The recent Scottish case of Whyte and Mackay Ltd v Blyth & Blyth Consulting Engineers Ltd (2013) concerned interesting issues relating to whether enforcement of an adjudicator’s decision is compatible with the European Convention on Human Rights (“ECHR”). In this unusual case, the judge refused to enforce an adjudicator’s decision because doing so would, he said, be contrary to Article 1 of the First Protocol of the European Convention on Human Rights (“A1P1”) (i.e. the right to peaceful enjoyment of possessions).

Background

Whyte and Mackay (“W&M”) engaged Blyth & Blyth (“B&B”) as engineers in relation to the construction of a new bottling plant at its premises in Grangemouth. Following completion of the works in January 2006, a dispute arose in relation to the foundations of the structure, with W&M alleging they were defective. The alleged defect related to the fact that B&B had omitted to include piling in its designs. W&M referred the dispute to adjudication on 2 March 2012, in accordance with the relevant provisions under the contract between the parties. The adjudicator gave his decision on 9 April 2012 following a site inspection and a hearing on factual and legal issues, awarding W&M almost £3 million in damages. W&M sought to enforce the adjudicator’s decision, but B&B advanced several arguments resisting enforcement.

B&B argued that the adjudicator’s decision should not be enforced because:

• W&M had suffered no loss or damage as a result of B&B’s breach of contract because W&M had not paid for the piling works that were now said to be required. Furthermore, any loss would not be suffered until the last year of the property’s lease (2035-2036) as the piling works would not be completed until then.
• If the adjudicator’s award was enforced, B&B would be put at a significant financial detriment and would be forced to take the lead in having the matter finally determined at arbitration or litigation. There was also the risk that W&M may become insolvent and B&B might not get back the damages it had paid to W&M.
• The adjudicator had breached the rules of natural justice by failing to give adequate reasons for his decision and failing to address part of B&B’s defence.

B&B also raised the argument that if the adjudicator’s decision was enforced it would be incompatible with elements of the ECHR; namely:

• Enforcing the award would be a disproportionate interference with B&B’s right to enjoy its possessions (i.e. its money) under A1P1; and
• Article 6, which protects the right to a fair trial and hearing, would be engaged.

Whilst companies do not necessarily enjoy all of the protections under the ECHR, they are protected against matters such as property rights violations.

Conversely, W&M argued that it must be assumed that the adjudicator took into account all of the relevant information. Further, W&M argued that the fundamental purpose of the Construction Act (and therefore adjudication) was to improve the efficiency of the construction industry and encourage early resolution of disputes by using “speedy” interim decisions pending final determination at court or arbitration. Therefore, any interference with B&B’s ECHR rights not to be deprived of its money was justified.

The Court’s Decision

Breach of the rules of natural justice

The court ruled that the adjudicator had breached the rules of natural justice because there was a “very significant omission” in the adjudicator’s decision and reasoning. This is because the adjudicator had failed to address an important aspect of B&B’s defence; namely, that substantial cost savings had been made during the project by omitting the piling (notwithstanding the known risks) and there was a reasonable inference that W&M would not have been prepared to incur the delays and additional costs involved in the piling even if B&B did specify that piling was required in its designs. The court looked “in vain” for any indication that the adjudicator considered and reached a decision on this point but found that he failed to do so. As such, this amounted to a breach of natural justice.

Article 1 of the First Protocol

The court acknowledged that adjudication is a “rough and ready” process, designed to provide a speedy and relatively cheap provisional award to parties within the construction industry, particularly in respect of large and relatively complex disputes (such as this one). Usually, when the court is asked to enforce an adjudicator’s decision, in most cases it will do so regardless of the inherent disadvantages of adjudication and the risk of ECHR injustice. The court will usually be able to justify enforcement of an award by reference to the overriding benefits of adjudication; namely, the general interest benefits (such as improving cashflow and efficiency in the construction industry).

However, in this case the court could find no such general or public interest benefits to validate enforcement of the adjudicator’s decision. This was because it would be many years until the cost savings gained by the lack of piling would be outweighed by the projected damages. Therefore, there was no need for a quick “rough and ready” decision, particularly in light of the complexity of the dispute. The court commented that the adjudicator was “faced with a more or less impossible task” in making his decision within the limited timescales and “even a judge would struggle” with the task the adjudicator had.

Furthermore, the court stated that to proceed to adjudication in this case was “unnecessary and inappropriate” and enforcing the award would result in an “unfair and excessive burden” being placed on B&B. In this case, the disadvantages of adjudication were not counter-balanced by the aims of the Construction Act and “given the very particular circumstances of this case, to enforce this award would not be justifiable as a proportionate measure in pursuit of a legitimate aim”. Therefore, in light of the specific facts of the case, the court ruled that enforcement would be an unjustified interference with B&B’s peaceful enjoyment of possessions under A1P1 because W&M would be depriving B&B of its money in circumstances when it was unfair and inappropriate to do so.

Article 6

The court confirmed that previous case law on Article 6 was correct by stating that adjudication decisions are not incompatible with Article 6 of the ECHR (concerning the right to a fair trial and hearing). The court said that Article 6 is only applicable on final determination decisions, and as adjudication is not considered to be a method of final determination, Article 6 is not applicable.

The Decision’s Impact on Future Construction Industry Disputes

Whilst this case is a Scottish judgment (and so not strictly binding on the English courts), the English courts may take the ruling into account in future decisions. The case has the potential to have a significant impact on construction industry disputes; particularly in light of the fact that it implies that certain construction disputes are wholly unsuitable for adjudication.

The judge did stress that the facts in this case were particularly unusual and stated that any arguments alleging that the decision will undermine the entire adjudication system are “exaggerated and unconvincing”. However, it is unclear at this stage whether the judge has underestimated the volume of factually and legally complex disputes concerning projected damages which arise within the construction industry, as it is likely parties in such cases will now bring (potentially successful) A1P1 challenges to enforcement of adjudicators’ decisions. It also remains to be seen whether this case has set in motion the beginnings of a body of case law which erodes the enforceability of adjudicators’ decisions, meaning that parties in construction disputes will need to rely more and more on arbitration and litigation.