Paton (Petition Of)

PATON (PETITION OF)

Scotland, Outer House, Court of Session

Lord Bannatyne

1 March 2011

THE FULL TEXT OF THE OPINION OF LORD BANNATYNE

Subject of the proceedings

[1] In this petition Mr and Mrs Paton ("the petitioners") seek judicial review of a decision of Ian Strathdee ("the adjudicator") dated 17 April 2010. The decision awarded an extension of time and prolongation costs totalling £27,414.83 with interest of £1,090.44 to Douglas Jamie ("the first respondent") who was the referring party in an adjudication which had taken place between the petitioners and first respondent.

The factual background to the adjudication

[2] The petitioners and the first respondent entered into a building contract on 10 September 2007 for the construction by the first respondent of a one and a half storey traditionally built private dwelling house ("the contract"). The contract is constituted by the conditions set out in the SBCC's Scottish Minor Works Contract 1986 Edition (January 2002 Revision) as amended by the parties.

[3] That the works were due to have been completed by 31 May 2008. They were not completed by that date.

[4] The works did not proceed according to programme and only achieved practical completion on 12 December 2008. Following a request by the first respondent on 8 September 2008 for an extension of time, the petitioners' architect granted an eight week extension of time by letter dated 27 August 2009. The extension of time awarded took the contractual completion date to 26 July 2008.

[5] That the first respondent was dissatisfied by the extension of time awarded. In addition, due to a number of difficulties experienced throughout the contract, the petitioners had withheld sums against an interim certificate and the final certificate. The first respondent was also dissatisfied that these sums had been withheld by the petitioners. By notice of adjudication dated 12 March 2010, the first respondent initiated an adjudication in accordance with Clause 10A of the Contract. In terms of the notice, the first respondent sought to challenge the extension of time awarded and the sums withheld by the petitioners. The adjudicator was nominated by the appropriate body. Before the adjudicator, the first respondent contended that he was entitled to an extension of time such that the contractual completion date coincided with the date of practical completion representing an extension of approximately 20 weeks. The first respondent also contended that the petitioners had wrongfully withheld sums due under the contract. In the decision, the adjudicator substantially agreed with the first respondent. He made awards as above set out.

The ground of challenge of the decision of the adjudicator

[6] The ground of challenge of the adjudicator's decision as developed in the petition was this: That in purporting to determine the dispute between the petitioners and the first respondent the adjudicator had acted in a manner which was in breach of the requirements of natural justice.

Evidence led in this judicial review

[7] The petitioners led evidence from two witnesses, namely: the adjudicator and Denis Shields. No evidence was led on behalf of the first respondent.

The adjudicator

[8] His evidence as regards what came to be the principal issues in the case was as follows: It was his position that based on the early site meeting minutes the first critical event was the supply of stonework by the petitioners to the site. When he spoke of an event or item as critical he was defining an event as being of such a nature that if it did not happen on the date in the contract programme when it was programmed to happen then other events in the programme would of necessity be delayed. It was in addition in his view the principal/dominant critical event in terms of this contract.

[9] As regards the first activity on the contract programme (6/26 of process) namely "site clear, drains, substructure" this was not broken up into its constituent parts in the programme. However, he gave evidence that he had come to the opinion that it would take one week to clear the site, drains would take two weeks and therefore the substructure could be commenced at the beginning of week four. That was his assessment and he came to his view by applying the experience that he had gained in the industry. In so far as when superstructure walling (event 2) could begin, he said that sufficient of the substructure had to be in place and that he had again used his knowledge and experience in coming to a view as to this. In reaching his view on what was sufficient, he had applied a rule of thumb. He described the contract programme as a simple one. It was no more than a bar chart.

[10] Turning to his approach to assessing the delay claim it was his position that he had not assessed this on the basis of a critical path analysis. He said that he had done no more than identify from the contract programme, and from the terms of the minutes of site meetings what events were critical, in this case principally supply of stonework. He stated that in a programme as simple as the one in this case that he was able to identify by eye the critical events. He said that he had only seen critical path analysis used in much more complex projects. He said that this type of bar chart programme did not lend itself to critical path analysis and that in particular there were no logic links.

[11] The adjudicator accepted when it was put to him that the second event on the contract programme, namely: "superstructure walling" was not divided in such a way as to identify what part of the period shown against that event related to breezeblock walling and what part related to stonework.

