Carillion Construction Ltd v Devonport Royal Dockyard Ltd [2005] EWHC 778

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The Honourable Mr Justice Jackson, Technology and Construction Court

26 April 2005

An adjudicator's refusal to consider evidence that he sees (even if erroneously) as irrelevant is inherent in the adjudication system and will not render the decision unenforceable. 2. Only in exceptional circumstances will an adjudicator's failure to put his provisional conclusions to the parties constitute such a serious breach of the principles of natural justice that the Court will refuse to enforce the decision. 3. A brief statement of reasons revealing that the adjudicator has dealt with the issues before him and what his conclusions are will suffice in the event that an adjudicator is asked to give reasons. 4. Paragraph 20(c) of the Scheme creates a free-standing right to award interest.

The Secretary of State engaged Devonport Royal Dockyard ("DML") to carry out works on a dockyard. DML engaged Carillion as sub-contractor to carry out one part of the works. DML and Carillion entered into a written sub-contract and an "Alliance Agreement'" which provided a "target cost" mechanism. Substantial delays occurred and the target cost and Carillion's fee were increased. Extensive debate ensued concerning what sums were due to Carillion. Carillion referred the question to an adjudicator. The Scheme applied to the adjudication.

The adjudicator made an award in Carillion's favour. The sum awarded, which included a bonus and fees, was reduced by a sum to reflect DML's claim for defects in Carillion's work, but DML's claim in relation to defects was also reduced by 20%. Carillion was also awarded interest.

DML refused to pay the sums due and proceedings commenced. Carillion commenced summary judgment proceedings for the enforcement of the adjudicator's award and DML commenced separate proceedings under Part of the CPR seeking declarations that the decision was made without/in excess of jurisdiction was made on an intrinsically unfair basis and/or in breach of natural justice, and that the adjudication had no jurisdiction to award interest. The two proceedings were consolidated.

Jackson J began with a review of the case law on jurisdiction and breach of natural justice and then outlined four basic principles:

  1. The adjudication procedure does not involve the final determination of anybody's rights (unless all the parties so wish)
  2. The Court of Appeal has repeatedly emphasised that adjudicator's decisions must be enforced, even if they result from errors of procedure, fact or law
  3. Where an adjudicator has acted in excess of jurisdiction or in serious breach of the rules of natural justice, the court will not enforce his decision
  4. Errors of law, fact or procedure by an adjudicator must be examined critically before the Court accepts that such errors constitute excess of jurisdiction or serious breaches of the rules of natural justice

Jackson J applied those principles to the case and found for Carillion on the basis of the following propositions:

  1. DML complained that the Adjudicator had acted outside his jurisdiction when determining the correct target cost figure as the parties had not asked him to do this. The judge disagreed and found this matter was within the Adjudicator's jurisdiction both because it was referred to in the referral notice and because it was an intrinsic part of determining what sum was payable to Carillion.
  2. DML also complained that the Adjudicator's decision on target cost was reached in breach of paragraph 17 of the Scheme and the rules of natural justice as he had disregarded certain arguments raised by DML. The judge disagreed. An adjudicator is at liberty to decline to consider evidence which, on his analysis of the facts and the law, he sees as irrelevant, without breaching the rules of natural justice or the Scheme and without undermining the decision on "Wednesbury" (unreasonableness) grounds. If an adjudicator wrongly decided that evidence was irrelevant, this may be a breach of the Scheme but it would not prevent the decision from being valid and enforceable. The possibility of such an error is inherent in the adjudication system. (Bouygues (UK) Limited v Dahl-Jensen (UK) Limited [2001] 1 All ER (comm) 1041, C&B Scene Concept Design Limited v Isobars Limited [2002] BLR 93 and Levolux AT Limited v Ferson Contractors Limited [2003] EWCA Civ 111 applied).
  3. DML also complained that the Adjudicator's decision in relation to defects was reached in breach of the rules of natural justice because (amongst other reasons) (i) he had not put his provisional conclusion to the parties and invited their comments and (ii) he had given no (adequate) reasons for his decision. Again the judge disagreed. Only in exceptional circumstances will an adjudicator's failure to put his provisional conclusions to the parties constitute such a serious breach of the principles of natural justice that the Court will refuse to enforce the decision. A brief statement of reasons showing that the adjudicator has dealt with the issues before him and what his conclusions are will suffice in the event that an adjudicator is asked to give reasons pursuant to paragraph 22 of the Scheme. The Court will refuse to enforce an adjudicator's decision, however, in extreme cases where the reasons are absent or unintelligible and, as a result, where substantial prejudice is caused to a party.

Finally, DML claimed that, in absence of a provision for payment of interest in the contract, the adjudicator did not have the power to award interest under paragraph 20(c) of the Scheme. Jackson J did not agree: he held that paragraph 20(c) of the Scheme does create a free-standing right to award interest without the need for a provision in the contract; to read otherwise would be to render the paragraph redundant. Jackson J held that the Scheme operated to imply terms into the contract such that one would expect provision to be made for the award of interest, but he made it clear that paragraph 20 of the Scheme would not override any express term of the contract dealing with interest.

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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