Puzzles for Arbitrators - No 9
Here is puzzle 9 in a series of puzzles for arbitrators and aspiring arbitrators developed by Peter Horne. It covers a topic, which, I think, will become increasingly relevant as Adjudication becomes the normal precursor to Arbitration for the construction industry, i.e. what happens if the Adjudicator has ordered something to be done which cannot be reversed, which the Arbitrator later finds was incorrect?
Please spend a few minutes thinking about this particular problem. My view is that sooner or later it, or something similar, will come up in an arbitration, if it has not already done so. The Editor would welcome answers, or particular comments, on this puzzle.
You are appointed Arbitrator on a matter arising out of a substantial construction contract. Problems arose at a fairly early stage when part of the reinforced concrete frame failed and the Employer put the matter to adjudication, pleading that the entire frame was suspect and had to be demolished. The concrete had passed its normal crushing strength tests and the design had been carried out by a large and well-known structural engineering practice. The adjudicator’s decision was that the materials and/or workmanship in the frame was defective and it should be demolished and re-built. The Contractor refused to abide by the decision, insisting that it should have been allowed time to adduce the further tests, without which the decision could not be valid. The Employer, following notices in accordance with the contract, determined the Contractor’s employment and had the work carried out by others. The Contractor commenced arbitration immediately following its determination and work is still continuing. The Contractor claims wrongful determination, payment for all work executed and loss of profit.
During the adjudication there had been insufficient time for further tests on the concrete but it has now become apparent that the cause of the initial failure was deficiency in the design, for which the Employer was responsible, and the materials and workmanship were in accordance with specification. The Employer has admitted that the concrete was in accordance with the specification and has admitted liability for the cost (at contract rates) for all of the work executed by the Contractor but denies any further liability.
The Employer has pleaded that the determination cannot in any case have been unlawful as it was based on the Contractor’s failure to carry out work in accordance with the adjudicator’?s decision which the Contractor should have complied with, leaving any challenge to a later arbitration. The Employer further pleads that, as the determination was lawful, the Contractor is liable for the additional costs of completing the work.
The Contractor admits that notices in connection with the purported determination were in accordance with the contract but avers that they were ineffective as the decision was not in accordance with the principles of natural justice (its case was dependent upon the further tests which it was not able to adduce within the time allowed) and was therefore invalid. The Contractor has further pleaded that all of the loss/expense was caused by the deficient design and should be claimed by the Employer from the Engineer and that the Employer could have mitigated its losses by agreeing to additional time for the adjudication. The Contractor also pleads that he has been proven to have been in the right and should not be penalised in any way whatever.
What would be your award?
Peter Horne