EQUITIX ESI CHP (SHEFF) LTD v VEOLIA ENERGY & UTILITY SERVICES UK PLC

EQUITIX ESI CHP (SHEFF) LTD v VEOLIA ENERGY & UTILITY SERVICES UK PLC

The persons appointed by the adjudicator nominating body satisfied the requirement of being “in the field of biomass energy plants” when they had expertise derived from dispute resolution in that field despite none of them being an expert in such plants
 

Technology and Construction Court
Jefford J
13 March 2019

The persons appointed by the adjudicator nominating body satisfied the requirement of being “in the field of biomass energy plants” when they had expertise derived from dispute resolution in that field despite none of them being an expert in such plants

The case concerned the operation and maintenance contract for a biomass energy plant. The employer wished to refer a dispute with regard to alleged defects in the plant to adjudication. The contract provided that (i) The appointed adjudicator should be an expert “in the field of biomass energy plants” and (ii) If, as happened, there was no agreement on the adjudicator’s identity, the adjudicator was to be appointed by the President of the Chartered Institute of Arbitrators. The CIArb notified the parties that three people had been appointed to the panel by its President who were willing and able to act. The contractor contended that none of the appointees met the criteria in the contract and that the appointments were therefore invalid. Jefford J rejected the contractor’s contention.

The judge held that it was open to the President to appoint adjudicators who did not profess to be technical experts. The words "in the field of" in the phrase "experts in the field of biomass energy plants" suggested that something wider than a specific technical expertise was intended. The context was material in two respects, namely (i) The context was one of dispute resolution, which militated in favour of a meaning that related the nature of the expertise to dispute resolution and (ii) Disputes that might arise in respect of defects were likely to be of a technical nature but were not so limited. A wider meaning of the phrase was also supported by the fact that the parties had agreed that the CIArb should be the appointing body rather than an engineering institution or other technical body. What was required was not an expert in biomass energy plants but an expert in the field of biomass energy plants. There were no clear words to limit those experts to those who had particular technical qualifications or to exclude those whose expertise consisted of or was derived from dispute resolution in that field.

The judge also held that the appointees met the description required by the contract. The CIArb clearly complied with its instructions to appoint “experts in the field of biomass energy plants” having regard to the appointees’ experience, particularly in dispute resolution. However, such instructions in adjudication provisions were rare and it would run contrary to policy if parties were able to thwart an adjudication by readily challenging whether the adjudicator was an appropriate appointee. The norm was for a person to be named with no additional requirements being necessary. The President clearly complied with his instructions and appointed people who were experts in the field of biomass energy plants having regard to their experience particularly in dispute resolution.

THE FULL TEXT OF THE RELEVANT PART OF THE JUDGMENT OF JEFFORD J

The "appointment" declarations

Background

81. As set out above, Schedule 8, Part 3 at paragraph 1.5 provides for an Adjudicator to be appointed from a panel of three selected jointly by Equitix, Veolia and Kantor. The panel are to be "experts in the field of biomass energy plants". It is common ground that no steps were taken within 20 business days of the Commencement Date, or at the time prior to late 2018, to agree "the panel of experts" as ought to have been done. In 2018, some proposals have been made by Veolia's solicitors but did not find favour with Equitix. The sticking point between the parties was and is that Equitix contends that the experts must have, as it was put in the second declaration, technical expertise.

82. In the event of failure to agree on the identity of the experts, the parties have agreed that the appointments to the panel shall be made to the President of Chartered Institute of Arbitrators (paragraph 1.9).

83. As summarised at the beginning of this judgment, Equitix initially sought to restrain Veolia from making any application to the CIArb or the appointment of an adjudicator unless that application specified that the experts should be "technical" experts. Equitix then sought to move matters forward by making its own application sent on 28 January 2019. CMS, on behalf of Equitix, asked for the appointment of persons with technical expertise. Stephenson Harwood, for Veolia, set out their position that that was not the proper construction of the contract.

