Natural justice, common sense

Tony Bingham made some valid observations about the adjudication and the subsequent enforcement hearing in McAlpine PPS Pipeline Systems Ltd vs Transco Plc (2 July, page 50). But, as my firm acted for Transco, I think he misses one key point that helps to explain His Honour Judge Toulmin’s decision.

First, some background to the case. McAlpine claimed it was owed £70,000 interest for uncertified interim payments under the NEC Option A form of contract. McAlpine contended that under the payment provisions in section 5 of the contract it had an automatic right to interest.

Transco rejected this approach and referred instead to the procedure for assessment of compensation events in section 6 of the contract. This procedure allows earlier or later assessment of compensation events if the price for the work can be agreed. Transco contended that interest did not accrue to McAlpine until the time limits for assessment of compensation events provided for in section 6 had expired. However, McAlpine simply ignored these contentions.

So, there were two issues between the parties: the section 5 claim and the section 6 response. McAlpine’s notice of adjudication, which should include everything to be decided by the adjudicator, only referred to the section 5 claim. Transco’s section 6 response was not mentioned.

During the course of the adjudication, McAlpine purported to develop a claim based on section 6. However, since the dispute included in McAlpine’s notice of adjudication relied upon section 5, the judge concluded this amounted to a changed basis of claim and was therefore a new claim.

While the adjudicator could have been given jurisdiction to deal with the changed basis this could only have been done with Transco’s consent. Transco did not consent to the change. However, the adjudicator allowed himself to consider the revised basis that had not been properly referred to him. This was despite the fact that in his subsequent decision the adjudicator acknowledged that McAlpine had not served the evidence that would have been needed to support its claim had it relied upon section 6 in the first place.

To compound the error, the adjudicator allowed McAlpine to submit substantial new evidence, which had not previously been addressed to Transco, identifying a right to interest. Transco was unable to respond to this new evidence within the period allowed by the adjudicator. This prejudiced not only the fairness of the procedure but also the fairness of the decision itself.

Mr Bingham’s solution is that the parties should give an adjudicator more time to consider information in these circumstances. But this ignores the fact that responding parties might not want to give more time to a referring party to correct a defect in the way it has presented its claim. It also ignores the fact that the ambushed party has already been denied a significant amount of time to respond.

The rules of natural justice require that both sides to a dispute should have the right to a fair hearing, before an unbiased tribunal. Judge Toulmin concluded that the adjudicator had not conducted the adjudication fairly.

Significantly, the judge made observations that disputes are frequently referred to adjudication long after a final decision could have been obtained in arbitration or litigation and that adjudication can be intensely confrontational. These observations suggest that adjudication should not be used as a matter of course.

While adjudication is an excellent vehicle for the resolution of a number of classes of dispute this is not necessarily the case for all disputes. We are now seeing a significant number of large disputes concerning final accounts, for example, that are better suited to a dispute forum that allows proper and final analysis of the claim and which will ultimately save costs by avoiding repetitive, but inconclusive, adjudications.

Judge Toulmin’s observations may also, hopefully, encourage the industry to consider, more actively, other forms of dispute resolution such as mediation. The courts could encourage this by allowing parties to adjudicate at any time but penalise them, for example in the recovery of legal costs, when an alternative form of dispute resolution would have been more appropriate.

Jonathan Brooks is a construction partner at Osborne Clarke in Bristol