HGCR Act 1996
Cantillon Limited v Urvasco Limited [2008] EWHC 282 (TCC)

© Daniel Atkinson 2008 02 March 2008

Introduction

The contract in this case was for demolition, piling and some other works at a development at the western end of Aldwych in the Strand London. Urvasco engaged Cantillon to carry out the works under the JCT Standard Form of Building Contract Private Without Quantities 1998 Edition. It contained the standard adjudication clause.

The eventual issue before Mr Justice Akenhead in Cantillon Limited v Urvasco Limited [2008] EWHC 282 (TCC) was the jurisdictional challenges to an adjudicator's decision on the loss and expense in relation to two extensions of time.

The first extension of time in issue was the Architect's grant of an extension of time of 13 weeks for a variation relating to "in-board piling". The extension of time was granted prospectively, before the relevant piling had started.

There was also an 8 week extension of time granted but that was not subsequently in issue.

The second extension of time in issue was for 16 weeks and which had been disputed. There were three references to adjudication although the second was abortive. The Adjudicator in the other two adjudications decided that Cantillon was entitled to 16 weeks extension of time. 

The fourth adjudication was for two claims for the related loss and expense for the 13 week and 16 week extension of time. The money claims for the two extensions of time were identified separately in the adjudication and the fourth Adjudicator dealt with them separately. Cantillon had been paid £260,000 for loss and expense with regard to the 13 week claim.

The 28-day period provided for the resolution of the adjudication was extended to some five months. There were two jurisdictional issues for the fourth Adjudicator to resolve. In the first he decided that he was bound by the decisions of the adjudicator in Adjudications 1 and 3. In the second he decided that he could review the 13 week period of extension of time which had been granted by the Architect and had not been the subject of an adjudication. There was no challenge to those resolutions.

Cantillon claimed some £1,400,00 and the fourth Adjudicator ordered payment of £391,565.60 which was not paid.

The Issues

In the proceedings before Mr Justice Akenhead, Urvasco argued that the Adjudicator had exceeded his jurisdiction and failed to comply with the rules of natural justice with regard to the 13 Weeks Claim. There were two arguments which raised issues of substantive jurisdiction and natural justice.

1. Substantive Jurisdiction.  It was argued that the Adjudicator had no jurisdiction to address and resolve any issue relating to a delay occurring and prolongation costs being incurred in a period other than the specific 13 week period identified by Cantillon.
2. Natural Justice. It was argued that the Adjudicator failed to give to Urvasco any or any reasonable opportunity to make submissions and adduce evidence in relation to the amount of costs being incurred in the later period.

Evidence was adduced before Akenhead J. that if the Adjudicator had specifically given the parties more time or opportunity to address costs incurred during the later period, they would or could have put in further evidence and it might have made a difference of somewhere between about £17,000 and £60,000 lower than the amount allowed by the Adjudicator for the 13 Weeks Claim.

Akenhead J. decided that he could not on the evidence decide what if any difference further evidence and submissions would have made to the Adjudicator's decision.

Since the jurisdictional objections related only to the 13 week claim and not the 16 week claim, the issue of severability of the adjudicator's decision also arose to be considered by Akenhead J.

Substantive Jurisdiction

Akenhead J referred to the Court of Appeal decision in Carillion Construction Ltd v Devonport Royal Dockyard Ltd [2005] EWCA Civ 1358 (CA) [2006]BLR15.  He observed that in this case the Adjudicator, albeit experienced, had a mass of conflicting evidence and argument to take on board. Akenhead J held that the Court should not take an over-analytical approach to questions of jurisdiction and natural justice arising in adjudications under the HGCRA 1996.

He considered correct as common ground that whatever dispute was referred to the Adjudicator, it included and allowed for any ground open to the responding party which would amount in law or in fact to a defence of the claim with which it is dealing KNS Industrial Services (Birmingham) Ltd v Sindall Ltd [2000] [2001]75ConLR71.

As to the meaning of dispute, he referred to Amec Civil Engineering Ltd -v- Secretary of State for Transport [2005] BLR 227 and Collins (Contractors) Ltd v Baltic Quay Management (1994) Ltd [2004] EWCA (Civ) 1757 and usefully set out the following propositions:

1. Courts (and indeed adjudicators and arbitrators) should not adopt an over legalistic analysis of what the dispute between the parties is.
2. The disputed claim or assertion being referred to adjudication or arbitration as the case may be needs to be determined in broad terms.
3. The disputed claim or assertion is not necessarily defined or limited by the evidence or arguments submitted by either party to each other before the referral to adjudication or arbitration.
4. The ambit of the reference to arbitration or adjudication may unavoidably be widened by the nature of the defence or defences put forward by the defending party in adjudication or arbitration.