84. On 7 February 2019, the CIArb notified the parties that 3 people had been appointed to the panel by the President and those people were willing and able to act. Those three people were Appointee 1 (a quantity surveyor dually qualified as a barrister (non-practising)); Appointee 2 (Queen's Counsel with a specialist practice in construction and engineering); Appointee 3 (a practising barrister with further technical qualifications). Equitix contends that none of these meets the criteria in the contract and that the appointments are therefore invalid. I note that I was invited in the course of the hearing to consider whether I should anonymise the names of these appointees. I initially saw no need to do so. No question of their abilities or conduct arises. The only issue is whether as a matter contractual construction, they meet a particular definition. However, I am conscious that some of the matters that were raised in the correspondence that followed may be confidential and, for that reason, I shall refer to them as Appointees 1, 2 and 3.

85. On appointment, each of these three appointees signed a form entitled Acceptance of Nomination As Adjudicator which include a paragraph (4) in the following terms: "I have the necessary experience and qualifications specifically required by the adjudication agreement, the contract or any other agreement of which I am aware [Delete if not appropriate]":

(i) Appointee 1 inserted a footnote to paragraph 4 in which he said "My position is that I have had some involvement with biomass power generation and disputes arising therefrom (one such case). However I would not hold myself out as a technical expert in that area."

(ii) Appointee 2 in a covering e-mail stated that she had experience in biomass disputes and was currently a panel adjudicator on a waste to energy project.

(iii) Appointee 3 added above this paragraph; "I am not an expert in the field of biomass energy plants although I have dealt with a disputes (sic) concerning such matters, including a dispute between a plant operator and supplier of feedstock for such a plant."

86. Equitix's solicitors thereafter corresponded (by e-mail) with the three appointees and made inquiries of them about their expertise "in the field of biomass energy plants".

87. Appointee 1 by e-mail dated 8 February 2019 repeated that he was not a technical expert in "the field of biomass technology" but he added that he had had occasion to address and advise upon such (and related) technology. He said that in his lengthy career in dispute resolution he had been engaged on power generation contracts and disputes, one of which concerned a biomass facility. By e-mail dated 13 February 2019, Equitix's solicitors asked for further information about the dispute in relation to a biomass facility. They stated that they were not referring to biofuels derived from biomass but to bioenergy using a definition provided in world Energy Resources Bioenergy 2016 (a document produced by the World Energy Council), namely "Bioenergy is energy from organic matter (biomass), ie. all materials of biological origin that [are] not embedded in geological formation (fossilised). Biomass can be used in its original form as fuel, or be refined to different kinds of solid, gaseous or liquid biofuels." In his response, Appointee 1 confirmed that his experience related to a plant by which energy was produced from biomass fuel.

88. Appointee 2 (by e-mail dated 8 February 2019) said that if the contract properly construed required the adjudicator to have technical qualifications, she did not. If the contract required expertise in the resolution of technically complex disputes arising out of similar projects, she gave examples of such expertise including disputes relating to a biomass energy plant (which from the earlier e-mail appears to be an energy from waste facility), an anaerobic digestion and gasification plant and a waste to energy plant. Equitix asked Appointee 2 to confirm whether the panel appointment she referred to was one concerning a biomass energy plant producing heat and electricity. Her response was that it was a plant "converting waste into biomass energy"; that it was variously described as "a residual waste, waste to energy or biomass plant"; but that it did not produce heat or electricity by burning biomass. The very nature of that response is illustrative of the lack of clarity in the expression "in the field of biomass energy plant".

89. Appointee 3 in an e-mail of the same date said that he had acted as the tribunal in disputes concerning a renewable energy (but not biomass) plant; a plant producing biodiesel; and between the supplier of foodstuffs for conversion into energy and the plant operator, along with other process engineering disputes.

90. In the light of these developments, Equitix indicated that it no longer pursued declaration no. 2 and that instead it sought the following two declarations:

"(1) Appointee 1, Appointee 2 and Appointee 3 are each not experts in the field of biomass energy plants for the purposes of Schedule 8, Part 3, paragraphs 1.5 and 1.9.

