11.05.2020

Adjudication: Conflicts of Interest with Professional Advisors

The last working day of 2019 saw another judicial review of an adjudication determination (Yousseff v Maiden [2019] NZHC 3471), this time focused on conflict of interest and apparent bias.  Despite judicial review being generally discouraged and relatively rare, there has been something of a run lately, and in this case the adjudicator’s determination was quashed. 

The Jamessef Trust (the Principal and applicant) contracted Bespoke Design and Build Ltd (the Builder and respondent) to construct a house in Mangawhai.  In 2018 the Builder suspended work for alleged non-payment.  This resulted in the Principal cancelling on the basis of a fundamental breach by the Builder, who responded rejecting this and cancelling the contract itself.  

So, with daggers drawn, the parties brought Construction Contract Act (CCA) adjudications against one another for amounts said to arise from the building contract cancellation.

The same adjudicator was nominated and accepted for both adjudication proceedings, which were consolidated and heard together.  The adjudicator concluded that the Principal’s cancellation was unlawful meaning the Builder’s cancellation prevailed, and, after netting off amounts due each way, the Principal was to pay the Builder $125,685 (including lost profit and GST).

Rather than have the dispute heard afresh, the Principal instead sought judicial review of the determination.  Despite raising multiple arguments, their main contentions were that the adjudicator had failed to disclose a conflict of interest and had apparent bias. 

The CCA requires an adjudicator to disclose “any conflict of interest” (sections 35 and 41).  In this case the adjudicator had been/was engaged as an expert witness in separate proceedings of another client of the Builder’s law firm.  The Court concluded that this relationship with the firm was sufficient to create a conflict of interest, particularly as the adjudicator had been engaged on that firm’s recommendation, meaning his appointment and fees on those matters had derived from his relationship with them.  The relationship also implicitly presented potential future work opportunities. 

For similar reasons, the Court also concluded that the adjudicator was disqualified for apparent bias (albeit there was no evidence of actual bias).  In reaching this conclusion, the Court noted that a “fair minded observer might reasonably apprehend that [given his professional relationship with the law firm, the adjudicator] might not bring an impartial mind” to the dispute. 

Relationships between law firms and industry experts are commonplace.  In close-knit New Zealand, Youssef might come as a surprise to some.  It essentially confirms that adjudicators are unable to accept CCA appointments where they are working with one of the parties’ legal advisors in parallel (or near parallel) on other matters.  It also highlights that adjudicators must be alive generally to any commercial relationship they may have with a party’s advisors, possibly even ones that are not presently active.  As always, judging this will be a matter of fact and degree in each case.

 

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