Akenhead J expressly stated that he did not follow the judgment of HHJ Seymour in Edmund Nuttall Ltd v RG Carter Ltd [2002] BLR 312.  Akenhead J held that one should look at the essential claim which has been made and the fact that it has been challenged - as opposed to the precise grounds upon which that it has been rejected or not accepted. It was open to any defendant to raise any defence to the claim when it is referred to adjudication or arbitration. Similarly, the claiming party is not limited to the arguments, contentions and evidence put forward by it before the dispute crystallised. The adjudicator or arbitrator must then resolve the referred dispute, which is essentially the challenged claim or assertion but can consider any argument, evidence or other material for or against the disputed claim or assertion in resolving that dispute.

Natural Justice

On the issue of the conduct of the adjudicator and failure to comply with the rules of natural justice, Akenhead J referred to Discain Project Services Ltd v Opecprime Development Company Ltd [2001] BLR 285 and Balfour Beatty Construction Company Ltd v The Camden Borough of Lambeth [2002] BLR 288. He observed that in the latter case, HHJ Lloyd had to deal with the case where the adjudicator had done his own expert analysis of where the critical delay path lay, awarded the Contractor the bulk of the extension of time claimed and ordered the repayment of most of the liquidated damages. Because in the Balfour Beatty case the adjudicator did not inform the parties of his methodology and seek their observations on its suitability and because if the losing party had had the opportunity to comment it might well have made a difference, Lloyd J. refused to enforce the decision.

Akenhead J. usefully set out the following propositions in relation to breaches of natural justice in adjudication cases:

1. It must first be established that the Adjudicator failed to apply the rules of natural justice;
2. Any breach of the rules must be more than peripheral; they must be material breaches;
3. Breaches of the rules will be material in cases where the adjudicator has failed to bring to the attention of the parties a point or issue which they ought to be given the opportunity to comment upon if it is one which is either decisive or of considerable potential importance to the outcome of the resolution of the dispute and is not peripheral or irrelevant.
4. Whether the issue is decisive or of considerable potential importance or is peripheral or irrelevant obviously involves a question of degree which must be assessed by the judge.
5. It is only if the adjudicator goes off on a frolic of his own, deciding a case upon a factual or legal basis which has not been argued or put forward by either side, without giving the parties an opportunity to comment or, where relevant put in further evidence, that the type of breach of the rules of natural justice with which the case of Balfour Beatty Construction Company Ltd v The Camden Borough of Lambeth [2002] BLR 288 was concerned comes into play . It follows that, if either party has argued a particular point and the other party does not come back on the point, there is no breach of the rules of natural justice in relation thereto.

Severability

Urvasco argued that severability or separate enforcement of parts of an Adjudicator's award would not be allowed in the case of material breach of the rules of natural justice and relied upon Amec Capital Projects Ltd v Whitefriars City Estates Ltd [2004] EWCA Civ 1418 [2005]BLR1. In that case Dyson LJ made a distinction between two types of breach of natural justice

1. The tribunal was unbiased but made a decision that was unfair because the losing party was denied an effective opportunity of making representations.
2. The tribunal allowed the losing party an effective opportunity to make representations, but was biased.

Akenhead J considered that Dyson LJ in that case was not addressing the issue of severability, but the basic issue as to whether or not there was a breach of the rules of natural justice.

Akenhead J. was not convinced that the observations in Keating on Construction Contracts 8th Edition) were correct at Chapter 17-045 that if there is a breach of natural justice, the whole decision is unenforceable, and it is not possible to sever the good from the bad.

Akenhead J. referred to Griffin and Another v Midas Homes Ltd [2000] 78ConLR152 as authority for the proposition that where an Adjudicator has exceeded his jurisdiction that part of the decision which was made within his jurisdiction could be enforced, although the issue of severability as such was not argued in that case. He referred to the following cases;

1. Homer Burgess Ltd v Chirex (Annan) Ltd [2000] BLR124.
2. KNS Industrial Services (Birmingham) Ltd v Sindall Ltd [2000] [2001]75ConLR71.
3. Farebrother Building Services Ltd v Frogmore Investments Ltd [2001] CILL1589.
4. Shimizu Europe Ltd v Automajor Ltd [2002] BLR113.
5. Durtnell v Kaduna [2004] 20ConstLJ.
6. RSL (South West) Ltd v Stansell Ltd [2003].

Akenhead J. provided the following propositions on the severability issue although in view of his decision on the case this part of his judgment is obiter dicta.

