The following is a cautionary tale on how not to complete a form for the appointment of an Adjudicator.

In the case of Eurocom Ltd v Siemens Plc [2014] EWHC 3710 (TCC) (Contractor vs Subcontractor), the courts found that the process for nominating an Adjudicator had been seriously undermined.

Background to the case

In early 2011, Siemens, acting as the Contractor, employed Eurocom as the Subcontractor to install communications systems on two London Underground stations. Sadly a dispute arose. Fast forward to August 2012 where the Contractor has now terminated the Subcontractors employment under the sub-contract.

Adjudication Number 1

Around the same time as the termination, the Subcontractor raised an adjudication. The decision by the adjudicator meant that the Subcontractor should pay the Contractor the sum of £35,283.

Adjudication Number 2

The Subcontractors representatives served a notice of adjudication on the Contractor in November 2013. The Adjudicator Nominating Body (ANB) was RICS. In the RICS form “Application form for the nomination of an adjudicator for a dispute on a construction contract” there is a question that says “Are there any Adjudicators who would have a conflict of interest in this case?”

The Subcontractors representatives provided a list of named individuals and companies and included the name of the Adjudicator from the first adjudication. Following this the ANB appointed an Adjudicator not on the list.

It is important to note here that the ANB did not copy the adjudicator nominating form to the Contractor until January 2014. Thereafter the Contractor requested an explanation of the alleged conflicts of interest from the the Subcontractors representatives. The Subcontractors representatives did not respond.

The Adjudication commenced and it is fair to say there was a fair amount of dialogue and submissions exchanged between the parties as well as various questions raised and answered, ultimately the Adjudication was extended several times. Finally at the end of January 2014, the second adjudicator decided that the Subcontractor was to be paid £1.6 million.

What happened next..

The Subcontractor sought to enforce payment of the sum it had been awarded by the decision of the second adjudicator in May 2014. The Contractor sought to resist these payment enforcement proceedings. One of the principal points of the Contractors arguments would be the nomination process for the second adjudicator’s appointment. The case began in July 2014.

The issues raised on this application to enforce the adjudicator’s decision in the Second Adjudication by way of summary judgment can be summarised as follows:

(1) Whether the appointment of the adjudicator in the Second Adjudication was invalid because of the information provided by the Subcontractor’s representatives to the ANB in making the application for the appointment of an adjudicator and/or by the action of the ANB in failing to raise conflicts of interest with the Contractor in accordance with the procedure in their explanatory notes.

(2) Whether the decision in the Second Adjudication sought to adjudicate again on the same or substantially the same matters as had been referred to and/or decided in the First Adjudication.

(3) Whether the adjudicator in the Second Adjudication adopted a procedure which contravened the rules of natural justice.

(4) Whether there should be a stay of enforcement of any sums awarded by way of summary judgment.

The Contractor argued that the Subcontractors application to appoint an Adjudicator had misrepresented to the ANB that a number of individuals / parties had a conflict of interest. Further that a false statement had been made deliberately and/or recklessly, the result being that the Adjudicator’s decision was null and void as they lacked jurisdiction.

On 15 September 2014 the Mr Justice Ramsey notified the parties of his decision to dismiss the Subcontractor’s application for summary judgment. He determined that the there was evidence of a very strong prima facie case that the Subcontractor’s representatives deliberately or recklessly answered the question as to whether there were conflicts of interest, so as to exclude adjudicators who they did not want to be appointed. This effectively invalidated the second adjudicators appointment, meaning he did not have jurisdiction to reach a decision.

The reasons for that decision are summarised as follows.

On the issue of whether a fraudulent misrepresentation had been made by the Subcontractor’s representatives.

  • The statement given by the Subcontractor’s representatives on the ANB nomination form was a false statement.
  • There was no conflict of interest that prevented the original adjudicator acting in the second adjudication.
  • Without cross examination and relying on witness statements it was not appropriate for the court conclude that the Subcontractor’s representatives acted fraudulently when making the false statement.
  • The evidence shows a very strong prima facie case that the Subcontractor’s representatives deliberately or recklessly answered the question as to whether there were conflicts of interest, so as to exclude adjudicators who they did not want to be appointed.
  • It seems much more likely that the reason for including the first adjudicator was that the Subcontractor did not want the first adjudicator to be appointed because of the result of the First Adjudication being unfavourable to the Subcontractor in deciding that the Subcontractor owed money to the Contractor.
  • The court had difficulty understanding how the Subcontractor’s representative, a non-practising barrister, could otherwise complete the adjudicator nomination form in that way.

