Wales and West Utilities Ltd v PPS Pipeline Systems GmbH [2014] EWHC 54 (TCC)

This summary was provided by CMS Cameron McKenna LLP.

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Summary

(a) In order to determine the scope of the dispute referred to adjudication, the Court must analyse the relevant exchanges between the parties. While it is open to a party to refer only part of a crystallised dispute to adjudication, the Notice of Adjudication must be used primarily to determine the extent to which only part of a claim is being referred. None of the post-notification documentation will alter the scope or ambit of the dispute referred. (b) A decision in an adjudication will not be rendered invalid simply because the decision in a previous adjudication (on which the later decision was based) is unenforceable. Essentially, the only grounds for challenging the enforcement of an adjudicator’s decision are “material breach of the rules of natural justice, excess of or no jurisdiction and fraud”. (c) In paying an adjudicator’s fees and award without reservation, the paying party elects to accept the adjudicator’s decision as valid and enforceable.

Technology and Construction Court, , The Hon Mr Justice Akenhead

Background

In a contract dated 4th May 2012, PPS Pipeline Systems GmbH (“PPS”) were employed by Wales & West Utilities Ltd (“Wales”) to supply and construct a new gas pipeline from Llanwrin in Powys to Dolgellau in Gwynedd. The contract was based on the NEC3 standard form of contract. A major part of the works involved excavating and laying steel pipes in trenches. Where the excavation was in rock, the pipes were required to be protected by “Rockguard” HD or similar approved protective coating. A dispute arose when, whilst executing the works, PPS encountered quantities of rock that far exceeded those anticipated. PPS claimed that as a result the works were delayed and additional costs incurred, including costs which arose from the need to install significant additional quantities of Rockguard beyond those provided for by PPS in the contract. PPS wrote to Wales on 11 October 2012 setting out the grounds for its claims and Wales responded to PPS on 29 October 2012 rejecting them.

On 11 February 2013, Wales served a Notice of Adjudication (No 2 - Adjudication No 1 is not relevant to this case), requesting a decision that PPS had no entitlement in respect of the dispute regarding rock. Wales stated in their Notice that “the scope of this adjudication does not extend to consequential issues such as the quantity of rock encountered, alleged time or quantum impact.” In response, PPS argued that it was entitled to a Compensation Event in respect of the increased quantity of Rockguard. Wales contended that the Rockguard claim was beyond the scope of the adjudication and that the Adjudicator had no jurisdiction to decide it. The Adjudicator issued his decision on 14 March 2013, holding that he had jurisdiction, that PPS were not entitled to a Compensation Event in respect of physical conditions, including rock, but that PPS were entitled to a project manager’s instruction changing the Works Information (and therefore a Compensation Event) in respect of the additional quantities of Rockguard.

Following this, PPS submitted a claim for £607,659.72 in respect of the additional quantities of Rockguard to which it said it was entitled following Adjudication No 2. There was no agreement about this claim and on 4 October 2013, PPS served its own Notice of Adjudication (No 3), seeking a decision that it was entitled to a project manager’s instruction in respect of the additional quantities of Rockguard and that this Compensation Event “be assessed at £607,659.72 or such other sum as the Adjudicator may decide.” In its response, Wales claimed that the Adjudicator in Adjudication No 2 had “exceeded his jurisdiction by considering the new and separate Rockguard dispute”. The same adjudicator was appointed in Adjudication No 3 as had been appointed in Adjudication No 2. He issued his decision in Adjudication No 3 on 20 November 2013, resolving that he had jurisdiction and finding that £479,817.17 was due to PPS, adding interest. He also ordered that Wales be responsible for his fees. Wales paid the Adjudicator’s fees and the other sums due to PPS without qualification within several days of invoices being issued.

On 5 December 2013, Wales issued legal proceedings seeking declarations that the decision in Adjudication No 2 that PPS was entitled to a Compensation Event in respect of the Rockguard was unenforceable because the Adjudicator had no jurisdiction and that the decision in Adjudication No 3 was consequently unenforceable too.

issues

The Court had to decide the following issues:

  • Was the dispute which Wales referred to Adjudication No 2 limited to whether or not there could in principle be a Compensation Event in respect of additional quantities of rock, or did it encompass issues relating to whether additional quantities of Rockguard were recoverable as well?
  • Was the decision in Adjudication No 2 unenforceable as a result of being made in excess of jurisdiction?
  • Was the decision in Adjudication No 3 enforceable?
  • Could the decision in Adjudication No 3 be enforceable even if the decision in Adjudication No 2 was found to be unenforceable due to lack of jurisdiction?
  • By paying the sum awarded in Adjudication No 3 without reservation, did Wales elect to treat the decision as valid and enforceable?

decision

The Court decided that the dispute referred by Wales in its Notice of Adjudication for Adjudication No 2 was that which came out of the exchange of letters between the parties in October 2012. The fact that Wales stated that the scope of the dispute ‘does not extend to consequential issues’ did not in reality limit what was being referred. The dispute as it had crystallised and as it was being referred to adjudication included the whole package of arguments put forward by PPS in its letter of 11 October 2012 and rejected by Wales in its letter of 29 October 2012.

The Rockguard issue was clearly part of the dispute which had been referred to the Adjudicator in Adjudication No 2. He was therefore acting within his jurisdiction in deciding that, in relation to the additional quantities of Rockguard used, PPS were entitled to a Compensation Event.

As the decision in Adjudication No 2 was valid and enforceable, there could be no challenge in relation to Adjudication No 3.

Had the decision in Adjudication No 2 been found to be unenforceable, the Court would still have found the decision in Adjudication No 3 to be valid for several reasons. Wales had the opportunity to challenge the enforceability of Adjudication No 2 in Court and did not do so. The decision in Adjudication No 2 therefore remained binding. Even if the Adjudicator in Adjudication No 3 had not believed himself bound by the decision in Adjudication No 2, there is no reason to believe he would have come to a different conclusion (as to whether PPS were entitled to a Compensation Event). Essentially, the only grounds for challenging the enforcement of an adjudicator’s decision are material breach of the rules of natural justice, excess of or no jurisdiction and fraud. None of these applied to Adjudication No 3.

The Judge drew from the arguments in Shimizu Europe Ltd v Automajor Ltd [2002] EWHC 1571 (TCC) and PT Building Services Ltd v Rok Build Ltd [2008] 3434 (TCC), deciding that as Wales had, without reservation, paid the Adjudicator’s fees in relation to Adjudication No 3, along with the full amount awarded to PPS, they had elected to treat the decision in that adjudication as valid and enforceable. Wales could not now challenge said decision, though they could seek to recover the payment for the alleged Compensation Event in arbitration.

Judgment was therefore given in favour of PPS.

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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