Nobbling the nomination (or the abuse of the adjudicator appointment process) - time for statutory intervention or guidance?


Getting an adjudicator

In order to have an adjudication you have to have an adjudicator. Many people in the construction industry do not have to consider how you get an adjudicator unless they are drafting the contract or a dispute arises. An adjudicator or possible adjudicators can be named in the contract or agreed by the parties once the dispute has arisen. Alternatively they can be selected by a nominating body. A nominating body is simply a body that will make an appointment for you from the possible range of adjudicators. Although nominating bodies are recognised in the legislation that brings adjudication into our contracts, the legislation does not say very much about them or how they must behave. The Housing Grants, Construction and Regeneration Act 1996 (as amended by the Local Democracy, Economic Development and Construction Act 2009) (The Act) does not itself refer to nominating bodies and simply requires that the contract (a) must enable a party to give notice at any time of his intention to refer a dispute to adjudication; (b) must provide a timetable with the object of securing the appointment of the adjudicator and referral of the dispute to him within 7 days of such notice.

What is, and who may be, a nominating body?

The reference to “nominating bodies” comes from the Scheme for Construction Contracts. The Scheme provides more detail than the Act and refers to both “nominating bodies” and a “specified nominating body”.  The Scheme provides “an “adjudicator nominating body” shall mean a body (not being a natural person and not being a party to the dispute) which holds itself out publicly as a body which will select an adjudicator when requested to do so by a referring party.

There are considered to be about 20 nominating bodies. Many of them are part of a professional institution but there are others which are set up by private organisations. They may charge for making nominations or they may make them for free. They will usually set out a process on a website by which you can request that they make a nomination.

The choice of nominating body is rarely a matter of agreement between the parties. The employer who is letting the contract will decide and the selection is simply part of the terms of contract presented to the tenderers. On large public sector projects the choice of a single nominating body can have wide implications. At the stroke of a pen the potential pool of adjudicators is narrowed from hundreds to possibly less than 100. Where this is combined with an NEC contract, where there is no right to go to court or to arbitration until the dispute has been decided by the adjudicator, potentially large numbers of disputes are channelled at a small group of individuals.

In many contracts there is no named adjudicator and no specified nominating body. In those circumstances the party referring the dispute can seek to agree a specific adjudicator with the other party or go to any nominating body for the appointment of an adjudicator.

 

Selection of the adjudicator by the nominating body

The selection of the particular adjudicator is then left to the nominating body. From a broad public policy perspective it is important that a process which removes disputes from the judicial process (until enforcement or finally determined) and which is potentially final and binding (in the case of some contracts – see the NEC time limit for giving notice of dissatisfaction)) has the confidence of the industry and that it is not open to abuse.

Since the legislation says very little about nominating bodies the courts have had to consider whether there are any restrictions on who or what may be a nominating body or who the nominating body may nominate.

The case of Sprunt Limited v London Borough of Camden  decided that one of the parties cannot name itself as the specified nominating body in its contracts.

In that case Camden had named itself as the specified nominating body and so was in a position to nominate the adjudicator after the dispute had arisen.

In defending that position counsel had argued that in some arbitration clauses each party nominates its own arbitrator and so long as Camden did not nominated someone in respect of whom there was actual or apparent bias then there was no objection to Camden being the nominating body. The judge rejected that stating “arbitration is invariably a longer process  ... and there is limited time in which a party to adjudication can determine if an adjudicator nominated by the other party might be considered potentially actually or ostensibly partial or biased.” The judge therefore rejected the argument that Camden could be the specified nominating body stating “Essentially, what Camden would have is not a judge in its own cause but the right to nominate a judge in its own cause and that strikes against the policy of the act of not having actually or ostensibly impartial adjudicators.”

Who may be appointed as an adjudicator?

