Articles

Taking the initiative

Introduction

There is an ongoing debate as to whether adjudicators should rely upon their own knowledge (where this differs from what is put on behalf of the disputants) or conduct investigations of their own volition. Given that there are circumstances where an adjudicator might successfully do either, the debate also embraces the nature of those circumstances and how an adjudicator might proceed.

This article considers some aspects of the debate.

The general prohibition

The starting point is the general prohibition whereby most tribunals are limited to deciding the dispute before them upon the evidence and arguments presented on behalf of the disputants. There are many instances where such things have not happened with a resulting failure at enforcement or appeal. The list of such instances includes a tribunal: calling its own evidence after close of proceedings, relying upon documents unseen by the disputants, examining witnesses in private, hearing one disputant's argument in the absence of the other, deciding issues on points not put to it, and deciding questions that were not in issue.

Although it should be borne in mind that if the outcome would have been the same regardless of the tribunal erring as listed above then enforcement is still probable. Even in the last listed instance if the 'bad' (answers given in excess of jurisdiction) can be separated from the 'good' (answers within jurisdiction) then there would be enforcement of the latter.

Exceptions

As with most general rules there are exceptions and conveniently for the purposes of this article the most important is where the tribunal has been appointed because of its expertise in the matters in question. Most adjudicators are appointed because of their experience and/or qualifications relevant to construction disputes.

However there is a fine line between satisfying the exception and erring beyond it.

Adjudicators' powers

As regards a contract of the kind the subject of Part I of the Housing Grants, Construction and Regeneration Act 1996 [the "Act"] where adjudication is concerned, section 108 (2)(f) requires such a contract to enable the adjudicator to take the initiative in ascertaining the facts and the law.

In spite of that power there are a significant number of cases where adjudicators exercised it in ways which contributed in persuading the court against enforcing the eventual Decision. The fine line between satisfying an accepted exception and erring beyond it applies just as much for adjudicators as for other tribunals, although the strict time limits for adjudicators to conclude matters has tended to be borne in mind by the courts in enforcement proceedings.

So what is new?

Not much it seems! The pre- and post- Act case law on the point is similar and turns largely on whether one or other of, or both, the disputants has had a reasonable opportunity to address things upon which the adjudicator has relied in making the Decision, assuming that there would have been any difference in the eventual result.

2Thomas Borthwick (Glasgow) Ltd v Faure Fairclough Ltd (1969) was the subject of an award where the tribunal decided an important issue on the basis of trade custom when the only argument had been directed at the construction of express contractual terms. The ensuing judgment made it clear that the disputants should never be taken by surprise. If the disputants had missed something of apparent significance then the tribunal should invite them to address it, even if it meant calling them back after submissions had otherwise been concluded. Nevertheless the court held that the same disputant succeeded in any event.

By contrast the arbitrator in Fox v PG Wellfair (1982) was removed by the Court of Appeal for taking into account facts which contradicted unchallenged evidence that had been put to him. In that case there was a crucial effect on the outcome.

In Zermalt Holdings SA v Nu-Life Upholstery Repairs Ltd (1985) the High Court held:

If an arbitrator is impressed by a point that has never been raised by either side then it is his duty to put it to them so that they have the opportunity to comment. If he feels that the proper approach is one that has not been explored or advanced in evidence or submission, then again it is his duty to give the parties a chance to comment. If he is to any extent relying on his own personal experience in a specific way, then that again is something that he should mention so that it can be explored. It is not right that his decision should be based on specific matters which the parties have never had the chance to deal with, nor is it right that a party should first learn of adverse points in a decision against him. That is contrary both to the substance of justice and to its appearance, …….

In Checkpoint Ltd v Strathclyde Pension Fund (2003) the Court of Appeal established a fine distinction between what was acceptable in a rent review arbitration and what was not. In Warborough Investments Ltd v S Robinson and Sons (Holdings) Ltd (2003) the Court of Appeal decided that an arbitrator had not trespassed beyond what was acceptable. Both cases were considered and summarised by John Jarvis QC sitting as a deputy judge in the High Court in St George's Investment Company v Gemini Consulting Ltd (2004) as follows:

An arbitrator is entitled to use his expert knowledge to arrive at his award, provided it is of the kind and in the range of knowledge one would reasonably expect the arbitrator to have and provided he uses it to evaluate the evidence called and not to introduce new and different evidence.