(2) The appointment by the President of the Chartered Institute of Arbitrator of Appointee 1, Appointee 2 and/or Appointee 3, as communicated to the parties by the letter dated 7 February 2019 from Paul Hudson (Dispute Appointment Services (DAS) Case Officer for CIArb) is void or invalid."

91. In parallel with this application to the CIArb, CMS (by e-mail to Stephenson Harwood and to Fenwick Elliott (for Kantor) for the first time proposed 3 candidates for the panel whom they said they considered to have "the requisite technical expertise". Candidate 1 was a mechanical engineer. His CV did not make any specific reference to biomass energy plants. He appears to have been asked for and provided further information in which he did identify experience of biomass boilers and "boiler plant" and a biomass fuel manufacturing plant. Candidate 2 was also a mechanical engineer. His CV made numerous references to work related to biomass with most of the work being described as due diligence reports and strategic advice. Candidate 3 holds a graduate qualification in Energy Engineering and, in his CV, described himself as "specialising in heat generation and transfer technologies, particularly biomass and energy from waste." These CVs and self-descriptions are of some assistance in demonstrating how someone asked to identify their expertise "in the field of biomass energy plants" might respond.

The issues

92. The dispute here raises two issues: (i) what is the meaning of "experts in the field of biomass energy plants" and (ii) if the appointees do not meet that description what is the consequence in law.

93. The first of these issue raises a difficult question. There is, obviously, no express reference to any "technical" expertise in the description of the panel of experts and Ms Ansell QC argues that there is no basis for reading in such an additional word or words. I do not think that that captures or meets the point which is not so much one of reading in words but of articulating what the words used mean. Further, Mr Choat points out that the declarations as reformulated do not require the insertion of words but relate to the particular appointees. Whilst that is correct, they still involve consideration of what the words in paragraph 1.5 mean.

94. If the words "experts in the field of biomass energy plants" are taken in isolation, one would be surprised if a lawyer were to profess such expertise. But if the expression were used in the context of expertise in contracts related to or disputes related to the field of biomass energy plants, the answer might be different. To take an example, a specialist barrister who has acted as advocate and arbitrator in numerous cases about the construction of bridges would not naturally refer to themselves as an expert in bridges but as an expert in cases about bridges or disputes about bridges or even projects about bridges. But much would depend on the context. If an inquiry was being made of the same counsel's clerk along the lines of whether she had expertise in bridges, the answer might well be "yes" because, in context, the nature of the expertise would be a given. The use of "expert" is similarly opaque. In the context of court proceedings an expert would be someone giving expert evidence, not the lawyers, but in a dispute resolution scenario where different expertise may be relevant a lawyer may well be an expert and the word is clearly not being used here as if it refers to expert evidence. The words "in the field of" themselves suggest that something wider than a specific technical expertise is intended.

95. It seems to me that context is material here in two respects. The context is that of dispute resolution and that militates in favour of a meaning which relates the nature of the expertise to dispute resolution. By that I do not mean that additional words about expertise in dispute resolution should be read in but rather that who may be an expert in the field of disputes is wider than those who have a specific technical qualification or expertise. Secondly, it is fair to say that the disputes that may arise in respect of defects are likely to be of a technical nature but they are not so limited. They may well extend to health and safety issues, performance measurement and other issues relating to liquidated damages, cost of remedial works, other loss and damage, and so forth.

96. What the parties have argued the qualification or background of the experts should be is certainly not determinative but it is illustrative. What can be seen from the correspondence set out above is that Equitix has adopted a very restrictive interpretation. An expert in the field of biomass energy plants must be one who has "technical" expertise in plant generating energy from biomass – expertise in biomass fuel production would not seem to suffice even though this might well be regarded as in the relevant field, nor apparently would plant generating energy from waste or even biomass boilers which do not form part of a plant. Of the three appointees that have been proposed by Equitix, the majority of the experience of one appears on the face of his CV to be with (possibly small scale) boilers and of another with due diligence exercises (albeit in some instances the right field).

