Adjudication
Shimizu Europe Limited -v- Automajor Limited (2002)TCC

© Daniel Atkinson 2002      30 September 2002        

The decision in Shimizu Europe Limited -v- Automajor Limited is interesting because of an aside by Judge Seymour which raises a difference between English Law and Scots Law which may affect the application in England of decisions under Scots Law. In the scottish legal system judicial review is available for an adjudicator’s decision. This aspect was explored more fully in Homer Burgess Ltd v Chirex (Annan) Ltd [2000].

The substantive part of the decision in Shimizu Europe Limited -v- Automajor Limited examined whether an award of payment calculated on a basis which was inconsistent with the Adjudicator’s other findings, in this case an alleged variation, would still be enforced. Not surprisingly the view of the Court of Appeal in Bouygues (UK) Ltd. v. Dahl-Jensen (UK) Ltd was followed. It was held that the Adjudicator had not made a mistake as to what he was required to decide and had decided the question put to him. He had jurisdiction to make a mistake in answering that question. Judgment was given to enforce the adjudicator’s decision.

The decision in Bouygues (UK) Ltd. v. Dahl-Jensen (UK) Ltd is also a demonstration of how easy it is to submit to the jurisdiction of the adjudicator and to negate any previous objections to jurisdiction.

The facts of the case are as follows. Automajor engaged Shimizu as contractor to design and construct 3140 m²of business workspace on three storeys at Salusbury Road, London, NW6, under the JCT 1998 With Contractor Design form of the contract.

Shimizu sought adjudication of various matters of alleged dispute with Automajor by issue of a Notice dated 19^th September 2001 through the Technology and Construction Solicitors Association (TeCSA).

One of the claims in adjudication was for a sum of £153,530.28 for alleged variations to the works which was made up of additions and omissions. The claim for variation to smoke ventilation works was £161,996.89. Automajor considered was that smoke ventilation works were within the scope of the works which Shimizu had undertaken under the contract and not variations. The works undertaken were considerably more extensive and expensive than Shimizu had allowed for in its tender because of the need to comply with statutory requirements.The reference to adjudication, Automajor had paid a sum of £50,000 on a without prejudice basis towards the alleged value of the alleged variations in relation to smoke ventilation works.

In the adjudication, Automajor sought to raise a counterclaim in respect of the £50,000 paid without prejudice. The Adjudicator ruled that he had no jurisdiction to entertain any counterclaim. He also ruled that the alleged variations to the smoke ventilation works were not variations.

In his decision, the Adjudicator awarded Shimizu a sum of £321,300.99. The sum included an element of £143,530.28, made up of the sum of £153,530.28 claimed by Shimizu in respect of alleged variations less the sum of £10,000 to allow for an omission (accepted by both parties). The Decision therefore included as an element in the calculation an amount of £161,996.89 in respect of the alleged variations to smoke ventilation works which the Adjudicator had held were not variations, and made no allowance for the without prejudice payment on account in connection with the alleged variations of £50,000.

On 6^th November 2001 Automajor wrote to the Adjudicator stating that his Decision contained an error which went to his jurisdiction, and invited the Adjudicator to amend the Decision pursuant to the slip rule explained in Bloor Construction v Bowmer & Kirkland (London) Limited.

The Adjudicator replied on 7^th November 2001, relying on answers to his questions at a hearing on 31^st October 2001, that he should not make an adjustment if he found against Shimizu on the smoke ventilation costs.

Automajor made payment of a sum of £146,231.89, part of the total amount of £321,300.99 awarded by the Adjudicator. Shimizu sought enforcement of the Adjudicator’s decision and claimed the outstanding balance of £175,069.10, claimed interest on the whole sum of £321,300.99 for the period of three days between 12 and 14 November 2001 inclusive, and claimed interest on the sum of £175,069.10 from 15 November 2001 until judgment.

Automajor accepted that the sum of £146,231.89 was wrongly calculated. It was intended to represent an amount of £321,300.99 less £111,996.89, being £161,996.89 less £50,000, plus Value Added Tax at 17.5%. Arithmetically the correct result of such a calculation would be £189,704.65.

