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The danger of bias

What have General Pinochet and the brother of the Sultan of Brunei got to do with the British construction industry's adjudication process? Quite a lot, says Guy Cottam (left)

THE PINOCHET affair would appear to hold little interest for construction, but that case, together with one involving accountancy giant KPMG, does raise important questions for the industry.

For both cases concern fairness in a judicial process. In the instance of the former Chilean dictator, the House of Lords set aside one of its own decisions because there was a danger that one of the judges, Lord Hoffman, might have been biased because of a personal relationship with one of the witnesses.

At the time of writing the House had just given its reasoning and, as expected, it was on the ground that there was real danger that bias could have occurred.

Lord Goff, in R v Gough, considered bias in a tribunal and said: 'I prefer to state the test in terms of real danger rather than real likelihood, to ensure that the court is thinking in terms of possibility rather than probability of bias. Having ascertained the relevant circumstances, the court should ask itself whether...there was real danger of bias on the part of the relevant member of the tribunal.'

The burden of showing bias is therefore not a heavy one.

In the KPMG case the matter concerned a perceived conflict of interest. KPMG was the auditor and adviser to the Brunei Investment Agency, of which Prince Jefri, the youngest brother of the sultan, was for many years chairman, but had been removed. Over the years, a number of transfers had been made out of the fund but they did not form part of the audit.

For more than 18 months between 1996 and 1998, KPMG was retained by one of Prince Jefri's companies to undertake on his behalf an investigation connected with litigation in which the prince was involved.

In June 1998, the Brunei government formed a task force to investigate the investment agency. KPMG was asked to assist, which it did using information gleaned from the audit papers. But in July 1998, KPMG was asked to carry out a further investigation into the destinations and location of some of the funds that had been transferred out of the agency earlier.

These investigations showed that very substantial sums had been paid to Prince Jefri and appeared to have been used to acquire assets for himself or for entities that he controlled.

Last September Prince Jefri obtained an injunction restraining KPMG from doing further work on these transfers. The House of Lords was considering whether the injunction should be lifted or made mandatory.

When KPMG started the investigation it rightly put an information barrier around the team responsible for the investigation.

The question for the House was whether these arrangements were enough to prevent information that had been imparted to KPMG in confidence (for the purpose of its investigation for Prince Jefri) were sufficient in law to ensure that the information was not made available to the agency investigators. Their Lordships concluded they were not.

Lord Mullet said: 'I am not satisfied on the evidence that KPMG have discharged the heavy burden of showing that there is no risk that information in their possession, which is confidential to Prince Jefri and which they obtained in the course of a former client relationship, may unwittingly or inadvertently come to the notice of those working on [the agency investigation].'

Thus the test is to show that there is 'no risk that information may unwittingly or inadvertently come to the notice' of the relevant person. This is a heavy burden.

But what has this to do with building and civil engineering?

Well, the new adjudication that we now have is a judicial process. Clients often select an adjudicator and name him in the contract.

While there is probably 'a real danger of bias' if an employee of one of the parties is appointed as adjudicator, consider the position of an employee who has advised one of the parties on another matter. How do you ensure that such a person does not 'unwittingly or inadvertently' become privy to information given in confidence to another employee of the same company? The KPMG case puts the burden of proof upon the adjudicator to show that the necessary safeguards are in place.

It will be when a losing party fails to implement an adjudicator's decision that the Pinochet case becomes relevant. It shows that it may not be necessary to object to the adjudicator during the adjudication if you wish to have his decision set aside. If a real danger of bias can be shown the court may not enforce the decision.

Lastly, adjudicators should think carefully in such circumstances. They should ask themselves: 'If I do act and the decision is not enforced by reason of danger of bias, have I been acting in bad faith?'

It could turn out to be costly if the answer is 'yes'.