Adjudication
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KEYWORDS: |
Housing Grants Construction and Regeneration Act 1996, costs, novation agreement, ORSA Adjudication Rules-1998, Lord Drummond Young. |
The decision of Lord Drummond Young in the Scots case of Deko Scotland Ltd v Edingburgh Royal Joint Venture and Others [2003] is of limited general application because it deals with a unique term added to the ORSA Adjudication Rules for the payment of the parties costs. The decision is of interest because it shows the approach taken by the Courts to assessment of costs and the question of taxation, but it is based on unique Scots law which views adjudication as a form of arbitration, allows (in some cases) judicial review of an adjudicator's decision and provides for taxation by an Auditor of the Court. This may make the reasoning of limited application in English Law.
Edingburgh was an unincorporated joint venture set up to design and construct the new Edinburgh Royal Infirmary and Medical School at Little France. The other defenders were companies participating in the joint venture.
The sub-contract works were novated from Zenith Contract Interiors Limited to Deko in which Deko assumed all of the responsibilities and liabilities of Zenith under the sub-contract as if they had been named as subcontractor from the outset. The subcontract works was the plasterboard partitioning works in the new Infirmary and University Medical School.
The sub-contract provided for adjudication under the Housing Grants Regeneration and Construction Act 1996. Paragraph 2.1 of Appendix 8 provided that ORSA Adjudication Rules-1998 Version 1.2 applied, but subject to a large number of amendments. New clause 21A provided:
"The Adjudicator may require any Party to pay or make contribution to, the legal costs of another Party arising in the Adjudication...".
A dispute arose and the Adjudicator produced his decision on 4 September 2002 and dealt with the expenses of the adjudication in the following terms:
"In respect of the parties' costs I order that ERJV are liable for one half all Deko's costs of and incidental to this adjudication including Deko's legal costs".
The only issue left to be decided in the action was the question of the expenses of the adjudication. Deko claimed expenses in the sum of £21,219.03 representing half the expenses incurred comprising:
Deko accepted that the last of those sums was not due, as the adjudicator's decision did not require any such payment.
Edinburgh had two grounds for the Courts to refuse to enforce this part of the adjudicator's decision.
Edinburgh argued that the adjudicator's power to award the costs of the adjudication, was confined to legal costs, in the sense of costs analogous to judicial expenses. That was a sensible construction of Rule 21A and avoided the result that a party could recover legal expenses no matter how unjustified or excessive they might be. The Adjudicator's decision was to be construed accordingly. On that basis Deko's internal costs would not be recoverable, and the fees incurred by the Claims Consultant and the Quantity surveyor might not be.
Deko argued that, even if the power to award expenses contained in Rule 21A was confined to judicial expenses, all that could be said was that the adjudicator had misapplied the law to the facts of the case. That did not go to the jurisdiction of the adjudicator, but was merely an error of law. An error of law that did not go to jurisdiction was not a good reason for refusing to enforce an adjudicator's award.
Lord Young held that the "costs" was obviously derived from English procedure, and clearly meant the same as expenses in Scottish procedure. The power to award costs was qualified in two significant respects: such costs must be "legal" costs, and they must arise in the adjudication. He considered that the reference to "legal" costs must be intended to have some force. He held that the successful party cannot expect to recover any costs whatsoever that it may incur in connection with an adjudication, no matter how extravagant or unreasonable those costs may be. Some limit must be placed on the costs that may properly be recovered.
Lord Young observed that in litigation, the expenses recoverable were confined to judicial expenses. In an arbitration, the expenses recoverable were generally restricted to those analogous to judicial expenses: see Irons & Melville, op. cit., 228. The reason for this rule is obvious: an arbitration was a procedure closely analogous to litigation, and judicial expenses were the general standard that determines what expenses are properly recoverable.
Lord Young held that the same reasoning applies to adjudication. In Scots law at least an adjudication was a form of arbitration. The critical features of an arbitration are present. The only distinction was that an adjudicator's award was merely provisional, and might be undone by subsequent litigation or arbitration. It followed that any award of expenses in an adjudication should normally be confined in the same way as an award of expenses in an arbitration, by reference to the same standard as judicial expenses.
Lord Young considered that any express or implied power to award costs or expenses in an adjudication should be restricted to expenses analogous to judicial expenses unless there was clear wording to the contrary.
Lord Young considered that any error of law made by the adjudicator in construing Rule 21A went to his jurisdiction, and was thus subject to review by the Court of Session. The bases on which the Court may review the decisions of an adjudicator must be the same as those that apply to an arbiter; this followed from the proposition that in Scots law an adjudicator was a species of arbiter.
It was well established that the decisions of an arbiter cannot be reviewed on the basis of an error of law, including an error in the construction of a document. This was subject to an exception, however, in relation to errors that go to the jurisdiction of the arbiter, and in particular to the issue of whether he has acted in accordance with the terms of the reference that has been made to him. Errors of the nature are subject to review by the Court of Session. The crucial distinction is that between ordinary errors of law, including the construction of a document, and errors of law in construing the particular contractual or other provisions that confer on an arbiter the power to act as such. That distinction is fundamental to the law of arbitration, and it is relevant in particular to the question of whether an error of law goes to the jurisdiction of the arbiter and is therefore subject to review or whether it is merely an ordinary error of law that cannot be reviewed by the Court.