In terms of who may be nominated there are no specific requirement in terms of qualifications or experience but the legislation does impose some limits. A person letting the contract can at that stage name the adjudicator but the person named is placed under a duty to act impartially (Section 108(2) (e) of the Act). As explained by Mr Justice Akenhead in the Sprunt case “impartiality in an adjudicator, or indeed an arbitrator or a judge , is judged in two ways, the first being by reference to actual partiality or bias and the other by reference to ostensible or apparent partiality or bias………the ostensible or apparent category ..is judged by an objective test ..accepted by Counsel broadly as being whether a fair minded and informed observer, having considered all the circumstances which have a bearing on the suggestion that that the decision maker was biased would conclude that there was a real possibility that he was biased.”

There is therefore an objection to one party seeking to unilaterally appoint or secure the appointment of someone who might be actively or ostensibly partial.

 

 

How do nominating bodies make appointments?

There is no express drafting in the legislation concerning the nominating bodies appointment process except that the nominating body must communicate the selection of  an adjudicator to the referring party within 5 days of the request to do so.

The process for selection of the adjudicator is therefore left to the nominating body. It is here that the problems can occur.

Problems in nomination

Conflict of interest / bias

The nominating body may select someone who has a connection to one of the parties or their representatives. If the person in the eyes of a fair minded and informed observer, having considered all the circumstances which have a bearing on the suggestion that that the decision maker was biased would conclude that there was a real possibility that he was biased then there is the possibility that a party might object to the appointment. The Act does not say anything about this but the Scheme requires that “A person requested or selected to act as an adjudicator shall not be an employee of any of the parties to the dispute and shall declare any interest, financial or otherwise, in any matter relating to the dispute.” It is settled law that the adjudicator on being approached for appointment should reject the appointment if there is a possibility of actual or ostensible bias. If the adjudicator proceeds with the appointment then if a party objects the appointment could be invalid and the process a waste.

The duty is squarely on the adjudicator to understand his relationship with the parties to the dispute and their representatives and not to take the appointment if it conflicts with his duty. However there has been a practice among some nominating bodies to “select” the adjudicator based upon information provided by the referring party that goes beyond the documentation required by the legislation. This is perhaps understandable in that a wasted nomination might give the body a bad name or in a competitive market the nominating body may wish to be seen to make the most appropriate appointments.

Communications with the nominating body to influence the appointment

The type and extent of this information, the purpose to which it is put and the degree to which it is disclosed to the other party at the time of nomination varies from nominating body to nominating body.  For serial users of adjudication the practice is well known. Some take advantage of it more than others to secure the right nomination or avoid the wrong nomination. As for the party who may be responding to the dispute, it has no choice over which nominating body is approached or the extent to which the referring party will take advantage of the particular features of the nominating body’s process. The games that can be played might be, for example, to include a long list of adjudicators who the referring party suggests have conflicts of interest so they are precluded from selection or to suggest that particular qualifications and geographical location are required of the adjudicator so as to narrow the field to a few known individuals. The motive may simply be that the representative thinks that particular individuals would be less likely to find in their favour than others for reasons that go beyond any proper conflict of interest; for example, anecdotal evidence of how the adjudicator has approached a similar issue in other adjudications or the particular style of process that the adjudicator is known to adopt i.e. never holding hearings, not investigating issues more than is absolutely necessary or generally being known to favour the payee. Such gamesmanship has no place in adjudication.

In one well known case the potential pool of adjudicators was reduced from 109 to 5 by stipulating that a specific dual qualification was required. In another case the referring party fraudulently misrepresented that certain adjudicators had a conflict of interest. These practices were designed to secure the tribunal of its choosing.  In the case of Eurocom v Siemens Plc the court decided that such devices can invalidate the appointment. The court summarised the position;

  1. I consider that the authorities make it clear that the principle applies in any case where a party is seeking an advantage by making the fraudulent representation. Where a party applies to an adjudicator nominating body and makes a fraudulent representation then the fraud cancels the advantage which would otherwise have been obtained from the transaction by voiding the transaction altogether. In my judgment, applying the principles set out in Rous v Mitchell,where there has been a material fraudulent misrepresentation in the process of applying to the adjudication nominating body, the application for a nomination of an adjudicator is invalid and it is as if no application had been made. The state of mind of the RICS on receiving the application is irrelevant and it does not matter whether RICS was deceived or not.

