Adjudication
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KEYWORDS: |
Housing Grants Construction and Regeneration Act 1996, CIC Model Adjudication Procedure, retention, jurisdiction, mistake, injustice, Justice Dyson |
In Bouygues UK Ltd v Dahl Jenson UK Ltd (1999) TCC Justice Dyson was required to decide whether a mistake by an adjudicator prevented summary enforcement of the decision. The effect of the adjudicator's decision was effectively to release retention. Retention was not a matter referred to the adjudicator. The mistake had a significant effect on which party was required to make payment. In a robust decision, Justice Dyson recognised that injustice was inherent in the scheme of adjudication. The key to Justice Dyson's judgment is the characterisation of the mistake. If the mistake meant the adjudicator had acted outside his terms of reference then the court would not enforce the decision, not because it was unjust to do so, but because the decision had no effect in law. If the adjudicator has answered the right question, but in the wrong way, then the decision would be enforced.
Bouygues was the main contractor for building works at Cornwall House. Dahl-Jensen was the mechanical subcontractor under a subcontract dated 25 June 1998. The subcontract provided for retention of 5%. The subcontract also provided for dispute resolution by adjudication under the CIC Model Adjudication Procedure (second edition).
Dahl-Jensen commenced work on 15 April 1998. On 8 July 1999, Bouygues purported to determine Dahl-Jensen's employment under the express terms of the subcontract, and Dahl-Jensen left the site and did not return. Bouygues arranged for the subcontract works to be completed by others.
Both parties served notices of adjudication and it was agreed that Bouygues' claim would be treated as a counterclaim to Dahl-Jensen's claim in the Adjudication.
Dahl-Jensen issued a Notice to Adjudicate on 20 August 1999. Dahl-Jensen's claim was for £2.9M for breaches of contract in failing to provide design information on time, £2.1M for additional works, and £225K for breaches of contract and wrongful termination of the subcontract. Bouygues admitted that, subject to its counterclaim, Dahl-Jensen was entitled to £147K odd.
Bouygues issued a Notice to Adjudicate on 9 September 1999 and claimed costs for overpayments to Dahl-Jensen; liquidated damages for delay; damages for breaches of contract prior to the determination; and damages flowing from the determination.
The Adjudicator found that the value of additional work for which Dahl-Jensen was entitled to payment was £305,560, and that it was entitled to £80,892 in respect of its various claims for damages for breach of contract prior to the determination. It was also found that Dahl-Jensen's employment had been validly determined, and that Bouygues was entitled to liquidated damages and to costs incurred in remedying damaged work and for direct labour payments made by Bouygues on behalf of Dahl-Jensen, and additional costs of completing the subcontract works in the sum of £178,801.51. The Adjudicator made a net award in favour of Dahl-Jensen of £207,741.46 having regard to the sums that he found to be due in respect of the parties' individual claims, and after taking account of the sums previously paid.
In Schedule 5 to the Adjudicator's decision he set out a "Summary Assessment for both Claim and Counterclaim". To the original tender sum he added various items, from which, he deducted sums due to Bouygues. This was a gross figure in the sense that it included the 5% retention. He then deducted the total of interim payments to date to arrive at the total. The interim payments excluded the 5% retention. In Schedule 5 to the decision, the Adjudicator set out a "Counterclaim Analysis". Here, the Adjudicator carried out a similar exercise starting with the original tender sum, adding various items, deducting the sums due to Bouygues as well as the total of interim payments. Once again, there was a deduction of a sum which excluded the 5% retention from a sum which included it.
In arriving at the figure of £178,801.51 in Schedule 5 (which was carried through to the net sum of £207,741.46 in the conclusion), and in arriving at the sum of £207,741.46 in the Summary Assessment of Claim and Counterclaim, the Adjudicator took a gross sum which included the 5% retention, and deducted from it the sums that had been paid during the subcontract which excluded the retention. The effect of this was to release the retention to Dahl-Jensen at a time when there was not yet an entitlement to it under the subcontract.
