AWG CONSTRUCTION SERVICES LTD V ROCKINGHAM MOTOR SPEEDWAY LTD

AWG CONSTRUCTION SERVICES LTD v ROCKINGHAM MOTOR SPEEDWAY LTD

Technology and Construction Court

His Honour Judge John Toulmin CMG QC

5 April 2004

THE FULL TEXT OF JUDGE TOULMIN’S JUDGMENT

1. In this action the particulars of claim dated 16th December 2003 relate to the enforcement of a decision by the adjudicator, Mr. Allan Wood, dated 18th November 2003.

2. AWG Construction Services Limited (formerly Morrison Construction Limited) (AWG) seeks the following relief:

(1) An order that the adjudicator's decision dated

18th November 2003 be set aside on the grounds that the adjudicator had no jurisdiction to make any such decision; and/or

(2) An order that the adjudicator's decision dated

18th November 2003 be set aside because the adjudicator failed to act impartially and failed to comply with the principle of natural justice; and/or

(3) An order that the adjudicator's decision dated

18th November 2003 should not be enforced because there is credible evidence that if the decision is reversed in any subsequent proceedings the defendant will not be able to pay the sums awarded.

3. I shall deal with the third issue after considering the first two issues.

4. By way of defence and counterclaim, originally filed on 22nd December 2003, but subject to later amendment, Rockingham Motor Speedway Limited (Rockingham) denies the claimant's claim, and counterclaims by way of summary judgment the sum of £1,835,061.52, being the total sum awarded by the adjudicator set out in paragraph (xi) of the adjudicator's decision.

5. By a late amendment, Rockingham seeks to counterclaim in the alternative the sum of £54,328.73 in relation to matters not in dispute. It contends that I should enforce this part of the decision even if I find that the adjudicator's decision on the main part of the claim is unenforceable because I find that the adjudicator lacked jurisdiction, and/or acted in a way that was contrary to natural justice.

6. Rockingham says that the dispute about the oval track was effectively an entirely separate issue heard, by agreement between the parties, at the same time as the issues about which no objection has been taken to the adjudicator's decision.

7. In response, AWG says that I should make no such order because the adjudicator made one award whose components all stand or fall together. They are part of the award and if one part of the award is struck down, then the whole award should fall.

8. The parties have agreed a list of issues a follows:

(1) Is the decision unenforceable on the grounds that what the adjudicator decided in his decision was something that was not referred to him for a decision and therefore his decision was made without jurisdiction?

(2) Is the decision unenforceable because it was made in breach of the principles of natural justice and the principles of fairness and impartiality because:

(2.1) the adjudicator adopted or introduced new matters and new claims upon which he based his decision which the claimant did not have sufficient opportunity to consider and respond to;

(2.2) the adjudicator allowed the defendant to introduce new matters and new claims upon which he based his decision after the adjudication had commenced and late on in the process which the claimant did not have sufficient opportunity to consider and respond to;

(2.3) the matters referred to the adjudicator by the defendant, whether a single dispute or multiple disputes, were not suitable for the adjudication procedure set out in the scheme and could not be and were not determined in accordance with the principles of natural justice or the principles of fairness and impartiality?

(3) If the court decides in the claimant's favour on issues (1) and/or (2) above:

(3.1) can and should the adjudicator's decision be separated so that those parts of the decision relating to the Rockingham Building and/or the Tunnels, and/or any other aspect of the decision which might be isolated from those parts of the adjudicator's decision which deal with "additional drainage" can be enforced; or

(3.2) is the entire decision invalid?

(4) If the court decides in the defendant's favour on issues (1) and (2), is the decision or any part of it enforceable? Should the court order a stay of execution pending final determination of the matters referred to the adjudicator in the arbitration proceedings?

(5) If the court decides, in respect of issue (4), that a stay of execution should be ordered then what, if any, condition should be attached to such an order?

9. In relation to Issue 1 AWG contend that the adjudicator decided matters that were not referred to him. Rockingham contest this. In relation to Issue 2 AWG contend that the adjudication was unfair for the reasons set out. Rockingham disagree.

10. I am informed by the parties that issue 2.3 was prompted by some passing comments of mine at the case management conference. Those, in turn, were prompted by references in the correspondence to AWG's claim that the adjudicator would not be able to consider the issues in the time available for the adjudicator to reach a decision.

11. It seemed to me that as disputes referred to adjudication have become ever more complex, and referrals are made (in contrast to the original purpose of the legislation) long after the relationship between the parties is at an end, there might be a conflict for an adjudicator between reaching a decision within the stringent time limits permitted under ss.108 and 109 of the Housing Grants Construction and Regeneration Act 1996 (the Act), and the adjudicator's duty under the Act to act impartially.