Judge Richard Seymour QC had to decide whether the case required the resolution of factual questions and therefore whether the appropriate court procedure had been adopted. Automajor argued that there was a dispute of fact as to what had or had not been said to the Adjudicator at the hearing on 31^st October 2001.

Shimizu submitted that if the Adjudicator had made a mistake as to the position adopted by Automajor as to the account to be taken of the amount claimed by Shimizu for variations to smoke ventilation works, the effect was only that his Decision was wrong, not that it was made without jurisdiction. If the sum determined in the Decision as payable to Shimizu by Automajor was ascertained in the course of reaching a conclusion on a matter referred to him for his decision by the Notice, it did not matter, that it could be demonstrated that the sum was, or might be incorrect. Shimizu relied upon the decisions of first, Dyson J. and then the Court of Appeal, in Bouygues (UK) Ltd. v. Dahl-Jensen (UK) Ltd. [2000] LR 522. Shimizu also relied upon the decision of His Honour Judge Gilliland QC in Farebrother Building Services Ltd. v. Frogmore Investments Ltd., which concerned a decision of an adjudicator acting under the TeCSA Rules.

Automajor sought to distinguish the decision of Judge Gilliland in Farebrother Building Services Ltd. v. Frogmore Investments Ltd. on the ground that in that case the adjudicator gave no reasons for his decision. Automajor sought to rely on the decision of Lord Reid in the Scottish case of Ballast Plc v. The Burrell Company (Construction Management) Ltd. [2001] LR 529 to the effect that an adjudicator was bound to determine the dispute referred to him and could not, with binding effect, determine the extent of his own jurisdiction or narrow or extend his jurisdiction. Automajor submitted that if an adjudicator made any mistake about what he was supposed to decide or as to the basis upon which he was being invited to decide a question, that went to his jurisdiction and vitiated his decision. The particular mistake which Automajor argued the Adjudicator had made was to misunderstand that he had been asked to decide two separate questions. The first question was what sums Shimizu was entitled to under the Contract. The second question was what sums, if any, were payable to Shimizu as sums due under the Contract. Automajor submitted that, having found that there had been no variations in relation to the smoke ventilation works, the effect was the he had found that nothing was due to Shimizu in respect of variations. The Adjudicator had had no jurisdiction to go on to include in his overall assessment of the sum due to Shimizu, the element which he did in respect of variations.

Judge Seymour observed that the decision of Lord Reid in Ballast Plc v The Burrell Company (Construction Management) Ltd. depended critically upon the fact that, under Scots law the remedy of judicial review was available. Unfortunately he did not expand on this observation.

Judge Seymour held that the propositions which Automajor submitted were to be found in the decision of Lord Reid in Ballast Plc v The Burrell Company (Construction Management) Ltd. were not supported by that decision. No principle could be elicited from the words of Lord Reid that any mistake whatsoever made by an adjudicator as to what he was supposed to decide, or as to the basis upon which he was being invited to decide a question, inevitably went to his jurisdiction and vitiated his determination.

Judge Seymour held that the distinction between a dispute as to what sum Shimizu was entitled to under the Contract and a dispute as to what sum was payable to Shimizu under the Contract was a distinction without a difference in the circumstances of the present case. What had been referred to the Adjudicator, so far as material was a dispute as to "sums due under the contract". In order to decide whether the Adjudicator had jurisdiction to deal with the question of what sum to include for the alleged variations to the smoke ventilation works it was necessary to identify what question or questions were referred to him for decision - Buxton LJ in Bouygues (UK) Ltd. v. Dahl-Jensen (UK) Ltd. It was common ground that Rules 11 and 3(i) of the TeCSA Rules required the Notice of Adjudication to state the dispute in general terms. In this case the dispute referred was stated in Section 5 of the Notice to include "sums due under contract".