1. The first step must be to ascertain what dispute or disputes has or have been referred to adjudication. One needs to see whether in fact or in effect there is in substance only one dispute or two and what any such dispute comprises.
2. It is open to a party to an adjudication agreement to seek to refer more than one dispute or difference to an adjudicator. If there is no objection to that by the other party or if the contract permits it, the adjudicator will have to resolve all referred disputes and differences. If there is objection, the adjudicator can only proceed with resolving more than one dispute or difference if the contract permits him to do so.
3. If the decision properly addresses more than one dispute or difference, a successful jurisdictional challenge on that part of the decision which deals with one such dispute or difference will not undermine the validity and enforceability of that part of the decision which deals with the others.
4. The same in logic must apply to the case where there is a non-compliance with the rules of natural justice which only affects the disposal of one dispute or difference.
5. There is a proviso to (3) and (4) above which is that, if the decision as drafted is simply not severable in practice, for instance on the wording, or if the breach of the rules of natural justice is so severe or all pervading that the remainder of the decision is tainted, the decision will not be enforced.
6. In all cases where there is a decision on one dispute or difference, and the adjudicator acts, materially, in excess of jurisdiction or in breach of the rules of natural justice, the decision will not be enforced by the Court.

Application of the Law to the Facts

Substantive Jurisdiction

Akenhead J. first considered the nature of the dispute referred to the Adjudicator.

Cantillon had quantified its claim for loss and expense for the 13 week period on the basis that of the extended period from the contractual Date of Completion as opposed to a period which reflected when the piling was done. Akenhead J. observed that this was possibly not correct as a matter of fact or law. 

It appeared, and Akenhead J. assumed, that the dispute before adjudication revolved around quantification, rather specifically when the losses were incurred.

In the Adjudication, Urvasco raised the defences that the piling did not need to take as long as it did, that no prolongation costs were recoverable as the critical path was not through the piling works and the costs would almost all have been incurred in any event and finally that Cantillon had quantified its 13 Weeks Claim by reference to specific weeks so there was no loss recoverable for the period when the piling works were actually done. Although their primary case was that there was no delay or prolongation caused by the in-board piling variation, their alternative case was that any critical delay fell outside the period quantified, financially, by Cantillon.

Urvasco's case was based on an as-built programme which demonstrated that the in-board piling work was done essentially later than the 13 week time period to which the extension of time related. That as-built programme was agreed between the parties and their experts. Akenhead J. held that the Adjudicator was not on a "frolic" of his own when he addressed what prolongation occurred and when, because he was simply addressing what the parties, and principally their programming experts, had put before him. He rejected the evidence and argument of Urvasco and their expert that the critical path did not run through the piling operation.

Akenhead J. held that the nature of the dispute referred to the Adjudicator was the loss and expense in respect of the 13 weeks extension of time which had been granted for the in-board piling variation. He held that the Adjudicator's jurisdiction was extended by the defences raised by Urvasco.  He was therefore required to decide the overall (if any) critical delay caused by the in-board piling and  when and what, if any, losses flowed from the prolongation which he found. The issues were encompassed by the claim for 13 weeks of prolongation which was simply not accepted by Urvasco. The adjudicator could rule not only on that defence but also upon the ramifications of that defence to the extent that it was successful in so far as it impacted upon the fundamental dispute.

Akenhead J. held that the Adjudicator could not be criticised jurisdictionally for making findings when the critical prolongation delay occurred and for reducing that period to 9.71 weeks. He reduced the period to reflect exactly some of the complaints made by Urvasco about delay in execution of the in-board piling work by Cantillon; he had to address those complaints and factual defences.

Akenhead J. then considered whether the Adjudicator was entitled to decide the quantum for the period which he had found represented the actual period when the works were critically delayed by the piling variation.

He held that the consequence of Urvasco's defences was that if and to the extent that they were successful, the quantum would inevitably be different. For instance if the delays were shorter than the 13 weeks, there would be a lower weekly multiplier and if the delay occurred later the costs could well be different. In effect, Urvasco implicitly accepted that this was at least possible by the very defence which they ran "a pleading point"; it recognised that there might be different losses during a later period. Urvasco did not argue that the Adjudicator had no jurisdiction to resolve the loss and expense claim for the 13 Weeks Claim. It argued that the sum claimed was "wrongfully claimed" and did "not arise in consequence of the introduction of the in-board piling".

Akenhead J. held that the Adjudicator did have jurisdiction to find as he did that a later period of delay and prolongation applied to the in-board piling variation. The claim which he was addressing was one for loss and expense for 13 weeks said to be attributable to the in-board piling variation. It was not, and should not be considered to be, limited to a loss and expense claim for 13 specific calendar weeks. This was clearer when Urvasco actually ran a defence that the losses claimed could not be recovered because they related, only upon Urvasco's defence, to a later period. It offended reason that Urvasco could run that defence and avoid the consequences.

