Dragados withdrew from the £350m Aberdeen harbour project in June 2020

It is unusual these days to see a successful challenge, on the grounds of natural justice, to an adjudicator’s decision. There has to be a good reason for the courts not to grant enforcement. Most challenges fail.

However, a successful challenge has recently been reported in Scotland.

The case in question relates to the Aberdeen Harbour Expansion Project. The dredging sub-contract for the project between Van Oord UK Limited (Van Oord) and Dragados UK Limited (Dragados) was terminated on 6 March 2020. So far, there have been seven separate adjudications between the parties.

The decision of the adjudicator in adjudication six was challenged on the grounds that there had been a breach of natural justice.

The facts

Van Oord argued that it was denied access to the open quay excavation works because Dragados had delayed in carrying out piling works. Van Oord argued this was a compensation event (CEN 048) and sought an extension of time. Dragados said that Van Oord had caused the delay.

Each party had an expert. In order to assess critical delay, it was necessary to establish a baseline programme. Van Oord’s expert favoured a baseline programme dated October 2018. Dragados’s expert favoured an April 2019 programme. Using their respective baselines, each expert undertook a windows analysis of critical delay.

The adjudicator’s decision

The adjudicator did not fully accept the view of either expert. Instead, he selected a 15 March 2019 baseline programme. That programme had been considered but rejected by both experts. The adjudicator then reworked the analysis and concluded that the critical delay date for CEN 048 was 31 July 2019. This was two days earlier than the date proposed by Van Oord. In short, the adjudicator used a baseline programme that both parties had rejected and did not canvass the views of either party in relation to the critical date, nor the consequences of selecting it.

The court action

Van Oord went to the Court of Session to enforce the adjudicator’s decision. Dragados argued that the adjudicator should not have adopted the course he did without giving the parties an opportunity to comment. In particular, Dragados said that, had they been given an opportunity to respond to the adjudicator’s critical date, they would have advanced a time bar argument, which would have provided them with a complete defence. Dragados said this was a breach of natural justice.

Van Oord, on the other hand, argued that the adjudicator was entitled to adopt an intermediate position between the parties’ cases.

The law

The courts are generally reluctant to set aside an adjudicator’s decision. The need to have the “right” answer in an adjudication is subordinate to the need to have an answer quickly (Carillion Construction Ltd v. Devonport Royal Dockyard Ltd [2005] EWCA Civ 1358). However, enforcement will be refused if the adjudicator has acted contrary to the principles of natural justice.

In the Van Oord case, Lord Braid listed six key principles:

1. Each party must be given a fair opportunity to present its case (Costain Limited v. Strathclyde Builders Limited 2004 SLT 102).
2. An adjudicator can make his own investigations and inquiries, and use his own knowledge and experience, but it will normally be appropriate to canvass the views of the parties before making a decision (Costain).
3. The adjudicator should not make a finding on a factual or legal basis where it has not been argued or put before him (Roe Brickwork Ltd v. Wates Construction Ltd [2013] EWHC 3417).
4. However, an adjudicator can reach a decision based on materials put before him on a basis not put forward by the parties, provided the parties’ views have been canvassed (Roe Brickwork).
5. For a breach of natural justice to vitiate a decision, it must be a material breach, such as failing to give the parties an opportunity to comment upon a decisive point or issue. The question is whether the adjudicator has gone off on a frolic of his own (Balfour Beatty Engineering Services (HY) Ltd v. Shepherd Construction Ltd [2009] EWHC 2218).
6. However, an adjudicator can adopt an intermediate or compromised position between the parties, without giving notice (Miller Construction (UK) Ltd v. Building Design Partnership Ltd [2014] CSOH 80).

Bringing these principles together, Lord Braid decided that the acid test is: when an adjudicator has departed from the four corners of the submissions made by the parties, was it fair not to seek further submissions?

In this case, Lord Braid decided that the adjudicator had not adopted an intermediate position between the parties’ submissions. The critical date chosen by the adjudicator was not a compromise between the position put forward by each expert. It was earlier than the date put forward by Van Oord.

As such, fairness demanded that the adjudicator should have given the parties a further opportunity to address him. This would have allowed Dragados the opportunity to advance its time bar argument, which was not otherwise available on the date range submitted by the parties and their experts. In short, there was an opportunity for injustice to be done.

Lord Braid therefore decided that there had been a breach of natural justice and reduced the adjudicator’s decision.

Key takeaways

Time is short in an adjudication process. Fair play is therefore extremely important. The message for adjudicators is that, if they intend to take a different approach to the one being put forward by the parties, the safe course is for the parties to be given the opportunity to comment on it. Otherwise, the adjudicator’s decision may be unenforceable and the parties may have to incur the considerable expense of starting again.

Alice Minick is an associate at Dentons UK and Middle East LLP