The judgment of the Court of Appeal in Bouygues UK Ltd v Dahl Jensen UK
Ltd [2000] dealt with two separate issues. The first was the
characterisation of a mistake by the Adjudicator and when this may prevent
enforcement of his decision. The main judgment on this issue was given
by Lord Justice Buxton. The second issue was whether it was
appropriate to seek to enforce a decision of an adjudicator when one of the
parties was in liquidation. The main judgment on that issue was given
by Lord Justice Chadwick.
1. Mistake by the Adjudicator
The appeal arose from the judgment of Dyson J in Bouygues UK Ltd v Dahl Jensen UK
Ltd [1999] on an application by
Dahl-Jensen for summary judgment under Part 24 of the CPR to enforce an
award of an Adjudicator.
Lord Justice Buxton observed that the adjudication procedure under section 108 of the Housing Grants and Reconstruction Act
1996 provided that the parties may at any time refer disputes to
adjudication and, by section 108(3), the decision of the adjudicator shall
be binding until the dispute was finally determined by legal proceedings or
arbitration.
Lord Justice Buxton considered that the purpose of the adjudication procedure
was to enable a quick and interim,
but enforceable, award to be made in advance of the final resolution of what
was likely to be complex and expensive disputes. That feature was reinforced
by the provisions of the Construction Industry Model Procedure, by which the
adjudication in the instant case was governed. Rules 4 and 5 of that procedure
provide that the Adjudicator's decision was to be binding until the dispute
was finally determined by legal proceedings, by arbitration or by agreement
and the Parties were required to implement the Adjudicator's decision without
delay whether or not the dispute was to be referred to legal proceedings or
arbitration.
Lord Justice Buxton approved the statement by Dyson J in Macob v Morrison
[1999] BLR 93 at page 97:
"It is clear that Parliament intended that
the adjudication should be conducted in a manner which those familiar with
the grinding detail of the traditional approach to the resolution of
construction disputes apparently find difficult to accept. But Parliament
has not abolished arbitration and litigation construction disputes. It has
merely introduced an intervening provisional stage in the dispute resolution
process. Crucially, it has made it clear that decisions of adjudicators are
binding and are to be complied with until the dispute is finally
resolved."
1.1 Background
Bouygues was the main contractor for building works under a PFI
contract. Dahl-Jensen was the mechanical sub-contractor. The sub-contract
contained both an arbitration and an adjudication clause, and also provided
for retention of 5% of the contract price, pending certification under the
main PFI contract. In due course Bouygues, being dissatisfied with
Dahl-Jensen's work, determined Dahl-Jensen's employment and arranged for the
subcontract work to be completed by others.
Dahl-Jensen issued a notice to adjudicate, claiming payment for work done
but allegedly not valued under extensions of the sub- contract, and also
damages for breaches by Bouygues of the sub-contract and for its wrongful
repudiation. Bouygues shortly thereafter issued its own notice to
adjudicate, claiming the refund of payments already made in respect of work
allegedly overvalued under the sub-contract, damages for delayed completion,
and damages for costs incurred by the termination of Dahl-Jensen's
employment. Both notices were referred to the same adjudicator. It was agreed that he
should treat Bouygues' claim as a counter-claim to the claim by Dahl-Jensen.
Much of the dispute concerned the valuation
of work performed under the sub-contract before its termination, Dahl-Jensen
claiming in respect of extensions of the works and Bouygues claiming that
work within the contract had been overvalued. That meant that the
Adjudicator had to review the whole of the progress of the sub-contract, and
not just the items specifically arising out of its termination. The
Adjudicator set out his conclusions in more than one form in his very
detailed award.