An arbitrator does not have blanket permission to use his own expert knowledge to arrive at an award. For example, if an arbitrator proposes to take into account evidence which is not being called it is his duty to expose those matters for comment ….

…the arbitrator is entitled to arrive at his award by deploying the evidence in a way which is materially different from the way the parties' [experts] deployed them, providing that the award addresses a matter which has been put into the arena by the [experts] and with which they have had the opportunity to deal.

The remaining points went to explaining how the impact of a disputant being unable to present its case might affect the outcome.

Professor Merkin at para 15.54 of Arbitration Law summarises it thus:

…. an arbitrator cannot take account of matters not put to him without giving the parties the opportunity to make representations on that fresh evidence, but that he may use his own expertise to weigh the evidence which has actually been put to him without constantly referring back to the parties for their comments.

It is enough to refer to two cases involving adjudicators to demonstrate that the courts apply similar rules to their behaviour as to other tribunals. The first is Balfour Beatty Construction Ltd v Lambeth Borough Council (2002) in the TCC. The court refused enforcement of the Decision because the adjudicator failed to identify to the disputants the programming analysis he intended to employ when there were other techniques available, and having embarked upon his own analysis he failed to provide an opportunity for it to be commented upon by Lambeth. He failed to inform the disputants of the information that he gleaned from his analysis that was potentially important or decisive. The court did not criticise him for obtaining information and performing his own analysis where Balfour Beatty had fallen short in their submissions. His failings consisted of proceeding in a way which robbed Lambeth of the opportunity to deal with that information and to persuade him to adopt other conclusions concerning it.

The second is RSL (South West) Ltd v Stansell Ltd (2003) in the TCC. Again the court refused enforcement. Here the adjudicator obtained the disputants' agreement to the use of a programming expert whose initial report was made available to them for comment. Unfortunately the final version of the expert's report which took into account the disputants' comments on the earlier version was not shown to them for further comment. The judge decided that the final report may have been significant to the outcome in the Decision.

A frolic of their own

There is concern that due to being endowed with what at first blush seem to be very wide inquisitorial powers some adjudicators will embark upon what has been succinctly described as a 'frolic of their own'.

The best recent example of this is the subject of the Privy Council's judgment overturning the Court of Appeal of Trinidad and Tobago [the "Court of Appeal"] in Muriel Lawrence v Edna Poorah {Deceased by representative of her estate Tim Poorah} {and Shirley Poorah appointed to represent the Estate of Edna Poorah] (2008). The issue before the Court of Appeal was whether the first instance judgment had been wrong in concluding that Edna Poorah had been of sound mind, memory and understanding in executing the gift of a property.

Instead of confining themselves to the pleaded case as just described the Court of Appeal allowed the appeal on the grounds that the conveyance was an improvident action on which Edna Poorah had not received independent legal advice. Amongst other things there were anomalies in that the instrument executed by Edna Poorah was in the form of a conveyance in exchange for money but no money had changed hands. The Privy Council restored the first instance decision in a judgment from which the following are extracts. My contextual clarifications are [thus]:

[The absence from the pleadings of the lack of consideration point] does not seem to have been raised by the appellant's counsel, either in his skeleton argument or {so far as their Lordships can discern} in his oral submissions. None of the authorities mentioned in the last part of [the Court of Appeal's] judgment appears in the skeleton. ……. [Those authorities] would have been highly relevant if undue influence or unconscionable bargain had been an issue in the case.

In their Lordships' view the statement of claim simply cannot be understood, on a fair reading, as raising issues of undue influence or unconscionable bargain. Neither of those expressions is used in the pleading.