Natural Justice

Akenhead J. held that there was no breach of natural justice. The fact that the Adjudicator may have made some mistakes in his assessment of the loss and expense did not establish that he failed to have regard to the rules of natural justice. He had to do the best that he could on the available information. All the relevant authorities established that mistakes of fact or law would not prevent the enforcement of adjudicators' decisions Bouygues (UK) Ltd v Dahl- Jensen (UK) Ltd [2000] BLR 522.

1. If the adjudicator had jurisdiction to address the issue, it was up to the parties to put in such evidence as they thought fit to address the realistic permutations which might well apply. Urvasco's team was confident that, if there were any such costs payable, any prolongation costs would apply in the later period.
2. Cantillon provided detailed records and other documentation about all the prolongation heads of cost for the whole of the contract period. It was difficult therefore for Urvasco to say that it did not have the opportunity to address the quantum ramifications of there being a delay finding which reflected their own assertion that any prolongation occurred during the later period. They deliberately decided not to. That did not convert what happened in to some breach of the rules of natural justice.
3. The Adjudicator did not mislead the parties as to what he was or was not going to do.
4. Cantillon asked the Adjudicator to do something which was within his jurisdiction and this should have alerted Urvasco to the possibility that the Adjudicator might go down that route.
5. The Adjudicator was not make Cantillon's case: he was assessing what was due to Cantillon on the evidence and argument. He was entitled to investigate the facts and evidence as presented.
6. It was known that the Adjudicator would take up to about 4 weeks to produce his decision. Urvasco made a misjudgement in deciding not to put in any argument or evidence of loss and expense for later prolongation periods.

Severability

Although not necessary for the decision Akenhead J. gave useful guidance by stating the approach he would have taken to severance of the 13 week extension claim and the separate enforcement of the 16 week extension claim. He stated he would have given judgment in favour of Cantillon in respect of all other parts of the decision which could be said with confidence were unrelated to and untainted by any such breaches of natural justice for the following reasons:

1. At least two disputes, the 16 Weeks and the 13 Weeks Claims, were in issue. They were presented separately both before and in the Notice of Adjudication and the Referral. They were, logically and time-wise, separable claims relating to differing years and different factors said to have been causative of delay and cost. The quantum as presented by Cantillon was divisible into that relating to the two claims.
2. The Adjudicator dealt with the two claims separately in his decision.
3. If there was a breach of natural justice even if more than peripheral, it was or would have been more of the inadvertent type rather than one which wholly undermined the decision and reliability of the Adjudicator. There was no hint or suggestion that his decision on all other matters was not anything other than fair, competent and reliable.
4. The decision was in fact arithmetically divisible.
5. On finance on loss and expense one could either "pro-rata" on the two periods of delay or do a more detailed calculation by reference to the fact that the financing for the 16 weeks which occurred earlier will probably have attracted a larger share than the pro-rata: if in doubt, one would allow the lower figure.
6. As to the amount paid to Cantillon identified by the Adjudicator, Akenhead J. stated that he would have called for more argument on this from the parties and probably would have decided that there should be a deduction for the amount paid. He considered that although the evidence was that the sum paid of £260,000 was for the 13 Weeks Claim, it would be wrong to second guess the Adjudicator as to what he would have done with regard to this sum if he had allowed nothing for the 13 Weeks Claim.

Commentary

If a Responding Party raises technical defences or "pleading points" then it must carefully analyse the consequences of such a defence.  It will be risky to raise such a defence and not make submissions in the alternative in case the defence fails.  If the alternative defence is run then this is likely to ensure the failure of the technical defence.  One wonders why, in a procedure which is provisionally binding, the parties do not take the opportunity to have the matters fully decided without resort to technical defences, particularly in an adjudication which ran for 5 months.

On the matter of severability, it must be right that the Court should enforce the adjudicator's decision on those disputes referred to him which are not affected by the breach of natural justice.  If the breach of natural justice is the failure to give the losing party the opportunity to make representations then provided the effect of that breach is clearly confined to one dispute decided by the adjudicator, the remaining decision on the other disputes should be enforced. It is however a matter of degree whether or not that failure also demonstrates apparent bias. If the breach of natural justice is of the type identified by Dyson LJ in Amec Capital Projects Ltd v Whitefriars City Estates Ltd [2004] EWCA Civ 1418 [2005]BLR1 of bias, then it must follow that the whole of the decision is tainted and should not be enforced at all. The test is whether a fair-minded and informed observer, having considered all the circumstances which have a bearing on the suggestion that the decision-maker was biased, would conclude that there was a real possibility that he was biased.