97. The difficulties that these added layers of meaning produce and the difficulty in finding people who meet Equitix's specification militate against the interpretation that Equitix contends for. I do not mean by that that the practicalities of identifying, on Equitix's case, suitable appointees, dictate the meaning of the express words but rather that, in both cases, these points lend weight to the argument that the phrase should be given broader meaning that is capable of encompassing those with dispute resolution expertise in this field.

98. Ms Ansell QC placed some reliance also on the fact that the contract provides that the CIArb should be the appointing body and not an engineering institution or other technical body. Whilst not a determinative point, since the Chartered Institute has many technically qualified members, it is some further support for Veolia's case.

99. Both parties drew my attention to the decision of the Court of Appeal in Allianz Insurance plc v Tonicstar [2018] EWCA Civ 434. The case concerned a reinsurance agreement containing an arbitration clause under which each party nominated an arbitrator. Clause 5.5 provided that: "Unless the parties otherwise agree the arbitration tribunal shall consist of persons with not less than ten years' experience of insurance or reinsurance." One of the parties appointed Alistair Schaff QC and the other sought his removal on the grounds that he did not meet that description.

100. Giving the judgment of the Court, Leggatt LJ said this:

"15. In support of this argument, [counsel] took as an example a sports arbitration and submitted that a requirement that an arbitrator should have not less than 10 years' experience of sports would not be satisfied by showing that he or she had more than 10 years' experience of sports law. Similarly, a requirement to have not less than 10 years' experience of engineering or telecommunications would not be satisfied by showing that the arbitrator had 10 years' experience of advising and acting in disputes involving engineering or telecommunications. In the same way, [counsel] submitted, experience of insurance or reinsurance law is not the same as experience of insurance or reinsurance.

16. Attractively as this short point was put …, I cannot accept it. Unlike sports, engineering and telecommunications, which are clearly distinct from the law regulating those activities, no similar distinction can be drawn between insurance and reinsurance "itself". Insurance contracts create legal relations and obligations and those whose business it is to negotiate and draft insurance contracts, whether as underwriters or brokers, need to have some understanding of insurance law. They need, for example, to understand the duty of an insured to disclose facts which are material to the risk to the insurer before the contract is concluded and the scope of that duty. …

17. Conversely, barristers and solicitors who practise in the field of insurance and reinsurance need to understand practical aspects of the business. It is a safe inference that a lawyer who has specialised in insurance and reinsurance for at least 10 years will have acquired considerable practical knowledge of how insurance and reinsurance business is conducted ….. Such practical knowledge will inform and assist their legal analysis and their ability to give effective representation and advice.

18. It is precisely because the practical and legal aspects of insurance and reinsurance are so intertwined that both market professionals and lawyers who have specialised in the field for many years are commonly appointed as arbitrator in insurance and reinsurance disputes. It may well be true that … many such lawyers would not know, for example, how to set an underwriting rate for a risk. But I see no reason to assume that an experienced underwriter or broker cannot be assumed to have expertise in analysing case law or in how to conduct arbitration proceedings. Both lawyers and market professionals have potentially relevant skills which make them suitable for appointment.

19. The conclusions that I would draw are, first, that there is no such thing as insurance or reinsurance "itself" which is separate and distinct from the law of insurance and reinsurance and, secondly, that, unless the parties have some special reason for wishing to exclude lawyers from the pool of candidates eligible for appointment, a person who has practised as a barrister specialising in the field of insurance and reinsurance for more than 10 years would naturally be regarded as qualified for appointment as an arbitrator. In these circumstances I consider that reasonable parties who incorporate the JELC Clauses into their contract of excess of loss reinsurance would understand such a barrister to have the requisite experience of "insurance or reinsurance" within the natural meaning of those words. I also consider that, if the intention were to restrict the parties' freedom of choice by excluding such a person from eligibility, a clear expression of that intention would be needed, which on any view the clause in question does not contain. I would therefore reject the respondent's argument."

