Hyder Consulting v Carillion Construction [2011] EWHC 1810 (TCC)

This summary was provided by CMS Cameron McKenna LLP.

For more information visit http://www.cms-lawnow.com/adjudication

Judgment date: 13 July 2011

 SUMMARY


(1) It is the decision of the adjudicator (including any findings that are essential components of the decision) that is binding on the parties, not his reasoning. (2) In this case, an adjudicator’s conduct in adopting a methodology for the calculation of his award that was different from those put forward by the parties in their submissions without giving the parties an opportunity to comment on it did not amount to a breach of the rules of natural justice. Both parties had made submissions on the relevant terms of the contract in relation to the calculation and the adjudicator did not rely on any information that the parties had not had an opportunity to consider. 
Technology and Construction Court, Mr Justice Edwards-Stuart.

BACKGROUND

In August 2005, Hyder Consulting (UK) Limited (“Hyder”) entered into an agreement with Carillion Construction Limited (“Carillion”)  by which Carillion appointed Hyder to undertake design works for a part of the upgrade to the London transport system. The agreement provided for the majority of Hyder’s services to be paid on the basis of its actual cost, calculated by reference to a schedule of rates, less any Disallowed Costs. The agreement also contained a gain/pain share provision by which Hyder was either entitled to payment of 50% of any amount by which its actual cost fell below the agreed Target Cost, or obliged to pay 50% of any excess.

During the course of the project there were a number of significant additions and variations to the scope of works. A dispute arose as to the amount of the Disallowed Costs. In its Application No 21a, Hyder had claimed for fees of £16,7474,201. Carillion’s assessment of the Disallowed Costs was £4,950,553. As Hyder had already been paid £12million on account, the effect of Carillion’s assessment was that Hyder had been overpaid. Hyder referred the matter to adjudication.

Although the agreement specified the original Target Cost, the parties had not agreed a revision to the Target Cost to reflect the variations and changes in scope. As a result, there was also a dispute as to whether the Target Cost still applied, and if it did, what the value of it should be.

Following a meeting between the parties and the Adjudicator, the Adjudicator requested information as to Target Cost uplifts that had been agreed and certain other cost details including the total cost of resources provided by Hyder. On 8 April 2011, Hyder served a short pleading as well as numerous spreadsheets and a six page document aimed at addressing the questions raised by the Adjudicator. Carillion requested extra time to consider the material and was granted an additional two weeks. Carillion submitted its responses on 21 April 2011, criticising Hyder’s information as inadequate and inaccurate.

The Adjudicator issued his decision on 2 May 2011. His assessment of the Disallowed Cost was £1,527,457. He then went on to consider the Target Cost. Based on his interpretation of the relevant clause of the contract, the Adjudicator considered that where the Target Cost for a variation had not been agreed, the revised Target Cost would be the time related charges calculated using the contract rates. The effect of this interpretation was that the Target Cost for varied work, where a revised Target Cost had not been agreed, would be the same as the actual cost. On that basis, the Adjudicator calculated the revised Target Cost as £17,082,944, approximately £2 million higher than the figure asserted by Hyder, and much higher than Carillion’s figures. He then commented that as the net fee claimed was less than the Target Cost, there was no need to give further consideration to the Target Cost.

The Adjudicator ordered Carillion to pay Hyder £3,104,399.74 plus interest and 50% of the Adjudicator’s fees. Hyder issued proceedings and brought an application for summary judgment to enforce the Adjudicator’s award. Carillion resisted the application on the ground that the Adjudicator had breached the rules of natural justice by failing to notify the parties of the methodology or the figures he intended to adopt when calculating the Target Cost and giving them an opportunity to comment.

ISSUES

The Court was asked to address the following questions:

  • Was the Adjudicator’s decision as to the value of the Target Cost binding on the parties?
  • Was it a breach of the rules of natural justice for the Adjudicator to adopt a methodology that was different from those put forward by the parties in their submissions? without giving the parties an opportunity to comment?
  • If it was a breach of the rules of natural justice, did it have a significant effect on the outcome?

DECISION

The Court held that:  

  • It is the decision of an adjudicator that is binding on the parties, not his reasoning. The adjudicator’s decision consists of the award as well as any other finding in relation to the rights of the parties that forms an essential component of that award.
  • In the present case, the Adjudicator concluded that since the net fee claimed was less than the applicable Target Cost, no further consideration needed to be given to the Target Cost. If the Adjudicator had raised his proposed methodology and choice of figures with the parties prior to issuing his decision, and Carillion had made to the Adjudicator the points that it had made to the Court, the resultant reduction in the Adjudicator's calculation of the Target Cost - assuming that he accepted Carillion's submissions in full - would not have been sufficient to bring the Target Cost below the net fee due. The actual value of the Target Cost therefore did not play, and could not have played, any part in the process by which the Adjudicator arrived at his decision.
  • Accordingly, the Adjudicator's conclusion in relation to the value of the Target Cost was not a decision that was binding on the parties.
  • The Adjudicator’s failure to allow Carillion an opportunity to comment on his method of calculating the Target Cost was not a breach of the rules of natural justice. Both parties had made submissions on the relevant terms of the contract in relation to the calculation of Target Cost and the Adjudicator did not rely on any information that Carillion had not had an opportunity to consider.
  • Even if the Court had found that there had been a breach of the rules of natural justice, the submissions that Carillion would have made, if given the opportunity, would only have meant an adjustment to the Target Cost of approximately £1.6 million. As the net fee claimed was approximately £2 million less than the Target Cost, Carillion’s submissions would not have altered the outcome.
  • Carillion’s challenge to the Adjudicator’s decision therefore failed and Hyder’s application for summary judgment was granted for the full amount of the sum claimed.

This summary was provided by CMS Cameron McKenna LLP.

For more information visit http://www.cms-lawnow.com/adjudication

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