12. This is a case where the claimants have so far spent £508,200 and the defendants over £600,000 on the adjudication of this dispute and its enforcement. No doubt in many cases the adjudication process required by the ICE contract saves the parties money as compared with other forms of dispute resolution. But in a significant number of cases it clearly does not succeed in this objective. I recognise, of course, that if the dispute proceeds to mediation, arbitration or litigation in the courts, some of the preparation that has taken place will be useful in those other forms of dispute resolution.

13. I also note that, unlike the time when the Act was passed when there were very significant delays in the courts, the position now is that if the parties had started court proceedings in May 2003, those proceedings would, in all probability, by now have reached a decision at first instance.

14. In this case the chosen means of final resolution is arbitration. Again, had arbitration proceedings been started in May 2003, the parties would, if they had pressed on with the arbitration diligently, have reached a decision by April 2004.

The facts.

15. It is necessary to set out the facts of the original dispute and the complex history which followed.

16. By an agreement dated 14th August 2000 Rockingham entered into a contract with AWG's predecessors in title, Morrison Construction Limited, for the design and construction of a new motor racing track and ancillary facilities near Corby in Northamptonshire.

17. The project consisted of the construction of two race tracks - an oval track (the Oval) for the purpose of staging competition high speed oval racing, which is modelled on American-style Indy car racing, and a conventional road racing circuit contained within the Oval (the infield track).

18. In addition, AWG agreed to design and build a four-storey building at the tracks which would act as a grandstand. The works also included two pedestrian underpasses or tunnels running under the Oval allowing access to the pit area.

19. On 2nd April 2001 the parties signed an addendum to the contract. AWG handed over the works on a piecemeal basis and achieved practical completion by September 2001.

20. There were problems with the Oval track, which Rockingham say became apparent at an event in September 2001 in the course of the first CART race when there was seepage of water through to the surface of the Oval which caused disruption to the race.

21. Rockingham claimed in the adjudication that it should be reimbursed by AWG for lost revenue from ticket sales and for the cost of providing refunds on 21st September 2001. The adjudicator rejected the first claim, but awarded £123,368.88 out of the £210,637.55 claimed for refunds on 21st September 2001.

22. On 23rd November 2001 the project manager issued the Certificate of Payment No. 29 showing a payment due to AWG of £2,846,686. On 5th December 2001 Rockingham served a withholding notice in the sum of £2,800,000 on the grounds that there was water seepage through the Oval which made it unsuitable for use as a high speed oval racing circuit. AWG challenged the withholding.

23. By the end of April 2002, following discussions between the parties concerning release of the monies withheld by Rockingham, and the extent of the remedial works to be undertaken, AWG and its track sub-contractor Colas had finished the remedial works to the oval. There was then a dispute as to whether the remedial works had dealt with the problem. Rockingham released £2.4 million to AWG, but continued to withhold £400,000. AWG maintained that the remedial works had been successful.

24. On 14th September 2002 the second CART race was held at the Oval. The race went ahead without problems. Rockingham maintained that this was because favourable weather conditions meant that the drainage system as modified was not tested. AWG disagreed and said that the problem had been solved.

25. Rockingham continued to withhold £400,000, maintaining that the defects in the drainage had not been cured and that in any event it was entitled to be compensated for financial losses caused by the defective Oval in the first CART race.

26. There were further discussions in the latter part of 2002 which were inconclusive. Thereafter, meaningful negotiations ceased, although there was a high level meeting in March 2003.

27. On 8th May 2003 AWG served a Notice of Adjudication under the contract to recover the £400,000 which it claimed that Rockingham had wrongfully withheld. AWG objected to the adjudicator nominated by the Institution of Civil Engineers (ICE) which was the designated nominating body under the contract.

28. AWG served another Notice of Adjudication (The First Adjudication) on 16th May 2003. Mr. Andrew Worby was nominated as adjudicator. Rockingham reserved its position with regard to the adjudicator's jurisdiction on the grounds that it alleged that the parties had orally agreed in May 2002 that Rockingham could withhold the £400,000. Rockingham said that it had much larger claims under the contract for defects. These were not part of this adjudication.

29. On 24th June 2003 Mr. Worby issued a decision in favour of AWG. Rockingham was ordered to pay £413,418.21 plus VAT and the adjudicator's fees.

30. Rockingham refused to pay, and on 2nd July 2003 started proceedings to have Mr. Worby's decision set aside. These proceedings are currently stayed pursuant to the order of His Honour Judge Playford Q.C. sitting as a judge of the Technology and Construction Court.

31. On 6th August 2003 Lovells, on behalf of Rockingham, wrote to Eversheds for AWG:

"Please find enclosed on behalf of our client, Rockingham Motor Speedway Limited, a complete copy of the documents presenting the facts and sums claimed in the dispute between our client and your client."

32. The letter noted that the dispute related to the payment of the sums "due from your client to our client arising out of breaches of the construction contract between our clients dated 14th August 2000". The fourth paragraph said:

"Notwithstanding the existence of the dispute and for the avoidance of any technical prevarication this is the claim in its final form which we propose to adjudication."

