Challenging the methodology of an adjudicator

The recent case of Herbosch-Kiere Marine Contractors Ltd vs Dover Harbour Board represents a rare example of a court refusing to uphold the decision of an adjudicator. The facts of this dispute involve Dover Harbour Board (“DHB”) employing Herbosch-Kiere Marine Contractors (“HKM”) to remove the remains of the Spanish Prince, a former cargo ship, together with some debris from the remains of another vessel. The project was completed late and issues arose between the parties in relation to the final account and delays. HKM commenced adjudication proceedings in October 2011 and received a decision in its favour. HKM subsequently commenced proceedings to enforce the decision. DHB sought to resist the enforcement of the decision arguing that the adjudicator had exceeded his jurisdiction or failed to follow the rules of natural justice.

The adjudicator exceeded his jurisdiction by addressing and using a method of assessment, which did not form part of the dispute referred to him

DHB’s argument centred around the methodology used by the adjudicator to calculate the money due in respect of the various delay claims. A number of resources were utilised to carry out the works including two barges and a tugboat. When calculating the money claimed in respect of the various delay and disruption claims both parties had used the same methodology. This was to determine the extent to which each individual resource had been delayed by the events using the individual resource rates.

DHB argued that the dispute had been defined in the correspondence exchanged between the parties and that in this correspondence both parties had relied on this methodology but for different periods of delay. However, the adjudicator had applied a composite overall rate to the overall delay which multiplied the overall delay by a composite of all of the resource rates. Consequently, DHB argued that the adjudicator had exceeded his jurisdiction by using the alternative methodology or alternatively that the adjudicator had acted materially unfairly in that he did not suggest before his decision was issued that the alternative methodology should be applied. Furthermore, it was DHB’s argument that the alternative methodology made a material difference to the overall figures in dispute.

The judge stated that when determining what the dispute was between the parties it was necessary to acknowledge how the dispute had developed over time. In this case the judge found that although the dispute related to the final account, the claim had been “explained, clarified and limited” by correspondence. The judge stated that it was clear from this correspondence that the claim had been evaluated on the basis of the extent to which each individual resource had been delayed and there had been no suggestion by either party that the application of a composite overall rate to the total delay should be applied.

The judge did not enforce the adjudicator’s decision on two grounds. Firstly, because the adjudicator exceeded his jurisdiction by addressing and using a method of assessment, which did not form part of the dispute referred to him. Secondly, the judge found that the adjudicator had breached the rules of natural justice by deciding a case on a basis that was not argued by either party and also without giving either party an opportunity to make submissions on the method of assessment which the adjudicator considered that he should adopt. Furthermore, the judge found that the way that the adjudicator decided to assess the claim affected the total amount due, although the extent to which it was affected was unclear.

The judge stated that this was indeed one of the situations where the adjudicator had “gone off on a frolic of his own”

The court rejected HKM’s argument that the court should not refuse to enforce a decision merely because an adjudicator in fact or in law, is wrong or has made an error in his decision. In this case the judge was of the view that the adjudicator should be criticised because he had decided something on a basis that had not been argued in the adjudication proceedings and furthermore had not given either party the opportunity to address the point. The judge stated that this was indeed one of the situations where the adjudicator had “gone off on a frolic of his own”.

The case is noteworthy because the effect the decision will likely be of concern to clients, lawyers and adjudicators alike. This is a case where the referring party claimed it was owed money and the adjudicator agreed. However, the decision was not enforced due to the methodology used by the adjudicator to reach this decision. DHB claimed that the methodology used by the adjudicator to evaluate the claim provided a more generous result than it would have done if he had decided the claim on the basis put forward by HKM. If he had used the original methodology, it is likely HKM would have an enforceable decision and so the effect of this decision may call into the question the confidence that parties can have in the adjudication process, where an adjudicator has adopted a methodology other than one of those advanced by a party in the adjudication. Further, the judge’s comments on analysing what dispute has been referred to adjudication should also be noted. Parties should consider the implications of this when drafting correspondence in relation to disputes that may in the future be referred to adjudication.

Andrew Jones is a partner in SNR Denton