Lord Young held that in the instant case, Rule 21A was obviously intended to confer on the adjudicator a power to award the expenses of the adjudication. As such, it was clearly a provision that confered power to act on the adjudicator. On that basis, any error made by the adjudicator as to the construction of the power conferred by that rule would be subject to review by the Court. That power of review would not extend to matters relating to expenses that lay within the discretion of the arbiter, but the power to award "legal costs... arising in the Adjudication" amounted to a restriction on his ability to act, and was accordingly subject to review.
Lord Young did not consider that the adjudicator had made any error of law. The award of expenses made by him was quite capable of being construed as an award of taxed expenses, and it must be so construed.
Lord Young held that Deko's entitlement was restricted to expenses of the adjudication analogous to judicial expenses.
Edinburgh argued that any award of expenses made by an adjudicator was liable to taxation. A party was not entitled to enforce the award until his account of expenses had been taxed by the Auditor of Court. In relation to arbitration, it had been established that the expenses of the arbitration are determined on the same principles as the expenses of litigation, and should always be taxed. Reference was made to Bell on Arbitration, 2nd ed, and paragraph 430, and Irons & Melville, The Law of Arbitration in Scotland, at 228-229. The same approach, it was submitted, should apply to adjudication.
Deko argued that the question of taxation had not been raised before the adjudicator. There was no provision either in the parties' contract or in the ORSA Rules which empowered the adjudicator to remit an account of expenses to taxation. The position of an adjudicator was different from that of an arbiter, in that an adjudicator's award was provisional in nature. If an award were merely provisional, there would be practical sense in not submitting accounts of expenses to taxation.
Lord Young considered that if an award of expenses by the adjudicator was confined in to judicial expenses properly incurred as decided under Ground 1 above, that some means must exist for determining what heads of expenses were and were not recoverable. In litigation that meant taxation by the Auditor of Court. The same procedure was used in arbitration. Frequently an express power to have expenses taxed will be contained in the submission to arbitration, but such a power will be implied in any event. The reason for implying such a power was a practical one: taxation was the most convenient method of determining which of the expenses incurred by the successful party were properly to be recoverable on the same principles as judicial expenses.
Lord Young applied the same reasoning to adjudication. Lord Young's conclusion was that in any adjudication there is an implied power to have any award of costs or expenses taxed by the Auditor of Court.
Lord Young stated that it was competent for an arbiter to make an award of the expenses of the arbitration, as taxed by the Auditor of Court. Such an award would be sufficiently definite to be enforced, and that was the criterion for the competence of an award of expenses by an arbiter. Support for that conclusion was found in Younger v Caledonian Railway Company, 1847, 10 D. 133, at 136 per LJC Hope, in the article on arbitration in the Stair Memorial Encyclopaedia, Vol 2, at paragraph 449, and in Fraser on Arbitration at paragraph 17.08. That point was likely to be of particular importance in adjudication, where speed was of the essence and consequently it would not usually be desirable to have an account of expenses taxed before the adjudicator's decision was issued. In such a case, the adjudicator might simply make an award of the taxed expenses of the adjudication in favour of one party. Thereafter the remaining parts of the adjudicator's decision may be enforced immediately. Before the award of expenses could be enforced, however, either the successful party's account must be agreed or it must be remitted to the Auditor for taxation. Until either agreement has been reached or taxation has been completed, the proper amount of the award of expenses could not be known with certainty. Consequently enforcement would not be possible.
Lord Young held that only when the account has been agreed or taxed could proceedings be raised to recover the amount of the expenses in question. In the instant case, the sums claimed by Deko had not been taxed. It followed that this part of Deko's claim was irrelevant.
Lord Young held that the provisional nature of an adjudicator's decision has no bearing on the need for taxation. Taxation was required in order to prevent successful parties to legal proceedings from making excessive claims for expenses. That requirement existed whether or not the result of the legal proceedings was fully determinative of the parties' rights or was liable to be undone by other proceedings.
Lord Young stated it seemed unlikely that anything described as "internal costs" could amount to expenses analogous to judicial expenses. In the case of the fees incurred by the claims consultant and the surveyor, Lord Young did not think that the Court could properly disallow the fees without reference to the Auditor of Court. Fees incurred to experts may form a legitimate part of judicial expenses, and it was normally for the Auditor to decide whether they did in any particular case.
Nevertheless, the general approach that Lord Young adopted was that the whole of Deko's account of expenses relating to the adjudication must be remitted to the Auditor before any part of it could be recovered by judicial proceedings. In the circumstances he considered it appropriate to leave all questions relating to the disallowance of particular heads of expenses to the Auditor.
For the foregoing reasons, Lord Young considered that Deko's claim for the expenses of the adjudication to be irrelevant on the present state of the pleadings. He accordingly refused the motion for summary decree in respect of that claim.