 

The court has in addition stated that there is an implied term that a party applying for a nomination should not act dishonestly. Any party that did so would be in breach of the implied term and  the appointment would be invalid if there was a sufficient causal link between the fraudulent misrepresentation and the adjudicator appointment process; alternatively if a party's failure to follow the correct adjudication process went "to the heart of the appointment", the adjudicator would lack jurisdiction.

What information must the nominating body share with the responding party?

In the Eurocom case the question also arose as to whether the conduct of the nominating body in failing to disclose the representations it had received during the nominating process amounted to a breach of natural justice that would invalidate the appointment. The judge concluded;

In this case, although the RICS explanatory notes indicate that they will send a copy of any application which refers to conflicts of interest to the responding party, they did not do so. Whilst it is evidently good practice, as the explanatory notes state, for the RICS to copy the application form to the other party where there are alleged conflicts of interest, I do not consider that the process of nomination requires that as a matter of procedural fairness under the principles of natural justice.

 

I consider Ms Cheng to be right that the role of an adjudicator nominating body when they are approached unilaterally is limited to a proper exercise of their discretion to make the nomination. Given the character of an adjudicator nominating body, the fact that it appoints persons to act as adjudicators rather than making substantive decisions and the statutory framework of s.108 of the Housing Grants, Construction and Regeneration Act 1996, as amended, and the Scheme under which it operates, including the short period for a nomination, I do not consider that such a body has an obligation to consult with the other party or seek to achieve a balance between the parties which may be required by procedural fairness. This view is also supported by the conclusion of Akenhead J in Makers v Camden. Clearly, if one party acts dishonestly so as to affect the exercise of the discretion then, as I have set out above, that is a matter which might invalidate the exercise of their discretion but that is a different consideration.

 

In this case, had the application been sent to Siemens, it is likely that they might have been able to correct the false representation which had been made on behalf of Eurocom. However given that there was no obligation on the RICS, as a matter of procedural fairness, to provide the application form to Siemens, whatever their practice might otherwise have been, I do not consider that there is anything in the process otherwise followed by the RICS to invalidate the nomination of the adjudicator.

 

The RICS has since amended its practice to state;

“3.3    Conflict of interest   

If in your view there are any adjudicators who would have a conflict of interest in this case, you should list them in this box.  Please also provide for each such person, brief but clear reasons for this statement. Your attention is drawn to the decision in Eurocom Limited v Siemens PLC [2014] EWHC 3710 (TCC) to the effect that misrepresentation in this statement could invalidate the appointments process in its entirety, rendering any decision/award made unenforceable.

RICS is by law not required to provide a copy of the application form to the non-applicant party and does not do so automatically. However, as a matter of good practice, RICS will provide a copy of the form to the non-applicant party on request.

Notwithstanding any such statements, the President of RICS always retains an unfettered discretion to appoint any adjudicator he/she regards as suitable”

The suggestion that the application form is provided only on request seems at first sight surprising. The responding party will not be the party accessing the application and although lawyers or party representatives may be familiar with the procedures there will be many responding parties who may not be.

How should objections to the appointment be dealt with?

If the information provided to the nominating body is incorrect should there be a process to correct the position before the appointment is made?

It is not easy to see how the responding party will be able to correct the misrepresentation in the short timescale available for the appointment to be made. In some circumstances such as the Eurocom case it might be possible to easily correct i.e. if a false assertion of conflict of interest is made against an adjudicator who had previously decided a dispute on the same project between the same parties and who would in the normal course of events have been appointed but for the false assertion of the conflict of interest. But in other cases, where the pool has been generally limited the investigation the nominating body would be required to do before correcting its pool of potential appointees would be more extensive, and it may not be possible to correct matters in the timescale.

The question is should the nominating body in those circumstances proceed with the nomination and leave it to the aggrieved party to make its case in court?

