A breach too far

The words “enforcement of adjudicators’ decisions” and “breach of the Convention on Human Rights” are not ones that you would expect to see together in any decision from the courts. However this was the case with a recent decision from Lord Malcolm in the Court of Session.

The case in question is Whyte and Mackay Ltd v Blyth & Blyth Consulting Engineers Ltd [2013] CSOH 54 (9 April 2013), when Lord Malcolm made the surprising decision that to enforce the adjudicator’s decision would be a breach of the European Convention on Human Rights (“ECHR”). This has already instigated debate north and south of the border that is set to continue.

Lord Malcolm’s decision is the second in a lengthy dispute between the parties concerning a new bottling facility in Grangemouth and a claim for professional negligence.

The facts are relatively straightforward. Whyte & Mackay (“W & M”) entered into a contract with Blyth & Blyth (“B & B”) for the provision of various design services for the facility. W & M occupied the facility under a lease that would run until 2035. B & B designed the structure including the foundations. The works were completed in 2006. In 2009 settlement was observed. W & M claimed that the design of the foundations was defective and it was this that was causing the settlement and consequential damage. W & M sought damages. To avoid closure of the facility and the massive consequential costs, W & M proposed to carry out remedial works on a five-year rolling programme. However, the majority of the remedial works would not be undertaken until the end of its lease in 2035, when the facility would require to be closed for one year. In 2012 W & M successfully raised adjudication proceedings against B & B and was awarded just under £3 million.

Lines of defence

B & B argued that the adjudicator’s decision ought not to be enforced. It argued that the decision was a breach of the rules of natural justice on account that the adjudicator had failed to consider a key defence advanced by B & B, whereby even if B & B had specified the additional piling deemed necessary to make the foundations adequate, W & M would not have been prepared to proceed with those piling works.

Separately, B & B relied on article 1 of Protocol 1, which provides: “Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.” It was argued that enforcement of the award would be a disproportionate interference with B & B’s right to the peaceful enjoyment of its possessions, in this case B & B’s money. This was only permissible if it was in the public interest and provided for by law.

Finally, B & B presented a further challenge to the award under article 6 of the ECHR, which provides for the right to a fair trial. In this regard B & B submitted that the proceedings before the adjudicator did not amount to a “fair and public hearing... by an independent and impartial tribunal established by law”, arguing that the adjudicator was not independent and impartial, the hearing was not public and the procedure was capable of working substantial injustice.

The decision

On the issue of natural justice, Lord Malcolm decided that the adjudicator’s failure to consider one of the main lines of B & B’s defence was a very significant omission in his decision and reasoning, and was sufficient to justify reduction of his award. This defence was potentially a complete answer to the claim, and the adjudicator’s failure amounted to a breach of natural justice.

In relation to the decision contravening article 1 of Protocol 1, Lord Malcolm noted:

(1) An adjudicator’s decision does not purport to reflect the parties’ true legal rights and obligations. It is a “rough and ready” process designed to provide a speedy and relatively cheap provisional award. This was particularly the case in the present dispute, which was large and complex.

(2) The court’s power to refuse enforcement was one to be used sparingly and it is clear from previous case law that when the court is asked to enforce, in most cases it will do so.

(3) However the particular facts of this case were such that no general or public interest was served by W & M taking the dispute to adjudication. This was on account of the fact that the majority of the losses would not occur until 2035-36. Further, there was no need for a speedy provisional decision, on the basis that the dispute arose long after completion; the defects did not and would not prevent the use of the facility; the major losses would not be incurred for many years to come (while in the meantime W & M was considerably in pocket); if B & B was ultimately successful there was no guarantee it would recover the sums awarded; and none of the public interest justifications which lay behind the statutory adjudication procedure, such as cash flow requirements, applied.

Lord Malcolm stated that it had been “unnecessary and inappropriate” for W & M to proceed to adjudication, and that enforcing the adjudicator’s decision would place an “unfair and excessive burden” on B & B. Against that background he decided that the adjudicator’s decision contravened article 1 of Protocol 1.

Finally, in relation to the challenge under article 6, Lord Malcolm rejected B & B’s argument on the basis that article 6 was only engaged when a civil right or obligation is being determined, and an adjudication’s award could not be considered as finally deciding the civil right or obligation at stake.

An unusual case?

It remains to be seen how this decision will affect future cases where adjudicators’ decisions are sought to be enforced by the courts.

On the one hand, it could be said that the decision is unusual and one that is only relevant to the particular issues that were present in that case. However, it dealt with a type of dispute that is relatively common within the construction industry, and one which adjudicators are frequently asked to determine. In this regard the dispute fell within the 1996 Act, it was referred to adjudication after the works had completed, it was concerned with professional negligence, and it involved complex issues of fact and law including determination of a future loss claim. None of these are particularly unusual.

One of the main planks to W & M’s argument was that the court in the circumstances of this case, and given the advantages of adjudication procedure as a whole, ought to enforce the decision, as to decide otherwise would undermine the whole statutory scheme. Lord Malcolm disagreed, commenting that this argument was “exaggerated and unconvincing” and that the decision “would not upset the now well-established statutory scheme”.

This aspect of his decision could be considered to be the most far reaching, given that the dispute which was referred was in many senses not particularly unusual and the adjudicator (leaving aside his apparent failure to deal with a critical aspect of B & B’s defence), reached a decision of the type which the courts have previously regularly enforced. The decision is likely to lead to similar jurisdictional challenges being raised on the basis of article 1 of Protocol 1.

Unless the decision is appealed, it will no doubt provide further ammunition for those seeking to resist enforcement of adjudicators’ awards by arguing that the article 1 Protocol 1 provisions ought to apply.