The Adjudicator made no award on Bouygues's claim in respect of
overpayment based on excessive valuation, subject to Bouygues right to set-off against payments already
made any losses caused by breaches by Dahl-Jensen in the performance of the
contract. The Adjudicator valued the contract works, the original tender sum plus
extensions, at a sum of 7,240,000 "gross" - without any deduction of the retention monies. At the date of the award
the retention monies had not yet become due for payment. The Adjudicator then took three further
steps:
- He deducted from the sum of 7,240,000 a sum of 647,000 that he awarded to Bouygues in respect of
damages arising out of the termination resulting in a sum of 6,593,000, again
stated to be "gross".
- He deducted from the sum of 6,593,000 the amount actually paid by Bouygues under the
sub-contract of 6,772,000, to produce a balance in favour of Bouygues of
179,000, stated to be gross.
- He then added back to the earlier
contract sum of 7,240,000 an award of 387,000 that he had made to
Dahl-Jensen in respect of additional works performed by Dahl-Jensen and
claims for damages sustained by them while the contract was subsisting. That
addition increased the gross due
to Dahl-Jensen from the figure of 6,593,000 to 6,979,000.
That in turn altered the overall calculation from the balance in favour of
Bouygues of 179,000 to a balance in favour of Dahl-Jensen of, in round
terms, 208,000.
The Adjudicator's award was therefore that Bouygues should
pay that sum of 208,000 to Dahl-Jensen.
Bouygues protested and
pointed out that the
effect of the award was to require Bouygues to pay the 5% retention to
Dahl-Jensen, even though it was not yet due under the contract.
It was not challenged in the appeal that the Adjudicator was wrong to make an actual award requiring payment
under that contract without taking account of the fact that the 5% of the
contract sum that represented the retention monies was not yet due for
payment.
The award was wrong. The issue was whether or not that was a ground on which its
enforcement could be resisted.
1.2 Characterisation of the Mistake
Lord Justice Buxton observed that Dyson J had directed himself that he should approach that question
according to the same principle as applied in the case of an expert valuer
as stated by Knox J in Nikko Hotels (UK) Ltd v MERPC Plc [1991] 2 EGLR page
103, at page 108B, that if he has 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.
Bouygues argued that the concept of answering the wrong question extended
to the instant case where the Adjudicator had in fact decided
something that fell outside his jurisdiction, namely the release of the
retention monies. Bouygues argued that the Adjudicator's award therefore could not stand, even if
it was clear, at least on the face of the documents used in the award, that
he did not intend or purport to rule on the retention monies.
Lord Justice Buxton held that he was satisfied that Dyson J was right in rejecting Bouygues' argument. Although the effect of the Adjudicator's award was as
Bouygues said, that was not because he answered a question about the release
of the retention monies. No such question was put to him by the parties, and
he did not pose any such question to himself. The case was quite different
from, for example, that hypothesised by Dillon LJ in Jones v Sherwood [1992]
1 WLR at page 287A, where an accountant instructed to value a parcel of
shares valued the wrong parcel, either by extent or by identity.
Lord Justice Buxton held that in the instant case the
Adjudicator answered exactly the questions put to him. What went wrong was
that in making the calculations to answer the question of whether the
payments so far made under the sub-contract represented an overpayment or an
underpayment, he overlooked the fact that that assessment should be based on
the contract sum less
the retention, rather than on the gross contract sum. That was an error, but
an error made when he was acting within his jurisdiction. Provided that the
Adjudicator acted within that jurisdiction his award stood and was
enforceable.
1.3 Justice
Bouygues contended that such an outcome was plainly unjust in a case
where it was agreed that a mistake had been made, and particularly in the
instant case where Dahl-Jensen was in insolvent liquidation,
and therefore the eventual adjustment of the balance by way of arbitration would in practical terms be unenforceable on Bouygues' part.
Lord Justice
Buxton held that Dyson J was quite right when he pointed out that the
possibility of such an outcome was inherent in the exceptional and summary
procedure provided by the 1996 Act and the CIC Adjudication Procedure.
Lord Justice Buxton held that in any event unfairness in a specific case
could not be determinative of the
true construction or effect of the scheme of adjudication in general.
