Midland Expressway Ltd v Carillion Construction Ltd [2006] EWHC 1505 (TCC)

This summary was provided by CMS Cameron McKenna LLP.

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

Adjudication is only available once a dispute has arisen between the parties.  A dispute can only be said to have crystallised if a claim is denied/not admitted by the other side.  Further if a claim is presented in such a nebulous and ill-defined manner that the defendant cannot sensibly respond to it, neither silence nor express non-admission could give rise to a dispute for the purposes of adjudication or arbitration.

It was also commented obiter that there was nothing in the Housing Grants Construction and Regeneration Act 1996 that prevented a party from discontinuing a claim or a head of claim in an adjudication.
Mr Justice Jackson – Queen’s Bench Division, Technology and Construction Court

Background

The Secretary of State appointed MEL to design, construct and operate the M6 toll road.  MEL sub-contracted the design and construction of the toll road to a joint venture group, CAMBBA.  One of a number of disputes that arose between the parties related to the cost of a particular change (known as DC11) to the design of the road layout, which resulted in extensive extra works being necessary.  Various adjudications and court proceedings ensued to determine both the direct and indirect costs payable, on the one hand by MEL to CAMBBA, and on the other, by the Secretary of State to MEL.

In the present proceedings, MEL and the Secretary of State sought to challenge a decision made by one of the adjudicators, Mr. Dennys QC that a dispute capable of being determined had not yet arisen regarding the issue of the indirect costs arising from DC11.

The Dennys adjudication

In December 2004, the Secretary of State had referred to adjudication claims made by MEL for the direct and indirect costs arising out of DC11.  CAMBBA had previously served a notice of adjudication on MEL in respect of the direct costs.  It had also issued a separate claim in respect of its global indirect/mitigation costs, in which the DC11 indirect costs were included but not quantified.  CAMBBA therefore sought to join itself to the Dennys adjudication.

The Secretary of State’s response in the adjudication was to argue that no dispute had crystallised between MEL and itself, as MEL had not followed through the procedures prescribed in the contract to recover any indirect costs arising from DC11.  As CAMBBA had also not issued a quantified claim in respect of any indirect costs arising from DC11 to MEL, a dispute had not arisen in that respect either, therefore the Secretary of State also objected to CAMBBA’s joinder to the adjudication.  The claims in respect of indirect costs that had been made by CAMBBA were global claims not claims relating specifically to indirect costs arising from DC11.

CAMBBA then backtracked and sent a letter to the adjudicator stating that they did not require the indirect costs of DC11 to be determined at this stage.  MEL and the Secretary of State both contested CAMBBA’s letter and asserted that any claim by CAMBBA for the indirect costs of DC11 had to remain part of the Dennys adjudication. 

The adjudicator ruled that there was at that stage no dispute as to CAMBBA’s indirect costs arising from DC11 because:

1)  there was currently no dispute between MEL and the Secretary of State;

2)  the total cost claim (which had been proceeding under a separate adjudication) had been withdrawn by CAMBBA, therefore at present CAMBBA did not have any articulated or quantified claim in respect of the indirect costs for DC11; and

3)  the only issue which it had been suggested that he could decide was whether the total cost claim in the form in which it was originally submitted could have succeeded in relation to the indirect costs consequence said to be attributable to DC11.  The adjudicator found that this was not a dispute insofar as CAMBBA had already conceded that at present that claim would not succeed.

Both MEL and the Secretary of State were aggrieved by the adjudicator’s failure to deal with the issue of the indirect costs and therefore have brought the present action seeking redress for this omission.

Present proceedings
MEL and the Secretary of State applied for declarations that:

i)  the decision by the adjudicator not to address the issue of the indirect costs was wrong;

ii)  a dispute had arisen between the parties to the adjudication as to CAMBBA’s entitlement and amount of indirect costs for DC11 and that the adjudicator had jurisdiction to deal with that dispute;

iii) the adjudicator should have exercised his jurisdiction and dismissed CAMBBA’s claim for indirect costs; and

iv)  that CAMBBA’s claim for indirect costs for DC11 stood no real prospect of success and should be dismissed in any adjudication or litigation.

Decision

Jackson J reached the conclusion that:

i) at no relevant stage of the Dennys adjudication did there exist a quantified claim for the indirect costs of DC11 which was capable of being disputed;

ii) at the time of the Dennys adjudication there existed a dispute in principle as to the entitlement of CAMBBA to recover any indirect costs for DC11, but none of the parties were asking Mr. Dennys to decide that dispute in isolation; and

iii) when the notices and correspondence were read in context, the Dennys adjudication was limited to direct costs and that the various attempts to introduce indirect costs had been ineffective.

The judge opined that a dispute can only be said to have crystallised if a claim is not admitted by the other side.  Further if a claim is presented in such a nebulous and ill-defined manner that the defendant cannot sensibly respond to it, neither silence nor express non-admission could give rise to a dispute for the purposes of adjudication or arbitration.  On that basis, the judge found that the adjudicator was right to decide that no dispute existed concerning the indirect costs of DC11.

Jackson J commented obiter that if his analysis was incorrect, i.e. that when CAMBBA joined it did indeed have a disputed claim for the indirect costs of DC11 that fell within the scope of the Dennys adjudication, then it fell to be decided whether CAMBBA could withdraw their claim for indirect costs (as they had sought to do). 

The judge found nothing under the 1996 Act nor the contract that prevented a party from discontinuing a claim in an adjudication.  Indeed, he found that this would be contrary to the spirit and purpose of the legislation as it would have the bizarre consequence of forcing parties to press on with bad claims, leading to wasted costs and resources on both sides. 

Accordingly, even if his analysis that the adjudicator had correctly decided that no dispute had yet arisen between the parties was wrong, CAMBBA had in any event withdrawn its claim with regard to the indirect costs. 

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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