If the 5% retention had been deducted from the gross sum to which Dahl-Jensen was found to be entitled, that sum would have been reduced by £348,885.63 from £6,979,912 to £6,630,916. The overall effect would have been that there would have been a net award of £141,254 in favour of Bouygues, instead of a net award of £207,741 in favour of Dahl-Jensen.
In subsequent correspondence the Adjudicator stated that the calculations in the summary in Schedule 5 correctly reflected his intention and did not contain a clerical mistake or error arising from an accidental slip or omission. He declined to give further reasons or deal with any further submissions on this issue without the parties' agreement. The parties did not ask the Adjudicator to give further reasons.
The key question was whether the Adjudicator's decision, which in effect awarded the retention money to Dahl-Jensen, was outside his jurisdiction and therefore not binding on the parties.
Dahl-Jensen had applied for summary judgment in respect of the sum awarded by the Adjudicator by his decision.
Justice Dyson observed that paragraph 20 of the CIC Model Adjudication Procedure defined the matters to be decided as "the matters set out in the Notice, together with any other matters which the Parties and the Adjudicator agree shall be within the scope of the adjudication". He held that the Adjudicator's jurisdiction to decide disputes derived from the Model Procedure. Justice Dyson held that to the extent that the Adjudicator purported to decide matters which did not fall within the scope of paragraph 20 and which therefore had not been referred to him, his decision was void.
Mr Justice Dyson referred to his judgment in The Project Consultancy Group v Trustees of the Gray Trust [1999] 65 ConLR 146 in which he held that a decision purportedly made under section 108(3) of the Housing Grants and Regeneration Act 1996 where there was no construction contract at all, or where the construction contract was entered into before Part II came into force was not a decision within the meaning of the subsection and was therefore not binding on the parties.
Mr Justice Dyson held that there was a reasonably close analogy between the two expert valuation cases of Jones v Sherwood Computer Services PLC [1992] 1 WLR 277 and Nikko Hotels (UK) Ltd v MEPC PLC [1991] 2 EGLR 103, and adjudication cases. There was a difference that an enforceable decision of an expert was truly conclusive, whereas an enforceable decision of an adjudicator appointed under the CIC Model Procedure or the Scheme for Construction Contracts provided by Part II of the Housing Grants, Construction and Regeneration Act 1996 was only binding until the dispute was finally determined by litigation, arbitration or agreement.
In Jones v Sherwood Computer Services PLC [1992] 1 WLR 277 an agreement to purchase shares contained a provision that if the parties and their accountants could not agree a statement of the amount of sales, the matter was to be referred to independent accountants to determine as experts, and their decision was to be binding and conclusive for all purposes. Independent accountants were appointed and made their decision. The plaintiffs started proceedings claiming a declaration that the firm had failed to take account of transactions which it ought to have taken into account. The Court of Appeal struck out the parts of the statement of claim that related to this claim. At page 287A, Dillon LJ stated that on principle, the first step must be to see what the parties had agreed to remit to the expert, this being, as Lord Denning M.R. said in Campbell v Edwards [1976] 1 WLR 403, 407G, a matter of contract. The next step was to see what the nature of the mistake was, if there was evidence to show that. If the mistake made was that the expert departed from his instructions in a material respect - eg if he valued the wrong number of shares, or valued shares in the wrong company, or if as in Jones (M) v Jones (R.R.) [1971] 1 WLR 840, the expert had valued machinery himself whereas his instructions were to employ an expert valuer of his choice to do that - either party would be able to say that the certificate was not binding because the expert had not done what he was appointed to do. It was held in Jones v Sherwood that the experts had done precisely what they were asked to do.