[12] When asked how he had reached his estimate that at the commencement of the third week of the second event namely 12 November 2007 stonework walling should have begun he advised that he had only been able to reach that figure with difficulty. He accepted that he had had to estimate when the stonework should have begun within the period allocated to that event. He said that he had come to his figure as a result of his own experience. It was what he described as an "informed guess". His opinion had been come to against a background that first, no delays were referred to in the site meeting minutes against the first event in the programme and secondly, the number of weeks given in the programme to that second event.

[13] In relation to the further relevant events he accepted that he had relied heavily on the architect's assessment.

Mr Denis Shields

[14] Mr Denis Shields, construction contract consultant, gave evidence as an expert on the petitioners' behalf. He spoke generally to his report 6/2 of process.

[15] In his evidence he accepted that for the purposes of assessing an extension of time claim it is possible to make an assessment without establishing a critical path and it would have been appropriate to make an assessment in this case without establishing a critical path by using minutes of meetings, photographs of work in progress and correspondence. However, it was his understanding from the documentation that the adjudicator was going to do a critical path analysis and use logic links. It was his position that a critical path could not be established without logic links.

[16] He had no difficulty with an adjudicator using his own knowledge and experience in arriving at an assessment.

[17] As regards the adjudicator's position that stonework was critical he advised under reference to 2.7.5 of his report that this was a critical matter. As to the adjudicators choice of date within the contract programme event 2 as to when stonework would have commenced he said that this was an estimate. It was his evidence that this was the critical date so far as the adjudicator was concerned in arriving at his figure for delay.

[18] He accepted that given that the superstructure bar was not divided between breezeblock and stonework the adjudicator would have had to make a judgment within the period shown against that event in the contract programme as to when the stonework could have been commenced.

[19] He accepted that when stonework would have commenced was a matter which on the basis of the submissions was before the adjudicator. He accepted that it was open to parties to make submissions on these issues. His position in cross-examination was that he had no difficulty with the adjudicator arriving at an assessment as to when stonework should have commenced and basing this on his own knowledge and experience. However, where he said the adjudicator had failed was in not giving parties an opportunity to comment on these matters.

Submissions for the petitioners

[20] Counsel's motion was that I should sustain the first and second pleas-in-law for the petitioners and repel the first respondent's pleas-in-law and thus reduce the adjudicator's decision and grant interdict as third and fourth sought.

[21] Counsel's broad position remained as set out in the petition that the adjudicator had breached natural justice in the manner in which he had reached his decision. The core of her position was as set out in paragraph 10 of the petition.

[22] She commenced her submissions by referring to Balfour Beatty Construction Limited v The Mayor & Burgesses of the London Borough of Lambeth 2002 BLR 288. The facts relevant to the issues before the court were:

"Balfour Beatty considered that they were entitled to extensions of time, and submitted certain information to the architect in respect of applications for this, relying upon 31 different relevant events .... Balfour Beatty did not submit a critical path, as Balfour Beatty maintained, this was not a practical proposition due to the many changes which had affected the critical path on a weekly basis.

In his decision ... the adjudicator had identified his own analysis of the critical path, awarded Balfour Beatty 35 weeks extension, and recalculated the appropriate amount of damages for delay.

Lambeth refused to pay and Balfour Beatty made an application for summary judgment under CPR Part 24. Lambeth claimed that the adjudicator ... had failed to comply with the principles of natural justice; and had failed to give Lambeth a chance to deal with arguments that neither party had raised, although those arguments were relied upon by the adjudicator in reaching his decision."

[23] It was held:

"Adjudications under the JCT conditions, ... require certain basic procedural principles to be applied in order that both parties were treated fairly. An adjudicator was not limited to material put to him by either party. In principle an adjudicator must inform the parties of the information he obtained from his own knowledge and experience, or from other sources, and of the conclusions that he may reach having relied upon those sources. However, in deciding whether a breach of this principle constitutes a sufficient breach of natural justice such that the decision of an adjudicator could be challenged, would depend upon whether the point or issue in question were decisive, or of considerable potential importance to the outcome, rather than peripheral or irrelevant. ...

2. The adjudicator took the initiative in ascertaining the facts and applied his own knowledge and experience to do Balfour Beatty's work for them, as the material submitted by Balfour Beatty did not satisfy the basic requirements such that it could be used to assess delay. However, he did not inform the parties of his proposed methodology and seek their observations on its suitability. He should have done this, and he should also have given Lambeth the opportunity to comment upon the use of his chosen analysis. Constructing a party's case for it, without giving the other party the opportunity to deal with it, is such a potentially serious breach of the requirement of impartiality or fairness as to render the decision invalid."