That approach has some judicial precedent albeit in the context of arbitration. In the case of United Co-Operatives Limited v Sun Alliance & London Assurance Co Ltd & Anor [1987] 1 EGLR an injunction was sought by a party to a rent review clause to prevent the president of the RICS from appointing an independent surveyor. The objection was based on the construction of the lease and the suggestion that the appointment was premature. In that case decided by Mr Justice Hoffman as he then was, the court decided that it would not restrain the appointment but that the appointment should be made and if the aggrieved party considered the appointment was void it could apply for a declaration before the court.

There are examples of the court granting injunctive relief to prevent adjudication. However based on the principles set out by Ramsey J in the Eurocom case it would only be in serious circumstances that the court would be likely to intervene. The aggrieved party would have to show that the representations are fraudulent or dishonest and to have the potential to limit the pool of adjudicators.

Given this context it is perhaps not surprising that some nominating bodies do not provide the information as a matter of course possibly for fear of the suggestion that any failure of the nominating body to provide all the information to the responding party could amount to some failure on its part. That fear may be misplaced. The court has not imposed any duty on the nominating body to provide the information and the implied term the court has found relates to a party’s failure to adhere to the nomination process that goes to the heart of the appointment procedure as invalidating the decision, not the failure of the nominating body.

The general desire for transparency would suggest that making the information available as a matter of course would be right subject to the disclaimer that if the information is considered wrong and is disputed the nominating body will proceed to make the nomination based upon the information provided by the referring party and that the aggrieved party must seek declaratory relief.

 

 

What matters can the nominating body take into account?

The legislation does not say anything about the process of selection. There is however a judicial statement in the Eurocom case;

“I consider Ms Cheng to be right that the role of an adjudicator nominating body when they are approached unilaterally is limited to a proper exercise of their discretion to make the nomination.”

A complication arises if the nominating body introduces considerations that go beyond its duty to make an impartial appointment. This can arise where, for example, the nominating body asks questions such as whether adjudicators are “suitable” or “not suitable”. This does not seem to be a basis recognised by the legal context for making a selection between adjudicators. Indeed there is nothing in the statutory context that suggests that the nominating body can select between adjudicators who have differing skills. There is no statutory requirement for any skill or experience. It is again an area of difficulty; for example, one party to the dispute may wish to receive payment on a valuation and so may want a quantity surveyor to decide the dispute while the other party, wishing to rely upon conditions precedent or an interpretation of the risk allocation under the contract to defeat payment, may want a lawyer.

There is nothing to suggest that an appointment would be void for breach of natural justice by not hearing from both parties but perhaps it could be argued that taking into account such matters as qualifications or suitability go beyond the discretion of the appointing body. If one party chooses that nominating body can the nominating body impose a process that goes beyond the very narrow boundaries of its statutory remit to nominate an adjudicator?

Remember that in the Eurocom case Ramsey J stated “I consider Ms Cheng to be right that the role of an adjudicator nominating body when they are approached unilaterally is limited to a proper exercise of their discretion to make the nomination.” 

Reliance was also made in that case upon the  judgment of Akenhead J in Makers UK Ltd v London Borough of Camden [2008] EWHC 1836 (TCC). In that case Camden had sought to argue that; there was an implied term of the Contract whereby “neither party may seek to influence unilaterally the nominator’s determination regarding the identity of an adjudicator, by making unilateral representations to the nominator concerning whom he should nominate or otherwise”

The implied term was rejected and in the course of the judgment the court made some interesting comments about the nomination process.

  1. I have formed the view that the Implied Term cannot or should not be implied. My reasons are as follows:

 

(1) Clause 9A.2 gives the parties or each of them the option of seeking to agree upon a particular adjudicator or to seek an appointment in this case from the RIBA.

 

(2) There is nothing in Clause 9A.2 which expressly bars the party seeking the appointment from the RIBA making representations to the RIBA as to the attributes or even the name of the person to be appointed.

 

(3) The RIBA is an independent, respectable and respected institution, which holds itself out as able to nominate adjudicators as well as having a very longstanding history of nominating arbitrators in building disputes. There has been no suggestion that the RIBA would be in breach of its own rules if it listened to and even acted upon representations as to the attributes or identity of the person to be nominated by it.

