Beware of mental wizards

The Australian case of Timwin Construction vs Facade Innovations case might make a few arbitrators and adjudicators think. It is about bad faith: a tricky area for those who decide disputes. Immunity is the word. Arbitrators and adjudicators are not liable for any act or omission that causes grief. But the immunity is lost if the mess-up is in "bad faith".

Now let me tell you about Timwin. There is a simple rule to be applied by the adjudicator: they have to try in good faith to exercise their relevant powers, having regard to the subject matter of the legislation. If they do not, their decision is void and will be set aside.

The powers of the adjudicator or arbitrator are found not only in statute but in the contract rules. Moreover, the determination of the dispute is by way of well-known principles when deciding facts and applying law. You might guess that this adjudicator went off the rails.

Facade Innovations was the curtain-walling subcontractor. It put in an ordinary application for payment for variations but Timwin, the main contractor, proposed to pay none of it. It gave three reasons:

(1) they were not variations

(2) there was a claim in damages for delay

(3) a previous payment was made under duress. Facade said why this was all rubbish. Timwin's response explained its three reasons in detail. The adjudicator then got stuck in.

Now, let me tell you what often happens at this point. All the arguments are in front of the adjudicator but, for some reason, he ignores them. He begins instead to construct a case in his own mind. The person goes to his experiences, his learning and applies a shortcut the complex decisions. He has been in the game for 40 years and he has seen it all. He decides that party A should be paid because … well, he knows best. Meanwhile, the arguments of the parties are forgotten.

That's more or less what happened to our adjudicator in Timwin Construction vs Facade Innovations. The judge said: "Insofar as one can gather from reading the determination, he appears not to have read the submission at all.

The judge said: ‘Insofar as one can gather from reading the adjudicator’s determination, he appears not to have read the submission at all’

He certainly does not indicate that he has gained any enlightenment as to the argument in relation to variations from Facade's submissions.

"Further, when dealing with the other reasons given by Timwin in support of its claim that it was not liable to pay, he dealt only with the arguments raised in the payment schedule."

Yes, I know it is tempting to giggle but I tell you that this is ordinary. There is huge temptation for any arbitrator, adjudicator or even judge to apply what they believe to be the contractual rules to what they believe to be the facts, regardless of what is argued. They know of a case or a common-law principle and they show off. "I've thought of something you two arguers have missed. That's because I'm sooo bright …"

In Timwin, the judge said all this amounted to bad faith on the part of the adjudicator. He didn't think it was to be considered in the context of dishonesty, more in the context of administrative law. He pointed to a 1925 House of Lords case, Roberts vs Hopwood, where those charged with a duty, a public duty "had not put their minds and wills to the discharge of their duty". In short, the requirement of good faith required this adjudicator to consider the case put by the disputing parties, not his own case.

Adjudicators in the UK keep telling me that they avoid bringing their own ideas into the quarrel. And I keep saying: not true. There is an unbelievable pull by anyone who adjudicates quarrels to hand down their opinion from on high, whether it is sound, unsound or utterly irreversible. Hardly any research has been done on this fascinating part of the human psyche.

Australia, or this judge at least, has given this adjudicator a thick ear. It won't happen in the UK because the radar of the High Court is set high, but what about tomorrow? Tomorrow, when the policy changes, those convict ships of 1787 will resume usual service. Where do you fancy? New South Wales, Tasmania or Queensland?