1.4 Statements by the Adjudicator
When Bouygues suggested to the Adjudicator that an arithmetical
error had been made in the award and invited him to correct what was
described as a slip, the Adjudicator replied that the calculations correctly reflected
his
intention and did not contain a clerical mistake or error arising from an
accidental slip or omission.
Bouygues contended that, by saying that the calculations set out in the
award correctly represented his intention and contained no clerical error or
accidental slip, the Adjudicator was asserting that he indeed had intended,
and had intended to rule, that Bouygues should pay Dahl-Jensen the retention
monies. Accordingly, whatever might be collected from the adjudication
documents read on their own, it was in fact the case that the Adjudicator
had answered a question that had not been put to him and which did not
therefore fall within his jurisdiction.
Lord Justice Buxton doubted whether it could ever be appropriate to
look outside the objective evidence provided by the terms of the award in
order to determine what question the Adjudicator had in fact answered. Bouygues disclaimed any possibility of, for instance, requiring the
Adjudicator to file evidence explaining any statements made by him outside
the terms of the award and then cross-examining on that evidence. Lord
Jusice Buxton considered that it would be difficult to exclude such a step if investigation of the
Adjudicator's subjective intentions were to be taken seriously.
Lord Justice
Buxton did not consider any need to rule on that point, since he was of the
opinion that the Adjudicator's letter went nowhere near to establishing the
conclusion that Bouygues sought to draw from it. The Adjudicator simply
replied to the contention put to him, that he had made a clerical error or
slip. He said that he had not. That was a long way away from any admission or
assertion that he had taken it upon himself to award the retention money to
Dahl-Jensen when no claim had been made for that retention money.
1.5 Conclusion
Lord Justice Buxton considered that Dyson J was right both in his
statement of the relevant law and in his application of it to the instant
case. He
therefore dismissed the appeal.
2. Insolvency
The second question raised by the appeal was whether Dyson J was right
to give summary judgment to Dahl-Jensen for the amount which the adjudicator
had decided Bouygues should pay.
Lord Justice Chadwick considered that in the ordinary case an adjudicator's determination under section 108 of the 1996 Act, or
under contractual provisions incorporated by that section, ought to be
enforced by summary judgment. The purpose of the Act was to provide a basis
upon which payment of an amount found by the adjudicator to be due from one
party to the other (albeit that the determination was capable of being
re-opened) could be enforced summarily.
Lord Justice Chadwick observed that the instant case was not an ordinary case. At
the date of the application for summary judgment - indeed at the date of the
reference to adjudication - Dahl-Jensen was in liquidation.
Lord Justice Chadwick held that in those circumstances rule 4.90 of the Insolvency Rules 1986 had effect.
The rule applied
where, before the company went into liquidation there had been mutual
credits, mutual debts or other mutual dealings between the company and any
creditor of the company proving or claiming to prove for a debt in the
liquidation. An account had to be taken of what is due from each party to the
other in respect of the mutual dealings and the sums due from one party had
to be set off against the sums due from the other. Only the balance (if
any) of the account was provable in the liquidation. Alternatively (as the
case may be) the amount had to be paid to the liquidator as part of the
assets.
That rule was made under section 411 of the Insolvency Act 1986.
Subsection (2) of that section - and Schedule 8, paragraph 12 - provided that
the Lord Chancellor may make provision by rules or regulations as to the
debts that may be proved in the winding up. There was no doubt that the rule
had statutory force. It applied wherever there had been mutual dealings,
giving rise to mutual obligations and mutual credits, between a company
which subsequently went into liquidation and another party.
The effect of the rule was explained by Lord Hoffman in his speech in the
House of Lords in Stein v Blake [1996] 1 AC 243. In that appeal Lord Hoffman
was addressing the provisions of section 323 of the Insolvency Act 1986,
which is applicable in an individual insolvency or bankruptcy.
