A recent case demonstrates the importance of an adjudicator allowing parties fair opportunity to comment on important points before deciding them.
Van Oord UK Limited v Dragados UK Limited, decided in April 2022 by the Outer House of the Court of Session, considered whether an adjudicator’s decision to award an extension of time (EOT) for completion, and related costs due to a compensation event, was enforceable where it had been reached on a basis not discussed with the parties. The court refused to enforce the adjudicator’s decision.
The court’s decision will reassure parties who are concerned that an adjudicator may decide a dispute on a point not argued or discussed.
Van Oord carried out sub-contract work for Dragados on a harbour expansion project in Aberdeen, under NEC conditions. Almost two years after contracting, Dragados gave Van Oord notice to terminate the sub-contract. There were various disputes between the parties. These led to seven adjudications.
In the sixth adjudication, Van Oord argued it had been denied access to carry out open quay excavation works due to Dragados’ lack of progress in carrying out piling works, causing critical delay. On expert evidence, Van Oord contended that as a result, and by reference to a particular baseline programme, it had suffered critical delay from 2 August 2019. Dragados argued that it was Van Oord’s failure to start certain works on time that caused the delay, and founded on a different baseline programme. Both parties’ experts had considered and rejected a programme from March 2019 as the baseline programme.
The adjudicator found in favour of Van Oord, awarding it an extension of time for completion and delay-related costs for a specific compensation event. However, crucially, the adjudicator did so on the basis of the March 2019 programme and a critical date for the particular compensation event of 31 July 2019. Neither that date nor the consequences of it being the critical date was advanced by, or discussed with, either party.
Did this render the adjudicator’s decision unenforceable?
Dragados argued the adjudicator should have told the parties what he was contemplating, so they could address him on it. If that had happened, Dragados would have argued the matter was time-barred because, based on the adjudicator’s chosen date of 31 July 2019, the particular compensation event had not been notified within the seven-week period required by the subcontract required. If correct, this would have been a complete defence and was therefore material.
Dragados argued this was a breach of natural justice, meaning it was denied a fair hearing. It was unnecessary to demonstrate that its time-bar argument would have succeeded. The adjudicator could take an intermediate position, between both parties’ respective cases, but had instead gone further back to 31 July 2019, which was beyond Van Oord’s position.
Van Oord argued that Dragados was aware of Van Oord’s position that the delay in question had occurred before 2 August 2019. It therefore should have made its time-bar argument and in fact it did. Dragados had therefore been aware of the point and it did not matter that it had made the wrong argument or wished it had made a different one.
The court reiterated the general test in natural justice challenges as: was there an opportunity afforded for injustice to be done? If there was such an opportunity, the decision cannot stand.
It was irrelevant, the court said, whether the adjudicator was right or wrong to take 31 July 2019 as the critical date – the reasoning was unclear but that did not mean it was unfair. Also, the adjudicator had not made his decision through his own enquiries but on the material provided to him by the parties.
However, the parties could not have anticipated the adjudicator’s decision that 31 July was the critical date. This date was different from and earlier than that contended for by the claimant, Van Oord; it was not an intermediate position. Fairness demanded the adjudicator give the parties a chance to address him on this.
The court agreed that whether Dragados’ potential time-bar argument in respect of the adjudicator’s chosen date of 31 July 2019 would have changed the decision did not matter. What mattered was that Dragados was deprived of the opportunity of making the argument.
The court therefore concluded that the adjudicator had not given the parties fair opportunity to comment, therefore an opportunity was afforded for injustice to be done. The adjudicator’s decision could not stand and was ordered to be set aside.
Points to take away
The case highlights the importance of an adjudicator allowing both parties the opportunity to comment on points considered significant by the adjudicator which the parties were not aware of or did not argue. This is to ensure that the parties have a ‘fair hearing’.
A favourable adjudication outcome based on a point not argued may initially seem attractive for a claimant, but an inability to enforce that outcome will undermine the time and cost spent pursuing the adjudication.