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Opinion - Puzzles for
Arbitrators
Some possible answers
I have read your interesting Puzzle for Arbitrators No.9, which you set in News & Views No. 55 (pp. 19 & 20). My straight answer is that, as Arbitrator, I would make an award in favour of the Contractor for wrongful determination on the grounds of lack of natural justice because of
(a) a failure of the Adjudicator to give opportunity for proper examination of all relevant facts and
(b) the fact that further examination of all relevant facts by the Employer showed that the Contractor's workmanship was not at fault but the design, which was the responsibility of the Employer.
I would award the Contractor
(i) payment at contract rates for all work executed up to the time of determination, and
(ii) payment for all materials procured for the Works and not embodied in them due to the determination of the Contract by the Employer and not reimbursed in the contract rates and measure, and
(iii) demobilisation costs where not expressly included or recovered in the contract rates, and
(iv) payment for loss of profit on all work which the Contractor was prevented from performing due to the determination, and
(v) interest on those monies from the dates when each section of the Works would otherwise have been completed and paid for.
My further observation is that the Adjudicator should never have allowed himself to become involved in ruling on design matters other than to determine that it was a matter requiring further time, immediate further searches and investigation by the Employer in cooperation with the Contractor, during which time the Contractor should delay specified dependant sections of the Works.
Such a problem was foreseen long ago (early 1990s) by The Institution of Civil Engineers in its training courses for adjudicators under the New Engineering Contract form. Such contracts (in the days before the passing and coming into force of the Construction Act 1996) anticipated an average period of some 17 weeks for an adjudicator to hear the head(s) of claim and make his award. If it was bad practice then for adjudicators to be involved in design matters, then it is even worse practice now when the adjudicator is required to make his award in within 28 days. This even though, in either case, the period allowed may have been/ may be extended by mutual consent of the parties.
Adrien's reply stirred the original author of this problem, Peter Home, to offer his own views on this subject as follows.
I actually wrote this problem in about 1997/8 (when I was previously editing News & Views), particularly to identify the problem of disputes regarding design and potential clashes with the decisions of other tribunals. I also had in mind the choice of appropriate tribunal and the fact that any difference may be referred and there was a restricted time for coming to a Decision. At the time of writing, most construction contracts only permitted commencement of arbitration after 'completion' of the work.
For those not familiar with construction adjudication, either party can refer a dispute on any matter at any time to an adjudicator who must make his decision within 28 days. The period for his decision may be extended but always requires the assent of the Referring Party (i.e. in this case, the Employer). This Decision is final until such time as it is reconsidered in arbitration or litigation.
Firstly, I think that we must accept that the adjudicator's decision must be complied with (the doctrine of infallibility of the adjudicator). I therefore suggest that the Contractor should have 'revived' the dispute (preferably by giving notice of arbitration), set out his full intentions of recording costs, etc., and carried out the work (isn't hindsight wonderful?). Unfortunately, having refused to comply with the adjudicator's decision, however flawed, the Employer's determination of his employment was lawful and from that springs the entire Award.
I agree with the first two items of Adrien's summary - that the Contractor should have been paid for all work executed and materials on site. I think that we should remember that the Employer was only carrying out the terms of the contract and complying with the adjudicator's Decision while the Contractor was in breach of contract by failing to comply with the adjudicator's Decision.
I would not therefore award anything to the Contractor for his costs arising out of the determination - Adrien's items (iii) and (iv) - demobilisation and loss of profit. I am not happy about the suggested award of interest (mainly because I do not understand the liability).
The most difficult part remaining is whether the Employer has any claim against the Contractor. His claim would appear to be:
(a) Cost of employing a new Contractor (i.e. professional costs) (b) Additional costs of new Contractor completing the original work
(c) Delays (liquidated damages) arising out of the appointment of a new Contractor
(d) Additional costs of new Contractor carrying out the demolish and re-build.
(e) Costs of the demolish and rebuild work I think that the Employer should be able to recover costs arising directly from the breach i.e. (a) to (d) above but should not be able to recover the costs of the demolish and rebuild as these were shown to be not the responsibility of the original Contractor. If the original Contractor had continued as he should have done then the distribution of cost which I have outlined above appears to be correct.
I make no mention of interest as it may become due if there is an outstanding debt or cost incurred but which I cannot identify. As to costs, I think that we should make this another puzzle, assuming that neither party made any offer, all of the 'admissions' were in the arbitration.
One last thought is that this sort of problem raises the question of choice of tribunal. If arbitration can be shown to be efficient (say with a strict time/cost limit) then I suggest that the proper tribunal for this matter should have been arbitration rather than adjudication.
Editor's note. I am grateful for both Adrien and Peter for their willingness to put their heads above the parapet and venture an opinion on this difficult topic. Do any other readers have different opinions on this particularly difficult question?
Peter Horne