Here’s a warning to all you adjudicators out there: if you give your reasons for a decision, then you have to address all the issues. If you don’t, the whole thing may be thrown out
I bet all you commercial folk reading this story of a failed adjudication will think the lawyers are living on another planet. What happened was that the adjudicator’s award didn’t make it clear that he had dealt with a key point in the counterclaim. Well, in that case, said the court, it’s all void. The lawyers shouted, whistled and stamped in agreement. And the commercial lads shouted: “Why didn’t you ask him?”
The job was at Fiddlers Ferry Power Station near Warrington. AE&E Lentjes UK was the main contractor for three flue gas desulphurisation plants. The mechanical erection works were subcontracted to Thermal Energy Construction. Thermal complained that Lentjes had not properly valued and certified work that related to four specific lots of money. The notice of adjudication restricted the adjudicator to deciding only those claims, and said he had to give reasons for his decisions.
The adjudicator came on board on 20 October last year. The dispute referral was served and then seven days later came the response. It dealt with the four claims, then, in a separate section, brought in a claim by the respondent for breaches of contract by the subcontractor. It amounted to £3.75m in liquidated damages for not meeting certain programme dates.
Remember, the scope of the adjudication was set by the notice, and was limited to the four claims raised by Thermal. Lentjes ran a new item. Thermal said this fifth claim was outside the adjudicator’s jurisdiction. It then argued that it was a wrong claim in law. Dancing now began. They argued to and fro on the no jurisdiction point and to and fro on the right to claim damages.
On 16 December, the adjudicator ordered payment by Lentjes of £904k. Lentjes could not fathom how he reached the figure – for one thing, it wasn’t clear how much of its counterclaim had succeeded, so it didn’t comply. Thermal came to court to enforce.
The judge looked hard at the award. He said it was a carefully structured decision. Under “the issues to be decided”, he noted that no list of issues had been set out. Instead, it was more like a discursive commentary. Also, there was no mention of whether the adjudicator had jurisdiction to decide the counterclaim. You will remember that the notice of adjudication had restricted scope and that Thermal had objected to the counterclaim being inserted. The award dealt one-by-one with the four issues referred to in the notice. No express section dealt with the counterclaim, either by declaring no jurisdiction or deciding the issue.
Lentjes said the adjudicator was supposed to give reasons for his decision on each issue, but hadn’t. Thermal said he had done enough. When reasons need to be given, previous cases have established that these can be brief, as long as they show that the adjudicator has dealt with all the issues and what has been concuded from them. If the reasoning is skinny, then Lentjes has to show that it has suffered injustice as a result. The explanation ought allow the parties to understand what has been decided and why.
So, the hunt was on to find out whether the counterclaim had been dealt with. The upshot was that the judge decided that this was one of those cases in which the adjudicator had failed to comply with his obligations. If the adjudicator had decided it was outside his jurisdiction, he ought to have said so, and why. If he decided it was within his jurisdiction, but the claim failed, he ought to have said so and why. If it had partly failed, he ought to have said so and why. You can see how vital it is for both parties to know. Any later adjudicator on this case needs to know. Serial adjudications are frequent.
None of the £904,000 could be paid because the adjudication was void. The judge remarked: “It may well be that the adjudicator was so overwhelmed by the mass of detail in documentation and submission that, within the short timetable, he neglected to deal with an issue he ought to have dealt with.”
The commercial crowd shouted: “Why didn’t you ask him?” But by now everyone else had gone to the pub. They will all come back shortly to engage in another adjudication, to decide the same four heads – or is it five? – all over again, and probably more besides.
Tony Bingham is a barrister and arbitrator at 3 Paper Buildings Temple
Original print headline: 'Tell me why'