The Court of Appeal may have felt that there were, on the evidence before the trial judge, matters which could and should have been examined more closely. [It] may {for instance} have wondered, as some of their Lordships have wondered, why [a gift was described as a sale, and other matters]. But these matters were not directly relevant to the only issue before the judge, that is whether [Edna Poorah] was of sound mind. If an application had been made to the Court of Appeal to introduce new issues [it was probable that it would have been successfully opposed] on the ground that the respondent to the appeal would have wished to adduce further evidence on these issues at trial.

…… In the absence of such an application the Court of Appeal should have suppressed its curiosity and refrained from attempting to investigate other issues which were not raised {even though they might well have been raised} before the trial judge.

With the benefit of hindsight it seems that if the trial judge had enquired into the evidence of the curious features surrounding the written instrument despite the strictures of the pleaded case then the higher courts would never have become involved. Naturally one blames those putting forward the pleading. The general rule entitled the judge to decide as he did.

Where does this leave us?

There are clearly instances where the adjudicator is selected specifically because of his background knowledge relevant to the dispute. Where the disputants either expressly or impliedly have indicated their sole reliance upon his endeavours there is little danger that his necessary investigations or inspections in resolving the dispute will be criticised.

Where an individual is similarly appointed and the disputants make representations touching upon areas within his expertise then he may decide between them by accepting some or all of what either have put to him. If he is unimpressed by a claim which is denied there is no difficulty in rejecting it whether or not there is an argued response, even if, as sometimes happens, concessions of some kind are offered in the response. On the other hand any formal admissions in a response should be accounted for in the outcome.

The difficulties start when his views do not fall within those put to him on behalf of the disputants. If there is merely a miscalculation which results in his answer exceeding that of a claim (or counterclaim) then he might decide to limit his Decision to what is claimed. Alternatively, he might see fit to alert the disputants to the error and indicate what he proposes to do about it. Clearly the particular circumstances will dictate which alternative to adopt.

Where the methodology that he favours is not that posited by either disputant then he should tell them why he favours it and obtain either their consent to it or afford the opportunity to persuade him otherwise. In such situations he should set out his reasons for his selection and invite comment before adopting any method. Where there are competing methodologies having similar support within the body of appropriate practitioners then he might find it helpful and appropriate to require the various experts to prepare reports covering them all. He is then entitled to favour one methodology or the other if he is reasonably certain that it best suits the issues he has to decide.

If both disputants favour the same methodology but the adjudicator does not and he is unable to secure their agreement to that which he favours, having afforded them the opportunity to do so, it is thought that Section 108(2)(f) of the Act enables him to pursue that which he favours despite the general rule. In such circumstances it is particularly important that he provides them with full data of his approach together with the results and conclusions to be drawn from it. He must do so in sufficient time for them to address him on it. If possible he should do this progressively. A meeting or series of meetings with the appropriate experts is probably the best way of doing this.

This goes against what in common law systems is referred to as the adversarial approach. The general rule, as briefly described above, is a feature of that approach. The suggestion being that by taking the initiative in such a way a tribunal is assisting one disputant to the detriment of the other and offending the principles of fairness and natural justice.

The same suggestion is often made if something that appears relevant and of which the adjudicator is aware is not covered by the evidence or submissions that have been put to him, but which the adjudicator brings to attention of the disputants. It is clear from the authorities that provided he affords the disputants the opportunity to address him and/or adduce further evidence on it if they are so minded then he will not have offended those principles.

Having decided to raise a point that appears to be of importance but which the disputants seem to have missed, it sometimes occurs that one or all of them ignores the opportunity to deal with it. This usually indicates that nothing turns on it for reasons known to them but not to the adjudicator. However, if the adjudicator still entertains concerns it is open to him to set down his thoughts on the point and put them to the disputants for comment. If he turns out to be wrong then at least he can then sleep well.

In such situations, no-one else would know if he put from his mind what it was that had occurred to him and he never mentioned it to the disputants. I for one when faced with this dilemma prefer to go to my bed at night without worrying that something of importance might have been missed. But none of this entitles an adjudicator to stray into areas outside what is expressed or can properly be inferred from the notice to adjudicate and any withholding notice.

Philip Fidler

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