions ought to be reduced.
Joinder provisions are often unacceptable to employers because they do not want to concern themselves with domestic issues between their contractor and its subcontractors. On the other  hand, subcontractors will usually be unwilling to agree to be bound by a decision where they have only a limited ability to affect the outcome. The appointment of a project adjudicator or panel of adjudicators therefore preserves control over the process for all parties, while at the same time offering a measure of consistency in decision making.

As the recent case shows, however, project adjudicators also bring difficulties of their own.

Beumer Group v Vinci Construction
In the recent UK Technology and Construction Court case, Vinci was employed by Gatwick Airport Ltd as the main contractor. The works included a baggage handling system, which Vinci subcontracted to Beumer. Beumer further subcontracted certain parts of the works to Logan. Both the main contract and subcontracts were based on an ECC Option A (priced contract with activity schedule) and listed the same panel of adjudicators to decide any disputes under the main contract and subcontracts respectively.

A dispute arose between Beumer and Vinci regarding three instructions issued by Vinci and whether these constituted compensation events entitling Beumer to extensions of time. Cyril Chern was appointed as adjudicator and decided the adjudication in Beumer’s favour in June 2016. This adjudication was referred to by the court as ‘BVII’.

In parallel to BVII, Beumer commenced adjudication against Logan on the same day. Beumer claimed liquidated damages from Logan in the relation to the same delay for which it was seeking an extension of time in BVII. This adjudication was referred to by the court as ‘BLII’. The same adjudicator was also appointed in BLII. Vinci was not made aware of BLII until after the decision in BVII.

BVII on the basis that the adjudicator’s simultaneous appointment in BLII gave rise to breaches of a natural justice. Vinci claimed that the adjudicator would have had knowledge of matters relevant to its dispute with Beumer (in BVII) which Vinci was not aware of and, as a result, Vinci was denied a proper right to respond. Vinci emphasised that Beumer had advanced factually inconsistent arguments in BVII and BLII, claiming that the works were completed on time in BVII while also claiming that they were late in BLII. Vinci contended that it should have been given the opportunity to rely on Beumer’s position in BLII in support of its own position in BVII.

The court agreed with Vinci and refused to enforce the decision in BVII. The court found that the adjudicator ought to have disclosed to Vinci that he had been appointed as adjudicator in BLII. Had he done so fairness is likely to have required that he order the disclosure of the submissions in BLII so that Vinci could comment on them in BVII. The court noted in passing that had BLII been decided in advance of BVII, disclosure of the adjudicator’s decision in BLII would have been required to ensure the fairness of his appointment in BVII.

Conclusion and implications
The court’s decision emphasises the care needed by NEC contractors and subcontractors in co-ordinating upstream and downstream adjudications. Contractual provisions for joinder or parallel proceedings are unlikely to be obtainable on many projects, but parties should carefully consider the implications of agreeing to a project adjudicator or panel of adjudicators to determine disputes on a project-wide basis across multiple contract tiers.

The court’s decision may also have wider implications. Responding parties are now likely to request confirmation from adjudicators as to whether they have been appointed in previous adjudications involving the referring party. The court’s decision applies with greatest force to situations where relevant factual submissions may have been made to the same adjudicator in another adjudication on the same project. It is not inconceivable, however, that responding parties may seek to argue for the disclosure of decisions in any previous adjudications involving the referring party where submissions were made to the same adjudicator in relation to similar factual or legal issues.
 
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