Lord Justice Chadwick held that the
provisions of section 323 of the Act and Rule 4.90 of the Rules were
indistinguishable. The rule-making body, in 1986, incorporated into
corporate insolvency provisions which had, for many centuries, been part of
the law in relation to individual bankruptcy. What Lord Hoffman had to say
about section 323 of the Act was equally applicable to corporate insolvency;
to which rule 4.90 applied. At page 251 D-F Lord Hoffman explained the
difference between bankruptcy set-off and legal set-off outside
bankruptcy. Bankruptcy set-off affected the
substantive rights of the parties by enabling the bankrupt's creditor to use
his indebtedness to the bankrupt as a form of security. Instead of having to
prove with other creditors for the whole of his debt in the bankruptcy, he could set off pound for pound what he
owed the bankrupt and prove for or pay
only the balance. So in Forster v Wilson (1843) 12 M & W. 191, 204,
Parke B said that the purpose of insolvency set-off was to do substantial
justice between the parties.
Lord Justice Chadwick observed that the importance of the rule was illustrated by the circumstances in the
instant case. If Bouygues was obliged to pay to Dahl-Jensen the amount
awarded by the adjudicator, those monies, when received by the liquidator of
Dahl-Jensen, would form part of the fund applicable for distribution amongst
Dahl-Jensen's creditors. If Bouygues itself had a claim under the
construction contract, as it asserted, and was required to prove for
that claim in the liquidation of Dahl-Jensen, it would receive only a
dividend pro rata to the amount of its claim. It would be deprived of the
benefit of treating Dahl-Jensen's claim under the adjudicator's
determination as security for its own cross-claim.
Lord Hoffman pointed out, at page 252 in Stein v Blake that the
bankruptcy set-off required an account to be taken of liabilities which at
the time of the bankruptcy may be due but not yet payable, or which may be
unascertained in amount or subject to contingency. Nevertheless, the
insolvency code required that the account shall be deemed to have been
taken, and the sums due from one party shall be set off against the other,
as at the date of insolvency order. Lord Hoffman pointed out also that it
was an incident of the rule that claims and cross-claims merged and were
extinguished; so that, as between the insolvent and the other party, there
was only a single claim - represented by the balance of the account between
them.
Lord Justice Chadwick held that in those circumstances it was difficult to see how a summary judgment
could be of any advantage to either party where, as the 1996 Act and paragraph
31 of the Model Adjudication Procedure made clear, the account could be
reopened at some stage; and had to be reopened in the insolvency of
Dahl-Jensen.
Lord Justice Chadwick observed that Part 24, rule 2 of the Civil Procedure Rules
enabled the court to give
summary judgment on the whole of a claim, or on a particular issue, if it
considered that the defendant has no real prospect of successfully defending
the claim and there was no other reason why the case or issue should be
disposed of at a trial. He held that in the instant circumstances, where there
were latent claims and cross-claims between parties, one of which was in
liquidation, there was a compelling reason to refuse
summary judgment on a claim arising out of an adjudication which was,
necessarily, provisional. All claims and cross-claims had to be resolved in
the liquidation, in which full account could be taken and a balance struck.
That was what rule 4.90 of the Insolvency Rules 1986 required.
Lord Justice Chadwick held that those matters ought to have been
considered on the application for summary judgment. But the point was not
taken before Dyson J and his attention was not drawn to the
provisions of the Insolvency Rules 1986. Nor was the point taken in the
notice of appeal. Nor was it embraced by counsel for the appellant with any
enthusiasm when it was drawn to his attention by the Court of Appeal. In those
circumstances - and in the circumstances that the effect of the summary
judgment was substantially negated by the stay of execution which would be imposed - Lord Justice
Chadwick considered it not right to set aside an
order made by the judge in the exercise of his discretion and considered
that he
too would dismiss the appeal.
3. Judgment Order
The appeal
was dismissed with costs and a stay granted.
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