[24] Counsel derived the following principles from the judgment:

1. An adjudicator is entitled to take the initiative in ascertaining the facts and the law.

2. An adjudicator is not limited to the material presented to him by parties. He may obtain further information and may apply his own knowledge and experience thereto.

3. An adjudicator may have to inform parties of the information he obtains from his own knowledge and experience.

4. It was only matters which are either decisive or of considerable potential importance to the outcome which the adjudicator needs to inform parties.

It was counsel's submission that although the project in the instant case was considerably simpler than that in the Balfour Beatty case and although the delay assessment which was required to be made by the adjudicator was considerably simpler than that faced by the adjudicator in the Balfour Beatty case nevertheless the principles which she had just stated were applicable to the adjudicator.

[25] Counsel then turned to look at what the dispute was that was presented to the adjudicator and what he did in response thereto.

[26] She commenced by taking the court to referral notice number 6/7 of process. At paragraphs 3.10 to 3.12 of that document what was referred to the adjudicator was set out:

"3.10 The works were scheduled to have been completed by 31 May 2008. On 8 September 2008, the contractor (the first respondent) requested in accordance with Clause 3.2 of the contract, that the architect/contract administrator make an extension of the date for completion as the works had been delayed for reasons beyond his control (such delay also having been as a result of contractor's compliance with the architect/contract administrator's instructions), a copy of which letter of 8 September 2008 is produced with this referral notice as Annex 3.

3.11 In support of its application for extension of time, the contractor referred to the minutes of the prestart meeting and minutes of site meetings number 1 to 18 as demonstrating where work was delayed and material delivered late or outwith the control of the contractor. Copies of these minutes are produced with this referral notice as Annex 4.

3.12 On 27 August 2009, and in accordance with Clause 3.2 of the contract, the architect/contract administrator made an extension of time of eight weeks. The revised date for completion was therefore 26 July 2008. A copy of the letter making the extension of time is produced with this referral notice as Annex 5."

[27] The response by the petitioners to the referral notice is contained in 6/8 of process. At paragraph 3/13 the petitioners set out their detailed response:

"Admitted that the Referring Party issued a letter on 10 February 2009 in support of his application for an extension of time. Admitted that Architect's Instructions were issued after the revised completion date. The Referring Party's position appears to be that the extension of time awarded was insufficient because works were instructed by the Employer and delays were incurred by the Contractor after the new date for completion of 26 July 2008. However, the Referring Party was already in culpable delay when those instructions were issued (reference is made to the Architect's analysis of the extension of time of 8 weeks included as RESP 4). The Contractor has simply misunderstood how extensions of time are calculated where a Contractor is in culpable delay. Extensions of time are calculated net, not gross. This means that the Architect must calculate the total number of days of delay caused by the Employer during the period of culpable delay and add only that period of time on to the original (or, in this case, extended) date for completion. The purpose of the date for completion is to identify at the end of the period of time commencing with the date of possession within which the Contractor should have completed the works, including any variations, had he not delayed completion of the Works himself. Reference is made to the case of Balfour Beatty Building Limited v Chestermount Properties Limited 62 BLR 1 (RESP 2).

....

Denied that the extension of time which was made to 26 July 2008 was insufficient. In support of their position that a further 20 weeks extension of time should be granted, the Referring Party has produced their letter of 10 February 2009. That is the sole means by which he seeks to discharge the burden of proof upon them in this adjudication. He has produced no programme, no delay analysis and no assessment of the purported delays set against the critical path of the project. The Referring Party does not explain what other works were being carried out at the time when the purported delays occurred. He does not account at any point for concurrent delays. Nor is reference made in the letter made in the letter of 10 February 2009 or in the Referral Notice to any provisions of the Contract that would found the basis for an extension of time. The Referring Party relies in places upon events of purported delay that are in fact matters under the Contract for which they are responsible, such as delays caused by their own sub-suppliers. Crucially, there is no explanation of the effect that any of the purported delay events had on the date for completion. In short, the Referring Party has produced nothing to connect the collection of extracts from the minutes of site meetings reproduced in the letter of 10 February 2009 with a further 20 week delay to the project. Nor is the Adjudicator in a position to assist the Referring Party to discharge this burden of proof by constructing his own delay analysis based on the information available (Balfour Beatty Construction Limited v The Mayor and Burgesses of the London Borough of Lambeth [2002] EWHC 597 (TCC) (RESP 3))."