101. In that case, the expression used was "ten years' experience of insurance or reinsurance". There is real ambiguity in what that might mean: for example does it refer to the industry or any particular aspect of the industry; can that experience be gained only from acting in the industry or in some associated area (such as law)? The ambiguity is exacerbated by, and the court's decision is based on, the analysis that "insurance/ reinsurance" does not exist as a thing in itself and that there is a considerable overlap between what insurers do or require expertise in and what those involved with the legal aspects of insurance do or require expertise in.

102. There is a less obvious overlap in, say, the engineering of biomass energy plants and the expertise gleaned by those involved in the legal aspects of them or disputes about them. Mr Choat relies on the contrast drawn by counsel and Leggatt LJ between insurance and "sports, engineering and telecommunications". However, the contrast is not as marked in this case where what is required is not "an expert in biomass energy plants" but "an expert in the field of biomass energy plants". There are no clear words to limit those experts to those who have particular technical qualifications (whatever they may be) or to exclude those whose expertise consists of or is derived from dispute resolution in that field. I note also that, although Leggatt LJ was not in any sense being asked to construe the same expression as is used in this case, when articulating the point that the pool of potential arbitrators did not exclude lawyers, he referred to a barrister who has specialised "in the field of insurance and reinsurance", naturally giving a wider meaning to those words.

103. I conclude, therefore, that Veolia's construction of this clause is right and that it was open to the President to appoint, as he has done, adjudicators who do not profess to be technical experts.

104. There was a secondary level of argument which appeared to arise in this way. Ms Ansell QC accepted that if the appointees fell outside the description then their appointment was invalid because the President had not followed his instructions. If the words used were to be construed as not requiring some particular technical expertise so that the appointees might fall within it, the President's appointments could only be challenged on grounds of Wednesbury unreasonableness. In reality, I did not understand Equitix to be making the latter type of challenge but properly founding their case on the proposition that the President had not followed his instructions. That was reflected in the re-formulation of the declarations to the effect that the appointees are not experts in the field of biomass energy plant and that was the purpose of the further questioning of the appointees about their experience.

105. I approach this issue against the background that, in general terms, there is good reason why parties should be discouraged from challenging appointments made by adjudication appointing bodies. This process is vital to the process of adjudication as we know it and it would run contrary to policy if parties were able to thwart an adjudication by readily challenging whether the adjudicator was an appropriate appointee.

106. Relying on a decision in the Court of Appeal if the Channel Islands in Epoch Properties Ltd. v British Homes Stores (Jersey) Ltd. [2004] JCA 156; [2004] 48 EG 134, it was submitted by both parties that the President, in this instance, acts as an expert (or at the least that he may do so). The case raised a similar issue as to whether a surveyor appointed by the President of the RICS was "of recognised standing experienced in the valuation and letting of premises so far as practicable of similar character or comparable to the Demised Premises … within Jersey … or the Channel Islands or nationally".

107. As set out at paragraph 28 of the judgement, the Royal Court below had decided that:

"(1) the position of the president when presented with a request for appointment of an expert (or arbitrator) under the terms of such a lease is to be equated with that of an independent expert;

(2) if the president asks himself the right questions and exercises his jurisdiction accordingly, his appointment cannot be challenged on the basis that he made a mistake;

(3) if the president departs from his instructions as set out in the lease, that is, if he appoints someone who does not fulfil the criteria laid down in the lease his decision is invalid,

(4) if the question as to whether the president has so departed from his instructions involves an area falling within his expertise (for example, judgment as to the surveyor's appropriateness for the task), he will not be found to have departed from his instructions unless he has reached an unreasonable decision that no reasonable president could have reached (that is a test analogous to Wednesbury unreasonableness.)."