Judge Seymour held that the Adjudicator decided that Automajor should pay Shimizu under the Contract the sum of £321,300.99 It was obvious that he had jurisdiction, given the terms of the Notice, to decide both that some sum was payable by Automajor to Shimizu and what that sum was. If the Adjudicator made a mistake, it was as to a matter relevant, or possibly relevant, to the evaluation of what sum, if any should be paid by Automajor to Shimizu under the Contract. It was not a mistake as to what he was being asked to decide. He asked himself the correct question. He answered that question. It may well be, the Adjudicator got the answer wrong because he misunderstood the submissions being made to him on behalf of Automajor about one element which might have given rise to an entitlement of Shimizu to a payment under the Contract. The proper mechanism for correcting the error, if error there was, seemed to be in the course of a final account negotiation or in arbitration proceedings. It was not to challenge the Award on jurisdictional grounds. Judge Seymour held that it was well-established, an adjudicator had jurisdiction to make a mistake, as long as he asked himself a question or questions which had actually been referred to him for decision and sought to answer such a question or questions.

Accordingly the procedural objection taken on behalf of Automajor failed.

Judgment was given for Shimizu for the balance unpaid of the amount of the Award, namely, £175,069.10, together with the interest in respect of non-payment of the sum of £321,300.99 for the three days 12 to 14 November 2001 inclusive, quantified at £211.27, and interest on the sum of £175,069.10 from 15 November 2001 until the date of the judgment.

Although this disposed of the issue, Judge Seymour also commented on an alternative argument put forward by Shimizu.

Shimizu argued that even if the Adjudicator had exceeded his jurisdiction in making the Decision, any right which there would otherwise have been to raise objection on behalf of Automajor had been waived by making part-payment of the sum awarded and/or by inviting him to correct the Decision. Shimizu relied upon the observations of His Honour Judge Humphrey Lloyd QC in KNS Industrial Services (Birmingham) Ltd. v. Sindall Ltd. and on the comments of His Honour Judge Gilliland QC in Farebrother Building Services Ltd. v. Frogmore Investments Ltd.

Judge Seymour decided that it was not open to a party to an adjudication simultaneously to approbate and to reprobate a decision of the Adjudicator. Assuming that good grounds existed on which a decision may be subject to objection, either the whole of the relevant decision must be accepted or the whole of it must be contested. It may, of course, be important correctly to characterise what constituted a decision of the adjudicator. It was likely that, to be relevant for the purposes under consideration, a decision would be the answer to a question referred to the Adjudicator, rather than a conclusion reached on the way to providing the answer. Judge Seymour gave an example. The adjudicator may have referred to him or her for deciding both the question how much money was due to a contractor and also the question what extension of time for completion of construction works the contractor was entitled. It would be open to a party to the adjudication to accept the determination in relation to the sum due while disputing, if otherwise there were good grounds for so doing, the assessment of the extension of time, or vice versa. In such a case two separate questions would have been referred to the adjudicator.

However, that situation was to be distinguished from the case in which in order to answer the question to what sum a party was entitled it was necessary to consider a number of elements of claim, or the case in which in order to reach a conclusion as to what extension of time was appropriate a number of grounds of possible entitlement to extension of time need to be considered. In each of these latter cases the result of the evaluation of the various elements would be a single cash sum or a single period of extension of time.

The option available to a party who otherwise had good grounds for objecting to a decision that a particular sum was payable, was to accept it in its entirety or not at all. A party did not have the option of declining to accept the decision in its entirety, but to accept the reasoning which led to particular items being included in the overall total. Similarly with an evaluation of a period of extension time. The overall period of extension must be accepted or none.

Judge Seymour decided that in the present case the Adjudicator’s error, if such it was, was committed in the course of reaching a conclusion as to how much was due to Shimizu. It was not a decision on a separate question which had been referred to him. By inviting the Adjudicator to correct the Award under the slip rule, Automajor accepted that the Award was valid. Automajor had asserted that the Award contained an error which went to the Adjudicator’s jurisdiction, but if that were right, it would follow that the Award, or the relevant part of it, was a nullity. There would be nothing to correct. The invitation to the Adjudicator to correct the Award under the slip rule was only consistent with recognising it as valid. In addition by paying part of the sum the subject of the Award, Automajor elected to treat the Award as valid. Otherwise there was no need to pay Shimizu anything, and it was not appropriate to do so. Consequently, had it been necessary to do so, Judge Seymour decided he would have held that Automajor had elected to forgo any opportunity which it might otherwise have had to object to the Award.