The effect of the false statement.

  • A number of high profile cases were referred to, however to save you having to read all that, to cut a long story short, the court found that due to the false statement being made by the Subcontractor’s representative the “pool of possible adjudicators was improperly limited”.
  • On that basis the court concluded that the fraudulent misrepresentation would invalidate the process of appointment and make the appointment a nullity so that the adjudicator would not have jurisdiction.

Was there a breach of an implied term to act honestly?

  • Again Mr Justice Ramsey referred to various case law (Makers v Camden, BP Refinery (Westernport) Pty Limited v Shire of Hastings (1977) 180 CLR 266 and Belize v Belize Telecom). In simple terms and using the words of the Contractors QC when referring to the Subcontractor “it, should not subvert the system of nomination by making a fraudulent misrepresentation, are both examples of the operation of the implied term that the parties should not act dishonestly.”
  • Therefore as a result of this breach of contract, having failed to follow the correct adjudication process in a way which goes to the heart of the appointment then the adjudicator does not have jurisdiction.

Was there a breach of natural justice by the RICS acting as the Adjudicator Nominating Body?

  • The simple answer here was no. The RICS was not required to provide a copy of the application to the responding party, where there is alleged conflicts of interest.
  • To quote Mr Justice Ramsey “Given the character of an adjudicator nominating body, the fact that it appoints persons to act as adjudicators rather than making substantive decisions and the statutory framework of s.108 of the Housing Grants, Construction and Regeneration Act 1996, as amended, and the Scheme under which it operates, including the short period for a nomination, I do not consider that such a body has an obligation to consult with the other party or seek to achieve a balance between the parties which may be required by procedural fairness.”

Was the dispute referred to in the first and second adjudication the same or substantially the same:

  • There had been a high degree of overlap between the adjudications. The second adjudicator had come to decisions on claims that had already been adjudicated on in the first adjudication. The second adjudicator did not have the jurisdiction to do that.
  • The second adjudicator had not taken into account for the claims from the first adjudication. The court was therefore unable to sever certain elements from the second decision;

Did the procedure in the second adjudication contravene the rules of natural justice?

  • The simple answer here again was no. To quote Mr Justice Ramsey again: “The time periods in which a party has to respond to submissions and material produced in the course of adjudication are necessarily short. The adjudicator has a discretion as to what further submissions and documents he allows during the course of the adjudication and, in this case, I do not consider that he can be criticised for admitting the further documents or submissions.”
  • The Court considered that the adjudicator, despite the late stage of it occurring, took the wholly proper course of raising the issue on Clause 6.2 of the Subcontract with the parties and sought submissions. Therefore there was no breach of the rules of natural justice.

The moral of the story is…

The whole process of nominating an adjudicator is not to be taken lightly and is a lot more than simply a form filling, box ticking exercise. If you are the Referring Party, you must always complete the nomination form honestly and fairly. If you are the Responding Party you should be asking for a copy of the nomination form as a matter of good practice.

Looking over the case it is plain to see the courts view is that you cannot simply cherry pick who you do not want on your adjudication. If there is a genuine conflict of interest, then obviously state it, but trying to rule out various individuals simply because they may not give you the best decision isn’t going to wash any more. I suppose we can chalk this up to the “rough justice” nature of adjudication, in that it is not litigation and you do pay your money and take your chances.

While those of us working in the adjudication arena will identify with the thought processes of the Subcontractors representatives in trying to get the best outcome for your client, that in my opinion doesn’t make a bad judgement right.

I thank you for taking the time to read this article (I know it was quite wordy!) and I hope you found it useful. Please feel free to connect with me, like, comment or share this article.

Wishing you the every success in your endeavours.

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