Lidl UK GmbH v R G Carter Colchester Ltd [2012] EWHC 3138

This summary was provided by CMS Cameron McKenna LLP.

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summary

(1) The scope of the dispute referred to an adjudicator is a question of the construction of the documents and the impression they give. (2) Where an additional question, outside the scope of the dispute, is answered by an adjudicator, that part of the decision can be severed provided that the reasoning giving rise to it does not form an integral part of the decision as a whole. In this case, the additional issue addressed by the adjudicator was able to be severed leaving the remainder of the decision enforceable. (3) In order for a breach of natural justice to invalidate a decision it must be sufficiently material to the decision so as to taint the decision as a whole.  There was no material breach of natural justice in this case as the parties had sufficient opportunity to put their cases on the central issue in the adjudication. (4) A declaration as to the proper construction of a term of the contract will not be granted where a fundamental dispute as to the facts makes such declaration hypothetical. 

Technology and Construction Court, Mr Justice Edwards-Stuart.

Background

In August 2010, Lidl UK GmbH (“Lidl”) engaged R G Carter Colchester Limited (“RGC”) to carry out certain works under a bespoke design and build contract. The works were to be completed in sections with the dates for completion being 12 May 2011 (for sections one and two) and 20 June 2011 (for section three). The contract provided:

  • for Lidl to issue a certificates of practical completion for each section (with a proviso that a certificate could be issued notwithstanding that minor items of work were outstanding and for RGC to complete these as soon as reasonably practicable after practical completion);
  • for RGC to pay liquidated damages in the event of delay at the rate stated in the contract particulars or lesser rate stated in the notice issued by Lidl requiring payment of liquidated damages;
  • for Lidl to take partial possession of a section with the consent of RGC; and
  • for a pro rata reduction in liquidated damages in the event that Lidl had taken partial possession of a section .
    Lidl purported to issue certificates which stated that parts of sections one and two were practically complete on 27 June 2011 and 6 July 2011respectively. In January 2012, in response to a letter from RGC,

Lidl agreed that these certificates did not comply with the relevant terms of the contract and withdrew them. Lidl then issued notices of non-completion in relation to those two sections saying that it had taken partial possession of the two sections on the dates of the earlier certificates.

A dispute arose as to the actual date of practical completion for the two sections and was referred to adjudication by RGC. On 11 July 2012 the Adjudicator issued his decision in which he found that section one was practically completed on 26 March 2012 and section two on 30 March 2012 but that Lidl’s certificates of “part completion” remained effective. The following day Lidl claimed £535,650 from RGC by way of liquidated damages. The claim included the sum of £125,000 calculated at the full contractual rate up to 27 June and 6 July for sections one and two respectively and the sum of £344,850 calculated on a pro-rata basis from those dates until the actual dates of practical completion of each section as decided by the Adjudicator.

RGC issued a second notice of adjudication, disputing Lidl’s entitlement to the pro-rated liquidated damages claimed in its notice, but expressly excluding the liquidated damages claimed at the full contractual rate as being the subject of a separate dispute. The Referral Notice was served a few days later in which RGC claimed the following relief:

“A declaration that Lidl is not entitled to pro-rata LADs in respect of Sections 1 and 2 of the Works as claimed in their letter of 12 July 2012 or at all.”

The same adjudicator was appointed to decide this dispute. 

The Adjudicator determined that Lidl was entitled to deduct liquidated damages calculated at the full rate up to 27 June and 6 July and thereafter at a lesser rate as set out in its letter. He held that although no specific mechanism for calculating the “lesser rate” was set out in the contract, it was sufficient under the liquidated damages clause for Lidl to set out the calculation in its notice under that clause. Lidl had already set out the basis of its calculation in January 2012.   

Lidl applied for summary judgment to enforce the Adjudicator’s decision. In response, RGC sought a Part 8 declaration that:

“on the true construction of the Contract, LADs do not accrue following Part Practical Completion of the Works or a Section thereof”?

The Part 8 claim was, in effect, an attempt at a pre-emptive strike to defeat Lidl’s application for summary judgment.

Both parties agreed that the Adjudicator had exceeded his jurisdiction in deciding that Lidl was entitled to deduct liquidated damages at the full rate and Lidl did not seek to enforce that part of the decision. However, the parties did not agree as to the consequences of the Adjudicator’s error. Lidl argued that that part of the decision should simply be severed, whereas RGC maintained that the entire decision was unenforceable. RGC also argued that the Adjudicator exceeded his jurisdiction in determining the amount of liquidated damages payable (rather than just the entitlement to them) and that he breached the rules of natural justice by relying on the contractual provision regarding the “lesser rate” without giving the parties time to comment on his analysis.

Issues

The Court was asked to address the following questions:

  • Was the scope of the dispute referred to the Adjudicator confined to the question of whether, in principle, Lidl was entitled to deduct or demand pro-rated liquidated damages after the relevant dates, or did it extend to determining the amount of any such damages?
  • What is the consequence of the Adjudicator exceeding his jurisdiction? Can that part of the decision be severed?
  • Did the Adjudicator fail to give RGC a proper opportunity to address the approach he intended to adopt? If so, did that failure render his decision unenforceable?
  • Should the Court make the declaration sought by RGC?

Decision

The Court held that:

  • The issue as to the scope of the dispute referred to the Adjudicator is a question of the construction of the documents, and is largely a matter of impression. In this case the reference to “pro-rata LADs ….  whether as claimed in their letter of 12 July 2012 or at all” left it open to the Adjudicator to make a decision not only as to Lidl’s entitlement to pro-rated liquidated damages but also the amount of those liquidated damages.
  • Although it will generally be difficult to sever part of an Adjudicator’s decision where only one dispute has been referred, where an additional question, outside the scope of the referred dispute, is answered by the Adjudicator there is no reason in principle why that part cannot be severed provided that it does not form an integral part of the decision as a whole.
  • The reasoning that underpinned the Adjudicator’s award of £125,00 for liquidated damages calculated at the full rate had no bearing on the dispute that had been put before the Adjudicator. Accordingly, that part of the decision could be severed, leaving the rest of the decision enforceable.
  • In order for a breach of natural justice to invalidate a decision it must be sufficiently significant so as to taint the decision as a whole. The central issue in the adjudication was whether or not there could be an entitlement to LADs following a so-called “part practical completion” of a section. RGC had every opportunity to put its case on this issue and could not have put its case forward more forcefully. There was no material breach of natural justice in this case and RGC’s challenge on that basis could not succeed.
  • There was a fundamental dispute of fact between the parties as to whether what took place on 27 June 2011 in respect of section one, and 6 July 2011 in respect of section two, was the taking of partial possession by Lidl, or practical completion of each section subject to minor outstanding items of work. Until the dispute was resolved, there was no purpose in making a hypothetical Part 8 declaration as sought by RGC.

This summary was provided by CMS Cameron McKenna LLP.

For more information visit http://www.cms-cmck.com/Construction/Construction-Disputes

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