33. Eversheds replied on behalf of AWG on 22nd August 2003 complaining that Lovells had put forward new reports and evidence prepared in August 2003 in support of Rockingham's claim and had given AWG less than three weeks in which to reach agreement, otherwise the dispute would be referred to adjudication.

34. The letter acknowledged that before a dispute existed which could be referred to adjudication, the subject matter of the dispute, issue or decision must be brought to the attention of the other party which must then be given a reasonable opportunity to consider it and respond. There must, at the end of the process, be something to be decided which arises out of the process.

35. The letter referred to particular headings in what, effectively, were three separate disputes - the Oval track, the building or grandstand and the tunnels. AWG complained at the short time limit, observing that the first date on which AWG would have an opportunity to visit the track was 26th August 2003. The deadline for resolution of the dispute imposed by Rockingham was 27th August 2003. AWG suggested that the deadline should be put back to 17th October 2003.

36. Despite this plea, Lovells on behalf of Rockingham, attempted to refer the matter to adjudication. In a letter dated 26th August 2003, served on 27th August 2003, they wrote to Eversheds enclosing a referral notice referring the dispute to adjudication. Supporting documents were served on 28th August 2003. Eversheds asked for more time to consider matters.

37. These matters were considered by Mr. Harrison, the adjudicator appointed by the ICE. He resigned on 3rd September 2003 following a challenge to his jurisdiction on the grounds that the dispute had not arisen because AWG had not had sufficient time to consider Rockingham's claims, and because the Referral Notice contained more than one dispute, and there was at that stage no agreement between the parties that one adjudicator could determine all disputes. Such an agreement was in fact reached on 16th September 2003.

38. In response to Mr. Harrison's resignation, also on 3rd September 2003, Rockingham gave notice to AWG that it would refer to adjudication matters contained in the existing Referral Notice on 1st October 2003 if the dispute could not be resolved in the four week period envisaged under paragraph 90 of the contract.

39. On 17th September 2003 the parties met in the absence of solicitors but with experts to discuss the issues raised by Rockingham as contemplated by the ICE procedure.

40. On 1st October 2003 Rockingham served a further notice of adjudication on AWG. Rockingham and AWG agreed to the appointment of Mr. Allan Wood as adjudicator.

41. The Notice of Adjudication sets out in paragraph 3.1 the nature of the dispute.

"3.1 A dispute between the parties has arisen in relation to the quality and fitness for the purpose of the works designed and constructed by AWG pursuant to the contract and the Addendum. RMSL claims the cost of remedying the defects and damages in respect of financial loss suffered as a result of AWG's breach of its contractual obligations to RMSL."

42. In paragraph 3.2 Rockingham said that on 6th August 2003 it served on AWG the documents which formed the basis of the adjudication to enable AWG to respond substantively to the claim.

43. Rockingham requested the adjudicator to decide:

"(a) That the Oval was unfit for the purpose of staging high speed oval racing, or alternatively, that AWG was negligent in designing the Oval for the reasons set out in sections 3 and 4 of the Referral Notice and the expert report prepared by Mr. Tindall.

"(b) That AWG should pay Rockingham £2,844,000 or such other sum as the adjudicator thinks fit.

"(c) That Rockingham had suffered the financial loss set out in section 5 of the Referral Notice and the witness statement of Mr. Reed and that AWG should pay Rockingham £2,990,822.35 in respect of such financial loss, or such other sum as the adjudicator thinks fit.

"(d) If the adjudicator finds that AWG should pay less than £2,844,000 (the full cost of replacing the Oval) then in the alternative to (c) AWG should pay £7,880,822.35 as compensation for financial loss particularised in section 5 of the Referral Notice.

"(e) That AWG was negligent in designing the RockinghamBuilding under the terms of the Addendum to the contract and therefore caused the defects in the building and the tunnels as particularised in section 7 of the Referral Notice and in the report of Mr. Chisem.

"(f) AWG should pay Rockingham £2,833,380 in respect of remedial works for (e)."

44. On 3rd October 2003 Rockingham served the Referral Notice in the adjudication together with supporting evidence. It noted that it was the same document as that previously served on 28th August 2003 with minor corrections and variations. The overall claim was divided into three parts which related to (a) remedial works to the Oval; (b) remedial works to the building (grandstand); and (c) remedial works to the tunnels. This was in accordance with the agreement which the parties had reached on 16th September 2003 that all disputes could be referred and determined together.

45. The Referral Notice set out in detail the case on fitness for purpose. This claim was, in due course, rejected by the adjudicator. In relation to fitness for purpose, however, it is appropriate to note that in paragraph 4 Rockingham was summarising the design changes that caused the alleged defects in the Oval which it said rendered it unfit for the purpose as built. In this section it referred to Clause 2.9.2 of the employers' requirements under the contract which raised the requirement that AWG must provide subsoil drainage when required.