Don't Keep It To Yourself - The Natural Justice Minefield

A recent case raised the issues of natural justice and how adjudicators can get things wrong.

In the case of RSL (South West) Ltd v Stansell Ltd [2003] EWHC 1390 (TCC) (16 June 2003) the Claimant (RSL) sought to enforce the adjudicators decision by means of summary judgment. The Defendant (Stansell) defended the application on several issues but in principle on the basis that there had been a breach of natural justice.

What is natural justice?

Before looking at this case it would be useful to briefly mention that natural justice deals with the rights of parties in a dispute resolution process.

In the RSL case, HH Judge Richard Seymour gave some examples of natural justice i.e. that any party has the right to know what case is being put against them and they should have the opportunity to meet it; that a party should have a legitimate expectation that he will be afforded opportunities assured to him to present his case, and finally justice (must not only be done, but) must be seen to be done.

A number of cases have confirmed that notwithstanding its ‘rough justice’ aspects, natural justice does apply to adjudication and any serious breach of natural justice would render the adjudicator’s decision unenforceable.

The RSL Case

Turning to the case at hand, the Claimant (RSL) had brought an adjudication against the Respondents (Stansell) under the provisions of the DOM/2 contract and on the basis of a dispute over the value of the final account. The final account included a claim for loss and expense and both parties took a different view as to who was responsible for the delay underlying this claim. As the Adjudicator was of the view that to make his decision he needed to look into programme issues he wrote to both parties advising them that he intended to employ a planning expert (Mr Adie) and requesting both parties to agree to this arrangement. RSL`s representatives had no objections, and neither did Stansell, although they did request that they be provided information in respect of three matters the last of which was;

“3. Sight of any report prepared by Mr Adie and reasonable time to comment on that report.”

Stansell ended their letter to the Adjudicator asking him to;

"…confirm your willingness to supply the above details at your earliest convenience."

The expert was appointed and produced a report on delays which the Adjudicator termed “initial findings” and issued to both parties and asking them to comment. RSL issued their comments on the report to the Adjudicator but Stansell made no comment. Stansell explained to the judge that as they thought that the experts report was favourable to them, there was no need to make any comment.

Subsequently the Adjudicator referred RSL’s comments to the planner, who in turn reviewed his findings, passing on his subsequent findings to the Adjudicator. In his decision the Adjudicator confirmed he had based his decision on the final report prepared by the planner which had taken into account the comments of the parties, albeit that only RSL had commented. The Adjudicator then awarded an extension of time plus loss and expense to RSL.

Subsequent to the decision Stansell wrote to the Adjudicator referring back to their earlier letter in which they asked to have the opportunity to comment on any report by the planner and asking for a copy of that report.

The Adjudicator did not think it necessary to refer back to the parties for comment after the issue and soliciting of comments on the initial report. The Adjudicator noted that Stansell had made no comment on this report and also that as Stansell had refused to grant an extension of time to the period in which he had to reach his Decision, he had not had time to issue the final report. The Adjudicator confirmed that the final report had not been issued to either party and that it would serve no useful purpose to do so as the Decision dealt adequately with the issues.

At the enforcement proceedings Stansell’s principle argument was that the Adjudicator’s failure to issue the final report to the parties allowed Stansell no opportunity of comment and was a breach of natural justice.

RSL countered by saying they too had not had sight of the report – so both parties were in the same position – and also there was insufficient time for the Adjudicator to issue the report and get back comments within the sub-contract timescale, not least because Stansell had refused to extend time. Stansell commented that they had refused the request for more time on the basis that the Adjudicator was struggling due to too many commitments and had not specifically requested time to deal with comments on the final report.

Counsel for RSL also argued that the effect of clause 38A.4.5.5.7 of DOM/2 was that the Adjudicator had no need to seek the parties permission to engage expert assistance irrespective of the parties agreement and that accordingly Stansell’s requests in respect of being given the opportunity of comment were not conditional on approving the appointment of the planning expert. If there had been a breach of procedure then case law had established that nature of adjudication was such that rough justice would not invalidate the decision.

The judge disagreed with this submission and emphasised that the adjudicator had a duty to act fairly, i.e. to observe the rules of natural justice and not merely a duty not to show bias. The judge further referred to the fundamental necessity for an adjudicator:

“if he is to observe the rules of natural justice, to give the parties to the adjudication the chance to comment upon any material from whatever source, including the knowledge and experience of the Adjudicator himself, to which the Adjudicator is minded to attribute significance in reaching his decision”.

The Judge held that the aspect of justice being seen to be done had not been satisfied as a report which may have had significance in the eventual decision was not disclosed to the parties. Accordingly, the decision reached breached natural justice and should not be enforced.

Counsel for RSL, perhaps anticipating the Judge’s conclusion, had submitted an alternative argument for the eventuality that they lost on their claim for summary judgement namely that the judge should decide what if any alternative interim payment could be awarded. The Judge rejected this, saying that he had no power to “salvage from the wreckage” those elements which had been decided independent of the planning experts’ advice from those which had taken his advice into account. Counsel for RSL application on the basis that the Adjudicator’s decision was somehow “separable” was firmly rejected, holding that once the decision as to the total amount to be paid had been successfully attacked it cannot be said that any other amount determined by the Adjudicator can be due in a way that is binding on the defending party. The court has of itself no free choice either to find that a decision is wholly unenforceable or to decide that it is enforceable in part.

Conclusion

• Adjudicators must ensure they issue and/or disclose to the parties everything which they rely upon as the basis of their decision.

• Failure to do so is a breach of natural justice and will make their decision unenforceable.

• This could be waived by the parties if the adjudicator specifically asked for an extension of time to provide the information and seek comments but no extension was granted.

• Any decision reached by the Adjudicator, having failed to disclose all material relied upon in making the decision, is unlikely to be rectified by the courts, and as it is not separable will most likely fall in its entirety.

Alway Associates

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