The Outer House of the Court of Session held in a recent case (Carillion Utility Services Limited v SP Power Systems Limited [2011] CSOH 139) that, where an Adjudicator applies his or her own knowledge and reasoning which is material to a decision, the Adjudicator is obliged to allow parties to comment on it in advance of the decision. Otherwise the decision may be in breach of Natural Justice.

The Case

Carillion Utility Services Limited (C) provided lamping and guarding services for cable excavations undertaken by SP Power Systems Limited (S). A dispute arose over payment for the services and C referred the matter to Adjudication. The Adjudicator ruled C was entitled to a payment of around £2.7 million. S refused to pay.

C therefore raised an action in the Court of Session, to seek Summary Decree and enforce the Adjudicator’s decision for the payment of money.

Natural Justice

S challenged the Adjudicator’s decision on the basis it was reached in violation of the principles of natural justice.

During the Adjudication C sought payment of around £4.8 million and provided a methodology for the calculation of this claim. The Adjudicator disagreed with the methodology in relation to a multiplier used regarding the size of the excavation site where the works had taken place. Using his own experience of the construction industry the Adjudicator adopted his own multiplier, based on his own calculation of the size of the excavation site and additional equipment that would have been used there and on commercial rates which he applied in order to determine the payment of money due. S argued in both instances the Adjudicator had acted contrary to natural justice, as he had taken both factors from his own knowledge and experience and, crucially, had not submitted this information to either party before his judgment, denying them any right to comment on it.

The Court ruled that in relation to his calculation of the size of the excavation site, the Adjudicator had used his own methodology and had based this on the evidence submitted. As such he was entitled to apply this reasoning to his decision without allowing the parties to comment. However, in relation to his application of the formula to commercial rates, he took these rates from his own knowledge alone and did not base them on any of the submissions from either party. Crucially, the application of commercial rates was material to the calculation of the amount of payment. Consequentially Lord Hodge decided the Adjudicator had violated the principle of natural justice, in that he had allowed an opportunity for injustice by failing to provide the parties with his reasoning on the application of the commercial rates before making his decision. Summary Decree was refused.

Implications

These may seem obvious but it must be remembered that this judgment may be appealed and reversed. Not all courts have taken the same view but there is logic to the decision based, as it is, on the specific facts of this case. Where an Adjudicator uses reasoning, which is material to the outcome of his decision he must allow the parties the opportunity to comment on the reasoning before reaching a decision. In consequence it will be increasingly important for parties to find good adjudicators who control the procedure effectively without allowing a diversion from the presented claims to derail the whole process for want of time.

Further information

For further information please contact Keith Bishop on 0131 270 7949 or your usual contact within the Construction Team.

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