Farrelly (M&E) Building Services v Byrne Brothers (Formwork) Ltd [2013] EWHC 1186

This summary was provided by CMS Cameron McKenna LLP.

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

summary

(1) A party had not waived any natural justice challenge by failing to draw to the Adjudicator’s attention the matters which it later contended amounted to a breach of the rules of natural justice; (2) for there to be a breach of natural justice it must be shown that the Adjudicator has gone off on a “frolic of his own”; the defendant had no real prospect of doing so on the facts of this case; (3) there is no general obligation on a party seeking enforcement  of an adjudicator’s decision to disclose to the other party confidential information of its financial and business position so that the other party can consider whether there are grounds for applying for a stay of any judgement enforcing the decision. The fact that the claimant was in dispute with other parties did not allow the Court to draw any conclusions which would justify such a stay.

Technology and Construction Court, Mr Justice Ramsey.

Background

Byrne Brothers (Formwork) Ltd (“Byrne”) was the main contractor under a contract with London Underground Limited in respect of the refurbishment of Hammersmith Underground Station. By a subcontract dated 21 March 2011, Byrne subcontracted the mechanical and electrical work to Farrelly (M&E) Building Services Ltd (“FBS”) (“the Subcontract”). The Subcontract was in the form of a NEC3 agreement with bespoke amendments.

A dispute arose between the parties as to the valuation of compensation events under the Subcontract, which was referred to adjudication by FBS. In the adjudication Byrne contended that the method of assessment of direct costs for compensation events had changed from a prospective to a retrospective assessment. Byrne also contended that FBS was in concurrent delay and whilst it accepted that FBS was entitled to an extension of time, it relied upon the concurrent delay as being a defence to FBS's claim for time related costs.

On 27 November 2012, the Adjudicator wrote to the parties, referring to clause 63.1 of the NEC3 agreement and to the difference between prospective and retrospective assessments. He asked the parties for submissions on the question of whether a compensation event should be assessed prospectively or retrospectively and if both applied, when the assessment should change from prospective to retrospective. The parties responded with brief submissions on 28 November 2012.

Under the adjudication clause in the Subcontract the Adjudicator had power to award costs, as well as his fees, as between the parties. In a letter dated 28 November 2012, the Adjudicator recorded a procedure agreed by the parties for dealing with costs. That procedure was that he should issue a draft decision on the “substantial” issue on 6 December. The parties would then make submissions and the Adjudicator would make his decision on 18 December 2012. It was agreed that the draft decision would not be subject to change save for the application of the “slip rule”. The Adjudicator issued a draft decision on 6 December 2012, to which Byrne responded with four matters that they contended fell under the slip rule. FBS objected, saying that with the exception of one small item this was an attempt by Byrne to make further submissions on the merits. The Adjudicator agreed with FBS and, after making a small adjustment for the one item which came within the slip rule, issued his decision on 18 December.

In his decision, the Adjudicator held that the majority of the compensation events should be assessed on a prospective basis.  As to concurrent delay, he held that Byrne’s evidence was based upon a retrospective analysis, and in the light of his decision that compensation events should be assessed prospectively, it had therefore not been established that FBS was in concurrent delay.  He awarded the sum of £561,194.92 to FBS.

The day after the Adjudicator’s decision Byrne wrote to FBS questioning whether FBS were solvent, and asking for management accounts and published accounts to be provided so that solvency could be verified before payment of the amounts due under the Adjudicator’s decision. The request was stated to be without prejudice to a natural justice objection Byrne might make to the enforceability of the Adjudicator’s decision.

Payment was not made by Byrne of the sum awarded to FBS in the Adjudicator’s decision and FBS commenced court proceedings.

In defence of the proceedings Byrne argued that the Adjudicator had reached his decision that the compensation events should be assessed prospectively on the basis of an argument that neither party had advanced and that he had rejected Byrne’s case on concurrent delay on grounds that had not been contended for by FBS.

Issues

The Court was asked to address the following questions:

  • Whether Byrne had waived any natural justice challenge by failing to raise that challenge when the Adjudicator sent his draft decision to the parties on 6 December 2012;
  • Whether the Adjudicator’s finding that he should assess FBS’s entitlement to direct costs on a prospective basis breached the rules of natural justice;
  • Whether the Adjudicator’s rejection of Byrne’s case as to concurrent delay breached the rules of natural justice; and
  • Whether any judgement in favour of FBS should be stayed.

Decision

The Court held that:

  • Byrne had not waived any natural justice challenge by failing to draw to the Adjudicator’s attention the matters which Byrne later contended amounted to a breach of the rules of natural justice. To waive a natural justice challenge a clear and unequivocal act with knowledge of the right of challenge is required, and Byrne’s conduct could not be said to amount to this.
  • In relation to the Adjudicator’s decision regarding FBS’s entitlement to direct costs on a prospective basis, Byrne did not have a real prospect of successfully defending the enforcement of the Adjudicator’s decision, on the basis that there was a breach of natural justice in determining the relevant rate to be applied to compensation events. For this to be a breach of natural justice, it would need to be shown that the Adjudicator had gone off “on a frolic of his own”. This was not the case on the facts.
  • The Adjudicator was entitled to come to the decision he did in rejecting Byrne’s case for concurrent delay. The Adjudicator had considered the submissions which were made by both parties on whether there should be a prospective or retrospective analysis. Having found that a prospective analysis should apply, the Adjudicator was entitled to reject Byrne’s case without putting to the parties any other provisional conclusions for comment.
  • Based on the evidence put forward, it had not been shown that FBS was insolvent or that its current financial position was any different from its financial position when it entered into the Subcontract. In any event there is no general obligation on a party seeking enforcement to disclose to the other party confidential information of its financial and business position so that the other party can consider whether there are grounds for applying for a stay of any judgement.  The fact that FBS was in dispute with other parties did not allow the Court to draw any conclusions which would justify such a stay.

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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