108. The judgment of the Hon Michael Beloff QC continued:

"[29] To elaborate the point made in [28](4), some of the stipulated characteristics are listed in clause 1(i) of the lease. Thus, if the president were to appoint a solicitor instead of a chartered surveyor, the court would be bound to find that he had departed from his instructions. But some of the characteristics are subjective, for example, standing and experience. In such context, the president has to form an appreciation of whether the qualities possessed by his potential appointee are of the required level. In relation to those, there is clearly room for differing views.

[30] In our view when deciding whether the president has departed to a material extent from his instructions in those areas, where the parties have clearly chosen him for his own expertise, the court should apply a test analogous to Wednesbury unreasonableness. If the decision of the president as to whether his appointee has the stipulated experience or standing is one to which no reasonable president could come, the court will find that he has departed from his instructions. If the court, however, is merely of the view that he has reached a decision on these matters other than that which the court itself would have reached, it would not interfere.

[31] Epoch has not suggested that Mr Finn is not a chartered surveyor or that he is not independent or that he is not of recognised standing. The sole question, therefore, is whether the decision of the president – that Mr Finn's appointment complies with the stipulated requirements of the lease as to relevant expertise – is one to which the president could not reasonably have come…"

109. I do not find the distinction drawn at paragraphs (3) and (4) of the Royal Court's decision as cited easy to apply. If the President in this case acts as an expert, then as Ms Ansell QC submits, Jones v Sherwood Computer Services plc [1992] 1 WLR 277 is authority for the proposition that his decision can only be challenged if he has not followed his instructions in some material respect. That is the same point as is made in Epoch Properties. But, in this case, the President's instructions are to appoint someone who is an expert in the field of biomass energy plants (for the purposes of adjudication) so I still have to consider whether he has done so, bearing in mind the view that I have formed on the meaning of clause 1.5.

110. What I think paragraph (4) above is aimed at, and it is why I have set out the paragraphs that follow, is the scenario where compliance with the instructions specifically involves some assessment of a person's suitability or experience. If the appointing expert has not made such an assessment, he has not complied with his instructions. If he has made such an assessment (and, therefore, on the face of it complied with his instructions), what Epoch decides is that that assessment can only be challenged if it is irrational. Whether that is good law in the courts of England and Wales is another matter because, as Ms Ansell QC argues, following Jones v Sherwood, if the appointor acts as an expert there would not normally be room for such a challenge. For the reasons I explain below it is not necessary for me to decide this issue of law.

111. If the President does not act as an expert, then he acts pursuant to a contract to perform a service in accordance with the terms of the appointment which must be to appoint someone who fits the description in the relevant clause. If he has not complied with the terms of contract, then that person has not been properly appointed.

112. On the face of it, therefore, the question for me is whether the persons appointed are appointed in accordance with the President's instructions. The fact that I ask myself this question in this case should in no way open the floodgates to challenges to adjudicators' appointments. Provisions of this nature are rare. The norm is for a person to be named or a nominating body to be named with no more. Assuming that such limiting provisions comply with the Housing Grants Construction and Regeneration Act 1996 (which was not a matter argued before me), the courts would be cautious not to allow such a provision to thwart the appointment of an adjudicator in the time required by the Act. Under the Scheme, where a nominating body is named or no nominating body is named there is simply no provision for any limitation on the description of the person to be appointed as adjudicator.

113. Having decided that the wording of clause 1.5 does not require the appointees to be technical experts, in my view, the President has clearly complied with his instructions and appointed people who are experts in the field of biomass energy plants, having regard to their experience particularly in dispute resolution. I do not see that that expression could or should be restricted to mean that that experience must relate specifically to plants that produce energy from biomass – the field must at the least extend to and include biomass boilers and the production of biomass fuel. In any event, the appointment process has inherent in it an assessment by the President of the expertise of the appointees. There is nothing to suggest that he has not carried out that assessment and it seems to me to follow that he has complied with his instructions and his appointments cannot be challenged. If I am wrong about that and there is room for consideration of the rationality of his appointments, they are patently not irrational or Wednesbury unreasonable.

114. Accordingly, I do not grant the further declarations sought by Equitix.