 

(4) There is no need to imply a term along the lines suggested by Camden. The system of nomination can work satisfactorily even if representations are made by the party seeking nomination. The RIBA can take or leave the representations.

 

(5) It is not necessarily wrong or unhelpful for a party to make representations. For instance, if the dispute is one which is very technical, say involving thermo-dynamics, it might be very sensible for the RIBA to be so informed. Similarly, if it was known that one or more of the people on the RIBA Panel of adjudicators were conflicted out, it would be sensible for the RIBA to be informed. It would be pointless for the RIBA to nominate someone who would either have to turn down the appointment or whose decision could be challenged on the grounds of bias.

 

(6) Thus, the main mischief said to arise against which the Implied Term would guard, namely to prevent unilateral representations by the party seeking a nomination, has no obvious support in commercial and practical terms

 

(7) It might be possible to imply a term by which the party seeking a nomination should not suborn the system of nomination. Thus, (wholly irrelevant here) bribing the nominator would by one route or another invalidate the nomination or the nomination of someone one knew was actually biased in favour of the requesting party could be undermined. In the latter example, the adjudicator’s decision would in any event be unenforceable on non-jurisdictional grounds. However, that term is not alleged in this case and the facts do not begin to support a breach of such a term.

 

(8) If someone who is unwittingly put forward by a party to the nominating body is biased, actually or ostensibly, one or other party can resist enforcement of the subsequent decision on that ground. The law already provides a remedy; this is at least a pointer away from the need to imply a term.

 

(9) I accept that it is at least not uncommon for parties seeking a nomination to suggest either a particular individual or that whoever is nominated should have particular attributes or experience. There was evidence about this and it is what happened in AMEC Capital Projects Ltd v Whitefriars City Estates Ltd [2004] EWCA Civ 1418.

 

It would seem therefore that there is judicial approval for the nominating body receiving representations from the referring party as to the nature of the adjudicator and dispute as well as matters of conflict of interest. The Amec case supported as entirely proper the request for a specific adjudicator to be appointed who had previously been appointed in relation to a related dispute.

 

But what are the limits of this discretion?  Would matters of “suitability” be covered by such judicial pronouncements? The most recent TeCSA service amendments are considering the possibility of representations based on such a concept.

 

Is this perhaps too woolly in wording, inviting parties to make representations which it would be wrong for the nominating body to have regard to. For example could the referring party suggest that a person was not suitable because his hourly rate was too high or had spent too long over the conduct of an adjudication or because he was a solicitor or because he had got the law wrong in a previous decision or because he was a man or because he came from a particular ethnic group? Many of these matters have been rejected as founding any grounds on which a judge should recuse himself. See Locabail (UK) Ltd v Bayfield Properties Ltd [2000] Court of Appeal at para 25.  Are they considerations which the nominating body should not take into account?

 

Should there be greater regulation of, or clarity about, the nomination process?

 

It would seem that the courts have been generous in their protection of the nominating bodies and have sought to assist them in their quest to go beyond simply selecting a name from a list. However, the fact that an aggrieved party is unlikely to be given a remedy by the courts and that the decision will still be enforced except in limited circumstances is not a complete answer to the problem. In the interests of the sort of fairness which perhaps as a lay person you might expect to apply to a nomination process perhaps all representations should be disclosed as a matter of course and nominating bodies ought to be asked to clearly set out  on what basis they will accept representations pertinent to the exercise of their discretion.  Justifying institutional behaviour on the basis of complex legal constructs does not inspire confidence and can lead to institutional failings. It does not appear that nominating bodies have an absolute discretion as to how they make their selection.

 

This is not a matter on which the courts are well placed to provide a development or change in the law. Moving the goal posts on the nominating institutions could leave their nominations open to challenge. It is perhaps time that Parliament re-considered the current position where the nomination of those who will decide the disputes for the industry concerning billions of pounds of public expenditure is left virtually un-regulated and opaque, and set out more clearly the basis for the nominations being made. Alternatively the nominating bodies could consider whether common guidance on their approach to nomination could be adopted instead of regulation.