The approach in Jones v Sherwood was applied by Knox J in Nikko Hotels (UK) Ltd v MEPC PLC [1991] 2 EGLR 103. That was a rent review case. The formula for increasing the rent required that the average hotel room rate be determined. The independent expert construed the expression "average room rate" as meaning the average of the published prices at which rooms were said to be available, rather than the average room rate actually achieved. The tenants issued an originating summons contending that the expert's decision was a nullity, since it was based on a misinterpretation of the rent review clause. The judge dismissed the summons holding that the expert's decision was conclusive and not open to review on the grounds that it was erroneous in law, unless it could be shown that the expert had not performed the task assigned to him: it was held that if he had answered the right question in the wrong way, his decision would be binding. If he had answered the wrong question, his decision would be a nullity (p 108B).
Mr Justice Dyson held, applying the approach in the expert valuation cases, that the first step was to see what disputes were referred to the Adjudicator. It was common ground that the disputes did not include a claim for the release of retention being withheld under the subcontract. The second step was to see whether the Adjudicator made a mistake, and if so, how that mistake should be characterised. If the mistake was that he decided a dispute that was not referred to him, then his decision on that dispute was outside his jurisdiction, and of no effect. It was held that it was analogous to the valuer departing from his instructions in a material respect or answering the wrong question. But if the adjudicator decided a dispute that was referred to him, but his decision was mistaken, then it was and remained a valid and binding decision, even if the mistake was of fundamental importance.
Mr Justice Dyson observed that there was no dispute that this was the correct approach to be followed in the instant case. The difference between the parties was the application of that approach to the facts of the instant case.
Mr Justice Dyson held that the Adjudicator had plainly made a mistake, but it was a mistake in the Adjudicator's calculations on the disputes that were referred to him, and not a mistaken decision to deal with or purport to deal with a dispute that was outside his jurisdiction. He gave reasons for his judgment as follows:
Mr Justice Dyson did not consider that the issue whether the Adjudicator answered the right question in the wrong way or answered the wrong question could be resolved by an examination of the correspondence. The Adjudicator had said that he did not make a "clerical mistake or slip", and that was no doubt why he refused to apply the slip rule. Mr Justice Dyson considered that even if it were appropriate to have regard to what the Adjudicator said about his decision after the event, the correspondence did not shed light on the question whether he ruled on an issue that was not referred to him, or made a mistake in the way in which he decided an issue that was referred to him.
Bouygues submitted that if Dahl-Jensen was permitted to enforce a decision which was plainly erroneous, Bouygues would suffer an injustice, and this would bring the adjudication scheme into disrepute.
Mr Justice Dyson referred to his judgment in Macob Civil Engineering Ltd v Morrison Construction Ltd [1999] BLR 93, in which he stated that the purpose of the scheme was to provide a speedy mechanism for settling disputes in construction contracts on a provisional interim basis, and required the decisions of adjudicators to be enforced pending final determination of disputes by arbitration, litigation or agreement, whether those decisions were wrong in point of law or fact. He held that it was inherent in the scheme that injustices will occur, because from time to time, adjudicators would make mistakes. Sometimes those mistakes would be glaringly obvious and disastrous in their consequences for the losing party. The victims of mistakes would usually be able to recoup their losses by subsequent arbitration or litigation, and possibly even by a subsequent adjudication. Sometimes, they would not be able to do so, where, for example, there was intervening insolvency, either of the victim or of the fortunate beneficiary of the mistake.
Mr Justice Dyson held that where the adjudicator has gone outside his terms of reference, the court would not enforce his purported decision. This was not because it was unjust to enforce such a decision. It was because such a decision was of no effect in law. In deciding whether a decision had been made outside an adjudicator's terms of reference, the court should give a fair, natural and sensible interpretation to the decision in the light of the disputes that were the subject of the reference. There would be some cases where it is clear that the adjudicator has decided an issue that was not referred to him or her. But in deciding whether the adjudicator has decided the wrong question rather than given a wrong answer to the right question, the court should bear in mind that the speedy nature of the adjudication process meant that mistakes would inevitably occur, and it should guard against characterising a mistaken answer to an issue that lay within the scope of the reference as an excess of jurisdiction.
Mr Justice Dyson found Dahl-Jensen's claim for summary judgment to be successful.