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.
Background
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.
The Issue
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.
The Law
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.
Application of the Law to the Facts
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:
- Dahl-Jensen was not claiming the release of the retention.
There was no express or even implied assertion in Dahl-Jensen's pleadings
that it was entitled to the release of that money. On the contrary, both
parties had stated in their pleadings that the retention was not yet due for
release; Bouygues when answering the claim for two months' loss of interest,
and Dahl-Jensen when dealing with the calculation of the amount of the
alleged overpayment. There were many issues between the parties, but it was
common ground that Dahl-Jensen was not yet entitled to the release of the
retention. The Adjudicator knew that the subcontract works had not been
completed. In these circumstances, it would have been surprising if the
Adjudicator had been of the view that one of the issues that had been
referred to him was a claim for the release of the retention.
- The Adjudicator did not purport to determine that Dahl-Jensen
was entitled to the release of the retention. It was significant that
Bouygues does not so contend. They submitted rather that the effect of the
decision was to award the retention money to Dahl-Jensen.
- It was not
difficult to make mistakes in doing complicated calculations, particularly
when in adjudication cases, the adjudicator was working under very
severe time constraints. Mr Justice Dyson suggested that this was what had
happened in the instant case. The seeds of the error were to be found in Bouygues'
counterclaim, and in particular its claim for the repayment of money
allegedly overpaid. It was this claim which made it necessary to calculate
the sum to which Dahl-Jensen was entitled and compare it with the sum
already paid. In performing this calculation, it was necessary to make sure
that like was compared with like, and particularly to ensure that the
retention percentage was deducted from both figures. It was common ground
that the time for the release of the retention had not yet been reached. But
it was easy enough to make a mistake and fail to deduct the retention from
both figures. Indeed, Justice Dyson observed that Dahl-Jensen contended that Bouygues fell precisely
into this error in calculating its claim for overpayment. he stated that Dahl-Jensen
might
not have been right about that, since the words "excluding deduction of
retention" may well mean the same as "including retention".
But what mattered was that the point was not entirely clear: there was scope
for possible confusion.
- Justice Dyson considered that it was clear from the Adjudicator's conclusion that the error
that infected his decision derived from his miscalculation of the amount of
the overpayment in the Counterclaim Analysis in Schedule 5. The word
"retention" did not appear in that Analysis. This was the most
natural interpretation of what happened - the Adjudicator simply made
a mistake in calculating the overpayment. There could be no doubt that what
the Adjudicator was doing in his Counterclaim Analysis was calculating the
amount of the overpayment. That was an issue that had been referred to him.
Justice Dyson used the language of the expert valuation cases - he was doing precisely
what he had been asked to do, and was answering the right question, but he
was doing so in the wrong way.
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.
Justice
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.
Conclusion
Mr Justice Dyson found Dahl-Jensen's claim for summary judgment to be
successful.
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